Form 6-K
Table of Contents

FORM 6-K

 

U.S. SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16 of

the Securities Exchange Act of 1934

 

Commission File Number: 1-15270

 

 

Supplement for the month of December 2004.

 

 

NOMURA HOLDINGS, INC.

(Translation of registrant’s name into English)

 

9-1, Nihonbashi 1-chome

Chuo-ku, Tokyo 103-8645

Japan

(Address of principal executive offices)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

 

Form 20-F      X                            Form 40-F              

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):          

 

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):          

 

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

 

Yes                                  No       X    

 

 

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):    82-


Table of Contents

Information furnished on this form:

 

EXHIBIT

 

Exhibit Number

1.   [(English Translation) Interim Report Pursuant to The Securities and Exchange Law of Japan for The Six Months Ended September 30, 2004]

 

2


Table of Contents

SIGNATURES

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

    NOMURA HOLDINGS, INC.
Date: December 28, 2004        
    By:  

/s/ Hiroshi Tanaka


        Hiroshi Tanaka
        Senior Managing Director

 

3


Table of Contents

I nterim Report Pursuant to The Securities and Exchange Law of Japan for The Six Months Ended September 30, 2004

 

Items included in the Interim Report

 

     Page

PART I Corporate Information

    

Item 1. Information on the Company and Its Subsidiaries and Affiliates

    

1. Selected Financial Data

   5

2. Business Overview

   7

3. Subsidiaries and Affiliates

    

4. Employees

    

Item 2. Operating and Financial Review

    

1. Operating Results

   8

2. Current Challenges

   15

3. Significant Contracts

   16

4. Research and Development, Patent and Licenses, etc.

    

Item 3. Property, Plants and Equipment

    

1. Principal Properties

    

2. Prospects of New Capital Expenditure, Abandonment, and Other

    

Item 4. Company Information

    

1. Share Capital Information

   17

2. Share Price History

   27

3. Directors and Senior Management

    

Item 5. Financial Information

    

Preparation Method of Consolidated Financial Statements and Non-consolidated Financial

Statements and Semi-annual Audit Certificate

   28

1. Consolidated Financial Statements and Other

   29

(1) Consolidated Financial Statements

   29

1)  Consolidated Balance Sheets

   29

2)  Consolidated Income Statements

   31

3)  Consolidated Statements of Shareholders’ Equity

   32

4)  Consolidated Statements of Comprehensive Income

   33

5)  Consolidated Statements of Cash Flows

   34

Notes to the Consolidated Financial Statements

   35

(2) Other

   55

2. Non-consolidated Financial Statements and Other

   56

(1) Non-consolidated Financial Statements

   56

1)  Non-consolidated Balance Sheets

   56

2)  Non-consolidated Income Statements

   57

Significant Accounting Policies

   58

Additional Information

   59

Notes to the Non-consolidated Financial Statements

   60

(2) Other

   67

Item 6. Reference Information

    

PART II Information on Guarantor of the Company

    

Semiannual Audit Report of Independent Auditors

   68

 

 

Note: Translations for the underlined items are attached to this form as below.

 

—4—


Table of Contents

Part I    Corporate Information

 

 

 

Item 1. Information on the Company and Its Subsidiaries and Affiliates

 

 

 

1.Selected Financial Data

 

(1) Selected consolidated financial data

 

        

Six months ended
September 30,

2002


   

Six months ended
September 30,

2003


    Six months ended
September 30,
2004


   

Year ended

March 31,

2003


   

Year ended

March 31,

2004


 

Revenue

   (Mil yen)   430,253     573,378     540,170     840,919     1,099,546  

Net revenue

   (Mil yen)   283,415     414,774     370,769     566,274     803,103  

Income before income taxes and cumulative effect of accounting change

   (Mil yen)   40,637     159,251     88,673     47,409     282,676  

Net income

   (Mil yen)   131,070     86,686     44,048     119,913     172,329  

Shareholders’ equity

   (Mil yen)   1,732,621     1,705,548     1,829,788     1,642,328     1,785,688  

Total assets

   (Mil yen)   18,963,616     27,238,887     32,566,870     21,169,446     29,752,966  

Shareholders’ equity per share

   (Yen)   881.56     878.34     942.50     846.40     919.67  

Net income per share

   (Yen)   66.68     44.71     22.69     61.26     88.82  

Net income per share – diluted

   (Yen)   66.68     44.71     22.68     61.26     88.82  

Shareholders’ equity as a percentage of total assets

   (%)   9.1     6.3     5.6     7.8     6.0  

Cash flows from operating activities

   (Mil yen)   (219,620 )   107,023     (367,309 )   31,706     (78,375 )

Cash flows from investing activities

   (Mil yen)   16,521     95,276     (58,369 )   134,053     45,471  

Cash flows from financing activities

   (Mil yen)   16,115     (24,895 )   223,970     (22,205 )   198,017  

Cash and cash equivalents at end of period

   (Mil yen)   159,694     654,158     449,598     491,237     637,372  

Number of staffs

[Average number of temporary staffs, excluded from above]

       12,536
[3,044
 
]
  12,296
[3,057
 
]
  14,423
[3,378
 
]
  12,060
[3,062
 
]
  13,987
[3,107
 
]

 

—5—


Table of Contents
(Notes)

 

1 The selected consolidated financial data are stated in accordance with the accounting principles generally accepted in the United States of America (“U.S. GAAP”).
2 Effective with the second quarter ended September 30, 2004, changes in Other secured borrowings which was previously included in Cash flows from financing activities are included in Cash flows from operating activities. Such amounts previously reported have been reclassified to conform to the current year presentation. The presented amounts before reclassification are as follows;
        

Six months
ended
September 30,

2002


    Six months
ended
September 30,
2003


        

Year ended

March 31,

2003


   

Year ended

March 31,

2004


 

Cash flows from operating activities

   (Mil yen)   (396,355 )   (30,697 )        34,113     (1,825,894 )

Cash flows from financing activities

   (Mil yen)   192,850     112,825          (24,612 )   1,945,536  

 

3 The consumption tax and local consumption tax on taxable transactions are accounted for based on the tax exclusion method.
4 Financial Advisor and Security Advisor with fixed-term employment contract were included in the number of stuffs as of March 31, 2004 and September 30, 2004.
5 In addition to the numbers presented above, the number of staffs in investee companies of private equity investments that were consolidated as subsidiaries on the consolidated financial statements as of September 30, 2004 was 3,852 and the average number of temporary staffs in those investee companies was 861.

 

—6—


Table of Contents

(2) Selected non-consolidated financial data

 

         Six months ended
September 30,
2002


    Six months ended
September 30,
2003


    Six months ended
September 30,
2004


   

Year ended

March 31,

2003


   

Year ended

March 31,

2004


 

Operating revenue

   (Mil yen)   50,064     66,694     214,995     102,633     135,341  

Ordinary income

   (Mil yen)   7,240     21,751     171,105     10,742     39,448  

Net income (loss)

   (Mil yen)   10,264     19,207     171,055     (12,825 )   33,374  

Common stock

   (Mil yen)   182,799     182,799     182,800     182,799     182,799  

Number of issued shares

   (1000
shares)
  1,965,919     1,965,919     1,965,920     1,965,919     1,965,919  

Shareholders’ equity

   (Mil yen)   1,409,498     1,355,565     1,519,731     1,342,035     1,367,005  

Total assets

   (Mil yen)   2,047,106     2,321,921     2,969,025     2,121,113     2,469,719  

Interim dividend per share

[dividend per share]

   (Yen)       7.50     10.00     15.00     15.00  

Shareholders’ equity as a percentage of total assets

   (%)   68.9     58.4     51.2     63.3     55.4  

Number of staffs

[Average number of temporary staffs, excluded from above]

       5
[     0
 
]
  8
[     —
 
]
  7
[     —
 
]
  5
[     0
 
]
  7
[     —
 
]

 

(Notes) 1

  The consumption tax and local consumption tax on taxable transactions are accounted for based on the tax exclusion method.

2

  The information presented above is based on the non-consolidated information of Nomura Holdings, Inc (“the Company”). For information on shareholders’ equity per share, net income per share and net income per share-diluted, see the consolidated financial data of the Company.

3

  The Company introduced the interim dividend system from the six month period ended September 30, 2003.

4

 

The amounts presented for September 30, 2004 are rounded whereas the amounts for previous terms are truncated.

 

 

2. Business Overview

 

There was no significant change for the business of Nomura Holdings, Inc. and its affiliated companies (consolidated subsidiaries and variable interest entities 139, equity method affiliates 15) for the six months ended September 30, 2004.

 

—7—


Table of Contents

Item 2.    Operating and Financial Review

 

 

 

1. Operating Results

 

(1) Summary

 

    Nomura Holdings, Inc. and its consolidated subsidiaries (“Nomura”) reported net revenue of ¥ 370.8 billion for the six months ended September 30, 2004, an decrease of 11% from the same period in the prior year. Non-interest expenses were ¥ 282.1 billion for the six months ended September 30, 2004, an increase of 10% from the same period in the prior year. As a result, income before income taxes was ¥ 88.7 billion for the six months ended September 30, 2004, an decrease of 44% from the same period in the prior year. On the other hand, net income for the six months ended September 30, 2004 was ¥ 44.0 billion, a decrease of 49% from the same period in the prior year.

 

    Cash and cash equivalents at September 30, 2004 decreased by ¥187.8 billion compared with March 31, 2004 (increase of ¥162.9 billion for the same period in the prior year). Net cash used in operating activities was ¥367.3 billion (net cash provided by operating activities for the same period in the prior year was ¥107.0 billion), mainly due to an increase in net trading-related balances. Trading-related balances are comprised of Trading assets and private equity investment, Collateralized agreements, Trading liabilities, Collateralized financing, Receivables/payables before settlement date (which are included in Receivables/Payables) and others. Net cash used in investing activities was ¥58.4 billion (net cash provided by investing activities for the same period in the prior year was ¥ 95.3 billion) mainly due to an investment in affiliated company. Net cash provided by financing activities was ¥224.0 billion (net cash used in financing activities for the same period in the prior year was ¥24.9 billion) mainly due to an increase in borrowings.

 

—8—


Table of Contents

The breakdown of Net revenue and Non-interest expenses on the consolidated income statements are as follows.

 

     Six months ended
September 30, 2003
(Mil Yen)


   Six months ended
September 30, 2004
(Mil Yen)


Commissions

   89,719         115,118      

Brokerage commissions

        64,258          84,169

Commissions for distribution of investment trust

        15,341          19,457

Other

        10,120          11,492

Fees from investment banking

   34,358         47,773      

Underwriting and distribution

        27,865          37,004

M&A / financial advisory fees

        6,424          10,752

Other

        69          17

Asset management and portfolio service fees

   30,757         38,030      

Asset management fees

        25,759          32,569

Other

        4,998          5,461

Net gain on trading

   147,529         76,640      

Merchant banking

        1,155          3,247

Equity trading

        52,866          28,324

Fixed income and other trading

        93,508          45,069

Gain (loss) on private equity investments

   6,598         (1,599 )    

Net interest

   59,276         49,639      

Gain (loss) on investments in equity securities

   31,769         (1,353 )    

Other

   14,768         46,521      
    
       

   

Net revenue

   414,774         370,769      
    
       

   
    

Six months ended
September 30, 2003

(Mil Yen)


  

Six months ended
September 30, 2004

(Mil Yen)


Compensation and benefits

        133,589          130,149

Commissions and floor brokerage

        9,529          12,911

Information processing and communications

        38,410          39,417

Occupancy and related depreciation

        26,825          26,260

Business development expenses

        10,411          13,196

Other

        36,759          60,163
    
  

Non-interest expenses

        255,523          282,096
    
  

 

—9—


Table of Contents

Business Segment Information

 

Results by business segment are as follows. Reconciliations of Net revenue and Income before income taxes on segment results of operations and the consolidated income statements are set forth in “ Consolidated Financial Statements, Note 12. – Segment information.”

 

 

Net revenue

 

     Six months ended September 30, 2003
(Mil Yen)

   Six months ended September 30, 2004
(Mil Yen)

Domestic Retail

   150,562    151,731

Global Wholesale

   209,108    152,915

Asset Management

   16,302    20,667

Other (Inc. elimination)

   1,514    14,965
    
  

Total

   377,486    340,278
    
  

 

Income (loss) before income taxes

 

    

Six months ended September 30, 2003

(Mil Yen)


   

Six months ended September 30, 2004

(Mil Yen)


Domestic Retail

   39,445     43,517

Global Wholesale

   95,352     42,653

Asset Management

   (2,407 )   2,963

Other (Inc. elimination)

   (5,861 )   23
    

 

Total

   126,529     89,156
    

 

 

Domestic Retail

 

Domestic Retail has further strengthened its capabilities to provide investment consultation service in order to respond to customers’ investment needs by offering stocks, investment trusts, foreign currency bonds, Japanese government bonds for individuals, and a variety of other financial products. Net revenue increased by 1% from ¥ 150,562 million for the six months ended September 30, 2003 to ¥ 151,731 million for the six months ended September 30, 2004. Non-interest expenses decreased by 3% from ¥ 111,117 million for the six months ended September 30, 2003 to ¥ 108,214 million for the six months ended September 30, 2004. As a result, Income before income taxes increased by 10% from ¥ 39,445 million for the six months ended September 30, 2003 to ¥ 43,517 million for the six months ended September 30, 2004.

 

Global Wholesale

 

Global Wholesale has tried to manage its business portfolio based on global customers’ order-flow. Net revenue decreased by 27% from ¥ 209,108 million for the six months ended September 30, 2003 to ¥ 152,915 million for the six months ended September 30, 2004, mainly due to the decrease of order-flow related to Fixed Income. Non-interest expenses decreased by 3% from ¥ 113,756 million for the six months ended September 30, 2003 to ¥ 110,262 million for the six months ended September 30, 2004. As a result, Income before income taxes decreased by 55% from ¥ 95,352 million for the six months ended September 30, 2003 to ¥ 42,653 million for the six months ended September 30, 2004. In April 2004, Global Wholesale segment was reorganized in order to enhance specialty services and strengthen our global structure. It now consists of three business lines: Global Markets, which is composed of Fixed Income and Equity, Investment Banking, and Merchant Banking.

 

—10—


Table of Contents

 

Global Markets

 

Net revenue decreased by 31% from ¥ 169,710 million for the six months ended September 30, 2003 to ¥ 116,685 million for the six months ended September 30, 2004, mainly due to a decrease of order-flow relating to Fixed Income. Non-interest expenses decreased by 0.4% from ¥ 83,039 million for the six months ended September 30, 2003 to ¥ 82,688 million for the six months ended September 30, 2004. As a result, Income before income taxes decreased by 61% from ¥ 86,671 million for the six months ended September 30, 2003 to ¥ 33,997 million for the six months ended September 30, 2004.

 

 

Investment Banking

 

Net revenue for Investment Banking increased by 7% from ¥ 33,476 million for the six months ended September 30, 2003 to ¥ 35,819 million for the six months ended September 30, 2004, partly due to a revitalization in equity capital markets. Non-interest expenses for Investment Banking decreased by 13% from ¥ 25,544 million for the six months ended September 30, 2003 to ¥ 22,140 million for the six months ended September 30, 2004. As a result, Income before income taxes for Investment Banking increased by 72% from ¥ 7,932 million for the six months ended September 30, 2003 to ¥ 13,679 million for the six months ended September 30, 2004.

 

 

Merchant Banking

 

Net revenue for Merchant Banking decreased by 93% from ¥ 5,922 million for the six months ended September 30, 2003 to ¥ 411 million for the six months ended September 30, 2004, because funding cost have been charged for its assets in Europe, although there were exit transactions for this period. Non-interest expenses for Merchant Banking increased by 5% from ¥ 5,173 million for the six months ended September 30, 2003 to ¥ 5,434 million for the six months ended September 30, 2004. As a result, Income before income taxes for Merchant Banking was ¥ 749 million for the six months ended September 30, 2003 and Loss before income taxes for Merchant Banking was ¥ 5,023 million for the six months ended September 30, 2004.

 

 

Asset Management

 

Net revenue increased by 27% from ¥ 16,302 million for the six months ended September 30, 2003 to ¥ 20,667 million for the six months ended September 30, 2004, due primarily to an increase in asset management and portfolio service fees reflecting the rise in the net assets of stock investment trust. Non-interest expenses decreased by 5% from ¥ 18,709 million for the six months ended September 30, 2003 to ¥ 17,704 million for the six months ended September 30, 2004. As a result, Loss before income taxes for Asset Management was ¥ 2,407 million for the six months ended September 30, 2003 and Income before income taxes for Asset Management was ¥ 2,963 million for the six months ended September 30, 2004.

 

—11—


Table of Contents

Other Operating Results

 

Other operating results include gain (loss) on investment securities, equity in earnings (losses) of affiliates and other financial adjustments. Loss before income taxes for Other was ¥ 5,861 million for the six months ended September 30, 2003 and Income before income taxes for Other was ¥ 23 million for the six months ended September 30, 2004.

 

 

Geographic Information

 

Please refer to Note 12 about net revenue and Income before income taxes by geographic.

 

—12—


Table of Contents

(2) Trading Activities

 

Assets and liabilities for trading purposes

 

The balances of assets and liabilities for trading purposes at September 30, 2003 and 2004 are as follows.

 

    

September 30, 2003

(Mil Yen)


  

September 30, 2004

(Mil Yen)


Trading assets and Private equity investments

   11,790,722    15,455,593

Securities inventory

   10,987,122    14,690,911

Equity securities and convertible bonds

   1,927,227    2,572,387

Government and government agency bonds

   5,526,349    8,849,148

Bank and corporate debt securities

   1,384,773    1,514,583

Commercial paper and certificates of deposit

   27,999    70,999

Options and warrants

   55,986    63,980

Mortgage and mortgage-backed securities

   757,388    950,151

Beneficiary certificates and other

   1,307,400    669,663

Derivative contracts

   526,306    463,301

Foreign exchange forwards

   55,513    32,539

Forward rate agreements and other over the counter forwards

   573    1,692

Swap agreements

   292,900    306,923

Options other than securities options – purchased

   177,320    122,147

Private equity investments

   277,294    301,381
    
  

Trading liabilities

   6,957,302    6,641,499

Securities sold but not yet purchased

   6,427,291    6,201,379

Equity securities and convertible bonds

   1,947,988    685,519

Government and government agency bonds

   4,222,651    5,102,916

Bank and corporate debt securities

   218,178    324,147

Options and warrants

   32,942    79,288

Mortgage and mortgage-backed securities

   5,532    6,026

Beneficial certificates and other

      3,483

Derivative contracts

   530,011    440,120

Foreign exchange forwards

   69,426    20,780

Forward rate agreements and other over the counter forwards

   600    398

Swap agreements

   348,229    336,997

Options other than securities options – written

   111,756    81,945
    
  

 

—13—


Table of Contents

Risk management of trading activity

 

Nomura adopts Value at Risk (VaR) for measurement of market risk to the trading activity.

 

1) Assumption on VaR

 

• 2.33 standard deviations 99% confidence level

 

• Holding period:    One day

 

• Consider correlation of price movement among the products

 

 

2) Records of VaR

 

    

September 30, 2003

(Bil Yen)


   

September 30, 2004

(Bil Yen)


 

Equity

   2.3     5.6  

Interest rate

   2.3     2.6  

Foreign exchange

   0.3     0.3  
    

 

Sub-total

   4.9     8.5  

Diversification benefit

   (1.3 )   (2.4 )
    

 

Value at Risk (VaR)

   3.6     6.1  
    

 

 

     Six months ended September 30, 2004

     Maximum (Bil Yen)

   Minimum (Bil Yen)

   Average (Bil Yen)

Value at Risk (VaR)

   10.7    3.5    5.3

 

—14—


Table of Contents

2. Current Challenges

 

Japan’s economy and securities markets are recovering steadily, due to the fact that the real economic growth rate has increased in five consecutive quarters ended June 30, 2004. Trading volumes remain at a high level in the First Section of the Tokyo Stock Exchange. There seems to be progress in the reconstruction of the economy through resolution of the nonperforming loan problem. In this environment, the Company will actively build a solid business foundation by enhancing the capacities of new product development and origination, demonstrating the importance of risk diversification to market participants, and making effective use of its global business lines.

 

 

With regards to Domestic Retail, the Company will strengthen expanding its capabilities with a focus on meeting customer needs and expanding its customer base. The Company seeks to expand its distribution channels with the recent changes in regulations. In addition, the Company will continue its efforts to broaden individual investors’ participation in the securities markets by supporting capital market lectures at colleges and universities and investor education programs in local communities.

 

 

Regarding Global Wholesale, as the financial results of Japanese companies gradually recover, the number of companies seeking the Company’s services is on the rise. In order to respond to these companies, the Company will flexibly provide high value-added solutions such as M&A business solutions for corporate reoraganization and equity financing for investment in plant and equipment. The Group will also enhance capacities of product distribution and trading activities through promoting a globalization strategy and try to establish new business area.

 

 

With regards to Asset Management, the Company continues to enhance performance by offering value-added management services that address customer needs. The Company’s goal is increase assets under management by developing innovative products and providing prompt service that is valued by customers. In addition, the Company continues to enhance marketing functions for various types of sales channels. The Company is also focused on developing its defined contribution pension plan business.

 

 

The Nomura Group is committed to coping with the changes in society and the market, strengthening its base in an expanding securities business, and to increasing the Group’s corporate value.

 

—15—


Table of Contents

3. Significant Contracts

 

At May 18, 2004, Nomura Realty Capital Management Co., Ltd. (“NRCM”), a wholly-owned subsidiary of the Company, acquired 7,720,000 shares of Nomura Research Institute, Ltd’s common stock, which are affiliate company stocks of the company from Nomura Land Building Co., Ltd (“NLB”), which is an affiliate company of the company.

 

 

The purpose of the business combination is the pursuit of greater efficiency with respect to maintenance and administration of real estate properties used within the Nomura (facility management business) as well as to strengthen branch office strategy through, for instance, diversifying the form of Nomura Securities’ offices. NLB and NRCM have done that NRCM is to succeed by the way of demerger NLB’s facility management business, which includes the ownership, lease, maintenance and administration of real estate properties as places of business and offices, etc as of August 1, 2004. NRCM issued 495,000 ordinary shares upon the demerger and allocate all such shares to NLB. Although a majority of all outstanding shareholder voting rights were held by NLB due to this transaction, the Company acquired said shares immediately after the demerger and maintained its parent company status with NRCM as its wholly-owned subsidiary. In addition to the above, it was determined that NRCM will change its company name to Nomura Facilities, Inc.

 

—16—


Table of Contents

Item 4. Company Information

 

 

1. Share Capital Information

(1) Total Number of Shares

a. Number of Authorized Share Capital

 

Type


   Authorized Share Capital (shares)

Common Stock    6,000,000,000

Total

   6,000,000,000

 

b. Issued Shares

 

Type


   Number of Issued Shares as
of September 30, 2004


   Number of Issued Shares as
of December 17, 2004


  

Trading Markets


 

 

Common Stock

  

 

1,965,919,860

  

 

1,965,919,860

  

Tokyo Stock Exchange (*3)

Osaka Stock Exchange (*3)

Nagoya Stock Exchange (*3)

 

Amsterdam Stock Market N.V. (*4)

Singapore Stock Exchange (*5)

New York Stock Exchange (*6)

    
  
  

Total

   1,965,919,860    1,965,919,860   
    
  
  

Notes 1    Voting rights pertained.
2    Shares that may have increased from exercise of warrants and stock options between December 1, 2004 and December 17, 2004 are not included in the number of outstanding shares as of December 17, 2004.
3    Listed on the First Section of each stock exchange.
4    Common stock and Continental Depositary Receipts listed.
5    Common stock listed.
6    American Depositary Shares listed.

 

—17—


Table of Contents

(2) Stock Options

a. Stock Acquisition Right

 

Resolved by the special resolution at the General Shareholders’ Meeting on June 26, 2002

 

    

End of Interim Accounting Period

(September 30, 2004)


  

End of Preceding Month to Filing of
this Report

(November 30, 2004)


Number of Stock Acquisition Rights    2,182(*1)    2,170(*1)
Type of Share under the Stock Acquisition Right    Common stock    Common stock
Number of Shares under the Stock Acquisition Rights    2,182,000    2,170,000
The Amount to be Paid upon Exercising the Stock Acquisition Right    ¥1,806 per share    Same as left
Exercise Period of the Stock Acquisition Right    From July 1, 2004 to June 30, 2009    Same as left
Issue Price of Shares and Capital Inclusion Price if Shares Are Issued upon Exercise of the Stock Acquisition Rights   

Issue Price of Shares ¥1,806

Capital Inclusion Price ¥903

   Same as left

Conditions to Exercise of Stock

Acquisition Right

  

1.      Not to be partial exercise of one stock acquisition right.

    
    

2.      For a person given Stock Acquisition Right (the “Optionee”), to satisfy all of the following conditions:

(1)    The Optionee maintains position as a director, statutory auditor or employee of the Company or a company, a majority of whose outstanding shares or interests (only limited to those with voting rights) are held directly or indirectly by the Company (hereinafter collectively referred to as the “Company’s Subsidiary”), during the time between the grant of the stock acquisition rights and the exercise. The Optionee is deemed to maintain such a position as a director, statutory auditor or employee of the Company or the Company’s Subsidiary in case the Optionee loses such a position by either of the following situations:

a)      Regarding the Optionee as a director or statutory auditor of the Company or the Company’s Subsidiary: retirement from office on account of the expiration of the Optionee’s term of office or other similar reasons; or

b)     Regarding the Optionee as an employee of the Company or the Company’s Subsidiary: retirement due to the attainment of the retirement age, transfer by order of the Company or the Company’s Subsidiary, retirement mainly

          due to sickness or injuries arising out of duty, discharge for a compelling business reason, or other similar reasons.

(2)    The Optionee, at the time of exercising the stock acquisition rights, does not fall within either of the following cases:

a)      The Company or the Company’s Subsidiary determines in accordance with their Employment Regulations to dismiss the Optionee by suggestion or disciplinary procedures; or

b)      There is any other reason similar to a).

3.      Regarding the successors of the Optionee, the Optionee must have satisfied both conditions of the 2.(1) and (2) above, immediately prior to the occurrence of succession.

   Same as left
Restriction of Transfer of Stock Acquisition Rights    Approval of the board of directors shall be required for transfer of the stock acquisition rights.    Same as left

 

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(Notes) 1. 1,000 shares will be issued per one stock acquisition right.

 

  2. In the event that the shares are split or consolidated, the Exercise Price shall be adjusted in accordance with the following formula, and any fractions less than one (1) yen shall be rounded up to the nearest yen.

 

Adjusted Exercise Price = Exercise Price before Adjustment ×   

                        1


    

Ratio of Split or Consolidation

 

In the event that the Company issues new shares or sells its treasury shares at a price less than market price (excluding for the exercise of the stock acquisition rights, conversion of outstanding convertible bonds and the exercise of the stock subscription rights), the Exercise Price shall be adjusted in accordance with the following formula, and any fractions less than one (1) yen shall be rounded up to the nearest yen.

 

   

        Adjusted

        Exercise Price   =

   Exercise Price
before Adjustment ×
  

Number of

Outstanding Shares +

  

        Number of Newly Issued Shares and/or Treasury

 

          
          
          

        Shares Sold × Paid-in Amount Per Share


       

            Market Price per Share


             

Number of (Outstanding + Newly Issued Shares and/or Treasury Shares Sold)

 

  3. Senior managing director is treated in accordance with the director.

 

—19—


Table of Contents
Resolved by the 99th General Shareholders’ Meeting on June 26, 2003
   

End of Interim Accounting Period

(September 30, 2004)


 

End of Preceding Month to Filing of

this Report

(November 30, 2004)


Number of Stock Acquisition Rights

  2,212(*1)   2,194(*1)

Type of Share under the Stock

Acquisition Right

  Common stock   Common stock

Number of Shares under the Stock

Acquisition Rights

  2,212,000   2,194,000

The Amount to be Paid upon Exercising

the Stock Acquisition Right

  ¥1,630 per share   Same as left

Exercise Period of the Stock

Acquisition Right

  From July 1, 2005 to June 30, 2010   Same as left
Issue Price of Shares and Capital Inclusion Price if Shares Are Issued upon Exercise of the Stock Acquisition Rights  

Issue Price of Shares ¥1,630

Capital Inclusion Price ¥815

  Same as left

Conditions to Exercise of Stock

Acquisition Right

 

1.      Not to be partial exercise of one stock acquisition right.

   
   

2.      For a person given Stock Acquisition Right (the “Optionee”), to satisfy all of the following conditions:

(1)    The Optionee maintains position as a director, senior managing director or employee of the Company or a company, a majority of whose outstanding shares or interests (only limited to those with voting rights) are held directly or indirectly by the Company (hereinafter collectively referred to as the “Company’s Subsidiary”), during the time between the grant of the stock acquisition rights and the exercise. The Optionee is deemed to maintain such a position as a director, senior managing director or employee of the Company or the Company’s Subsidiary in case the Optionee loses such a position by either of the following situations:

a)      Regarding the Optionee as a director or senior managing director of the Company or the Company’s Subsidiary: retirement from office on account of the expiration of the Optionee’s term of office or other similar reasons; or

 

b)      Regarding the Optionee as an employee of the Company or the Company’s Subsidiary: retirement due to the attainment of the retirement age, transfer by order of the Company or the Company’s Subsidiary, retirement mainly due to sickness or injuries arising out of duty, discharge for a compelling business reason, or other similar reasons.

(2)    The Optionee, at the time of exercising the stock acquisition rights, does not fall within either of the following cases:

a)      The Company or the Company’s Subsidiary determines in accordance with their Employment Regulations to dismiss the Optionee by suggestion or disciplinary procedures; or

b)      There is any other reason similar to a).

3.      Regarding the successors of the Optionee, the Optionee must have satisfied both conditions of 2.(1) and (2) above, immediately prior to the occurrence of succession.

  Same as left

Restriction of Transfer of Stock

Acquisition Rights

  Approval of the board of directors shall be required for transfer of the stock acquisition rights.   Same as left

 

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Table of Contents
(Notes) 1. 1,000 shares will be issued per one stock acquisition right.

 

  2. In the event that the shares are split or consolidated, the Exercise Price shall be adjusted in accordance with the following formula, and any fractions less than one (1) yen shall be rounded up to the nearest yen.

 

Adjusted Exercise Price = Exercise Price before Adjustment ×   

                        1


    

Ratio of Split or Consolidation

 

In the event that the Company issues new shares or sells its treasury shares at a price less than market price (excluding for the exercise of the stock acquisition rights, conversion of outstanding convertible bonds and the exercise of the stock subscription rights), the Exercise Price shall be adjusted in accordance with the following formula, and any fractions less than one (1) yen shall be rounded up to the nearest yen.

 

   

        Adjusted

        Exercise Price   =

   Exercise Price
before Adjustment ×
  

Number of

Outstanding Shares +

  

        Number of Newly Issued Shares and/or Treasury

 

          
          
          

        Shares Sold × Paid-in Amount Per Share


       

            Market Price per Share


             

Number of (Outstanding + Newly Issued Shares and/or Treasury Shares Sold)

 

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Resolved by the 99th General Shareholders’ Meeting on June 26, 2003

 

   

End of Interim Accounting Period

(September 30, 2004)


 

End of Preceding Month to Filing of this Report

(November 30, 2004)


Number of Stock Acquisition Rights

  1,354(*1)   1,354 (*1)

Type of Share under the Stock

Acquisition Right

  Common stock   Common stock

Number of Shares under the Stock

Acquisition Rights

  1,354,000   1,354,000

The Amount to be Paid upon Exercising

the Stock Acquisition Right

  ¥1 per share   Same as left

Exercise Period of the Stock

Acquisition Right

  From June 5, 2006 to June 4, 2011   Same as left
Issue Price of Shares and Capital Inclusion Price if Shares Are Issued upon Exercise of the Stock Acquisition Rights  

Issue Price of Shares ¥1

Capital Inclusion Price ¥1

  Same as left

Conditions to Exercise of Stock

Acquisition Right

 

1.      Not to be partial exercise of one stock acquisition right.

   
   

2.      For a person given Stock Acquisition Right (the “Optionee”), to satisfy all of the following conditions:

(1)    The Optionee maintains position as a director, senior managing director or employee of the Company or a company, a majority of whose outstanding shares or interests (only limited to those with voting rights) are held directly or indirectly by the Company (hereinafter collectively referred to as the “Company’s Subsidiary”), during the time between the grant of the stock acquisition rights and the exercise. The Optionee is deemed to maintain such a position as a director, senior managing director or employee of the Company or the Company’s Subsidiary in case the Optionee loses such a position by either of the following situations:

a)      Regarding the Optionee as a director or senior managing director of the Company or the Company’s Subsidiary: retirement from office on account of the expiration of the Optionee’s term of office or other similar reasons; or

 

 

 

b)      Regarding the Optionee as an employee of the Company or the Company’s Subsidiary: retirement due to the attainment of the retirement age, transfer by order of the Company or the Company’s Subsidiary, retirement mainly due to sickness or injuries arising out of duty, discharge for a compelling business reason, or other similar reasons.

(2)    The Optionee, at the time of exercising the stock acquisition rights, does not fall within either of the following cases:

a)      The Company or the Company’s Subsidiary determines in accordance with their Employment Regulations to dismiss the Optionee by suggestion or disciplinary procedures; or

b)      There is any other reason similar to a).

3.      Regarding the successors of the Optionee, the Optionee must have satisfied both conditions of 2.(1) and (2) above, immediately prior to the occurrence of succession.

  Same as left
Restriction of Transfer of Stock Acquisition Rights   Approval of the board of directors shall be required for transfer of the stock acquisition rights.   Same as left

 

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Table of Contents
(Notes) 1. 1,000 shares will be issued per one stock acquisition right.

 

  2. In the event that the shares are split or consolidated, the Exercise Price shall be adjusted in accordance with the following formula, and any fractions less than one (1) yen shall be rounded up to the nearest yen.

 

Adjusted Exercise Price = Exercise Price before Adjustment ×   

                        1


    

Ratio of Split or Consolidation

 

In the event that the Company issues new shares or sells its treasury shares at a price less than market price (excluding for the exercise of the stock acquisition rights, conversion of outstanding convertible bonds and the exercise of the stock subscription rights), the Exercise Price shall be adjusted in accordance with the following formula, and any fractions less than one (1) yen shall be rounded up to the nearest yen.

 

       

         Adjusted

         Exercise Price   =

   Exercise Price
before Adjustment ×
  

Number of

Outstanding Shares +

  

        Number of Newly Issued Shares and/or Treasury

 

            
            
            

        Shares Sold × Paid-in Amount Per Share


         

            Market Price per Share


                 

Number of (Outstanding + Newly Issued Shares and/or Treasury Shares Sold)

 

—23—


Table of Contents

Resolved by the 99th General Shareholders’ Meeting on June 25, 2004

 

   

End of Interim Accounting Period

(September 30, 2004)


 

End of Preceding Month to Filing of

this Report

(November 30, 2004)


Number of Stock Acquisition Rights   1,631(*1)   1,621 (*1)
Type of Share under the Stock Acquisition Right   Common stock   Common stock
Number of Shares under the Stock Acquisition Rights   1,631,000   1,621,000
The Amount to be Paid upon Exercising the Stock Acquisition Right   ¥1,616 per share   Same as left
Exercise Period of the Stock Acquisition Right   From July 1, 2006 to June 30, 2011   Same as left
Issue Price of Shares and Capital Inclusion Price if Shares Are Issued upon Exercise of the Stock Acquisition Rights  

Issue Price of Shares ¥1,616

Capital Inclusion Price ¥808

  Same as left

Conditions to Exercise of Stock

 

1.      Not to be partial exercise of one stock acquisition right.

   
Acquisition Right  

2.      For a person given Stock Acquisition Right (the “Optionee”), to satisfy all of the following conditions:

 

(1)    The Optionee maintains position as a director, senior managing director or employee of the Company or a company, a majority of whose outstanding shares or interests (only limited to those with voting rights) are held directly or indirectly by the Company (hereinafter collectively referred to as the “Company’s Subsidiary”), during the time between the grant of the stock acquisition rights and the exercise. The Optionee is deemed to maintain such a position as a director, senior managing director or employee of the Company or the Company’s Subsidiary in case the Optionee loses such a position by either of the following situations:

 

a)      Regarding the Optionee as a director or senior managing director of the Company or the Company’s Subsidiary: retirement from office on account of the expiration of the Optionee’s term of office or other similar reasons; or

 

b)      Regarding the Optionee as an employee of the Company or the Company’s Subsidiary: retirement due to the attainment of the retirement age, transfer by order of the Company or the Company’s Subsidiary, retirement mainly due to sickness or injuries arising out of duty, discharge for a compelling business reason, or other similar reasons.

 

(2)    The Optionee, at the time of exercising the stock acquisition rights, does not fall within either of the following cases:

 

a)      The Company or the Company’s Subsidiary determines in accordance with their Employment Regulations to dismiss the Optionee by suggestion or disciplinary procedures; or

 

b)      There is any other reason similar to a).

 

3.      Regarding the successors of the Optionee, the Optionee must have satisfied both conditions of 2.(1) and (2) above, immediately prior to the occurrence of succession.

 

  Same as left
Restriction of Transfer of Stock Acquisition Rights   Approval of the board of directors shall be required for transfer of the stock acquisition rights.   Same as left

 

—24—


Table of Contents
(Notes) 1. 1,000 shares will be issued per one stock acquisition right.

 

  2. In the event that the shares are split or consolidated, the Exercise Price shall be adjusted in accordance with the following formula, and any fractions less than one (1) yen shall be rounded up to the nearest yen.

 

Adjusted Exercise Price = Exercise Price before Adjustment ×   

                        1


    

Ratio of Split or Consolidation

 

In the event that the Company issues new shares or sells its treasury shares at a price less than market price (excluding for the exercise of the stock acquisition rights, conversion of outstanding convertible bonds and the exercise of the stock subscription rights), the Exercise Price shall be adjusted in accordance with the following formula, and any fractions less than one (1) yen shall be rounded up to the nearest yen.

 

   

      Adjusted

      Exercise Price   =

  

Exercise Price

before Adjustment ×

  

Number of

Outstanding Shares +

  

    Number of Newly Issued Shares and/or Treasury

 

          
          
          

    Shares Sold × Paid-in Amount Per Share


       

            Market Price per Share


             

Number of (Outstanding + Newly Issued Shares and/or Treasury Shares Sold)

 

 

  b. Convertible Bonds and Warrants which are deemed as Bonds with stock reservation rights according to Article 19, paragraph 2 of Law Amending and Furnishing Commercial Code, etc.

 

None.

 

  (3) Changes in Issued Shares, Shareholders’ Equity, etc.

 

Date


   Increase/Decrease
of Issued Shares


   Total Issued
Shares


  

Increase/Decrease
of Shareholders’
Equity

(thousand Yen)


  

Shareholders’
Equity

(thousand
Yen)


  

Increase/Decrease
of Additional

paid-in capital

(thousand Yen)


  

Additional paid -
in capital

(thousand Yen)


April 1, 2004 – September 30, 2004

      1,965,919,860       182,799,789       112,504,265

 

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Table of Contents

(4) Major Shareholders

 

As of September 30, 2004

Name


  

Address


  

Shares Held

(thousand shares)


   Percentage of Issued
Shares (%)


The Master Trust Bank of Japan, Ltd. (Trust Account)

   2-11-3 Hamamatsu-cho, Minato-Ku, Tokyo, Japan    116,360    5.92

Japan Trustee Services Bank, Ltd. (Trust Account)

   1-8-11, Harumi, Chuo-Ku, Tokyo, Japan    115,727    5.89

The Chase Manhattan Bank, N.A. London

   Woolgate House, EC Callman St., London, United Kingdom    58,768    2.99

Depositary Nominees Inc.

  

c/o Bank of New York

101 Barclays Street

New York, New York, U.S.A.

   51,537    2.62

State Street Bank and Trust Company 505103

   225 Frank Street, Boston, Massachusetts, U.S.A.    44,875    2.28

State Street Bank and Trust Company

   225 Frank Street, Boston, Massachusetts, U.S.A.    35,151    1.79

Nippon Life Insurance Company

   1-6-6 Marunouchi, Chiyoda-Ku, Tokyo, Japan    26,241    1.33

The Chase Manhattan Bank, N.A. 385036

   360 North Creacent Drive, Beverly Hills, California, U.S.A    19,822    1.01

The Chase Manhattan Bank, N.A. London

SL Omnibus Account

   Woolgate House, EC Callman St., London, United Kingdom    17,937    0.91

Toyota Motor Corporation

   1 Toyota-cho, Toyota City, Aichi Prefecture, Japan    16,380    0.83

Total

        502,797    25.58

* The Company holds 23,572 thousand shares as of September 30, 2004, which is not included in the list above.

 

 

(5) Voting Rights

a. Outstanding Shares

 

As of September 30, 2004

     Number of Shares

  Number of Votes

   Description

Stock without voting right

       

Stock with limited voting right

(treasury stocks, etc.)

       

Stock with limited voting right

(others)

       

Stock with full voting right

(treasury stocks, etc.)

   (Treasury stocks)
Common stock 23,571,000

 

(Crossholding stocks)
Common stock 3,000,000

 

 

 

   Our standard stock with no limitation
to its rights

 

Same as above

       

Stock with full voting right (Others)

   Common stock
1,929,481,000
  1,929,328    Same as above

Shares less than 1 unit

   Common stock 9,867,860      Shares less than 1 unit (1,000 shares)

Total Shares Issued

   1,965,919,860     

Voting Rights of Total Shareholders

     1,929,328   

(Notes) 1.    153,000 shares held by Japan Securities Depository Center, Inc. are included in Stock with full voting right (Others). 660 treasury stocks are included in Shares less than 1 unit.
2.    The Board of Directors of the Company has resoluted on October 28, 2004 to change the number of shares of 1 unit to 100 shares from 1,000 shares

 

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Table of Contents

b. Treasury Stocks

 

As of September 30, 2003

Name


   Address

   Directly held
shares


   Indirectly held
shares


   Total

  

Percentage of Issued
Shares

(%)


(Treasury Stocks)

                        

Nomura Holdings, Inc.

   1-9-1 Nihonbashi, Chuo-Ku,
Tokyo, Japan
   23,571,000       23,571,000    1.20

(Crossholding Stocks)

                        

JAFCO Co., Ltd.

   1-8-2 Marunouchi, Chiyoda-
Ku, Tokyo, Japan
   2,000,000       2,000,000    0.10

Nomura Research Institute Ltd.

   2-2-1 Otemachi, Chiyoda-Ku,
Tokyo, Japan
   1,000,000       1,000,000    0.05
    
  
  
  
  

Total

      26,571,000       26,571,000    1.35
    
  
  
  
  

(Note) In addition to the treasury stocks shown here, there are 3,000 shares which are recorded on register of shareholders as treasury stocks but not owned by us. These shares are included in Stock with full voting right (Others) in “a. Outstanding Shares above”.

 

 

 

2. Share Price History

 

Monthly Highs and Lows

Month


   April, 2004

   May, 2004

   June, 2004

   July, 2004

   August, 2004

   September, 2004

High (Yen)

   1,966    1,818    1,690    1,632    1,560    1,546

Low (Yen)

   1,790    1,570    1,585    1,480    1,431    1,400

(Note) Prices are based on the First Section of Tokyo Stock Exchange.

 

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Table of Contents

Item 5. Financial Information

 

 

 

  1 Preparation Method of Consolidated Financial Statements and Non-consolidated Financial Statements

 

  (1) Pursuant to Section 81 of “Regulations Concerning the Terminology, Forms and Preparation Methods of Semi-annual Consolidated Financial Statements” (Ministry of Finance Ordinance No. 24, 1999), the consolidated financial statements have been prepared in accordance with accounting principles which are required in order to issue American Depositary Shares (“ADS”), i.e., the accounting principles generally accepted in the United States of America (“U.S. GAAP”).

 

 

  (2) The consolidated financial statements have been prepared by making necessary adjustments to the financial statements of each consolidated company which were prepared in accordance with the accounting principles generally accepted in each country. Such adjustments have been made to comply with the principles in (1).

 

 

  (3) The non-consolidated financial statements were prepared under the accounting principles generally accepted in Japan in accordance with “Regulations Concerning the Terminology, Forms and Preparation Methods of Semi-annual Financial Statements” (Ministry of Finance Ordinance No. 38, 1977) (the “Regulations”).

 

The non-consolidated financial statements for the previous period (from April 1, 2003 to September 30, 2003) were prepared based on the Regulations before amendment and the non-consolidated financial statements for the current period (from April 1, 2004 to September 30, 2004) were prepared based on the Regulations after amendment.

 

However the Regulations before amendment are applied to the non-consolidated financial statements for the current period according to the provision of the 3rd clause of supplementary provision of “Amendment of Regulations Concerning the Terminology, Forms and Preparation Methods of Financial Statements” (Cabinet Office Regulation No. 5, January 30, 2004).

 

The Company has changed its presentation of amounts to round the numbers from the current period. Therefore the amounts of items presented for the current period are rounded whereas the amounts for the previous period and previous year (from April 1, 2003 to March 31, 2004) are truncated.

 

 

  2 Semi-annual Audit Certificate

 

Under articles No.193-2 of the Securities and Exchange Law, Ernst & Young ShinNihon (formerly, Shin Nihon & Co.) performed semi-annual audits of the consolidated and non-consolidated financial statements for the previous period (from April 1, 2003 to September 30, 2003) and for the current period (from April 1, 2004 to September 30, 2004).

 

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Table of Contents

1    Consolidated Financial Statements and Other

 

  (1) Consolidated Financial Statements

 

    1) Consolidated Balance Sheets

 

          September 30, 2003

   September 30, 2004

   March 31, 2004

     Notes

   Millions of
yen


    (%)

   Millions of
yen


    (%)

   Millions of
yen


    (%)

ASSETS

                                     

Cash and cash deposits:

                                     

Cash and cash equivalents

        654,158          449,598          637,372      

Time deposits

        313,608          276,262          248,737      

Deposits with stock exchanges and other segregated cash

        63,605          38,421          44,528      
         

      

      

   
          1,031,371     3.8    764,281     2.3    930,637     3.1
         

      

      

   

Loans and receivables:

                                     

Loans receivable

        423,216          552,186          543,894      

Receivables from customers

        42,192          19,262          10,744      

Receivables from other than customers

        915,154          473,050          464,776      

Allowance for doubtful accounts

        (6,789 )        (3,831 )        (5,778 )    
         

      

      

   
          1,373,773     5.0    1,040,667     3.2    1,013,636     3.4
         

      

      

   

Collateralized agreements:

                                     

Securities purchased under agreements to resell

        4,221,030          7,411,732          5,701,646      

Securities borrowed

        7,778,130          6,678,398          7,180,106      
         

      

      

   
          11,999,160     44.1    14,090,130     43.3    12,881,752     43.3
         

      

      

   

Trading assets and private equity investments

(including securities pledged as collateral of ¥5,020,151 million at September 30, 2003, ¥6,876,678 million at September 30, 2004 and ¥5,229,300 million at March 31, 2004, respectively):

                                     

Securities inventory

   *4    10,987,122          14,690,911          13,066,963      

Derivative contracts

   *5    526,306          463,301          479,659      

Private equity investments

        277,294          301,381          291,774      
         

      

      

   
          11,790,722     43.3    15,455,593     47.5    13,838,396     46.5
         

      

      

   

Other assets:

                                     

Office buildings, land, equipment and facilities

(net of accumulated depreciation and amortization of ¥173,713 million at September 30, 2003, ¥187,506 million at September 30, 2004 and ¥182,449 million at March 31, 2004, respectively)

        180,891          278,809          200,700      

Lease deposits

        71,964          42,801          64,764      

Non-trading debt securities

(including securities pledged as collateral of ¥nil at September 30, 2003, ¥2,217 million at September 30, 2004 and ¥3,340 million at March 31, 2004)

        201,716          218,895          206,236      

Investments in equity securities

        150,465          161,077          169,459      

Investments in and advances to affiliated companies

        203,507          249,752          207,668      

Deferred tax assets

        99,283          109,786          105,901      

Other

        136,035          155,079          133,817      
         

      

      

   
          1,043,861     3.8    1,216,199     3.7    1,088,545     3.7
         

      

      

   

Total assets

        27,238,887     100.0    32,566,870     100.0    29,752,966     100.0
         

      

      

   

 

The accompanying notes are an integral part of these consolidated financial statements.

 

—29—


Table of Contents
          September 30, 2003

    September 30, 2004

    March 31, 2004

 
     Notes

   Millions of
yen


    (%)

    Millions of
yen


    (%)

    Millions of
yen


    (%)

 

LIABILITIES AND

SHAREHOLDERS’ EQUITY

                                         

Short-term borrowings

   *7    355,857     1.3     430,024     1.3     437,124     1.5  

Payables and deposits:

                                         

Payables to customers

        207,540           214,206           266,646        

Payables to other than customers

        415,765           755,383           861,747        

Time and other deposits received

        301,516           261,731           255,703        
         

       

       

     
          924,821     3.4     1,231,320     3.8     1,384,096     4.6  
         

       

       

     

Collateralized financing:

                                         

Securities sold under agreements to repurchase

        8,161,227           11,553,427           9,622,727        

Securities loaned

        5,534,591           5,234,081           5,157,814        

Other secured borrowings

        977,418           2,567,341           2,587,217        
         

       

       

     
          14,673,236     53.9     19,354,849     59.4     17,367,758     58.4  
         

       

       

     

Trading liabilities:

                                         

Securities sold but not yet purchased

   *4    6,427,291           6,201,379           5,559,598        

Derivative contracts

   *5    530,011           440,120           417,368        
         

       

       

     
          6,957,302     25.5     6,641,499     20.4     5,976,966     20.1  
         

       

       

     

Other liabilities:

                                         

Accrued income taxes

        58,269           23,679           93,538        

Accrued pension and severance costs

        87,157           86,845           86,439        

Other

        239,811           252,632           235,888        
         

       

       

     
          385,237     1.4     363,156     1.1     415,865     1.4  
         

       

       

     

Long-term borrowings

   *7    2,236,886     8.2     2,716,234     8.4     2,385,469     8.0  
         

       

       

     

Total liabilities

        25,533,339     93.7     30,737,082     94.4     27,967,278     94.0  
         

       

       

     

Commitments and contingencies

   *11                                     

Shareholders’ equity:

                                         

Common stock

                                         

Par value no per share

Authorized - 6,000,000,000 shares at September 30, 2003, September 30, 2004 and March 31, 2004

                                         

Issued - 1,965,919,860 shares at September 30, 2003, September 30, 2004 and March 31, 2004

        182,800     0.7     182,800     0.6     182,800     0.6  
         

       

       

     

Additional paid-in capital

        153,491     0.6     154,938     0.5     154,063     0.5  
         

       

       

     

Retained earnings

        1,479,150     5.4     1,574,865     4.8     1,550,231     5.2  
         

       

       

     

Accumulated other comprehensive (loss) income

                                         

Minimum pension liability adjustment

        (39,735 )         (32,869 )         (34,221 )      

Cumulative translation adjustments

        (37,588 )         (16,451 )         (34,380 )      
         

       

       

     
          (77,323 )   (0.3 )   (49,320 )   (0.2 )   (68,601 )   (0.2 )
         

       

       

     
          1,738,118     6.4     1,863,283     5.7     1,818,493     6.1  

Less-Common stock held in treasury, at cost - 24,137,689 shares at September 30, 2003, 24,498,637 shares at September 30, 2004 and 24,263,831 shares at March 31, 2004

        (32,570 )   (0.1 )   (33,495 )   (0.1 )   (32,805 )   (0.1 )
         

       

       

     

Total shareholders’ equity

        1,705,548     6.3     1,829,788     5.6     1,785,688     6.0  
         

       

       

     

Total liabilities and shareholders’ equity

        27,238,887     100.0     32,566,870     100.0     29,752,966     100.0  
         

       

       

     

 

The accompanying notes are an integral part of these consolidated financial statements.

 

—30—


Table of Contents

2) Consolidated Income Statements

 

          Six months ended
September 30, 2003


   Six months ended
September 30, 2004


  

Year ended

March 31, 2004


     Notes

   Millions of
Yen


   (%)

   Millions of
Yen


    (%)

   Millions of
Yen


   (%)

Revenue:

                                   

Commissions

        89,719         115,118          210,216     

Fees from investment banking

        34,358         47,773          86,994     

Asset management and portfolio service fees

        30,757         38,030          66,193     

Net gain on trading

        147,529         76,640          229,042     

Gain (loss) on private equity investments

        6,598         (1,599 )        13,138     

Interest and dividends

        217,880         219,040          396,870     

Gain (loss) on investments in equity securities

        31,769         (1,353 )        55,888     

Other

   *12    14,768         46,521          41,205     
         
       

      
    

Total revenue

        573,378    100.0    540,170     100.0    1,099,546    100.0

Interest expense

        158,604    27.7    169,401     31.4    296,443    27.0
         
       

      
    

Net revenue

        414,774    72.3    370,769     68.6    803,103    73.0
         
       

      
    

Non-interest expenses:

                                   

Compensation and benefits

        133,589         130,149          259,336     

Commissions and floor brokerage

        9,529         12,911          19,169     

Information processing and communications

        38,410         39,417          80,031     

Occupancy and related depreciation

        26,825         26,260          54,221     

Business development expenses

        10,411         13,196          23,100     

Other

   *12    36,759         60,163          84,570     
         
       

      
    
          255,523    44.5    282,096     52.2    520,427    47.3
         
       

      
    

Income before income taxes

        159,251    27.8    88,673     16.4    282,676    25.7
         
       

      
    

Income tax expense(benefit):

                                   

Current

        65,511         48,292          108,434     

Deferred

        7,054         (3,667 )        1,913     
         
       

      
    
          72,565    12.7    44,625     8.3    110,347    10.0
         
       

      
    

Net income

        86,686    15.1    44,048     8.1    172,329    15.7
                                     
          Six months ended
September 30, 2003


   Six months ended
September 30, 2004


   Year ended
March 31, 2004

     Notes

   Yen

   Yen

   Yen

                     

Per share of common stock:

   *9               

Basic-

                   

Net income

        44.71    22.69    88.82

Diluted-

                   

Net income

        44.71    22.68    88.82

 

The accompanying notes are an integral part of these consolidated financial statements.

 

—31—


Table of Contents

3) Consolidated Statements of Shareholders’ Equity

 

    

Six months ended

September 30, 2003


   

Six months ended

September 30, 2004


   

Year ended

March 31, 2004


 
     Millions of Yen

    Millions of Yen

    Millions of Yen

 

Common Stock

                  

Balance at beginning of year

   182,800     182,800     182,800  
    

 

 

Balance at end of the period

   182,800     182,800     182,800  
    

 

 

Additional paid-in capital

                  

Balance at beginning of year

   151,328     154,063     151,328  

Gain on sales of treasury stock

   1,800     10     1,807  

Issuance of common stock options

   363     865     928  
    

 

 

Balance at end of the period

   153,491     154,938     154,063  
    

 

 

Retained earnings

                  

Balance at beginning of year

   1,407,028     1,550,231     1,407,028  

Net income

   86,686     44,048     172,329  

Cash dividends

   (14,564 )   (19,414 )   (29,126 )
    

 

 

Balance at end of the period

   1,479,150     1,574,865     1,550,231  
    

 

 

Accumulated comprehensive income:

                  

Minimum pension liability adjustment

                  

Balance at beginning of year

   (41,558 )   (34,221 )   (41,558 )

Net change during the period

   1,823     1,352     7,337  
    

 

 

Balance at end of the period

   (39,735 )   (32,869 )   (34,221 )
    

 

 

Cumulative translation adjustments

                  

Balance at beginning of year

   (22,329 )   (34,380 )   (22,329 )

Net change during the period

   (15,259 )   17,929     (12,051 )
    

 

 

Balance at end of the period

   (37,588 )   (16,451 )   (34,380 )
    

 

 

Common stock held in treasury

                  

Balance at beginning of year

   (34,941 )   (32,805 )   (34,941 )

Repurchase of common stock

   (3,824 )   (170 )   (4,084 )

Sale of common stock

   6,195     55     6,220  

Other net change in treasury stock

       (575 )    
    

 

 

Balance at end of the period

   (32,570 )   (33,495 )   (32,805 )
    

 

 

Number of shares issued

                  

Balance at beginning of year

   1,965,919,860     1,965,919,860     1,965,919,860  
    

 

 

Balance at end of the period

   1,965,919,860     1,965,919,860     1,965,919,860  
    

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

—32—


Table of Contents

4) Consolidated Statements of Comprehensive Income

 

    

Six months ended

September 30, 2003


   

Six months ended

September 30, 2004


   

Year ended

March 31, 2004


 
     Millions of Yen

    Millions of Yen

    Millions of Yen

 

Net income

   86,686     44,048     172,329  

Other comprehensive (loss) income:

                  

Change in cumulative translation adjustments, net of tax:

   (15,259 )   17,929     (12,051 )

Minimum pension liability adjustment:

                  

Changes in minimum pension liability during the period

   3,017     2,337     12,445  

Deferred income taxes

   (1,194 )   (985 )   (5,108 )
    

 

 

Total

   1,823     1,352     7,337  
    

 

 

Total other comprehensive (loss) income

   (13,436 )   19,281     (4,714 )
    

 

 

Comprehensive income

   73,250     63,329     167,615  
    

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

—33—


Table of Contents

5) Consolidated Statements of Cash Flows

 

          Six months ended
September 30, 2003


    Six months ended
September 30, 2004


   

Year ended

March 31, 2004


 
     Notes

   Millions of yen

    Millions of yen

    Millions of yen

 

Cash flows from operating activities:

                       

Net income

        86,686     44,048     172,329  

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

                       

Depreciation and amortization

        16,752     18,273     33,706  

(Gain) loss on investments in equity securities

        (31,769 )   1,353     (55,888 )

Deferred income tax expense (benefit)

        7,054     (3,667 )   1,913  

Changes in operating assets and liabilities:

                       

Time deposits

        102,670     (16,613 )   174,331  

Deposits with stock exchanges and other segregated cash

        (25,858 )   8,250     (7,485 )

Trading assets and private equity investments

        (2,774,195 )   (1,349,960 )   (4,808,112 )

Trading liabilities

        3,200,188     552,076     2,152,243  

Securities purchased under agreements to resell, net of securities sold under agreements to repurchase

        1,286,407     102,164     1,297,514  

Securities borrowed, net of securities loaned

        (1,827,488 )   585,938     (1,576,454 )

Other secured borrowings

        137,720     (19,876 )   1,747,519  

Loans and receivables, net of allowance

        (281,936 )   22,994     135,821  

Payables and deposit received

        127,899     (213,293 )   592,779  

Accrued income taxes, net

        53,650     (74,732 )   80,273  

Other, net

        29,243     (24,264 )   (18,864 )
         

 

 

Net cash provided by (used in) operating activities

        107,023     (367,309 )   (78,375 )
         

 

 

Cash flows from investing activities:

                       

Payments for purchases of office buildings, land, equipment and facilities

        (15,610 )   (17,546 )   (39,303 )

Proceeds from sales of office buildings, land, equipment and facilities

        921     616     1,341  

Payments for purchases of investments in equity securities

        (19 )   (78 )   (61 )

Proceeds from sales of investments in equity securities

        19,407     6,992     24,309  

Decrease (increase) in non-trading debt securities, net

        68,633     (12,029 )   61,705  

Decrease (increase) in other investments and other assets, net

   *3,11    21,944     (36,324 )   (2,520 )
         

 

 

Net cash provided by (used in) investing activities

        95,276     (58,369 )   45,471  
         

 

 

Cash flows from financing activities:

                       

Increase in long-term borrowings

        354,375     379,876     712,675  

Decrease in long-term borrowings

        (350,624 )   (124,435 )   (551,897 )

(Decrease) increase in short-term borrowings, net

        (3,700 )   (16,798 )   76,982  

Proceeds from sales of common stock

        7,995     65     8,027  

Payments for repurchases of common stock

        (3,824 )   (170 )   (4,084 )

Payments for cash dividends

        (29,117 )   (14,568 )   (43,686 )
         

 

 

Net cash (used in) provided by financing activities

        (24,895 )   223,970     198,017  
         

 

 

Effect of exchange rate changes on cash and cash equivalents

        (14,483 )   13,934     (18,978 )
         

 

 

Net increase (decrease) in cash and cash equivalents

        162,921     (187,774 )   146,135  

Cash and cash equivalents at beginning of year

        491,237     637,372     491,237  
         

 

 

Cash and cash equivalents at end of the period

        654,158     449,598     637,372  
         

 

 

Supplemental information:

   *3                   

Cash paid during the period for-

                       

Interest

        101,585     160,407     281,756  

Income tax payments, net

        11,861     123,024     28,160  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

—34—


Table of Contents

[Notes to the Consolidated Financial Statements]

 

 

1. Basis of accounting:

 

In December 2001, Nomura Holdings, Inc. (the “Company”) filed a registration statement, in accordance with the Securities Exchange Act of 1934, with the United States Securities and Exchange Commission (“SEC”) in order to list its American Depositary Shares (“ADS”) on the New York Stock Exchange. Since then, the Company has an obligation to file an annual report, Form 20-F, with the SEC in accordance with the Securities Exchange Act of 1934.

 

Pursuant to Section 81 of “Regulations Concerning the Terminology, Forms and Preparation Methods of Semi-annual Consolidated Financial Statements” (Ministry of Finance Ordinance No. 24, 1999), the consolidated financial statements for the six months ended September 30, 2004 have been prepared in accordance with the accounting principles which are required in order to issue ADS, i.e., the accounting principles generally accepted in the United States of America (“U.S. GAAP”). The following paragraphs describe the major differences between U.S. GAAP which Nomura (the Company and other entities in which it has a controlling financial interest are collectively referred to as “Nomura”) adopts and accounting principles generally accepted in Japan (“Japanese GAAP”), and where significant differences exist, the amount of effect to income before income taxes pursuant to Japanese GAAP.

 

Unrealized gains and losses on investments in equity securities—

 

Under U.S. GAAP for broker-dealers, unrealized gains and losses on investments in equity securities are recognized in the income statement. Under Japanese GAAP, unrealized gains and losses on investments in equity securities, net of applicable income taxes, are reported in a separate component of shareholders’ equity. Therefore, under Japanese GAAP, the difference has a positive impact of ¥33,039 million, a negative impact of ¥5,557 million and a positive impact of ¥54,729 million on income before income taxes for the six months ended September 30, 2003 and 2004, and for the year ended March 31, 2004, respectively.

 

Unrealized gains and losses on non-trading debt securities—

 

Under U.S. GAAP for broker-dealers, unrealized gains and losses on non-trading debt securities are recognized in the income statement. Under Japanese GAAP, unrealized gains and losses on non-trading debt securities, net of applicable income taxes, are reported in a separate component of shareholders’ equity. Therefore, under Japanese GAAP, the difference has a positive impact of ¥1,774 million, ¥198 million and ¥1,856 million on income before income taxes for the six months ended September 30, 2003 and 2004, and for the year ended March 31, 2004, respectively.

 

Retirement and severance benefit—

 

Under U.S. GAAP, a gain or loss resulting from experience different from that assumed or from a change in an actuarial assumption is amortized over the remaining service period of employees when such balance at the beginning of the year exceeds the “Corridor” which is defined as 10% of the larger of projected benefit obligation or the fair value of plan assets, while such a gain or loss is amortized for a certain period regardless of the Corridor under Japanese GAAP. Under U.S. GAAP, additional minimum pension liabilities are provided when the accumulated benefit obligation exceeds the fair value of plan assets, while such treatment is not provided under Japanese GAAP.

 

Amortization of goodwill and equity method goodwill—

 

Under U.S. GAAP, goodwill and equity method goodwill shall not be amortized and shall be tested for impairment regularly. Under Japanese GAAP, goodwill and equity method goodwill shall be amortized over certain periods within 20 years. Under U.S. GAAP, negative goodwill and equity method negative goodwill shall be written off at once when negative goodwill arises. Under Japanese GAAP, negative goodwill shall be amortized over certain periods within 20 years based on the straight-line method.

 

—35—


Table of Contents

Appropriations of retained earnings—

 

Under U.S. GAAP, appropriations of retained earnings are reflected and recorded in the consolidated financial statements in the period to which they relate. Under Japanese GAAP, a company may select the accounting method for appropriations of retained earnings to reflect and record appropriations in the consolidated financial statements either in the period to which they relate or in a subsequent period when approval for the appropriations by the board of directors has been obtained.

 

Changes in the fair value of derivative contracts—

 

Under U.S. GAAP, all derivative contracts, including derivative contracts that have been designated as hedges to specific assets or specific liabilities, are valued at fair value, and changes in the fair value of derivative contracts are recognized in the income statement or other comprehensive income. Under Japanese GAAP, derivative contracts that have been entered into for hedging purposes are valued at fair value and changes in the fair value of derivative contracts are deferred on the balance sheet.

 

Leveraged leases—

 

Under U.S. GAAP, fixed income and expenses are recognized for each year over the period of the leveraged leases. Under Japanese GAAP, depreciation expenses arising from leased assets are recognized on a declining balance method and income and expenses are not averaged during the period of leveraged leases.

 

 

2. Summary of accounting policies:

 

Description of business—

 

The Company and its broker-dealer, banking and other financial services subsidiaries provide investment, financing and related services to individual, institutional and government customers on a global basis.

 

Nomura’s business segments are structured based on its management structure, the nature of products and services and its customer base. Nomura reports operating results in three business segments: Domestic Retail, Global Wholesale and Asset Management.

 

In Domestic Retail business, Nomura provides principally investment consultation services mainly to individual customers in Japan. In Global Wholesale business, Nomura provides principally fixed income and equity trading services and investment banking services mainly to institutions on a global basis. Also, Nomura conducts merchant banking business. In Asset Management business, Nomura provides principally development and management of investment trusts, and investment advisory services.

 

 

Basis of presentation—

 

 

The consolidated financial statements include the accounts of the Company and other entities in which it has a controlling financial interest. Because the usual condition for a controlling financial interest in an entity is ownership of a majority of the voting interest, the Company consolidates its wholly-owned and majority-owned subsidiaries. In accordance with Financial Accounting Standards Board (“FASB”) Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”) and the revised Interpretation, the Company also consolidates any variable interest entities for which Nomura is the primary beneficiary. Investments in entities in which Nomura has significant influence over operating and financial decisions (generally defined as 20 to 50 percent of voting interest) are accounted for using the equity method of accounting and are reported in Investments in and advances to affiliated companies. Investments in which Nomura has neither control nor significant influence are carried at fair value.

 

—36—


Table of Contents

The accounting and financial reporting policies of the Company conform to U.S. GAAP as applicable to broker-dealers.

 

The Company’s principal subsidiaries include Nomura Securities Co., Ltd., Nomura Securities International, Inc. and Nomura International plc.

 

All material inter-company transactions and balances have been eliminated on consolidation.

 

Certain reclassifications of previously reported amounts have been made to conform to the current year presentation (see also Reclassifications of previously reported amounts, described below).

 

 

Reclassifications of previously reported amounts—

 

 

Consolidated statements of cash flows: Effective with the second quarter ended September 30, 2004, changes in Other secured borrowings which were previously included in Cash flows from financing activities are included in Cash flows from operating activities. Such amounts previously reported have been reclassified to conform to the current year presentation.

 

 

Use of estimates—

 

 

In presenting the consolidated financial statements, management makes estimates regarding certain financial instrument and investment valuations, the outcome of litigation, the recovery of the carrying value of goodwill, the allowance for loan losses, the realization of deferred tax assets and other matters that affect the reported amounts of assets and liabilities as well as the disclosure in the financial statements. Estimates, by their nature, are based on judgment and available information. Therefore, actual results may differ from estimates, which could have a material impact on the consolidated financial statements and, it is possible that such adjustments could occur in the near term.

 

 

Fair value of financial instruments—

 

 

Fair value of financial instruments is based on quoted market prices, broker/dealer quotations or an estimation by management of the amounts expected to be realized upon settlement under current market conditions. Fair value of exchange-traded securities and certain exchange-traded derivative contracts are generally based on quoted market prices or broker/dealer quotations. Where quoted market prices or broker/dealer quotations are not available, prices for similar instruments or valuation pricing models are considered in the determination of fair value. Valuation pricing models consider time value, volatility and other statistical measurements for the relevant instruments or for instruments with similar characteristics. These models also incorporate adjustments relating to the administrative costs of servicing future cash flow and market liquidity adjustments. These adjustments are fundamental components of the fair value calculation process.

 

Trading assets and trading liabilities, including derivative contracts, are recorded at fair value, and unrealized gains and losses are reflected in trading revenues. Fair values are based on quoted market prices or broker/dealer quotations where possible. If quoted market prices or broker/dealer quotations are not available or if the liquidation of Nomura’s positions would reasonably be expected to impact quoted market prices, fair value is determined based on valuation pricing models that take into consideration time value and volatility factors underlying the financial instrument.

 

Valuation pricing models and their underlying assumptions impact the amount and timing of unrealized gains and losses recognized, and the use of different valuation pricing models or underlying assumptions could produce different financial results. Changes in the fixed income, equity, foreign exchange and commodity markets will impact Nomura’s estimates of fair value in the future, potentially affecting trading revenues. To the extent financial contracts have extended maturity dates, Nomura’s estimates of fair value may involve greater subjectivity due to the lack of transparent market data available upon which to base underlying modeling assumptions.

 

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Private equity investments—

 

Private equity investments primarily are carried at fair value. Corresponding changes in the fair value of these investments are included in Gain (loss) on private equity investments. The determination of fair value is significant to Nomura’s financial condition and results of operations and requires management to make judgments based on complex factors. As the underlying investments generally are in non-publicly listed companies, there are no externally quoted market prices available. In estimating fair value, Nomura estimates the price that would be obtained between a willing buyer and a willing seller dealing at arm’s length. Valuations are typically based on projected future cash flows to be generated from the underlying investment, discounted at a weighted average cost of capital. The cost of capital is estimated, where possible, by reference to quoted comparables with a similar risk profile. Cash flows are derived from bottom up, detailed projections prepared by management of each respective investment.

 

Transfers of financial assets—

 

Nomura accounts for the transfer of financial assets in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” (SFAS 140). This statement requires that Nomura account for the transfer of financial assets, as a sale when Nomura relinquishes control over the asset. SFAS 140 deems control to be relinquished when the following conditions are met: (a) the assets have been isolated from the transferor (even in bankruptcy or other receivership), (b) the transferee has the right to pledge or exchange the assets received and (c) the transferor has not maintained effective control over the transferred assets.

 

In connection with its securitization activities, Nomura utilizes special purpose entities, or SPEs to securitize commercial and residential mortgage loans, government and corporate bonds and other types of financial assets. Nomura’s involvement with SPEs includes structuring SPEs and acting as an administrator of SPEs and underwriting, distributing and selling debt instruments and beneficial interests issued by SPEs to investors. Nomura derecognizes financial assets transferred in securitizations provided that Nomura has relinquished control over such assets. Nomura may obtain an interest in the financial assets, including residual interests in the SPEs subject to prevailing market conditions. Any such interests are accounted for at fair value and included in Securities inventory within Nomura’s consolidated balance sheets, with the change in fair value included in revenues.

 

Foreign currency translation—

 

The financial statements of the Company’s subsidiaries outside Japan are measured using their functional currency. All assets and liabilities of foreign subsidiaries are translated into Japanese yen at exchange rates in effect at the balance sheet date; all revenues and expenses are translated at the average exchange rates for the respective years and the resulting translation adjustments are accumulated and reported as Cumulative translation adjustments in shareholders’ equity.

 

Foreign currency assets and liabilities are translated at exchange rates in effect at the balance sheet date and the resulting translation gains or losses are currently credited or charged to income.

 

Fee revenue—

 

Commissions charged for executing brokerage transactions are accrued on a trade date basis and are included in current period earnings. Fees from investment banking include securities underwriting fees and other corporate financing services fees. Underwriting fees are recorded when services for underwriting are completed. All other fees are recognized when related services are performed. Asset management fees are accrued as earned.

 

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Trading assets and trading liabilities—

 

Trading assets and trading liabilities, including contractual commitments arising pursuant to derivative transactions, are recorded on the consolidated balance sheets on a trade date basis at fair value with the related gains and losses recorded in Net gain on trading in the consolidated income statements.

 

Collateralized agreements and collateralized financing—

 

Repurchase and reverse repurchase transactions (“Repo transactions”) principally involve the buying or selling of Government and Government agency securities under agreements with customers to resell or repurchase these securities to or from those customers. Nomura takes possession of securities purchased under agreements to resell while providing collateral to counterparties to collateralize securities sold under agreements to repurchase. Nomura monitors the value of the underlying securities on a daily basis relative to the related receivables and payables, including accrued interest, and requests or returns additional collateral when deemed appropriate. Repo transactions are accounted for as collateralized financing transactions and are recorded on the consolidated balance sheets at the amount at which the securities will be repurchased or resold, as appropriate.

 

Repo transactions are presented on the accompanying consolidated balance sheets net-by-counterparty, where net presentation is consistent with Financial Accounting Standards Board Interpretation (“FIN”) No. 41, “Offsetting of Amounts Related to Certain Repurchase and Reverse Repurchase Agreements.”

 

Securities borrowed and securities loaned are accounted for as financing transactions. Securities borrowed and securities loaned that are cash collateralized are recorded on the accompanying consolidated balance sheets at the amount of cash collateral advanced or received. Securities borrowed transactions generally require Nomura to provide the counterparty with collateral in the form of cash or other securities. For securities loaned transactions, Nomura generally receives collateral in the form of cash or other securities. Nomura monitors the market value of the securities borrowed or loaned and requires additional cash or securities, as necessary, to ensure that such transactions are adequately collateralized.

 

 

Historically, Nomura engaged in Gensaki transactions which originated in the Japanese financial markets. Gensaki transactions involved the selling of commercial paper, certificates of deposit, Japanese government bonds and various other debt securities to an institution wishing to make a short-term investment, with Nomura agreeing to reacquire them from the institution on a specified date at a specified price. The repurchase price reflects the current interest rates in the money markets and any interest derived from the securities. There are no margin requirements for Gensaki transactions nor is there any right of security substitution. As such, Gensaki transactions are recorded as sales in the consolidated financial statements and the related securities and obligations to repurchase such Gensaki securities are not reflected in the accompanying consolidated balance sheets.

 

New Gensaki transactions (“Gensaki Repo transactions”) started in the Japanese financial markets in 2001. Gensaki Repo transactions contain margin requirements, rights of security substitution, or restrictions on the customer’s right to sell or repledge the transferred securities. Accordingly, Gensaki Repo transactions are accounted for as collateralized financing transactions and are recorded on the consolidated balance sheets at the amount that the securities will be repurchased or resold, as repurchase and reverse repurchase transactions.

 

Other secured borrowings, which consist primarily of secured borrowings from financial institutions in the inter-bank money market, are recorded at contractual amounts.

 

Secured loans to financial institutions in the inter-bank money market are included in the consolidated balance sheets in Loans receivable.

 

On the consolidated balance sheet, all Nomura-owned securities pledged to counterparties where the counterparty has the right to sell or repledge the securities, including Gensaki Repo transactions, are shown as Securities pledged as collateral in accordance with SFAS 140.

 

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Derivatives—

Trading

 

Nomura uses a variety of derivative financial instruments, including futures, forwards, swaps and options, in its trading activities and in the management of its interest rate, market price and currency exposures.

 

Those derivative financial instruments used in trading activities are valued at market or estimated fair value with the related gains and losses recorded in Net gain on trading. Unrealized gains and losses arising from Nomura’s dealings in over-the-counter derivative financial instruments are presented in the accompanying consolidated balance sheets on a net-by-counterparty basis where net presentation is consistent with FIN No. 39, “Offsetting of Amounts Related to Certain Contracts.”

 

Non-trading

 

In addition to its trading activities, Nomura, as an end user, uses derivative financial instruments to manage its interest rate and currency exposures or to modify the interest rate characteristics of certain non-trading assets and liabilities.

 

These derivative financial instruments are linked to specific assets or specific liabilities and are designated as hedges as they are effective in reducing the risk associated with the exposure being hedged, and they are highly correlated with changes in the market or fair value of the underlying hedged item, both at inception and throughout the life of the hedge contract. Nomura applies fair value hedge accounting to these hedging transactions, and the relating unrealized profit and losses are recognized together with those of the hedged assets and liabilities as interest revenue or expenses.

 

Derivatives that do not meet these criteria are carried at market or fair value and with changes in value included currently in earnings.

 

Receivables and payables —

 

 

Receivables from and payables to customers/other than customers include amounts due to securities transactions. Net receivables/payables arising from unsettled trades were included in Receivables from other than customers amounting to ¥463,059 million at September 30, 2003, and Payables to other than customers in the amount of ¥506,318 million at March 31, 2004 and ¥384,187 million at September 30, 2004.

 

Allowance for loan losses—

 

 

Loans receivable consist primarily of margin transaction loans related to broker dealers (“margin transaction loans”), loans receivable in connection with banking/financing activities (“banking/financing activities loans”) and loans receivable from financial institutions in the inter-bank money market used for short-term financing (“inter-bank money market loans”).

 

Allowances for loan losses on margin transactions loans and inter-bank money market loans are provided for based primarily on historical loss experience.

 

Allowances for loan losses on banking/financing activities loans reflect management’s best estimate of probable losses. The evaluation includes an assessment of the ability of borrowers to pay by considering various factors such as changes in the nature of the loan, volume of the loan, deterioration of pledged collateral, delinquencies and the current financial situation of the borrower.

 

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Office buildings, land, equipment and facilities—

 

Office buildings, land, equipment and facilities, which consist mainly of computer installations and software, are stated at cost, net of accumulated depreciation and amortization, except for land, which is stated at cost. Significant renewals and additions are capitalized at cost. Maintenance, repairs and minor renewals are charged currently to income.

 

Depreciation is generally computed by the declining-balance method and at rates based on estimated useful lives of each asset according to general class, type of construction and use. Amortization is generally computed by the straight-line method over the estimated useful lives. The estimated useful lives are generally as follows:

 

Office buildings

   15 to 50 years

Equipment and installations

   3 to 6 years

Software

   5 years

 

Depreciation and amortization is included in Information processing and communications in the amount of ¥14,298 million, ¥15,053 million and ¥28,595 million, and is included in Occupancy and related depreciation in the amount of ¥2,454 million, ¥3,220 million and ¥5,111 million for the six months ended September 30, 2003 and 2004, and for the year ended March 31, 2004, respectively.

 

 

Long-lived assets—

 

In August 2001, the FASB released SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 provides guidance on the financial accounting and reporting for the impairment or disposal of long-lived assets.

 

As required by SFAS No. 144, long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the estimated future undiscounted cash flow is less than the carrying amount of the assets, a loss would be recognized to the extent the carrying value exceeded its fair value.

 

These charges were incurred as a result of Nomura’s analysis to determine if there was any impairment of long-lived assets and significant decreases in the market or fair value of certain assets were identified. The revised carrying values of these assets were based on the market or fair value of the assets.

 

 

Investments in equity securities and non-trading debt securities—

 

 

Nomura’s investments in equity securities consist of marketable and non-marketable equity securities that have been acquired for Nomura’s operating purposes and other than operating purposes. For Nomura’s operating purposes, Nomura holds such investments for the long-term in order to promote existing and potential business relationships. In doing so, Nomura is following customary business practices in Japan which, through cross-shareholdings, provide a way for companies to manage their shareholder relationships. Such investments consist mainly of equity securities of various financial institutions such as Japanese commercial banks, regional banks and insurance companies. Nomura also holds equity securities such as stock exchange memberships for other than operating purposes. In accordance with US GAAP for broker-dealers, investments in equity securities for Nomura’s operating purposes and other than operating purposes are recorded at fair value and unrealized gains and losses are recognized currently in income.

 

 

Investments in equity securities for Nomura’s operating purposes recorded as Investments in equity securities in the consolidated balance sheets are comprised of listed equity securities and unlisted equity securities in the amounts of ¥119,270 million and ¥31,195 million at September 30, 2003, ¥132,550 million and ¥28,527 million at September 30, 2004, and ¥139,049 million and ¥30,410 million at March 31, 2004, respectively. Investments in equity securities for other than operating purposes are included in the consolidated balance sheets in Other assets—Other.

 

Non-trading debt securities are recorded at market or fair value together with the related hedges and the related gains and losses are recorded in Revenue—Other in the consolidated income statements.

 

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Income taxes—

 

 

In accordance with SFAS No. 109, “Accounting for Income Taxes,” deferred tax assets and liabilities are recorded for the expected future tax consequences of tax loss carryforwards and temporary differences between the carrying amounts and the tax bases of the assets and liabilities based upon enacted tax laws and rates. Nomura recognizes deferred tax assets to the extent it believes that it is more likely than not that a benefit will be realized. A valuation allowance is provided for tax benefits available to Nomura that are not deemed more likely than not to be realized.

 

Stock-based compensation—

 

Effective April 1, 2002, Nomura adopted the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” and applied the modified prospective method under the provisions of SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure.” SFAS No. 123 requires that compensation cost for all stock awards be calculated and recognized over the service period, generally equal to the vesting period. The compensation cost is determined using option pricing models intended to estimate the fair value of the awards at the grant date.

 

Earnings per share—

 

In accordance with SFAS No. 128, “Earnings per Share”, the computation of basic earnings per share is based on the average number of shares outstanding during the period. Diluted earnings per share reflect the potential dilutive effect of convertible bonds, warrants and stock acquisition rights.

 

Cash and cash equivalents—

 

For purposes of reporting cash flows, cash and cash equivalents include cash on hand and demand deposits with banks.

 

Goodwill, intangible assets and negative goodwill—

 

In June 2001, the FASB issued SFAS No. 141, “Business Combinations” and SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 142 no longer permits the amortization of goodwill and intangible assets with indefinite lives. Instead these assets must be reviewed annually, or more frequently in certain circumstance, for impairment. Intangible assets that have determinable lives will continue to be amortized over their useful lives and reviewed for impairment.

 

Goodwill is recognized as the excess of acquisition cost over the fair value of net assets acquired. Goodwill, upon adoption of SFAS No. 142, is not amortized. Nomura periodically assesses the recoverability of goodwill by comparing the fair value of the businesses to which goodwill relates to the carrying amount of the businesses including goodwill. If such assessment indicates that the fair value is less than the related carrying amount, a goodwill impairment determination is made.

 

New accounting pronouncements—

 

In June 2004, the Emerging Issue Task Force (“EITF”) reached a consensus on EITF Issue 02-14 (“EITF 02-14”), “Whether the Equity Method of Accounting Applies When an Investor Does Not Have an Investment in Voting Stock of an Investee but Exercises Significant Influence through Other Means.” The consensus reached indicates that in situations where an investor has the ability to exercise significant influence over the investee, an investor should apply the equity method of accounting only when it has either common stock or “in-substance” common stock of a corporation. The consensus would be effective for reporting periods beginning after September 15, 2004. Nomura is currently assessing the potential impact of EITF 02-14 on the consolidated financial statements.

 

In July 2004, EITF reached a consensus on EITF Issue No. 04-8 (“EITF 04-8”), “The Effect of Contingently Convertible Debt on Diluted Earnings per Share.” The consensus reached indicates that contingently convertible debt instruments (“Co-Cos”) should be included in diluted earnings per share computations regardless of whether the market price trigger or other contingent features have been met. This will require restatement of prior period earnings per share amounts. Nomura currently does not have Co-Cos outstanding.

 

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3. Business combinations:

 

At May 18, 2004, Nomura Realty Capital Management Co., Ltd. (“NRCM”), a wholly-owned subsidiary of the Company, acquired 7,720,000 shares of Nomura Research Institute., Ltd’s common stock, which are affiliate company stocks of the Company from Nomura Land Building Co., Ltd (“NLB”), which is an affiliate company of the Company.

 

The purpose of the business combination is the pursuit of greater efficiency with respect to maintenance and administration of real estate properties used within the Nomura (facility management business) as well as to strengthen branch office strategy through, for instance, diversifying the form of Nomura Securities’ offices. NLB and NRCM have done that NRCM is to succeed by the way of demerger NLB’s facility management business, which includes the ownership, lease, maintenance and administration of real estate properties as places of business and offices, etc as of August 1, 2004. NRCM issued 495,000 ordinary shares upon the demerger and allocate all such shares to NLB. Although a majority of all outstanding shareholder voting rights were held by NLB due to this transaction, the Company acquired said shares immediately after the demerger and maintained its parent company status with NRCM as its wholly-owned subsidiary. In addition to the above, it was determined that NRCM will change its company name to Nomura Facilities, Inc.

 

Nomura has a growing private equity business, which it operates through a wholly owned subsidiary, Nomura Principal Finance., Ltd. (“NPF”). During the period ended September 30, 2004, NPF acquired 1 business.

 

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed from NLB and an acquired entity by NPF at the date of acquisition:

 

     Millions of yen

 

Office buildings, land, equipment and facilities

   ¥ 78,968  

Investment in and advances to affiliated company

     81,214  

Other assets

     35,273  

Short-and long-term borrowings

     (114,726 )

Other liabilities (including received deposit)

     (55,705 )
    


Cash used in acquisition, net of cash acquired

   ¥ 25,024  
    


 

4. Securities inventory and securities sold but not yet purchased:

 

Securities inventory, including securities, which are classified as pledged as collateral, and securities sold but not yet purchased consist of trading securities at fair value classified as follows:

 

     Millions of yen

     September 30

   March 31

     2003

   2004

   2004

     Securities
inventory


  

Securities
sold but

not yet
purchased


   Securities
inventory


  

Securities
sold but

not yet
purchased


   Securities
inventory


  

Securities
sold but

not yet
Purchased


Equity securities and convertible bonds

   ¥ 1,927,227    ¥ 1,947,988    ¥ 2,572,387    ¥ 685,519    ¥ 2,091,565    ¥ 1,301,983

Government and government agency bonds

     5,526,349      4,222,651      8,849,148      5,102,916      7,702,731      3,957,335

Bank and corporate debt securities

     1,384,773      218,178      1,514,583      324,147      1,153,693      223,983

Commercial paper and certificates of deposit

     27,999           70,999           24,998     

Options and warrants

     55,986      32,942      63,980      79,288      41,900      62,871

Mortgage and mortgage-backed securities

     757,388      5,532      950,151      6,026      773,083      13,414

Beneficiary certificates and other

     1,307,400           669,663      3,483      1,278,993      12
    

  

  

  

  

  

     ¥ 10,987,122    ¥ 6,427,291    ¥ 14,690,911    ¥ 6,201,379    ¥ 13,066,963    ¥ 5,559,598
    

  

  

  

  

  

 

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5. Derivatives utilized for trading purposes:

 

 

The table below discloses the fair values of derivative financial instruments for trading purposes held or issued by Nomura. These amounts are not reported net of collateral, which Nomura obtained to reduce credit risk exposure:

 

     Millions of yen

     September 30

   March 31
     2003

   2004

   2004

Trading Assets:

                    

Foreign exchange forwards

   ¥ 55,513    ¥ 32,539    ¥ 34,807

FRA(1) and other OTC(2) forwards

     573      1,692      1,073

Swap agreements

     292,900      306,923      293,883

Options other than securities options—purchased

     177,320      122,147      149,896
    

  

  

Sub-total

     526,306      463,301      479,659

Securities options—purchased(3)

     55,954      63,518      40,593
    

  

  

Total

   ¥ 582,260    ¥ 526,819    ¥ 520,252
    

  

  

 

     Millions of yen

     September 30

   March 31
     2003

   2004

   2004

Trading Liabilities:

                    

Foreign exchange forwards

   ¥ 69,426    ¥ 20,780    ¥ 29,629

FRA and other OTC forwards

     600      398      1,324

Swap agreements

     348,229      336,997      297,856

Options other than securities options—written

     111,756      81,945      88,559
    

  

  

Sub-total

     530,011      440,120      417,368

Securities options—written(3)

     30,902      73,846      61,481
    

  

  

Total

   ¥ 560,913    ¥ 513,966    ¥ 478,849
    

  

  


(1) “FRA” is Forward Rate Agreements.
(2) “OTC” is Over The Counter.
(3) Included in Securities inventory and Securities sold but not yet purchased, as appropriate

 

 

6. Variable Interest Entities(VIEs):

 

 

In January 2003, the FASB issued FIN 46. FIN 46 provides guidance on what constitutes a variable interest entity (“VIE”) and the circumstances under which it is to be consolidated. VIEs are entities which do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support or in which equity investors do not have the characteristics of a controlling financial interest. VIEs are required to be consolidated by the primary beneficiaries of a VIE, generally defined as the enterprise that will absorb a majority of the expected losses or receive a majority of the expected residual returns of the entity, or both. In accordance with the original provisions, Nomura adopted FIN 46 immediately for all VIEs created after January 31, 2003. For VIEs created before February 1, 2003, Nomura was initially required to adopt FIN 46 in the period beginning after June 15, 2003, i.e., July 1, 2003 in Nomura’s case.

 

In October 2003, the FASB deferred the effective date for applying the provisions of FIN 46 to VIEs created before February 1, 2003, until the end of the period ending after December 15, 2003, i.e., December 31, 2003 in Nomura’s case. The FASB also deferred the effective date for applying FIN 46 to “non-registered investment companies” until the AICPA finalizes its proposed Statement of Position (“SOP”) on the clarification of the scope of the AICPA Audit and Accounting Guide—Audits of Investment Companies (“Audit Guide”) and accounting by parent companies and equity method investors for investments in investment companies. In December 2003, the FASB issued a revision to FIN 46 (FIN 46-R), which incorporated the October 2003 deferral provisions and clarified and revised the accounting guidance for VIEs. Nomura applied FIN 46-R to all VIEs other than non-registered investment companies created before February 1, 2003, in which it held a variable interest as of December 31, 2003. The implementation of FIN 46-R did not have a material impact on Nomura’s consolidated financial statements for the year ended March 31, 2004.

 

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In the normal course of business, Nomura acts as a transferor of financial assets to VIEs, administrator of VIEs, and underwriter, distributor and seller of asset-repackaged financial instruments issued by VIEs in connection with its securitization activities. Nomura purchases and sells variable interests in VIEs in connection with its market-making and investing activities. At September 30, 2004, Nomura mainly consolidated VIEs of which Nomura currently is the primary beneficiary, that was created to market structured bonds to investors by repackaging corporate convertible bonds.

 

The following table shows the consolidated VIEs assets and the financing amount of which investors have no recourse to Nomura:

 

     Billions of yen

     September 30
2004


VIEs assets

   ¥ 105

Financing amounts with no recourse to Nomura

   ¥ 105

 

Assets of consolidated VIEs are included in Trading assets and private equity investments on its consolidated balance sheets.

 

Nomura also sells beneficial interests regarding leveraged or operating leases for aircraft using VIEs. In such transactions, Nomura may have significant variable interests. In addition, Nomura may have equity interest in VIEs which acquire primarily high yield leveraged loans and other debt obligations rated below investment grade, by issuing debt and equity.

 

The following table sets forth the aggregate total assets of VIEs for which Nomura holds the significant variable interests and maximum exposure to loss associated with these significant variable interests. Maximum exposure to loss does not reflect Nomura’s estimate of the actual losses that could result from adverse changes, nor does it reflect the economic hedges Nomura enters into to reduce its exposure:

 

     Billions of yen

     September 30    March 31
     2004

   2004

VIEs assets

   ¥ 136    ¥ 120

Maximum exposure to loss

     15      19

 

Nomura does not apply FIN 46-R to entities that are non-registered investment companies that account for their investments in accordance with the Audit Guide. The FASB has deferred application of FIN 46 to non-registered investment companies until the Investment Company SOP is finalized. The most significant of these entities are the Terra Firma investments. Nomura’s interest in these investments totals ¥294 billion, which is already recorded on the consolidated balance sheet at September 30, 2004. This amount represents Nomura’s maximum exposure to loss at that date. When the SOP is issued, Nomura will determine whether it remains appropriate to continue to carry the Terra Firma investments at fair value. Depending on the terms of the final SOP and the results of Nomura’s review, it is possible that either all or some of the Terra Firma investments could require re-consolidation, thus FIN 46-R could have a material impact on Nomura’s consolidated financial statements in the future. However, adopting FIN 46-R will not materially change Nomura’s economic exposure with respect to these investments.

 

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7. Borrowings:

 

Borrowings of Nomura at September 30, 2003 and 2004 and March 31, 2004 are shown below:

 

     Millions of yen

     September 30

   March 31
     2003

   2004

   2004

Short-term borrowings:                     

Commercial paper

   ¥ 252,994    ¥ 284,500    ¥ 283,000

Bank loans

     75,362      87,304      114,545

Others

     27,501      58,220      39,579
    

  

  

Total

     355,857      430,024      437,124
    

  

  

Long-term borrowings:                     

Long-term loan from banks and other financial institutions

     478,167      588,172      520,468

Funding balances of bonds and notes issued(1)(2)

     1,591,657      1,959,113      1,743,846

Trading balances of secured borrowings

     167,062      168,949      121,155
    

  

  

Total

     2,236,886      2,716,234      2,385,469
    

  

  


(1) Warrants included in “Funding balances of bonds and notes issued” are ¥ 2,631 million, ¥ nil million, and ¥ 2,631 million as of September 30, 2003 and 2004, and March 31, 2004, respectively.

 

 

Trading balances of secured borrowings

 

 

These balances of secured borrowings represent secured loans from special purpose entities. These borrowings were not borrowed for the purpose of Nomura’s funding but for trading purposes for Nomura to gain profits from distribution of the bonds and notes by the special purpose entities to investors. Such bonds and notes are secured by or referenced to certain assets pledged from Nomura to the special purpose entities, and the interest rates and/or redemption values or maturity have been linked to the performance of these referenced assets. The outstanding balances of these assets are included in the consolidated balance sheets as Securities inventory, and approximate the outstanding balances of related secured borrowings.

 

 

8. Assets pledged:

 

Nomura enters into secured financing transactions mainly to meet customers’ needs, finance trading inventory positions and obtain securities for settlement. These transactions include resale and repurchase agreements, securities borrowed and loaned transactions and other secured borrowings.

 

In many cases, Nomura is permitted to use its securities to secure repurchase agreements, enter into securities lending transactions or deliver to counterparties to cover short positions. The related balances are as follows:

 

     Billions of yen

     September 30

   March 31
     2003

   2004

   2004

The fair value of securities received as collateral where Nomura is
permitted to sell or repledge the securities

   ¥ 17,362    ¥ 17,192    ¥ 16,274

The portion of the above that has been sold (included in Securities sold but
not yet purchased
on the consolidated balance sheets) or repledged

     15,126      13,597      12,882

 

Nomura pledges firm-owned securities to collateralize repurchase agreements and other secured financings. Pledged securities that can be sold or repledged by the secured party, including Gensaki Repo transactions, are stated in parentheses on Trading assest and private equity investments or Non-trading debt securities on the consolidated balance sheets.

 

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Securities and loans receivables owned by Nomura, which have been pledged as collateral, primarily to stock exchanges and clearing organizations, without allowing the secured party the right to sell or repledge them, are summarized in the table below:

 

     Millions of yen

     September 30

   March 31
     2003

   2004

   2004

Trading assets:

                    

Equity securities and convertible bonds

   ¥ 299,918    ¥ 107,168    ¥ 278,000

Government and government agency bonds

     456,211      627,294      430,614

Bank and corporate debt securities

     639,603      605,953      698,647

Warrants

     32      353      1,087

Mortgage and mortgage-backed securities

     638,779      552,899      629,736
    

  

  

     ¥ 2,034,543    ¥ 1,893,667    ¥ 2,038,084
    

  

  

Loans receivables and Investments:

                    

Loans receivable

   ¥ 58,737    ¥    ¥

Non-trading debt securities

     44,484      47,002      48,099
    

  

  

     ¥ 103,221    ¥ 47,002    ¥ 48,099
    

  

  

 

In the normal course of business, certain of Nomura’s assets are pledged to collateralize borrowing transactions, securities financing transactions, derivative transactions and for other purposes. The carrying value of assets pledged, except for those disclosed in the Note 7 and above table, are as follows:

 

     Millions of yen

     September 30

   March 31
     2003

   2004

   2004

Trading securities

   ¥ 1,015,211    ¥ 2,569,393    ¥ 2,440,316

Loans receivable

          51,255      73,752

Non-trading debt securities

          62,135      37,013

Investments in and advances to affiliated companies

          11,294      6,648
    

  

  

     ¥ 1,015,211    ¥ 2,694,077    ¥ 2,557,729
    

  

  

 

Assets in the above table were mainly pledged to financial institutions for loans payable and other secured borrowings.

 

In addition, Nomura repledged ¥54,858 million, ¥26,804 million and ¥193,652 million of securities borrowed at September 30, 2003 and 2004, and March 31, 2004, respectively, as collateral for bank loans and other loans.

 

A securities company in Japan is required to segregate cash deposited by customers on securities transactions under the Japanese Securities and Exchange Law. Nomura segregated bonds and equities of ¥279,251 million, ¥295,555 million, and ¥289,331 million at September 30, 2003 and 2004, and March 31, 2004, respectively. These are included in Trading assets and private equity investments – Securities inventory on the consolidated balance sheets or borrowed under securities lending and borrowing agreements.

 

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9. Earnings per share:

 

The reconciliation of the amounts and the numbers used in the basic and diluted earnings per share (“EPS”) computations is as follows:

 

    

Millions of yen

except per share data presented in yen


     Six months ended September 30

   Year ended
March 31
     2003

   2004

   2004

Income applicable to common stock

   86,686    44,048    172,329
    
  
  

Basic-

              

Weighted average number of shares outstanding

   1,938,752,238    1,941,476,091    1,940,116,416
    
  
  

Net income

   44.71    22.69    88.82
    
  
  

Diluted -

              

Weighted average number of shares outstanding used in diluted EPS computations

   1,938,752,238    1,942,355,989    1,940,238,630
    
  
  

Net income

   44.71    22.68    88.82
    
  
  

 

There were warrants and options to purchase 5,445,234, options to purchase 6,025,000, and warrants and options to purchase 3,148,394 shares of common stock at September 30, 2003 and 2004, and March 31, 2004, respectively, which were not included in the computation of diluted EPS because their exercise prices were greater than the average market prices of the common shares for each period.

 

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10. Employee benefit plans:

 

Nomura provides various severance indemnities and pension plans which cover certain employees world-wide. In addition, Nomura provides health care benefits to certain active and retired employees through its Nomura Securities Health Insurance Society.

 

Severance indemnities and pension plans—

 

The net pension and severance cost of the defined benefit plans for employees of the Company and subsidiaries other than private equity investees in Japan (“the Japanese entities”) for the six months ended September 30, 2003 and 2004 and for the year ended March 31, 2004 are shown below:

 

The Japanese plans

 

     Millions of yen

 
     September 30

   

March 31

2004


 
     2003

    2004

   

Service cost

   4,217     4,096     8,064  

Interest cost

   1,972     1,875     3,944  

Expected return on plan assets

   (1,271 )   (1,497 )   (2,542 )

Amortization, other

   2,657     2,300     5,314  
    

 

 

Net periodic pension and severance costs

   7,575     6,774     14,780  
    

 

 

 

Nomura expected to contribute approximately ¥ 5,358 million to the Japanese plans during the year ending March 31 2005, as of March 31, 2004. There was no significant change of this expectation as of September 30, 2004.

 

 

11. Credit and investment commitments and guarantees:

 

 

Credit and investment commitments—

 

In connection with its banking/financing activities, Nomura has provided to counterparties through subsidiaries, commitments to extend credit, which generally have a fixed expiration date. In connection with its investment banking activities, Nomura has entered into agreements with customers under which Nomura has committed to underwrite notes that may be issued by the customers. The outstanding commitments under these agreements are included in commitments to extend credit.

 

Nomura has commitments to invest in various partnerships, primarily in connection with its merchant banking activities, and also has commitments to provide financing for investments related to these partnerships. The outstanding commitments under these agreements are included in commitments to invest in partnerships.

 

Contractual amounts of these commitments at September 30, 2003, September 30, 2004 and March 31, 2004 were as follows:

 

     Millions of yen

     September 30

  

March 31

2004


     2003

   2004

  

Commitments to extend credit and to invest in partnerships

   ¥ 156,965    ¥ 153,158    ¥ 160,089

 

Private equity investments—

 

In Japan, Nomura operates a private equity business through a wholly owned subsidiary, Nomura Principal Finance Co., Ltd. (“NPF”). As of September 30, 2004, NPF has agreements to acquire new shares to be issued in Millenium Retailing, Inc. (“MR”), a significant private equity investee. NPF acquired ¥20 billion of new shares issued by MR in July 2004, and will acquire an additional ¥30 billion around the end of January 2005, giving NPF a majority stake.

 

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Lease—

Leases as lessee

Nomura leases its office space and certain employees’ residential facilities in Japan under cancelable lease agreements which are customarily renewed upon expiration. Nomura also leases certain equipment and facilities under noncancelable lease agreements.

 

Presented below is a schedule of minimum future rentals under operating leases with remaining terms exceeding one year as of September 30, 2004:

 

     Millions of
yen


     September 30,
2004


Year ending September 30,

    

2005

   5,288

2006

   5,346

2007

   4,727

2008

   4,186

2009

   4,053

2010 and thereafter

   11,730
    

Total minimum lease payments

   35,330

Sub lease income

   2,345
    

Net minimum lease payments

   32,985
    

 

Certain leases contain renewal options or escalation clauses providing for increased rental payments based upon maintenance, utility, and tax increases.

 

Guarantees—

 

In November 2002, the FASB issued FIN No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN No. 45 specifies the disclosures to be made about obligations under certain issued guarantees and requires a liability to be recognized for the fair value of a guarantee obligation. The recognition and measurement provisions of the interpretation apply prospectively to guarantees issued or amended after December 31, 2002. The disclosure provisions are effective with Nomura’s year ended March 31, 2003.

 

Nomura enters into, in the normal course of its subsidiaries’ banking/financing activities, various guarantee arrangements with counterparties in the form of standby letters of credit and other guarantees, which generally have a fixed expiration date.

 

In addition, Nomura enters into certain derivative contracts that meet the FIN No. 45 definition of guarantees. FIN No.45 defines guarantees to include derivative contracts that contingently require a guarantor to make payment to a guaranteed party based on changes in an underlying that relates to an asset, liability or equity security of a guaranteed party. These derivative contracts include certain written options and credit default swaps. Because Nomura does not track whether its clients enter into these derivative contracts for speculative or hedging purposes, Nomura has disclosed information about derivative contracts that could meet the FIN No. 45 definition of guarantees.

 

For information about the maximum potential amount of future payments that Nomura could be required to make under certain derivatives, the notional amount of contracts has been disclosed. However, the maximum potential payout for certain derivative contracts, such as written interest rate caps and written currency options, cannot be estimated, as increases in interest or foreign exchange rates in the future could be theoretically unlimited.

 

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Nomura records all derivative contracts at fair value on its consolidated balance sheets. Nomura does not monitor its risk exposure to such derivative contracts based on notional amounts, rather Nomura manages its risk exposure on a fair value basis. Overall risk limits have been established and the extent of risk exposure is routinely monitored against these limits. Nomura believes the notional amounts generally overstate its risk exposure.

 

The following table sets forth maximum potential payout/notional about Nomura’s derivative contracts that could meet the definition of a guarantee and certain other guarantees at September 30, 2003, September 30, 2004 and March 31, 2004:

 

     Millions of yen

     September 30

  

March 31

2004


     2003

   2004

  

Derivative contracts(1)

   ¥ 12,389,628    ¥ 12,409,433    ¥ 10,962,532

Standby letters of credit and other guarantees(2)

     24,139      7,280      29,424

(1) Carrying value of the derivative contracts were ¥362,140 million, ¥363,616 million and ¥320,887 million as of September 30, 2003 and 2004, and March 31, 2004, respectively.
(2) Carrying value of the standby letters of credit and other guarantees were ¥108 million, ¥82 million and ¥75 million as of September 30, 2003 and 2004, and March 31, 2004, respectively.

 

12. Segment information:

 

Operating segments—

 

Nomura reports its results in three distinct core segments: Domestic Retail, Global Wholesale, and Asset Management. Nomura structures its business segments based upon the nature of specific products and services, its main customer base and its management structure.

 

The accounting policies for segment information materially follow U.S. GAAP, except as described below:

 

  The impact of unrealized gains/losses on long-term investments in equity securities held for relationship purposes, which under U.S. GAAP is included in net income, is excluded from segment information.

 

  The NPF investments in the private equity investee companies are treated as private equity positions for management reporting purposes, as management views these entities not as operating subsidiaries but as investments held for ultimate sale and the realization of capital gains. Any changes in management’s estimate of fair value of these investments are included in the non-interest revenue line under Global Wholesale. For the six months ended September 30, 2003 and 2004, and for the year ended March 31, 2004, these investments were not shown at fair value, but were consolidated at historical cost under U.S. GAAP. The impact of consolidating/deconsolidating the private equity investee companies, including the elimination impact, under U.S. GAAP is excluded from the segment information and described in the reconciliation table.

 

Revenues and expenses directly associated with each business segment are included in determining their operating results. Revenues and expenses that are not directly attributable to a particular segment are allocated to each business segment or included in “Other” based upon Nomura’s allocation methodologies as used by management to assess each segment’s performance.

 

Business segments’ results for the six months ended September 30, 2003 and 2004, and for the year ended March 31, 2004 are shown in the following table. Net interest revenue is disclosed because management utilizes interest revenue after deducting interest expense for its operating decision. Business segments’ information on total assets is not disclosed because management does not utilize such information for its operating decisions and therefore, it is not reported to management.

 

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Table of Contents
     Millions of yen

     Domestic
Retail


   Global
Wholesale


   Asset
Management


   

Other

(Inc. elimination)


    Total

Six months ended September 30, 2003

                                    

Non-interest revenue

   ¥ 149,787    ¥ 163,829    ¥ 15,231     ¥ (10,637 )   ¥ 318,210

Net interest revenue

     775      45,279      1,071       12,151       59,276
    

  

  


 


 

Net revenue

     150,562      209,108      16,302       1,514       377,486

Non-interest expenses

     111,117      113,756      18,709       7,375       250,957
    

  

  


 


 

Income (loss) before income taxes

   ¥ 39,445    ¥ 95,352    ¥ (2,407 )   ¥ (5,861 )   ¥ 126,529
    

  

  


 


 

Six months ended September 30, 2004

                                    

Non-interest revenue

   ¥ 150,401    ¥ 108,610    ¥ 19,888     ¥ 11,739     ¥ 290,638

Net interest revenue

     1,330      44,305      779       3,226       49,640
    

  

  


 


 

Net revenue

     151,731      152,915      20,667       14,965       340,278

Non-interest expenses

     108,214      110,262      17,704       14,942       251,122
    

  

  


 


 

Income before income taxes

   ¥ 43,517    ¥ 42,653    ¥ 2,963     ¥ 23     ¥ 89,156
    

  

  


 


 

Year ended March 31, 2004

                                    

Non-interest revenue

   ¥ 304,035    ¥ 290,845    ¥ 34,300     ¥ (83 )   ¥ 629,097

Net interest revenue

     1,722      74,891      1,657       22,156       100,426
    

  

  


 


 

Net revenue

     305,757      365,736      35,957       22,073       729,523

Non-interest expenses

     226,213      227,227      37,004       13,574       504,018
    

  

  


 


 

Income (loss) before income taxes

   ¥ 79,544    ¥ 138,509    ¥ (1,047 )   ¥ 8,499     ¥ 225,505
    

  

  


 


 

 

Transactions between operating segments are recorded within segment results on commercial terms and conditions and are eliminated in the “Other” column.

 

The following table presents the major components of income/(loss) before income taxes in “Other.”

 

     Millions of yen

 
     Six months ended
September 30


   

Year ended
March 31

2004


 
     2003

    2004

   

(Loss) on undesignated hedging instruments included in Net gain on trading

   ¥ (11,680 )   ¥ (7,669 )   ¥ (12,544 )

(Loss)/gain on investment securities

     (556 )     5,589       1,590  

Equity in earnings of affiliates

     2,394       2,933       8,514  

Corporate items

     (8,461 )     (1,860 )     (10,666 )

Others

     12,442       1,030       21,605  
    


 


 


Total

   ¥ (5,861 )   ¥ 23     ¥ 8,499  
    


 


 


 

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The table below presents reconciliation of the combined business segments’ results included in the preceding table to Nomura’s reported net revenue, non interest expenses and income before income taxes in the consolidated income statements.

 

     Millions of yen

     Six months ended
September 30


   

Year ended
March 31

2004


     2003

    2004

   

Net revenue

   ¥ 377,486     ¥ 340,278     ¥ 729,523

Unrealized gain/(loss) on investments in equity securities held for relationship purpose

     33,039       (5,557 )     54,729

Effect of consolidation/deconsolidation of the private equity investee companies (1)

     4,249       36,048       18,851
    


 


 

Consolidated net revenue

   ¥ 414,774     ¥ 370,769     ¥ 803,103
    


 


 

Non interest expenses

   ¥ 250,957     ¥ 251,122     ¥ 504,018

Unrealized gain/(loss) on investments in equity securities held for relationship purpose

                

Effect of consolidation/deconsolidation of the private equity investee companies (2)

     4,566       30,974       16,409
    


 


 

Consolidated non interest expenses

   ¥ 255,523     ¥ 282,096     ¥ 520,427
    


 


 

Income before income taxes

   ¥ 126,529     ¥ 89,156     ¥ 225,505

Unrealized gain/(loss) on investments in equity securities held for relationship purpose

     33,039       (5,557 )     54,729

Effect of consolidation/deconsolidation of the private equity investee companies

     (317 )     5,074       2,442
    


 


 

Consolidated income before income taxes

   ¥ 159,251     ¥ 88,673     ¥ 282,676
    


 


 


(1) These are included in Revenue-Other in the consolidated income statements.
(2) These are included in Non interest expenses-Other in the consolidated income statements.

 

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Geographic information—

 

In general, Nomura’s identifiable assets, revenues and expenses are allocated based on the country of domicile of the legal entity providing the service. However, because of the integration of the global capital markets and the corresponding globalization of Nomura’s activities and services, it is not always possible to make a precise separation by location. As a result, various assumptions, which are consistent among years, have been made in presenting the following geographic data.

 

The table below presents a geographic allocation of net revenue and income (loss) before income taxes from operations by geographic areas, and long-lived assets associated with Nomura’s operations. Net revenue in “Americas” and “Europe” substantially represents Nomura’s operations in the United States and the United Kingdom, respectively.

 

     Millions of yen

 
     Six months ended
September 30


    Year ended
March 31
 
     2003

    2004

    2004

 
Net revenue:                         

Americas

   ¥ 26,757     ¥ 21,835     ¥ 56,514  

Europe

     31,475       13,600       57,751  

Asia and Oceania

     5,798       9,917       14,814  
    


 


 


Sub-total

     64,030       45,352       129,079  

Japan

     350,744       325,417       674,024  
    


 


 


Consolidated

   ¥ 414,774     ¥ 370,769     ¥ 803,103  
    


 


 


     Millions of yen

 
     Six months ended
September 30


    Year ended
March 31
 
     2003

    2004

    2004

 
Income (loss) before income taxes:                         

Americas

   ¥ (2,060 )   ¥ (5,049 )   ¥ 1,015  

Europe

     (6,138 )     (26,988 )     (13,162 )

Asia and Oceania

     (3,929 )     (2,780 )     (5,809 )
    


 


 


Sub-total

     (12,127 )     (34,817 )     (17,956 )

Japan

     171,378       123,490       300,632  
    


 


 


Consolidated

   ¥ 159,251     ¥ 88,673     ¥ 282,676  
    


 


 


     Millions of yen

 
     September 30

    March 31  
     2003

    2004

    2004

 
Long-lived assets:                         

Americas

   ¥ 7,788     ¥ 6,733     ¥ 5,493  

Europe

     38,411       44,263       41,042  

Asia and Oceania

     1,921       3,874       2,197  
    


 


 


Sub-total

     48,120       54,870       48,732  

Japan

     139,553       231,219       156,951  
    


 


 


Consolidated

   ¥ 187,673     ¥ 286,089     ¥ 205,683  
    


 


 


 

There is no revenue derived from transactions with a single major external customer for the six months ended September 30, 2003 and 2004 and for the year ended March 31, 2004.

 

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Table of Contents

13. Subsequent events:

 

None.

 

 

(2) Other

 

 

We are involved in a number of actions and proceedings in Japan and overseas. The Czech Republic and Czech’s National Property Fund are claiming damages against our European subsidiaries in the international arbitration proceedings (commenced in December 2002), and on August 31, 2004, the arbitration tribunal issued an interim award permitting the Czech Republic to remain as a claimant in the proceedings. The outline of these proceedings is described below.

 

In 1998, one of our European subsidiaries, Nomura Principal Investment plc (NPI), acquired approximately 46% of the issued share capital of Investicni a postovni banka, a.s. (IPB), a Czech bank. On June 16, 2000, the Czech National Bank (CNB) placed IPB into forced administration. On June 19, 2000, the administrator appointed by the CNB transferred IPB’s entire business to Ceskoslovenska obchodni banka (CSOB), another Czech bank.

 

NPI and others are claiming damages in connection with the acquisition of IPB share, the imposition of forced administration and the immediate sale by the administrator of IPB’s entire business to CSOB, including claim against the Czech Republic under International Investment Protection Treaty.

 

NPI and Nomura International plc (NIP) are involved in a number of legal claims arising out of the circumstances mentioned above. The legal disputes include international arbitration proceedings commenced by the Czech Republic and Czech’s National Property Fund pursuant to which damages of $3-8 billion are claimed.

 

CSOB is also pursuing a legal action before the Czech courts seeking damages of $629 million against NPI, NIP and others arising out of IPB’s sale of a Czech brewery. We believe that all such claims brought against us are without merit and our subsidiaries’ arguments will be upheld.

 

Based upon the information currently available to us and our domestic and overseas legal counsel, we believe that the ultimate resolution of such actions and proceedings will not, in the aggregate, have a material adverse effect on our financial condition or results of our operations including the action described above.

 

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Table of Contents

2. Non-consolidated Financial Statements and Other

 

(1) Non-consolidated Financial Statements

 

1)     Non-consolidated Balance Sheets

 

          September 30, 2003

    September 30, 2004

    March 31, 2004

 
     Notes

  

Amount

(Millions of yen)


    (%)

   

Amount

(Millions of yen)


    (%)

   

Amount

(Millions of yen)


    (%)

 

(ASSETS)

                                         

Current Assets

                                         

Cash and cash deposits

        4,815           5,992           1,973        

Short-term loans receivable

        772,846           1,058,260           708,516        

Deferred tax assets

        8,924           2,991           1,957        

Other current assets

        56,320           43,051           80,428        

Allowance for doubtful accounts

        (3 )         (2 )         (1 )      
         

 

 

 

 

 

Total Current Assets

        842,903     36.3     1,110,293     37.4     792,874     32.1  
         

 

 

 

 

 

Fixed Assets

                                         

Tangible fixed assets

   *1    40,739           39,120           40,512        

Intangible assets

        66,545           64,559           68,861        

Investments and others

        1,371,732           1,755,053           1,567,470        

Investment securities

        144,724           164,282           170,928        

Investments in subsidiaries and affiliates (at cost)

        1,107,838           1,166,514           1,106,513        

Long-term loans receivable

                  306,683           173,147        

Long-term guarantee deposits

        54,145           51,505           51,718        

Deferred tax assets

        45,372           40,889           41,313        

Other investments

        19,687           25,213           23,882        

Allowance for doubtful accounts

        (34 )         (34 )         (34 )      
         

 

 

 

 

 

Total Fixed Assets

        1,479,018     63.7     1,858,732     62.6     1,676,844     67.9  
         

 

 

 

 

 

TOTAL ASSETS

        2,321,921     100.0     2,969,025     100.0     2,469,719     100.0  
         

 

 

 

 

 

(LIABILITIES)

                                         

Current Liabilities

                                         

Short-term borrowings

        202,000           691,000           276,000        

Bond with maturity of less than one year

        2,631           60,000           2,631        

Collaterals received

        189,792           63,553           107,838        

Accrued income taxes

        32,090           200           63,304        

Other current liabilities

        19,313           12,152           20,061        
         

       

       

     

Total Current Liabilities

        445,827     19.2     826,904     27.8     469,835     19.0  

Long-term liabilities

                                         

Bonds payable

        120,000           180,000           190,000        

Long-term borrowings

        399,500           439,500           439,500        

Other long-term liabilities

        1,028           2,890           3,378        
         

       

       

     

Total Long-term liabilities

        520,528     22.4     622,390     21.0     632,878     25.6  
         

 

 

 

 

 

TOTAL LIABILITIES

        966,356     41.6     1,449,294     48.8     1,102,713     44.6  
         

 

 

 

 

 

(SHAREHOLDERS’ EQUITY)

                                         

Common stock

        182,799     7.9     182,800     6.2     182,799     7.4  

Capital reserves

                                         

Additional paid-in capital

        112,504           112,504           112,504        

Other capital reserves

        1,799           1,817           1,807        
         

       

       

     

Total capital reserves

        114,303     4.9     114,322     3.9     114,311     4.6  

Earned surplus

                                         

Earned surplus reserve

        81,858           81,858           81,858        

Voluntary reserve

        950,038           950,033           950,038        

Unappropriated retained earnings

        23,814           179,904           23,412        
         

       

       

     

Total earned surplus

        1,055,710     45.5     1,211,795     40.8     1,055,308     42.7  

Net unrealized gain on investment securities

        33,788     1.4     42,203     1.4     45,859     1.9  

Treasury stock

        (31,037 )   (1.3 )   (31,389 )   (1.1 )   (31,273 )   (1.2 )
         

 

 

 

 

 

TOTAL SHAREHOLDERS’ EQUITY

        1,355,565     58.4     1,519,731     51.2     1,367,005     55.4  
         

 

 

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

        2,321,921     100.0     2,969,025     100.0     2,469,719     100.0  
         

 

 

 

 

 

 

—56—


Table of Contents
  2) Non-consolidated Income Statements

 

          Six Months ended
September 30, 2003


    Six Months ended
September 30, 2004


  

Year ended

March 31, 2004


     Notes

  

Amount

(Millions of yen)


    (%)

   

Amount

(Millions of yen)


   (%)

  

Amount

(Millions of yen)


   (%)

Operating revenue

                                    

Property and equipment fee revenue

   *1    29,456           26,934         63,006     

Rent revenue

   *2    14,793           14,657         29,971     

Royalty on trademark

   *3    2,926           7,737         6,998     

Dividend from affiliated companies

        16,420           162,153         29,533     

Others

   *4    3,097           3,513         5,831     

Interest income

        0                       
         

       
       
    

Total operating revenue

        66,694     100.0     214,995    100.0    135,341    100.0

Operating expenses

                                    

Compensation and benefits

        332           586         1,650     

Rental and maintenance

        15,956           15,173         34,302     

Data processing and office supplies

        10,352           9,731         20,567     

Depreciation and amortization

   *5    12,999           13,904         26,480     

Others

        4,274           3,087         8,417     

Interest expenses

        2,174           2,562         4,476     
         

       
       
    

Total operating expenses

        46,089     69.1     45,043    21.0    95,895    70.9
         

 

 
  
  
  

Operating income

        20,605     30.9     169,952    79.0    39,446    29.1
         

 

 
  
  
  

Non-operating income

        1,285     1.9     1,863    0.9    2,644    2.0

Non-operating expenses

        139     0.2     710    0.3    2,642    2.0
         

 

 
  
  
  

Ordinary income

        21,751     32.6     171,105    79.6    39,448    29.1
         

 

 
  
  
  

Special profits

                                    

Gain on sales of investment securities

        2,357           5,497         5,095     

Reversal of allowance for doubtful accounts

        675           0         678     

Gain on redemption of warrants

                  195             
         

       
       
    

Total special profits

        3,033     4.6     5,693    2.6    5,773    4.3

Special losses

                                    

Loss on sales of investment securities

        1,666           1         1,926     

Loss on devaluation of investment securities

        1,521           1,553         1,721     

Loss on devaluation of investments in affiliates

                          1,419     
         

       
       
    

Total special losses

        3,187     4.8     1,554    0.7    5,067    3.7
         

 

 
  
  
  

Profit before income taxes

        21,597     32.4     175,244    81.5    40,155    29.7
         

 

 
  
  
  

Income taxes - current

        (848 )   (1.3 )   2,257    1.0    1,859    1.4
         

 

 
  
  
  

Income taxes - deferred

        3,238     4.9     1,932    0.9    4,920    3.6
         

 

 
  
  
  

Net profit

        19,207     28.8     171,055    79.6    33,374    24.7
         

 

 
  
  
  

Retained earnings brought forward

        4,606           8,849         4,606     
         

       
       
    

Interim dividend

                          14,569     
         

       
       
    

Unappropriated retained earnings

        23,814           179,904         23,412     
         

       
       
    

 

—57—


Table of Contents

[Significant Accounting Policies]

 

Six Months ended

September 30, 2003


 

Six Months ended

September 30, 2004


 

Year ended

March 31, 2004


1. Basis and Methods of Valuation for

        Financial Instruments

 

    (1) Other securities

 

            a. Securities with market value

 

                Recorded at market value.

 

The difference between the cost using the moving average method or amortized cost and market value less deferred taxes is recorded as “Net unrealized gain on investment securities” in “Shareholders’ Equity” on the balance sheet.

 

            b. Securities with no market value

 

Recorded at cost using the moving average method or amortized cost.

 

1. Basis and Methods of Valuation for

        Financial Instruments

 

    (1) Other securities

 

(Same as left)

 

1. Basis and Methods of Valuation for         Financial Instruments

 

    (1) Other securities

 

(Same as left)

    (2)    Stocks of subsidiaries and affiliates

 

Recorded at cost using the moving average method.

 

(2)    Stocks of subsidiaries and affiliates

 

(Same as left)

 

(2)    Stocks of subsidiaries and affiliates

 

(Same as left)

2. Depreciation and Amortization

 

    (1) Depreciation of tangible fixed assets

 

2. Depreciation and Amortization

 

    (1) Depreciation of tangible fixed assets

 

2. Depreciation and Amortization

 

    (1) Depreciation of tangible fixed assets

Tangible fixed assets are depreciated primarily on the declining balance method, except for buildings acquired after March 31, 1998, which are depreciated on the straight-line method.

 

The estimated useful lives are generally as follows:

 

Buildings 15 – 50 years

Furniture & fixtures 3 - 6 years

  (Same as left)   (Same as left)

(2) Amortization of intangible assets Intangible assets are amortized over their estimated useful lives primarily on the straight-line method.

 

The useful lives of software are based on those determined internally.

 

    (2) Amortization of intangible assets

 

(Same as left)

 

(2) Amortization of intangible assets

 

(Same as left)

3.      Provisions

 

    (1) Allowance for doubtful accounts

 

3.      Provisions

 

    (1) Allowance for doubtful accounts

 

3.      Provisions

 

    (1) Allowance for doubtful accounts

To provide for bad loans, the Company made provisions for doubtful accounts based on an estimate of the uncollectable amount calculated using historical loss ratios or a reasonable estimate based on financial condition of individual borrowers.

  (Same as left)   (Same as left)

    (2) Reserve for bonus payment

 

To prepare for payments of bonuses to employees, the estimated amount is recorded in accordance with the prescribed calculation method.

 

(2) Reserve for bonus payment

 

(Same as left)

 

(2) Reserve for bonus payment

 

(Same as left)

4.      Translation of Balance Sheet

Accounts Denominated in Foreign

Currencies

 

Financial assets and liabilities denominated in foreign currencies are translated into Japanese yen using exchange rates as of the balance sheet date. Gains and losses resulting from translation are reflected in the income statement.

 

4.     Translation of Balance Sheet Accounts Denominated in Foreign Currencies

 

(Same as left)

 

4.    Translation of Balance Sheet Accounts Denominated in Foreign Currencies

 

(Same as left)

5.      Leasing Transactions

 

Financing leases other than those for which the ownership of the leased property are deemed as transfers to the lessee are accounted for primarily as ordinary rental transactions.

 

5.      Leasing Transactions

 

(Same as left)

 

5.      Leasing Transactions

 

(Same as left)

6.      Hedging Activities

 

    (1) Hedge accounting

 

Mark-to-market profits and losses on hedging instruments are deferred as assets or liabilities until the profits or losses on the underlying hedged securities are realized.

 

6.      Hedging Activities

 

    (1) Hedge accounting

 

Mark-to-market profits and losses on hedging instruments are deferred as assets or liabilities until the profits or losses on the underlying hedged securities are realized. Certain eligible foreign currency denominated monetary items are translated at forward exchange rates and the difference is amortized over the remaining period.

 

6.      Hedging Activities

 

    (1) Hedge accounting

 

Mark-to-market profits and losses on hedging instruments are deferred as assets or liabilities until the profits or losses on the underlying hedged securities are realized.

    (2) Hedging instruments and hedged items

 

The Company utilizes derivative contracts such as interest rate swaps to hedge the interest rate risk on bonds that the Company issued.

 

    (2) Hedging instruments and hedged

          items

 

The Company utilizes derivative contracts such as interest rate swaps to hedge the interest rate risk on bonds and other instruments that the Company issued. The Company utilizes currency forward contracts to hedge foreign currency risk on loans.

 

    (2) Hedging instruments and hedged

          items

 

The Company utilizes derivative contracts such as interest rate swaps to hedge the interest rate risk on bonds that the Company issued.

    (3) Hedging policy

 

As a general rule, the interest rate risk on bonds is fully hedged until maturity.

 

    (3) Hedging policy

 

As a general rule, the interest rate risk on bonds is fully hedged until maturity and the foreign currency risk on loans is fully hedged until maturity.

 

    (3) Hedging policy

 

As a general rule, the interest rate risk on bonds is fully hedged until maturity.

    (4) Valuating the validity of hedging

          instruments

 

The Company regularly verifies the result of risk offsetting by each hedging instrument and hedged item.

 

    (4) Valuating the validity of hedging

          instruments

 

(Same as left)

 

    (4) Valuating the validity of hedging

          instruments

 

(Same as left)

7.    Other Important Items as Basis of Financial Information   7.    Other Important Items as Basis of Financial Information   7.    Other Important Items as Basis of Financial Information

    (1) Accounting for Consumption Taxes

Consumption taxes are accounted for based on the tax exclusion method.

 

    (1) Accounting for Consumption Taxes

 

(Same as left)

 

    (1) Accounting for Consumption Taxes

 

(Same as left)

    (2) Application of Consolidated Tax

Return System

 

The Company applies consolidated

tax return system.

 

    (2) Application of Consolidated Tax

          Return System

 

(Same as left)

 

    (2) Application of Consolidated Tax

          Return System

 

(Same as left)

 

—58—


Table of Contents

[Additional Information]

 

Six Months ended

September 30, 2003


 

Six Months ended

September 30, 2004


 

Year ended

March 31, 2004


(Operating Revenue)

 

Dividend from affiliated companies which has been included in “Others” (8 mil. Yen for the six months ended September 30, 2002) is stated as an item of operating revenue as its amount exceeded 10% of the total operating revenue.

   

 

—59—


Table of Contents

[Notes to the Non-consolidated Financial Statements]

 

(Balance Sheet)

 

September 30, 2003


 

September 30, 2004


 

March 31, 2004


*1. Accumulated depreciation on tangible fixed assets: 65,368 mil. Yen   *1. Accumulated depreciation on tangible fixed assets: 66,413 mil. Yen   *1. Accumulated depreciation on tangible fixed assets: 64,439 mil. Yen

2.      Securities deposited

The Company loaned investment securities with a market value of 201,066 mil. Yen based on contracts whereby the borrower has the rights to resell or repledge them.

 

2.      Securities deposited

The Company loaned investment securities with a market value of 68,854 mil. Yen based on contracts whereby the borrower has the rights to resell or repledge them.

 

2.      Securities deposited

The Company loaned investment securities with a market value of 111,099 mil. Yen based on contracts whereby the borrower has the rights to resell or repledge them.

3.      Financial guarantee (Note 1)

Principal and coupons of 358,200 mil. Yen bonds issued by the Nomura Securities, Co., Ltd.

        358,200 mil. Yen

Commercial Paper with face value of 30,000 thousand USD, 15,000 thousand EURO issued by Nomura International plc and swap transactions worth 184,582 thousand USD executed by Nomura International plc

25,810 mil. Yen (Note 2)

Principal and coupons of medium-term notes issued by Nomura Global Funding plc with face value of 838,000 thousand USD, 370,000 thousand EURO, and 136,950 mil. Yen

277,977 mil. Yen (Note 2)

Principal and coupons of medium-term notes issued by Nomura Europe Finance N.V. with face value of 183,000 thousand USD, 187,000 thousand EURO, 49,000 thousand AUD, and 785,888 mil. Yen

834,095 mil. Yen (Note 2)

Swap transactions worth 322,049 thousand USD executed by Nomura Global Financial Products Inc.

35,828 mil. Yen (Note 2)

Swap transactions worth 12,998 thousand USD executed by Nomura Securities (Bermuda) Ltd.

1,446 mil. Yen (Note 2)

Bond transactions worth 50 thousand USD executed by Nomura Securities International Inc.

        5 mil. Yen

 

3.      Financial guarantee (Note 1)

Principal and coupons of 358,200 mil. Yen bonds issued by the Nomura Securities, Co., Ltd.

        358,200 mil. Yen

Commercial Paper with face value of 150,000 thousand USD issued by Nomura International plc and swap transactions worth 220,852 thousand USD executed by Nomura International plc

41,183 mil. Yen (Note 2)

Principal and coupons of medium-term notes issued by Nomura Global Funding plc with face value of 838,000 thousand USD, 370,000 thousand EURO, and 120,950 mil. Yen

264,715 mil. Yen (Note 2)

Principal and coupons of medium-term notes issued by Nomura Europe Finance N.V. with face value of 611,000 thousand USD, 34,500 thousand EURO, 52,000 thousand AUD, and 1,012,871 mil. Yen

1,089,590 mil. Yen (Note 2)

Swap transactions worth 344,411 thousand USD executed by Nomura Global Financial Products Inc.

38,247 mil. Yen (Note 2)

Bond transactions worth 3 thousand USD executed by Nomura Securities International Inc.

        0 mil. Yen

 

3.      Financial guarantee (Note 1)

Principal and coupons of 358,200 mil. Yen bonds issued by the Nomura Securities, Co., Ltd.

358,200 mil. Yen

Commercial Paper with face value of 150,000 thousand USD issued by Nomura International plc and swap transactions worth 255,466 thousand USD executed by Nomura International plc

42,853 mil. Yen (Note 2)

Principal and coupons of medium-term notes issued by Nomura Global Funding plc with face value of 838,000 thousand USD, 370,000 thousand EURO, and 120,950 mil. Yen

257,203 mil. Yen (Note 2)

Principal and coupons of medium-term notes issued by Nomura Europe Finance N.V. with face value of 412,000 thousand USD, 33,500 thousand EURO, 50,500 thousand AUD, and 862,363 mil. Yen

914,251 mil. Yen (Note 2)

Swap transactions worth 251,465 thousand USD executed by Nomura Global Financial Products Inc.

26,577 mil. Yen (Note 2)

(Notes)1  In accordance with Report No. 61 of the Audit Committee of the Japanese Institute of Certified Public Accountants, contracts which are financial guarantees in substance are included above.

  2. Includes co-guarantee with the Nomura Securities Co., Ltd.

 

(Notes)1 In accordancewith Report No. 61 of the Audit Committee of the Japanese Institute of Certified Public Accountants, contracts which are financial guarantees in substance are included above.

  2. Includes co-guarantee with the Nomura Securities Co., Ltd.

 

(Notes)1  In accordance with Report No. 61 of the Audit Committee of the Japanese Institute of Certified Public Accountants, contracts which are financial guarantees in substance are included above.

  2. Includes co-guarantee with the Nomura Securities Co., Ltd.

 

—60—


Table of Contents

  (Income Statement)

 

Six Months ended

September 30, 2003


 

Six Months ended

September 30, 2004


 

Year ended

March 31, 2004


*1

  “Property and equipment fee revenue” consists of revenue mainly from Nomura Securities Co., Ltd., a subsidiary of the Company, on leasing furniture, fixtures and software.   *1   (Same as left)   *1   (Same as left)

*2

  “Rent revenue” consists of revenue mainly from Nomura Securities Co., Ltd., a subsidiary of the Company, on renting office accommodation.   *2   (Same as left)   *2   (Same as left)

*3

  “Royalty on trademark” consists of revenue from Nomura Securities Co., Ltd., a subsidiary of the Company, on the use of the Company’s trademark.   *3   (Same as left)   *3   (Same as left)

*4

  “Others” includes fees from securities lending and interest received on loans mainly from Nomura Securities Co., Ltd., a subsidiary of the Company.   *4   (Same as left)   *4   (Same as left)

*5

  Breakdown of Depreciation and amortization   *5   Breakdown of Depreciation and amortization   *5   Breakdown of Depreciation and amortization
         (mil. Yen)            (mil. Yen)            (mil. Yen)
    Tangible fixed assets    2,735       Tangible fixed assets    2,395       Tangible fixed assets    5,680
    Intangible assets    10,166       Intangible assets    11,426       Intangible assets    20,613
    Investments and others    97                          
   
     
     
    Total    12,999       Total    13,904       Total    26,480

 

—61—


Table of Contents

  (Leasing Transactions)

 

Six Months ended

September 30, 2003


 

Six Months ended

September 30, 2004


 

Year ended

March 31, 2004


1.

  Financing leases other than those for which the ownership of the leased property are deemed as transfers to the lessee are as follows:   1.   Financing leases other than those for which the ownership of the leased property are deemed as transfers to the lessee are as follows:   1.   Financing leases other than those for which the ownership of the leased property are deemed as transfers to the lessee are as follows:

(1)

  Acquisition cost of the leased property, accumulated depreciation equivalent and the balance at the end of the period (See Note below.)   (1)   Acquisition cost of the leased property, accumulated depreciation equivalent and the balance at the end of the period (See Note below.)   (1)   Acquisition cost of the leased property, accumulated depreciation equivalent and the balance at the end of the period (See Note below.)
   

Furniture and fixtures

(mil. Yen)

     

Furniture and fixtures

(mil. Yen)

     

Furniture and fixtures

(mil. Yen)

    Acquisition cost    5,710       Acquisition cost    4,539       Acquisition cost    4,805
    Accumulated depreciation equivalent    4,238       Accumulated depreciation equivalent    3,283       Accumulated depreciation equivalent    3,057
   
     
     
    Balance at the end of the period    1,471       Balance at the end of the period    1,256       Year-end balance    1,747

(2)

  Closing balance of the obligation under financing lease (See Note below.)   (2)   Closing balance of the obligation under financing lease (See Note below.)   (2)   Closing balance of the obligation under financing lease (See Note below.)
         (mil. Yen)            (mil. Yen)            (mil. Yen)
    One year or less    825       One year or less    644       One year or less    896
    More than one year    646       More than one year    612       More than one year    851
   
     
     
    Total    1,471      

Total

   1,256      

Total

   1,747

(3)

  Lease payments and depreciation expenses equivalent   (3)   Lease payments and depreciation expenses equivalent   (3)   Lease payments and depreciation expenses equivalent
    Lease payments    814 (mil. Yen)       Lease payments    481 (mil. Yen)       Lease payments    1,455 (mil. Yen)
    Depreciation expenses equivalent    814 (mil. Yen)       Depreciation expenses equivalent    481 (mil. Yen)       Depreciation expenses equivalent    1,455 (mil. Yen)

(4)

 

The method of calculating the depreciation expenses equivalent

The amount equivalent to the depreciation expenses equivalent is calculated by straight-line method, the useful life being the lease period and no (zero) salvage value.

  (4)  

The method of calculating the depreciation expenses equivalent

(Same as left)

  (4)  

The method of calculating the depreciation expenses equivalent

The amount equivalent to the depreciation expenses equivalent is calculated by straight-line method, the useful life being the lease period and no (zero) salvage value.

(Notes) The acquisition cost and the closing balance are calculated by the interest inclusion method in accordance with the regulations of Article 5-3 of the “Regulations Concerning the Terminology, Forms and Preparation Methods of Semi-Final Financial Statements” which refers to regulations of Item 2, Article 8-6 of the “Regulations Concerning the Terminology, Forms and Preparation Methods of Financial Statements” because their percentage against the year-end balance of tangible fixed assets were low.

         

(Notes) The acquisition cost and the closing balance are calculated by the interest inclusion method in accordance with the regulations of Item 2, Article 8-6 of the “Regulations Concerning the Terminology, Forms and Preparation Methods of Financial Statements” because their percentage against the year-end balance of tangible fixed assets were low.

 

—62—


Table of Contents

(Securities Held)

 

(1) Bonds Held to Maturity

 

None.

 

 

(2) Stocks of subsidiaries and affiliates with market value

 

 

 

     September 30, 2003

    

Book Value

(mil. Yen)


   Market Value
(mil. Yen)


  

Difference

(mil. Yen)


Subsidiaries

        

Affiliates

   45,785    113,022    67,237

 

     September 30, 2004

    

Book Value

(mil. Yen)


   Market Value
(mil. Yen)


  

Difference

(mil. Yen)


Subsidiaries

        

Affiliates

   45,785    81,504    35,718

 

     March 31, 2004

    

Book Value

(mil. Yen)


   Market Value
(mil. Yen)


  

Difference

(mil. Yen)


Subsidiaries

        

Affiliates

   45,785    130,954    85,169

 

—63—


Table of Contents

(3) Investment Securities with market value

 

     September 30, 2003

    

Cost

(mil. Yen)


  

Book Value

(mil. Yen)


   Difference
(mil. Yen)


Fixed Asset

   60,696    116,987    56,291
    
  
  

Equities

   58,365    114,414    56,048

Bonds

        

Others

   2,330    2,573    242

 

     September 30, 2004

    

Cost

(mil. Yen)


  

Book Value

(mil. Yen)


   Difference
(mil. Yen)


Fixed Asset

   67,289    138,807    71,518
    
  
  

Equities

   55,833    127,089    71,256

Bonds

        

Others

   11,456    11,718    262

 

     March 31, 2004

    

Cost

(mil. Yen)


  

Book Value

(mil. Yen)


   Difference
(mil. Yen)


Fixed Asset

   65,911    143,685    77,774
    
  
  

Equities

   56,580    133,992    77,412

Bonds

        

Others

   9,330    9,692    361

 

—64—


Table of Contents

(4) Investment Securities without market value (except those referred in (1) above)

 

     September 30,
2003


    

Book Value

(mil. Yen)


Bonds Held to Maturity

  
    

Investment Securities

   27,736
    

Recorded as Fixed Asset

   27,736
    

Equities (Unlisted equities, etc.)

   25,723

Bonds (Unlisted bonds, etc.)

   0

Others

   2,013

 

     September 30,
2004


    

Book Value

(mil. Yen)


Bonds Held to Maturity

  
    

Investment Securities

   25,476
    

Recorded as Fixed Asset

   25,476
    

Equities (Unlisted equities, etc.)

   23,476

Bonds (Unlisted bonds, etc.)

   0

Others

   1,999

 

     March 31,
2004


    

Book Value

(mil. Yen)


Bonds Held to Maturity

  
    

Investment Securities

   27,243
    

Recorded as Fixed Asset

   27,243
    

Equities (Unlisted equities, etc.)

   25,229

Bonds (Unlisted bonds, etc.)

   0

Others

   2,014

 

—65—


Table of Contents

(Derivative Transactions)

 

Statement on derivative transactions is omitted as hedge accounting is applied.

 

 

 

(Information on Per Share Data)

 

Information on per share data is omitted as the Company prepared consolidated financial information.

 

 

 

(Significant Subsequent Events)

 

Six Months ended

September 30, 2003


 

Six Months ended

September 30, 2004


 

Year ended

March 31, 2004


None.

  None.   None.

 

—66—


Table of Contents

(2) Others

 

The Company’s board of directors resolved on October 28, 2004 to pay the interim dividend to the Company’s recorded shareholders as at September 30, 2004.

 

 

a.

  

Total interim dividend

   19,423 (mil. Yen)

b.

  

Interim Dividend per share

             10.00 (Yen)

c.

  

Effect date of claim rights / Date of payment

   December 1, 2004

 

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Table of Contents

Semiannual Audit Report of Independent Auditors

 

                 December 16, 2004

The Board of Directors

                

Nomura Holdings, Inc.

                
            Ernst & Young ShinNihon     
            Sadahiko Yoshimura     
            Certified Public Accountant     
            Designated and Operating Partner     
            Michiyoshi Sakamoto     
            Certified Public Accountant     
            Designated and Operating Partner     
            Koichi Hanabusa     
            Certified Public Accountant     
            Designated and Operating Partner     

 

We have performed a semiannual audit of the consolidated semiannual financial statements of Nomura Holdings, Inc. (the “Company”) included in the “financial condition” section for the semiannual period (from April 1, 2003 to September 30, 2003) within the fiscal period from April 1, 2003 to March 31, 2004 which include the consolidated semiannual balance sheet and the consolidated semiannual statements of income, shareholders’ equity, comprehensive income, and cash flows pursuant to the semiannual audit requirements of the rules specified in Article 193-2 of the Securities and Exchange Law. These consolidated semiannual financial statements are the responsibility of the Company’s management and our responsibility is to independently express an opinion on these consolidated semiannual financial statements.

We conducted our semiannual audit in accordance with semiannual auditing standards applied in Japan. Those standards require that we obtain reasonable assurance about whether the consolidated semiannual financial statements taken as a whole are free of material misstatement with regard to the presentation of relevant information which may result in misinterpretation by investors. A semiannual audit consists, primarily of analytical review procedures with additional audit procedures as considered necessary. We believe that our semiannual audit provides a reasonable basis for our opinion.

In our opinion, the consolidated semiannual financial statements referred to above present relevant information about the consolidated financial position of Nomura Holdings, Inc. and subsidiaries as of September 30, 2003, and the consolidated results of their operations and their cash flows for the semiannual period then ended (from April 1, 2003 to September 30, 2003) in conformity with accounting principles generally accepted in the United States of America (see Note 1 to the consolidated semiannual financial statements).

 

 

We have no interest in the Company which should be disclosed under the provisions of the Certified Public Accountants Law.

 

 

Note:   As described in Note 2 to the consolidated semiannual financial statements, certain reclassifications have been made to the consolidated semiannual statement of cash flows in connection with the change in presentation of Other secured borrowings.

 

LOGO   Above is an electronic version of the original report of auditors and the Company maintains the original report.

 

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Table of Contents

Semiannual Audit Report of Independent Auditors

 

                 December 16, 2004

The Board of Directors

                

Nomura Holdings, Inc.

                
            Ernst & Young ShinNihon     
            Sadahiko Yoshimura     
            Certified Public Accountant     
            Designated and Operating Partner     
            Michiyoshi Sakamoto     
            Certified Public Accountant     
            Designated and Operating Partner     
            Koichi Hanabusa     
            Certified Public Accountant     
            Designated and Operating Partner     

 

We have performed a semiannual audit of the consolidated semiannual financial statements of Nomura Holdings, Inc. (the “Company”) included in the “financial condition” section for the semiannual period (from April 1, 2004 to September 30, 2004) within the fiscal period from April 1, 2004 to March 31, 2005 which include the consolidated semiannual balance sheet and the consolidated semiannual statements of income, shareholders’ equity, comprehensive income, and cash flows pursuant to the semiannual audit requirements of the rules specified in Article 193-2 of the Securities and Exchange Law. These consolidated semiannual financial statements are the responsibility of the Company’s management and our responsibility is to independently express an opinion on these consolidated semiannual financial statements.

We conducted our semiannual audit in accordance with semiannual auditing standards applied in Japan. Those standards require that we obtain reasonable assurance about whether the consolidated semiannual financial statements taken as a whole are free of material misstatement with regard to the presentation of relevant information which may result in misinterpretation by investors. A semiannual audit consists, primarily of analytical review procedures with additional audit procedures as considered necessary. We believe that our semiannual audit provides a reasonable basis for our opinion.

In our opinion, the consolidated semiannual financial statements referred to above present relevant information about the consolidated financial position of Nomura Holdings, Inc. and subsidiaries as of September 30, 2004, and the consolidated results of their operations and their cash flows for the semiannual period then ended (from April 1, 2004 to September 30, 2004) in conformity with accounting principles generally accepted in the United States of America (see Note 1 to the consolidated semiannual financial statements).

 

 

We have no interest in the Company which should be disclosed under the provisions of the Certified Public Accountants Law.

 

LOGO   Above is an electronic version of the original report of auditors and the Company maintains the original report.

 

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Table of Contents

Semiannual Audit Report of Independent Auditors

 

         December 1, 2003

The Board of Directors

        

Nomura Holdings, Inc.

        
         Shin Nihon & Co.
         Sadahiko Yoshimura
         Certified Public Accountant
         Representative and Engagement Partner
         Michiyoshi Sakamoto
         Certified Public Accountant
         Representative and Engagement Partner

 

We have performed a semiannual audit of the semiannual financial statements of Nomura Holdings, Inc. (the “Company”) included in the “financial condition” section for the semiannual period (from April 1, 2003 to September 30, 2003) within the 100th fiscal period from April 1, 2003 to March 31, 2004 which include the semiannual balance sheet and the semiannual statement of income pursuant to the semiannual audit requirements of the rules specified in Article 193-2 of the Securities and Exchange Law. These semiannual financial statements are the responsibility of the Company’s management and our responsibility is to independently express an opinion on these semiannual financial statements.

We conducted our semiannual audit in accordance with semiannual auditing standards applied in Japan. Those standards require that we obtain reasonable assurance about whether the semiannual financial statements taken as a whole are free of material misstatement with regard to the presentation of relevant information which may result in misinterpretation by investors. A semiannual audit consists, primarily of analytical review procedures with additional audit procedures as considered necessary. We believe that our semiannual audit provides a reasonable basis for our opinion.

In our opinion, the semiannual financial statements referred to above present relevant information about the financial position of Nomura Holdings, Inc. as of September 30, 2003, and the results of their operations for the semiannual period then ended (from April 1, 2003 to September 30, 2003) in conformity with accounting principles generally accepted in Japan.

 

 

We have no interest in the Company which should be disclosed under the provisions of the Certified Public Accountants Law.

 

LOGO   Above is an electronic version of the original report of auditors and the Company maintains the original report.

 

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Table of Contents

Semiannual Audit Report of Independent Auditors

 

                 December 16, 2004

The Board of Directors

                

Nomura Holdings, Inc.

                
            Ernst & Young ShinNihon     
            Sadahiko Yoshimura     
            Certified Public Accountant     
            Designated and Operating Partner     
            Michiyoshi Sakamoto     
            Certified Public Accountant     
            Designated and Operating Partner     
            Koichi Hanabusa     
            Certified Public Accountant     
            Designated and Operating Partner     

 

We have performed a semiannual audit of the non-consolidated semiannual financial statements of Nomura Holdings, Inc. (the “Company”) included in the “financial condition” section for the semiannual period (from April 1, 2004 to September 30, 2004) within the 101th fiscal period from April 1, 2004 to March 31, 2005 which include the non-consolidated semiannual balance sheet and the non-consolidated semiannual statement of income pursuant to the semiannual audit requirements of the rules specified in Article 193-2 of the Securities and Exchange Law. These non-consolidated semiannual financial statements are the responsibility of the Company’s management and our responsibility is to independently express an opinion on these non-consolidated semiannual financial statements.

We conducted our semiannual audit in accordance with semiannual auditing standards applied in Japan. Those standards require that we obtain reasonable assurance about whether the non-consolidated semiannual financial statements taken as a whole are free of material misstatement with regard to the presentation of relevant information which may result in misinterpretation by investors. A semiannual audit consists, primarily of analytical review procedures with additional audit procedures as considered necessary. We believe that our semiannual audit provides a reasonable basis for our opinion.

In our opinion, the non-consolidated semiannual financial statements referred to above present relevant information about the financial position of Nomura Holdings, Inc. as of September 30, 2004, and the results of their operations for the semiannual period then ended (from April 1, 2004 to September 30, 2004) in conformity with accounting principles generally accepted in Japan.

 

 

We have no interest in the Company which should be disclosed under the provisions of the Certified Public Accountants Law.

 

LOGO   Above is an electronic version of the original report of auditors and the Company maintains the original report.

 

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