April 27, 2007 Company name: Tokai Tokyo Securities Co., Ltd.
Stock code: URL: http://www.tokaitokyo.co.jp/
Representative: Title: Name: Tateaki Ishida
Contact: Title: Name: Masato Okajima Tel: +81-3-3566-8613 Planned date of general meeting of shareholders: June 28, 2007
Planned date for submission of financial reports: June 28, 2007
2. Dividends
Listings:first sections of the Tokyo Stock Exchange, Osaka Securities Exchange, and Nagoya Stock Exchange
The performance of the securities business is influenced significantly by the market environment. The Company does not disclose estimated operating results, given the difficulties in forecasting performance.
(Figures are rounded down to the nearest one million yen.) 1. Consolidated operating results for the year ended March 31, 2007 (from April 1, 2006 to March 31, 2007)
3. Forecast consolidated operating results for fiscal 2007 (from April 1, 2007 to March 31, 2008)
Consolidated Financial Summary For the Fiscal Year Ended March 31, 2007
President & CEO Gneral Manager, Finance Department
Scheduled day of commencing dividend payment: June 29, 2007 8616
(1) Consolidated operating results (Figures in percentages denote the year-on-year change)
Million yen % Million yen % Million yen % Million yen % Million yen % FY2006 63,765 - 11.2 62,400 - 11.9 17,997 - 32.2 18,723 - 31.1 10,668 - 51.7
FY2005 71,776 70,816 26,543 27,191 22,085
Yen Sen Yen Sen % % %
FY2006 39 65 39 65 FY2005 79 05 78 98
(Reference) Investment profit and loss on equity method FY2006 0 million yen FY2005 0 million yen Operating revenue Net operating revenue Operating income Ordinary income
Net income per share Diluted net income
per share Return on equity
Ordinary margin on total assets 10.1 22.1 3.2 5.0 28.2 37.0 Net income Ordinary margin on operating revenue
(2) Consolidated financial condition
Total assets Net assets Equity ratio Net assets per share
Million yen Million yen % Yen Sen
FY2006 525,822 103,898 19.7 390 53
FY2005 638,148 108,273 17.0 394 00
(Reference) Shareholders' equity FY2006 103,671 million yen FY2005 108,273 million yen (3) Consolidated cash flows position
Cash flows from operating activities
Cash flows from investing activities
Cash flows from
financing activities Cash and cash equivalents
Million yen Million yen Million yen Million yen
FY2006 - 17,964 - 5,303 25,390 37,653
FY2005 - 34,569 - 2,218 45,731 35,521
(Base date) First half Second half Annual
Yen Sen Yen Sen Yen Sen Million yen % %
FY2006 7 50 10 00 17 50 4,684 44.1 4.5
FY2005 - 25 00 25 00 6,851 31.6 6.9
(Notes) 1. The dividend for the second half of fiscal 2005 consisted of an ordinary dividend of 15 yen and a special dividend of 10 yen. 2. The dividend for the second half of fiscal 2006 consisted of an ordinary dividend of 7.5 yen and a special dividend of 2.5 yen.
Net assets dividend ratio (consolidated) Dividend per share
Total cash dividends (annual)
Dividends payout (consolidated)
4. Others
1) Changes associated with the revision of accounting principles, etc.: Yes 2) Changes other than 1): No
(Note) For more details, please see Page 19, “Significant Accounting Policies in the Preparation of the Consolidated Financial Statements.”
(Reference) Non-consolidated financial results
2. Forecast non-consolidated operating results for fiscal 2007 (from April 1, 2007 to March 31, 2008)
The performance of the securities business is influenced significantly by the market environment. The Company does not disclose estimated operating results, given the difficulties in forecasting performance.
1. Non-consolidated operating results for the year ended March 31, 2007 ( from April 1, 2006 to March 31, 2007) (2) Changes in accounting principles and procedures and the presentation method, etc. of consolidated interim financial statements (those which are included in changes to important matters that will be the basis for preparing consolidated interim financial statements)
(1) Important changes of subsidiaries during the term
(changes of specified subsidiaries that lead to a change in the scope of consolidation): No
(3) Number of shares issued (common stock)
1) Number of shares issued at the end of the term including treasury stock (shares)
FY2006 285,582,115 FY2005 285,582,115 2) Number of treasury stock at the end of the term (shares)
FY2006 20,116,929 FY2005 11,516,232 (Note) For the number of shares that is the basis for the calculation of consolidated net income per share, please see Page 21,
“Per Share Information.”
(1) Non-consolidated operating results (Figures in percentages denote the year-on-year change)
Million yen % Million yen % Million yen % Million yen % Million yen % FY2006 61,537 - 11.6 60,195 - 12.4 17,180 - 33.1 17,933 - 31.7 10,296 - 53.1
FY2005 69,647 68,738 25,686 26,257 21,946
Yen Sen Yen Sen %
FY2006 38 27 38 26 FY2005 78 74 78 67
9.8 22.1 Net income per share Diluted net income
per share
Operating income Ordinary income
Operating revenue Net operating revenue Net income
Return on equity
(2) Non-consolidated financial condition
Total assets Net assets Equity ratio Net assets
per share Capital adequacy ratio
Million yen Million yen % Yen Sen %
FY2006 519,800 102,514 19.7 386 17 403.7
FY2005 630,633 107,409 17.0 391 04 447.4
1. Operating Results
(1) Analysis of Operating Results (Operating results for fiscal 2006)
During the consolidated fiscal year under review (from April 1, 2006 to March 31, 2007), the Japanese economy enjoyed continued GDP growth at a rate of 2%, making the current economic expansion period the longest in the postwar period, surpassing even the 57 months of the so-called Izanagi boom. With exports and capital investment buoyant, personal spending surged on improved employment conditions. This economic expansion was further fueled by the strengthening of the U.S. dollar against the Japanese yen, and record operating results announced by the corporate sector. Meanwhile, following the decision to end the quantitative monetary easing policy in March 2006, the Bank of Japan lifted its zero-interest rate policy in July 2006. Affected by overseas developments, including a decline in housing sales in the United States and the tightening of monetary policies in China and India, the pace of the Japanese economic expansion slowed moderately.
Amid these conditions, stock markets generally remained steady. The Nikkei Stock Average recorded a new high of 17,563 on April 7, 2006, but temporarily declined to 14,045 on June 14, 2006, amid selling pressure from foreign and individual investors in the face of an increasingly tense international situation and a hike in U.S. interest rates. Since then, the stock market has regained its upward momentum thanks to a revival of foreign buying led by a decline in long-term interest rates, strong corporate performance, a pause in the rise in U.S. interest rates, buying interest driven by improved dividend yields, and speculative buying on the strength of M&A anticipation. The Nikkei Stock Average temporarily rose to 18,300 on February 26, 2007, and closed at 17,287 at the end of the fiscal year. The trading volume remained stagnant in the first half of the fiscal year under review, but it improved in the second half with daily trading value on the First Section of the Tokyo Stock Exchange reaching 4.8 trillion yen on February 28, 2007. The average daily turnover for the fiscal year under review was 2.6 trillion yen, exceeding the 2.2 trillion yen of the previous year. It was, however, noted that the participation of individual investors was not strong, as they were net sellers of 4.5 trillion yen over the year, while foreign investors were net buyers of 6.0 trillion yen.
The bond market remained sluggish on anticipation that Bank of Japan was likely to lift its zero-interest rate regime following its decision to end the policy of quantitative monetary easing in March 2006. As a result, the yields on 10-year government bonds, the benchmark for long-term interest rates, temporarily rose to 2.005% on May 10. However, when the zero-interest rate policy was actually released and the call rate was raised to 0.25% on July 14, the bond market rallied, and the yields of 10-year government bond declined. instead, as the market had already discounted the news. Since then, with a decline in the U.S. long-term interest rates as the Federal Reserve Board has elected not to raise its rates since its last did so on June 29, and with weakened concerns over global inflation reflecting lower oil prices, long-term rates in Japan continued to fall through the rest of the fiscal year. Consequently, the yield on 10-year government bonds temporarily declined to 1.545% on March 22, 2007. On February 21, 2007, Bank of Japan raised interest rates once again, but the long-term rates did not rise as the market anticipated no subsequent rate rise would follow given the stable consumer price index.
In this environment, on a consolidated basis the Group recorded total operating revenues of ¥63,765 million, down 11.2% from the previous year, net operating revenues of ¥62,400 million, down 11.9%, and selling, general and administrative expenses of ¥44,403 million, up 0.3%. Operating income declined 32.2% year-on-year to ¥17,997 million, and ordinary income declining 31.1% to ¥18,723 million.
(Commissions)
In the fiscal year under review, commissions received were ¥47,422 million on a consolidated basis, down 10.7% from the previous year.
The breakdown of the commissions received is as follows:
(1) Brokerage
On a consolidated basis, brokerage of stocks turnover stood at 3,934 million shares in the fiscal year under review, down 49.5% from the preceding year, with a value of ¥4,069.3 billion, down 29.4%. These declines are attributable to the slowdown in trading by individual investors. As a result, we booked overall brokerage of ¥24,956 million, down 32.9%, with equity brokerage of ¥24,865 million, down 32.9%.
(2) Underwriting and sales
On a consolidated basis, underwriting and sales for stocks were ¥845 million in the fiscal year under review, down 56.5% from the previous year, and such commissions for stocks and bonds were ¥1,078 million, down 46.8%.
(3) Subscription and distribution and others
Subscription and distribution commissions for the fiscal year under review stood at ¥12,964 million, up 62.9% from the previous year, on a consolidated basis and other commissions received were ¥8,423 million, up 41.4%. Most of which were attributable to subscription and distribution commissions and agency commissions from investment trusts. In relation to beneficiary certificates, the subscription and distribution commissions accounted for ¥12,789 million, up 64.5%, and agency commissions, ¥5,597 million, up 37.1%.
(Trading profit and loss)
In the fiscal year under review, gains on trading of bonds were ¥6,189 million yen, up 31.8% from the previous year, on a consolidated basis thanks to brisk sales of foreign currency-denominated bonds and structured notes. Meanwhile, gains on trading of stocks were ¥6,613 million, down 41.2%, reflecting sluggish trading of domestic stocks. As a result, gains on trading of stocks, bonds and others totaled ¥13,581 million, down 18.0%.
(Financial income)
In the fiscal year under review, financial revenues were ¥2,761 million, up 31.6% from the previous year, on a consolidated basis, thanks to an increase in interest income derived from margin trading. Meanwhile, financial expenses rose 42.1%, to ¥1,364 million reflecting an increase in interest expenses. Hence, the positive net financial balance was ¥1,396 million, up 22.8%.
(Selling, general and administrative expenses)
In the fiscal year under review, selling, general and administrative expenses accounted for ¥44,403 million, up 0.3% on a consolidated basis. Of the amount, trading-related expenses were ¥6,769 million, up 17.2%, with personnel expenses at ¥25,437 million, down 8.1%, real estate expenses at ¥5,461 million, rising 7.6%, and office expenses at ¥3,524 million, an increase of 10.1%. Depreciation expenses increased 91.8%, to ¥1,596 million, as a result of the change of
(2) Analysis on financial conditions
In the fiscal year under review, cash outflows from operating activities were ¥17,964 million yen on a consolidated basis. While income before income taxes and minority interests was ¥18,536 million, trading products (liabilities), net of payables related to margin transactions, and borrowings pledged by securities declined and corporate and other taxes increased.
Cash outflows from investing activities were ¥5,303 million, reflecting the development of a branch network and IT-related investments. Cash inflows from financing activities were ¥25,390 million, attributable to a rise in borrowings and issuance of commercial paper. As a result, the balance of cash and cash equivalents was ¥37,653 million at the end of the fiscal year under review on a consolidated basis, rising ¥2,131 million from the previous year. The Company has signed commitment-line contracts totaling ¥35 billion yen (as of the end of March 2007) with financial institutions.
(3) Basic policy on dividend distribution
As the performance of the securities industry is significantly influenced by market conditions, the Company is bolstering retained earnings on profit sharing. It is the Company’s basic dividend policy to pay consistent and appropriate dividends to the shareholders.
2. Information on Group Companies.
The Tokai Tokyo Securities Group consists of Tokai Tokyo Securities Co., Ltd., ten consolidated subsidiaries, two non-consolidated subsidiaries, and four affiliate companies. It primarily engages in trading and brokerage of securities, underwriting and sales of securities, subscription and distribution of securities, offering of private placement and other business related to securities. The Group provides an array of services to meet customer needs for the raising and investing of funds through its global networks, which link financial markets in Asia and Europe.
Changes in consolidated subsidiaries during the fiscal year under review are as follows.
Tokai Tokyo Investment Co., Ltd. Established in April 3, 2006 Tokai Tokyo Securities Europe Limited Established in January 24, 2007 TTI Chubu Venture No. 1 Investment Business Limited Partnership Established in May 31, 2006 TTI Growth Companies No.1 Investment Business Limited Partnership Established in February 1, 2007
Details of the operations of the Tokai Tokyo Securities Group are as follows.
(Investment and Financial Services Business)
(Information service business)
(Investment advisory business)
(Real-estate finance related business)
(Management of real estate lease, custody service and other businesses)
◎Utsunomiya Securities Co., Ltd.
Japan
◎Tokai Tokyo Securities (Asia) Ltd.
◎Tokai Tokyo Research Center Co., Ltd.
◎Tokai Tokyo Services Co., Ltd.
◎Tokai Tokyo Investment Management Co., Ltd.
◎Tokai Tokyo Finance & Real Estate Co., Ltd.
(Note)
1. Each mark has the following meanings: ◎ consolidated subsidiary, □ non-consolidated subsidiary, ☆ affiliate company
2. Investment business limited partnerships are controlled by the executive authority. (Venture capital and investment in securities) ◎Tokai Tokyo Investment Co., Ltd.
◎TTI Chubu Venture No. 1 Investment Business Limited Partnership ◎TTI Growth Companies No.1 Investment Business Limited Partnership
◎Tokai Tokyo Securities Europe Limited Europe
Tokai Tokyo Securities Co., Ltd.
Asia
□YST-1 Tokutei Mokuteki Kaisha and one other company ☆N-o Meiekiminami Yugen Kaisha and three other companies
3. Management Policy
(1) Principle Management Policy
The Company aims to become “The Premier House”—suggesting a superior securities company—as representing our ultimate goal. To become “The Premier House,” we have developed three specific targets, namely to become a “Solutions House” that can always provide the optimum solutions to meet the needs of customers, a “Community House” that can contribute to local communities on which the Company is based, and a “Premier” that provides high quality products for customers. We are pursuing a number of specific initiatives to achieve these targets.
(2) Management targets
We have set the following three numerical targets as the vision of our three-year business plan: 1. Ordinary income of 40 billion yen or more in the final year of the three-year business plan 2. ROE of 10% or higher; 15% or higher in the final year of the three-year business plan 3. A credit rating of ‘A’ or higher
(3) Medium to Long Term Management Strategies
To become a “The Premier House” at the earliest possible stage, we established and launched our Three-Year Business Plan - Innovation Jump Up 5 in April 2006.
Under the plan, we are introducing comprehensive structural reforms by carrying out the following five specific strategies:
1. Reforming Corporate Governance and Corporate Culture 2. Reforming the Business Portfolio and Business Model 3. Reforming the Network
4. Reforming Products and Services
5. Reforming Roles and Productivity of Employees
We are also executing other strategies to bolster the five reforms described above, namely IT strategies that include the renewal of the main system in January 2008, and alliance strategies that include business cooperation with the Yamaguchi Financial Group.
(4) Current challenges
Financial services and products have become increasingly diversified in recent years. With the anticipated introduction of the Financial Product Transaction Act in the current fiscal year, the pace of this diversification is likely to accelerate. In this environment, the importance of securities markets, which play a central role in the Japanese financial system, will increase. Consequently, the role of securities companies that support the securities markets will become more significant.
We will carry out specific measures in accordance with these strategies to respond to the expectations and support of customers. All employees and directors are united in their commitment to improving the Company’s performance. We will continue to strive to become a securities firm with a sound organization and financial strength, both of which are necessary to meet the needs of customers, namely a strong company, a company that can provide proposals and information that satisfy customers and that offers a workplace that motivates all employees, namely an exciting company, and a company that possesses extensive knowledge as a sophisticated financial institution and that can provide optimum services for customers, namely a learning company.
FY2005 FY2006
(As of March 31, 2006) (As of March 31, 2007)
Category Amount (million yen) Composition(%) Amount (million yen) Composition(%) (million yen)Amount Assets
36,458 38,676 2,218
30,492 25,396 - 5,095
Deposits segregated for customer 29,902 24,803 - 5,099
Others 589 592 3
183,272 165,982 - 17,289
Trading securities and others 183,026 165,464 - 17,561
Derivative assets 245 518 272
145,648 118,846 - 26,802
Customer margin loans 139,559 107,469 - 32,089
Cash deposits as collateral for securities borrowed 6,088 11,376 5,287
200,057 131,251 - 68,806
Cash deposits as collateral for securities borrowed 200,057 131,251 - 68,806
269 258 - 10 2,941 4,751 1,809 2,271 2,593 321 764 521 - 243 246 200 - 45 3,233 2,978 - 255 2,699 2,294 - 404 1,043 556 - 486 - 143 - 109 33 609,254 95.5 494,198 94.0 - 115,056 9,532 10,657 1,125 Structures 2,595 2,837 241
Equipment and fixtures 1,415 2,254 838
Land 5,520 5,520 -
Work in progress - 45 45
1,630 2,411 780
17,731 18,555 824
Investment securities 13,333 13,586 253
Long-term guarantee deposits 3,439 3,461 21
Others 1,761 2,208 447
Less: Allowance for doubtful accounts-non-current -802 -700 101
28,893 4.5 31,624 6.0 2,730
638,148 100.0 525,822 100.0 - 112,325
Current assets
Trading assets
Deferred tax assets-current
Consolidated Balance Sheets
Increase/ Decrease
Tangible fixed assets
Collateralized short-term financing agreements Cash segregated as deposits for regulatory purposes Cash and deposits
Fixed assets Others
Intangible fixed assets Investments and others
Total fixed assets Total assets
Accrued receipt
Total current assets
Receivables related to margin transactions
Short-term loans receivable Cash paid for subscription Advances
Short-term guarantee money paid
Less: Allowance for doubtful accounts-current Accrued revenue
FY2005 FY2006
(As of March 31, 2006) (As of March 31, 2007)
Category Amount (million yen) Composition(%) Amount (million yen) Composition(%) (million yen)Amount Liabilities
145,309 118,977 - 26,331
Trading securities and others 144,981 118,637 - 26,344
Derivative liabilities 327 340 12
9,821 19,091 9,269
69,361 34,263 - 35,097
Payable to securities finance companies 66,491 31,013 - 35,477
Proceeds of securities sold for customers’ accounts 2,870 3,250 380
158,637 78,410 - 80,227
Cash deposits as collateral for securities loaned 143,145 50,105 - 93,040
Payables related to gensaki transactions 15,491 28,304 12,812
24,782 20,101 - 4,680 15,119 9,118 - 6,000 75,770 107,728 31,957 10,500 18,100 7,600 7,596 5,583 - 2,013 4,540 4,127 - 413 - 154 154 4,219 2,476 - 1,743 525,658 82.3 418,133 79.5 - 107,524 - 150 150 861 592 - 269 649 680 30 401 405 3 205 - - 205 - 105 105 833 844 11 2,952 0.5 2,777 0.5 - 175 1,012 1,012 - 1,012 0.2 1,012 0.2 - 529,624 83.0 421,923 80.2 - 107,700 250 0.0 - - - Retirement benefits
Deferred tax liabilities-non-current Total current liabilities
Collateralized short-term financing agreements Trading payables, net
Payables related to margin transactions
Accrued bonuses
Increase/ Decrease
Short-term borrowings Short-term corporate bonds Income taxes payable
Accrued bonuses for directors and executive officers
Statutory reserves Others
Total statutory reserves
Minority interests Total liabilities Current liabilities
Deposits received Trading liabilities
Cash deposits received as guarantee
Negative goodwill
Securities transaction liabilities reserve Total fixed liabilities
Long-term debt Fixed liabilities
Others
Consolidated adjustment account
FY2005 FY2006
(As of March 31, 2006) (As of March 31, 2007)
Category Amount (million yen) Composition(%) Amount (million yen) Composition(%) (million yen)Amount Capital equity 36,000 - - 37,586 - - 36,187 - - 2,835 - - - 126 - - - 4,209 - - 108,273 17.0 - - - 638,148 100.0 - - - - 36,000 - - 37,584 - - 37,684 - - - 9,634 - - 101,634 - - 2,158 - - - 121 - - 2,037 - - 226 - - - 103,898 19.8 - - - 525,822 100.0 - Retained earnings Capital surplus Common stock Increase/ Decrease Net assets Shareholders' equity Common stock
Net unrealized gain/loss on securities, net of tax effect Translation adjustments
Total shareholders' equity
Total liabilities, minority interests and shareholders' equity Treasury stock
Total liabilities and net assets Valuation and translation adjustments
Net unrealized gain/loss on securities, net of tax effect Translation adjustments
Total valuation and translation adjustments Minority interests
Total net assets Capital surplus Retained earnings Treasury stock Total shareholders' equity
Consolidated Statements of Operations
FY2005 From April 1, 2005 to March 31, 2006 FY2006 From April 1, 2006 to March 31, 2007Category Amount (million yen)Percentage
(%) Amount (million yen)
Percentage
(%)
53,110 47,422 89.3
Brokerage 37,167 24,956 67.1
Underwriting and sales 2,028 1,078 53.2
Subscription and distribution 7,957 12,964 162.9
Other commissions 5,956 8,423 141.4 16,568 13,581 82.0 2,097 2,761 131.6 71,776 100.0 63,765 100.0 88.8 960 1.3 1,364 2.1 142.1 70,816 98.7 62,400 97.9 88.1 Trading-related expenses 5,776 6,769 117.2 Personnel expenses 27,669 25,437 91.9
Occupancy and rental 5,074 5,461 107.6
Office expenses 3,200 3,524 110.1
Depreciation expenses 832 1,596 191.8
Taxes and public dues 596 500 83.9
Allowance for doubtful accounts 145 11 7.6
Others 977 1,103 112.9
Total selling, general and administrative expenses 44,272 61.7 44,403 69.7 100.3 26,543 37.0 17,997 28.2 67.8 699 780 111.6 109 - - - 111 - 589 668 113.4 51 54 107.3 51 54 107.3 27,191 37.9 18,723 29.4 68.9 12 - - 751 38 5.1 3,168 - - - - - 3,932 5.5 38 0.1 1.0 24 33 136.5 233 0 0.1 114 114 100.2 3,936 - - 13 77 567.0 410 - - 166 - - 4,898 6.8 225 0.4 4.6 26,225 36.6 18,536 29.1 70.7 7,376 7,311 - 3,297 4,078 5.7 531 7,843 12.3 192.3 61 0.1 23 0.1 38.7 22,085 30.8 10,668 16.7 48.3 Amortization of negative goodwill
Others Others
Non-operating expenses
Extraordinary gains
Expenses for the consolidation of branches Loss on impairment of fixed assets Total extraordinary gains
Write-down of investment securities Loss on sale of fixed assets Loss on disposal of fixed assets
Income taxes-deferred Income taxes-current Operating revenues
Trading profit and loss
Reversal of securities transaction liabilities reserve Interest expenses
Selling, general and administrative expenses Net operating revenues
Gains on sale of fixed assets
Gains on contribution of securities to retirement benefits
Minority interests Net income
Total operating revenues
Extraordinary losses
Total extraordinary losses Ordinary income
Contribution to the Securities Market Infrastructure Improvement Fund
Provision for securities transaction liabilities
Income before income taxes and minority interests Gains on sale of investment securities
YoY change
(%)
Interest and dividend income
Amortization of consolidated adjustment account Operating income
Commissions
Consolidated Statements of
Capital Surplus and Retained Earnings
From April 1, 2005 to March 31, 2006
Category Amount (million yen)
Capital surplus
Beginning balance of capital surplus 37,635
Decrease in capital surplus 49
Net loss on sales of treasury stock 49
Ending balance of capital surplus 37,586
Retained earnings
Beginning balance of retained earnings 16,968
Increase in retained earnings 22,085
Net income 22,085
Decrease in retained earnings 2,866
Cash dividends paid 2,764
Bonuses to directors 102
Consolidated Statements of Changes in Net Assets
From April 1, 2006 to March 31, 2007
(Unit: million yen)
Shareholders’ equity Common stock Capital surplus Retained
earnings Treasury stock
Total shareholders’ equity
Beginning balance as of Mar. 31, 2006 36,000 37,586 36,187 - 4,209 105,564
Changes of items
Dividends - - - 8,881 - - 8,881
Director’s bonuses paid from
retained earnings - - - 290 - - 290
Net income - - 10,668 - 10,668
Acquisition of treasury stock - - - - 5,429 - 5,429
Disposal of treasury stock - - 2 - 4 2
Net changes of items
other than shareholers’ equity - - - - -
Total changes of items - - 2 1,497 - 5,424 - 3,929
Ending balance as of Mar. 31, 2007 36,000 37,584 37,684 - 9,634 101,634
Valuation and translation adjustments
Minority
interests Total net assets Net unrealized gain/loss on securities, net of tax effect Translation adjustments Total valuation and translation adjustments
Beginning balance as of Mar. 31, 2006 2,835 - 126 2,709 250 108,524
Changes of items
Dividends - - - - - 8,881
Director’s bonuses paid from
retained earnings - - - - - 290
Net income - - - - 10,668
Acquisition of treasury stock - - - - - 5,429
Disposal of treasury stock - - - - 2
Net changes of items
other than shareholders’ equity - 677 5 - 672 - 23 - 696 Total changes of items - 677 5 - 672 - 23 - 4,625
1. Cash flows from operating activities
Income before income taxes and others 26,225 18,536
Depreciation 832 1,596
Amortization of consolidated adjustment account - 109 ―
Amortization of negative goodwill ― - 111
Increase/decrease in allowance for retirement benefits 135 30
29 3
Allowance for doubtful accounts 145 11
Interest and dividend income - 2,280 - 3,023
Interest expenses 960 1,364
Adjustment of extraordinary gains/losses items
Write-down of investment securities 24 33
Gain on sale of investment securities - 751 - 38
Gains on contribution of securities to retirement benefits - 3,168 ―
Gain/loss on sale of fixed assets 220 ―
Loss on disposal of fixed assets 114 114
Loss on impairment of fixed assets 3,936 ―
Expenses for the consolidation of branches ― 77
Increase/decrease in asset items
Deposits segregated for customer - 7,590 5,098
Cash paid for subscription - 1,840 - 1,809
Trading assets - 53,095 17,189
Receivables related to margin transactions - 65,405 26,802
Receivables on collateralized short-term financing agreements - 56,564 68,806
Others - 2,958 259
Deposits received 8,052 - 4,684
Trading liabilities 32,484 - 26,331
Net of payables related to margin transactions 15,884 - 35,097
Collateralized short-term financing agreement 53,247 - 80,227
Cash deposits received as a guarantee 7,473 - 6,000
Others 8,551 7,310
Bonuses to directors and executive officers - 103 - 294
Subtotal - 35,550 - 10,384
Interest and dividend received 2,045 3,068
Interest paid - 914 - 1,422
Income taxes refunded (paid) - 150 - 9,225
Net cash flows provided by (used in) operating activities - 34,569 - 17,964
Increase/decrease in liability items
to Marcn 31, 2007 Amount (million yen) FY2005
From April 1, 2005 to Marcn 31, 2006 Amount (million yen)
Increase/decrease in allowance for retirement benefits for directors and executive officers
Consolidated Statements of Cash Flows
FY2006 From April 1, 2006
to Marcn 31, 2007 Amount (million yen) FY2005
From April 1, 2005 to Marcn 31, 2006 Amount (million yen)
FY2006 From April 1, 2006
2. Cash flows from investing activities
Payments for purchase of tangible fixed assets - 815 - 2,022
Proceeds from sale of tangible fixed assets 45 ―
Payments for purchase of intangible fixed assets - 1,158 - 1,657
Proceeds from sale of intangible fixed assets ― ―
Payments for purchase of investment securities - 1,944 - 1,372
Proceeds from sale of investment securities 1,663 133
Payments for purchase of subsidiary's stock ― - 24
Payments for deposit of long-term guarantee deposits - 287 - 435
Proceeds from collection of long-term guarantee deposits 553 333
Others - 274 - 258
Net cash flows provided by (used in) investing activities - 2,218 - 5,303
3. Cash flows from financing activities
Increase/decrease in short-term borrowings 39,583 31,953
Proceeds from long-term debt ― 150
Proceeds from issue of short-term corporate bonds 19,000 112,700
Payments for redemption of short-term corporate bonds - 8,500 - 105,100
Proceeds from sale of treasury stocks 86 ―
Payments for acquisition of treasury stocks - 1,671 - 5,377
Proceeds and payments for sale and purchase of fractional shares
(net amount) ― - 49
Dividends paid - 2,764 - 8,881
Dividends paid to minority shareholders - 2 - 4
Net cash flows provided by (used in) financing activities 45,731 25,390
4. Effect of exchange rate changes on cash and cash equivalents 111 8
5. Net change in cash and cash equivalents 9,054 2,131
6. Cash and cash equivalents at beginning of term 26,467 35,521
[Notes to consolidated financial statements]
The consolidated financial statements of the Company are prepared in accordance with the Cabinet Office Ordinance Concerning Securities Companies (Prime Minister’s Office Ordinance and Ministry of Finance Ordinance No. 32, 1998), and the Uniform Accounting Standards of Securities Companies (resolution of the Board of Directors of the Japan Securities Dealers’ Association, November 14, 1974), based on the Regulations Concerning the Terminology, Forms, and Preparation Methods of Consolidated Financial Statements (Ministry of Finance Ordinance No. 28, 1976; hereinafter referred to as the Regulations of Consolidated Financial Statements) and the provisions under Article 46 and 68 herein.
[Basis of consolidated financial statements] 1. Scope of consolidation
(1) Consolidated subsidiaries
The following subsidiaries are consolidated:
Consolidated subsidiaries: Ten companies (six companies in the previous year)
Names of companies: Tokai Tokyo Securities (Asia) Ltd., Tokai Tokyo Research Center Co., Ltd., Utsunomiya Securities Co., Ltd., Tokai Tokyo Services Co., Ltd., Tokai Tokyo Investment Management Co., Ltd., Tokai Tokyo Finance & Real Estate Co., Ltd., Tokai Tokyo Investment Co., Ltd., Tokai Tokyo Securities Europe Limited, TTI Chubu Venture No. 1 Investment Business Limited Partnership, TTI Growth Companies No.1 Investment Business Limited Partnership
Tokai Tokyo Investment Co., Ltd. and Tokai Tokyo Securities Europe Limited were established on April 3, 2006 and on January 24, 2007, respectively, as wholly owned subsidiaries of the Company and are included in the scope of consolidation from the fiscal year under review. TTI Chubu Venture No. 1 Investment Business Limited Partnership and TTI Growth Company No. 1 Investment Business Limited Partnership, which were established in the fiscal year, and in which Tokai Tokyo Investment Co., Ltd is an unlimited partner, are also included in the scope of consolidation from this term.
(2) Major non-consolidated subsidiaries
Non-consolidated subsidiaries: YST-1 Tokutei Mokuteki Kaisha and one other company Reason for exclusion from the scope of consolidation
The non-consolidated subsidiaries are small companies, and aggregate total assets, sales, net income/loss (commensurate with equity), retained earnings (commensurate with equity), etc. do no have a significant influence on the consolidated financial statements.
2. Application of equity method
Major non-consolidated subsidiaries and affiliate companies to which the equity method is not applied N-o Meiekiminami Yugen Kaisha and five other companies
Reason why the equity method is not applied
The non-consolidated subsidiaries and affiliate companies to which the equity method is not applied have only a slight influence on the consolidated financial statements, judging from their net income/loss (commensurate with equity), retained earnings (commensurate with equity), etc., and as a whole they are of little significance.
Business Limited Partnership is December 31, and that for the other six consolidated subsidiaries is March 31. For the subsidiaries with the fiscal year ending other than March 31, 2007, the financial statements for the relevant fiscal year are employed.
4. Accounting policies
(1) Objectives and scope of trading
The objectives of trading are to generate profits in the exchanges of securities by taking advantage of the short-term fluctuation or arbitrage of market prices, interest rates, currency value and other indexes, and to minimize losses that may be caused by the above transactions. The scope of these transactions includes trading of securities, securities index futures transactions, options transactions of securities and futures transaction of securities listed on the foreign exchanges. (2) Valuation of trading assets and liabilities
Trading assets and liabilities, including securities and financial derivatives for trading purposes are recorded at fair value. (3) Valuation of non-trading assets and liabilities
The valuation of non- trading assets and liabilities is recorded by the methods described below. Other securities
Other securities with market values
Other securities with market values are recorded in the consolidated balance sheets at market value, based on quoted market prices on the consolidated closing date. The difference between the cost, using the moving average method, and market value is recorded as net unrealized gains (or losses) on other securities, net of taxes in net assets on the balance sheets.
Other securities with no fair value
Other securities with no fair value are recorded at cost using the moving average method. (4) Depreciation of significant depreciable assets
1) Tangible fixed assets
The declining-balance method is primarily applied to property and equipment. The Company and domestic consolidated subsidiaries calculate depreciation using the straight-line method for buildings (excluding facilities attached to buildings) acquired after April 1, 1998.
2) Intangible fixed assets and long-term prepaid expenses
Intangible fixed assets and long-term prepaid expenses are generally amortized under the straight-line method.
The Company and domestic consolidated subsidiaries calculate amortization using the straight-line method for software for in-house use based on internal estimations of useful lives.
(5) Accounting policies for significant provisions Allowance for doubtful accounts
The Company provides an allowance for possible losses on doubtful accounts. For performing assets, an allowance is calculated based on a past loss experience. For non-performing assets, it is based on the management’s assessment of the recoverability of the assets, and the amount expected to be irrecoverable is provided for.
Accrued bonuses
Accrued bonuses are appropriated for bonus payments to employees based on the estimated future payments computed by methods set out by the Company and domestic consolidated subsidiaries.
The Company and domestic consolidated subsidiaries record an allowance for retirement benefits for employees based on actuarial retirement benefits and plan assets at the end of the consolidated fiscal year under review.
Accrued bonuses for directors and executive officers
An allowance is appropriated for bonus payments to directors and executive officers based on the estimated bonus payments.
Retirement benefits for directors and executive officers
The Company and domestic consolidated subsidiaries record an allowance for retirement benefits for directors and executive officers based on estimated future retirement benefits at the end of the consolidated fiscal year under review in accordance with the internal regulations of the Company and domestic consolidated companies.
(6) Accounting policies for statutory reserves Securities transaction liabilities reserves
Securities transaction liabilities reserves are provided for potential losses from securities transactions based on the amount computed in accordance with the provisions set out in Article 35 of the Cabinet Office Ordinance Concerning Securities Companies based on the provisions set out in Article 51 of the Securities and Exchange Law.
(7) Policies for the conversion of significant assets or liabilities in foreign currencies into yen
The Company and domestic consolidated subsidiaries generally convert assets or liabilities in foreign currencies into yen at the spot exchange rate on the consolidated closing date and record the exchange difference as profits or losses. Assets, liabilities, revenues and expenses of overseas subsidiaries are converted into yen at the spot exchange rate on the consolidated closing date. The exchange difference is included in the translation adjustments of net assets.
(8) Accounting for lease transactions
Financial leases other than those for which the ownership of the leased property transfers to the lessee are primarily accounted for as ordinary rental transactions.
(9) Accounting for consumption taxes
Transactions subject to consumption taxes are recorded at amounts exclusive of consumption taxes.
5. Valuation of assets and liabilities of consolidated subsidiaries
All assets and liabilities of consolidated subsidiaries are valued at fair value as at the acquisition date.
6. Amortization of negative goodwill
Negative goodwill is amortized on a straight-line basis over five years.
7. Consolidated statements of cash flows
Cash and cash equivalents included in the consolidated statements of cash flows consist of cash on hand, current deposits and ordinary deposits which can be withdrawn on demand.
[Notes to consolidated balance sheet] 1. Debt guarantees
FY2005 FY2006 81 million yen 52 million yen
[Notes to consolidated statement of changes in net assets] FY2006 (from April 1, 2006 to March 31, 2007) 1) Outstanding shares
Type of Shares As of March 31, 2006 Increase Decrease As of March 31, 2007 Common stocks
(shares) 285,582,115 − − 285,582,115
2) Treasury stocks
Type of Shares As of March 31, 2006 Increase Decrease As of March 31, 2007 Common stocks
(shares) 11,516,232 8,610,697 10,000 20,116,929 (Notes) 1. The increase in treasury stocks (common stocks) is attributable to the acquisition of 8,530,000 treasury stocks
in accordance with the resolution of the Board of Directors based on the Articles of Incorporation, and the purchase of 80,697 fractional shares.
2. The decline in treasury stocks (common stocks) is attributable to the exercise of stock subscription rights (stock options) for 7,000 shares and the sale of 3,000 fractional shares.
3) Dividends
i. Dividend amount
The dividend amount has been resolved at the board of directors’ meeting held on June 29, 2006, as follows: - Dividends for Common stock
(a) Total cash dividends 6,851 million yen
(b) Dividend per share 25 yen (ordinary dividend: 15 yen, special dividend: 10 yen) (c) Base date March 31, 2006
(d) Effective date June 30, 2006
The dividend amount has been resolved at the board of directors’ meeting held on October 27, 2006, as follows. - Common stock
(a) Total cash dividends 2,030 million yen (b) Resource of dividends Retained earnings (c) Dividend per share 7.5 yen
(d) Base date September 30, 2006 (e) Effective date December 1, 2006
ii. Dividends, the record date of which falls in the consolidated fiscal year under review with the effective date falling in the following year
The following agenda will be proposed during the general shareholders’ meeting to be held on June 28, 2007. - Common stock
(a) Total cash dividends 2,654 million yen (b) Resource of dividends Retained earnings
[Notes to consolidated statements of cash flows]
1. Reconciliation for “Cash and cash equivalents” and “Cash and deposits” on the consolidated balance sheets
(Million yen)
FY2005 FY2006
Cash and deposits 36,458 38,676
Time deposits more than three months - 936 - 1,022
Cash and cash equivalents 35,521 37,653
[Change in the basis of consolidated financial statements]
1. From the consolidated fiscal year under review, the Company’s financial statements have been prepared in accordance with the Accounting Standard for Presentation of Net Assets in the Balance Sheet (Accounting Standards Board of Japan (ASBJ) Statement No. 5, December 9, 2005) and Guidance on Accounting Standard for Presentation of Net Assets in the Balance Sheet (ASBJ Guidance No. 8, December 9, 2005). The Company’s profits and losses are not impacted by this change. Shareholders’ equity by the former accounting standard is 103,671 million yen.
2. From the consolidated fiscal year under review, the Company has adopted the Accounting Standard for Directors’ Bonus (Accounting Standards Board of Japan (ASBJ) Statement No. 4, November 29, 2005). As a result, operating income, ordinary income and income before income taxes and minority interests declined by 219 million yen compared with the figures recorded by the former accounting standard.
[Segment information]
1. Segment information by type of business
The Company and its consolidated subsidiaries’ global activities include (i) trading in securities, (ii) brokerage of securities, (iii) underwriting and sales of securities, (iv) subscription and distribution of securities, and (v) private offering of securities. The Company and its consolidated subsidiaries generate revenues from the above activities that also involve financing and other services. Accordingly, the Company and its consolidated subsidiaries operate in a single industry segment, “Investment and financial services.”
2. Segment information by geographical area
As Japan represented more than 90% of consolidated operating revenue and total assets for the fiscal year under review, segment information by geographical area was omitted.
3. Overseas operating revenue
As overseas operating revenue accounts for less than 10% of consolidated operating revenue for the fiscal year under review, information about overseas operating revenue was omitted.
[Lease transactions]
The note regarding lease transactions is omitted because these transactions are considered to have low priority on this disclosure.
[Transactions with related parties]
The note regarding transactions with related parties is omitted because these transactions are considered to have low priority on this disclosure.
[Deferred tax accounting]
The note regarded deferred tax accounting is omitted because these transactions are considered to have low priority in this disclosure.
[Securities]
The note regarding securities is omitted because these transactions are considered to have low priority in this disclosure.
[Derivative transactions]
The note regarding derivative transactions is omitted because these transactions are considered to have low priority in this disclosure.
[Retirement benefits]
Supplemental Information for Financial Summary of FY2006 (consolidated)
1. Commission received
(1) By item (Unit: million yen)
FY2005 FY2006 Yr/Yr % change Increase/Decrease
Brokerage 37,167 24,956 67.1 - 12,211
(Stock) ( 37,071 ) ( 24,865 ) ( 67.1 ) ( - 12,205 )
(Bond) ( 55 ) ( 44 ) ( 80.4 ) ( - 10 )
(Beneficiary certificates) ( 40 ) ( 45 ) ( 111.5 ) ( 4 )
Underwriting and sales 2,028 1,078 53.2 - 950
(Stock) ( 1,945 ) ( 845 ) ( 43.5 ) ( - 1,100 )
(Bond) ( 82 ) ( 232 ) ( 281.4 ) ( 149 )
Subscription and distribution 7,957 12,964 162.9 5,006
(Beneficiary certificates) ( 7,773 ) ( 12,789 ) ( 164.5 ) ( 5,016 )
Other commissions 5,956 8,423 141.4 2,467
(Beneficiary certificates) ( 4,083 ) ( 5,597 ) ( 137.1 ) ( 1,513 )
Total 53,110 47,422 89.3 - 5,687
(2) By product (Unit: million yen)
FY2005 FY2006 Yr/Yr % change Increase/Decrease
Stock 39,205 25,992 66.3 - 13,212
Bond 405 461 113.7 55
Beneficiary certificates 11,897 18,431 154.9 6,534
Others 1,601 2,536 158.4 934
Total 53,110 47,422 89.3 - 5,687
2. Trading profit and loss
(Unit: million yen)
FY2005 FY2006 Yr/Yr % change Increase/Decrease
Stock and other trading 11,252 6,613 58.8 - 4,638
Bond and other trading 4,696 6,189 131.8 1,493
Other trading 620 778 125.5 157 Total 16,568 13,581 82.0 - 2,987 % % % % %
Quarterly Consolidated Statements of Operations
(Unit: million yen)
1Q 2Q 3Q 4Q Total of FY2006 Apr. 1, 2006 - Jun. 30, 2006 Jul. 1, 2006 - Sep. 30, 2006 Oct. 1, 2006 - Dec. 31, 2006 Jan. 1, 2007 - Mar. 31, 2007 Apr. 1, 2006 Mar. 31, 2007 11,376 10,764 11,883 13,398 47,422 6,742 5,312 5,837 7,063 24,956 (Stock) 6,715 5,284 5,820 7,044 24,865 322 244 280 230 1,078 2,619 3,048 3,684 3,611 12,964 (Beneficiary certificates) 2,594 3,032 3,562 3,600 12,789 1,690 2,159 2,081 2,492 8,423 (Beneficiary certificates) 1,207 1,344 1,467 1,577 5,597 2,193 2,929 4,410 4,048 13,581
(Stock and other) 876 1,019 2,614 2,102 6,613
(Bond and other) 1,134 1,657 1,743 1,653 6,189
622 641 735 762 2,761 14,191 14,335 17,028 18,209 63,765 271 340 351 400 1,364 13,919 13,994 16,677 17,808 62,400 1,579 1,686 1,650 1,853 6,769 5,762 6,182 6,718 6,773 25,437 1,250 1,411 1,353 1,445 5,461 883 906 837 896 3,524 242 409 459 484 1,596 111 99 167 121 500 - - 4 6 11 278 267 259 298 1,103 10,108 10,963 11,451 11,879 44,403 3,811 3,031 5,225 5,928 17,997 266 113 242 158 780 27 28 27 27 111 238 85 214 130 668 5 9 4 35 54 5 9 4 35 54 4,072 3,135 5,464 6,051 18,723 18 22 - 36 33 38 14 42 79 90 225 4,077 3,116 5,348 5,994 18,536 30 1,787 1,960 3,533 7,311 1,618 - 495 245 - 836 531 9 - 1 7 8 23 2,418 1,825 3,135 3,289 10,668 Minority interests Net income Trading-related expenses Personnel expenses Occupancy and rental Office expenses Depreciation expenses Taxes and public dues Allowance for doubtful accounts Others
Total selling, general and administrative expenses Operating revenues
Commissions Brokerage
Underwriting and sales Subscription and distribution
Other commissions
Trading profit and loss
Interest and dividend income Total operating revenues Interest expenses Net operating revenues
Selling, general and administrative expenses
Operating income Non-operating income
Amortization of negative goodwill Others Non-operating expenses Others Ordinary income Extraordinary gains Extraordinary losses
Income before income taxes and minority interests Income taxes-current
As of March 31, 2006 As of March 31, 2007
Category Amount (million yen) Composition(%) Amount (million yen) Composition(%) (million yen)Amount Assets
32,463 34,666 2,202
26,789 22,493 - 4,296
Deposits segregated for customer 26,200 21,900 - 4,299
Others 589 592 3
183,072 165,089 - 17,982
Trading securities and others 182,826 164,570 - 18,255
Derivative assets 245 518 272
145,564 118,831 - 26,732
Customer margin loans 139,475 107,455 - 32,020
Cash deposits as collateral for securities borrowed 6,088 11,376 5,287
200,057 131,251 - 68,806
Cash deposits as collateral for securities borrowed 200,057 131,251 - 68,806
269 245 - 23 2,835 4,555 1,720 2,264 2,582 318 169 5 - 163 831 1,525 694 623 3 - 619 230 424 193 244 176 - 67 3,093 2,852 - 241 2,603 2,203 - 399 - 147 - 115 32 600,963 95.3 486,791 93.6 - 114,171 8,224 9,115 890 Structures 2,159 2,404 244
Equipment and fixtures 1,131 1,732 601
Land 4,933 4,933 -
Work in progress - 45 45
1,610 2,384 773
Land leasehold - - -
Software 1,442 2,219 777
Telephone subscription right 160 158 - 2
Others 7 6 - 1
19,834 21,509 1,675
Investment securities 12,495 12,052 - 442
Investments in subsidiaries and affiliates 2,155 3,575 1,419
Investments 19 19 -
Long-term loans 381 521 140
Long-term guarantee deposits 3,890 3,891 -
Long-term prepaid expenses 101 215 113
Others 1,580 1,935 355
Less: Allowance for doubtful accounts-non-current - 788 - 701 87
29,669 4.7 33,009 6.4 3,339
630,633 100.0 519,800 100.0 - 110,832 Variation margin account
Advance payment Prepaid expenses Accrued revenue Deferred tax assets-current
Tangible fixed assets
Less: Allowance for doubtful accounts-current
Total assets
Receivables related to margin transactions
Fixed assets
Total fixed assets Accrued receipt
Total current assets
Short-term guarantee money paid
Collateralized short-term financing agreements
Investments and others Cash paid for subscription Advances
Balance Sheets
Increase/ Decrease
Cash segregated as deposits for regulatory purposes Cash and deposits
Current assets
Intangible fixed assets Trading assets
As of March 31, 2006 As of March 31, 2007
Category Amount (million yen) Composition(%) Amount (million yen) Composition(%) (million yen)Amount Liabilities
145,309 118,977 - 26,331
Trading securities and others 144,981 118,637 - 26,344
Derivative liabilities 327 340 12
9,821 19,092 9,270
69,361 34,266 - 35,094
Payable to securities finance companies 66,491 31,013 - 35,477
Proceeds of securities sold for customers’ accounts 2,870 3,253 383
158,637 78,410 - 80,227
Cash deposits as collateral for securities loaned 143,145 50,105 - 93,040
Payables related to gensaki transactions 15,491 28,304 12,812
21,015 17,264 - 3,751 14,419 8,803 - 5,616 72 4 - 67 75,063 107,366 32,302 10,500 18,100 7,600 - - - 1,960 781 - 1,178 2,039 1,555 - 484 7,272 5,444 - 1,828 4,380 4,008 - 371 - 154 154 519,855 82.4 414,230 79.7 - 105,624 822 504 - 318 339 348 8 326 304 - 21 886 904 17 2,375 0.4 2,061 0.4 - 313 993 992 - 993 0.2 992 0.2 - 523,223 83.0 417,285 80.3 - 105,938
Total statutory reserves Total liabilities
Securities transaction liabilities reserve Total current liabilities
Accrued bonuses
Statutory reserves Others
Total fixed liabilities Accrued expenses Advance received Accounts payable Trading liabilities
Short-term borrowings
Payables related to margin transactions
Collateralized short-term financing agreements Trading payables, net
Securities: failed to receive
Accrued bonuses for directors and executive officers
Retirement benefits for directors and executive officers Income taxes payable
Retirement benefits
Deferred tax liabilities-non-current Fixed liabilities
Short-term corporate bonds Cash deposits received as guarantee Deposits received
Current liabilities
Increase/ Decrease
As of March 31, 2006 As of March 31, 2007
Category Amount (million yen) Composition(%) Amount (million yen) Composition(%) (million yen)Amount Capital equity
36,000 - -
9,000 - -
28,586 - -
Additional-paid-in-capital reduction marginal profits 26,484 - -
Net gain on sales of treasury stock 2,101 - -
37,586 - - 6,789 - - Voluntary reserve 6,789 - - 28,476 - - 35,265 - - 2,767 - - - 4,209 - - 107,409 17.0 - - - 630,633 100.0 - - - - 36,000 -
Additional paid-in capital - 9,000 -
Others - 28,584 -
Total capital surplus - 37,584 -
Other retained earnings
Voluntary reserve - 16,789 -
Unappropriated retained earnings - 19,653 -
Total other retained earnings - 36,443 -
- - 9,634 - - 100,392 - - 2,122 - - 2,122 - - 102,514 19.7 - - 519,800 100.0 -
Total liabilities and shareholders' equity General-purpose reserve
Treasury stock Other capital surplus Additional paid-in capital
Net unrealized gain/loss on securities, net of tax effect Retained earnings
Total capital surplus
Increase/ Decrease
Net assets
Shareholders’ equity Common stock
Unappropriated retained earnings Total retained earnings
Total shareholders' equity Common stock
Capital surplus
Capital surplus
Retained earnings
Total valuation and translation adjustments Total net assets
Total liabilities and net assets Treasury stock
Total shareholders' equity Valuation and translation adjustments
Statements of Operations
From April 1, 2005 to March 31, 2006
From April 1, 2006 to March 31, 2007
Category Amount (million yen) Percentage
(%) Amount (million yen)
Percentage
(%)
51,134 45,324 88.6
Brokerage 35,717 23,784 66.6
Underwriting and sales 2,026 1,078 53.2
Subscription and distribution 7,821 12,753 163.0
Other commissions 5,569 7,708 138.4 16,532 13,537 81.9 1,979 2,675 135.2 69,647 100.0 61,537 100.0 88.4 908 1.3 1,342 2.2 147.7 68,738 98.7 60,195 97.8 87.6 Trading-related expenses 5,611 6,670 118.9 Personnel expenses 26,253 23,819 90.7
Occupancy and rental 5,033 5,459 108.5
Office expenses 3,767 4,076 108.2
Depreciation expenses 746 1,462 196.0
Taxes and public dues 571 475 83.1
Allowance for doubtful accounts 145 13 9.4
Others 921 1,037 112.5
Total selling, general and administrative expenses 43,052 61.8 43,014 69.9 99.9
25,686 36.9 17,180 27.9 66.9 618 797 129.0 618 797 129.0 46 44 95.6 46 44 95.6 26,257 37.7 17,933 29.1 68.3 12 - - 770 38 5.0 3,168 - - - - - 3,951 5.6 38 0.1 1.0 24 33 136.5 233 - 0.1 112 113 100.0 3,453 - - 13 77 567.0 410 - - 166 - - 4,414 6.3 223 0.4 5.1 25,794 37.0 17,747 28.8 68.8 7,050 6,996 - 3,201 3,848 455 7,451 21,946 31.5 10,296 16.7 46.9 6,529 - 28,476 - Non-operating income Non-operating expenses 5.5
Loss on disposal of fixed assets
Income taxes-current
Gains on sale of investment securities Miscellaneous income
12.1 193.6
YoY change
(%)
Unappropriated retained earnings Extraordinary losses
Total extraordinary losses Ordinary income
Expenses for the consolidation of branches
Provision for securities transaction liabilities Income before income taxes
Operating revenues
Trading profit and loss Interest and dividend income Interest expenses
Total operating revenues Commissions
Net operating revenues
Income taxes-deferred
Loss on impairment of fixed assets Operating income
Gains on sale of fixed assets Extraordinary gains
Miscellaneous expenses
Selling, general and administrative expenses
Net income
Gains on contribution of securities to retirement benefits
Contribution to the Securities Market Infrastructure Improvement Fund
Total extraordinary gains
Write-down of investment securities
Reversal of securities transaction liabilities reserve
Loss on sale of fixed assets
28,476
28,476
Dividends 6,851
Bonuses to directors and executive officers 237 (Bonus to corporate auditors) ( 8 )
Voluntary reserve 10,000
17,089 11,386 (Note) 25 yen per share (ordinary dividend: 15 yen, special dividend: 10 yen)
Statement of Appropriation of Retained Earnings
Unappropriated retained earnings carried forward
Accounting period From April 1, 2006to March 31, 2007 June 29, 2006
Total
Date of board of directors meeting
Unappropriated retained earnings Total Appropriations of retained earnings
Statements of Changes in Net Assets
From April 1, 2006 to March 31, 2007
(Unit: million yen)
Shareholders’ equity
Common stock
Capital surplus Retained earnings
Additional paid-in capital Other capital surplus Total capital surplus
Other retained earnings
Total retained earnings Voluntary reserve Unappropriated retained earnings
Beginning balance as of Mar. 31, 2006 36,000 9,000 28,586 37,586 6,789 28,476 35,265 Changes of items
Dividends - - - - - - 8,881 - 8,881
Director’s bonuses paid from
retained earnings - - - - - - 237 - 237
Net income - - - - - 10,296 10,296
Acquisition of treasury stock - - - - - - -
Disposal of treasury stock - - - 2 - 2 - - -
Reserve of voluntary reserve - - - - 10,000 - 10,000 - Net changes of items
other than shareholders’ equity - - - - - - -
Total changes of items - - - 2 - 2 10,000 - 8,822 1,177 Ending balance as of Mar. 31, 2007 36,000 9,000 28,584 37,584 16,789 19,653 36,443
Shareholders' equity Valuation and translation adjustments
Total net assets Treasury stock Total shareholders' equity Net unrealized gain/loss on securities, net of tax effect Total valuation and translation adjustments
Beginning balance as of Mar. 31, 2006 - 4,209 104,642 2,767 2,767 107,409 Changes of items
Dividends - - 8,881 - - - 8,881
Director’s bonuses paid from
retained earnings - - 237 - - - 237
Net income - 10,296 - - 10,296
Acquisition of treasury stock - 5,429 - 5,429 - - - 5,429
Disposal of treasury stock 4 2 - - 2
Reserve of voluntary reserve - - - - -
Net changes of items
other than shareholders’ equity - - - 644 - 644 - 644
Notes
The financial statements of the Company are prepared in accordance with the Cabinet Office Ordinance Concerning Securities Companies (Prime Minister’s Office Ordinance and Ministry of Finance Ordinance No. 32, 1998), and the Uniform Accounting Standards of Securities Companies (set by the Board of Directors of the Japan Securities Dealers’ Association, November 14, 1974), based on the Regulations Concerning the Terminology, Forms, and Preparation Methods of Financial Statements (Ministry of Finance Ordinance No. 59, 1963; hereinafter referred to as the “Regulations of Financial Statements”) and the Article 2 herein.
[Significant accounting policies]
1. Objectives and scope of trading
The objectives of trading are to generate profits in the exchanges of securities by taking advantage of the short-term fluctuation or arbitrage of market prices, interest rates, currency value and other indexes, and to minimize losses that may be caused by the above transactions. The scope of these transactions includes trading of securities, securities index futures transactions, options transactions of securities and futures transaction of securities listed on the foreign exchanges.
2. Valuation of trading assets and liabilities
Trading assets and liabilities, including securities and financial derivatives for trading purposes are recorded at fair value.
3. Valuation of non-trading assets and liabilities
The valuation of non- trading assets and liabilities is recorded by the methods described below. Other securities
Other securities with market values
Other securities with market values are recorded in the balance sheets at market value, based on quoted market prices on the closing date. The difference between the cost, using the moving average method, and market value is recorded as net unrealized gains (or losses) on other securities, net of taxes in net assets on the balance sheets.
Other securities with no fair value
Other securities with no fair value are recorded at cost using the moving average method.
4. Depreciation of fixed assets Tangible fixed assets
The declining-balance method is applied to property and equipment. The straight-line method is applied to buildings (excluding facilities attached to buildings) acquired after April 1, 1998.
Intangible fixed assets and long-term prepaid expenses
Intangible fixed assets and long-term prepaid expenses are amortized under the straight-line method. The Company calculates amortization using the straight-line method for software for in-house use based on internal estimations of useful lives.
5. Accounting policies for provisions Allowance for doubtful accounts
The Company provides an allowance for possible losses on doubtful accounts. For performing assets, an allowance is calculated based on a past loss experience. For non-performing assets, it is based on the management’s assessment of the recoverability of the assets, and the amount expected to be irrecoverable is provided for.
Accrued bonuses
Accrued bonuses are appropriated for bonus payments to employees based on the estimated future payments computed by methods set out by the Company.
Retirement benefits
The Company records an allowance for retirement benefits for employees based on actuarial retirement benefits and plan assets at the end of the fiscal year under review.
Accrued for bonuses for directors and executive officers
An allowance is appropriated for bonus payments to directors and executive officers based on the estimated bonus payments.
Retirement benefits for directors and executive officers
An allowance for retirement benefits for directors and executive officers is provided, based on estimated future retirement benefits at the end of the fiscal year under review in accordance with the internal regulations.
6. Accounting policies for statutory reserves Securities transaction liabilities reserves
Securities transaction liabilities reserves are provided for potential losses from securities transactions based on the amount computed in accordance with the provisions set out in Article 35 of the Cabinet Office Ordinance Concerning Securities Companies based on the provisions set out in Article 51 of the Securities and Exchange Law.
7. Accounting for lease transactions
Financial leases other than those for which the ownership of the leased property transfers to the lessee are primarily accounted for as ordinary rental transactions.
8. Accounting for consumption taxes
Transactions subject to consumption taxes are recorded at amounts exclusive of consumption taxes.
[Notes to balance sheet]
FY2005 FY2006
1. Accumulated depreciation of tangible fixed assets 3,768 million yen 4,016 million yen 2. Debt guarantees 777 million yen 405 million yen
[Notes to statement of changes in net assets] FY2006 (from April 1, 2006 to March 31, 2007)
Treasury stocks
Type of Shares As of March 31, 2006 Increase Decrease As of March 31, 2007 Common stocks
(shares) 11,516,232 8,610,697 10,000 20,116,929 (Notes) 1. The increase in treasury stocks (common stocks) is attributable to the acquisition of 8,530,000
treasury stocks in accordance with the resolution of the Board of Directors based on the Articles of Incorporation, and the purchase of 80,697 fractional shares.
2. The decline in treasury stocks (common stocks) is attributable to the exercise of stock subscription rights (stock options) for 7,000 shares and the sale of 3,000 fractional shares.
[Changes in the Accounting Standards]
1. From the fiscal year under review, the Company’s financial statements have been prepared in accordance with the Accounting Standard for Presentation of Net Assets in the Balance Sheet (Accounting Standards Board of Japan (ASBJ) Statement No. 5, December 9, 2005) and Guidance on Accounting Standard for Presentation of Net Assets in the Balance Sheet (ASBJ Guidance No. 8, December 9, 2005). The Company’s profits and losses are not impacted by this change. Shareholders’ equity by the former accounting standard is 102,514 million yen. 2. From the fiscal year under review, the Company has adopted the Accounting Standard for Directors’ Bonus
(Accounting Standards Board of Japan (ASBJ) Statement No. 4, November 29, 2005). As a result, operating income, ordinary income and income before income taxes and minority interests declined by 154 million yen compared with the figures recorded by the former accounting standard.
Supplemental Information for Financial Summary of FY2006
1. Commission received
(1) By items (Unit: million yen)
FY2005 FY2006 Yr/Yr % change Increase/Decrease
Brokerage 35,717 23,784 66.6 % - 11,932
(Stock) ( 35,621 ) ( 23,695 ) ( 66.5 ) ( - 11,926 )
(Bond) ( 55 ) ( 44 ) ( 80.3 ) ( - 10 )
(Beneficiary certificates) ( 40 ) ( 44 ) ( 110.0 ) ( 4 )
Underwriting and sales 2,026 1,078 53.2 - 947
(Stock) ( 1,943 ) ( 845 ) ( 43.5 ) ( - 1,097 )
(Bond) ( 82 ) ( 232 ) ( 281.4 ) ( 149 )
Subscription and distribution 7,821 12,753 163.0 4,931
(Beneficiary certificates) ( 7,644 ) ( 12,583 ) ( 164.6 ) ( 4,939 )
Other commissions 5,569 7,708 138.4 2,138
(Beneficiary certificates) ( 4,024 ) ( 5,499 ) ( 136.7 ) ( 1,475 )
Total 51,134 45,324 88.6 - 5,810
(2) By product (Unit: million yen)
FY2005 FY2006 Yr/Yr % change Increase/Decrease
Stock 37,728 24,799 65.7 % - 12,929
Bond 401 456 113.6 54
Beneficiary certificates 11,708 18,127 154.8 6,418
Others 1,296 1,941 149.8 645
Total 51,134 45,324 88.6 - 5,810
2. Trading profit and loss
(Unit: million yen)
FY2005 FY2006 Yr/Yr % change Increase/Decrease
Stock and other trading 11,251 6,610 58.8 % - 4,641
Bond and other trading 4,658 6,167 132.4 1,509
Other trading 622 758 121.9 136
3. Share trading (excluding futures transactions) (Unit: million shares, million yen) 12,401 9,987,882 9,926 9,777,569 80.0 97.9 (Dealing) ( 4,616 ) ( 4,224,732 ) ( 5,992 ) ( 5,708,249 ) ( 129.8 ) ( 135.1 ) (Brokerage) ( 7,785 ) ( 5,763,149 ) ( 3,934 ) ( 4,069,320 ) ( 50.5 ) ( 70.6 ) 62.8 % 57.7 % 39.6 % 41.6 % 0.86 % 0.75 % 0.80 % 0.67 %
4. Underwriting, subscription and distribution
8 19 233.4 % 47,911 25,977 54.2 583,004 257,875 44.2 3,000 10,000 333.3 8 21 257.2 45,390 30,152 66.4 637,036 313,539 49.2 1,467,368 1,450,554 98.9 3,000 10,000 333.3
* Including selling and private placement
5. Capital adequacy ratio (Unit: million yen)
(A) 97,552 97,738 Supplementary items (B) 3,903 3,226 2,767 2,122 993 992 143 111 (C) 21,166 24,856
Unfixed shareholders’ equity (A)+(B)-(C) (D) 80,290 76,108
Risk amount (E) 17,943 18,851
4,972 4,576
3,642 3,071
9,327 11,203
Capital adequacy ratio (D)/(E)x100 447.4% 403.7%
6. Number of directors and employees (Unit: persons)
11 12
2,010 2,038
Brokerage commission
per share 4.57 yen 6.01 yen
March 31, 2007 March 31, 2006
Deductible assets Basic items
Market risk amount Customer risk amount Basic risk amount
Unrealized gains on other securities (Valuation profits) Securities transaction liabilities reserve
General provision for loan losses
FY2006 FY2005
(Number of shares) (Amount)
Tokyo Stock Exchange %
Un de rwritin g S ubs cri pti on and di stri but ion* (Denomination) (Denomination) (Number of shares) (Amount) (Denomination) (Denomination) Total Brokerage % FY2006
Number of shares Amount Number of shares Amount
FY2005 Yr/Yr % change
Number of shares Amount
Yr/Yr % change March 31, 2007 Directors Employees March 31, 2006 (Denomination) Stock Stock Bond
Commercial paper and foreign securities Stock
Stock Bond
Beneficiary certificates Commercial paper and foreign securities