Daiwa Securities Group Inc
27 January 2006
+813-3243-2100
2-6-4 Otemachi, Chiyoda-ku
Tokyo 100-8101, Japan
(URL http://www.daiwa.jp/ir/english/)
January 27, 2006
Consolidated financial summary
(For the third quarter ended December 31, 2005)
1. (1) Change in accounting policy: None
(2) Change in scope of consolidation and equity method:
Scope of consolidation and equity method
Consolidated subsidiaries: 45 companies
Affiliates applicable of equity method: 5 companies
Consolidated subsidiaries: Exclusion: 1 company
Equity method: Addition: 1 company, Exclusion: 1 company
2. Consolidated financial results (from April 1, 2005 to December 31, 2005)
(Note) All figures in the financial statements are rounded down to the nearest
millionth.
'-' indicates a loss or negative figure.
(1) Operating results (from April 1, 2005 to December 31, 2005)
(Millions of yen except for per share data and yr/yr % change)
Operating revenues Net operating revenues Operating income Ordinary income
Third quarter (2005/12) 576,096 (59.5)% 392,745 (43.8)% 156,370 (119.5)% 162,363 (115.7)%
Third quarter (2004/12) 361,248 (9.2)% 273,201 (6.8)% 71,238 (10.2)% 75,282 (11.5)%
Fiscal 2004 (2005/3) 519,337 390,432 114,887 120,433
Net income Earnings/share Fully diluted Return on shareholders'
earnings/share equity (annual basis)
Third quarter (2005/12) 84,625 (151.6)% 63.60 Yen 60.38 Yen 16.2 %
Third quarter (2004/12) 33,630 (18.4)% 25.27 Yen 24.11 Yen 7.3 %
Fiscal 2004 (2005/3) 52,665 39.03 Yen 37.36 Yen 8.4 %
(Note)
1. Equity in earnings
Third quarter (2005/12): 1,068 million yen, Third quarter (2004/12): 1,574
million yen, Fiscal 2004 (2005/3): 1,893 million yen
2. Average number of shares outstanding (shares)
Third quarter (2005/12): 1,330,556,443 Third quarter (2004/12):1,330,694,283
Fiscal 2004 (2005/3): 1,330,674,648
(2) Financial conditions
(Millions of yen except for per share data and percentage)
Total assets Shareholders' equity Shareholders' Shareholders' equity/
equity ratio share
As of Dec. 31, 2005 14,486,363 742,387 5.1 % 557.98 Yen
As of Dec. 31, 2004 12,856,244 620,472 4.8 % 466.29 Yen
As of Mar. 31, 2005 12,378,961 648,332 5.2 % 486.70 Yen
(Note)
Number of shares outstanding (shares)
As of Dec. 31, 2005 : 1,330,489,176 As of Dec. 31, 2004 : 1,330,639,687 As of
Mar. 31, 2005 : 1,330,602,933
(Note) The Group's principal business is securities business, and the
performance is influenced by the economic and market environment. Therefore,
the Group doesn't disclose the estimated operating result, considering the
difficulty to forecast the performance.
Representative: Shigeharu Suzuki, President
Contact: Mikita Komatsu, General Manager, Finance Department
Phone: +813-3243-2100
Information on Group Companies
Daiwa Securities Group Inc. (the 'Company') and its related companies, 45
consolidated subsidiaries and 5 affiliates applicable of equity method
(collectively the 'Group'), predominantly operate in the investment and
financial segment, focusing on securities businesses such as trading and
brokerage of securities and derivatives, underwriting of securities,
distribution of securities, private offering of securities and other business
related to the securities and financial fields. The Group provides wide range
of services, to meet the worldwide customer needs for raising and investing of
funds through its global networks linking major financial markets in Japan,
America, Europe and Asia and Oceania.
Investing and financial services business (Parent, 45 consolidated subsidiaries
and 5 affiliates applicable of equity method)
(Parent company) Daiwa Securities Group Inc.
(Securities related and financial business) Retail:
Japan: 15 firms Daiwa Securities Co. Ltd.
Wholesale:
Daiwa Securities SMBC Co. Ltd.
Investment:
Daiwa Securities SMBC Principal Investments Co. Ltd.
NIF SMBC Ventures., Ltd. *1
Asset Management:
Daiwa Asset Management Co. Ltd.
Daiwa SB Investments Ltd.
Research, System development and Consulting:
Daiwa Institute of Research Ltd.
Group Support:
Daiwa Securities Business Center Co., Ltd.
Daiwa Property Co., Ltd., etc
America: 11 firms Wholesale, etc:
Daiwa America Corporation
Daiwa Securities America Inc., etc.
Europe: 9 firms Daiwa Securities SMBC Europe Limited, etc.
Asia and Oceania: 15 firms Daiwa Securities SMBC H.K. Limited
Daiwa Securities SMBC Singapore Limited, etc.
*1 NIF Ventures Co., Ltd. changed the company name to NIF SMBC Ventures., Ltd.
following the merger of SMBC Capital Co., Ltd. on October 1, 2005.
Results of Operation and Financial Conditions
a. Consolidated operating results for the third quarter of fiscal 2005
1. Summary of operating results for 9 months (comparison with the third quarter
of fiscal 2004)
Net operating revenues increased 43.8% to 392,745 million yen mainly because
commissions, net gains on trading and net gain on private equity and other
securities grew. Selling, general and administrative expenses increased 17.0%
to 236,374 million yen. As a result, ordinary income increased 115.7% to
162,363 million yen and net income increased 151.6% to 84,625 million yen.
(1) Commissions
(i) Brokerage commission
Daily average trading value on the Tokyo Stock Exchange increased 55.7% to
2,159.5 billion yen in line with the active market condition. Brokerage
commission increased 35.8% to 83,038 million yen.
(ii) Underwriting commission
Underwriting commission derived from fixed income increased 16.5% to 6,699
million yen. Underwriting commission derived from equity declined because
public offerings diminished. As a result, underwriting commission decreased
21.6% to 30,831 million yen.
(iii) Distribution commission
Distribution commission grew 92.2% to 30,034 million yen because distribution
commissions in investment trust increased 114.6% to 28,477 million yen, due to
an increase in commission arising from sale of beneficiary certificate.
(iv) Other commission
Other commission increased 41.9% to 53,933 million yen due to an increase in
trust fee in line with expanded outstanding balance of equity-related
beneficiary certificate, and due to contribution of M&A and life insurance sales
fee.
(2) Net gains on trading
Net gains on trading in stock and other increased 124.7% to 77,580 million yen.
Net gains on trading in bond, forex and other increased 17.1% to 84,521 million
yen. As a result, total net gains on trading increased 51.9% to 162,101 million
yen.
(3) Financial income
Interest and dividend income increased 120.9% to 169,318 million yen and
interest expenses increased 121.5% to158,464 million yen. Net financial income
increased 112.6% to 10,853 million yen due to an increase in interests received
on securities borrowed.
(4) Selling, general and administrative expenses
Employees' compensation and benefits increased 19.2% due to an increase in
accrued bonuses in line with operating result. Commission and other expenses
increased 35.0% to 45,406 million yen due to an increase in bond commission
paid. As a result, selling, general and administrative expenses increased 17.0%
to 236,374 million yen.
2. Summary of operating results for 3 months (comparison with the second quarter
of fiscal 2005)
Consolidated net operating revenues for the third quarter of fiscal 2005
increased 17.4% to 162,773 million yen as a result of an increase in brokerage
commission and underwriting commission. Selling, general and administrative
expenses for the third quarter increased 7.8% to 86,389 million yen. As a
result, consolidated ordinary income increased 30.3% to 78,407 million yen. Net
income increased 13.5% to 38,803 million yen for the third quarter of fiscal
2005, posting extraordinary gains/losses, income taxes, and minority interest.
3. Operating results of overseas subsidiaries for the third quarter of fiscal
2005 (9 months)
Ordinary income by geographic area (millions of yen)
America Europe Asia & Oceania Total
956 5,195 1,949 8,101
b. Financial conditions (comparison with March 31, 2005)
Total assets increased by 2,107,402 million yen to 14,486,363 million yen,
because trading assets and collateralized short-term financing agreements
increased by 523,947 million yen and 1,229,850 million yen, respectively. Total
liabilities increased by 1,981,332 million yen to 13,522,767 million yen,
because trading liabilities and collateralized short-term financing agreements
increased by 734,915 million yen and 1,288,138 million yen, respectively.
Consolidated balance sheets
(millions of yen) Third quarter Third quarter Increase/ Fiscal 2004
Dec. 31, 2005 Dec. 31, 2004 Decrease Mar. 31, 2005
Assets
Current assets: 13,993,098 12,325,076 1,668,021 11,936,024
Cash and deposits 337,486 379,546 -42,060 398,688
Cash segregated as deposits for regulatory purposes 262,464 123,727 138,736 153,516
Notes receivable and trade accounts receivable 10,339 6,383 3,956 8,635
Securities 61,788 17,280 44,508 15,037
Trading assets: 5,766,267 5,384,447 381,819 5,242,319
Trading securities and others 4,563,866 4,858,932 -295,066 4,690,548
Derivative assets 1,202,400 525,514 676,886 551,771
Trading receivables, net - - - 9,419
Private equity and other securities 254,032 50,854 203,177 149,598
Less: Allowance for possible investment losses -7,816 -4,300 -3,516 -7,051
Other inventories 1,942 1,875 66 816
Receivables related to margin transactions: 501,429 252,702 248,726 312,144
Customer margin loans 300,775 87,783 212,992 126,686
Cash deposits as collateral for securities borrowed 200,653 164,919 35,734 185,457
Collateralized short-term financing agreements: 6,578,766 5,717,590 861,176 5,348,915
Cash deposits as collateral for securities borrowed 6,577,648 5,717,590 860,058 5,348,915
Receivables related to gensaki transactions 1,117 - 1,117 -
Receivables 27,586 5,831 21,755 11,458
Short-term loans receivable 40,596 54,969 -14,372 75,781
Accrued income 28,201 16,712 11,488 17,463
Deferred tax assets-current 11,018 10,837 181 9,076
Other current assets 119,454 306,929 -187,474 190,531
Less: Allowance for doubtful accounts-current -458 -311 -147 -328
Non-current assets: 493,265 531,167 -37,902 442,937
Tangible fixed assets 136,488 138,445 -1,956 137,619
Intangible fixed assets 65,207 60,140 5,067 62,052
Investments and others: 291,569 332,582 -41,012 243,265
Investment securities 231,954 188,988 42,966 178,163
Long-term loans receivable 11,896 11,817 79 11,681
Long-term guarantee deposits 24,059 24,315 -256 23,410
Deferred tax assets-non-current 6,409 21,717 -15,308 12,839
Other investments 19,704 98,295 -78,590 25,715
Less: Allowance for doubtful accounts-non-current -2,454 -12,551 10,097 -8,546
Total assets 14,486,363 12,856,244 1,630,119 12,378,961
Third quarter Third Increase/ Fiscal 2004
Dec. 31, 2005 quarter Decrease Mar. 31,
(millions of yen) Dec. 31, 2005
2004
Liabilities
Current liabilities: 12,536,402 11,214,880 1,321,522 10,685,604
Notes payable and trade accounts payable 4,301 2,966 1,335 3,369
Trading liabilities: 4,393,459 3,918,718 474,741 3,658,544
Trading securities and others 3,285,661 3,461,931 -176,270 3,196,633
Derivative liabilities 1,107,798 456,786 651,011 461,911
Trading payables, net 42,578 296,755 -254,177 -
Payables related to margin transactions: 184,123 133,932 50,190 141,972
Payable to securities finance companies 6,862 1,373 5,488 2,981
Proceeds of securities sold for customers' accounts 177,261 132,558 44,702 138,991
Collateralized short-term financing agreements: 5,165,869 3,991,451 1,174,418 3,877,730
Cash deposits as collateral for securities loaned 4,743,948 3,836,075 907,872 3,687,840
Payables related to gensaki transactions 421,920 155,375 266,545 189,890
Deposits received 185,716 118,100 67,616 110,415
Cash deposits received as guarantee 94,132 46,099 48,033 53,302
Short-term borrowings 2,045,217 2,196,039 -150,822 2,295,928
Commercial paper 117,299 98,700 18,599 200,220
Bonds and notes due within one year 130,669 121,356 9,312 129,401
Income taxes payable 41,728 2,231 39,497 10,596
Deferred tax liabilities-current 5,207 549 4,657 951
Accrued bonuses 22,436 10,729 11,707 22,811
Other current liabilities 103,660 277,249 -173,589 180,359
Non-current liabilities: 980,334 836,301 144,033 850,180
Bonds and notes 760,874 646,955 113,918 666,136
Convertible bonds - 79,986 -79,986 79,985
Long-term debt 156,947 75,523 81,423 74,195
Deferred tax liabilities-non-current 39,162 8,980 30,182 6,225
Retirement benefits 19,802 18,785 1,017 19,173
Other non-current liabilities 3,548 6,070 -2,522 4,465
Statutory reserves 6,031 5,279 751 5,650
Total liabilities 13,522,767 12,056,461 1,466,306 11,541,435
Minority interests 221,208 179,311 41,896 189,193
Shareholders' equity
Common stock 138,436 138,431 4 138,432
Capital surplus 117,946 117,940 5 117,941
Retained earnings 420,893 343,913 76,980 362,948
Net unrealized gain (loss) on securities, net of tax effect 67,345 28,795 38,549 35,674
Translation adjustments -1,332 -7,849 6,516 -5,877
Treasury stock -901 -759 -141 -786
Total shareholders' equity 742,387 620,472 121,915 648,332
Total liabilities, minority interests and shareholders' 14,486,363 12,856,244 1,630,119 12,378,961
equity
Consolidated statements of operations
(millions of yen) Third Third quarter Yr/yr Fiscal 2004
quarter Apr. 1, 2004 % Apr. 1, 2004-
Apr. 1, - change Mar. 31, 2005
2005 - Dec. 31, 2004
Dec. 31,
2005
Operating revenues: 576,096 361,248 59.5 519,337
Commissions 197,837 154,118 28.4 216,386
Net gain (loss) on trading 162,101 106,720 51.9 151,117
Net gain (loss) on private equity and other securities (*1) 15,117 - - -
Net gain (loss) on private equity and other securities (*2) - 1,735 - 171
Interest and dividend income 169,318 76,645 120.9 118,019
Other sales revenues 31,721 22,028 44.0 33,641
Interest expenses 158,464 71,539 121.5 103,676
Cost of sales 24,886 16,507 50.8 25,228
Net operating revenues 392,745 273,201 43.8 390,432
Selling, general and administrative expenses: 236,374 201,963 17.0 275,544
Commission and other expenses 45,406 33,634 35.0 46,720
Employees' compensation and benefits 124,801 104,715 19.2 142,751
Occupancy and rental 24,102 24,253 -0.6 32,697
Data processing and office supplies 12,703 12,233 3.8 16,804
Depreciation expenses 16,809 16,371 2.7 22,129
Taxes other than income taxes 5,708 5,199 9.8 6,755
Others 6,843 5,556 23.2 7,685
Operating income 156,370 71,238 119.5 114,887
Non-operating income: 6,859 6,018 14.0 7,909
Equity in earnings 1,068 1,574 -32.1 1,893
Others 5,790 4,443 30.3 6,015
Non-operating expenses 866 1,974 -56.1 2,363
Ordinary income 162,363 75,282 115.7 120,433
Extraordinary gains 13,904 4,245 227.5 9,552
Extraordinary losses 2,482 3,774 -34.2 17,383
Income before income taxes and minority interests 173,785 75,753 129.4 112,603
Income taxes-current 46,117 2,137 - 11,933
Income taxes-deferred 17,982 26,694 -32.6 28,233
Minority interest -25,060 -13,291 - -19,770
Net income 84,625 33,630 151.6 52,665
Net financial income included in net operating revenues 10,853 5,105 112.6 14,342
Note:
*1. Includes share of net income raised by the investments in limited
partnerships and similar partnerships.
*2. Excludes share of net income raised by the investments in limited
partnerships and similar partnerships.
The details are mentioned in 'Change in presentation'.
Consolidated statements of capital surplus and retained earnings
(millions of yen) Third quarter Third quarter Fiscal 2004
Apr. 1, 2005- Apr. 1, 2004- Apr. 1, 2004-
Dec. 31, 2005 Dec. 31, 2004 Mar. 31, 2005
Capital surplus
Beginning balance of capital surplus 117,941 117,939 117,939
Increase in capital surplus 5 0 1
Conversion of convertible bonds 4 - 0
Net gains on sales of treasury stock 0 0 1
Decrease in capital surplus - - -
Ending balance of capital surplus 117,946 117,940 117,941
Retained earnings
Beginning balance of retained earnings 362,948 330,780 330,780
Increase in retained earnings: 85,235 33,630 52,665
Net income 84,625 33,630 52,665
Increase due to merger of subsidiaries 609 - -
Decrease in retained earnings: 27,290 20,497 20,497
Cash dividends paid 26,611 19,960 19,960
Bonuses to directors 678 536 536
Ending balance of retained earnings 420,893 343,913 362,948
Notes to consolidated financial statements
The consolidated financial statements of the Company for the third quarter ended
December 31, 2005 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 of
Consolidated Financial Statements' (Ministry of Finance Ordinance No. 24, 1999)
and its Article 48 and 69.
Basis of consolidated financial statements
1. Scope of consolidation
Consolidated subsidiaries: 45 companies
Major companies:
Daiwa Securities Co. Ltd.
Daiwa Securities SMBC Co. Ltd.
Daiwa Asset Management Co. Ltd.
Daiwa Institute of Research Ltd.
NIF SMBC Ventures Co., Ltd.
Daiwa Securities Business Center Co. Ltd.
Daiwa Property Co., Ltd.
Daiwa Securities SMBC Europe Limited
Daiwa Securities Trust and Banking (Europe) plc
Daiwa America Corporation
Daiwa Securities America Inc.
Daiwa Securities SMBC Asia Holding B.V.
Daiwa Securities SMBC H.K. Limited
Daiwa Securities SMBC Singapore Limited
One consolidated subsidiary is excluded from the scope of consolidation, as two
consolidated subsidiaries merged with a non-consolidated subsidiary during this
third quarter. Each amount of total assets, operating revenues (or sales), net
income corresponding to equity holdings and retained earnings corresponding to
equity holdings of non-consolidated subsidiaries has little influence on the
consolidated financial statements and has little materiality as a whole.
2. Application of equity method
Affiliates applicable of equity method: 5 companies
Major companies:
Daiwa SB Investments Ltd.
Daiwa SMBC-SSC Securities Co. Ltd.
Totan Holdings Co., Ltd.
The Tokyo Tanshi Co., Ltd.
One company is newly added to the scope of equity method due to purchase of
shares during this third quarter. One affiliate is excluded from the scope of
equity method due to merger with a consolidated subsidiary during this third
quarter. A Each amount of net income corresponding to equity holdings and
retained earnings corresponding to equity holdings of both non-consolidated
subsidiaries and affiliates inapplicable of equity method has little influence
on the consolidated financial statements and has little materiality as a whole.
For affiliates applicable of equity method with the third quarter ending other
than December 31, 2005, the financial statements for the relevant third quarter
are reflected.
3. Fiscal period of subsidiaries
For subsidiaries with the third quarter ending other than December 31, 2005, the
financial statements for the relevant third quarter are employed and important
transactions occurred by discrepancies with closing account date are adjusted
for this consolidated financial statements.
4. Accounting policies
(1) Valuation of financial instruments and inventories
(i) Valuation of trading assets and liabilities
Trading assets and liabilities, including securities and financial derivatives
for trading purposes held by securities companies are recorded mainly on a trade
date basis in the consolidated balance sheet at either market or fair value.
(ii) Valuation of non-trading assets and liabilities
The Group examines the intent of holding each securities and classifies those
securities as (a) debt and equity securities intended to held for trading by
non-securities companies ('trading securities'), (b) debt securities intended to
be held to maturity ('held-to-maturity debt securities'), (c) equity securities
issued by subsidiaries and affiliated companies, or (d) all other securities not
classified in any of the above categories ('available-for-sale securities').
Trading securities are carried at fair value with unrealized gains or losses
included in income. Held-to-maturity debt securities are stated at amortized
cost. Equity securities issued by subsidiaries and affiliated companies are
stated at moving-average cost.
Available-for-sale securities with market value are stated at market value,
based on quoted market prices. Realized gains and losses on sale of such
securities are computed using the moving-average cost. Unrealized gains and
losses on these securities are reported, net of applicable income taxes, as a
separate component of the shareholders' equity. Debt in available-for-sale
securities for which a market value is not available, are stated at the
amortized cost, net of the amount considered not collectible. Equity in
available-for-sale securities for which a market value is not available, are
stated at the moving-average cost.
Of those securities with no fair value available, share of net income raised by
the investments in limited partnerships is reflected on consolidated statements
of operations and share of net unrealized profits and losses on securities held
by the partnerships is directly posted into stockholders' equity. Private
equity and other securities held by certain consolidated subsidiaries are
categorized in current assets.
(iii) Valuation of other inventories
Cost method determined by the specific identification method is mainly applied.
(2) Depreciation of depreciable assets
(i) Tangible fixed assets
Property and equipment are stated at cost. The Company and domestic
consolidated subsidiaries compute depreciation principally by the
declining-balance method over estimated useful lives as stipulated by
Corporation Tax Law of Japan. Depreciation for buildings purchased in Japan
after April 1, 1998 is computed by the straight-line method. In overseas
consolidated subsidiaries, depreciation is mainly computed by the straight-line
method.
(ii) Intangible fixed assets
Intangible fixed assets are generally amortized under the straight-line method.
The Company and domestic consolidated subsidiaries compute amortization over
estimated useful lives as stipulated by Corporation Tax Law of Japan, and over
internally estimated useful lives (5 years) for software of in-house use.
(3) Accounting policies for various provisions
(i) Provision for doubtful accounts
Provisions for doubtful accounts are provided based on the estimated historical
default rate for normal loans, and based on individually assessed amounts for
doubtful accounts.
(ii) Allowance for possible investment losses
Some consolidated subsidiaries provide the allowances based on estimated losses
on private equity and other securities held at the third quarter end, assessing
the financial conditions of investee companies.
(iii) Accrued bonuses
The Company and domestic consolidated subsidiaries follow the Japanese practice
of paying bonuses to employees in June and December. Accrued employees' bonuses
represent liabilities estimated as of the balance sheet date. Bonuses to
directors and corporate executive officers of the Company, which are subject to
approval at the Compensation Committee, represent liabilities as of the balance
sheet date. Compensation Committee sets policies for deciding compensation of
individual directors and corporate executive officers and determines
compensation content for each individual. The Chairman of the Board chairs the
committee, while three out of five committee members are outside directors.
Bonuses to directors of consolidated subsidiaries, which are subject to approval
at the shareholders' meeting, are accounted for as an appropriation of retained
earnings.
(iv) Retirement benefits
The Company and most of domestic consolidated subsidiaries provide an unfunded
defined contribution plan to their employees in return for services rendered
each year, where the amount to be contributed to the individual employee's
account is defined by the plan. Contributions by the Company and most of
domestic consolidated subsidiaries under the unfunded defined contribution plan
are accumulated on an annual basis and earn a guaranteed hypothetical return at
a rate predetermined by the Company and most of domestic consolidated
subsidiaries each year. As for the closed pension fund, accrued retirement
benefits for the portion of 9 months are provided based on the difference
between projected benefit obligation and fund fair value expected on March 31,
2006.
(4) Accounting for certain lease transactions
Financial leases, whose ownership does not transfer to the lessee at the end of
the lease term (non-capitalized finance leases) are not capitalized and are
accounted for in the same manner as operating leases.
(5) Hedging transaction
The Group states derivative financial instruments at fair value and recognizes
changes in the fair value as gains or losses unless the derivative financial
instruments are used for hedging purposes. Valuation gains or losses on hedging
instruments are mainly deferred as assets or liabilities until the gains or
losses on the underlying hedged instruments are realized. Interest received or
paid on interest swaps for hedging purposes is accrued without being
marked-to-market. The premium or discount on forward foreign exchange for
hedging purpose is allocated to each fiscal term without being marked-to-market.
(6) Other material items
(i) Accounting for consumption taxes
Consumption taxes are separately recorded.
(ii) Deferred assets
Stock issue costs and bond issue costs are amortized in a lump sum when
incurred.
(iii) Consolidated tax payments system
The consolidated tax payments system is applied.
Change in presentation
Regarding the investments in limited partnerships and similar partnerships
regarded as securities, the profits and losses related to these investments had
been included in 'Interest and dividend income' until fiscal 2004, but those are
included in 'Net gain (loss) on private equity and other securities' since the
beginning of this fiscal year. 'Interest and dividend income' decreased by
10,281 million yen, due to this change in presentation.
Notes to consolidated balance sheets
1. Accumulated depreciation of tangible fixed assets
As of Dec. 31, 2005 As of Dec. 31, 2004 As of Mar. 31, 2005
101,392 million yen 102,624 million yen 97,300 million yen
2. Guarantee
As of Dec. 31, 2005 As of Dec. 31, 2004 As of Mar. 31, 2005
2,858 million yen 3,773 million yen 3,513 million yen
3. Short-term and long-term borrowings include the subordinated
borrowings stipulated by Article 2 of the 'Cabinet Office Ordinance on the
Capital Adequacy Rule for Securities Companies' (Cabinet Office Ordinance No.
23, 2001).
Short-term borrowings
As of Dec. 31, 2005 As of Dec. 31, 2004 As of Mar. 31, 2005
20,000 million yen 40,000 million yen 40,000 million yen
Long-term borrowings
As of Dec. 31, 2005 As of Dec. 31, 2004 As of Mar. 31, 2005
82,000 million yen 20,000 million yen 20,000 million yen
Notes to consolidated statements of operations
Details of extraordinary gains/losses
(million of yen) Third quarter Third quarter Fiscal 2004
Apr. 1, 2005- Apr. 1, 2004- Apr. 1, 2004-
Dec. 31, 2005 Dec. 31, 2004 Mar. 31, 2005
Extraordinary gains:
Gain on sale of fixed assets - 1,804 2,000
Gain on liquidation of related companies - 599 599
Gain on sale of related companies' stock 3,714 - -
Gain on sale of investment securities 5,464 1,340 6,451
Reversal of reserve for financial futures transaction - 0 -
liabilities
Reversal of stock purchase warrant - 501 501
Gain on change in stake in subsidiary 4,725 - -
Extraordinary losses:
Loss on litigation settlement 1,279 - -
Write-down of related companies stocks - 40 40
Write-down of investment securities 112 435 3,430
Valuation loss of fixed assets - 60 114
Loss on sale or disposal of fixed assets 372 269 1,535
Loss on liquidation of related companies - 650 650
Loss on sale of investment securities 44 676 892
Loss on sale of loans receivable - - 7,595
Provision for doubtful accounts - 809 1,638
Reorganization costs for overseas banking subsidiary - 495 779
Multiemployer pension plan settlement cost in consolidated - 189 188
subsidiaries
Provision for securities transaction liabilities 381 147 517
Others 292 - -
Supplemental information for the third quarter of fiscal 2005
1. Breakdown of commissions
Third quarter ended December 31, 2005 (A)
(millions of yen) Equity Fixed income Investment Investment Others Total
(Bond) trust banking
Brokerage commission 82,011 786 239 - - 83,038
Underwriting commission - - - 30,831 - 30,831
(Stock and other) (-) (-) (-) (22,667) (-) (22,667)
(Bond and other) (-) (-) (-) (6,699) (-) (6,699)
Distribution commission - - 28,477 1,557 - 30,034
Other commission 1,330 1,679 27,627 10,867 12,428 53,933
(Agency commission) (-) (1,666) (15,315) (-) (-) (16,982)
Total 83,342 2,466 56,343 43,255 12,428 197,837
Third quarter ended December 31, 2004 (B)
(millions of yen) Equity Fixed income Investment Investment Others Total
(Bond) trust banking
Brokerage commission 59,980 1,024 129 - - 61,134
Underwriting commission - - - 39,337 - 39,337
(Stock and other) (-) (-) (-) (32,667) (-) (32,667)
(Bond and other) (-) (-) (-) (5,749) (-) (5,749)
Distribution commission - - 13,267 2,359 - 15,626
Other commission 1,408 1,934 18,752 8,477 7,447 38,019
(Agency commission) (-) (1,868) (10,105) (-) (-) (11,973)
Total 61,388 2,958 32,149 50,173 7,447 154,118
Yr/yr percentage change ((A) / (B) - 1)
(percentage) Equity Fixed income Investment Investment Others Total
(Bond) Trust banking
Brokerage commission 36.7 -23.2 84.6 - - 35.8
Underwriting commission - - - -21.6 - -21.6
(Stock and other) (-) (-) (-) (-30.6) (-) (-30.6)
(Bond and other) (-) (-) (-) (16.5) (-) (16.5)
Distribution commission - - 114.6 -34.0 - 92.2
Other commission -5.6 -13.2 47.3 28.2 66.9 41.9
(Agency commission) (-) (-10.8) (51.6) (-) (-) (41.8)
Total 35.8 -16.6 75.3 -13.8 66.9 28.4
Fiscal 2004 ended March 31, 2005
(millions of yen) Equity Fixed income Investment Investment Others Total
(Bond) trust banking
Brokerage commission 81,919 1,463 159 - - 83,542
Underwriting commission - - - 54,743 - 54,743
(Stock and other) (-) (-) (-) (44,659) (-) (44,659)
(Bond and other) (-) (-) (-) (8,573) (-) (8,573)
Distribution commission - - 19,687 3,597 - 23,285
Other commission 1,967 2,800 25,793 12,828 11,425 54,815
(Agency commission) (-) (2,748) (14,014) (-) (-) (16,763)
Total 83,887 4,263 45,640 71,170 11,425 216,386
2. Breakdown of net gains on trading
(millions of yen) Third quarter Third quarter Yr/yr % change Fiscal 2004 (2005/3)
(2005/12) (2004/12)
Stock and other 77,580 34,526 124.7 56,104
Bond, forex and other 84,521 72,193 17.1 95,012
(Bond and other) (34,554) (53,876) (-35.9) (62,407)
(Forex and other) (49,967) (18,317) (172.8) (32,605)
Total 162,101 106,720 51.9 151,117
Quarterly consolidated statements of operation
(millions of yen) 3rd quarter 4th quarter 1st quarter 2nd quarter 3rd quarter
Oct. 1, Jan. 1, Apr.1, 2005- Jul.1, 2005- Oct.1, 2005-
2004- 2005- Jun. 30, Sep. 30, Dec. 31,
Dec. 31, Mar. 31, 2005 2005 2005
2004 2005
Operating revenues 118,067 158,088 135,435 195,376 245,284
Commissions 46,702 62,268 45,039 62,944 89,853
Brokerage commission 16,757 22,408 17,756 26,209 39,072
(Stock and other) 16,322 21,939 17,467 25,916 38,628
(Bond and other) 404 439 251 228 307
Underwriting commission 11,801 15,405 5,320 9,132 16,378
(Stock and other) 9,822 11,991 2,501 6,661 13,504
(Bond and other) 1,764 2,824 2,410 2,011 2,277
Distribution commission 5,617 7,659 7,515 9,305 13,214
(Beneficiary certificates) 4,691 6,420 6,949 8,900 12,627
Other commission 12,524 16,795 14,447 18,297 21,188
(Beneficiary certificates) 6,491 7,006 7,663 9,049 10,796
Net gain (loss) on trading 30,452 44,397 35,804 68,547 57,749
(Stock and other) 5,635 21,577 7,435 39,042 31,102
(Bond and other) 18,216 8,531 20,566 8,236 5,751
(Forex and other) 6,600 14,288 7,802 21,268 20,896
Net gain (loss) on private equity - - 4,009 2,071 9,037
and other securities (*1)
Net gain (loss) on private equity 201 -1,563 - - -
and other securities (*2)
Interest and dividend income 33,385 41,374 42,965 52,483 73,869
Other sales revenues 7,326 11,612 7,616 9,330 14,774
Interest expenses 30,466 32,137 38,531 49,507 70,425
Cost of sales 5,420 8,720 5,621 7,178 12,085
Net operating revenues 82,180 117,230 91,282 138,689 162,773
Selling, general and administrative expenses: 66,002 73,581 69,878 80,106 86,389
Commission and other expenses 11,295 13,086 13,748 15,509 16,148
Employees' compensation and benefits 33,472 38,036 34,961 42,485 47,355
Occupancy and rental 7,992 8,443 7,746 8,312 8,042
Data processing and office supplies 4,225 4,571 4,309 4,014 4,379
Depreciation expenses 5,486 5,758 5,551 5,588 5,669
Taxes other than income taxes 1,617 1,556 1,594 2,004 2,109
Others 1,911 2,129 1,966 2,191 2,685
Operating income 16,177 43,649 21,404 58,582 76,383
Non-operating income 2,436 1,891 2,705 1,957 2,196
Non-operating expenses 591 389 308 384 172
Ordinary income 18,022 45,151 23,800 60,155 78,407
Extraordinary gains 2,043 5,307 321 10,562 3,020
Extraordinary losses 1,388 13,608 - 614 1,867
Income before income taxes and minority 18,676 36,850 24,122 70,102 79,560
interests
Income taxes-current 307 9,795 2,698 22,478 20,940
Income taxes-deferred 6,683 1,539 6,690 4,104 7,187
Minority interests -2,221 -6,479 -3,096 -9,333 -12,629
Net income 9,464 19,035 11,636 34,185 38,803
Net financial income included in net 2,918 9,236 4,434 2,975 3,444
operating revenues
Note:
*1. Includes share of net income raised by the investments in limited
partnerships and similar partnerships.
*2. Excludes share of net income raised by the investments in limited
partnerships and similar partnerships.
Non-consolidated financial summary
(For the third quarter ended December 31, 2005)
(1) Operating results (from April 1, 2005 to December 31, 2005)
(Note) All figures in the financial statements are rounded down to the nearest
millionth.
'-' indicates a loss or negative figure.
(Millions of yen except for per share data and yr/yr % change)
Operating revenues Operating income Ordinary income
Third quarter (2005/12) 34,419 (41.1)% 25,300 (68.3)% 27,575 (61.7)%
Third quarter (2004/12) 24,395 (80.1)% 15,034 (475.8)% 17,055 (508.5)%
Fiscal 2004 (2005/3) 26,236 13,884 16,302
Net income Earnings/share
Third quarter (2005/12) 33,660 (89.3)% 25.29 Yen
Third quarter (2004/12) 17,785 (928.2)% 13.36 Yen
Fiscal 2004 (2005/3) 32,228 24.21 Yen
(Note)
1. Average number of shares outstanding (shares)
Third quarter (2005/12): Third quarter (2004/12): 1,330,703,781 Fiscal 2004 (2005/3):
1,330,565,941 1,330,684,146
2. Change in accounting policies: None
(2) Financial conditions
(Millions of yen except for per share data and percentage)
Total assets Shareholders' equity Shareholders' Shareholders' equity/
equity ratio share
As of Dec. 31, 2005 1,116,707 604,806 54.2 % 454.57 Yen
As of Dec. 31, 2004 1,028,024 556,672 54.1 418.34
As of Mar. 31, 2005 1,088,665 573,115 52.6 430.71
(Note)
1. Number of shares outstanding (shares)
As of Dec. 31, 2005: 1,330,498,674 As of Dec. 31, 2004: 1,330,649,185 As of Mar. 31, 2005: 1,330,612,431
2. Treasury stock (shares)
As of Dec. 31, 2005: 1,245,724 As of Dec. 31, 2004: 1,086,073 As of Mar. 31, 2005: 1,123,741
(Note)
The Company, the holding company for the Daiwa Securities Group, is influenced
by the performance of subsidiaries.
The subsidiaries' principal business is securities business, and the economic
and market environment affects their performance. Therefore, the Company
doesn't disclose the estimated operating result, considering the difficulty to
forecast the performance.
Balance sheets
(millions of yen) Third quarter Third quarter Increase/ Fiscal 2004
Dec. 31, 2005 Dec. 31, 2004 Decrease Mar. 31, 2005
Assets
Current assets: 167,196 223,316 -56,119 227,816
Cash and deposits 69,531 76,881 -7,350 117,897
Securities 41,515 - 41,515 -
Short-term loans receivable 25,956 124,088 -98,132 87,369
Accrued income 438 1,384 -945 1,845
Deferred tax assets-current 574 6,883 -6,309 1,886
Other current assets 29,180 14,078 15,102 18,816
Non-current assets: 949,511 804,708 144,803 860,849
Tangible fixed assets 10,072 10,261 -188 10,187
Intangible fixed assets 707 753 -46 717
Investments and others: 938,731 793,693 145,038 849,944
Investment securities 714,972 658,722 56,249 658,209
Long-term loans receivable 201,746 111,736 90,009 171,406
Long-term guarantee deposits 13,613 12,797 815 12,471
Others 8,895 10,938 -2,042 8,351
Less: Allowance for doubtful accounts -496 -502 5 -494
Total assets 1,116,707 1,028,024 88,683 1,088,665
(millions of yen) Third quarter Third quarter Increase/ Fiscal 2004
Dec. 31, 2005 Dec. 31, 2004 Decrease Mar. 31, 2005
Liabilities
Current liabilities: 277,741 213,342 64,398 263,444
Short-term borrowings 70,510 48,010 22,500 67,710
Commercial paper - - - 25,000
Bonds and notes due within one year 79,976 100,000 -20,024 100,000
Collateralized short-term financing agreements 120,376 61,209 59,167 66,855
Income taxes payable 122 124 -1 138
Accrued bonuses 855 344 510 769
Other current liabilities 5,900 3,654 2,246 2,970
Non-current liabilities: 234,159 258,008 -23,849 252,105
Bonds and notes 136,400 120,000 16,400 124,900
Convertible bonds - 79,986 -79,986 79,985
Long-term debt 51,000 38,000 13,000 37,000
Long-term cash deposits received as guarantee 4,071 4,328 -256 4,100
Deferred tax liabilities-non-current 38,987 11,384 27,602 1,916
Retirement benefits 2,512 3,382 -870 3,408
Other non-current liabilities 1,188 927 261 793
Total liabilities 511,901 471,351 40,549 515,549
Shareholders' equity
Common stock 138,436 138,431 4 138,432
Capital surplus 117,946 117,940 5 117,941
Additional paid-in capital 117,791 117,786 4 117,786
Other capital surplus reserve 154 154 0 154
Net gains on sales of treasury stock 154 154 0 154
Retained earnings 296,458 274,966 21,492 289,409
Earned surplus reserve 45,335 45,335 - 45,335
General-purpose reserve 218,000 218,000 - 218,000
Unappropriated retained earnings 33,123 11,630 21,492 26,074
(Net income for the current term) (33,660) (17,785) (15,875) (32,228)
Net unrealized gain (loss) on securities, net of tax 52,865 26,093 26,771 28,119
effect
Treasury stock -901 -759 -141 -786
Total shareholders' equity 604,806 556,672 48,133 573,115
Total liabilities and shareholders' equity 1,116,707 1,028,024 88,683 1,088,665
Statements of operations
Third quarter Third quarter Yr/yr Fiscal 2004
(millions of yen) Apr. 1, 2005 - Apr. 1, 2004 - % Apr. 1, 2004 -
Dec. 31, 2005 Dec. 31, 2004 change Mar. 31, 2005
Operating revenues: 34,419 24,395 41.1 26,236
Dividends from related companies 32,243 19,130 68.5 19,136
Interest on loans to related companies 2,076 2,801 -25.9 3,704
Other interest and dividend income - 75 - 100
Royalty on trademark - 2,386 - 3,295
Other 99 - - -
Operating expenses: 9,118 9,360 -2.6 12,352
Selling, general and administrative expenses: 6,942 5,708 21.6 7,731
Commission and other expenses 1,332 643 107.0 917
Employees' compensation and benefits 3,124 2,636 18.5 3,650
Occupancy and rental 455 538 -15.4 681
Data processing and office supplies 631 658 -4.1 870
Depreciation expenses 264 322 -18.0 428
Others 1,133 907 24.9 1,182
Interest expenses 2,176 3,652 -40.4 4,620
Operating income 25,300 15,034 68.3 13,884
Non-operating income 2,354 2,179 8.0 2,669
Non-operating expenses 79 158 -49.6 251
Ordinary income 27,575 17,055 61.7 16,302
Extraordinary gains 9,160 1,669 448.6 9,149
Extraordinary losses 1,479 332 344.5 3,396
Income before income taxes 35,255 18,392 91.7 22,055
Income taxes-current -19,810 -3,144 - -8,064
Income taxes-deferred 21,406 3,752 470.5 -2,109
Net income 33,660 17,785 89.3 32,228
Unappropriated retained earnings-carryforward 15,429 498 - 498
Interim dividends 15,966 6,653 140.0 6,653
Unappropriated retained earnings 33,123 11,630 184.8 26,074
Notes to financial statements
The financial statements of the Company for the third quarter ended December 31,
2005 are prepared in accordance with 'Regulations of Interim Financial
Statements' (MOF Ordinance No. 38, 1977).
Basis of financial statements
1. Valuation of securities
The Company examines the intent of holding each securities and classifies those
securities as (a) debt and equity securities intended to held for trading
purpose ('trading securities'), (b) equity securities issued by subsidiaries and
affiliated companies, or (c) all other securities not classified in any of the
above categories ('available-for-sale securities').
Trading securities are carried at fair value with unrealized gains or losses
included in income. Equity securities issued by subsidiaries and affiliated
companies are stated at moving-average cost.
Available-for-sale securities with market value are stated at market value,
based on quoted market prices. Realized gains and losses on sale of such
securities are computed using the moving-average cost. Unrealized gains and
losses on these securities are reported, net of applicable income taxes, as a
separate component of the shareholders' equity. Debt in available-for-sale
securities for which a market value is not available, are stated at the
amortized cost, net of the amount considered not collectible. Equity in
available-for-sale securities for which a market value is not available, are
stated at the moving-average cost.
Of those securities with no fair value available, share of net income raised by
the investments in limited partnerships is reflected on statements of operations
and share of net unrealized profits and losses on securities held by the
partnerships is directly posted into stockholders' equity.
2. Depreciation of depreciable assets
(1) Tangible fixed assets
The Company computes depreciation by the declining-balance method over estimated
useful lives as stipulated by Corporation Tax Law of Japan. Depreciation for
buildings purchased in Japan after April 1, 1998 is computed by the
straight-line method.
(2) Intangible fixed assets, and investments and others
Intangible fixed assets are amortized under the straight-line method. The
Company computes amortization over estimated useful lives as stipulated by
Corporation Tax Law of Japan, and over internally estimated useful lives (5
years) for software of in-house use.
3. Accounting for various provisions
(1) Provision for doubtful accounts
Provisions for doubtful accounts are provided based on the estimated historical
default rate for normal loans, and based on individually assessed amounts for
doubtful accounts.
(2) Accrued bonus
Accrued employees' bonuses represent liabilities estimated as of the balance
sheet date. Bonuses to directors and corporate executive officers, which are
subject to approval at the Compensation Committee, represent liabilities as of
the balance sheet date.
(3) Retirement benefits
The Company provides an unfunded defined contribution plan to its employees in
return for services rendered each year, where the amount to be contributed to
the individual employee's account is defined by the plan. Contributions by the
Company under the unfunded defined contribution plan are accumulated on an
annual basis and earn a guaranteed hypothetical return at a rate predetermined
by the Company each year. As for the closed pension fund, accrued retirement
benefits for the portion of 9 months are provided based on the difference
between projected benefit obligation and fund fair value expected on March 31,
2006.
4. Accounting for certain lease transactions
Financial leases, whose ownership does not transfer to the lessee at the end of
the lease term (non-capitalized finance leases) are not capitalized and are
accounted for in the same manner as operating leases.
5. Hedging transaction
Interest received or paid on interest swaps for hedging purposes is accrued
without being marked-to-market. The premium or discount on forward foreign
exchange for hedging purpose is allocated to each fiscal term without being
marked-to-market.
6. Other material items
(1) Accounting for consumption taxes
Consumption taxes are separately recorded.
(2) Deferred assets
Stock issue costs and bond issue costs are amortized in a lump sum when
incurred.
(3) Consolidated tax payments system
The consolidated tax payments system is applied.
Change in presentation
'Other interest and dividend income' and 'Royalty on trademark' which had been
separately presented until fiscal 2004 are included in 'Other' of Operating
revenues from the beginning of this fiscal year, due to lessened materiality in
amount. 'Other interest and dividend income' and 'Royalty on trademark' for the
third quarter of fiscal 2005 are 85 million yen and 9 million yen, respectively.
Notes to balance sheets
1. Accumulated depreciation of tangible fixed assets
As of Dec. 31, 2005 As of Dec. 31, 2004 As of Mar. 31, 2005
3,028 million yen 3,206 million yen 3,218 million yen
2. Guarantee
As of Dec. 31, 2005 As of Dec. 31, 2004 As of Mar. 31, 2005
5,488 million yen 11,672 million yen 8,969 million yen
3. Fair value of subsidiary and affiliated company stocks as of Dec. 31, 2005
(millions of yen)
Carrying value Fair value Difference
Subsidiary 19,648 137,306 117,658
Affiliated company 274 812 537
Notes to statements of operations
Details of extraordinary gains/losses
(millions of yen)
Third quarter Third quarter Fiscal 2004
Apr. 1, 2005- Apr. 1, 2004- Apr. 1, 2004-
Dec. 31, 2005 Dec. 31, 2004 Mar. 31, 2005
Extraordinary gains:
Gain on sale of fixed assets - - 20
Gain on liquidation of related companies 1,200 698 5,529
Gain on sale of related companies' stocks 6,146 - -
Gain on sale of investment securities 1,812 469 3,098
Reversal of stock purchase warrant - 501 501
Extraordinary losses:
Loss on litigation settlement 1,279 - -
Write-down of related companies' stocks - 37 42
Write-down of investment securities 75 40 3,035
Loss on sale of investment securities 4 - -
Valuation loss of fixed assets - 52 52
Loss on sale or disposal of fixed assets 120 105 116
Provision for doubtful accounts - 96 150
This information is provided by RNS
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