Year ended March 31, 2006

In response to changing customer needs,
SECOM is working to realize its vision for the
future—the Social System Industry—by
providing comprehensive, integrated services
and systems that make life more secure,convenient and comfortable.

PROFILE

S

Year ended March 31, 2006

ince its establishment in 1962, SECOM CO., LTD., a pioneer in Japan’s
security services industry, has sought to offer innovative services andproducts that benefit society, in line with its philosophy of contributing
to society through its business activities. These efforts have enabled it toprovide safety and security and achieve steady growth.
Today, SECOM—the parent company and the companies of the SECOM
Group—is stepping up its pursuit of a wide range of initiatives aimed at realizing its vision for the future—the Social System Industry, a framework comprising integrated packages of products and services that make life moresecure, convenient and comfortable—and contributing to a society free fromapprehension. SECOM has built on its exceptional capabilities, expanding its
focus beyond security services to include medical, insurance, geographic information, and information and communication related and other services. In
recent years, the deterioration of public security has heightened the expectations of customers. In response, SECOM will strive to maximize groupcapabilities to develop distinctive new products and services.
SECOM has also expanded into overseas security services markets, establishing an array of subsidiaries and affiliates in 10 countries and territories. In
particular, SECOM is focusing on the high-growth market of the People’s
Republic of China (PRC) and is establishing a business foundation in key
coastal cities.

CONTENTS
BUSINESS INDEX ................................................................... 1
A MESSAGE TO SHAREHOLDERS .......................................... 2
SECOM TODAY .................................................................... 5
FINANCIAL REVIEW ............................................................... 21
AUDITED FINANCIAL STATEMENTS ....................................... 27

In response to changing customer needs,
SECOM is working to realize its vision for the
future—the Social System Industry—by
providing comprehensive, integrated services
and systems that make life more secure,convenient and comfortable.

OTHER FINANCIAL DATA ...................................................... 56
SUPPLEMENTAL CONSOLIDATEDFINANCIAL DATA (BASED ON JAPANESE GAAP) .................... 61
SUPPLEMENTAL NONCONSOLIDATEDFINANCIAL DATA (BASED ON JAPANESE GAAP) .................... 65
CORPORATE INFORMATION .................................................. 69
SECOM GROUP’S BASIC BUSINESS AREAS ............................ 71
DIRECTORS, CORPORATE AUDITORSAND EXECUTIVE OFFICERS .................................................. 73
Note: Unless specified otherwise, all figures contained in this annual report are based on the financial statements,
which have been calculated and are presented in accordance with accounting principles generally acceptedin the United States (U.S. GAAP).

HIGHLIGHTS

Pursuant to applicable Japanese law, SECOM is required to publish results in line with accounting principles
generally accepted in Japan (Japanese GAAP). Key financial highlights calculated using Japanese GAAP are shown
below for reference.
In millions of yen

In thousandsof U.S. dollars

Years ended March 31

Year ended
March 31

U.S. GAAPSECOM CO., LTD. and Subsidiaries
Three years ended March 31, 2006

Net sales and operating revenue.......
Operating income..............................
Net income........................................
Total assets .......................................
Total shareholders’ equity .................

Per share of common stock:
Net income (basic) .......................
Cash dividends paid .....................
Shareholders’ equity ....................

2006

2005

2004

2006

¥0,580,526
81,89350,331
1,225,228
508,696¥0,552,354
75,55852,133
1,164,204
457,837¥0,517,435
54,06523,4791,165,105
415,852$04,961,761
699,940
430,179
10,472,034
4,347,829

In yenIn U.S. dollars¥ 223.69
50.00
2,261.00¥0,231.66
45.00
2,034.63¥0,104.32
40.00
1,847.80$ 1.91
0.43
19.32

Notes: 1. Yen amounts have been translated into U.S. dollars, solely for the convenience of the reader, at the rate of ¥117=US$1,
the rate prevailing on the Tokyo Foreign Exchange Market on March 31, 2006.
2. Net income per share of common stock is based on the average number of shares outstanding during each period.
3. Shareholders’ equity per share of common stock is based on the number of shares outstanding at the end of eachperiod, minus treasury stock.
4. Subsequent to March 31, 2006, cash dividends of ¥60.00 per share were approved at the general shareholders’ meeting
held on June 27, 2006 (see Note 17 of the accompanying Notes to Consolidated Financial Statements).

In thousandsof U.S. dollars

Years ended March 31

Year ended
March 31

Japanese GAAPSECOM CO., LTD. and Subsidiaries
Three years ended March 31, 2006

Revenue ............................................
Operating profit .................................
Ordinary profit ...................................
Net income........................................
Total assets .......................................
Total shareholders’ equity .................

Per share of common stock:
Net income (basic) .......................
Cash dividends paid .....................
Shareholders’ equity ....................

2006

2005

2004

2006

¥ 567,315
94,10996,66952,994
1,149,377
496,164¥ 547,230
83,04383,47848,517
1,097,548
441,927¥ 527,409
81,28676,243
41,111
1,092,067
403,257$ 4,848,846
804,350
826,231452,940
9,823,735
4,240,718

In yenIn U.S. dollars¥ 181.40
40.00
1,790.58$ 2.000.43
18.84¥ 234.28
50.00
2,204.06¥ 214.41
45.00
1,962.74

Note: The Company reported record-high revenue, operating profit, ordinary profit and net income based on Japanese
GAAP in the year ended March 31, 2006. Cash dividends of ¥60.00 per share were declared for the year ended
March 31, 2006, an increase of ¥10.00 from the year ended March 31, 2005.

Net Income (U.S. GAAP)Net Income (Japanese GAAP)(In billions of yen)

(In billions of yen)

60

60

50

50

40

40

30

30

20

20

10

10

0

0
02

03

04

05

06

Note: In the year ended March 31, 2006, net income declined ¥1.8 billion, to ¥50.3 billion. This result
was despite a ¥9.4 billion increase in income from continuing operations, to ¥51.2 billion, reflecting
increases in operating income and gain on sales of securities, net, and was primarily attributable
to the absence of ¥9.9 billion in income from discontinued operations, net of tax, recorded in theprevious period, owing to the sale of the Company’s education services business and certain realestate properties for lease.
Net income in the year ended March 31, 2005, rose ¥28.7 billion, to ¥52.1 billion. This result
reflected ¥9.9 billion in income from discontinued operations, net of tax, and the absence of ¥8.8
billion in losses recorded in the preceding period owing to a revision of pension plans.

SECOM CO., LTD. ANNUAL REPORT 2006

In millions of yen

02

03

04

05

06

Note: In the year ended March 31, 2002, the Company revised its pension plans and changed the accounting method for unrecognized actuarial gains and losses. Unrecognized actuarial gains and losses,
which had been amortized using the straight-line method over the average remaining service periodprior to the year ended March 31, 2002, were charged to income on an “as-incurred” basis. The
Company also recorded unrecognized transition assets/obligations as a one-time charge to income.
In addition, prior service costs were charged to income on an as-incurred basis. This resulted in adecrease in income before income taxes of ¥35.0 billion.
One-time recognition on an as-incurred basis for pension benefits is not permitted under U.S. GAAP.
Accordingly, unrecognized actuarial gains and losses, unrecognized transition assets/obligations andprior service costs were amortized on the basis of the average remaining service period in theaccompanying consolidated financial statements prepared under U.S. GAAP.

BUSINESS INDEX

6

Commercial Security Services

10Home Security Services

14

Other Security Services

15

Security Services in Overseas Markets

16

Medical Services

18

Insurance Services

19

Geographic Information Services

20

Information and Communication Related
and Other Services

SECOM CO., LTD. ANNUAL REPORT 2006

1

A MESSAGE TO SHAREHOLDERS

Consolidated Operating Results
Despite high oil prices and other causes for concern, Japan’s economy remains on a recovery
trend. Overseas economic expansion continues to stimulate exports. Capital investment is rising,bolstered by rising corporate profits, and personal consumption is steady. In this environment,
SECOM continues to cater to the needs of its customers with high-value-added services andproducts that are aimed at realizing the Social System Industry. In addition to expanding ourcore security services business with new offerings and by building or relocating branch offices,
we continue to expand our medical, insurance, geographic information, and information andcommunication related and other services businesses.
In the fiscal year ended March 31, 2006, firm gains in all segments supported a 5.1%
increase in consolidated net sales and operating revenue, to ¥580.5 billion. Operating income
rose 8.4%, to ¥81.9 billion, owing to buoyant sales and a decline in impairment loss on longlived assets. Higher operating income and a gain on sale of securities, net, supported a 22.6%
increase in income from continuing operations. Nonetheless, net income slipped 3.5%, to¥50.3 billion, primarily owing to the inclusion in the previous period of ¥9.9 billion in income
from discontinued operations, net of tax, generated by the sale of our education services
business and certain real estate properties for lease. Net income per share was ¥223.69.
Calculated according to accounting principles generally accepted in Japan, consolidated net
sales and revenue was ¥567.3 billion, up 3.7%, while operating profit, ordinary profit and net
income reached ¥94.1 billion, ¥96.7 billion and ¥53.0 billion, respectively—all record highs. Net
income per share was ¥234.28. As a consequence, a resolution to raise cash dividends ¥10.00,
to ¥60.00 per share, was approved at the general shareholders’ meeting on June 27, 2006.
At a meeting held on May 9, 2006, the Board of Directors resolved to lower our minimum
trading unit from 500 shares to 100 shares, effective from August 1, 2006, in light of current
share price trends and market expectations.

Makoto Iida
Founder

Responding to a Changing Environment
During the period under review, we witnessed several notable changes in the operating environment for our core security business in Japan. First, we saw a high frequency of changes in thebusinesses of tenants in the commercial districts. We perceive this not just as a reflection of theeconomic climate, but also as evidence of structural changes in Japan’s economy. To seize theopportunities afforded by these changes, we are striving to identify and concentrate marketing
activities on growth industries and companies, with the aim of achieving greater efficiency.
The second change was the emergence of a trend among existing security service customers to reexamine their security needs, with the aim of ensuring systems are up-to-date. As
these needs increase in complexity, it is essential to ensure an accurate grasp of our customers’
expectations so that we can respond promptly with appropriate solutions. Earning the ongoingtrust of our customers depends on the speed of our emergency response personnel and theeffectiveness of their actions.
We have built up an extensive infrastructure to support our security services in Japan thatencompasses 47 control centers and approximately 2,100 emergency depots. In addition, we
have accumulated expertise in the design, development and operation of security systems thatare backed round-the-clock by highly trained emergency response personnel. This, together
with know-how gained through the provision of security services to customers in various specialized industries, has provided us with a formidable capacity to lead the nation’s security
industry in delivering security and peace of mind to customers.

SECOM CO., LTD. ANNUAL REPORT 2006

2

Toward Heightened Growth and Efficiency
We are pursuing numerous initiatives aimed at further enhancing growth and efficiency. In the
security services business, we are implementing organizational improvements designed to reinforce our marketing capabilities and add further value to our security services. In metropolitan
areas, where our subscriber base is expanding, we are building new offices and relocating existing ones to create operating units of optimal scale for efficient marketing and prompt customer
service. To better tap the market for security systems for large-scale buildings, we are locating
System Design Centers in regional as well as metropolitan headquarters. This will enhance oursales and proposal development capabilities and provide us with an edge in serving this sectorof the market. As another measure to boost sales, we have shifted the focus of our internal
evaluation system from subscription volume to subscription value, thereby encouraging sales
staff to target large contracts. We also enhanced our ability to win contracts and provide
higher-value-added services by acquiring shares in a major property management company.
Creating and offering new products and services is another key part of our growth equation. In May 2006, we released four new SECOM Home Security systems targeted at dwellingsof specific sizes and types. These systems provide optimal solutions to the security needs ofhomes that range in size from studio apartment to large detached house. In conjunction, we
launched SECOM Home Services, a suite of value-added support services designed to complement SECOM Home Security systems. We are rolling out these new services, which havereceived a favorable market response, initially targeting home security customers in the Tokyo
and Osaka metropolitan areas.
We are also taking steps to improve efficiency. For example, we absorbed security services
subsidiary Chuo Bohan Co., Ltd., which operates primarily in Shizuoka Prefecture, allowing us
to consolidate local offices and relocate staff, thereby significantly improving operational
efficiency. We also improved efficiency by introducing a control system for keys entrusted to
us by customers that has improved control precision and greatly reduced the time required fordaily key inspections.
In addition, we are focusing on expanding security services for commercial customers overseas. Within Asia, our focus is currently on the PRC, which is experiencing rapid economic
growth. To date, we have established subsidiaries in the economic centers of Shanghai, Dalian,
Qingdao, Beijing and Shenzhen. These subsidiaries are serving an increasing number of local
companies, as well as foreign corporations. We view Asia, particularly the PRC, as one of themost promising growth markets for SECOM and will continue to build on our already strong
business foundation there to capture increasing demand.
Among our other businesses, medical services have grown steadily, becoming a major pillarof our operations. In addition to our expanding home medical services business, we have diversified into such areas as nursing home management, as part of our goal to extend peace ofmind to all members of society. Our SECOMFORT private nursing homes introduce a proactive
approach to wellness, which is a new concept in Japan’s caregiver industry.
To broaden our insurance services business, we are reinforcing our marketing capabilities,
offering seamless systems encompassing security services, which offer prior protection, andinsurance, which protects customers in the event of misfortune.
In our geographic information services business, we are establishing a system that enables
us to promptly provide highly accurate geographic information services by making use of commercial satellites for various mapping purposes. We have also taken this expertise abroad tocountries in Southeast Asia where there is significant demand for updated mapping information.
We expect overseas sales to contribute to growth in this segment in the years ahead.

Shohei Kimura
ChairmanKanemasa Haraguchi
President andRepresentative Director

SECOM CO., LTD. ANNUAL REPORT 2006

3

A MESSAGE TO SHAREHOLDERS

We improved the efficiency of our information and communication related and otherservices business in May 2006 by merging subsidiaries Secom Trust.net Co., Ltd., and Secom
Information System Co., Ltd. This move consolidates the operating resources of the twocompanies in the information security and information services markets, thereby eliminating
redundancies and bolstering marketing capabilities, and will pave the way for the newly
merged entity to become a comprehensive information services provider with information
security and major disaster response services at its core.
Among other initiatives this period, we divested a cable television affiliate as part of along-term strategy to build a business portfolio that will position SECOM on track for further
growth going forward.
The Next Step
With the aim of accelerating growth, we will seek to capitalize on the opportunities created bychanges in the business environment and increasing appreciation for security services by stepping up marketing activities. At the same time, we will continue to exploit opportunities toraise efficiency and further enhance profitability.
In today’s aging society, demand for security and medical services is on the increase. We
intend to draw upon our long-standing expertise and extensive infrastructure to develop anddeliver the services and products that protect people and companies from new dangers andanxiety.
The most important prerequisite for continued growth is trust of our customers.
Accordingly, we will do all in our power to remain a company deserving of this trust. To strive
always to do what is right is a fundamental principle of SECOM. This principle guides employees
to judge their work on the basis of what is right and equitable for society. The basic conceptbehind our corporate ethics, this principle will continue to guide our efforts to earn the trust of
our customers.
We continue to promote the realization of the Social System Industry as a comprehensive
framework of services provided by group companies. Our goal is to be a company that makes
people’s lives safe, convenient and comfortable, thereby ensuring people are confident in turning to SECOM. With this goal in mind, we will continue to expand our businesses and enhance
corporate value. We look forward to your continued support in these endeavors.
June 27, 2006

Makoto Iida
Founder

SECOM CO., LTD. ANNUAL REPORT 2006

4

Shohei Kimura
ChairmanKanemasa Haraguchi
President and Representative Director

SECOM TODAY

Responding promptly and effectively to increasingly diverseand sophisticated customer needs
In recent years, social change has aggravated the risks people face and contributed to the emergence of new sources ofunease. These include the increasing frequency and brutality of break-ins, corporate and personal information theft,
health issues in an aging society and crimes targeting children and schools. With the threats to safety and security
becoming progressively more varied, the needs of customers are growing increasingly diverse and sophisticated.
To respond promptly and effectively to such needs, SECOM has drawn on its accumulated expertise in the provisionof security services and technological development, as well as its extensive network and highly professional service
capabilities, to develop distinctive products and services. Today, our portfolio encompasses security, medical, insurance,
geographic information, information and communication related and other services businesses. In our quest to contributeto a society free from apprehension, we are focusing our efforts on the development of innovative new offerings.
Overseas, we are accelerating the expansion of our security services business in Asia, particularly in the PRC, which
continues to show rapid economic growth.
In the following pages, we present a summary of recent business activities and our efforts to respond to the changing
environment.
Percentage of consolidated net sales and operating revenue(Excluding intersegment transactions)

Security Services

Medical Services

Insurance Services

Geographic Information
Services

Information andCommunication Related
and Other Services

68.9%

6.7%

5.1%

6.1%

13.2%

SECOM CO., LTD. ANNUAL REPORT 2006

5

SECOM TODAY

Commercial Security Services➤➤➤

Solutions for Businesses
Tokyo’s Omotesandoquarter of the Shibuya
ward is world renowned
as a center of fashion.
The new heart of thisvibrant hot spot is
Omotesando Hills, which
opened in February 2006
and has quickly become aleading catalyst of fashion
and cultural trends.
Omotesando Hills
has six floors above
ground and six below.
Thirty-eight apartments
extend across the upper
floors. The lower floors
house high-profile
fashion boutiques,
restaurants and othercommercial tenants.
Large-scale security
systems for this exciting
new complex were
provided by SECOM.
Photo courtesy ofMori Building Co., Ltd.

SECOM CO., LTD. ANNUAL REPORT 2006

6

➤➤➤
Sophisticated Security Systems
for Large Complexes
Urban redevelopment and other factors havecontributed to the emergence of large complexes that are essentially self-contained
communities, combining offices, housing
and commercial facilities. The effective
management of such complexes demands
sophisticated security systems that protect
people and property from crime and unexpected hazards. Such systems are also a key
sales point for individuals and companies
considering moving into such complexes. By
marrying our services, products and knowhow, we develop and provide security
systems tailored to specific requirements.
Basic security systems for large complexes
encompass on-line security and static guard
services, thus providing comprehensive
protection against crime and monitoringof facilities. Such systems combine theadvantages of technologically advanced
security systems with the split-second
decision-making abilities and practical skillsof trained professional guards. We adapt
these systems to customer needs by adding

various services and products to this basic
package. Our unique capabilities in this area
are evidenced by the many security systems
we have provided for large complexes
throughout Japan.
Going forward, we will continue tomaximize our expertise in security services,advanced network technologies and Groupcapabilities to respond to the needs of thisgrowing market.

Customized Security Services
for Large Sites
We also offer extensive experience andexpertise in security management for large
sites. With the emergence of various new
factors threatening public security in recent
years, the security needs of factories,
schools, housing complexes, shopping centers and other facilities situated on large sites
are expanding. Such needs include not only
the protection of buildings but also surveillance to prevent unauthorized site entry. For
most facilities, however, the cost of positioning static guards and installing surveillancecameras over such large sites is prohibitive.

A SECOM control center

SECOM CO., LTD. ANNUAL REPORT 2006

7

SECOM TODAY

Commercial Security Services

SESAMO TRII comprehensive access-control system

In response, we have developed a customized crime prevention solution featuring
the Border series, an outdoor site surveillance system that uses infrared technology,
thus reducing the number of cameras
needed, and SECOM Robot X, an outdoor
surveillance robot, as well as static guards.
SECOM Robot X outdoor surveillance
robot

Protecting Crucial Information
The implementation of Japan’s Personal
Information Protection Law in 2005 has
increased awareness of the need to ensure
the security of information among our customers. Several recent incidents involving
personal information leaks have heightened
the need for organizations to ensure effective information management. As a consequence, the number of companies, hospitals
and other organizations turning to SECOM
for security services is rising sharply.
SECOM access-control systems haveearned high marks from customers seeking
information security solutions. One of themost effective ways to prevent the theft ofpersonal computers and other information

CCTV system

SECOM CO., LTD. ANNUAL REPORT 20068➤➤➤
equipment, files, and medical records is toinstall a system that controls access to key
rooms, thereby keeping track of who goes
where and when. We offer a variety ofoptions, from simple systems that limit
access to advanced access-control systems,
thereby enabling us to respond to a broad
range of customer needs. SESAMO TRII, anaccess-control system that can be integrated
with our on-line security systems to provide
comprehensive protection, controls accessthrough up to 400 doors, or 50,000 individuals, per location. This system can also be
used to link a company’s head office withmultiple sites via a network to ensure effective access control for up to 200 locations
in total. Because the entire system can beadministered from a single personal computer, SESAMO TRII is particularly appropriate for, among others, large buildings, large
factories and companies with multiple sales
offices. The SESAMO series also includes
high-precision identification systems thatuse biometric data, including SESAMO IDs,a fingerprint identification system, and therecently introduced SESAMO IDj, which
identifies individuals using the veins intheir palms.
Closed-circuit television (CCTV) systems
are also an effective way to prevent information leaks and crimes. Our CCTV systems use
a configuration that enables the transmissionof images captured by cameras as digital data
directly to a controller, ensuring the recording
and display of sharp, detailed images.
Today, many companies are actively seeking to enhance their information management capabilities. This trend is spurring firm
growth in demand for SECOM’s on-line security, access-control systems and surveillancecamera systems.

Security Services for Retail Facilities
SECOM boasts a solid track record in theprovision of security services for retail facilities.
On-line security system SECOM IX enables

➤➤➤
store employees to request remote monitoring from a SECOM image monitoring centerby pushing a call button or lifting thereceiver on a special SECOM phone should
they, for example, see anyone acting suspiciously or being harassed or otherwise troubled by a person who is intoxicated on theirpremises. If there is a threat of robbery or
physical violence, store employees can push
an emergency button to alert a SECOM
image monitoring center and simultaneouslytransmit a color image and voice recording.
Image monitoring center staff examine theimages and, if necessary, broadcast a warning through speakers mounted in the storeand dispatch emergency response personnel.
When necessary, staff also alert the police.
We also offer the Electronic Article
Surveillance (EAS) shoplifting prevention system, which responds to the needs of retailers
for more effective security during operating
hours. With shoplifting incidents on the risein Japan, the impact on storekeepers ofrelated losses is increasingly apparent. We
will continue to step up marketing of the EAS
shoplifting prevention system through our
nationwide network of sales offices with theaim of cultivating new markets.

Venturing into the PFI Field
SECOM led a consortium of 12 companies
that secured the contract to build, maintainand operate a private finance initiative (PFI)
correctional facility in the city of Mine,
SECOM emergency response personnel

Yamaguchi Prefecture. PFIs use private-sector
capital and management and technologicalknow-how to build, maintain and operate
public-sector facilities. The Ministry of Justiceinvited numerous groups to participate in an
open competition for this facility that gave
consideration to both bid price and proposal
content. As a consequence, the tender submitted by the SECOM-led consortium wasselected. This success is also testament to
the Ministry of Justice’s positive appraisal of
our superior expertise in providing security
for large-scale facilities.
Construction of the correctional facility in
Mine began in January 2006. The facility isscheduled to open in April 2007. Except
where the exercise of public authority isrequired, the facility will be managed byprivate-sector participants. The scope of private-sector responsibility thus encompasses
the provision of capable, efficient management services. We will also provide effective
correctional education and vocational training. The facility will be equipped with alocation-positioning system to keep track ofinmates at all times, high-impact, breakresistant window glass rather than iron bars
and an advanced security system.
In addition to being the first correctional
facility to be built as a PFI in Japan, the correctional facility in Mine is SECOM’s first
venture into the PFI field. This project willthus enable us to secure new expertise in
PFIs and correctional facility management.
Participating in this PFI also allows us tocontribute to society by promoting inmate
rehabilitation througheducation and training, as
well as to revitalize
the local economy bypurchasing goods andcreating employment
opportunities.

Correctional facility in Mine,
Yamaguchi Prefecture

Correctional facility in Mine,
Yamaguchi Prefecture

SECOM CO., LTD. ANNUAL REPORT 2006

9

SECOM TODAYHome Security Services➤➤➤

Peace of Mind for the Home

SECOM CO., LTD. ANNUAL REPORT 2006

10

➤➤➤

SECOM’s Evolving
Home Security Services
SECOM is also a pioneer in the provision ofhome security services in Japan. We haveprovided security for our subscribers’ residences for the past 25 years, since launching
SECOM Home Security in 1981. Today,
SECOM Home Security, an on-line security
system that offers round-the-clock monitoring of homes for intruders, fires, gas leaks
and medical emergencies, is an essential
prerequisite to safe and secure living forcustomers throughout Japan. Our reliability
and high service standards have earned asolid reputation for the SECOM brand.
The market penetration of SECOM Home
Security has been accompanied by thebroadening of our customer base, which
now ranges from young people living alone
to people in their 30s and 40s with families
and seniors. Recognizing that the security

needs of our customers vary significantly
depending on lifestyle, in May 2006 welaunched an updated SECOM Home Security
system. The new system comes in four versions developed for dwellings of different
sizes: condominiums, small houses, averagesized houses, and houses that have a large
number of rooms or are designed to accommodate multiple generations of one family.
Customers are therefore able to select theversion that best suits their home. We havealso introduced such new service options as
the Entry Delay function, for times when amember or members of the family are notexpected to return until after the rest of thefamily has retired for the night, and the Daily
Life Monitoring function, developed forseniors living alone, which alerts SECOM if
no movement is detected in the residence
for a specified interval.

Commercial and Home Security Service
Subscribers by Category

Centralized Security Services(2) Alert the SECOM
Emergency Depot

SECOM
Control Center(2) Alert Emergency Services
and Utilities as Necessary(At March 31, 2006)

Home

SECOM
Emergency
Depot(1) Alert Via
Telephone
CircuitCommercial
Fire Dept.

Police Dept.

Gas Company

POLICEC

Subscriber(3) Dispatch SECOM
Emergency Response Personnel■ Service industries■ Retailing/wholesaling■ Financial services■ Manufacturing■ Government agencies■ Others■ Households

12.4%
8.6%
7.6%
7.2%
5.7%
21.5%
37.0%

SECOM CO., LTD. ANNUAL REPORT 2006

11

SECOM TODAYHome Security Services➤➤➤

SECOM Home Service lifestyle support services

SECOM Home Security system

SECOM sticker

In Japan, new homes for which construction begins after June 1, 2006, will be
required by law to have fire alarm systems
installed in bedrooms, stairways and otherareas. By May 31, 2011, all residences will
also be obliged to install fire prevention
systems that meet standards set by local
authorities. We offer a buzzer-equipped fire
alarm that can be connected to the SECOM
Home Security system. Going forward, we
will endeavor to expand sales of the SECOM
Home Security system by informing potential
customers about the benefits of this alarm.

SECOM shop

SECURIFACE intercom system

SECOM CO., LTD. ANNUAL REPORT 2006

12

Enhancing Safety and Security
for Families
We continue to introduce new service
options with the aim of adding value to the
SECOM Home Security system and expanding sales. One example is SECOM Medical
Club, a membership-based health management service that is designed to relieve thehealth concerns of SECOM Home Security
subscribers. This service capitalizes on theexpertise of our medical services businessand gives subscribers access to telephonehealth counseling and Internet-based checklists for lifestyle-related illnesses. In addition,
we have begun offering SECOM Home
Service, a suite of lifestyle support services
that is offered to SECOM Home Security
subscribers. Through SECOM Home Service,
we assist customers with problems arising ineveryday life, such as lost keys and broken
windows. This service also includes support
for house cleaning and other housework,
external checks of customers’ premises andpatrol services. Initially, we are focusing ourmarketing efforts for this service in theTokyo and Osaka metropolitan areas, bothmajor population centers. Customer response➤➤➤

to SECOM Home Service has been outstanding and its launch has contributed to anincrease in home security system contracts.
Going forward, we will continue to add newservices that enhance safety, convenienceand comfort, thereby ensuring customers are
satisfied they chose SECOM.
Recent years have seen an increase inresidential break-ins that occur when theoccupants are at home and result in physicalassault as well as the theft of property. To
protect people in their homes from suchdanger, we offer an extensive selection of
products designed to enhance the safety andsecurity of residential interiors, doors andwindows, and exteriors, including fences andgardens. These include SECOM Anshin Glass,a specially made high-impact, breakageresistant window glass with built-in sensors;
External Image Monitoring Service andSECOM Home Camera System, designed toreinforce exterior security; and SECURIFACE,
an intercom system that features a built-in
face detection function that recognizes when
the person at the door is hiding his or her
face from the camera.

Condominium Security Systems
In addition to security systems for houses,
SECOM provides a wide range of systems
designed to respond to the unique security
concerns of condominiums and other types
of housing complexes. With break-ins anincreasingly serious problem for condominiImage monitoring centerums today, the need for effective security
systems is rising. Since launching SECOM
MS-1—Japan’s first security system exclusively for condominiums—in 1987, we haveintroduced several systems, including
SECOM MS-2 and SECOM MS-3. SECOM
MS-3 not only offers improved security capabilities, but also incorporates a wide range offunctions that enhance the convenience ofcondominium living. Another key feature of
SECOM MS-3 is its extensive coverage,
enabling it to provide security for up to threebuildings in a single complex, or a total of
4,000 households, simultaneously. Security
can be further strengthened with the installation of SECOM IX, which provides remotesurveillance of common areas. SECOM’s
condominium security systems thus help
SECOM MS-3 condominium security system
ensure condominiums are
secure and comfortable.
SECOM’s security systems
provide comprehensive support
for safe and comfortable
homes. Going forward, we will
strive to reinforce our competitive advantage in the home
security market by expanding
our lineup with new services
that respond to customer
needs and bear the SECOM
mark of quality.

SECOM CO., LTD. ANNUAL REPORT 2006

13

SECOM TODAY➤➤➤Other Security Services

Sharply Increasing Demand for
COCO-SECOM Services for Children

COCO-SECOM mobile security systems

COCO-SECOM operations center

We have expanded our services capabilities
from commercial and residential security tosecurity for people and property on themove. With the launch of COCO-SECOM
mobile security systems for individuals in
2001, we created an entirely new market.
COCO-SECOM uses Global Positioning
System (GPS) satellites and cellular telephonebase stations to pinpoint locations with anaccuracy of within five to 10 meters under
optimum circumstances. Emergency response
personnel are on standby round-the-clock for
dispatch to any location if a subscriber
requests assistance—a level of service facilitated by SECOM’s unique security services
capabilities. COCO-SECOM services were initially developed to locate people and vehicles.
Today, we also offer services for locating cash
and valuables cases, safes, automated teller
machines (ATMs) and pets, as well as for
simultaneously tracking commercial vehicle
fleets and employees.

COCO-SECOM Location and Emergency Response System

GPS Satellite
Positioning
Information

COCO-SECOM
Operations
CenterCellularllular Telepho
Telephone
Base
ase Station
Stat

Notificationof Police andAmbulance(If Warranted)

SECOM
Emergency
Depot

Police Dept.
POLICEC

Requestfor Search(Telephone/Internet)

Dispatch SECOM
Emergency Response
Personnel (If Requested)
Transmitter Device(Vehicle-Mounted)

Subscriber

SECOM CO., LTD. ANNUAL REPORT 2006

14

Transmitter
Device(Portable)

Today, COCO-SECOM is attracting
attention as an effective means to preventchild disappearances and abductions, resulting in an increase in the number of people
equipping their children with COCO-SECOM
transmitter devices. Approximately onefourth of all COCO-SECOM subscriber contracts are for services for locating children.
On more than one occasion, COCO-SECOM
has assisted in the location and rescue of achild. To protect children traveling between
home and school, we provide COCOSECOM for Olivier Navirand school bags
and the PRESAVE elementary school uniforms through business alliances with the
manufacturers of these items. Both theschool bags and the uniforms have earned
high marks from parents.
To teach children about potential dangers, we supervised production of a picturebook and an animated film. The picture
book, Suu, the White Ghost, was overseen
by a committee of SECOM employees withchildren, and features content and visuals forchildren and their parents to enjoy together.
The animated film, Kin-Q Kids: Rescue Team,was put together with the aim of teaching
children ways to avoid danger. We contributed by providing crime-prevention
expertise and methodologies based on
analysis of data and actual incidents. The
film was shown on satellite and cable television channels for children and has since
been released on DVD and video.

Security Services in Overseas Markets

Expanding Operations in the Growing
PRC Market
In 1978, we established operations in
Taiwan, our first overseas market. Shortly
thereafter, we expanded into the Republic ofKorea (ROK) and the United States. We thensecured access to the markets of Europe andOceania by setting up operations in the
United Kingdom and Australia, and extended
our presence in Asia by branching out into
Thailand, Malaysia, Singapore, Indonesia andthe PRC. We provide the same high-standard
services in all of these markets as we do inJapan. Of particular note, our affiliates
Taiwan Secom Co., Ltd., in Taiwan, and S1Corporation in the ROK, enjoy the top sharesof their respective security services markets.
In recent years, our efforts have focusedon the expanding economies of Asia, particularly the PRC, where rapid economic
growth is prompting greater demand for
security. To enable us to provide security services in the PRC, in 1992 we set up holding
company Secom (China) Co., Ltd. Since
then, we have established security services
subsidiaries in the key cities of Dalian,
Qingdao, Beijing and Shanghai. Throughthese companies, we extend security servicesof the same level as in Japan, that is, services
that feature not only remote surveillance,
but also emergency response services.

Shanghai Secom Security Co., Ltd.’s control center➤➤➤

To take advantage of the massive security
services market of the PRC, in July 2005 we
set up a security services company—our fifth
local subsidiary—in the city of Shenzhen.
Located north of Hong Kong, Shenzhen was
declared a special economic zone in 1980.
Since then, the city has grown into a major
center thanks to the investment of foreign
capital. In this and other ways, it is emblematic of the PRC’s economic rise. With the
new company, we have succeeded in creating a solid business foundation in the PRC’s
key coastal economic areas. We will continue to draw on this foundation to provide
a wide range of security services to customers in the PRC, a center of increasing
global economic importance.

The Crown Court of London in the UK—a customer ofSecom Plc

SECOM CO., LTD. ANNUAL REPORT 2006

15

SECOM TODAY

Medical Services➤➤➤

In line with rising demand, we have
expanded our network of SECOM visiting
nurse stations, which dispatch nurses topatients’ homes, to 37. Accordingly, we willcontinue to provide superior home nursing
services that emphasize the patient’s perspective, thereby providing peace of mind as
well as a high level of patient satisfaction.

Expanding into New Businesses

Comfort Garden Azamino

Increasing Demand forHome Nursing Services

Home nursing services

SECOM CO., LTD. ANNUAL REPORT 200616

Eliminating fears about family health is crucial to security and peace of mind. Relieving
concerns over health and illness is an important part of our commitment to realizing asociety free from apprehension. Accordingly,
in 1991 we launched our medical services
business. With one in five people in Japan
today over the age of 65, concerns overthe future of health and medical care are
multiplying.
Our medical services business began withthe provision of home medical services, thefirst time such services were offered inJapan. Our various home medical services
include home nursing services and pharmaceutical delivery services, demand for which
continues to expand. Home nursing services
are provided by nurses who visit patients intheir homes and provide nursing services inline with the instructions of the patient’s
physician. The skilled and experienced nurses
we employ are highly evaluated by patients.

Health issues are one of the chief causes ofconcern among the elderly. We are seeing arise in interest in products and services that
contribute to the maintenance or improvement of health, evidence of the increasing
number of people that see investments intheir own health as money well spent. With
the needs of such people in mind, we haveestablished SECOM Health Care Club. A
membership-based club operated by subsidiary Secom Medical System Co., Ltd.,in alliance with Anshinkai, an incorporated
medical institution, SECOM Health Care
Club aims to ensure the prevention andearly detection of serious illnesses. Members
have access to advanced positron emission
tomography (PET)/computerized tomography(CT) scanner and other advanced medical
equipment at Yotsuya Medical Cube, a clinicin Tokyo, as well as full physical examinations
and health management consultations witha regular physician.
Another key new business is the SECOMFORT series of nursing homes. We have built
up a solid reputation in this field through the
Sacravia Seijo and Royal Life Tama—two
high-end nursing homes—and the Alive
Care Home series of nursing homes, which
provide full-time care services. The SECOMFORT series capitalizes on the know-how
accumulated through the management ofthese facilities and brings together our
expertise in such areas as security, medical➤➤➤care and personal care. In October 2006,
we will open Comfort Garden Azamino in
Yokohama, the first nursing home in the
SECOMFORT series. This facility will feature
an adjacent on-site clinic and offer healthmanagement services for residents.
Residents requiring care will be able to takeadvantage of the services of skilled, compassionate nursing and care staff in the comfortof their rooms. Should a resident require
round-the-clock care, he or she will be
moved to a special room within the building
to be attended to by expert staff. We havealso developed a security system for the
SECOMFORT series that is easy for seniors tooperate, thereby enhancing the peace ofmind of residents. The second SECOMFORT
nursing home, Comfort Hills Rokko, is scheduled to open in Kobe in June 2009. We willcontinue to expand the SECOMFORT series,
focusing on the goal of providing safe,
secure and comfortable residences thatenable seniors to enjoy active, fulfilling lives.
On another front, we engage in the leaseand sale of a wide range of medical equipment. Among these, our automated external
defibrillators (AEDs) continue to performparticularly well. AEDs are devices thatadminister an electric pulse to the heart toreestablish a normal rhythm. Their use bymembers of the general public, that is, by
individuals who are not licensed physiciansor paramedics, was approved by Japan’s
Ministry of Health, Labour and Welfare in
July 2004. Subsequently, we introduced the
SECOM AED Package Service, a service package featuring an AED that we lease to individuals and organizations and for which we
provide regular maintenance and round-theclock support. To date, the SECOM AED
Package Service has been adopted by a variety of customers, including sports facilities,
government and municipal offices, companies, airports, health and welfare facilities,

Home Medical Services
Prescription

Medical Care
Institution

Physician Guidance
Nurse Report

Coordination
Pharmaceutical Dispensing
ispensingispensinggand Home Delivery
ry Serv
Services
ces

Home Nursing Services

Consulting

Prescription
Pharmaceutical Delivery

Patient

Visiting Nurse
Outpatient Careschools and hotels. Narita International
Airport, for which we provide static guards
and other security services, has adopted the
SECOM AED Package Service to help ensure
better security for airport users. By expanding SECOM AED Package Service subscriptions, we hope to contribute to an increasein the number of lives saved.
Going forward, we will aim for further
growth by developing and providing quality
medical services that are trusted andappreciated by our customers.

SECOM AED Package Service

AED

SECOM CO., LTD. ANNUAL REPORT 2006

17

SECOM TODAY

Insurance Services➤➤➤

New SECOM Anshin My Car on-site emergency services

Secom General Insurance Co., Ltd.

SECOM’s Unmatched Policies

MEDCOM consultants

SECOM CO., LTD. ANNUAL REPORT 200618

We provide seamless offerings that combine
security services and non-life insurance toensure greater peace of mind. Security services ensure prior protection, while the nonlife insurance looks after customers in theevent of misfortune. These offerings are
made possible by our non-life insurance
subsidiary, which has developed a lineupof distinctive policies.
SECOM Anshin My Home, for example,a policy designed for households, takes into
account the reduced risk in homes that haveinstalled security systems to offer up to a
50% discount on premiums. This same
concept underlies the Security Discount Fire
Policy, which offers up to a 30% discount onpremiums to commercial premises that haveinstalled security systems, recognizing this as
a risk-lowering factor. New SECOM Anshin
My Car is a comprehensive automobile insurance policy that offers round-the-clock onsite support services by emergency response
personnel in the event of an automobile
accident. The knowledge that professional
emergency response personnel are there tohelp any time and anywhere is a significant
factor in ensuring security and peace ofmind for vehicle owners.

We also offer MEDCOM, an unrestricted
cancer treatment policy that provides coverage for all hospitalization and medical treatment costs. “Unrestricted” means that
MEDCOM covers the cost of treatments notcovered by Japan’s national health insurance
scheme and thus normally borne by thepatient. MEDCOM also covers the portionof costs that individuals bear for cancer
treatments covered by the national healthinsurance scheme. This ensures subscribers
are able to take advantage of advanced
treatment options without having to worry
about the frequently prohibitive costs.
We will continue to maximize the capabilities of the SECOM Group to develop
and market innovative and attractive new
insurance offerings.

Geographic Information Services

Providing Security and Peace of Mindin the Event of an Earthquake

Geographic Information Services for
Global Markets

Pasco Corporation provides a wide range ofinnovative geographic information services
and is a leader in geographic information
system (GIS) and surveying and measuringservices. Frequent earthquakes in recent
years have heightened awareness of theneed to minimize the scale of disaster in theevent of a major tremor. If a major, verticalthrust earthquake were to hit Tokyo, forexample, the resulting disruption of public
transport would strand millions of commuters with no way to get home from theirworkplace. Companies are thus coming
under increasing pressure to ensure theiremployees are able to return home safely inthe event of such a disaster. Pasco has
responded by developing a mapping service
that searches for the safest routes to takebetween employees’ homes and workplaces,
based on such considerations as earthquake
vulnerability, as disclosed by the prefectural
authorities, and the presence of facilities androads designated for the provision of assistance to stranded commuters. By inputting
the appropriate departure and arrival locations into the computer, companies can generate maps for each individual employee.
The service also enables companies to determine how many employees at its different
offices are unable to return home, thereby
allowing it to determine the quantities offood and other supplies it needs to store. In
the event such a disaster occurs at night oron a public holiday, companies can also
determine how many of their employees live
close enough to walk to work, making it possible to formulate plans for the resumptionof operations. This mapping service is alsoavailable to individuals, permitting them toaccess information via the Internet to create
maps for their families, and is thus useful inprotecting homes and families in disastersituations.

Although headquartered in Japan, Pasco has
established bases in the PRC, Thailand, thePhilippines, India, Indonesia, the UnitedStates and Finland, and built a global network linking it with companies and universities, enabling it to provide high-quality,
high-precision geographic information
services in markets around the world.
Pasco is also responding to a rising need,particularly in developing countries inSoutheast Asia, for accurate domestic topographic maps, using its advanced surveying
and measuring technologies and GIS toassist map-making efforts.
Recently, Pasco became a distribution
partner for TerraSAR-X data products,
obtaining exclusive rights to sell these products in Japan and rights to sell them worldwide. TerraSAR-X is a synthetic apertureradar (SAR) satellite scheduled for launch in
October 2006. With TerraSAR-X, it will bepossible to obtain 1: 25,000 scale geographical data for all of Japan in one month, compared with 4.5 years with a conventional
satellite employing a telecentric optical imaging instrument. This capability will enable
Pasco to provide information, monitoringand damage assessment in real time whenearthquakes, tsunami, typhoons, volcanic
eruptions and other natural disasters occur.

➤➤➤

Safe Route Mapping Service

TerraSAR-X

SECOM CO., LTD. ANNUAL REPORT 2006

19

SECOM TODAY

Information and Communication Related
and Other Services
Providing Comprehensive
Disaster Response
Support Services for
Corporate Customers

SECOM Safety Confirmation Service

SECOM’s disaster response
support services include the
SECOM Safety Confirmation
Service, a comprehensive
service for commercial
subscribers that helps companies to confirm promptly thewhereabouts and safety of
employees and their families and collectinformation in the event of a major disaster,
thereby relieving concern and assisting companies to reopen for business as soon as
possible. This service also offers round-theclock, dedicated support personnel, ensuring
a prompt response in the aftermath of a disaster. Services are offered on a rental basis,making it possible for customers to avoid
administrative hassles of purchasing andinstalling systems.
Responding to calls for more effective
countermeasures against natural disasters,
we applied our expertise to the developmentof the SECOM Disaster Response Support
Service. Designed with the aim of minimizing
disaster-related losses through prompt,
effective action, the SECOM Disaster
Response Support Service encompasses the
preparation of initial response manuals,
which can also be made accessible via theInternet and/or cellular phone, as well as
management and replenishment ofemergency equipment inventories.

Secure Data Center

Security for the Information Age
SECOM is also answering the call for better
information security. The Secure Data Center
integrates our unparalleled physical andcyber security services expertise to provide
a highly secure environment for subscribers’

SECOM CO., LTD. ANNUAL REPORT 2006

20

➤➤➤

valuable information. The facility houses
customers’ servers and sees to the operation,
monitoring and maintenance of connections
to the Internet. The building is guarded
around the clock by static guards, accesscontrol systems and surveillance cameras,
applying our know-how in the area of physical security. Cyber security services include
protection against Internet-based intrusions
and viruses and the provision of digitalauthentication services. The Secure Data
Center currently operates the digital certificate authorities of a number of Japan’s preeminent financial institutions, underscoring
recognition of the high level of security it
delivers, as well as customer confidence in
our information security capabilities.

Safe and Secure Glorio Condominiums
Developed in line with a concept thatemphasizes peace of mind and quality
lifestyles, SECOM’s Glorio series of condominiums boast sophisticated security. All
units offer our on-line security system as astandard feature. Glorio condominiums canalso feature break-resistant SECOM Anshin
Glass window glass; SECOM IX, which provides surveillance of the entrance hall andindividual elevators; and the SECOM AED
Package Service, for assisting individuals
experiencing acute heart trouble. The Glorio
series also offers Glorio Support 24, roundthe-clock condominium management services that enable residents to call late atnight or on holidays when no guards arepresent. Today, security is one of the mostimportant considerations in condominium
purchasing decisions. We will continue todevelop and sell attractive condominiums
that deliver both quality and peace of mind.

FINANCIAL REVIEW

Operating Results

Net Sales and Operating Revenue
Net sales and operating revenue amounted to ¥580.5 billion,

Overview

an increase of 5.1%, or ¥28.2 billion. Net sales and operating

In the year ended March 31, 2006, the parent company and its

revenue rose in all segments. (For more details, please see

consolidated subsidiaries (collectively, “the Company”) took a

Segment Information below.)variety of steps aimed at enhancing their operations—whichcenter on security services and also include medical, insurance,

Costs and Expenses

geographic information, information and communication

Costs and expenses were up 4.6%, or ¥21.8 billion, to ¥498.6

related services, real estate development and sales, and real

billion. Cost of sales rose 4.5%, or ¥15.7 billion, to ¥364.9 bil-

estate leasing—by improving services and expanding marketing

lion, equivalent to 62.9% of net sales and operating revenue,

and product development. Firm gains in revenue in all segments

down from 63.2% in the previous period. The lower cost-of-

supported an increase in net sales and operating revenue ofsales ratio was primarily attributable to a decline in cost-of-sales

5.1%, or ¥28.2 billion, to ¥580.5 billion. Operating income rose

ratio of the insurance services segment. This was mainly caused

8.4%, or ¥6.3 billion, to ¥81.9 billion, reflecting higher net sales

by an increase in gains on the sales of investment securities,

and operating revenue and a decline in impairment loss on long-included in net sales and operating revenue, in the segment.

lived assets. Income from continuing operations totaled ¥51.2

Selling, general and administrative expenses rose 6.7%, orbillion, up 22.6%, or ¥9.4 billion, owing to such factors as¥8.0 billion, to ¥128.2 billion, equivalent to 22.1% of net sales

improved operating income and a gain on the sale of theand operating revenue, up from 21.8% a year earlier. This

Company’s stake in a cable television affiliate accounted forincrease was largely due to an increase in the provision for theunder the equity method. Despite an increase in income fromallowance for doubtful accounts in the medical services segment.

continuing operations, net income declined 3.5%, or ¥1.8 billion,

Impairment loss on long-lived assets shrank ¥3.7 billion, toto ¥50.3 billion, owing to the absence of ¥9.9 billion in income¥821 million. Losses on sales and disposal of property, plant andfrom discontinued operations, net of tax, recorded in the previous

equipment, net, amounted to ¥2.2 billion, a decline of ¥646

period generated by the sale of the Company’s education

million. In addition, the transfer of a portion of the cash balanceservices business and certain real estate properties for lease.

pension plan maintained by the parent company and certain

During the period, the Company decided to disclose theof its Japanese subsidiaries to a defined contribution pension

geographic information services, which was previously included

plan resulted in recognition of a portion of an unrecognizedin the information and communication related and other services

actuarial loss, which was included as a settlement loss of benefit

segment, separately from the segment due to an increase in

obligation on transfer to defined contribution pension plan ofimportance of its business. Accordingly, segment information of¥2.5 billion.

all prior periods has been restated to conform to the presentation
used for the year ended March 31, 2006.

SECOM CO., LTD. ANNUAL REPORT 2006

21

FINANCIAL REVIEW

Operating Income

Minority Interest in Subsidiaries and Equity in Net Income

Operating income rose 8.4%, or ¥6.3 billion, to ¥81.9 billion,of Affiliated Companies

and represented 14.1% of net sales and operating revenue,

Minority interest in subsidiaries amounted to ¥3.9 billion, an

compared with 13.7% the previous year. Factors influencing theincrease of ¥1.0 billion, mainly as a result of improved income

increase included increases in net sales and operating revenue

from insurance services. Equity in net income of affiliated com-and declines in the cost-of-sales ratio and impairment loss onpanies also rose ¥964 million, to ¥3.3 billion, owing primarily to

long-lived assets, although the impact was partially offset bysolid performances by equity-method affiliates in Taiwan andan increase in selling, general and administrative expenses. The

the ROK.

insurance services segment and the information and communication related and other services segment recorded operating

Income from Continuing Operations

income, in contrast to the previous period, when both recorded

As a consequence of the above factors, income from continuing

operating losses. These improvements contributed to the overall

operations rose 22.6%, or ¥9.4 billion, to ¥51.2 billion, and rep-increase in operating income. (For more details, please see

resented 8.8% of net sales and operating revenue, compared

Segment Information below.)with 7.6% in the previous period.

Other Income and Expenses

Income from Discontinued Operations

Other income rose ¥9.4 billion, to ¥15.9 billion, while other

Discontinued operations include any component of an entity

expenses advanced ¥250 million, to ¥8.1 billion, resulting in net

with its own identifiable operations and cash flows which isother income of ¥7.8 billion, compared to net other expenses ofdisposed of or is classified as held for sale, and with which the¥1.3 billion in the previous year. The increase in other income wasCompany will not have significant continuing involvement. In

primarily due to an increase in a net gain on sales of securities,

the previous period, the Company sold its education servicesa result of the sale of the Company’s stake in a cable television

operation, and its security services operations in the United

affiliate accounted for under the equity method.

States, as well as certain real estate properties for lease. This
resulted in income from discontinued operations, net of tax, ofIncome Taxes¥9.9 billion in that period. (For more information, please see

Income taxes increased ¥6.0 billion, to ¥37.9 billion, owing toNote 25 of the accompanying Notes to Consolidated Financial

higher income from continuing operations before income taxes.

Statements.)

Income taxes were equivalent to 42.2% of income from continuing operations before income taxes, down from 43.0% in the

Net Income

previous year.

Net income totaled ¥50.3 billion. Both basic and diluted net
income per share were ¥223.69. Cash dividends per share of¥60.00 were approved at the general shareholders’ meeting
held on June 27, 2006.

SECOM CO., LTD. ANNUAL REPORT 2006

22

Segment Information

These include SECOM AX, a centralized system that employs

For detailed segment information, please see Note 27 of theadvanced image monitoring; SECOM DX, a versatile system

accompanying Notes to Consolidated Financial Statements.

suitable for a wide range of users; and SECOM IX, a remoteimaging system for retail premises that operate around the

Security Services

clock. Subscriptions for such services increased steadily, as did

This segment encompasses electronic security services, othersubscriptions for SECOM Home Security systems.

security services and merchandise and other. Net sales and oper-

Other security services include static guard services, staffedating revenue in the security services segment rose 4.6%, or

by highly trained professionals, for security situations that

¥17.6 billion, to ¥401.4 billion. Excluding intersegment transac-

require human judgment and flexible responses, and armoredtions, segment net sales and operating revenue was ¥400.0

car services, for the transport of cash and valuables by speciallybillion, equivalent to 68.9% of total net sales and operating

fitted armored cars and security professionals. In the period

revenue, down from 69.2% a year earlier.

under review, net sales and operating revenue from static guard

Electronic security services include centralized systems (on-services amounted to ¥41.5 billion, an increase of 8.3%, orline commercial and home security systems) and large-scale¥3.2 billion, while that from armored car services amounted

proprietary systems, which center on surveillance services at theto ¥19.4 billion, up 4.9%, or ¥907 million.

subscriber’s premises. Commercial and home on-line security

The merchandise and other category encompasses a wide

systems, the core of SECOM’s electronic security services busi-

range of security products, including access-control systems,

ness, use sensors installed at the customer’s premises to detect

CCTV surveillance systems, fire extinguishing systems, andevents, such as intrusions, fires and equipment malfunctions.

external and internal monitoring systems, which can be used

Sensors are linked to a SECOM control center via telecommuni-

alone or connected to on-line security systems. In the period

cations circuits to enable remote monitoring around the clock.

under review, these products and services generated net sales

Should an event be detected, the relevant information is relayedand operating revenue of ¥61.3 billion, an increase of 14.1%,

to the control center, where the staff dispatch emergencyor ¥7.6 billion. Increasing awareness of the need to ensure

response personnel and take other appropriate measures, asprotection against crime, as well as to properly manage informa-

well as notify the police or fire department if required. To ensuretion assets, supported brisk sales of access-control systems andits ability to deliver the level of quality customers expect, the

CCTV surveillance systems.

Company has established an integrated process that allows it toOperating income in the security services segment slippedmaintain control over every aspect of its electronic security ser-

4.2%, or ¥3.8 billion, to ¥86.7 billion. The operating margin

vices, from centralized systems research and development (R&D)

was 21.6%, compared with 23.6% for the previous period. Thisto equipment manufacturing, sales, installation, 24-hour moni-

primarily reflected a settlement loss of benefit obligation on

toring, dispatch of emergency response personnel and mainte-transfer to defined contribution pension plan and an increase innance. In the period under review, net sales and operating

advertising expenses. The settlement loss of benefit obligation

revenue from electronic security services amounted to ¥277.9

reflected the transfer of a portion of the cash balance pension

billion, an increase of 2.2%, or ¥6.0 billion. During the period

plan maintained by the parent company and certain of its

under review, we continued to market a number of security

Japanese subsidiaries to a defined contribution pension plan,systems suited to the diverse needs of commercial customers.

as described above.

SECOM CO., LTD. ANNUAL REPORT 2006

23

FINANCIAL REVIEW

Medical Servicesof a favorable investment environment, recording gains from

Medical services encompasses home medical services, including

the sales of investment securities.

pharmaceutical dispensing and delivery and home nursing ser-

The insurance services segment registered operating income

vices; remote image diagnosis support services; electronic med-of ¥5.1 billion, up from an operating loss of ¥3.0 billion in theical report systems; sales of medical equipment; the operation

previous period. This improvement primarily reflected the afore-of nursing homes; personal care services; and the leasing of real

mentioned gains on sales of investment securities, as well as theestate for medical institutions. Net sales and operating revenue

fact that the loss ratio had worsened in the previous period duein the medical services segment amounted to ¥39.4 billion,

to damages sustained in typhoons.

an increase of 13.0%, or ¥4.5 billion. During the period underreview, sales in the home medical services area expanded,

Geographic Information Services

while a newly consolidated subsidiary that manages dispensing

This segment encompasses a variety of GIS services tailored topharmacies also contributed to an increase in net sales andthe needs of the public and private sector, as well as surveying

operating revenue.

and measuring and construction consulting services. Net sales

The medical services segment posted an operating loss ofand operating revenue in this segment edged up 0.6%, or ¥216

¥1.3 billion for the period under review, down from operating

million, to ¥35.4 billion. During the period under review, efforts

income of ¥1.6 billion in the previous period. This was attributable

included the provision of high-precision national spatial data to

to a provision for the allowance for doubtful accounts as a result

government and municipal offices using digital aerial cameras,of loans extended to health care facilities. This reflected changes

laser scanners and other aerial surveying technologies. The

in the business environment prompted by amendments to Japan’sCompany also provided GIS services for private-sector customers,

health care system, including a reduction of remuneration for

mainly companies, and cultivated markets for these services

medical treatment.

overseas, particularly in developing countries.

Insurance Services

to ¥900 million. This was primarily a consequence of the inclu-

This segment includes a variety of unique offerings thatsion of devaluation losses on inventories and an increase in loss

complement security services, which provide prior protection,

on disposal of software.

Segment operating income declined 27.2%, or ¥336 million,

with non-life insurance, which looks after customers in theevent of misfortune. For example, Security Discount Fire Policy,

Information and Communication Related and Othera commercial fire insurance policy, and SECOM Anshin My

Services

Home, a comprehensive fire insurance policy for residences,

This segment includes information and communication related

offer a discount on premiums to subscribers who have installed

services, including cyber security and information network system

on-line security systems, recognizing this as a risk-lowering factor.

operation services, real estate development and sales, and real

Other products include New SECOM Anshin My Car, a compre-

estate leasing. In the information and communication related

hensive automobile insurance policy that offers on-site support

and other services segment, net sales and operating revenue

services—provided by our emergency response personnel—inrose 5.2%, or ¥4.1 billion, to ¥82.9 billion. During the period

the event of an accident, and MEDCOM, an unrestricted cancer

under review, the real estate development and sales businesstreatment policy that covers the entire cost of medical treatments

performed well, bolstered by brisk sales of condominiums.

for cancer. The insurance services segment generated net sales

Solid results in the real estate development and sales business,and operating revenue of ¥32.0 billion, up 9.5%, or ¥2.8 billion.

together with a decline in impairment loss on long-lived assets,

In addition to expanding the marketing of non-life insurance

supported segment operating income of ¥5.6 billion, compared

during the period under review, the Company took advantage

with an operating loss of ¥816 million in the previous period.

SECOM CO., LTD. ANNUAL REPORT 200624

Other assets increased 0.2%, or ¥159 million, to ¥92.8 billion.

Financial Position

Total liabilities of the Company amounted to ¥680.6 billion,
Total assets of the Company as of March 31, 2006, stood at

up 1.0%, or ¥6.7 billion, from a year earlier. Total current¥1,225.2 billion, up 5.2%, or ¥61.0 billion, from the previous

liabilities advanced 22.6%, or ¥60.4 billion, to ¥328.1 billion,

fiscal year-end.

mainly owing to the shift of long-term debt due within one

Total current assets rose 10.0%, or ¥52.5 billion, to ¥578.6

year to current liabilities, which pushed the current portion ofbillion. This mainly reflected increases in cash and cash equiva-

long-term debt up ¥34.2 billon, to ¥44.7 billion. As a conse-lents (for more details, please see Cash Flows below) and real

quence, long-term debt declined ¥30.0 billion, to ¥35.8 billion.

estate for sale, which boosted inventories. Current assets were

Investment deposits by insurance policyholders declined ¥39.9

outpaced by current liabilities, however, reflecting such factors

billion, to ¥187.8 billion, and accounted for 15.3% of total

as an increase in the current portion of long-term debt. As aliabilities and shareholders equity.
Total shareholders’ equity increased 11.1%, or ¥50.9 billion,

consequence, the current ratio was 1.8 times, compared withto ¥508.7 billion. Retained earnings were ¥386.6 billion, up

2.0 times a year earlier.

¥39.0 billion. Accumulated other comprehensive income

Investments and long-term receivables declined 1.0%, or¥3.3 billion, to ¥310.7 billion, owing largely to an increase inamounted to ¥10.7 billion, compared to an accumulated otherpublic and corporate bonds redeemable within one year, which

comprehensive loss of ¥1.3 billion a year earlier, reflecting

boosted current assets and resulted in a decline in investmenta ¥5.5 billion increase in unrealized gains on securities, tosecurities.

¥11.1 billion, and an accumulated loss from foreign currencytranslation adjustments of ¥80 million, compared with a loss of

Property, plant and equipment, less accumulated depreciation, rose 5.0%, or ¥11.7 billion, to ¥243.1 billion. This was pri-

¥6.4 billion in the previous period. The equity ratio rose tomarily attributable to an increase in real estate for lease and, in

41.5%, from 39.3%.

the medical services business, an increase in real estate for
medical facilities, which contributed to an increase in buildings
and improvements and construction in progress.

Shareholders’Equity per ShareTotal Assets

Depreciation andAmortization(In billions of yen)

(In billions of yen)

(In yen)

2,500

1,250

60

2,000

1,000

48

1,500

750

36

1,000

500

24

500

250

12

0

0

02 03 04 05 06

02 03 04 05 06

0

02 03 04 05 06

SECOM CO., LTD. ANNUAL REPORT 2006

25

FINANCIAL REVIEW

and equipment totaled ¥44.3 billion, partly a result of the pur-Cash Flowschase of security equipment and control stations, prompted by
The Company is committed to maintaining sufficient liquidity

growth in the number of security service subscribers. The fact

to allow flexibility in its operations and ensure a solid financial

that investing activities, which used ¥24.0 billion in the previous

foundation. To the best of its ability, the Company is also firmly

period, provided net cash of ¥3.9 billion in the period undercommitted to financing related strategic investments with cash

review, was largely due to a decrease in short-term investments

generated by its operating activities.

and net proceeds from sale of investment securities, which were

In the period under review, net cash provided by operating
activities amounted to ¥78.5 billion. Important items contributing to this total included net income of ¥50.3 billion and depre-

used to fund the payout of investment deposits by insurance
policyholders.
Net cash used in financing activities amounted to ¥48.8 bil-

ciation and amortization, including amortization of deferredlion. This amount reflected a ¥39.9 billion decrease in invest-

charges, of ¥52.3 billion. Cash used in operating activities

ment deposits by insurance policyholders and dividends paid of

included inventories of ¥24.1 billion, owing to an increase in¥11.3 billion. Financing activities used ¥8.2 billion less than inreal estate for sale. Operating activities provided ¥6.7 billion

the previous period, reflecting a net increase in debt, that is, ofless cash than in the previous period, primarily a consequencelong-term debt and bank loans, of ¥3.6 billion, compared with aof the increase in inventories.

net outlay of ¥43.2 billion for repayment of debt, that is, net

Net cash provided by investing activities was ¥3.9 billion.
Significant factors were a decrease in short-term investments

repayments of long-term debt and decrease in bank loans, inthe previous period.

and net proceeds from sales of investment securities of ¥32.2

As a consequence of the operating, investing and financing

billion, proceeds from sales of property, plant and equipment ofactivities of the Company during the period under review, cash

¥11.0 billion and net proceeds from short- and long-term receiv-

and cash equivalents at end of year amounted to¥231.0 billion,

ables of ¥10.1 billion. Payments for purchases of property, plantup ¥34.0 billion from ¥197.0 billion a year earlier.

Capital Expenditures

Cash Flows(In billions of yen)

(In billions of yen)

150

100

120

50

90
0
60
–50

30
0

–100

02 03 04 05 06

04

05

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

SECOM CO., LTD. ANNUAL REPORT 2006

26

06

AUDITED FINANCIAL STATEMENTSCONTENTSCONSOLIDATED FINANCIAL STATEMENTS ........................................................................ 28
CONSOLIDATED BALANCE SHEETS ............................................................................... 28
CONSOLIDATED STATEMENTS OF INCOME ................................................................. 30
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY............ 31
CONSOLIDATED STATEMENTS OF CASH FLOWS ....................................................... 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ............................................... 33
INDEPENDENT AUDITORS’ REPORT...................................................................................... 55

SECOM CO., LTD. ANNUAL REPORT 2006

27

CONSOLIDATED FINANCIAL STATEMENTSCONSOLIDATED BALANCE SHEETSSECOM CO., LTD. and Subsidiaries
March 31, 2006 and 2005ASSETS

In millions of yen

Translation into thousandsof U.S. dollars (Note 3)

March 31

March 31

2005

2006

¥0,231,044 ¥0,197,012
4,548
4,614
65,18760,806
82,13571,59855,19555,827
26,192
23,63864,531
41,152
21,46846,449(1,622)(1,297)
4,885
1,066
14,65913,951
10,423
11,338578,645
526,154$01,974,735
38,872557,154702,009471,752
223,863551,547
183,487(13,863)
41,752
125,291
89,085
4,945,684

2006

Current assets:
Cash and cash equivalents (Note 5) ...............................................................................
Time deposits ..................................................................................................................
Cash deposits (Note 6) ....................................................................................................
Short-term investments (Note 7)....................................................................................
Notes and accounts receivable, trade ...........................................................................
Due from subscribers .....................................................................................................
Inventories (Notes 8 and 12) ...........................................................................................
Short-term receivables (Note 20) ...................................................................................
Allowance for doubtful accounts....................................................................................
Deferred insurance acquisition costs (Note 13) ............................................................
Deferred income taxes (Note 16)....................................................................................
Other current assets ........................................................................................................
Total current assets ..................................................................................................
Investments and long-term receivables:
Investment securities (Note 7) ........................................................................................
Investments in affiliated companies (Note 9)................................................................
Long-term receivables (Note 20) ....................................................................................
Lease deposits..................................................................................................................
Other investments ...........................................................................................................
Allowance for doubtful accounts....................................................................................

Property, plant and equipment (Notes 10, 12, 19 and 20):
Land ..................................................................................................................................
Buildings and improvements..........................................................................................
Security equipment and control stations.......................................................................
Machinery, equipment and automobiles.......................................................................
Construction in progress.................................................................................................
Accumulated depreciation ..............................................................................................

Other assets:
Deferred charges (Note 2 (11))........................................................................................
Goodwill (Note 11)...........................................................................................................
Other intangible assets (Note 11) ...................................................................................
Prepaid pension and severance costs (Note 14) ...........................................................
Deferred income taxes (Note 16)....................................................................................
Total assets ...............................................................................................................
See accompanying notes to consolidated financial statements.

SECOM CO., LTD. ANNUAL REPORT 2006

28

194,174
38,07567,657
12,513
8,927(10,636)
310,710203,432
39,91561,051
12,8976,444(9,746)
313,993

1,659,607
325,427
578,265
106,949
76,299(90,906)
2,655,641

71,270131,995
222,398
59,922
8,164
493,749(250,660)
243,089

71,992
118,812
213,807
56,045
3,916
464,572(233,140)
231,432

609,145
1,128,162
1,900,838
512,154
69,7784,220,077(2,142,393)
2,077,684

41,10938,57820,33318,07017,273
19,462
10,929
11,1653,140
5,350
92,784
92,625¥1,225,228 ¥1,164,204

351,359
173,786
147,632
93,41026,838793,025$10,472,034

LIABILITIES AND SHAREHOLDERS’ EQUITYCurrent liabilities:
Bank loans (Notes 6 and 12) ...........................................................................................
Current portion of long-term debt (Notes 12 and 19) ...................................................
Notes and accounts payable, trade ................................................................................
Other payables .................................................................................................................
Deposits received (Note 6) ..............................................................................................
Deferred revenue (Note 2 (3)) .........................................................................................
Accrued income taxes .....................................................................................................
Accrued payrolls ..............................................................................................................
Other current liabilities (Note 16) ...................................................................................
Total current liabilities..............................................................................................

In millions of yen

Translation into thousandsof U.S. dollars (Note 3)

March 31

March 31

2005

2006

2006

$

¥0,105,750 ¥0,102,228
44,714
10,492
19,18016,02626,434
19,722
41,29737,03841,77339,193
22,372
16,803
16,05815,427
10,566
10,773
328,144
267,702903,846
382,171
163,932
225,932
352,966
357,034
191,214137,248
90,3072,804,650

Long-term debt (Notes 12 and 19) .....................................................................................
Guarantee deposits received..............................................................................................
Accrued pension and severance costs (Note 14)..............................................................
Deferred revenue (Note 2 (3)).............................................................................................
Unearned premiums and other insurance liabilities (Note 13) .......................................
Investment deposits by policyholders (Note 13) ..............................................................
Other liabilities (Note 16) ....................................................................................................
Total liabilities...........................................................................................................

35,782
27,47912,583
20,33853,330187,785
15,167680,608

65,81528,09913,261
18,832
46,452
227,719
6,056
673,936

305,829
234,863
107,547
173,829455,812
1,605,000
129,632
5,817,162

Minority interest in subsidiaries .......................................................................................

35,92432,431

307,043

66,37879,996
9,825
386,558

66,37879,996
9,787
347,516

567,333
683,727
83,974
3,303,915

11,127
30
(388)
(80)
10,689

5,586
(85)
(358)
(6,425)(1,282)

95,103256(3,316)(684)
91,359Common stock in treasury, at cost:
8,301,997 shares in 2006 and 8,266,043 shares in 2005............................................
(44,750)(44,558)
Total shareholders’ equity .......................................................................................
508,696457,837
Total liabilities and shareholders’ equity................................................................ ¥1,225,228 ¥1,164,204(382,479)
4,347,829$10,472,034

Commitments and contingent liabilities (Note 23)
Shareholders’ equity (Note 17):
Common stock (Note 24):
Authorized 900,000,000 shares;
issued 233,288,717 shares in 2006 and 2005 ...........................................................
Additional paid-in capital (Note 24)................................................................................
Legal reserve ....................................................................................................................
Retained earnings ............................................................................................................
Accumulated other comprehensive income (loss):
Unrealized gains on securities (Note 7)......................................................................
Unrealized gains (losses) on derivative instruments (Note 22)................................
Minimum pension liability adjustments (Note 14) ....................................................
Foreign currency translation adjustments .................................................................

SECOM CO., LTD. ANNUAL REPORT 2006

29

CONSOLIDATED FINANCIAL STATEMENTSCONSOLIDATED STATEMENTS OF INCOME
SECOM CO., LTD. and Subsidiaries
Three years ended March 31, 2006

Net sales and operating revenue ........................................................................
Costs and expenses:
Cost of sales .......................................................................................................
Selling, general and administrative (Notes 2 (17) and 18) .............................
Impairment loss on long-lived assets (Note 10) .............................................
Loss on sales and disposal of property, plant and equipment, net ..............
Settlement loss of benefit obligation on transfer to defined
contribution pension plan (Note 14) ..............................................................
Loss on transfer of the substitutional portion of Employees’
Pension Fund (Note 14)...................................................................................
Operating income ..................................................................................
Other income:Interest and dividends.......................................................................................
Gain on sales of securities, net (Notes 7 and 9)..............................................
Other (Note 15) ..................................................................................................
Other expenses:
Interest................................................................................................................
Loss on other-than-temporary impairment of investment securities ...........
Other (Note 15) ..................................................................................................
Income from continuing operations before income taxes .................
Income taxes (Note 16):
Current................................................................................................................
Deferred..............................................................................................................
Income from continuing operations before minority interest in
subsidiaries and equity in net income of affiliated companies .......
Minority interest in subsidiaries ..........................................................................
Equity in net income of affiliated companies ....................................................
Income from continuing operations ....................................................
Income (loss) from discontinued operations, net of tax (Note 25) ..................
Income before cumulative effect of accounting change.....................
Cumulative effect of accounting change, net of tax(Notes 2 (2) and (10))...........................................................................................
Net income .............................................................................................

Per share data (Note 4):
Income from continuing operations——Basic ............................................................................................................
—Diluted .........................................................................................................
Income (loss) from discontinued operations——Basic ............................................................................................................
—Diluted .........................................................................................................
Cumulative effect of accounting change——Basic ............................................................................................................
—Diluted .........................................................................................................
Net income——Basic ............................................................................................................
—Diluted .........................................................................................................
See accompanying notes to consolidated financial statements.

SECOM CO., LTD. ANNUAL REPORT 2006

30

In millions of yen

Translation into thousandsof U.S. dollars (Note 3)

Years ended March 31

Year ended March 31

2006

2005

2004

2006

¥580,526¥552,354¥517,435$4,961,761

364,932
128,226821
2,164

349,212120,206
4,568
2,810

320,950
123,019
8,420
2,217

3,119,077
1,095,949
7,017
18,496

2,490

—

4,555

21,282—498,633
81,893—476,796
75,5584,209
463,370
54,065—
4,261,821
699,940

2,209
10,044
3,683
15,936

2,119
276
4,171
6,566

2,425
347
2,900
5,672

18,88085,846
31,479136,205

1,877
2,263
3,961
8,101
89,728

1,488
227
6,136
7,851
74,273

1,991
231
4,151
6,373
53,364

16,043
19,34233,854
69,239766,906

34,931
2,973
37,90432,188(247)
31,941

29,791(3,648)26,143

298,556
25,410323,966

51,824(3,927)
3,298
51,195—
51,19542,332(2,917)2,334
41,7499,877
51,62627,221(462)
927
27,686(4,207)23,479442,940(33,564)
28,188437,564—
437,564(864)¥050,331

507¥052,133—¥023,479(7,385)$0,430,179

In yenTranslation into
U.S. dollars (Note 3)

Years ended March 31

Year ended March 31

2006

2005

2004

2006

¥227.53¥227.53¥185.52¥185.52¥123.01¥123.01$ 1.94$ 1.94¥¥——¥043.89¥043.89¥ (18.69)¥ (18.69)$$¥ (3.84)¥ (3.84)¥002.25¥002.25¥¥——$(0.03)$(0.03)¥223.69¥223.69¥231.66¥231.66¥104.32¥104.32$ 1.91$ 1.91——CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITYSECOM CO., LTD. and Subsidiaries
Three years ended March 31, 2006

Balance, March 31, 2003 ..............................................................................
Comprehensive income:Net income .................................................................................................
Other comprehensive income (loss), net of tax (Note 17):
Unrealized gains on securities—
Unrealized holding gains or losses arising during the period...............
Less: Reclassification adjustment for gains or losses
included in net income ............................................................
Unrealized gains on derivative instruments—
Unrealized holding gains or losses arising during the period..............
Less: Reclassification adjustment for gains or losses
included in net income ............................................................
Minimum pension liability adjustments .................................................
Foreign currency translation adjustments..............................................
Total comprehensive income .....................................................................
Cash dividends ................................................................................................
Transfer to legal reserve..................................................................................
Purchase of treasury stock..............................................................................
Balance, March 31, 2004 ..............................................................................
Comprehensive income:Net income .................................................................................................
Other comprehensive income (loss), net of tax (Note 17):
Unrealized gains on securities—
Unrealized holding gains or losses arising during the period...............
Less: Reclassification adjustment for gains or losses
included in net income ............................................................
Unrealized losses on derivative instruments—
Unrealized holding gains or losses arising during the period..............
Less: Reclassification adjustment for gains or losses
included in net income ............................................................
Minimum pension liability adjustments .................................................
Foreign currency translation adjustments..............................................
Total comprehensive income .....................................................................
Cash dividends ................................................................................................
Transfer to legal reserve..................................................................................
Conversion of convertible bonds.....................................................................
Purchase of treasury stock..............................................................................
Balance, March 31, 2005 ..............................................................................
Comprehensive income:Net income .................................................................................................
Other comprehensive income (loss), net of tax (Note 17):
Unrealized gains on securities—
Unrealized holding gains or losses arising during the period...............
Less: Reclassification adjustment for gains or losses
included in net income ............................................................
Unrealized gains on derivative instruments—
Unrealized holding gains or losses arising during the period..............
Less: Reclassification adjustment for gains or losses
included in net income ............................................................
Minimum pension liability adjustments .................................................
Foreign currency translation adjustments..............................................
Total comprehensive income .....................................................................
Cash dividends ................................................................................................
Transfer to legal reserve..................................................................................
Purchase of treasury stock..............................................................................
Balance, March 31, 2006 ..............................................................................

In millions of yen
Number ofsharesissuedCommonstock

Additional
paid-in
capitalLegalreserve

Retainedearnings

Accumulated
other comprehensive
income (loss)

233,281,133¥66,369¥79,987¥9,672¥291,149(¥30,372)(¥44,287)

Total¥372,518

—

—

—

—

23,479——23,479Commonstock
in treasury,at cost

—

—

—

—

—

7,729

—

7,729

—

—

—

—

—

(425)

—

(425)

—

—

—

—

—

87

—

87

—
—
—

—
—
—

—
—
—

—
—
—

—
—
—

(40)
25,921(4,300)

—
—
—

—
—
—
233,281,133———
66,369———79,987

—
43
—
9,715

(9,003)(43)—
305,582———(1,400)——(114)(44,401)(40)
25,921(4,300)52,451(9,003)—(114)
415,852

—

—

—

—

52,133——52,133

—

—

—

—

—

2,880

—

2,880

—

—

—

—

—

(1,840)—(1,840)

—

—

—

—

—

(91)

—

(91)

—
—
—

—
—
—

—
—
—

—
—
—

—
—
—

(83)
(164)
(584)

—
—
—

—
—
7,584
—
233,288,717——
9—66,378——
9—79,996

—
72
—
—
9,787

(10,127)(72)——
347,516————(1,282)

—
—
—
(157)
(44,558)

(83)
(164)
(584)
52,251(10,127)—18(157)
457,837

—

—

—

—

50,331——50,331

—

—

—

—

—

8,896

—

8,896

—

—

—

—

—

(3,356)—(3,356)

—

—

—

—

—

97

—

97

—
—
—

—
—
—

—
—
—

—
—
—

—
—
—

18
(30)
6,346

—
—
—

—
—
—
233,288,717———¥66,378———¥79,996—38—¥9,825(11,251)(38)—¥386,558———¥10,689——(192)(¥44,750)

18
(30)
6,346
62,302(11,251)—(192)¥508,696

Translation into thousands of U.S. dollars (Note 3)

Balance, March 31, 2005 ........................................................................................................
Comprehensive income:Net income ..........................................................................................................................
Other comprehensive income (loss), net of tax (Note 17):
Unrealized gains on securities—
Unrealized holding gains or losses arising during the period......................................
Less: Reclassification adjustment for gains or losses
included in net income .....................................................................................
Unrealized gains on derivative instruments—
Unrealized holding gains or losses arising during the period......................................
Less: Reclassification adjustment for gains or losses
included in net income .....................................................................................
Minimum pension liability adjustments ..........................................................................
Foreign currency translation adjustments .......................................................................
Total comprehensive income...............................................................................................
Cash dividends .........................................................................................................................
Transfer to legal reserve...........................................................................................................
Purchase of treasury stock .......................................................................................................
Balance, March 31, 2006 ........................................................................................................

Commonstock

Additional
paid-in
capitalLegalreserve

Retainedearnings

Accumulated
other comprehensive
income (loss)

Commonstock
in treasury,at costTotal$567,333$683,727$83,650$2,970,222($10,957)($380,838)$3,913,137

—

—

—

430,179——

430,179

—

—

—

—

76,034—76,034————(28,684)—(28,684)

—

—

—

—

829

—

829

—
—
—

—
—
—

—
—
—

—
—
—

154
(256)
54,239

—
—
—

—
—
—
$567,333———$683,727—
324—$83,974(96,162)(324)—$3,303,915———$91,359——(1,641)($382,479)

154
(256)
54,239532,495(96,162)—(1,641)$4,347,829

See accompanying notes to consolidated financial statements.

SECOM CO., LTD. ANNUAL REPORT 2006

31

CONSOLIDATED FINANCIAL STATEMENTSCONSOLIDATED STATEMENTS OF CASH FLOWSSECOM CO., LTD. and Subsidiaries
Three years ended March 31, 2006

Cash flows from operating activities:
Net income...............................................................................................................................
Adjustments to reconcile net income to net cash provided
by operating activities—
Depreciation and amortization, including amortization of deferred charges.................
Accrual for pension and severance costs, less payments ...............................................
Settlement loss of benefit obligation on transfer to defined contribution
pension plan (Note 14)......................................................................................................
Loss on transfer of the substitutional portion of Employees’ Pension Fund
(Note 14).............................................................................................................................
Deferred income taxes, including discontinued operations ............................................
Loss on sales and disposal of property, plant and equipment, net ................................
Impairment loss on long-lived assets, including discontinued operations (Note 10) ...
Gain on sales of securities, net ..........................................................................................
Loss on other-than-temporary impairment of investment securities .............................
Equity in net income of affiliated companies....................................................................
Minority interest in subsidiaries, including discontinued operations.............................
Gain on sales of discontinued operations, net (Note 25).................................................
Cumulative effect of accounting change, net of tax (Notes 2 (2) and (13)) ....................
Changes in assets and liabilities, net of effects from acquisitions and disposals:(Increase) decrease in cash deposits .............................................................................
(Increase) decrease in receivables and due from subscribers,
net of allowances ..........................................................................................................
(Increase) decrease in inventories .................................................................................
Increase in deferred charges ..........................................................................................
Increase (decrease) in deposits received ......................................................................
Increase in deferred revenue..........................................................................................
Increase (decrease) in accrued income taxes ...............................................................
Decrease in guarantee deposits received .....................................................................
Increase in unearned premiums and other insurance liabilities .................................
Other, net .........................................................................................................................

In millions of yen

Translation into thousandsof U.S. dollars (Note 3)

Years ended March 31

Year ended March 31

2006

2005

2004

2006

¥050,331¥052,133¥023,479$0,430,179

52,339(3,209)51,450(2,619)52,943(870)

447,342(27,427)

2,490

—

4,555

21,282

—
2,973
2,164
821
(14,514)3,444(3,298)
3,927
—
864

—
3,979
2,810
5,215
(3,457)722(2,334)
3,368(13,637)
(507)

4,209
(6,045)2,217
15,095(1,603)
963
(927)
540
(6,367)——25,41018,496
7,017(124,051)
29,436(28,188)
33,564—
7,385(4,381)

123(15,678)(37,445)(668)(24,146)(16,804)
4,175
3,804
5,590
(20)
6,878
5,701

(9,234)
4,830(14,123)(2,718)334(1,067)(5,140)
5,088
9,898

10,721(5,279)(14,347)
9,768
556
7,321
(427)
3,954
4,421

(5,709)(206,376)(143,624)
35,68432,51347,778(171)
58,786
48,726

Net cash provided by operating activities..................................................................

78,461

85,11489,199670,607

Cash flows from investing activities:(Increase) decrease in time deposits .....................................................................................
Proceeds from sales of property, plant and equipment.......................................................
Payments for purchases of property, plant and equipment ................................................
Proceeds from sales of investment securities ......................................................................
Payments for purchases of investment securities................................................................
(Increase) decrease in short-term investments.....................................................................
(Increase) decrease in short-term receivables, net...............................................................
Payments for long-term receivables......................................................................................
Proceeds from long-term receivables....................................................................................
Other, net .................................................................................................................................

101
10,995(44,272)
99,889(68,597)
868
3,065(11,338)
18,365(5,220)(638)
88,507(43,872)
66,534(96,945)(26,623)(6,670)(14,946)
16,836(6,205)522
32,271(40,511)32,959(61,712)
7,603
(547)
(11,349)
19,258(7,094)863
93,974(378,393)
853,752(586,299)
7,419
26,197(96,906)
156,965(44,615)

Net cash provided by (used in) investing activities...................................................

3,856(24,022)(28,600)

32,957

Cash flows from financing activities:
Proceeds from long-term debt ...............................................................................................
Repayments of long-term debt ..............................................................................................
Increase (decrease) in bank loans ..........................................................................................
Decrease in investment deposits by policyholders ..............................................................
Dividends paid .........................................................................................................................
Increase in treasury stock, net................................................................................................
Other, net .................................................................................................................................

10,575(11,400)
4,387(39,934)(11,251)
(192)
(940)

10,163(43,695)(9,669)(2,597)(10,127)
(157)
(916)

10,523(28,944)(17,438)(793)(9,003)
(114)
(991)

90,385(97,436)
37,496(341,316)(96,162)(1,641)(8,035)

Net cash used in financing activities ..........................................................................

(48,755)(56,998)(46,760)(416,709)

Effect of exchange rate changes on cash and cash equivalents ............................................

470

26

(175)

4,017

Net increase in cash and cash equivalents ..............................................................................
Cash and cash equivalents at beginning of year .....................................................................

34,032
197,012

4,120
192,892

13,664
179,228

290,872
1,683,863

Cash and cash equivalents at end of year.................................................................................

¥231,044¥197,012¥192,892$1,974,735

See accompanying notes to consolidated financial statements.

SECOM CO., LTD. ANNUAL REPORT 2006

32

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SECOM CO., LTD. and Subsidiaries
Three years ended March 31, 2006

1. Nature of Operations
The parent company and its subsidiaries (collectively “theCompany”) are engaged in the areas of security services,
medical services, insurance services, geographic information
services, and information and communication related and otherservices. With these services combined, the Company is focusing
on its “Social System Industry,” a network of integrated systems
and services, targeted at the needs of people and business.
The Company’s principal business activities are security services including on-line centralized security services for commercial and residential premises, static guard services, armored car
services for cash collection and deposit, and the development,
manufacturing and sale of various security equipment. The
Company also has been diversifying the operation of its services covering: home and other medical services; non-life insurance services; geographic information services using aerial
surveying technology; information and communication related
services, including cyber security services, software development
and system integration activities; development and sale of realestate; lease of real estate and other services.
2. Significant Accounting Policies
The parent company and its Japanese subsidiaries maintaintheir records and prepare their statutory financial statements inaccordance with accounting principles generally accepted inJapan. Certain adjustments and reclassifications have been
incorporated in the accompanying financial statements to conform with accounting principles generally accepted in the
United States of America. These adjustments were not recordedin the statutory books of account.
The preparation of the consolidated financial statements
requires management of the Company to make a number of
estimates and assumptions relating to the reported amounts ofassets and liabilities and the disclosure of contingent assets andliabilities at the date of the consolidated financial statements
and the reported amounts of revenues and expenses during theperiod. Significant items subject to such estimates and assumptions include the carrying amounts of inventories, investment
securities, investments, property, plant and equipment, goodwill and other intangible assets; valuation allowances for receivables and deferred income taxes; valuation of derivative
instruments; and assets and obligations related to employee
benefits. Actual results could differ from those estimates.
Significant accounting policies followed in the preparationof the accompanying consolidated financial statements are
summarized below:(1) Basis of Consolidation and Investments in AffiliatedCompanies
The consolidated financial statements include the accounts ofthe parent company and those of its majority owned subsidiaries.
The consolidated financial statements also include variableinterest entities to which the Company is primary beneficiary.
All significant intercompany transactions and accounts havebeen eliminated in consolidation.

Investments in 20 to 50 percent owned companies, in which
the ability to exercise significant influence exists, are accounted
under the equity method. Consolidated income includes theCompany’s current equity in the net income of affiliatedcompanies, after elimination of intercompany profits.
The excess of cost over underlying identifiable net assets at
acquisition dates of investments in subsidiaries and affiliatedcompanies is recorded as goodwill.
On occasion, a consolidated subsidiary or affiliated company
accounted for using the equity method may issue its shares tothird parties as either a public or private offering or upon conversion of convertible bonds to common stock at amounts per
share in excess of or less than the Company’s average per sharecarrying value. With respect to such transactions, where the saleof such shares is not a part of a broader corporate reorganization contemplated or planned by the Company, the resulting
gains or losses arising from the change in ownership interest
are recorded in income for the year the transaction occurs.
(2) Consolidation of Variable Interest Entities
In December 2003, the Financial Accounting Standards Board(“FASB”) issued FASB Interpretation No. 46 (revised December
2003) (“FIN No. 46R”), “Consolidation of Variable Interest Entities,
an Interpretation of ARB No. 51.” FIN No. 46R addresses theconsolidation and disclosure by business enterprise of a variable interest entity (“VIE”) as defined in the Interpretation.
FIN No. 46R requires that the primary beneficiary—a party thatabsorbs a majority of the entity’s expected loss and receives amajority of the entity’s expected residual returns, or both, as aresult of holding variable interests—consolidates the VIE and an
enterprise that holds significant variable interests but is not the
primary beneficiary discloses certain required information about
the VIE. FIN No. 46R was effective immediately for all new VIEs
created or acquired after January 31, 2003. For VIEs created or
acquired prior to February 1, 2003, FIN No. 46R was effective for
the Company on April 1, 2004.
The Company adopted the provisions of FIN No. 46R for VIEs
created or acquired prior to February 1, 2003 on April 1, 2004.
Under FIN No. 46R, any difference between the net amount added
to the consolidated balance sheet and any previously recognizedinterest in the VIE shall be recognized as a cumulative effect ofaccounting change. As a result of the adoption of FIN No. 46R,
one organization managing hospitals and health care-related
institutions was consolidated and the Company recognized aone-time income of ¥507 million as a cumulative effect ofaccounting change and the Company’s assets and liabilities
increased by ¥3,636 million and ¥3,119 million, respectively,
on April 1, 2004.

SECOM CO., LTD. ANNUAL REPORT 2006

33

CONSOLIDATED FINANCIAL STATEMENTS

The Company provides loans and guarantees to organizations
managing hospitals and health care-related institutions. Certain
organizations are considered as VIEs under FIN No. 46R. In March
2006, the Company provided additional loans and acquired
additional variable interests on three organizations. As a resultof the acquisitions, the Company became the primary beneficiary of these organizations and consolidated these organizations since March 2006. The aggregated fair value of current
assets, goodwill, and the other non-current assets acquired are¥1,894 million ($16,188 thousand), ¥1,711 million ($14,624 thousand), and ¥6,795 million ($58,077 thousand), respectively, andliabilities assumed are ¥4,144 million ($35,419 thousand). The
results of their operations have been included in the consolidated statements of income for the year ended March 31, 2006
since the date of acquisition. The consolidated pro forma information that would show the Company’s consolidated results ofoperations for the years ended March 31, 2006, 2005 and 2004
has not been disclosed based on materiality considerations.
Total assets held by the VIEs to which the Company is primary beneficiary were ¥21,003 million ($179,513 thousand) and¥7,276 million at March 31, 2006 and 2005, respectively. Total
assets held by the VIEs to which the Company holds significant
variable interests but is not primary beneficiary at March 31,
2006 and 2005 were ¥28,359 million ($242,385 thousand) and¥26,951 million, respectively. The Company’s maximum exposure to losses related to the VIEs at March 31, 2006 and 2005
were ¥12,552 million ($107,282 thousand) and ¥17,243 million,
respectively.
The Company also provides loans and guarantees to realestate investment companies. Certain investment companies are
considered as VIEs under FIN No. 46R. Total assets held by the
VIEs to which the Company is primary beneficiary at March 31,
2006 and 2005 were ¥10,638 million ($90,923 thousand) and¥18,543 million, respectively. There are no VIEs to which theCompany holds significant variable interests but is not primary
beneficiary at March 31, 2006. Total assets held by the VIEs towhich the Company holds significant variable interests but is
not primary beneficiary and the Company’s maximum exposure
to losses related to the VIEs at March 31, 2005 were ¥6,328 millionand ¥5,941 million, respectively.
(3) Revenue Recognition
The Company generates revenue principally through sales of
security services, merchandise and software, and insurance services under separate contractual arrangements. The Company
recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, title and risk of loss havebeen transferred to the customer, the sales price is fixed ordeterminable, and collectibility is probable.
Revenue from security services is recognized over the contractual period or, in the case of specific services, when suchservices are performed. Subscribers are generally requested
to prepay a portion of service charges which are credited todeferred revenue and taken into income ratably over thecovered service period. Revenue from installation servicesof security equipment related to on-line centralized security
services is deferred and recognized over the contractual period

SECOM CO., LTD. ANNUAL REPORT 200634

of security services after completion of the installation. The
related installation costs are also deferred and amortized overthe contractual period (Note 2 (11)).
The Company enters into arrangements with multiple elements,
which may include any combination of security equipment,
installation and security service. The Company allocates revenue to each element based on its relative fair value if suchelement meets criteria for treatment as a separate unit ofaccounting as prescribed in the Emerging Issues Task Force(“EITF”) No. 00-21, “Accounting for Revenue Arrangement with
Multiple Deliverables.” Otherwise, revenue is deferred until theundelivered elements are fulfilled as a single unit of accounting.
EITF No. 00-21 was effective for revenue arrangements enteredinto after March 31, 2004. The adoption of EITF No. 00-21 did
not have a material effect on the Company’s financial position
and results of operations.
Revenue from sales of merchandise and software is recognizedwhen the merchandise and software are received by the customer and, in the case of installations, when such installations
are completed.
Revenue from long-term contracts for geographic information
services is recognized under the percentage-of-completion
method.
Property and casualty insurance premiums are earned ratably
over the terms of the related insurance contracts. Unearned
premiums are earned ratably over the terms of the unexpired
portion of premiums written.
Revenue from the sale of equipment under sales-type leases
is recognized at the inception of the lease. Unearned incomeon sales-type leases and direct-financing leases is recognizedover the life of each respective lease using the interest method.
Leases not qualifying as sales-type leases or direct-financing
leases are accounted for as operating leases and the related
revenue is recognized over the lease term.
(4) Foreign Currency Translation
All asset and liability accounts of foreign subsidiaries andaffiliates are translated into Japanese yen at the rates of
exchange in effect at year-end and all income and expense
accounts are translated at average rates of exchange during theyear. The resulting translation adjustments are accumulated
and reported as part of other comprehensive income (loss).
Foreign currency receivables and payables of the Company
are translated into yen at the rate in effect at the balance sheet
date and the resulting translation gains and losses are credited
or charged to income for the year.
(5) Cash Equivalents
For the purpose of the statements of cash flows, the Company
considers all highly liquid investments purchased with initial
maturities of three months or less to be cash equivalents.
(6) Investments in Debt and Equity Securities
The Company classifies investments in debt and equity
securities as “available-for-sale” or “held-to-maturity.” The
Company has no securities classified as “trading.” “Held-tomaturity” securities are those securities in which the company

has the ability and intent to hold the security until maturity. All
securities not included in “trading” or “held-to-maturity” areclassified as “available-for-sale” securities. Marketable debt
and equity securities which are classified as “available-for-sale”
are recorded at fair value. Unrealized gains and losses on securities classified as “available-for-sale” are reported as part ofother comprehensive income (loss), net of tax. Debt securities
classified as “held-to-maturity” are reported at amortized cost.
A decline in the fair value of any available-for-sale securities
below cost that is deemed to be other-than-temporary results ina reduction in carrying amount to fair value. The impairment ischarged to income and a new cost basis for the securities isestablished. To determine whether an impairment is other-thantemporary, the Company periodically reviews the fair value ofavailable-for-sale securities for possible impairment by taking
into consideration the financial and operating conditions of theissuer, the general market conditions in the issuer’s industry,
the degree and period of the decline in fair value and otherrelevant factors.
Other investments in non-public companies are recorded atcost as fair value is not readily determinable. The Company periodically evaluates the values of other investments in non-publiccompanies for possible impairment by taking into consideration
the financial and operating conditions of the issuer, the generalmarket conditions in the issuer’s industry and the period of thedecline in the estimated fair value and other relevant factors. If
the impairment is determined to be other-than-temporary, otherinvestments in non-public companies are written down to their
impaired value through a charge to income.
Realized gains or losses on the sale of investments are basedon the moving-average cost method and are credited or
charged to income.
(7) Inventories
Inventories, consisting of security-related products, realestate and information and other related products, are statedat the lower of cost or market. Cost is determined, in the case ofreal estate, based on a specific identification method and, in thecase of other inventories, using the moving-average method.
(8) Allowance for Doubtful Accounts
The Company recognizes allowance for doubtful accounts toensure trade and other receivables are not overstated due touncollectibility. Allowance for doubtful accounts is maintained
for all customers based on a variety of factors, including thelength of time receivables are past due, macroeconomic conditions, significant one-time events and historical experience. An
additional reserve for individual accounts is recorded when the
Company becomes aware of a customer’s inability to meet its
financial obligations, such as in the case of bankruptcy filings ordeterioration in the customer’s operating results or financial
position. If circumstances related to customers change, estimatesof the recoverability of receivables would be further adjusted.
(9) Deferred Insurance Acquisition Costs
Costs that vary with and are primarily related to acquiring
new insurance policies are deferred and are being amortizedprincipally over the premium-paying period of the related
insurance policies applying a percentage relationship of cost
incurred to premiums from contracts issued to applicable
unearned premiums throughout the period of the contract.
(10) Property, Plant and Equipment and Depreciation
Property, plant and equipment, including significant betterments, are carried at cost. Depreciation is computed primarily
using the declining-balance method at rates based on the estimated useful lives of the assets. Assets leased to others underoperating leases are primarily depreciated using the straightline method over the estimated useful lives. Depreciation
expense was ¥33,042 million ($282,410 thousand), ¥33,465 million and ¥34,943 million for the years ended March 31, 2006,
2005 and 2004, respectively. Maintenance, repairs and renewals
are charged to income as incurred.
The estimated useful lives of depreciable assets are
as follows:
Buildings
22 to 50 years
Security equipment and control stations
5 years
Machinery, equipment and automobiles 3 to 15 years
In March 2005, the FASB issued FASB Interpretation No. 47(“FIN No. 47”), “Accounting for Conditional Asset Retirement
Obligations—an interpretation of FASB statement No. 143.”
FIN No. 47 clarifies that the term “conditional asset retirement
obligation” as used in Statement of Financial AccountingStandards (“SFAS”) No. 143, “Accounting for Asset Retirement
Obligations,” refers to a legal obligation of an entity to perform
an asset retirement activity in which the timing and/or methodof settlement are conditional on a future event that may or may
not be within the control of the entity. Such an obligation to perform the asset retirement activity is unconditional even though
uncertainty exists about the timing and/or method of settlement. Accordingly, an entity is required to recognize a liability
for the value of a conditional asset retirement obligation if thefair value of the liability can be reasonably estimated. FIN No. 47
is effective no later than the end of fiscal years ended after
December 15, 2005 and required to be adopted by the Company
on March 31, 2006. The Company has determined that conditional legal obligations exist for certain of its leased facilities.
As a result of adoption of FIN No. 47, on March 31, 2006, theCompany recognized a one-time expense of ¥864 million($7,385 thousand) as a cumulative effect of accounting change,
and the Company’s buildings and improvements, and liabilities
increased by ¥694 million ($5,932 thousand) and ¥2,162 million($18,479 thousand), respectively.
(11) Deferred Charges
Deferred charges primarily consist of costs related to installation services of security equipment related to on-line centralized
security services. The installation costs are deferred and amortized using the straight-line method over the contractual periodof security services after completion of the installation. Amortization expense was ¥14,045 million ($120,043 thousand), ¥13,583
million and ¥13,323 million for the years ended March 31, 2006,
2005 and 2004, respectively.

SECOM CO., LTD. ANNUAL REPORT 2006

35

CONSOLIDATED FINANCIAL STATEMENTS(12) Impairment or Disposal of Long-Lived Assets
The Company reviews the carrying amount of its long-lived
assets held and used, other than goodwill and intangible assets
with indefinite lives, and assets to be disposed of, whenever
events or changes in circumstances indicated that the carrying
amount may not be recoverable. Long-lived assets to be held
and used are reviewed for impairment by comparing the carrying amount of the assets with their estimated future undiscounted cash flows. If it is determined that an impairment loss
has occurred, the loss would be recognized during the period.
The impairment loss would be calculated as the difference
between the asset carrying amount and the fair value. Longlived assets that are to be disposed of other than by sale areconsidered held and used until they are disposed of. Long-lived
assets that are to be disposed of by sale are reported at thelower of their carrying amount or fair value less cost to sell.
Reductions in carrying amount are recognized in the period inwhich the long-lived assets are classified as held for sale.
(13) Goodwill and Other Intangible Assets
Goodwill represents the excess of costs over fair value of assetsof business acquired. Pursuant to SFAS No. 142, “Goodwill andOther Intangible Assets,” goodwill and intangible assets acquired
in a purchase business combination and determined to have an
indefinite useful life are not amortized, but instead tested for
impairment at least annually. SFAS No. 142 also requires that
intangible assets with estimable useful lives be amortized overtheir respective estimated useful lives to their estimated residual
values, and reviewed for impairment in accordance with SFAS
No. 144, “Accounting for the Impairment or Disposal of LongLived Assets.” The Company conducts its annual impairment
test at the end of each fiscal year.
(14) Unearned Premiums and Other Insurance Liabilities
Unearned premiums are related to unexpired periods of
insurance contracts and are earned on a pro-rata basis over theremaining contract period. Other insurance liabilities consist
principally of liabilities for unpaid claims and adjustment
expenses, which are estimates of payments to be made onreported claims and incurred but not reported claims, which
are computed based on past experience for unpaid losses.
(15) Income Taxes
The provision for income taxes is computed based on thepretax income included in the consolidated statements ofincome. The asset and liability approach is used to recognize
deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between the carrying
amounts and the tax bases of assets and liabilities and operating loss carryforwards. Valuation allowances are recorded toreduce deferred tax assets when it is more likely than not that a
tax benefit will not be realized. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
(16) Research and Development
Research and development costs are charged to income
as incurred.

SECOM CO., LTD. ANNUAL REPORT 200636(17) Advertising Costs
Advertising costs are charged to income as incurred, except
for the costs related to insurance policies. Advertising costs foracquiring new insurance policies are deferred and amortizedas part of insurance acquisition costs. Advertising expenses
included in selling, general and administrative expenses forthe years ended March 31, 2006, 2005 and 2004 were ¥6,746
million ($57,658 thousand), ¥5,186 million and ¥5,366 million,
respectively.
(18) Derivative Financial Instruments
The Company recognizes all derivative financial instrumentsin the consolidated financial statements at fair value regardlessof the purpose or intent for holding them. Changes in the fairvalue of derivative financial instruments are either recognizedperiodically in income or in shareholders’ equity as a componentof other comprehensive income (loss) depending on whether
the derivative financial instruments qualify for hedge accounting, and if so, whether they qualify as a fair value hedge or acash flow hedge. Changes in the fair values of derivative financial instruments accounted for as a fair value hedge are recorded
in income along with the portion of the change in the fair valueof the hedged item that relates to the hedged risk. Changes in
the fair value of derivative financial instruments accounted for
as a cash flow hedge, to the extent it is effective as a hedge,
are recorded in other comprehensive income (loss), net of tax.
Changes in the fair value of derivative financial instruments not
qualifying as a hedge are reported in income.
The Company meets the documentation requirements which
include their risk management objective and strategy for undertaking various hedge transactions. In addition, formal assessment
is made at the hedge’s inception and periodically on an on-goingbasis, as to whether the derivatives used in hedging activities
are highly effective in off-setting changes in fair values or cash
flow of hedged items. Hedge accounting is discontinued for
ineffective hedges, if any. Discontinued hedges are recognizedin current income.
(19) Discontinued Operations
SFAS No. 144, “Accounting for the Impairment or Disposal ofLong-Lived Assets,” broadened the scope of discontinued operations to include the operating results of any component of anentity with its own identifiable operations and cash flows which
is disposed of or is classified as held for sale, and with which
the Company will not have significant continuing involvement.
Included in reported discontinued operations are the operating
results of certain businesses and properties sold in the years
ended March 31, 2005 and 2004, without significant continuing
involvement, and the results of operations for the presented
periods were reclassified in the accompanying consolidated
financial statements.
(20) Earnings per Share
Basic Earnings per Share (“EPS”) is computed based on the
average number of shares of common stock outstanding forthe period. Diluted EPS assumes the dilution that could occur
if securities or other contracts to issue common stock wereexercised or converted into common stock, or resulted in theissuance of common stock.
(21) Recent Pronouncements
In November 2004, the FASB issued SFAS No. 151, “Inventory
Costs—an amendment of ARB No. 43, Chapter 4.” SFAS No. 151
amends the guidance in Accounting Research Bulletin (“ARB”)
No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting
for abnormal amounts of idle facility expense, freight, handlingcosts, and wasted material (spoilage). Among other provisions,the new rule requires that items such as idle facility expense,
excessive spoilage, double freight, and rehandling costs be recognized as current-period charges regardless of whether theymeet the criterion of “so abnormal” as stated in ARB No. 43.
Additionally, SFAS No. 151 requires that the allocation of fixed
production overheads to the costs of conversion be based on
the normal capacity of the production facilities. SFAS No. 151 iseffective for fiscal years beginning after June 15, 2005 and isrequired to be adopted by the Company on April 1, 2006. The
adoption of SFAS No. 151 is not expected to have a material
impact on the consolidated results of operations and financial
condition.
In December 2004, the FASB issued SFAS No. 153,
“Exchanges of Nonmonetary Assets—an amendment of
APB Opinion No. 29.” SFAS No. 153 eliminates the exception
from fair value measurement for nonmonetary exchanges ofsimilar productive assets in paragraph 21 (b) of Accounting
Principles Board (“APB”) Opinion No. 29, “Accounting for
Nonmonetary Transactions,” and replaces it with an exception
for exchanges that do not have commercial substance. SFAS
No. 153 specifies that a nonmonetary exchange has commercial
substance if the future cash flows of the entity are expected tochange significantly as a results of the exchange. SFAS No. 153
is effective for the fiscal periods beginning after June 15, 2005
and is required to be adopted by the Company on April 1, 2006.
The adoption of SFAS No. 153 is not expected to have a material
impact on the consolidated results of operations and financial
condition.
In May 2005, the FASB issued SFAS No. 154, “Accounting
Changes and Error Corrections—a replacement of APB Opinion
No. 20 and the FASB statement No. 3.” SFAS No. 154 replaces
APB Opinion No. 20, “Accounting Changes” and SFAS No. 3,“Reporting Accounting Changes in Interim Financial Statements,”
and provides guidance on the accounting for and reporting ofaccounting changes and error corrections. SFAS No. 154
requires retrospective application, or the latest practicable date,as the required method for reporting a change in accounting
principle and the reporting of a correction of an error. SFAS
No. 154 is effective for accounting changes and corrections oferrors made in fiscal years beginning after December 15, 2005
and is required to be adopted by the Company on April 1, 2006.
The impact of SFAS No. 154 will depend on the change, if any,in a future period.
(22) Reclassifications
Certain reclassifications of previously reported amounts havebeen made to conform to the presentation used for the year
ended March 31, 2006.

3. U.S. Dollar Amounts
U.S. dollar amounts have been included in these financial statements solely for the convenience of the reader. The translations of
yen into U.S. dollars have been made at the rate of ¥117=US$1,
the rate prevailing on the Tokyo Foreign Exchange Market on
March 31, 2006. These translations should not be construed as
representing that the yen amounts actually represent, or havebeen or could be converted into U.S. dollars at that rate.
4. Reconciliation of the Differences between Basic and
Diluted Net Income per Share (“EPS”)
Reconciliation of the differences between basic and diluted
EPS for the years ended March 31, 2006, 2005 and 2004 is
as follows:

For the year ended March 31, 2006:
Basic EPS—
Income from continuing operations.........
Effect of dilutive securities—
Convertible bonds......................................
Diluted EPS—
Income from continuing operations
for diluted EPS computation ...................
For the year ended March 31, 2005:
Basic EPS—
Income from continuing operations.........
Effect of dilutive securities—
Convertible bonds......................................
Diluted EPS—
Income from continuing operations
for diluted EPS computation ...................
For the year ended March 31, 2004:
Basic EPS—
Income from continuing operations.........
Effect of dilutive securities—
Convertible bonds......................................
Diluted EPS—
Income from continuing operations
for diluted EPS computation ...................

For the year ended March 31, 2006:
Basic EPS—
Income from continuing operations.........
Effect of dilutive securities—
Convertible bonds......................................
Diluted EPS—
Income from continuing operations
for diluted EPS computation ...................

In millions Thousandsof yenof shares

In yenIncome fromcontinuing
Weightedoperations average shares

EPS¥51,195—

225,002 ¥227.53—¥51,195

225,002 ¥227.53¥41,749

225,039 ¥185.52—

3¥41,749

225,042 ¥185.52¥27,686

225,066 ¥123.01

0¥27,6868

225,074 ¥123.01

In thousands Thousandsof U.S. dollarsof shares

In U.S.
dollars

Income fromcontinuing
Weightedoperations average shares

EPS$437,564

225,002——$437,564

225,002

$1.94

$1.94

SECOM CO., LTD. ANNUAL REPORT 2006

37

CONSOLIDATED FINANCIAL STATEMENTS

5. Cash and Cash Equivalents
Cash and cash equivalents at March 31, 2006 and 2005 werecomprised as follows:

Cash ..........................................
Time deposits...........................
Call loan....................................
Investment securities ..............
...........................................

In millions of yen

In thousands of
U.S. dollars

March 31

March 31

2006

2005

2006

¥144,024
60,34525,0001,675¥231,044¥166,920
18,43810,0001,654¥197,012$1,230,974
515,769
213,675
14,316$1,974,735

Investment securities include commercial papers and money
management funds. These agreements mature within threemonths and the carrying values approximate market. The
Company has never experienced any losses through defaultof the financial institutions and does not anticipate default of
any outstanding agreements.
6. Cash Deposits
The Company operates cash collection and deposit services
for financial institutions relating to cash dispensers located outside of financial institution facilities and also operates cash collection service for entities other than financial institutions. Cashdeposit balances of ¥65,187 million ($557,154 thousand) and¥60,806 million at March 31, 2006 and 2005, respectively, aresegregated from cash and cash equivalents and are restricted
as to use by the Company. The Company funds most of the necessary cash through bank overdrafts and deposits. Bank loans
and deposits received, which relate to these operations, were¥26,069 million ($222,812 thousand) and ¥38,511 million ($329,154
thousand), respectively, at March 31, 2006, and ¥25,573 millionand ¥34,556 million, respectively, at March 31, 2005. As part ofits fee arrangement, the Company is reimbursed for the interest
cost of the related overdrafts.
7. Short-Term Investments and Investment Securities
Short-term investments (current) and investment securities(non-current) include debt and equity securities. The related
aggregate fair value, gross unrealized gains, gross unrealized

losses and cost pertaining to “available-for-sale” and “held-tomaturity” investments at March 31, 2006 and 2005 wereas follows:
In millions of yen
March 31, 2006
Gross unrealized
Cost

Gains

LossesFair value

Available-for-sale:
Equity securities .......
Debt securities ..........
Total ........................

¥060,495
152,253¥212,748¥27,463376¥27,839¥1,981
2,067¥4,048¥085,977
150,562¥236,539

Held-to-maturity:
Debt securities ..........

¥003,909¥¥0,033¥003,876—

In millions of yen
March 31, 2005
Gross unrealized
Cost

Gains

LossesFair value

Available-for-sale:
Equity securities .......
Debt securities ..........
Total ........................

¥049,897
170,146¥220,043¥13,948994¥14,942¥0,702547¥1,249¥063,143
170,593¥233,736

Held-to-maturity:
Debt securities ..........

¥006,112¥¥¥006,132

20—

In thousands of U.S. dollars
March 31, 2006
Gross unrealized
LossesFair value

Available-for-sale:
Equity securities ....... $ 517,051
Debt securities .......... 1,301,308
Total ........................ $1,818,359

Cost$234,726 $16,931
3,214
17,667$237,940 $34,598$ 734,846
1,286,855$2,021,701

Held-to-maturity:
Debt securities .......... $$$33,410Gains— $00,282

33,128Gross unrealized losses on, and fair value of, “available-forsale” and “held-to-maturity” securities, aggregated by investment category and the length of time that individual securities
have been in a continuous unrealized loss position, at March 31,
2006 were as follows:
In millions of yen
March 31, 2006
Less than 12 months

SECOM CO., LTD. ANNUAL REPORT 2006

38

12 months or longer

Fair valueGrossunrealized
lossesFair valueGrossunrealized
lossesAvailable-for-sale:
Equity securities .......
Debt securities ..........
Total ........................

¥ 11,482
104,781¥116,263¥1,6371,864¥3,501¥ 3,405
7,579¥10,984

¥344
203
¥547

Held-to-maturity:
Debt securities ..........

¥002,876

¥

¥

¥ —

33

—

In thousands of U.S. dollars
March 31, 2006
Less than 12 months

12 months or longer

Fair valueGrossunrealized
lossesFair valueGrossunrealized
lossesAvailable-for-sale:
Equity securities .......
Debt securities ..........
Total ........................

$ 98,137
895,564$993,701$13,991
15,932$29,923$29,103
64,778$93,881$2,940
1,735$4,675

Held-to-maturity:
Debt securities ..........

$ 24,581

$

282

$

—

$

respectively. On those sales, the gross realized gains and grossrealized losses, using a specifically identified moving-average
cost basis, for the years ended March 31, 2006, 2005 and 2004
were as follows:

Gross realized gains.....
Gross realized losses ...

In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

2006

2005

2004

2006

¥5,71674¥3,612102¥2,175556$48,855632—

At March 31, 2006, debt securities principally consisted ofshort-term investments in monetary trusts, Japanese government bonds, corporate bonds, U.S. treasury securities and U.S.
Government Agency Bonds.
The cost and fair value of “available-for-sale” and ”held-tomaturity” debt securities by contractual maturity at March 31,
2006 are as follows:

The Company maintains long-term investment securities,
included as investment securities, issued by a number of
non-public companies. The aggregate carrying amount of theinvestments in non-public companies, at cost net of other-thantemporary impairment, was ¥35,861 million ($306,505 thousand)and ¥35,182 million at March 31, 2006 and 2005, respectively.
The corresponding fair value at that date was not computed assuch estimation was not practicable.

In millions of yen
March 31, 2006
Available-for-saleDue within 1 year .........
Due after 1 year
through 5 years ..........
Due after 5 years
through 10 years ........
Due after 10 years .......
..................................

Held-to-maturity

Cost

Fair value¥ 82,200¥ 82,135

Cost

33,32932,891

2,909

2,876

28,082
8,642¥152,253

27,4568,080¥150,562—
1,000¥3,909—1,000¥3,876¥—

Fair value¥—

In thousands of U.S. dollars
March 31, 2006
Available-for-sale
Cost

Fair value

Due within 1 year ......... $ 702,564
Due after 1 year
through 5 years ..........
284,863
Due after 5 years
through 10 years ........
240,017
Due after 10 years .......
73,864.................................. $1,301,308$ 702,009
281,120
234,667
69,059$1,286,855

Held-to-maturity
Cost

$

—

24,863

Fair value$

8. Inventories
Inventories principally consist of operational equipment
and certain merchandise, including security-related products
and real estate for sale.
Inventories at March 31, 2006 and 2005 comprised thefollowing:
In millions of yen

In thousands of
U.S. dollars

March 31

March 31

2006

2005

2006

Security-related products .............. ¥ 7,310
Real estate ...................................... 53,112
Information and other-related
products ........................................
4,109............................................. ¥64,531¥ 7,877
28,007$062,478
453,949

5,268¥41,152

35,120$551,547—

24,581

—
—
8,547
8,547
$33,410 $33,128

During the years ended March 31, 2006, 2005 and 2004, the net
unrealized gains on “available-for-sale” securities included aspart of other comprehensive income (loss), net of tax, increasedby ¥5,541 million ($47,359 thousand) and ¥1,040 million and¥7,304 million, respectively.
Proceeds from the sale of “available-for-sale” securities forthe years ended March 31, 2006, 2005 and 2004 were ¥74,869
million ($639,906 thousand), ¥17,826 million and ¥20,791 million,

Work in process real estate inventories at March 31, 2006 and2005, amounting to ¥48,500 million ($414,530 thousand) and¥21,700 million, respectively, are included in real estate.
9. Investments in Affiliated Companies
The Company has investments in affiliated companies thatare accounted for under the equity method. Investments
principally consist of investments in Nohmi Bosai Ltd., a 28.6
percent owned affiliate, which is the largest Japanese manufacturer of fire alarms and listed on the First Section of the Tokyo
Stock Exchange; Taiwan Secom Co., Ltd., a 28.1 percent owned
affiliate, which is listed on the Taiwan Stock Exchange; andS1 Corporation, a 26.7 percent owned affiliate, which is listedon the Korea Stock Exchange.

SECOM CO., LTD. ANNUAL REPORT 2006

39

CONSOLIDATED FINANCIAL STATEMENTS

Summarized financial information regarding the affiliatedcompanies accounted for under the equity method was
as follows:

In millions of yen

In thousands of
U.S. dollars

March 31

March 31

2006

2005

2006

$ 6,419

In millions of yen

In thousands of
U.S. dollars

March 31

March 31

Notes and accounts
receivable, trade...........................

¥ 751

¥ 448

2005

2006

Loan receivables ............................

¥

75

¥ 671

$

Current assets ................................ ¥ 89,410 ¥ 95,697
Non-current assets......................... 117,499 142,730$ 764,188
1,004,265

Notes and accounts payable .........

¥ 594

¥ 857

$ 5,077

Guarantees for bank loans ............

¥1,633¥1,850$13,957

Total assets ................................. ¥206,909 ¥238,427$1,768,453

Current liabilities ............................ ¥ 51,740 ¥ 51,013
Non-current liabilities ....................
31,622
61,216
Shareholders’ equity ..................... 123,547 126,198$ 442,222
270,274
1,055,957

Total liabilities andshareholders’ equity ................ ¥206,909 ¥238,427$1,768,453

In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

2006

2004

2006

Net sales ....................... ¥213,967 ¥201,253 ¥188,570

2006

2005

$1,828,778

Gross profit................... ¥ 71,863 ¥065,276 ¥059,894$ 614,214

Net income ................... ¥ 15,371 ¥011,362 ¥009,751$ 131,376

Dividends received from affiliated companies for the years
ended March 31, 2006, 2005 and 2004 were ¥2,068 million($17,675 thousand), ¥1,524 million and ¥1,140 million, respectively.
Three affiliated companies accounted for under the equity
method with an aggregated carrying amount of ¥28,839 million($246,487 thousand) and ¥24,593 million at March 31, 2006 and2005, respectively, had a quoted market value of ¥82,385 million($704,145 thousand) and ¥65,601 million at March 31, 2006 and2005, respectively.
The unamortized amounts of goodwill were ¥1,556 million($13,299 thousand) and ¥1,698 million at March 31, 2006 and2005, respectively.
On March 30, 2006, the parent company sold 23.8 percent of
the outstanding shares of Japan Cablenet Holdings Limited, a26.0 percent owned affiliate, to KDDI Corporation for ¥12,393
million ($105,923 thousand). The sale resulted in a gain of¥6,710 million (¥57,350 thousand).
A summary of transactions and balances with the affiliated companies accounted for using the equity method is presented below:
In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

2006

2005

2004

2006

Sales ............................

¥1,926¥1,740¥1,840$16,462

Purchases......................

¥6,077¥5,574¥7,858$51,940

SECOM CO., LTD. ANNUAL REPORT 2006

40

641

10. Long-Lived Assets
The Company has assessed the potential impairment for its
long-lived assets. As a result of significant decreases in rental
rates, market prices and revenue forecasts, and changes ofassumptions regarding useful lives before sale, the Company
principally recognized impairment losses on idle properties forthe year ended March 31, 2006, properties of hotel business forthe year ended March 31, 2005, properties held for lease andproperties held by real estate investment companies as part ofinvestment assets of the insurance services segment for theyear ended March 31, 2004. Fair value used was determined
mainly based on appraisal value.
Impairment loss on long-lived assets by business segment for
the years ended March 31, 2006, 2005 and 2004 was as follows:

2006

Continuing operations:
Security services.............
Medical services .............
Insurance services ..........
Geographic information
services..........................
Information andcommunication related
and other services ........
Corporate items ..............
..................................

In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 312005

¥ 63 ¥1,350
—
25
—
647

¥

2004

2006

—
511
407

$ 539
—
—

—

—

650

—

59
699

2,724
469

5,475
1,784

504
5,974

821

5,215

8,827

7,017

—

—

3,312

—

Discontinued operations(Note 25):
Insurance services ..........
Information andcommunication related
and other services ........

—

—

2,956

—

..................................

—

—

6,268

—

¥821 ¥5,215 ¥15,095$7,017

Total .............................

Impairment loss on long-lived assets of the insurance service
segment was recorded in net sales and operating revenue, which
included net realized investment gains and losses of the segment.

11. Goodwill and Other Intangible Assets
The components of acquired intangible assets excluding
goodwill at March 31, 2006 and 2005 were as follows:

The changes in the carrying amount of goodwill by businesssegment for the years ended March 31, 2006 and 2005 wereas follows:

In millions of yen

In millions of yen

March 31, 2006
Gross
carrying
amountAccumulated
amortization

Net
carrying
amountAmortized intangible assets:
Software.........................................
Other...............................................
Total ...........................................

¥27,391
3,787¥31,178(¥14,020)(2,580)(¥16,600)¥13,371
1,207¥14,578

Unamortized intangible assets........

¥ 2,695¥¥ 2,695—

In millions of yen
March 31, 2005
Gross
carrying
amountAccumulated
amortization

Net
carrying
amountAmortized intangible assets:
Software.........................................
Other...............................................
Total ...........................................

¥23,561
4,055¥27,616(¥10,517)(2,599)(¥13,116)¥13,0441,456¥14,500

Unamortized intangible assets........

¥04,962¥¥04,962—

In thousands of U.S. dollars
March 31, 2006
Gross
carrying
amountAccumulated
amortization

Net
carrying
amountAmortized intangible assets:
Software......................................... $234,111
Other...............................................
32,368
Total ........................................... $266,479($119,829) $114,282(22,052)
10,316($141,881) $124,598

Unamortized intangible assets........ $ 23,034$—$ 23,034

Aggregate amortization expense for the years ended March
31, 2006, 2005 and 2004 was ¥5,251 million ($44,880 thousand),¥4,324 million and ¥4,537 million, respectively. The weighted
average amortization period for internal use software isapproximately five years.
The estimated aggregate amortization expense for intangible
assets for the next five years is as follows:
Years ending March 31

2007 ......................................................
2008 ......................................................
2009 ......................................................
2010 ......................................................
2011 ......................................................

In millions of yen

In thousands of
U.S. dollars¥4,313
3,148
2,402
1,480
701

$36,863
26,906
20,53012,6505,991

Information and
Geographic communication
information
related andservicesother services

Security
services

Medicalservices

March 31, 2004 ........ ¥1,231
Effect of adopting
FIN No. 46R............
—
Impairment losses...
—
Translation
adjustment.............
51
March 31, 2005 ........ 1,282
Goodwill acquired
during the year ......
—
Disposal ...................
—
Impairment losses...
—
Translation
adjustment.............
20
March 31, 2006 ........ ¥1,302¥4,813¥3,853¥5,701¥15,598

2,514
(93)

—
—

—
—

2,514
(93)

—
7,234

—
3,853

—
5,701

51
18,070

2,298
—
(149)

—
(82)
—

176
—
—

2,474
(82)
(149)

—
¥9,383—¥3,771—¥5,877

20¥20,333

Total

In thousands of U.S. dollars

Security
services

Medicalservices

Geographic
information
services

March 31, 2005 ........ $10,957 $61,829 $32,932
Goodwill acquired
during the year ......
— 19,641—
Disposal ...................
—
—
(701)
Impairment losses...
— (1,274)—
Translation
adjustment.............
172——
March 31, 2006 ........ $11,129 $80,196 $32,231

Information andcommunication
related andother services

Total$48,726 $154,444
1,504
—
—

21,145(701)(1,274)—
172$50,230 $173,786

12. Bank Loans and Long-Term Debt
Bank loans of ¥105,750 million ($903,846 thousand) and¥102,228 million at March 31, 2006 and 2005, respectively, aregenerally comprised of 30 to 365 day notes. Their interest rates
ranged from 0.57 to 5.37 percent and from 0.52 to 5.25 percent
at March 31, 2006 and 2005, respectively. Substantially all ofthese loans are with banks. The Company has entered into
basic agreements with these banks which state that, withrespect to all present or future loans with such banks, collateral(including sums on deposit with such banks) or guarantors shallbe provided immediately upon request. Further, any collateral
furnished pursuant to such agreements or otherwise will beapplicable to all indebtedness to such banks. The Company has
never been requested to submit such additional security.
At March 31, 2006, Pasco Corporation (“PASCO”), a subsidiary of the parent company, had unused committed lines ofcredit from short-term arrangements aggregating ¥2,000 million($17,094 thousand). The lines of credit expire in July 2006. PASCO
has the ability and intent to extend these lines of credit undersimilar terms and conditions in July 2006. Under the agreements,
PASCO is required to pay committed fees at an annual rate of
0.40 percent on the unused portion of the lines of credit.

SECOM CO., LTD. ANNUAL REPORT 2006

41

CONSOLIDATED FINANCIAL STATEMENTS

Long-term debt at March 31, 2006 and 2005 comprised thefollowing:
In millions of yen

In thousands of
U.S. dollars

March 31

March 31

2005

2006

2006

Loans, principally from banks
due 2006–2025 with interest
rates ranging from 0.00 to 6.60%
in 2006 and 2005:
Secured............................................. ¥20,202 ¥17,249
Unsecured ........................................
4,281
6,159
0.53% unsecured bonds due 2006.....
30,000 30,000
0.46% unsecured bonds due 2007.....
1,500
1,500
0.48% unsecured bonds due 2007.....
1,000
1,000
0.61% unsecured bonds due 2010.....
1,350—
0.91% unsecured bonds due 2010.....
1,100—
Unsecured bonds due 2009–2012
with floating interest rates basedon 6-month TIBOR plus
0.15%–0.20% ......................................
8,440
9,130
Obligations under capital leases,
due 2006–2026 (Note 19) ..................
12,623 11,269...................................................
80,496 76,307
Less:
Portion due within one year.............
44,714 10,492................................................... ¥35,782 ¥65,815$172,666
36,590256,410
12,821
8,547
11,538
9,402

72,137
107,889
688,000
382,171$305,829

Property, plant and equipment with a carrying amount of¥48,698 million ($416,222 thousand), inventories with a carrying
amount of ¥37,529 million ($320,761 thousand), investment
securities with a carrying amount of ¥1,169 million ($9,991
thousand), time deposits of ¥420 million ($3,590 thousand) andother intangible assets and other with a carrying amount of¥1,976 million ($16,889 thousand) were pledged as collateralfor bank loans and long-term debt at March 31, 2006.
The aggregate annual maturities on long-term debt after
March 31, 2006 are as follows:
Years ending March 31

2007.....................................................
2008.....................................................
2009.....................................................
2010.....................................................
2011.....................................................
Thereafter ...........................................
............................................................

SECOM CO., LTD. ANNUAL REPORT 2006

42

In millions of yen

In thousands of
U.S. dollars¥44,714
8,348
5,154
9,037
4,857
8,386
¥80,496$382,171
71,35144,051
77,23941,51371,675$688,000

13. Insurance-Related Operations
Secom General Insurance Co., Ltd. (“Secom Insurance”),
a subsidiary of the parent company, maintains accounting
records as noted in Note 2 in accordance with the accounting
principles and practices generally accepted in Japan, whichvary in certain respects from accounting principles generally
accepted in the United States of America. Those differences are
principally, (a) that insurance acquisition costs are charged toincome when incurred in Japan whereas in the United States ofAmerica those costs are deferred and amortized generally overthe premium-paying period of the insurance policies, (b) thatliabilities related to incurred but not reported claims arecomputed based on related regulations in Japan whereas in the
United States of America those liabilities are computed basedon past experience for unreported losses, and (c) that unearned
premiums are calculated based on the documents authorized by
the Supervisory Authorities in Japan whereas in the UnitedStates of America unearned premiums are reflected based on
the lapse and surrender over the contract period.
In addition, under certain property and casualty insurance
contracts with a refund clause and long-term insurance policies
that provide refunds at maturity, such as personal accident andfire, the policyholder receives a refund if premiums have been
fully paid unless a substantial settlement (as defined in thepolicy) has occurred. The Company has provided for suchrefundable amounts by classifying a portion of the net
premiums written, together with interest thereon, as investment
deposits by policyholders. Contract and policy terms are
principally five years.
For purposes of preparing the consolidated financial
statements, appropriate adjustments have been made to reflect
such items in accordance with accounting principles generally
accepted in the United States of America.
The amounts of net equity of Secom Insurance at March 31,
2006 and 2005 were ¥29,847 million ($255,103 thousand) and¥23,444 million, respectively.
Net sales and operating revenue of Secom Insurance include
net realized investment gains and losses, including the resultson sales of securities, loss on other-than-temporary impairmentof investment securities and impairment loss on long-lived
assets. Net realized investment gains for the years ended March
31, 2006, 2005 and 2004 were ¥3,290 million ($28,120 thousand),¥2,039 million and ¥117 million, respectively.

14. Pension and Severance Costs
Employees of the parent company and its Japanesesubsidiaries whose services are terminated are, under mostcircumstances, eligible for lump-sum severance indemnities
and/or eligible for pension benefits.
The parent company and certain of its Japanese subsidiaries
maintained an Employees’ Pension Fund (“EPF”) plan which isa defined benefit pension established under the Japanese
Welfare Pension Insurance Law, covering substantially all of
their employees. The EPF plan was composed of thesubstitutional portion and the corporate portion. The pension
benefits for the substitutional portion were determined basedon standard remuneration scheduled by the Japanese Welfare
Pension Insurance Law and the length of participation. The
corporate portion is a cash balance pension plan. Under the
cash balance pension plan, each participant has an accountwhich is credited annually based on the current rate of pay andmarket-related interest rate.
In April 2003, the parent company and certain of its Japanesesubsidiaries transferred the 20 percent portion of their cash
balance pension plan for the eligible employees having three
years or more of service to a newly established defined contribution pension plan. In addition, these companies transferred apart of their cash balance pension plan to the defined contribution pension plan in April 2005. The contributions from the cash
balance pension plan to the defined contribution plan, whichwere equivalent to the benefits transferred to the defined contribution pension plan, were ¥4,257 million ($36,385 thousand)and ¥7,091 million in April 2005 and 2003, respectively. In
accordance with SFAS No. 88, “Employers’ Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans
and for Termination Benefits,” the Company accounted forthese transfers as a partial settlement of benefit obligation andrecognized settlement losses of ¥2,490 million ($21,282 thousand) and ¥4,555 million as “Settlement loss of benefit obligation on transfer to defined contribution pension plan” in the
consolidated statements of income for the years ended March
31, 2006 and 2004, respectively.

In April 2002, following the enactment of changes to theJapanese Welfare Pension Insurance Law, the parent company
and certain of its Japanese subsidiaries obtained approval fromthe Japanese Ministry of Health, Labour and Welfare for exemption from the future benefit obligation with respect to the substitutional portion of the EPF plan. After obtaining the approval,in October 2003, these companies obtained another approval
for separation of the remaining benefit obligation of the substitutional portion that is related to past employee services. The
transfer to the Government was completed in February 2004.
The Company accounted for the transfer in accordance with
EITF No. 03-2, “Accounting for the Transfer to the Japanese
Government of the Substitutional Portion of Employee Pension
Fund Liabilities.” As a result of the transfer, the Company
recognized a loss of ¥4,209 million as “Loss on transfer of thesubstitutional portion of Employees’ Pension Fund” in the
consolidated statement of income for the year ended March 31,
2004. This consists of a ¥24,272 million subsidy from theGovernment calculated as the difference between accumulated
benefit obligation settled and the amount transferred to theGovernment, ¥7,719 million of derecognition of previously
accrued salary progression and ¥36,200 million of recognitionof related unrecognized actuarial loss, at the time when thepast benefit obligation was transferred.
The corporate portion of the EPF, which is a cash balance
pension plan, continues to exist exclusively as a corporate
pension fund.
Net pension and severance costs for the years ended March
31, 2006, 2005 and 2004 were as follows:

2006

Net pension andseverance costs:
Service cost .....................
Interest cost.....................
Expected return onplan assets.....................
Amortization oftransition assets............
Amortization of priorservice benefit...............
Recognized actuarialloss.................................
Net pension andseverance costs.........

In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

2004

2006

¥3,6291,097¥3,473 ¥3,360
1,237 3,083$31,017
9,376(1,550)(1,767) (2,678)(13,248)—(1,715)962¥2,423

2005

(40)

(44)

—

(1,654) (1,642)(14,658)

907

2,509

8,222

¥2,156 ¥4,588$20,709

SECOM CO., LTD. ANNUAL REPORT 2006

43

CONSOLIDATED FINANCIAL STATEMENTS

The changes in benefit obligation and plan assets, funded
status and composition of the amounts recognized in the
consolidated balance sheets were as follows:
In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

2005

2006

¥62,460
3,473
1,237(1,599)(4,542)
195
—
410
—

$526,787
31,0179,376(2,487)(33,829)
2,111(1,077)—(36,385)2006

Change in benefit obligation:
Benefit obligation
at beginning of year .................. ¥61,634
Service cost..................................
3,629
Interest cost..................................
1,097
Actuarial gain...............................
(291)
Benefits paid ................................ (3,958)
Acquisition ...................................
247
Divestiture ....................................
(126)
Effect of adopting FIN No. 46R ...
—Settlement.................................... (4,257)
Benefit obligation
at end of year ............................. 57,975
Change in plan assets:
Fair value of plan assets
at beginning of year .................. 51,695
Actual return on plan assets.......
8,100
Employer contribution ................
4,137
Benefits paid ................................ (2,496)
Acquisition ...................................
—Divestiture ....................................
(61)
Settlement.................................... (4,257)
Fair value of plan assets
at end of year ............................. 57,118
Funded status ....................................
857
Unrecognized actuarial loss............. (17,649)
Unrecognized prior service
benefit............................................... 17,757
Net amount recognized ....... ¥ 965

61,634

495,51349,561
1,703
4,229(3,997)
199——

441,837
69,23135,359(21,333)—(521)(36,385)

51,695488,1889,939(27,944)

7,325(150,846)

19,472¥ 1,467

151,769$ 8,248

Amounts recognized in the
consolidated balance sheets
consist of:Prepaid pension andseverance costs...................... (¥10,929) (¥11,165)
Accrued pension andseverance costs...................... 12,583
13,261
Accumulated othercomprehensive income(loss) .......................................
(689)
(629)
Net amount recognized ....... ¥ 965 ¥ 1,467

44March 31

Discount rate............................................................
Rate of compensation increase ..............................

2006

2005

1.9%
2.7

2.0%
2.7

Weighted-average assumptions used to determine net pension
and severance costs for the years ended March 31, 2006, 2005 and2004 were as follows:
Years ended
March 31

Discount rate ...........................................
Expected return on plan assets .............
Rate of compensation increase .............

2006

2005

2004

2.0%
3.0
2.7

2.0%
3.0
2.7

2.5%
3.0
2.7

The Company determines the expected long-term rate of
return based on the expected long-term return of the various
asset categories in which it invests. The Company considers thecurrent expectations for future returns and the actual historicalreturns of each plan asset category.
The weighted-average asset allocation of the Company’s
pension plans at March 31, 2006 and 2005 were as follows:
March 31($ 93,410)
107,547$(5,889)8,248

The accumulated benefit obligation for the pension plan was¥53,804 million ($459,863 thousand) and ¥56,939 million atMarch 31, 2006 and 2005, respectively.
The Company recognizes a minimum pension liability inthe consolidated balance sheets for pension plans with anaccumulated benefit obligation in excess of plan assets.

SECOM CO., LTD. ANNUAL REPORT 2006

The minimum pension liability which exceeded the unrecognizedprior service cost was recorded as a component of accumulated
other comprehensive income (loss), net of tax, of ¥388 million($3,316 thousand) and ¥358 million at March 31, 2006 and 2005,
respectively.
The projected benefit obligation, accumulated benefit
obligation and fair value of plan assets for the pension plans
with accumulated benefit obligation in excess of plan assets
were ¥16,215 million ($138,590 thousand), ¥15,082 million($128,906 thousand) and ¥4,261 million ($36,419 thousand),
respectively, at March 31, 2006, and ¥16,255 million, ¥15,002
million and ¥3,324 million, respectively, at March 31, 2005.
The Company uses March 31 as the measurement date forthe domestic pension plan.
Weighted-average assumptions used to determine the benefit
obligation at March 31, 2006 and 2005 were as follows:

Asset category:
Equity securities...................................................
Debt securities .....................................................
Call loan................................................................
Other .....................................................................
Total ..................................................................

2006

2005

39.5%
30.9
10.3
19.3
100.0%

33.8%
35.6
21.2
9.4
100.0%The Company’s investment policy is designed to ensure thatsufficient plan assets are available to provide future paymentsof pension benefits to the eligible plan participants. The policy
does not use target allocations for the individual asset categories. Plan assets are invested primarily in equity and debt
securities, and mutual funds with the objective to minimize risk
and achieve the expected rate of return. The investment results

are periodically monitored and asset allocation is adjusted asnecessary.
The Company expects to contribute ¥4,316 million ($36,889
thousand) to its domestic defined benefit plans in the year
ending March 31, 2007.
The following benefit payments, which reflect future services,
as appropriate, are expected to be paid.
Years ending March 31

In millions of yen

In thousands of
U.S. dollars¥ 3,466
4,315
4,271
4,054
3,814
19,151$ 29,624
36,88036,50434,65032,598
163,684

2007.....................................................
2008.....................................................
2009.....................................................
2010.....................................................
2011.....................................................
2012–2016 ...........................................

The parent company and certain subsidiaries have defined
contribution pension plans. The contributions to the defined
contribution pension plans for the years ended March 31, 2006,
2005 and 2004 were ¥1,365 million ($11,667 thousand), ¥892
million and ¥865 million, respectively.
15. Exchange Gains and Losses
Other income for the year ended March 31, 2006 includes net
exchange gains of ¥664 million ($5,675 thousand). Other expenses
for the years ended March 31, 2005 and 2004 include net exchange
losses of ¥177 million and ¥469 million, respectively.
16. Income Taxes
Total income taxes for the years ended March 31, 2006, 2005
and 2004 were allocated as follows:
In thousands ofIn millions of yen
U.S. dollars
Years ended
March 31
2006

2005

2004

Income fromcontinuing operations ... ¥37,904 ¥31,941 ¥26,143
Income (loss) fromdiscontinued
operations.......................
—
931
(206)
Shareholders’ equity—
accumulated othercomprehensive
income (loss):
Unrealized gains
on securities ...............
3,672
621
4,640
Unrealized gains(losses) on
derivative
instruments.................
79
(118)
30
Minimum pension
liabilities......................
(27)(105) 17,226
Foreign currencytranslation
adjustments ................
971
(904)
72
................................... ¥42,599 ¥32,366 ¥47,905

Year ended
March 312006

$323,966—

The parent company and its subsidiaries in Japan were
subject to a corporate tax of 30 percent, an inhabitants tax ofapproximately 20.3 percent, and a deductible enterprise tax ofapproximately 9.9 percent, which, in the aggregate, indicate astatutory tax rate in Japan of approximately 41.9 percent for theyear ended March 31, 2004.
Amendments to Japanese tax regulations, which reduced a
deductible enterprise tax rate from approximately 9.9 percent toapproximately 7.4 percent, were enacted on March 24, 2003. As
a result of this amendment, the statutory tax rate was reduced
from approximately 41.9 percent to 40.5 percent effective from
April 1, 2004. Deferred tax assets and liabilities expected to besettled or realized on or after April 1, 2004 were calculated at
the rate of approximately 40.5 percent.
Reconciliations of the differences between income taxes
computed at statutory tax rates and consolidated income taxes
from continuing operations were as follows:

2006

In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

2005

2004

Income taxes computed
at statutory tax rate of
40.5% in 2006 and 2005
and 41.9% in 2004 ........ ¥36,340 ¥30,081 ¥22,360
Increase (decrease)resulting from:
Unrecognized tax
benefits fromsubsidiaries in loss
positions ....................
1,366
387
3,355
Reversal of valuation
allowance due toutilization ofoperating loss
carryforwards ............
(642)
(316)
(321)
Other, net.....................
840
1,789
749
Consolidated
income taxes fromcontinuing
operations.............. ¥37,904 ¥31,941 ¥26,143

2006$310,598

11,675(5,487)7,180$323,966

31,385

675
(231)
8,299
$364,094

SECOM CO., LTD. ANNUAL REPORT 2006

45

CONSOLIDATED FINANCIAL STATEMENTS

The significant components of deferred tax assets and liabilities
at March 31, 2006 and 2005 were as follows:
In millions of yen

In thousands of
U.S. dollars

March 31

March 31

2005

2006

¥11,9459,518$108,778
89,034

4,541
2,607

35,29922,077

5,426

45,795

3,992
3,585

39,97431,752

5,220
3,636
1,256
1,932
5,458
59,116(12,592)
46,52430,31628,35917,41017,23962,035
528,068(131,162)
396,906(5,680)(7,897)(80,573)(70,821)(5,543)(1,817)(47,470)(15,077)(3,069)(49,128)(4,553)(38,205)(1,278)(1,579)(10,205)(31,188)(31,416)¥15,108(342,667)$ 54,239

2006

Deferred tax assets:
Deferred revenue ....................... ¥12,727
Operating loss carryforwards ...
10,417
Adjustment of book value atthe date of acquisition—
Land and buildings.................
4,130
Other assets ............................
2,583
Accrued pension andseverance costs ........................
5,358
Property, plant andequipment................................
4,677
Accrued bonus ...........................
3,715
Allowance for doubtful
accounts ....................................
3,547
Investment securities .................
3,318
Intangible assets ........................
2,037
Vacation accrual .........................
2,017
Other ...........................................
7,258
Gross deferred tax assets ......
61,784
Less: Valuation allowance ..... (15,346)
Total deferred tax assets .......
46,438Deferred tax liabilities:
Unrealized gains on securities .....
(9,427)
Deferred installation costs.........
(8,286)
Adjustment of book value atthe date of acquisition—
Land and buildings.................
(5,554)Long-term receivables ...........
(1,764)
Investments in affiliatedcompanies ................................
(5,748)Prepaid pension andseverance costs ........................
(4,470)
Unearned premiums andother insurance liabilities ........
(1,194)
Other ...........................................
(3,649)Gross deferred tax
liabilities ................................ (40,092)
Net deferred tax assets ..... ¥ 6,346

The valuation allowance principally relates to deferred tax
assets of the subsidiaries with operating loss carryforwards, fortax purposes, that are not expected to be realized. The netchange in the total valuation allowance for the years ended
March 31, 2006 and 2005 was an increase of ¥2,754 million($23,538 thousand) and a decrease of ¥4,169 million, respectively.

SECOM CO., LTD. ANNUAL REPORT 200646

In assessing the realizability of deferred tax assets, theCompany management considers whether it is more likely than
not that some portion or all of the deferred tax assets will not
be realized. The ultimate realization of deferred tax assets isdependent upon the generation of future taxable income during
the periods in which those temporary differences become
deductible. The Company management considered the scheduled reversal of deferred tax liabilities, projected future taxable
income and tax planning strategies in making this assessment.
Based upon the level of historical taxable income and projections for future taxable income over the periods in which thedeferred tax assets are deductible, the Company management
believes it is more likely than not that the Company will realize
the benefits of these deductible differences, net of the existingvaluation allowance at March 31, 2006 and 2005.
Net deferred tax assets at March 31, 2006 and 2005 arereflected in the accompanying consolidated balance sheets
under the following captions:
In millions of yen

In thousands of
U.S. dollars

March 31

March 31

2005

2006

¥13,951$125,291

5,350—(4,193)¥15,108

26,838(8,309)(89,581)$ 54,239

2006

Deferred income taxes(Current assets) ............................ ¥14,659
Deferred income taxes(Other assets) ...............................
3,140
Other current liabilities ..................
(972)
Other liabilities ............................... (10,481)
Net deferred tax assets ......... ¥ 6,346

The Company has not recognized deferred tax liabilities of¥536 million ($4,581 thousand) for a portion of undistributed
earnings of foreign subsidiaries totaling ¥5,730 million ($48,974
thousand) at March 31, 2006 because they are not expected tobe remitted in the foreseeable future.
At March 31, 2006, the operating loss carryforwards of domestic
subsidiaries amounted to ¥18,386 million ($157,145 thousand)and are available for offsetting against future taxable earningsof such subsidiaries for up to seven years, as follows:
Expires in the years ending March 31

2007 ......................................................
2008 ......................................................
2009 ......................................................
2010 ......................................................
2011 ......................................................
2012 ......................................................
2013 ......................................................
..............................................................

In millions of yen

¥

—
—
1,788
3,067
5,000
5,996
2,535
¥18,386

In thousands of
U.S. dollars$——
15,282
26,21442,73551,24821,666$157,145

The operating loss carryforwards of overseas subsidiaries at
March 31, 2006 amounted to ¥6,474 million ($55,333 thousand),a part of which will begin to expire in the year ending March 31,
2007.
17. Shareholders’ Equity(1) Retained Earnings
The Japanese Commercial Code provides that an amountequal to at least 10 percent of cash dividends and other distributions from retained earnings paid in cash by the parent company
and its Japanese subsidiaries be appropriated as a legal reserve
until the aggregate amount of additional paid-in capital and legal
reserve equals 25 percent of the common stock account.
The Japanese Corporate Law, which has been in force since
May 1, 2006, provides that an amount equal to 10 percent of
surplus (newly defined by the Japanese Corporate Law) distributed by the parent company and its Japanese subsidiaries beappropriated as a legal reserve until the aggregate amount ofadditional paid-in capital and legal reserve equals 25 percent of
the common stock account.
The amount available for dividends under the JapaneseCommercial Code is based on the amount recorded in theparent company’s nonconsolidated statutory financial statements in accordance with the accounting principle generally
accepted in Japan. Such amount was ¥297,581 million($2,543,427 thousand) at March 31, 2006.
The Japanese Commercial Code requires that dividends atyear-end, which the Board of Directors resolved to declare customarily in the first month following year-end, be approved at
the general shareholders’ meeting to be held within threemonths after the end of the accounting period.
Subsequent to March 31, 2006, the parent company’s Boardof Directors declared an annual cash dividend of ¥13,499 million($115,376 thousand) to shareholders of record on March 31,
2006. The dividend declared was approved at the general shareholders’ meeting held on June 27, 2006. Dividends are recordedin the period they are declared.
The Japanese Corporate Law provides that a company canmake dividends of surplus anytime with resolution of the shareholders. The Japanese Corporate Law imposes limitation on an
amount of surplus available for dividends which is different fromthat under the Japanese Commercial Code. The JapaneseCommercial Code was applied to the limitation on the amountavailable for dividends for the year ended March 31, 2006.

(2) Accumulated Other Comprehensive Income (Loss)
An analysis of the changes in accumulated other comprehensive income (loss) for the years ended March 31, 2006,
2005 and 2004 is as follows:
In millions of yen

For the year ended March 31, 2006:
Unrealized gains on securities—
Unrealized holding gains or losses
arising during the period.................
Less: Reclassification
Less: adjustment for gains or
Less: losses included in
Less: net income...............................
Unrealized gains on derivative
instruments—
Unrealized holding gains or losses
arising during the year ....................
Less: Reclassification
Less: adjustment for gains or
Less: losses included in
Less: net income...............................
Minimum pension
liability adjustments.............................
Foreign currencytranslation adjustments.......................
Other comprehensive
income (loss) ................................
For the year ended March 31, 2005:
Unrealized gains on securities—
Unrealized holding gains or losses
arising during the period.................
Less: Reclassification
Less: adjustment for gains or
Less: losses included in
Less: net income...............................
Unrealized losses on derivative
instruments—
Unrealized holding gains or losses
arising during the year ....................
Less: Reclassification
Less: adjustment for gains or
Less: losses included in
Less: net income...............................
Minimum pension
liability adjustments.............................
Foreign currencytranslation adjustments.......................
Other comprehensive
income (loss) ................................

Pre-tax
amountTax(expense) Net-of-tax
or benefit
amount¥14,660(¥5,764) ¥ 8,896(5,448)2,092(3,356)

163

(66)

97

31

(13)

18

(57)

27

(30)

7,317

(971)

6,346

¥16,666(¥4,695) ¥11,971¥4,579(¥1,699)¥2,880(2,918)

1,078(1,840)

(152)

61

(91)

(140)

57

(83)

(269)

105

(164)

(1,488)

904

(584)

(¥ 388)

¥ 506

¥ 118

SECOM CO., LTD. ANNUAL REPORT 2006

47

CONSOLIDATED FINANCIAL STATEMENTS

In millions of yen
Pre-tax
amount

For the year ended March 31, 2004:
Unrealized gains on securities—
Unrealized holding gains or losses
arising during the period.................
Less: Reclassification
Less: adjustment for gains or
Less: losses included in
Less: net income...............................
Unrealized gains on derivative
instruments—
Unrealized holding gains or losses
arising during the year ....................
Less: Reclassification
Less: adjustment for gains or
Less: losses included in
Less: net income...............................
Minimum pension
liability adjustments.............................
Foreign currencytranslation adjustments.......................
Other comprehensive
income (loss) ................................

Tax(expense) Net-of-tax
or benefit
amount¥12,639 (¥04,910) ¥ 7,729

(695)

270

(425)

145

(58)

87

(68)

28

(40)

43,147(17,226)

25,921(4,228)(72)(4,300)¥50,940 (¥21,968) ¥28,972
In thousands of U.S. dollars
Pre-tax
amountTax(expense) Net-of-tax
or benefit
amount

For the year ended March 31, 2006:
Unrealized gains on securities—
Unrealized holding gains or losses
arising during the period................. $125,299 ($49,265) $ 76,034
Less: Reclassification
Less: adjustment for gains or
Less: losses included in
Less: net income............................... (46,564) 17,880 (28,684)
Unrealized gains on derivative
instruments—
Unrealized holding gains or losses
arising during the year ....................
1,393
(564)
829
Less: Reclassification
Less: adjustment for gains or
Less: losses included in
Less: net income...............................
265
(111)
154
Minimum pension
liability adjustments.............................
(487)
231
(256)
Foreign currencytranslation adjustments.......................
62,538(8,299) 54,239
Other comprehensive
income (loss) ................................ $142,444 ($40,128) $102,316

18. Research and Development Expenses
Research and development expenses included in selling,
general and administrative expenses for the years ended March
31, 2006, 2005 and 2004 were ¥4,061 million ($34,709 thousand),¥4,470 million and ¥4,088 million, respectively.

SECOM CO., LTD. ANNUAL REPORT 2006

48

19. Lessee
The Company leases certain office space, employee residential facilities, computer and transportation equipment. Someleased buildings and computer and transportation equipment
are held under capital leases. The other leases are classified as
operating leases.
On April 23, 1996, the Company entered into a long-term leaseagreement for a building and land in Mitaka, Tokyo. The leaseagreement extends for 30 years beginning May 1, 1996. For
financial reporting purposes, the portion of the lease relating to
the building has been classified as a capital lease; accordingly,
an asset of approximately ¥5,086 million ($43,470 thousand) has
been recorded in the building and improvements account. The
portion of the lease relating to the land has been classified as an
operating lease. The future minimum lease payments for the site
at March 31, 2006 were ¥6,575 million ($56,197 thousand).
A summary of leased assets under capital leases at March 31,
2006 and 2005 is as follows:
In millions of yen

In thousands of
U.S. dollars

March 31

March 31

2006

2005

2006

Buildings and improvements........ ¥ 5,185
Machinery, equipment
and automobiles ..........................
14,599Other intangible assets..................
407
Accumulated depreciation ............
(8,532)................................................. ¥11,659¥ 5,185$ 44,316

12,993
147(7,954)¥10,371

124,778
3,479(72,923)$ 99,650

Depreciation expenses under capital leases for the years
ended March 31, 2006, 2005 and 2004 were ¥3,576 million($30,564 thousand), ¥3,146 million and ¥3,186 million,
respectively.
The following is a schedule by year of future minimum lease
payments under capital leases together with the present valueof the net minimum lease payments at March 31, 2006:
Years ending March 31

2007..........................................................
2008..........................................................
2009..........................................................
2010..........................................................
2011..........................................................
Thereafter ................................................
Total minimum lease payments............
Less: Amount representing interest......
Present value of net minimum
lease payments (Note 12) ....................
Less: Current portion..............................
Long-term capital lease obligations..

In millions of yen

In thousands of
U.S. dollars¥ 3,419
2,991
2,048
1,302
642
5,465
15,867
3,244$ 29,222
25,56417,504
11,1285,487
46,710135,615
27,726

12,623
3,023¥ 9,600

107,889
25,838$ 82,051

Rental expenses under operating leases for the years ended
March 31, 2006, 2005 and 2004 were ¥15,415 million ($131,752
thousand), ¥14,616 million and ¥14,540 million, respectively.
A significant portion of such rentals relates to cancelable shortterm leases for office space and employee residential facilities,
many of which are renewed upon expiration.

On December 8, 2000, the Company entered into a leaseagreement for a building and land in Shibuya, Tokyo. The leaseagreement extends for 20 years beginning December 8, 2000.
For financial reporting purposes, the lease has been classified
as an operating lease. Based on the agreement, annual lease
payments for the site are approximately ¥1,339 million ($11,444
thousand) over a 20-year period.
The future minimum lease payments required under operating leases that have initial or remaining non-cancelable leaseterms in excess of one year at March 31, 2006 are as follows:
Years ending March 31

In millions of yen

In thousands of
U.S. dollars¥ 2,325
2,245
2,218
2,185
2,181
24,960$ 19,872
19,18818,957
18,675
18,641
213,334¥36,114$308,667

2007.........................................................
2008.........................................................
2009.........................................................
2010.........................................................
2011.........................................................
Thereafter ...............................................
Total future minimum
lease payments ................................

20. Lessor
The Company’s leasing operations consist principally of leasing of security equipment and real estate for office and medical
institutions. Most of the security equipment and certain realestate for medical institutions on lease are classified as salestype leases or direct-financing leases. The other leases areclassified as operating leases.
A summary of lease receivables under sales-type and directfinancing leases at March 31, 2006 and 2005 is as follows:

The following is a schedule by year of future minimum lease
payments to be received under sales-type leases and directfinancing leases at March 31, 2006:
Years ending March 31

2006

Total minimum lease payments
to be received ............................... ¥29,574
Estimated executory cost ..............
(1,926)
Estimated unguaranteed
residual value ...............................
2,160
Unearned income ..........................
(6,559)Lease receivables, net ...................
23,249Less: Current portion .....................
(5,122)Long-term lease receivables,
net.............................................. ¥18,127

March 31

March 31

2005

2006

¥30,887(2,241)$252,769(16,461)

3,254(9,901)
21,999(4,095)

18,461(56,060)
198,709(43,777)¥17,904$154,932

In thousands of
U.S. dollars¥ 6,044
4,988
4,234
3,274
1,676
9,358

$ 51,658
42,632
36,18827,983
14,32579,983¥29,574$252,769

2007.........................................................
2008.........................................................
2009.........................................................
2010.........................................................
2011.........................................................
Thereafter ...............................................
Total future minimum lease
payments to be received .................

A summary of investment in property on operating leases andproperty held for lease at March 31, 2006 and 2005 is as follows:
In millions of yen

In thousands of
U.S. dollars

March 31

March 31

2006

2005

2006

Land ................................................ ¥20,928
Buildings and improvements........
25,737
Other intangible assets..................
1,158
Accumulated depreciation ............
(6,324)................................................. ¥41,499¥21,185
21,888840(5,430)¥38,483$178,872
219,974
9,897(54,051)$354,692

The future minimum rentals on non-cancelable operatingleases at March 31, 2006 are as follows:
Years ending March 31

In thousands ofIn millions of yen
U.S. dollars

In millions of yen

2007..........................................................
2008..........................................................
2009..........................................................
2010..........................................................
2011..........................................................
Thereafter ................................................
Total future minimum rentals ............

In millions of yen

In thousands of
U.S. dollars¥ 2,757
760
740
740
740
13,874¥19,611$ 23,564
6,496
6,325
6,325
6,325
118,580$167,615

21. Fair Value of Financial Instruments
The following methods and assumptions were used toestimate the fair value of financial instruments in cases forwhich it is practicable.
(1) Cash and Cash Equivalents; Time Deposits; Cash Deposits;
Notes and Accounts Receivable, Trade; Due from Subscribers;
Short-Term Receivables; Bank Loans; Notes and Accounts
Payable, Trade; Other Payables; Deposits Received; andAccrued Payrolls
The carrying amounts approximate fair value because of
the short maturities of such instruments.

SECOM CO., LTD. ANNUAL REPORT 2006

49

CONSOLIDATED FINANCIAL STATEMENTS(2) Long-Term Receivables
The fair values of long-term receivables are based on thepresent value of future cash flows through estimated maturity,
discounted using estimated market discount rates. The carrying
amount of long-term receivables approximates fair value.
(3) Long-Term Debt Including Current Portion
The fair value of long-term debt including the current portion
was estimated based on the discounted amounts of future cash
flows of each instrument at the Company’s current incremental
borrowing rates for similar liabilities.
(4) Investment Deposits by Policyholders
The fair values of investment deposits by policyholders are
estimated by discounting future cash flows using the interest
rates currently being offered for similar contracts.
(5) Derivatives
The fair values of interest rate swaps are estimated using
current market pricing models by obtaining quotes fromfinancial institutions.
The carrying amounts and estimated fair values of the financial instruments excluding debt and equity securities which aredisclosed in Note 7 at March 31, 2006 and 2005 are as follows:
In millions of yen
March 31

Carrying
amount2006

2005

Estimated
fair value

Carrying Estimatedamount fair value

Non-derivatives:
Liabilities—
Long-term debt
including current
portion......................... ¥ 80,496 ¥ 80,465 ¥ 76,307 ¥ 76,489
Investment deposits
by policyholders......... 187,785 192,002 227,719 236,214
Derivatives:
Assets—Interest rate swaps.......
32
32
10
10
Liabilities—
Interest rate swaps.......
5
5
343
343
In thousands of U.S. dollars
March 31
2006
Carrying
amountEstimated
fair value

Non-derivatives:
Liabilities—
Long-term debt including current
portion..................................................... $ 688,000 $ 687,735
Investment deposits
by policyholders ..................................... 1,605,000 1,641,043
Derivatives:
Assets—Interest rate swaps ...................................
274
274
Liabilities—
Interest rate swaps ...................................
43
43

SECOM CO., LTD. ANNUAL REPORT 2006

50

Limitation:
Fair value estimates are made at a specific point in time
based on relevant market information and information about
the financial instruments. These estimates are subjective innature and involve uncertainties and matters of significant
judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
22. Derivative Financial Instruments(1) Risk Management Policy
The Company utilizes derivative financial instruments in thenormal course of business to reduce exposure to fluctuations ininterest rate. The Company assesses interest rate risk by continually monitoring changes in the exposure and by evaluating hedging opportunities. The Company does not hold or issue derivative
financial instruments for trading purposes. The Company is also
exposed to credit-related losses in the event of non-perfomanceby counterparties to derivative financial instruments, but it is
not expected that any counterparties will fail to meet their obligations, because most of the counterparties are internationallyrecognized financial institutions and contracts are diversified
into a number of major financial institutions.
(2) Interest Rate Risk Management
The Company’s exposure to the market risk of changes ininterest rates relates primarily to its debt obligations. The
Company principally enters into interest rate swap agreements
to manage fluctuations in cash flows resulting from changes ininterest rates. Interest rate swaps are used to change floating
rates on debt obligations to fixed rates by entering into receivefloating, pay-fixed interest rate swaps under which theCompany receives floating interest rate proceeds and makes
fixed interest rate payments, thereby effectively creating fixedrate debt.
(3) Cash Flow Hedge
The Company designates interest rate swap agreements as
cash flow hedges for variability of cash flows originated fromfloating rate borrowings. The interest rate swap agreements
mature at various dates through 2010. The effective portion ofchanges in fair values of derivative instruments designated as
cash flow hedges of these debt obligations are reported in othercomprehensive income (loss). These amounts are reclassified
into current income in the same period as hedged items affectcurrent income. The ineffective portion of changes in fair values
are reported in income immediately. The sum of the amount of
the hedge ineffectiveness and net gains or losses excluded fromthe assessment of hedge effectiveness is not material for theyears ended March 31, 2006, 2005 and 2004. Approximately¥1 million ($9 thousand) of net derivative losses included inother comprehensive income (loss), net of tax at March 31, 2006,
will be reclassified into current income within 12 months fromthat date. At March 31, 2006 and 2005, the notional principal
amounts of interest rate swap agreements designated as cash
flow hedges were ¥25,462 million ($217,624 thousand) and¥27,833 million, respectively.

(4) Derivative Instruments Not Designated as Hedges
Certain subsidiaries enter into interest rate swap agreements
to change the effective interest rates on debt securities held as
investments with the objective of increasing current interest
income. Changes in fair value of the above noted derivative
financial instruments, which are not designated as hedges, arereported in current income.
23. Commitments and Contingent Liabilities
Commitments outstanding at March 31, 2006 for the purchaseof property, plant and equipment approximated ¥14,756 million($126,120 thousand).
The Company provides guarantees to third parties withrespect to bank loans extended to its affiliated companies andother entities. Such guarantees are provided to enhance thecredit standing of the affiliated companies and other entities.
For each guarantee provided, the Company would have to perform under the guarantee, if the affiliated companies and otherentities default on a payment within the guaranteed period of
one to 13 years. The maximum amount of undiscounted payments the Company would have to make in the event of default
amounts to ¥10,207 million ($87,239 thousand) at March 31,
2006. The carrying amounts of the liabilities recognized for theCompany’s obligations under these guarantees at March 31,
2006 and 2005 were insignificant.
In July 2004, Fujitsu Ltd. filed a lawsuit against Secom
Insurance in the Tokyo District Court, claiming compensation
for costs related to a systems development order in the amountof ¥2,500 million ($21,368 thousand). Secom Insurance is not
only contesting this lawsuit on the grounds that it is without
merit, but has also filed a countersuit claiming damages in theamount of ¥1,000 million ($8,547 thousand), which is pendingat March 31, 2006.
PASCO filed a lawsuit against Sumitomo Mitsui Banking
Corporation (“SMBC”) for obtaining a confirmation judgment to
the effect that it does not owe an obligation in the amount of¥2,010 million ($17,179 thousand) to SMBC with the Tokyo
District Court on October 31, 2005. SMBC alleged that it made aloan to a third party and acquired from the third party its claim
against PASCO for an alleged sale of equipment to PASCO as acollateral for the loan, and demanded PASCO to pay such claim
to SMBC. However, upon carefully investigating the case withcounsel, the Company believes that the alleged transactions
were null and void, and the Company’s pleading should be
admitted. Furthermore, on December 5, 2005, SMBC brought across action against PASCO for requesting payment of ¥1,846
million ($15,778 thousand) together with the delayed payment
charge. Both actions had been consolidated and were pendingat March 31, 2006.
24. Free Share Distributions of Less than 25 Percent
The Company may make free distributions of its common
stock to shareholders at the discretion of its Board of Directors.
Prior to October 1, 2001, free share distributions were accounted
for either by (1) a transfer from additional paid-in capital to thecommon stock account, or (2) no entry if free shares are distributed from the portion of previously issued shares in the common stock account as required by the Japanese Commercial
Code. Effective on October 1, 2001, the Japanese Commercial
Code requires no accounting recognition for such free share
distributions. A corporation in the United States of America
issuing shares, comparable to less than 25 percent free share
distributions, would be required to account for them as stock
dividends and the fair value of the shares would be transferredfrom retained earnings to the appropriate capital accounts.
Had the Company accounted for such free share distributions
made during the period from 1974 to 1990 in the manner usedby companies in the United States of America, ¥98,388 million($840,923 thousand) would have been transferred from retained
earnings to the appropriate capital accounts. The free share
distributions would have no effect on total shareholders’ equity.
25. Discontinued Operations
The Company accounted for the sale of certain businesses
and properties in accordance with SFAS No. 144.
Real estate properties on operating leases are primarily heldby real estate investment companies as part of investment assetsof the insurance services segment and by the companies thatengage in leasing services of real estate included in the information and communication related and other services segment.
The Company reported the operating results related to these realestate properties which were disposed of or classified as held forsale without significant continuing involvement in discontinued
operations for the years ended March 31, 2005 and 2004.
In January 2005, the Company sold the operation of its school
education systems included in the information and communication related and other services segment. In October 2004, The
Westec Security Group, Inc., a wholly owned subsidiary in the
United States of America, sold all of the outstanding shares ofWestec Interactive Security, Inc. included in the security services
segment. Accordingly, the Company reported the operating
results related to these operations in discontinued operations
for the years ended March 31, 2005 and 2004.
There were no operating results which were reported indiscontinued operations for the year ended March 31, 2006.
Discontinued operations for the years ended March 31, 2005
and 2004 were as follows:
In millions of yen
Years ended March 31
2005

2004

Net sales and operating revenue ............................... ¥07,491 ¥04,508
Loss from discontinued operations before
income taxes, net....................................................... (2,378) (10,702)
Gain on sales of discontinued operations, net......... 13,637
6,367
Income taxes ................................................................
(931)
206
Minority interest in subsidiaries.................................
(451)
(78)
Income (loss) from discontinued operations,net of tax ................................................................. ¥09,877 (¥04,207)

SECOM CO., LTD. ANNUAL REPORT 2006

51

CONSOLIDATED FINANCIAL STATEMENTS

Income (loss) from discontinued operations, net of tax, bybusiness segment for the years ended March 31, 2005 and 2004
were as follows:
In millions of yen
Years ended March 31

Security services ..........................................................
Insurance services .......................................................
Information and communication related andother services (Leasing services of real estate)......
Information and communication related andother services (Education services) .........................
Income (loss) from discontinued operations,net of tax .................................................................

2005

2004

¥0,4392,164(¥0,077)
370

3,983

(244)

3,291

(4,256)¥9,877(¥4,207)

26. Supplemental Cash Flow Information
Supplemental cash flow information is as follows:

2006

In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

2005

2004

Cash paid during theyear for:
Interest ............................... ¥ 1,873 ¥ 2,277 ¥ 3,307
Income taxes...................... 28,959 31,530 24,718
Non-cash investing andfinancing activities:
Conversion of
convertible bonds .............
—
18—
Additions to obligations
under capital leases ........
2,253 2,350
4,173

2006

$ 16,009
247,513—
19,256

27. Segment Information
The Company has applied SFAS No. 131, “Disclosures about
Segments of an Enterprise and Related Information,” which
requires disclosure of financial and descriptive information
about the Company’s reportable operating segments. The
operating segments reported below are the segments of theCompany for which separate financial information is available
and for which operating profit/loss amounts are evaluated regularly by management in deciding how to allocate resources andassess performance.

SECOM CO., LTD. ANNUAL REPORT 2006

52

The Company has five reportable business segments: security
services, medical services, insurance services, geographic information services, and information and communication related
and other services. During the year ended March 31, 2006, theCompany decided to disclose the geographic information services, which was previously included in the information andcommunication related and other services segment, separatelyfrom the segment due to an increase in importance of its business. Accordingly, segment information of all prior periods has
been restated to conform to the presentation used for the year
ended March 31, 2006.
The security services segment provides various types of security services by utilizing the Company’s unique security systems
and manufactures and sells security equipment. The medical
services segment provides intravenous solutions to patients at
home, home-based nursing care services, medical data transmission services by utilizing the Company’s network and leasing of real estate for medical institutions. Also the VIEs to which
the Company is primary beneficiary manage hospitals andhealth care-related institutions. The insurance services segment
represents non-life insurance-related underwriting businessin the Japanese market. The geographic information services
segment represents aerial surveying and mapping services andgeographic information system services. The information andcommunication related and other services segment represents
the Company’s network business, development and sales ofreal estate and leasing of real estate, and management of hotelbusiness. The Company develops real estate, principally condominiums, for consumers, to promote a network of integrated
communication systems to create synergies with home security
services. These communication services are considered asubset or an integrated part of the real estate package.
Corporate expenses consist principally of general andadministrative expenses of the planning, personnel and administrative departments of the parent company and administrative
departments of the foreign holding company.
Intersegment sales are priced on a basis intended toapproximate amounts charged to unaffiliated customers.
Identifiable assets are those assets used exclusively in theoperations of each segment or which are allocated when used
jointly. Corporate assets, which are held by the parent company
and the foreign holding company for general and administrative
facilities, consist principally of cash and cash equivalents, shortterm investments, investment securities, land, buildings,
machinery and equipment.

Information by business and geographic segments for theyears ended March 31, 2006, 2005 and 2004 is as follows:
2006(1) Business Segment Information

2006

In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

2005

2004

Net sales and operating
revenue:
Security services—
Customers...................... ¥400,044 ¥382,360 ¥367,482
Intersegment..................
1,317
1,362
1,121
...................................... 401,361 383,722 368,603
Medical services—
Customers......................
39,21534,68821,147
Intersegment..................
220
215
194
......................................
39,43534,903
21,341
Insurance services—
Customers......................
29,537
26,46523,536
Intersegment..................
2,496
2,776
2,420
......................................
32,03329,241
25,956
Geographic information
services—
Customers......................
35,271
34,91532,346
Intersegment..................
113
253
178
......................................
35,38435,16832,524
Information andcommunication
related and otherservices—
Customers......................
76,45973,92672,924
Intersegment..................
6,406
4,821
3,755
......................................
82,86578,74776,679Total................................... 591,078 561,781 525,103
Eliminations ...................... (10,552) (9,427) (7,668)
Total net sales andoperating revenue....... ¥580,526 ¥552,354 ¥517,435
Operating income (loss):
Security services .............. ¥ 86,660 ¥ 90,414 ¥ 75,833
Medical services...............
(1,321)
1,641(1,519)Insurance services............
5,061(3,011)
2,396
Geographic information
services—........................
900
1,236
(4,208)
Information andcommunication related
and other services..........
5,643(816) (4,011)
Total...................................
96,94389,464
68,491
Corporate expenses
and eliminations............. (15,050) (13,906) (14,426)
Operating income ............ ¥ 81,893 ¥ 75,558 ¥ 54,065
Other income....................
15,936
6,566
5,672
Other expenses ................
(8,101) (7,851) (6,373)
Income from continuing
operations before
income taxes................ ¥ 89,728 ¥ 74,273 ¥ 53,364

2006$3,419,179
11,2573,430,436
335,171
1,880
337,051
252,453
21,333
273,786

301,462966
302,428

653,496
54,752
708,248
5,051,949(90,188)$4,961,761$ 740,684(11,291)
43,256
7,692
48,231
828,572(128,632)$ 699,940
136,205(69,239)

In millions of yen

In thousands of
U.S. dollars

March 31

March 31

2004

2006

2005

Assets:Security services..... ¥ 438,989 ¥ 445,576 ¥ 428,034
Medical services .....
102,838
91,57473,573
Insurance services ..
284,911
310,159
317,102
Geographic
information
services ...................
55,44853,00453,536
Information andcommunication
related andother services ........
145,757
124,578
151,838
Total.......................... 1,027,943 1,024,891 1,024,083
Corporate items.......
159,210
99,398
101,708
Investments
in and loans
to affiliatedcompanies .............
38,07539,91539,314
Total assets........... ¥1,225,228 ¥1,164,204 ¥1,165,105

325,427$10,472,034

In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

2005

2004

2006

¥44,042
1,531
1,175

¥44,833
1,164
1,586

$384,120
13,923
9,769

1,477

1,840

12,7692,816
51,041409

2,926
52,349594

22,992443,573
3,769¥51,450¥52,943$447,342¥30,255
8,647
1,380

¥33,205
1,625
3,859

$250,863
72,427
14,812

983

1,103

3,727

4,927
46,192
1

4,529
44,321
7

63,658405,487
1,026¥46,193¥44,328$406,513

2006

Depreciation andamortization:
Security services .......... ¥44,942
Medical services ........... 1,629
Insurance services........ 1,143
Geographic
information
services......................... 1,494
Information andcommunication
related and otherservices ........................ 2,690
Total................................ 51,898
Corporate items............
441
Total depreciation
and amortization...... ¥52,339
Capital expenditures:
Security services .......... ¥29,351
Medical services ........... 8,474
Insurance services........ 1,733
Geographic
information
services.........................
436
Information andcommunication
related and otherservices ........................ 7,448
Total................................ 47,442
Corporate items............
120
Total capital
expenditures ............ ¥47,562$ 3,752,043
878,957
2,435,137
473,915

1,245,786
8,785,838
1,360,769$ 766,906

The capital expenditures in the above table represent theadditions to property, plant and equipment of each segment.

SECOM CO., LTD. ANNUAL REPORT 2006

53

CONSOLIDATED FINANCIAL STATEMENTS

The Company has no single customer that accounts for morethan 10 percent of total revenues.
The following table is a breakdown of security services revenue to external customers by service category. The security
services business is managed as a single operating segment by
the Company’s management.

2006

In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

2005

2004

Electronic security
services.......................... ¥277,892 ¥271,872 ¥263,900
Other security
services:
Static guard
services ......................
41,48038,30237,537
Armored car
services ......................
19,36918,462
18,618Merchandise andother ..............................
61,30353,72447,427
Total security
services ...................... ¥400,044 ¥382,360 ¥367,482

2006$2,375,145

354,530
165,547
523,957$3,419,179(2) Geographic Segment Information
Net sales and operating revenue attributed to countries basedon location of customers and long-lived assets for the years
ended March 31, 2006, 2005 and 2004 were as follows:

2006

In millions of yen

In thousands of
U.S. dollars

Years ended
March 31

Year ended
March 31

2004

2006

Net sales and operating
revenue:
Japan ........................... ¥564,803 ¥538,851 ¥506,213
Other ............................
15,723
13,503
11,222
Total ......................... ¥580,526 ¥552,354 ¥517,435$4,827,376
134,385$4,961,761

In millions of yen

In thousands of
U.S. dollars

March 31

March 31

2004

2006

Long-lived assets:
Japan ........................... ¥330,752 ¥316,358 ¥445,632
Other ............................
5,609
6,079
5,528
Total ......................... ¥336,361 ¥322,437 ¥451,160$2,826,940
47,940$2,874,880

2006

2005

2005

There are no individually material countries with respect to
net sales and operating revenue and long-lived assets included
in other areas.

SECOM CO., LTD. ANNUAL REPORT 2006

54

INDEPENDENT AUDITORS’ REPORTThe Board of Directors and Shareholders
SECOM CO., LTD.:

We have audited the accompanying consolidated balance sheets of SECOM CO., LTD. and subsidiaries as of March 31, 2006 and 2005,
and the related consolidated statements of income, changes in shareholders’ equity and cash flows for each of the years in the threeyear period ended March 31, 2006, all expressed in Japanese yen. These consolidated financial statements are the responsibility of theCompany’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit proceduresthat are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial positionof SECOM CO., LTD. and subsidiaries as of March 31, 2006 and 2005, and the results of their operations and their cash flows for eachof the years in the three-year period ended March 31, 2006, in conformity with U.S. generally accepted accounting principles.
As discussed in Note 2 of the notes to the consolidated financial statements, SECOM CO., LTD. and subsidiaries changed their
method of accounting for conditional asset retirement obligations in the year ended March 31, 2006, and their method of accounting
for variable interest entities in the year ended March 31, 2005.
The accompanying consolidated financial statements as of and for the year ended March 31, 2006 have been translated into
United States dollars solely for the convenience of the reader. We have recomputed the translation and, in our opinion, the consolidated financial statements expressed in Japanese yen have been translated into United States dollars on the basis set forth in Note 3of the notes to the consolidated financial statements.

Tokyo, Japan
June 27, 2006

SECOM CO., LTD. ANNUAL REPORT 2006

55

OTHER FINANCIAL DATACONTENTSSUMMARY OF SELECTED FINANCIAL DATA........................................................................ 57
COMMON STOCK DATA ......................................................................................................... 59

SECOM CO., LTD. ANNUAL REPORT 2006

56

SUMMARY OF SELECTED FINANCIAL DATASECOM CO., LTD. and Subsidiaries
Years ended March 31

In millions of yen
2006

2005

2004

2003

2002

2001

Composition of consolidated net sales and operating revenue
by segment
Net sales and operating revenue ........................................................ ¥580,526 ¥552,354 ¥517,435 ¥497,691 ¥475,151 ¥430,999
382,360
367,482352,985
335,867
313,340
Security services:.............................................................................. 400,044
68.9%
69.2%
71.0%
70.9%
70.7%
72.7%
As a percentage of net sales and operating revenue .........
277,892
271,872
263,900
257,075
246,487
233,571
Electronic security services—
47.9
49.2
51.0
51.6
51.8
54.2
As a percentage of net sales and operating revenue .........
Other security services—
41,48038,30237,53735,90834,10732,204
Static guard services .................................................................
7.1
6.9
7.2
7.2
7.2
7.5
As a percentage of net sales and operating revenue .........
19,36918,462
18,61817,261
17,001
15,109
Armored car services ................................................................
3.3
3.4
3.6
3.5
3.6
3.5
As a percentage of net sales and operating revenue .........
60,84956,76456,15553,16951,10847,313
Subtotal...............................................................................
61,30353,72447,42742,741
38,27232,456Merchandise and other.................................................................
10.6
9.7
9.2
8.6
8.1
7.5
As a percentage of net sales and operating revenue .........
39,21534,68821,147
19,637
13,3006,315
Medical services ...............................................................................
6.7
6.3
4.1
3.9
2.8
1.5
As a percentage of net sales and operating revenue .........
29,537
26,46523,536
15,23424,87521,069Insurance services ............................................................................
5.1
4.8
4.5
3.1
5.2
4.9
As a percentage of net sales and operating revenue .........
35,271
34,91532,34639,525
38,106
41,948Geographic information services ....................................................
6.1
6.3
6.3
8.0
8.0
9.7
As a percentage of net sales and operating revenue .........
Information and communication related
76,45973,92672,92470,31063,00348,327and other services ..........................................................................
13.2
13.4
14.1
As a percentage of net sales and operating revenue .........
14.1
13.3
11.2
Net income, cash dividends and shareholders’ equity
Net income............................................................................................ ¥ 50,331
11,251
Cash dividends (paid)(2) ........................................................................
Shareholders’ equity............................................................................ 508,696
Consolidated financial ratios
Percentage of working capital accounted for by:
Debt—
Bank loans .....................................................................................
Current portion of long-term debt ...............................................
Convertible bonds.........................................................................
Straight bonds...............................................................................
Other long-term debt ....................................................................
Total debt ...................................................................................
Shareholders’ equity ........................................................................
Total capitalization ....................................................................
Return on total assets (percentage) (a) .................................................
Return on equity (percentage) (b) ..........................................................
Percentage of net sales and operating revenue absorbed by (c):Depreciation and amortization ........................................................
Rental expense..................................................................................
Ratio of accumulated depreciation to depreciable
assets (percentage) ............................................................................
Net property turnover (times) (c) ..........................................................
Before-tax interest coverage (times) (c) (d) .............................................

¥ 52,133
10,127457,837¥ 23,479
9,003
415,852¥ 30,275
9,330
372,518¥ 34,082
9,324
401,326¥ 43,996
9,323
377,304

15.2
6.4
—
1.6
3.6
26.8
73.2
100.0
4.1
9.9

16.1
1.7
—
6.4
3.9
28.1
71.9
100.0
4.5
11.4

17.7
2.1
—
5.2
9.2
34.2
65.8
100.0
2.0
5.6

20.0
3.3
0.0
5.2
11.4
39.9
60.1
100.0
2.6
8.1

10.7
4.4
0.0
5.6
16.1
36.8
63.2
100.0
2.9
8.5

14.5
1.9
0.1
2.0
6.1
24.6
75.4
100.0
5.0
11.7

9.0
2.7

9.1
2.6

10.1
2.8

10.3
3.0

10.4
2.7

10.4
2.6

60.5
2.39
48.8

60.0
2.43
39.3

54.8
1.74
15.9

50.6
1.37
15.2

48.9
1.23
41.6

54.0
1.84
43.9

Note: Installation revenue is included in the corresponding electronic security services.

SECOM CO., LTD. ANNUAL REPORT 2006

57

SUMMARY OF SELECTED FINANCIAL DATA

2006

2005

2004

2003

2002

2001

Number of shares outstanding
Issued ................................................................................. 233,288,717 233,288,717 233,281,133 233,281,133 233,274,769 233,099,744
510
8,301,997
8,266,043
8,228,652
Owned by the Company...................................................
8,200,245
22,512
Balance............................................................................... 224,986,720 225,022,674 225,052,481 225,080,888 233,252,257 233,099,234
Per share information¥ 223.69¥ 231.66¥ 104.32¥ 188.76
Basic net income per share (in yen) (1) .............................
¥ 132.87¥ 146.19
Cash dividends paid per share (in yen) (2) .......................
50.00
45.00
40.00
40.00
40.00
40.00
2,261.00
2,034.63
1,847.80
1,618.64
Shareholders’ equity per share (in yen) (3) ......................
1,655.04
1,720.57
396.31410.29294.56341.91321.88320.17
Cash flow per share (in yen) (1) (e) ......................................
2.66
2.19
2.46
4.39
1.84
3.33
Price/Book value ratio .......................................................
26.91
19.25
43.52
37.61
22.88
39.20
Price/Earnings ratio...........................................................
15.19
10.87
15.41
20.77
9.44
17.90
Price/Cash flow ratio .........................................................
7,100
Stock price at year-end (in yen) .......................................
6,020
4,460
4,540
3,040
5,730
Notes: (a) Net income/Total assets(b) Net income/Shareholders’ equity(c) Including discontinued operations(d) (Income before income taxes + Interest expense)/Interest expense(e) (Net income + Depreciation and amortization - Dividends approved) /Average number of shares outstanding during each period

SECOM CO., LTD. ANNUAL REPORT 2006

58

(1) Per share amounts are based on the average number of shares
outstanding during each period.
(2) Subsequent to March 31, 2006, cash dividends of ¥13,499 million(¥60.00 per share) were approved at the general shareholders‘meeting on June 27, 2006 (see Note 17 of the accompanying notes
to consolidated financial statements).
(3) Per share amounts are based on the number of shares outstandingat the end of each period, minus treasury stock.

COMMON STOCK DATASECOM CO., LTD.
As of March 31

SHAREHOLDER INFORMATION
Number of shareholders ......................................................
Common shares held by:
Financial institutions.........................................................
Securities firms .................................................................
Other corporations............................................................
Foreign investors ..............................................................
Individuals and others ......................................................
Total................................................................................

2006

2005

2004

2003

2002

2001

19,807

21,327

21,72020,23017,60915,62133.04%
2.16
3.92
43.40
17.48
100.00%34.32%
1.99
4.13
40.75
18.81
100.00%37.04%
2.19
4.29
37.22
19.26
100.00%46.14%
2.04
4.60
28.64
18.58
100.00%45.31%
1.61
13.78
24.64
14.66
100.00%44.44%
1.73
13.84
25.76
14.23
100.00%

PRICE INFORMATION (TOKYO STOCK EXCHANGE)
2004

2005

2006

April–June .....................................................................................................
July–September............................................................................................
October–December.......................................................................................
January–March .............................................................................................
April–June .....................................................................................................
July–September............................................................................................
October–December.......................................................................................
January–March .............................................................................................

Price per share (in yen)

Nikkei Stock Average (in yen)

High

Low

High

Low

¥4,850
4,720
4,190
4,510
4,830
5,900
6,470
6,280

¥4,130
3,830
3,730
3,930
4,060
4,760
5,480
5,310

¥12,163.89
11,896.01
11,488.76
11,966.69
11,874.75
13,617.24
16,344.20
17,059.66¥10,505.05
10,687.81
10,659.15
11,238.37
10,825.39
11,565.99
13,106.18
15,341.18

SECOM CO., LTD. ANNUAL REPORT 2006

59

COMMON STOCK DATACOMMON STOCK ISSUES

Date

Additional
shares issued(In thousands)

Sharesoutstanding
after issue(In thousands)

Share capital
after issue(In thousandsof yen)Allotment ratio
to shareholders

June 15, 1974
Dec. 21, 1974
May 21, 1975
May 21, 1975
Dec. 1, 1975
May 31, 1976
June 1, 1976
Dec. 1, 1976
Nov. 30, 1977
Dec. 1, 1977
Dec. 1, 1978
June 1, 1981
Dec. 1, 1981
Jan. 20, 1983
Nov. 30, 1983
Nov. 30, 1984
Nov. 30, 1985
Jan. 20, 1986
Nov. 30, 1986
Nov. 30, 1987
Jan. 20, 1988
Nov. 30, 1988
Nov. 30, 1989
Jan. 19, 1990
Mar. 31, 1990
Mar. 31, 1991
Mar. 31, 1992
Mar. 31, 1993
Mar. 31, 1994
Mar. 31, 1995
Mar. 31, 1996
Mar. 31, 1997
Mar. 31, 1998
Mar. 31, 1999
Nov. 19, 1999
Mar. 31, 2000
Mar. 31, 2001
Mar. 31, 2002
Mar. 31, 2003
Mar. 31, 2005

1,968
2,760
1,196
1,244
4,320
1,880
2,060
6,798
2,042
6,300
7,560
3,000
4,836
5,320
194
1,418
186
6,031
2,878
1,609
3,541
439
1,808
22,986
1,446
2,949
2,035
267
6,986
477
613
1,825
29
159
116,410
273
25
175
6
8

9,200
11,96013,156
14,40018,72020,60022,66029,45831,50037,80045,36048,36053,19658,51658,71060,12860,314
66,34569,22370,832
74,37374,812
76,62099,606
101,052
104,001
106,036
106,303113,289
113,766
114,379
116,204
116,233
116,392
232,802
233,075
233,100
233,275
233,281
233,289¥00,460,000
598,000
657,800
720,000
936,000
1,030,000
1,133,000
1,472,900
1,575,000
1,890,000
2,268,000
2,418,000
2,659,800
3,000,000
3,280,942
5,329,282
5,602,945
5,602,945
11,269,932
15,021,200
15,021,200
16,063,099
21,573,139
21,573,139
25,070,104
32,244,732
37,338,751
37,991,568
56,756,263
58,214,178
59,865,105
65,253,137
65,327,060
65,709,927
65,709,927
66,096,852
66,126,854
66,360,338
66,368,827
66,377,829—
3 for 10
1 for 10—
3 for 10—
1 for 10
3 for 10—
2 for 10
2 for 10—
1 for 10
1 for 10———
1 for 10——
0.5 for 10——
3 for 10
—
—
—
—
—
—
—
—
—
—
10 for 10*
—
—
—
—
—

Remarks

Issue at market price (¥900)
Stock split
Stock split
Issue at market price (¥1,134)
Stock split
Issue at market price (¥2,570)
Stock split
Stock split
Issue at market price (¥1,700)
Stock split
Stock split
Issue at market price (¥2,230)
Stock split
Stock split
Conversion of convertible bonds
Conversion of convertible bonds
Conversion of convertible bonds
Stock split
Conversion of convertible bonds
Conversion of convertible bonds
Stock split
Conversion of convertible bonds
Conversion of convertible bonds
Stock split
Conversion of convertible bonds
Conversion of convertible bonds
Conversion of convertible bonds
Conversion of convertible bonds
Conversion of convertible bonds
Conversion of convertible bonds
Conversion of convertible bonds
Conversion of convertible bonds
Conversion of convertible bonds
Conversion of convertible bonds
Stock split
Conversion of convertible bonds
Conversion of convertible bonds
Conversion of convertible bonds
Conversion of convertible bonds
Conversion of convertible bonds

Notes: 1. The above is a record of SECOM’s common stock issues since the common stock was listed on the Tokyo Stock Exchange in June 1974.
2. As of March 31, 2006, the number of shares outstanding was 233,289 thousand and share capital was ¥66,377,829 thousand.
*One share was split into two.

SECOM CO., LTD. ANNUAL REPORT 2006

60

SUPPLEMENTAL CONSOLIDATED FINANCIAL DATA
(Based on Japanese GAAP)CONTENTSCONDENSED CONSOLIDATED BALANCE SHEETS(BASED ON JAPANESE GAAP)....................................................................................... 62
CONDENSED CONSOLIDATED STATEMENTS OF INCOME(BASED ON JAPANESE GAAP)....................................................................................... 64

SECOM CO., LTD. ANNUAL REPORT 2006

61

SUPPLEMENTAL CONSOLIDATED FINANCIAL DATA
(Based on Japanese GAAP)CONDENSED CONSOLIDATED BALANCE SHEETS(Based on Japanese GAAP)SECOM CO., LTD. and Subsidiaries
As of March 31

ASSETS

In millions of yen
2006

Current assets:
Cash on hand and in banks ..............................................
Call loans ...........................................................................
Notes and accounts receivable, trade .............................
Due from subscribers .......................................................
Short-term investments....................................................
Inventories .........................................................................
Deferred income taxes......................................................
Short-term loans ...............................................................
Other ..................................................................................
Allowance for doubtful accounts.....................................
Total current assets................................................

2005

2004

2003

2002

2001

¥0,271,780 ¥0,246,693 ¥0,202,630 ¥0,175,776 ¥0,192,437
25,00010,00038,00030,00040,00052,66750,18346,81343,922
46,04817,678
16,204
17,561
16,336
14,39583,80973,252
47,34336,402
31,32164,19440,97945,47741,33955,387
9,462
8,207
9,768
7,678
9,111
15,564
46,37558,79351,35590,61013,41917,676
17,205
19,65017,441(1,617)(1,297)(4,925)(1,558)(1,501)
551,959
508,274
478,668
420,903495,251¥135,820
35,69045,904
12,13741,03349,8605,785
36,682
14,334(1,092)
376,156

Fixed assets:
Tangible assets:
Buildings and improvements .......................................
Security equipment and control stations ....................
Land ................................................................................
Other...............................................................................

77,27063,07065,542
28,18372,816
64,104
65,151
21,50979,07265,31580,507
19,05090,82365,02687,853
17,31368,80478,32863,547
19,321

34,83573,16948,427
19,540Intangible assets ...............................................................

24,384

27,58233,82034,544

37,46032,225231,096
243,031207,654
188,880
158,438
57,56442,983
63,799102,448
86,42011,186
1,527———
11,256
18,50922,52338,05638,29941,21742,25855,52852,09837,452(13,401)(10,292)(14,060)(8,010)(12,341)
597,370
589,183
613,211
669,034
575,731
47
90
187
192
207
¥1,149,377 ¥1,097,548 ¥1,092,067 ¥1,090,131 ¥1,071,190

153,553
59,586—
12,21430,449(7,567)456,435410¥833,001

Investments and others:
Investment securities ....................................................
Long-term loans ............................................................
Prepaid pension and severance costs .........................
Deferred income taxes ..................................................
Other...............................................................................
Allowance for doubtful accounts .................................
Total fixed assets....................................................
Deferred assets .....................................................................
Total assets ............................................................

SECOM CO., LTD. ANNUAL REPORT 2006

62

In millions of yen

LIABILITIESCurrent liabilities:
Notes and accounts payable, trade .................................
Bank loans .........................................................................
Current portion of straight bonds......................................
Current portion of convertible bonds...............................
Payables—other ................................................................
Accrued income taxes ......................................................
Accrued consumption taxes.............................................
Accrued expenses .............................................................
Deferred revenue ..............................................................
Accrued bonus ..................................................................
Other ..................................................................................
Total current liabilities ...........................................

Fixed liabilities:
Straight bonds...................................................................
Convertible bonds.............................................................
Long-term loans ................................................................
Guarantee deposits received ...........................................
Deferred income taxes......................................................
Accrued pension and severance costs ............................
Accrued retirement benefits for directors andcorporate auditors...........................................................
Investment deposits by policyholders, unearned
premiums and other insurance liabilities .....................
Other ..................................................................................
Total fixed liabilities ...............................................
Total liabilities ........................................................

MINORITY INTEREST IN SUBSIDIARIES ............................

SHAREHOLDERS’ EQUITY
Common stock ..................................................................
Capital surplus...................................................................
Retained earnings .............................................................
Unrealized gains (losses) on securities ...........................
Foreign currency translation adjustments ......................
Common stock in treasury, at cost ..................................
Total shareholders’ equity.....................................
Total liabilities, minority interest in
subsidiaries and shareholders’ equity ...............

2006

2005

2004

2003

2002

2001

¥0,018,652 ¥0,015,693 ¥0,018,460 ¥0,015,529 ¥0,016,401
112,868
108,172
119,344
135,540
90,19432,210
690
200
—
5,000
—
—
18
—
33
26,34018,95917,743
19,58020,22922,15916,197
17,083
10,75623,002
2,588
2,698
3,792
3,444
3,030
2,085
2,275
2,304
1,837
1,828
30,74728,53228,45928,851
27,373
8,981
8,758
8,490
8,852
8,834
46,80544,24545,28335,14029,045
303,440
246,222
261,181259,531
224,972¥015,854
79,4095,000—
19,243
18,263
3,196
10,56327,433—
23,595202,560

11,180—13,44428,982
1,079
11,36240,940—14,51328,737423
12,61732,800—43,53029,160371
12,89932,00018
48,301
28,304459
45,21030,50018
48,671
26,174
1
49,6175,000
518
10,742
17,938
1,320
7,181

1,565

—

—

—

—

—

245,644
1,043
314,303617,743

278,278
1,724
377,234
623,457

276,979
2,117
397,858
659,040

274,476
4,033
432,803692,335

268,519
3,164
426,666
651,639

168,648
2,448
213,799
416,360

35,46932,16329,77028,042

27,401

27,04966,377
83,054
388,077
13,230(9,825)(44,749)
496,164

66,37782,553
346,510
8,167(17,123)(44,558)
441,927

66,36882,544308,268
6,079(15,603)(44,400)
403,257

66,36882,544
276,397
116(11,386)(44,287)369,753

66,36082,536
250,400(246)(6,759)(141)392,149

66,12682,302
250,409
4,846(14,089)(3)
389,592¥1,149,377 ¥1,097,548 ¥1,092,067 ¥1,090,131 ¥1,071,190¥833,001

SECOM CO., LTD. ANNUAL REPORT 2006

63

SUPPLEMENTAL CONSOLIDATED FINANCIAL DATA
(Based on Japanese GAAP)CONDENSED CONSOLIDATED STATEMENTS OF INCOME(Based on Japanese GAAP)SECOM CO., LTD. and Subsidiaries
Years ended March 31

In millions of yen
2006

2005

2004

2003

2002

2001

Revenue ..............................................................................
Percentage change from prior year...........................

¥567,315
3.7%¥547,2303.8%¥527,409
0.8%¥523,271
5.1%¥497,921
9.4%¥454,960
10.8%

Cost of revenue .................................................................
As a percentage of revenue .......................................

351,02061.9

341,466
62.4

324,759
61.6

325,95262.3

319,82664.2

278,91161.3

Gross profit ........................................................................
As a percentage of revenue .......................................

216,29438.1

205,76437.6

202,650
38.4

197,31937.7

178,09435.8

176,049
38.7

Selling, general and administrative expenses.................
As a percentage of revenue .......................................

122,185
21.5

122,720
22.4

121,363
23.0

124,41623.8

135,07127.2

110,787
24.4

Operating profit ..................................................................
As a percentage of revenue .......................................

94,10916.6

83,04315.2

81,28615.4

72,902
13.9

43,022
8.6

65,261
14.3

Non-operating income.......................................................
Non-operating expenses ...................................................

15,792
13,232

11,942
11,507

7,798
12,841

8,672
11,512

8,088
9,569

11,333
10,320Ordinary profit ....................................................................
As a percentage of revenue .......................................

96,66917.1

83,47815.3

76,24314.5

70,063
13.4

41,541
8.3

66,274
14.6

Extraordinary profit............................................................
Extraordinary loss ..............................................................

9,349
11,18911,381
10,10531,86024,892

13,587
15,72833,491
53,15024,61826,597

Income before income taxes .............................................
As a percentage of revenue .......................................

94,82916.7

84,754
15.5

83,211
15.8

67,921
13.0

21,882
4.4

64,295
14.1

Income taxes—current.......................................................
Income taxes—deferred.....................................................
Minority interest in subsidiaries .......................................

34,8883,131
3,815

28,7234,145
3,367

30,9628,985
2,152

27,8082,171
2,358

37,095(23,550)(1,246)30,011(2,057)801

Net income..........................................................................
As a percentage of revenue .......................................
Percentage change from prior year...........................

52,9949.3
9.2

48,5178.9
18.0

41,111
7.8
15.5

35,583
6.8
271.3

9,583
1.9
(73.0)

35,540
7.8(17.0)

SECOM CO., LTD. ANNUAL REPORT 2006

64

SUPPLEMENTAL NONCONSOLIDATED FINANCIAL DATA(BASED ON JAPANESE GAAP)CONTENTSCONDENSED NONCONSOLIDATED BALANCE SHEETS(BASED ON JAPANESE GAAP)....................................................................................... 66
CONDENSED NONCONSOLIDATED STATEMENTS OF INCOME(BASED ON JAPANESE GAAP)....................................................................................... 68

SECOM CO., LTD. ANNUAL REPORT 2006

65

SUPPLEMENTAL NONCONSOLIDATED FINANCIAL DATA
(Based on Japanese GAAP)CONDENSED NONCONSOLIDATED BALANCE SHEETS(Based on Japanese GAAP)SECOM CO., LTD.
As of March 31

ASSETS

In millions of yen
2006

2005

2004

2003

2002

2001

Current assets:
Cash on hand and in banks .............................................. ¥167,097
Notes receivable................................................................
476
Due from subscribers .......................................................
9,475
Accounts receivable, trade ...............................................
6,447
Receivables—other ...........................................................
3,876
Short-term investments....................................................
451
Common stock in treasury ...............................................
—
Merchandise ......................................................................
5,928
Supplies .............................................................................
950
Prepaid expenses ..............................................................
1,798
Deferred income taxes......................................................
4,531
Short-term loans ...............................................................
12,885
Other ..................................................................................
2,314
Allowance for doubtful accounts.....................................
(604)
Total current assets................................................ 215,630¥135,400
552
9,008
6,228
5,822
451
—
6,740
1,056
1,728
4,629
41,8972,614(2,299)213,831¥117,302
292
8,856
5,372
5,680
451
—
5,673
1,123
1,610
5,890
38,3982,526(5,216)
187,961¥093,044
365
8,311
4,695
3,047
7,951
—
6,738
1,420
1,507
4,642
53,111
2,367(3,602)
183,602¥101,946
741
7,726
6,719
3,536
1,479
—
9,563
1,649
1,857
4,096
40,6592,458(2,959)179,475¥077,581
538
7,072
5,089
3,123
6,312
3
6,625
1,326
1,605
3,063
28,897
2,683(2,245)
141,676

Fixed assets:
Tangible assets:
Buildings and improvements .......................................
Automobiles...................................................................
Security equipment and control stations ....................
Machinery and equipment............................................
Tools, furniture and fixtures .........................................
Land ................................................................................
Construction in progress ..............................................
Other...............................................................................

22,811
166
59,442
1,467
4,379
32,2001,919
32

23,943
132
59,836
1,423
4,514
35,1791,692
47

25,836
145
60,6841,427
3,990
36,4392,862
72

28,777525
60,2201,501
3,678
42,1971,463
18

20,576634
75,216
3,571
3,383
37,9072,011
25

23,006679
70,511
4,104
3,316
37,8372,327
16Intangible assets:
Telephone rights............................................................
Telephone and telegraph utility rights ........................
Software .........................................................................
Other...............................................................................

0
112
6,420
83

1,946
147
6,401
84

2,134
207
8,935
457

2,033
540
10,957
800

1,997
634
10,535
1,605

1,958
803
11,422
2,743

27,65423,874

20,79623,57827,284160,440
17,305
8,816
20,335
1,257
10,4505,153
2,877(4,760)384,880¥598,711

158,279
23,3858,533
19,889—13,728
5,761
7,245(11,306)
392,586¥580,547

159,901
10,0598,489
19,709—18,3795,761
4,889(1,596)399,104¥582,707

160,870
9,748
8,504
1,025
—
19,223
5,406
6,149(1,311)
391,293¥570,769

145,227
11,242
8,697
1,263
—
—
5,766
5,657
(1,205)
362,662¥504,339

Investments and other:
Investment securities ....................................................
46,166
Investments in subsidiaries andaffiliated companies .................................................... 150,509
Long-term loans ............................................................
58,740
Lease deposits ...............................................................
9,006
Long-term prepaid expenses........................................
22,175Prepaid pension and severance costs .........................
8,670
Deferred income taxes ..................................................
6,206
Fund for insurance ........................................................
4,893
Other...............................................................................
955
Allowance for doubtful accounts .................................
(7,998)
Total fixed assets.................................................... 428,359
Total assets ............................................................ ¥643,990

SECOM CO., LTD. ANNUAL REPORT 2006

66

In millions of yen

LIABILITIES

2006

2005

2004

2003

2002

Current liabilities:
Accounts payable.............................................................. ¥003,168
Bank loans .........................................................................
26,069Current portion of straight and convertible bonds..........
30,000
Payables—other ................................................................
12,987
Payables—construction ....................................................
3,634
Accrued income taxes ......................................................
15,312
Accrued consumption taxes.............................................
1,509
Accrued expenses .............................................................
651
Deposits received..............................................................
34,442
Deferred revenue—service charges ................................
22,371
Accrued bonus ..................................................................
5,232
Other ..................................................................................
1,938
Total current liabilities ........................................... 157,317¥002,113
31,473—
10,201
3,113
10,2791,306
599
31,146
21,727
4,967
1,764
118,694¥002,160
35,66318
10,358
4,666
10,5702,232
634
33,95821,2474,710
1,797
128,019¥002,121
53,503
—
9,605
3,535
6,806
2,157
576
24,74921,0484,920
1,679
130,706¥001,813
15,23433
10,167
3,514
18,163
1,839
619
20,867
20,108
4,939
933
98,234

2001

¥

1,908
20,157—
10,722
4,328
13,904
1,669
5,713
15,681
19,583—768
94,436

Fixed liabilities:
Straight and convertible bonds .......................................
Long-term loans ................................................................
Guarantee deposits received ...........................................
Deferred income taxes......................................................
Accrued pension and severance costs ............................
Accrued retirement benefits for directors andcorporate auditors...........................................................
Other ..................................................................................
Total fixed liabilities ...............................................
Total liabilities ........................................................

——
18,244—
5,581

30,000—18,014—
5,713

30,0002,300
17,009—5,356

30,0183,700
16,721—30,37830,018—16,445—31,341518—
15,784
581
1,999

1,201
—
25,027
182,344——
53,728172,423——
54,665
182,684——
80,818211,524——
77,805
176,039—120
19,003
113,439SHAREHOLDERS’ EQUITY
Common stock ..................................................................

66,377

66,37766,36866,36866,36066,126

Capital surplus:
Additional paid-in capital..............................................
Total capital surplus...............................................

83,054
83,05482,55382,55382,54482,54482,54482,54482,536
82,53682,30282,302

9,028

9,028

9,028

9,028

9,028

8,077

800

800

800

800

800

800

24
2,212
3,036
339,293351,358

25
2,212
3,037
306,766
318,832

26
2,212
3,038
279,338
291,405

27
2,212
3,039
254,364
266,431

28
2,212
3,040
233,263245,332

30
2,212
3,042
226,776
237,895

Unrealized gains on securities .........................................
5,604
Common stock in treasury, at cost ..................................
(44,749)
Total shareholders’ equity..................................... 461,646
Total liabilities and shareholders’ equity ............ ¥643,990

3,082(44,558)
426,288¥598,711

1,944(44,400)
397,862¥580,547

124(44,287)
371,182¥582,707642(141)
394,729¥570,769

4,575—
390,899¥504,339

Retained earnings:
Legal reserve..................................................................
Voluntary reserve:
Reserve for systems development ...........................
Reserve for tax deferral on
asset replacement....................................................
General reserve..........................................................
Total voluntary reserve..........................................
Unappropriated retained earnings...............................
Total retained earnings..........................................

SECOM CO., LTD. ANNUAL REPORT 2006

67

SUPPLEMENTAL NONCONSOLIDATED FINANCIAL DATA
(Based on Japanese GAAP)CONDENSED NONCONSOLIDATED STATEMENTS OF INCOME(Based on Japanese GAAP)SECOM CO., LTD.
Years ended March 31

In millions of yen
2006

2005

2004

2003

2002

2001

Revenue ..............................................................................
Percentage change from prior year...........................
Service charges...............................................................
Percentage change from prior year...........................
Sales of merchandise .....................................................
Percentage change from prior year...........................

¥313,096
5.1%
272,876
4.2
40,22012.1¥297,782
3.2%
261,918
2.0
35,86313.5¥288,493
3.5%
256,883
2.7
31,61011.4¥278,610
1.4%
250,237
2.5
28,373(7.4)¥274,669
6.9%
244,0145.8
30,65416.6¥257,008
6.0%
230,722
5.4
26,285
11.9

Costs ...................................................................................
As a percentage of revenue .......................................
Cost of service.................................................................
As a percentage of service charges...........................
Cost of sales ....................................................................
As a percentage of merchandise sales......................

171,80354.9
142,473
52.2
29,32972.9

164,51855.2
138,298
52.8
26,21973.1

159,01855.1
136,14453.0
22,873
72.4

155,49955.8
135,315
54.1
20,184
71.1

162,42759.1
140,000
57.4
22,42773.2

141,31055.0
122,45653.1
18,85371.7

Gross profit ........................................................................
As a percentage of revenue .......................................
Gross profit on service ...................................................
As a percentage of service charges...........................
Gross profit on sales ......................................................
As a percentage of merchandise sales......................

141,29345.1
130,40247.8
10,89027.1

133,26344.8
123,620
47.2
9,643
26.9

129,47544.9
120,738
47.0
8,736
27.6

123,11144.2
114,921
45.9
8,189
28.9

112,24140.9
104,013
42.6
8,227
26.8

115,69845.0
108,266
46.9
7,432
28.3

Selling, general and administrative expenses.................
As a percentage of revenue .......................................

69,121
22.0

67,23222.6

65,244
22.6

68,94324.8

73,33926.7

62,484
24.3

Operating profit ..................................................................
As a percentage of revenue .......................................

72,172
23.1

66,031
22.2

64,231
22.3

54,16719.4

38,901
14.2

53,21420.7

Non-operating income.......................................................
Non-operating expenses ...................................................

6,299
7,506

6,241
6,052

4,817
6,892

4,288
4,942

4,661
4,671

7,211
7,186

Ordinary profit ....................................................................
As a percentage of revenue .......................................

70,96422.7

66,21922.2

62,15621.5

53,51319.2

38,891
14.2

53,23920.7

Extraordinary profit............................................................
Extraordinary loss ..............................................................

6,147
5,615

1,083
5,915

25,462
29,860

6,543
7,535

28,211
38,712

23,246
24,570

Income before income taxes .............................................
As a percentage of revenue .......................................

71,49622.8

61,38820.6

57,75820.0

52,521
18.9

28,39010.3

51,91520.2

Provision for income taxes................................................
Effective tax rate..........................................................

27,617
38.6

23,684
38.6

23,475
40.6

21,73641.4

11,441
40.3

21,31941.1

Net income..........................................................................
As a percentage of revenue .......................................
Percentage change from prior year...........................

43,87914.0
16.4

37,70412.7
10.0

34,282
11.9
11.4

30,784
11.0
81.6

16,9486.2(44.6)

30,595
11.9
1.1

SECOM CO., LTD. ANNUAL REPORT 2006

68

CORPORATE INFORMATION(As of June 30, 2006)

Headquarters:
Independent auditors:
Administrator of the registerof shareholders:

5-1, Jingumae 1-chome, Shibuya-ku, Tokyo 150-0001, Japan
KPMG AZSA & Co.
Mitsubishi UFJ Trust and Banking Corporation
4-5, Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-8212, Japan

MAJOR CONSOLIDATED SUBSIDIARIES
Issued capital(In millions of yen)

Percentageof equity/
voting rights¥3,530
201
15
50
286
30
210
40
10
10
10
10
10
50
50
50
50
24
10
100
60
2,358
23
20
15
10
20
100
499
200
271
80

(50.9)%
59.1
70.0
51.0
67.0
68.3
100.0
(100.0)(100.0)(100.0)100.0(100.0)(100.0)
100.0
100.0
100.0
100.0
(52.3)(100.0)60.0
51.0(67.8)(52.2)(79.1)(66.7)(100.0)(100.0)(100.0)
100.0
76.0
100.0
(100.0)

Security services
Security services
Security services
Security services
Security services
Security services
Security services
Security services
Security services
Security services
Security services
Security services
Security services
Security services
Security services
Security services
Security services
Security services
Security services
Security services
Security services
Installation and maintenance of security equipment
Installation of security equipment
Installation of security equipment
Installation of security equipment and facilities
Maintenance of equipment
Maintenance of equipment
Design, construction and maintenance of facilities
Manufacturing of security equipment
Manufacturing and sales of security systems
Sales of security and water-treatment equipment
Sales of air-conditioning equipment<Medical services>
Secom Medical System Co., Ltd.
Seisho Corporation
Koyu Co., Ltd.
Kyokushin Shoji Co., Ltd.
Mac Corporation
Yoshikikaku Co., Ltd.
Kensei Co., Ltd.
Ryomay Royal Life Co., Ltd.
Alive Medicare Co., Ltd.
Japan Life Plus Medical Co., Ltd.
Secom Medical Resource Co., Ltd.
Secomfort Co., Ltd.
Secomfort West Co., Ltd.
US Chemical Co., Ltd.

200
10
10
10
95
20
100
210
50
10
10
100
10
3

100.0
(100.0)(100.0)(100.0)(100.0)(100.0)(100.0)51.8(100.0)(100.0)(100.0)(100.0)(100.0)(100.0)Home health/nursing care and other medical-related services
Maintenance of medical facilities
Sales of medical and other supplies
Management of real estate
Sales of medical equipment
Operation of restaurants and shops at medical facilities
Management of pharmacies
Management of nursing homes
Management of nursing homes
Medical-related services
Medical staffing solutions
Management of nursing homes
Management of nursing homes
Management of pharmacies<Insurance services>
Secom Insurance Service Co., Ltd.
Secom General Insurance Co., Ltd.

225
5,611

(100.0)83.2

Non-life insurance agency
Non-life insuranceLines of business

Domestic<Security services>
Secom Joshinetsu Co., Ltd.
Secom Hokuriku Co., Ltd.
Secom Yamanashi Co., Ltd.
Secom Mie Co., Ltd.
Secom Sanin Co., Ltd.
Secom Miyazaki Co., Ltd.
Secom Jastic Co., Ltd.
Secom Jastic Joshinetsu Co., Ltd.
Secom Jastic Hokuriku Co., Ltd.
Secom Jastic Miyazaki Co., Ltd.
Secom Jastic Akita Co., Ltd.
Secom Jastic Sanin Co., Ltd.
Secom Jastic Yamanashi Co., Ltd.
Secom Static Hokkaido Co., Ltd.
Secom Static Tohoku Co., Ltd.
Secom Static Nishi-Nihon Co., Ltd.
Secom Static Kansai Co., Ltd.
Secom Sado Co., Ltd.
JK. Siress Co., Ltd.
Japan Safety Guard Co., Ltd.
Meian Co., Ltd.
Secom Techno Service Co., Ltd.
Secom Tech Sanin Co., Ltd.
Secom Techno Joshinetsu Co., Ltd.
Secom Win Co., Ltd.
Secom Maintenance Joshinetsu Co., Ltd.
TES Co., Ltd.
Secom Tohoku Enterprise Co., Ltd.
Secom Industries Co., Ltd.
Otec Electronics Co., Ltd.
Secom Alpha Co., Ltd.
Yanoshin Air Conditioning Co., Ltd.

(Continued )Notes: 1. ( ) indicates the percentage of equity/voting rights held by both SECOM Co., Ltd., and certain of its subsidiaries, or by certain subsidiaries independently.
2. Subsidiaries are categorized into segments above according to their major lines of business.

SECOM CO., LTD. ANNUAL REPORT 2006

69

CORPORATE INFORMATION

MAJOR CONSOLIDATED SUBSIDIARIES
Issued capital(In millions of yen)

Percentageof equity/
voting rights<Geographic information services>
Pasco Corporation
Pasco Road Center Co., Ltd.
Urban Environmental Improvement Center Co., Ltd.
GIS Hokkaido Co., Ltd.
GIS Tohoku Co., Ltd.
GIS Hokuriku Co., Ltd.
GIS Kanto Co., Ltd.
GIS Tokyo Co., Ltd.
GIS Tokai Co., Ltd.
GIS Kansai Co., Ltd.
GIS Shikoku Co., Ltd.
GIS Kyushu Co., Ltd.
Tokyo Digital Map Co., Ltd.
Pasco Space Mapping Technology Co., Ltd.

¥8,758
50
50
190
50
20
40
100
50
50
30
50
60
25

69.8%
(72.2)(95.0)(100.0)(73.3)(100.0)(52.6)(100.0)(100.0)(68.0)(86.2)(93.1)(100.0)(100.0)<Information and communication related
and other services>
Secom Trust Systems Co., Ltd.

1,469

99.9

Laboratory for Innovators of Quality of Life
Cable Net Niigata Co., Ltd.
Japan Image Communications Co., Ltd.
Secom Home Life Co., Ltd.
Arai & Co., Ltd.
Stappy, Inc.
Arai Corporation, Inc.
Secom Credit Co., Ltd.
Secom Corporation
Secom Auto Service Co., Ltd.
Wonder Dream Co., Ltd.
Secom Staff Service Co., Ltd.
The Windsor Hotels International Co., Ltd.

100
2,142
487
3,700
3,000
5
10
400
100
45
490
50
165

(94.5)(92.1)
95.2
99.9(93.0)
100.0(100.0)
100.0
100.0
100.0
100.0
(100.0)90.0

Issued capital

Percentageof equity/
voting rights

Lines of business£39,126 thousand
Rmb332,170 thousand
Rmb17,228 thousand
Rmb29,122 thousand

100.0%
100.0(95.0)(90.0)

Security services
Holding company
Security services
Security services

Rmb20,792 thousand
Rmb8,298 thousand
US$2,000 thousand
US$3,950 thousand
THB300 million
AUD31.5 million
AUD32.0 million
US$600 thousand(80.0)(80.0)(90.0)
94.9
88.4
100.0
(100.0)80.0

Security services
Security services
Security services
Security services
Security services
Holding company
Security services
Security service-related consulting

US$0.3 thousand
US$140,610 thousand
US$9,670 thousand
US$5,000 thousand
US$3,304 thousand

100.0(99.7)
88.6(100.0)(100.0)

PHP8,400 thousand(70.0)

Holding company
Investment
Holding company; housing-related businessHousing-related business
Geographic information services andsoftware development
Geographic information services

Rmb1,000 thousand
Rmb5,284 thousand
THB30,979 thousand
EUR323 thousand
US$171 thousand
INR5,575 thousand
US$3 thousand(92.0)(100.0)(100.0)(55.0)(100.0)(100.0)(100.0)Geographic information services
Geographic information services
Geographic information services
Geographic information services
Geographic information services
Geographic information services
Investment

Lines of business

Geographic information services
Geographic information services
Geographic information services
Geographic information services
Geographic information services
Geographic information services
Geographic information services
Geographic information services
Geographic information services
Geographic information services
Geographic information services
Geographic information services
Geographic information services
Geographic information services

Information, communication, cyber security services andsoftware development
Research and planning of social life
CATV broadcasting service
Commissioned broadcasting service
Development of residential buildings
Real estate leasing
Management of real estateManagement of real estate
Credit services
Printing services
Car maintenance
Employee welfare for SECOM Group
Employment agency
Hotel management

Overseas<Security services>
Secom Plc
Secom (China) Co., Ltd.
Dalian Secom Security Co., Ltd.
Shanghai Secom Security Co., Ltd.
Beijing Jingdun Secom
Electronic Security Co., Ltd.
Qingdao Secom Security Co., Ltd.
Shenzhen Secom Security System Co., Ltd.
P.T. Secom Indopratama
Thaisecom Pitakkij Co., Ltd.
Secominter (Australia) Pty. Ltd.
Secom Australia Pty. Ltd.
Secom Vietnam Joint Venture Co.
<Other services>
The Westec Security Group, Inc.
ClearLight Partners, LLC
Asia Pacific Business Link Ltd.
Shanghai Asia Pacific Property Co., Ltd.
P.T. Nusantara Secom Infotech
Pasco-Certeza Computer Mapping Corporation
Suzhou Super Dimension Earth Science
Research and Development Co., Ltd.
Pasco China Corporation
Pasco Thailand Co., Ltd.
FM-International Oy FINNMAP
Pasco North America Inc.
Pasco Geomatics India Pvt. Ltd.
Gold Stone Investment Inc.

Notes: 1. ( ) indicates the percentage of equity/voting rights held by both SECOM Co., Ltd., and certain of its subsidiaries, or by certain subsidiaries independently.
2. Subsidiaries are categorized into segments above according to their major lines of business.

SECOM CO., LTD. ANNUAL REPORT 2006

70

SECOM GROUP’S BASIC BUSINESS AREAS
Armored Car Services

Centralized Security Systems
SECOM offers a wide range of services and productsthat help provide peace of mind in today’s rapidlychanging society.

Dispatch

SECOM
Emergency
Depot

Emergency Response

Merchandise

Security Services
Centralized Security Systems
Commercial Use:
● SECOM AXSECOM AX is an on-line security system with advanced on-site image sensors thatincorporate microphones to enable the SECOM control center staff to check thesubscriber’s premises by listening and viewing.
● SECOM IX
SECOM IX is a remote imaging security system for commercial facilities offeringround-the-clock services.
● SECOM DXSECOM DX is an on-line security system developed to meet the needs of shops,
offices, warehouses, factories and other commercial and industrial establishments.
● SECOM TX
SECOM TX provides on-line protection for commercial buildings with more than
one tenant.
● HANKS SYSTEMHANKS SYSTEM is an on-line security system for automated banking facilities.
● SECOM CXSECOM CX offers a comprehensive building management system that monitors andmanages large building complexes.

Residential Use:
● SECOM HOME SECURITY
SECOM Home Security is a comprehensive home security system combining basic
intrusion- and fire-prevention services and emergency call services, as well as gas
leak monitoring and medical emergency call service options. The system is linked
around the clock with a SECOM control center, where personnel respond
immediately in the event of a problem by dispatching emergency response
personnel and, if necessary, contacting the appropriate authorities. Subscribers arealso eligible for telephone health counseling and other services offered through
SECOM Medical Club. Subscribers in certain areas also have access to SECOM Home
Services, a suite of lifestyle support services.

SECOM
Control Center

Alert as Necessary･Police Department･Fire Department･Utility Companies･Other Organizations

COCO-SECOM
COCO-SECOM is an innovative system that uses signals from Global Positioning
System (GPS) satellites and cellular telephone base stations to locate moving
objects, such as people, vehicles and property. As an option, customers can also
request to have emergency response personnel dispatched to the location of theobject or an emergency alert relayed to a predetermined telephone number.

Large-Scale Proprietary Systems● SECOM TOTAX ZETASECOM TOTAX ZETA integrates cutting-edge networking capabilities and asecurity system into a comprehensive local control system for industrial complexes
and buildings.

Medical Services● HOME MEDICAL SERVICESSECOM’s medical services for patients at home include pharmaceutical services,encompassing the preparation—in the SECOM Pharmacy cleanroom—and delivery ofprescription pharmaceuticals, and home nursing services provided through visiting
nurse stations. SECOM also provides consulting and support services for physicians
opening home medical care clinics.
● HOME-BASED PERSONAL CARE SERVICESSECOM provides patients recovering at home with caregivers to assist with personal
hygiene, bathing, exercise and other daily activities, as well as provide
light housekeeping.
● SECOM UBIQUITOUS ELECTRONIC MEDICAL REPORT (EMR)
SECOM Ubiquitous EMR is a medical report system for home medical care aimed atclinics and small and medium-sized hospitals. The system enables the sharing of data
among members of the home-care team, including the primary physician, visiting
nurse and pharmacy.
● HOSPINET
Hospinet, a remote image diagnosis support service, transmits magnetic resonanceimaging (MRI), computerized tomography (CT) and other images to SECOM’s
Hospinet center, where diagnostic experts examine them and provide consultation
to the primary physician.
● MY SPOONMy Spoon is a robot that enables people with impaired upper body mobility to eat
with minimal assistance. This is the first robot of its kind in Japan.
● SECOM AED PACKAGE SERVICEThe SECOM AED Package Service is a full-service package encompassing leasing andmaintenance of emergency lifesaving kits featuring automated external defibrillators(AEDs) to non-medical professionals.

Subscribers

Alarm Sent

● SECOM CONDOMINIUM SECURITY SYSTEMSSECOM condominium security systems provide comprehensive building management
functions for condominiums and total safety with a centralized security system foreach unit in the building. SECOM MS-3, the top-of-the-line system, can be used forbuildings of any size, either as a retrofit or a new installation.

● NURSING HOMES WITH FULL-TIME PERSONAL CARE SERVICESSECOM manages the Sacravia Seijo, Royal Life Tama and Comfort Garden Azamino
nursing homes and the Alive Care Home series for senior citizens with full-time
personal care services.
● SECOM HEALTH CARE CLUBSECOM Health Care Club is a membership-based club that provides access to avariety of health management services, including testing with a PET/CT scanner.
The club is offered through an alliance with Yotsuya Medical Cube, a cutting-edge
clinic in Tokyo.

SECOM provides armored car services for the collection and transportation of
cash and other valuables.

Static Guard Services
Static guard services are provided for facilities where customer needs are best servedby professionally trained on-site personnel.

● SECOM CCTV SYSTEMThe SECOM CCTV system is a multifunctional, cost-effective closed-circuit
surveillance camera system. The system is fully digital, eliminating the risk ofimage degradation. It is also capable of detecting attempts to disable or destroy
the camera.
● SECURILOCKSECURILOCK uses identification numbers, integrated circuit (IC) pass cards andother methods to control access to restricted areas.
● SESAMO SERIESThe SESAMO series comprises access-control systems for use in corporate offices,
factories, parking facilities and any other security-sensitive areas. These systems
employ such technologies as wireless IC pass cards, magnetic cards, personal
identification numbers, fingerprint identification and palm vein identification.
● TOMAHAWK SERIESThe TOMAHAWK series is an extensive lineup of innovative extinguishingsystems, including TOMAHAWK MACH II residential-use fire extinguisher
and TOMAHAWK III high-speed automated fire extinguishing system withgas suppression.
● PYTHAGORAS SERIESPYTHAGORAS is a series of security vaults with superior protection, heat
resistance and performance.
● SENSOR LIGHTSENSOR LIGHT is a sensor-equipped light activated automatically when the sensor
detects human body temperature.
● SECURIFACESECURIFACE is a residential intercom system that combines a face detection
function with SECOM Home Camera System, enhancing security for people
at home.
● PHYSICAL SECURITY PRODUCTS FOR HOMESSECOM offers a broad range of physical security products for homes. These
include SECOM Anshin Glass, a high-impact breakage-resistant window glass
designed to prevent intruders from entering through broken windows; SECOM
Window Frame, a window frame with reinforced stainless bars; and Strong Door,a door that cannot be forced open for an extended period of time after it has
been engaged.

Insurance Services

Information and Communication Related and Other Services● SECURITY DISCOUNT FIRE POLICY
Security Discount Fire Policy is a commercial fire insurance policy that features
reduced premiums for subscribers to commercial security systems.
● SECOM ANSHIN MY HOME
SECOM Anshin My Home is a comprehensive fire insurance policy that features
reduced premiums for subscribers to home security systems.
● MEDCOMMEDCOM is an unrestricted treatment policy that covers the cost of cancer treatment not covered by Japan’s national health insurance scheme, as well as thepatient’s portion of the cost of medical care covered by the national health insurance scheme. MEDCOM also provides hospital referrals and treatment-related
consulting services.
● NEW SECOM ANSHIN MY CAR
New SECOM Anshin My Car is a comprehensive automobile insurance policy that
includes on-site emergency services in the event of an accident, as well as discounts for drivers without a traffic violation history or on cars equipped withantitheft devices.

● SECURE DATA CENTERThe Secure Data Center provides a comprehensive service for e-business thatcombines SECOM’s expertise in both physical and cyber security.
● SECOM DATA SAFESECOM Data Safe is a high-security computer server repository that combines
advanced physical and cyber security.
● DIGITAL AUTHENTICATION SERVICESSECOM offers public key infrastructure (PKI) services that provide an effectivemeans of establishing credibility among Internet users, including issuance ofdigital certificates and a set-up and operating service for organizations that wish
to establish their own digital certificate authority.
● NETWORK SECURITY MONITORING SERVICESSECOM provides security and stability for clients’ IT systems around the clock.
SECOM monitors and reports on threats to security, and on network operating
status and network traffic.
● DISASTER RESPONSE SERVICESSECOM offers a variety of services, including SECOM Safety Confirmation Service,
which helps commercial subscribers ascertain the safety of employees and collectand share information in the event of a major disaster, thereby assisting them toreopen for business as soon as possible.
● SECOM FINE FOODSSECOM Fine Foods is a line of quality food products marketed through mail ordercatalogs and the Internet.
● REAL ESTATE DEVELOPMENT AND SALESSECOM offers Glorio condominiums.

Geographic Information Services● PasCAL SERIES
Designed for local governments, the PasCAL series of comprehensive GIS services
facilitate the effective use of GIS in a variety of situations.
● MarketPlanner SERIESThe MarketPlanner series uses a variety of data sorting and presentation methods
to support the efforts of growing companies to establish area marketing strategies.
● SAFE ROUTE MAPPING SERVICEThis service helps companies ensure their employees are able to reach homesafely and assists crisis management efforts in the event of a major earthquake.
A version of this service is also available to individuals.

SECOM CO., LTD. ANNUAL REPORT 2006

SECOM CO., LTD. ANNUAL REPORT 2006

71

72

DIRECTORS, CORPORATE AUDITORSAND EXECUTIVE OFFICERS

Directors

Corporate Auditors
Teruo Ogino
Ken Tsunematsu
Hiroshi Yasuda
Kohei Yamashita

Executive Officers

Makoto Iida

Juichi Toda

Founder

Co-Founder

Shohei Kimura

Hiroshi Ito

Chairman

Executive Officer

Kanemasa Haraguchi

Shunji Ogahara

President andRepresentative Director

Executive Officer

Kiyomasa Sugii
Nobuyuki Sasaki

Executive Officer

Senior Executive Director

Minoru Takaoka
Katsuhisa Kuwahara

Executive Officer

Executive Director

Yoshihiro Chino
Seiichiro Kobayashi

Executive Officer

Managing Executive Officer

Mamoru Sasaki
Shuji Maeda
Toshitaka Sugimachi

Shohei Kimura

Kanemasa Haraguchi

Executive Director

AdvisorChairmanPresident andRepresentative Director

Katsuo Akiyama

Executive Officer

Akira Tsutsumi
Executive Officer

Executive Director

Tomoo Toya
Shinobu Iida

Executive Officer

Executive Director

Hideo Morishita
Koichi Sato

Executive Officer

Managing Executive Officer

Tsuneo Komatsuzaki
Yushiro Ito

Executive Officer

Managing Executive Officer

Seiji Sakamoto
Seiichi Mori

Nobuyuki Sasaki

Executive Officer

Executive Officer

Senior Executive Director

Kazuaki Anzai
Fumio Obata

Executive Officer

Director

Takayuki Ito
Executive Officer

Ryohei Komatsu
Executive Officer(As of June 27, 2006)

Katsuhisa Kuwahara Shuji Maeda
Executive Director

Executive Director

Fumio Obata
Director

SECOM CO., LTD. ANNUAL REPORT 2006

73

Katsuo Akiyama

Shinobu Iida

Executive Director

Executive Director