ANNUAL REPORTFor Fiscal Year Ended March 31, 2018

Corporate Profile
The Okasan Securities Group Inc. is a standalone securities company that
traces its roots back to 1923, and now it is a holding company with nine
domestic companies and one overseas company. Okasan Securities Co., Ltd.
serves as the leader of six domestic and overseas companies that conduct theGroup’s securities operations. It also maintains asset management operations
centered on investment trusts, in addition to the support business, in which
the Group provides system infrastructure primarily to group companies, aswell as back office agency services and real estate management.
Its long year of experience in the securities industry has enlightened the
Okasan Securities Group to the need to engage the communities it serveswith face-to-face securities making and cutting-edge online trading
technologies. The Group consistently offers optimal professional investment
and asset management services, made possible by the development ofinnovative products and the generous provision of corporate, industry, andmacroeconomic analysis.

Contents
Corporate Profile

1

Consolidated Financial Highlights

2

Management Policy

3

Operating and Financial Review

7

Consolidated Balance Sheets

12

Consolidated Statement of Income

14

Consolidated Statement of Comprehensive Income

15

Consolidated Statement of Changes in Net Assets

16

Consolidated Statement of Cash Flows

19

Notes to Consolidated Financial Statements

21

Independent Auditors' Report

55

Reference Data
Okasan Securities Co.,Ltd.

Non-Consolidated Balance Sheets

57

Non-Consolidated Statement of Income

59

Corporate Data

60

―1―

Consolidated Financial Highlights
Okasan Securities Group Inc. and consolidated Subsidiaries Years ended March 31, 2018
Thousands of
U.S.dollars(note)Millions of yen
2018

2017

2018

(4/1/17～3/31/18)(4/1/16～3/31/17)(4/1/17～3/31/18)

Operating revenues ･･････････････････¥81,921¥ 80,641$ 771,094

Operating income ･･････････････････

11,72014,156110,316

Net income ･････････････････････････

5,853

10,48755,092

Total assets ･････････････････････････

477,760

552,8454,496,988

Net assets ･････････････････････････

180,049

178,257

1,694,738

Per share of common stock

Yen

U.S.dollars(note)･･･････････････････¥ 29.56¥ 52.93$ 0.28Cash dividends applicable to the year･･

25.00

25.00

0.24

Basic net income

Note: The translation of the yen amount into U.S. dollars is included solely for the convenience of the reader,using the prevailing exchange rate at March 31, 2018, which was ¥106.24 to U.S.$1.

120(¥ billions)

35

100

Net Income

Operating Income

Operating Revenues(¥ billions)20

Net Assets(¥ billions)200(¥ billions)

30
25

80

15

150

10

100

5

50

0

0

20
60
15
40

10

20

5

0

0
'14'15'16'17'18'14 '15 '16 '17 '18'14 '15 '16 '17 '18―2―'14 '15 '16 '17 '18

Management Policy
Okasan Securities Group Inc. and Consolidated Subsidiaries
1．Basic management policy for the Company
Okasan Securities Group Inc. manages a corporate group composed of a holding company and its
Japanese and overseas consolidated subsidiaries. The Group strives to strengthen its enterprise value
in a sustained manner through the provision of investment services centered on the securities businessand asset management.

2．Basic policy on the distribution of profits and dividends
The Group sees shareholder returns as an important gauge of management success and intend to
distribute payouts in consideration of the earnings trends in tandem with the sustainability of stabledividends.

3．Important management indicator
It is important to generate stable profits irrespective of the market conditions. In keeping with thisprinciple, the Group maintains a stable, consolidated return on equity (ROE) of 10% as a long-termbusiness objective.

4．Medium and long-term management strategy
The Okasan Group will mark the centennial of its founding in April 2023. With this milestone in mind,
the Group is establishing a Grand Design to create a business structure that will ensure continued
growth and retain the trust of its customers beyond the centennial.
The “BEYOND 2020” medium-term management plan addresses the first three-year period of thisvision, the period from April 2017 through March 2020. During this time, the Group will invest
strategically to give the Okasan Group the strength needed to achieve these objectives.
During the fiscal year under review—the first fiscal year of this medium-term management plan—theGroup enhanced its alliances with external companies in such forms as Okasan Securities Co., Ltd., andother subsidiaries commencing business alliances and agency contracts with other firms for products
such as defined-contribution pension plans and exchange-traded contracts for difference (CFDs). The
Group also advanced FinTech activities in proposing solutions to clients and providing investment
information. Such activities included the start of provision of services using artificial intelligence (AI)and robo-advisors. The Group will continue striving to increase its corporate value by enhancing its
strengths.

―3―

BEYOND 2020: The new medium-term management plan
1. Period covered
The three-year period from April 2017 through March 2020
2. Management philosophy“Customer-First”
3. Social mission:[Statements to stakeholders](1) Customers
We seek to be a group of investment advising professionals focusing on advancing
the best interests of our customers.
(2) Employees
We seek to be a company in which employees can take even greater pride to makethe work of our employees as rewarding as possible.
(3) Shareholders
We strive to increase corporate value to meet the expectations of our shareholders.
4. Qualitative targets:[Six measures to strengthen the Group](1) Customer-First management(2) Cooperation within the Group(3) Partnerships outside the Group(4) Brand strategy(5) Human resources, rewarding work
(6) FinTech[Quantitative target]
ROE of 10%: While growing the Group, we plan to achieve a ROE of 10% as a stable,
long-term target.
5. Marking the centennial of the Group's founding
Leading up to the Group’s centennial, our goal, to be achieved at the earliest possible
date, is to achieve the targets of one million accounts and ten trillion yen in assets
managed across the entire Group.

5．Business conditions and challenges the Company should address
It seems that the world today is in the midst of a major structural transformation from the old order to a
new one. The long era of US hegemony, globalization, and monetary easing seems to be ending, as signs
have begun to appear of a new era grounded in Chinese hegemony, protectionism, and rising interest
rates. Furthermore, the advent of the fourth industrial revolution is bringing about social and economictransformations.
The trend toward globalization, which had continued since the end of the Cold War, has begun to revert
toward protectionism under US President Donald J. Trump. In addition, the exit strategy from policies
of monetary easing in Japan, the US, and Europe is poised to reverse the downward trend in interest
rates that has continued over the past three decades. As the networked society continues to evolve anduse of AI advances at an accelerating pace, society is expected to be enriched even further in the future.
At the same time, a wide range of issues and negative aspects of technology, such as the dark web,which has attracted new attention with incidents of loss of cryptocurrency holdings, have clearly―4―emerged. Conflicts between the new and old orders, and the resulting disorder, are making us think thata period of some instability will unavoidably come and last for some time. In addition, in the businessworld, as a new hegemon arises, the retiring of old ways of doing business is likely to accelerate.
In the industry in which the Group operates, the two major changes of regulatory reforms and the
FinTech revolution are poised to dramatically transform how the securities business operates. In
addition, there are signs of a shift toward increasing trends in prices and interest rates, and in societiesin which people can expect to live for 100 years, Japan also appears to be following the lead of Europe
and the US in moving from a focus on savings to one on investment.
Under such conditions, we consider the Group’s societal role to be one of meeting our clients’ various
needs in the areas of asset building, investment, and asset management as a team ofinvestment-advising professionals. We intend to further intensify our customer-centric approach basedon the “customer first” management philosophy that we have maintained for more than 95 years since
our founding. We will promote human resource development and qualitative improvements in our sales
activities to further strengthen the foundations of our core securities business. In addition, we willfurther strengthen cooperation and partnerships both inside and outside the Group to expand our
securities network. Our goal is to achieve sustained improvements in the corporate value of our entire
Group.

6．Outline of corporate governance structure(1) Basic concepts regarding corporate governanceTo remain a company that retains society’s trust, we have positioned corporate governance as a key
management issue. By securing the rights and equality of shareholders, making the right decisions in atimely manner, and putting together the structures for business execution and appropriate management
supervision and monitoring, we will fulfill our fiduciary duties and accountability to shareholders andforge cordial relationships with stakeholders.

(2) Structure of business execution
Regarding the structure of business execution, the Board of Directors as the supreme decision-making
organ on management makes decisions on items provided in laws and regulations and the articles ofincorporation and maps out plans for the management strategy of the Group and supervises them. The
President - CEO executes decisions of the Board of Directors and supervises overall management. The
Board of Directors consists of nine directors (including four directors who are Audit & Supervisory
Committee members), which enables it to make quick decisions.
We also have set up the Management Conference. To strengthen the business management of the Groupby clarifying the roles of both bodies, the Board of Directors makes management decisions andsupervises management while the Management Conference is in charge of business execution. The
Management Conference, according to the basic management policies adopted by the Board of Directors,
deliberates on the laying out of specific policies, business execution plans, and other importantmanagerial subjects.

(3) Management monitoring structure
The structure of management monitoring is composed of four total Audit & Supervisory Committee
Members, including one statutory auditor and three outside directors. They make up the Audit &Supervisory Committee and decide on auditing policies in accordance with laws and regulations andthe company’s articles of incorporation, based on the rules of Audit & Supervisory Committee Members.
They will also work to formulate audit opinions for the Audit & Supervisory Committee Members. Other
member obligations include attendance at meetings of the Board of Directors and other important
meetings, interviews with directors (excluding directors who are Audit & Supervisory Committee
Members), and the duty to review important approval documents in order to oversee decision-making by
the Board of Directors and the state of business execution by directors. In addition, Audit & Supervisory―5―

Committee Members work with independent auditors and the divisions in charge of internal auditing tohelp ensure effective, appropriate audits. Okasan Securities Group Inc. has entered into agreementswith these five Audit & Supervisory Committee Members to curtail their liabilities under Article 423,
Paragraph 1 of the Companies Act, in accordance with Article 427, Paragraph 1 of the Act, to theminimum level required under laws and regulations.

(4) Internal auditing structure
As part of efforts to contribute to securing appropriate business operations such as reducing
management risks and preventing wrongdoings, we have set up the Internal Audit Dept. and assigned
eight staff to this department. The Internal Audit Dept. makes up an audit plan in each fiscal year,
periodically implements on-the-spot audits based on these plans, and inspects documents whennecessary. The results of the audits are presented regularly to the Board of Directors in the form of anaudit report.

―6―

Operating and Financial Review
Okasan Securities Group Inc. and Consolidated Subsidiaries Years ended March 31, 2018
Ⅰ．Financial conditions and operating results
During the consolidated fiscal year under review, the Japanese economy continued its gentle expansionary
trend. Exports increased, thanks to the global economic expansion, and capital investment also was strong.
While personal consumption remained relatively low, employment conditions continued to improve and thelabor shortage further intensified. Under such conditions, prices continued to rise gently, as the year-on-year
rate of increase in the consumer price index (not including fresh foods) in February 2018 reached the +1%
level for the first time in about three years.
In the foreign exchange market, while the yen had remained in the ¥107–¥115/$1 range during 2017, it has
risen against the dollar since the start of the calendar year, due to factors including political risks in Japanand the US, reaching ¥104/$1 in March. At the end of the fiscal year, it stood at ¥106/$1 due to remaining
concerns about trade frictions centered on the US. The yen/euro rate, meanwhile, fell temporarily to ¥137/€1
in February, due to factors such as the economic recovery in the Eurozone and a movement toward reversing
monetary easing by the European Central Bank (ECB). However, after that, the yen rose against the euro,
and trading ended at ¥131/€1 at the end of the fiscal year.
In the equities market, the Nikkei 225 remained around ¥20,000 through the summer, due to concerns
about rising risks including those related to North Korea and the appreciation of the yen against the dollar.
However, in the autumn, it reacted positively to underlying political stability as the ruling party won theHouse of Councillors elections in Japan and remained strong after that, recording 16 consecutive
increases—the longest streak ever. Strong corporate business performance and other factors also supported
investor sentiment, and in November, the market rose to its highest recovery level since the collapse of the“bubble” economy of the late 1980s and early 1990s. In January, it rose temporarily above ¥24,000 for the
first time in about 26 years. However, the Nikkei 225 began to fall in February 2018 as equity markets
worldwide, beginning in the US, slumped, ending the year at ¥21,454.30. In debt markets, under the Bankof Japan’s policy of manipulating interest rates to maintain the 10-year government bond yield at around 0%,
the BoJ purchased government bonds when interest rates were rising to roughly 0.10% in July 2017 andFebruary 2018, restricting the increase in yields. Even when the 10-year government bond yield fell
temporarily into negative territory in September, the BoJ put a temporary halt to the drop into negative
territory by reducing the amount of government bonds it purchased. The 10-year government bond yield
ended the fiscal year at +0.045%, after spending the year largely in the vicinity of the BoJ’s target level.
In this environment, Okasan Securities Co., Ltd., the core Group company, strived to strengthen its sales
capabilities through initiatives including opening new branches while providing updated investment
information corresponding to the current trends in the market. While the company’s sales activities
remained firmly rooted in local communities, it also advanced new initiatives including expanding its
provision of defined-benefit pension services in partnership with securities companies and other firms both
inside and outside the Group and entering into a business and capital partnership with a company thatdevelops AI for use in analyzing financial information. At the same time, Okasan Online Securities Co., Ltd.,the Group’s specialist online brokerage, sought to grow its business foundation by improving customer
services in various ways, including enabling customers to open new accounts immediately, beginning tohandle general margin transactions, and starting to provide investment information services using AI.
Okasan Asset Management Co., Ltd., sought to improve investment performance by stressing subjects suchas economic analysis and corporate research, while also implementing engagement and exercise of voting
rights with regard to the companies in which it invests, to help increase their corporate values. The company
also strived to increase its assets under management through development of investment trusts offered tothe public, such as the Nippon Founder Fund, and proposing private-placement investment trusts to―7―

institutional investors.

Ⅱ．Financial standing
Total assets at the end of the consolidated fiscal year under review stood at ¥477,760 million, down ¥75,084
million from the end of the previous consolidated fiscal year. Total liabilities were ¥297,711 million, down
¥76,877 million from the end of the previous consolidated fiscal year, while net assets were up ¥1,792
million over the same period to ¥180,049 million.

1. Total assets
Total assets at the end of the consolidated fiscal year under review stood at ¥477,760 million, down ¥75,084
million from the end of the previous consolidated fiscal year. This was due mainly to decreases of ¥53,973
million in receivables on collateralized securities transactions and ¥37,343 million in trading assets, despite
an increase of ¥11,218 million in receivables on margin transactions.

2. Total liabilities
Total liabilities at the end of the consolidated fiscal year under review stood at ¥297,711 million, down
¥76,877 million from the end of the previous consolidated fiscal year. This was due mainly to decreases of¥75,295 million in trading liabilities, ¥27,286 million in payables on collateralized securities transactions,and ¥1,276 million in income tax payables, despite increases of ¥20,576 million in short-term borrowingsand ¥3,241 million in deposits received.

3. Net assets
Net assets at the end of the consolidated fiscal year under review stood at ¥180,049 million, up ¥1,792
million from the end of the previous consolidated fiscal year. This was due mainly to increases of ¥1,765
million in non-controlling interests and ¥942 million in retained earnings, while unrealized gain on
available-for-sale securities decreased by ¥754 million.

Ⅲ．Business resultsGroup operating revenues in the consolidated fiscal year under review were ¥81,921 million (101.6% of the
figure for the previous year), and net operating revenues were ¥80,758 million (101.6% of the figure for theprevious year). SG&A expenses were ¥69,038 million (105.7% of the figure for the previous year); operating
income was ¥11,720 million (82.8% of the figure for the previous year); and net income attributable toowners of the parent was ¥5,853 million (55.8% of the figure for the previous year).

1.Fees and commissions received
Fees and commissions received stood at ¥52,777 million (112.1% of the figure for the previous year). Thesecan be broken down as follows:(1)Brokerage commissions
The average daily trading volumes on the First Section of the Tokyo Stock Exchange (Japanese commonshares) in the consolidated fiscal year under review was 2,309 million shares (90.9% of the figure for theprevious year), while turnover was ¥3,211.7 billion (117.2% of the figure for the previous year). In thisenvironment, equity brokerage commissions were ¥19,753 million (127.6% of the figure for the previousyear). Bond brokerage commissions were ¥3 million (18.7% of the figure for the previous year). Other―8―

brokerage commissions amounted to ¥407 million (63.9% of the figure for the previous year). Total brokeragecommissions were ¥20,163 million (125.0% of the figure for the previous year).

(2)Underwriting fees, selling concessions, and commissions on solicitation for sales of financial
instruments to specified investors and others
During the consolidated fiscal year under review, our equity underwriting income was significantly higher
than in the previous year, due to factors including large underwriting transactions and the fact that weserved as lead underwriter for some listings. In our bond-underwriting efforts, although we served as leadunderwriter for several local government and corporate bond issuances, commissions decreased year on year.
The resulting commissions on equity were ¥512 million (213.6% of the figure for the previous year).
Commissions on bonds totaled ¥117 million (72.8% of the figure for the previous year). Total underwriting
fees, selling concessions, and commissions on solicitation for sale of financial instruments to specified
investors and others, related to both equity and bond transactions, amounted to ¥629 million (157.1% of the
figure for the previous year).

(3)Administrative charges on offering, selling, and solicitation for sales of financial instruments
to specified investors, and other fees and commissions received
Income related to investment trusts accounted for the bulk of our income from administrative charges onoffering, selling, and solicitation for sales of financial instruments to specified investors, and other fees andcommissions received.
During the consolidated fiscal year under review, the company enjoyed strong sales of funds offering
prospects of comparatively high yields. These included funds that invest in high-yield bonds or high-dividend
equities. Funds invested in equities in rapidly growing Asian markets also sold well, backed by favorable
global economic conditions. We also enhanced our product lineup through means including the introductionof Japanese equities funds focusing on entrepreneurs who demonstrate strong leadership and funds
investing in equities of emerging Chinese firms in the technology industry. Such initiatives are expected tolead to future growth.
As a result, administrative charges on offering, selling, and solicitation for sales of financial instruments tospecified investors totaled ¥14,672 million (109.6% of the figure for the previous year). Other fees andcommissions received, mainly related to investment trusts, amounted to ¥17,313 million (100.9% of the
figure for the previous year).

Fees and commissions received
Fees and commissions
Breakdown by category
received

80

2018<A>

2017<B>

Ratio(4/1/17～3/31/18)(4/1/16～3/31/17)<A>/<B>¥20,163¥16,130125.0

19,753

15,479

127.6

3

14

21.4

407

637

63.9

629

400

157.3

Equities

512

240

213.3

Bonds

117

161

72.7

(¥ billions)

Brokerage commissions

70

Equities
60

Bonds

50

OthersUnderwriting fees and selling concessions

40
30(Millions of yen except percentage)

20

Placement commissions

14,672

13,381

109.6

10

Other commissions

17,313

17,162

100.9¥52,777¥47,074

112.1

Total

0
'14 '15 '16 '17 '18―9―Breakdown by product(Millions of yen except percentage)

2018<A>

2017<B>

Ratio(4/1/17～3/31/18)(4/1/16～3/31/17)<A>/<B>¥20,527¥15,985

128.4

247

410

60.2

Investment trusts

30,73329,293

104.9

Others

1,270

1,384

91.8

Total

¥52,777¥47,074112.1

Equities
Bonds

2.Trading profits
Profits on equity trading are earned mainly from domestic over-the-counter trading of foreign equities,
particularly US stocks, while those on bond trading arise mainly in conjunction with income from thehandling of foreign bonds for customers.
While investors trended more strongly toward risk avoidance for a time in the middle of the consolidated
fiscal year under review, conditions in US equities markets were favorable, thanks to strong US economic
conditions and expectations for US tax reform. However, since February, both equities and foreign-exchange
markets seemed to be adjusting to concerns about US-China trade friction.
Consequently, total profits on equity trading were ¥18,530 million (94.1% of the figure for the previous year).
Total bond trading profits were ¥8,078 million (68.0% of the figure for the previous year). Total trading
profits, including loss from other trading of ¥66 million (compared to a loss of ¥286 million in the previousyear), were ¥26,541 million (84.9% of the figure for the previous year).
Trading profits

35(¥ billions)

Trading profits(Millions of yen except percentage)

30

2018<A>

2017<B>

Ratio(4/1/17～3/31/18)(4/1/16～3/31/17)<A>/<B>

25

Equities¥18,530¥19,686

94.1

Bonds

8,078

11,872

68.0

Others

-66

-286

－

¥26,541¥31,272

84.9

20
15
10

Total

5
0
'14 '15 '16 '17 '18

3.Net financial income
Financial income amounted to ¥1,746 million (116.9% of the figure for the previous year). Financial
expenses stood at ¥1,163 million (98.6%). Net financial income—i.e., the difference between the two—was¥582 million (185.4%).

4.Other operating income
Other operating income—i.e., operating income other than that related to the financial products transaction
business and incidental operations—stood at ¥857 million (106.8% of the figure for the previous year).

5.Selling, general, and administrative expenses
Selling, general, and administrative expenses were ¥69,038 million (105.7% of the figure for the previousyear), due to higher expenses, including personnel expenses, real-estate-related expenses, andadministrative expenses.

― 10 ―

6.Other income (expenses)
Other expenses totaled ¥1,047 million. Extraordinary income was ¥5,065 million, due to factors such asrecording of gains on the sale of investment securities, and extraordinary losses totaled ¥7,164 million, due
to factors including the recording of impairment loss and loss on sales and retirement of noncurrent assets.

7.Dividends
The company sees shareholder returns as a critical management issue. Its basic policy is to maintain astable dividend while distributing profits in line with earnings.
Based on the policies above, the company set dividends for the fiscal year at ¥25 per share.

Ⅳ．Cash flows
Cash and deposits (“cash” hereafter) at the end of the consolidated fiscal year rose ¥2,949 million from theend of the previous fiscal year to ¥54,140 million.
Presented below is information on each type of cash flow during the fiscal year under review and theunderlying factors:＜Cash flows from operating activities＞
Cash used in operating activities was ¥12,877 million, due mainly to the difference between cash outflows
resulting from a change of ¥40,604 million in trading products and a change of ¥11,327 million inreceivables on margin transactions and payables on margin transactions and cash inflows due to a change of¥26,687 million in receivables on collateralized securities transactions and payables on collateralized
securities transactions.

＜Cash flows from investing activities＞
Cash flows from investment activities were ¥661 million, due mainly to the difference between cash inflowsof ¥5,980 million from the sale of investment securities and cash outflows of ¥2,605 million on theacquisition of intangible fixed assets, ¥1,500 million on the acquisition of securities, and ¥584 million on theacquisition of tangible fixed assets.

＜Cash flows from financing activities＞
Cash flows from financing activities were ¥15,418 million, due mainly to the difference between cash inflows
from a net change in short-term borrowings of ¥20,506 million and ¥1,000 million from long-termborrowings and cash outflows of ¥4,909 million on dividend payments and ¥692 million on repayment oflong-term borrowings.

― 11 ―

Okasan Securities Group Inc. and Consolidated Subsidiaries
Consolidated Balance Sheets － March 31, 2018
Thousands of
U.S. dollars(note 3)

Millions of yen
2018

2017

2018

ASSETS
Current assets:
Cash on hand and in banks (notes 10 and 23)¥

59,848¥56,700$563,328

Cash segregated as deposits for customers andothers

68,93265,396

648,833

Trading assets (notes 4 and 10)

112,138

149,482

1,055,516

Receivables arising from unsettled trades

9,689

7,036

91,199Receivables on margin transactions (note 5)

51,47840,260484,545

Receivables on collateralized securities transactions(note 6)87,549141,522824,068

Short-term investments (note 7)

1,500

95

14,119Deferred income taxes (note 11)

1,037

1,002

9,761

Other current assets

8,984

8,460

84,563

(6)

(5)

(57)

401,149

469,948

3,775,875

Property and equipment, net of accumulated
depreciation of ¥14,658 million ($137,971 thousand)in 2018 and ¥13,881 million in 2017 (note 10)

19,47019,340183,264

Intangible assets, net

5,905

12,89955,582

Investment securities (notes 7, 8 and 10)

42,64843,632

401,431

Long-term guarantee deposits

3,824

3,791

35,994

Allowance for doubtful accounts
Total current assets

Investments and other assets:

Asset for retirement benefits (note 12)

1,434

768

13,498Deferred income taxes (note 11)

2,414

1,441

22,722

Other

2,343

2,467

22,054

Allowance for doubtful accounts(1,427)(1,441)(13,432)

51,23650,658482,267

Total investments and other assets
TOTAL

¥

477,760

See accompanying notes to consolidated financial statements.
― 12 ―¥

552,845$4,496,988

Okasan Securities Group Inc. and Consolidated Subsidiaries
Consolidated Balance Sheets－(Continued) － March 31, 2018
Thousands of
U.S. dollars(note 3)

Millions of yen
2018
LIABILITIES AND NET ASSETS
Current liabilities:
Trading liabilities (note 4)
Payables on margin transactions (notes 5 and 10)
Payables on collateralized securities transactions(note 6)
Deposits received
Guarantee deposits received
Short-term borrowings (notes 9 and 10)
Income tax payables (note 11)
Deferred income taxes (note 11)
Other current liabilities (notes 9 and 13)
Total current liabilities¥

63,011
12,006

2017¥

138,307
12,0892018$

593,101
113,008

19,37337,48436,50789,647
2,043
25
7,366
267,462

46,65934,24335,192
69,070
3,319
38
6,445
345,362

182,351
352,824
343,628
843,816
19,230235
69,3332,517,526

Non-current liabilities:
Long-term borrowings (notes 9 and 10)
Lease liabilities (note 9)
Deferred income taxes (note 11)
Liability for retirement benefits (note 12)
Other non-current liabilities (note 13)
Total non-current liabilities

10,048
877
7,592
6,489
3,957
28,963

9,860
449
7,790
5,884
3,910
27,893

94,5788,255
71,461
61,07937,246272,619

Financial instruments transactions reserve (note 14)
Total liabilities

1,286
297,711

1,333
374,588

12,1052,802,250

18,59016,420113,225

18,59016,422112,283

174,981
154,556
1,065,747(3,755)(3,786)(35,344)

144,480

143,5091,359,940

11,627
401
(70)
275

12,382
401
157
311

109,441
3,774
(659)
2,589

12,233

13,251

115,145

Net assets
Shareholders' equity (note 15):
Common stock
Authorized―750,000,000 shares;
issued―208,214,969 shares in 2018 and 2017
Capital surplus
Retained earnings
Treasury stock, at cost, 10,210,310 shares in 2018
and 10,297,377 shares in 2017
Total shareholders' equity
Accumulated other comprehensive income (loss):
Unrealized gain on available-for-sale securities(note 7)
Surplus on land revaluation (note 17)
Foreign currency translation adjustments
Remeasurements of defined benefit plans
Total accumulated other comprehensive
incomeStock acquisition rights (note 16)

236

162

2,221

Non-controlling interests

23,10021,335

217,432

Total net assets

180,049

178,257

1,694,738

552,845$ 4,496,988

Commitments and contingencies (note 24)
TOTAL

¥

477,760

See accompanying notes to consolidated financial statements.
― 13 ―¥

Okasan Securities Group Inc. and Consolidated Subsidiaries
Consolidated Statement of Income － Year ended March 31, 2018
Thousands of
U.S. dollars(note 3)

Millions of yen
2018

2017

2018

Operating revenues:
Commissions¥

52,777¥47,074$

496,772

Net gain on trading

26,541

31,272249,821

Interest and dividend income

1,746

1,493

16,434Service fee and other revenues

857

802

8,067

81,92180,641

771,094

Interest expense

1,163

1,179

10,947

Net operating revenues

80,75879,462

760,147

Selling, general and administrative expenses (note19)

69,03865,306

649,831

11,72014,156110,316

927

957

8,726

Operating income
Other income (expenses):Dividend income
Exchange gain

233

195

2,193

5,019

615

47,242Gain on sale of property and equipment

3

93

28

Equity in gain (losses) of affiliates

93

41

875

Interest expense

(56)

(69)

(527)

(2,499)
(63)

(160)
(182)

(23,522)
(593)

(9)

0

(85)

47
(4,823)

1,309
(233)

442
(45,397)

Gain on sale of investment securities

Loss on sale and disposal of property andequipment and intangible assets
Loss on sale of investment securities
Loss on devaluation of investment securities
Reversal of (provision for) financial instruments
transactions reserve
Impairment loss (note 20)
Compensation income

-

390

-

Moving costs

-

(94)

-

Other, net

81

189

763

(1,047)3,051(9,855)

10,673

17,207

100,461

Current

4,658

5,497

43,844

Deferred(1,029)(202)(9,686)

3,629

5,295

34,158Net income

7,044

11,912

66,303

Net income attributable to non-controllinginterests

1,191

1,425

11,211

Income before income taxes andnon-controlling interests
Income taxes (note 11):Net income attributable to owners of theparent¥5,853

See accompanying notes to consolidated financial statements.

― 14 ―¥

10,487$55,092

Okasan Securities Group Inc. and Consolidated Subsidiaries
Consolidated Statement of Comprehensive Income － Year ended March 31, 2018
Thousands of
U.S. dollars(note 3)2018

Millions of yen
2017
2018
Net income

¥

7,044

¥

11,912$

66,303

Other comprehensive income (loss) (note 21):
Unrealized gain (loss) on available-for-sale securities

(506)

959

(4,763)Foreign currency translation adjustments

(227)

(23)

(2,137)

Remeasurements of defined benefit plans

(25)

369

(235)

Share of other comprehensive loss of affiliates
accounted for by equity method

332

(122)

3,125

(426)

1,183

(4,010)Total other comprehensive income (loss)
Comprehensive income

¥

6,618

¥

13,095$62,293

¥

4,834

¥

11,826$45,501

Comprehensive income attributable to:
Owners of the parent
Non-controlling interests

1,784

See accompanying notes to consolidated financial statements.

― 15 ―

1,269

16,792

Okasan Securities Group Inc. and Consolidated Subsidiaries
Consolidated Statement of Changes in Net Assets － Year ended March 31, 2018
Millions of yen
Shareholders’ equity
Commonstock
Balances at March 31, 2016¥

Capitalsurplus18,590 ¥12,982Retainedearnings¥

106,669 ¥Treasurystock,
at cost(3,790) ¥Totalshareholders’equity134,451

Changes arising during the year:
Cash dividends(4,873)(4,873)

Net income attributable toowners of the parent

10,487

10,487Purchase of treasury stock
Disposition of treasury stock

122

Changes in equity resulting
from transactions with
non-controlling interests

3,318

(0)

(14)

(14)

159

281

(141)

3,177

Net changes other thanshareholders’ equity
Total changes during the year
Balances at March 31, 2017

-

3,440

5,614

4

9,058

18,59016,422112,283(3,786)

143,509

Changes arising during the year:
Cash dividends(4,910)Net income attributable toowners of the parent

5,853

Purchase of treasury stock
Disposition of treasury stock

2

Changes in equity resulting
from transactions with
non-controlling interests

(4)

(1)

(4,910)
5,853
(22)

(22)

53

54

(4)

Net changes other thanshareholders’ equity
Total changes during the year
Balances at March 31, 2018¥(2)

18,590 ¥16,420― 16 ―¥

942

31

113,225 ¥(3,755) ¥971
144,480

Millions of yen
Accumulated other comprehensive income (loss)
Unrealized

Total

Foreign

gain onBalances at March 31, 2016¥

Remeasure-accumulated

available-

Surplus on

currency

ments

other

for-salelandtranslationof definedcomprehensive

securities

revaluation

adjustments

benefit plansincome11,371 ¥

401 ¥

180 ¥

(41) ¥

11,911 ¥

Stock

Non-

acquisition

controllingrightsinterests

87 ¥Total net
assets25,648 ¥ 172,097

Changes arising during theyear:
Cash dividends(4,873)

Net income attributable toowners of the parent

10,487Purchase of treasury stock(14)

Disposition of treasury stock

281

Changes in equity resulting
from transactions with

3,177

non-controlling interests

Net changes other thanshareholders’ equity

1,011

0

(23)

352

1,340

75

(4,313)(2,898)(4,313)

6,160

21,335

178,257

Total changes during the year

1,011

0

(23)

352

1,340

75

Balances at March 31, 201712,382

401

157

311

13,251

162

Changes arising during theyear:
Cash dividends(4,910)Net income attributable toowners of the parent

5,853

Purchase of treasury stock(22)

Disposition of treasury stock

54

Changes in equity resulting
from transactions with

(4)

non-controlling interests

Net changes other thanshareholders’ equity

(755)

-

(227)

(36)

(1,018)

74

1,765

821

Total changes during the year

(755)

-

(227)

(36)

(1,018)

74

1,765

1,792

11,627 ¥401 ¥(70) ¥

275 ¥

12,233 ¥236 ¥23,100 ¥ 180,049

Balances at March 31, 2018¥― 17 ―

Thousands of U.S. dollars(note 3)
Shareholders’ equity
Commonstock
Balances at March 31, 2017$

174,981 $CapitalsurplusRetainedearnings

154,574$ 1,056,881

Treasurystock,
at cost$Total
shareholders'equity(35,636) $1,350,800

Changes arising during the year:

Cash dividends(46,216)(46,216)

Net income attributable toowners of the parent

55,09255,092

Purchase of treasury stock
Disposition of treasury stock

19

(10)

Changes in equity resulting
from transactions with
non-controlling interests

(37)

(207)

(207)

499

508

(37)

Net changes other thanshareholders’ equity
Total changes during the year
Balances at March 31, 2018$

174,981 $

(18)

8,866

154,556$ 1,065,747

292
$

9,140

(35,344) $1,359,940

Thousands of U.S. dollars(note 3)
Accumulated other comprehensive income (loss)
Unrealized

Total

Foreign

Remeasure-available-

Surplus on

currency

ments

other

for-salelandtranslationof definedcomprehensive

securities

revaluation

adjustments

benefit plansincomegain onBalances at March 31, 2017 $ 116,548 $

3,774 $

1,478 $

2,927 $

accumulated

124,727 $

Stock

Non-

acquisition

controllingrightsinterests

Total net
assets1,525 $ 200,819 $ 1,677,871

Changes arising during the year:

Cash dividends(46,216)

Net income attributableto owners of the parent

55,092

Purchase of treasury stock(207)

Disposition of treasury stock

508

Changes in equity resulting
from transactions with(37)

non-controlling interests

Net changes other thanshareholders’ equity(7,107)-(2,137)(338)(9,582)696

16,613

7,727

Total changes during the year

(7,107)-(2,137)(338)(9,582)696

16,613

16,8672,589 $

115,145 $Balances at March 31, 2018 $ 109,441 $

3,774 $

(659) $

See accompanying notes to consolidated financial statements.

― 18 ―

2,221 $ 217,432 $ 1,694,738

Okasan Securities Group Inc. and Consolidated Subsidiaries
Consolidated Statement of Cash Flows － Year ended March 31, 2018
Thousands of
U.S. dollars(note 3)

Millions of yen
2018

2017

2018

Cash flows from operating activities:
Income before income taxes and non-controlling interests¥

10,673¥

17,207$

100,461

Adjustments to reconcile income before income taxes andnon-controlling interests to net cash provided by operating
Depreciation and amortization

3,609

3,504

33,970

Impairment loss

4,824

233

45,407

Interest and dividend income(2,679)(2,456)(25,216)

Interest expense
Loss on disposal of intangible assets
Gain on sale of investment securities

1,219
2,457
(4,956)

1,247
16
(192)

11,474
23,127(46,649)

-

(245)

-

Gain on sale of investments in affiliates
Loss on devaluation of investment securities
Decrease (increase) in deposits segregated for customer
Decrease (increase) in trading assets and increase (decrease) intrading liabilities
Decrease (increase) in receivables on margin transactions andincrease (decrease) in payables on margin transactions
Decrease (increase) in receivables on collateralized securities
transactions and increase (decrease) in payables on collateralized
securities transactions
Increase (decrease) in deposits received

9

0

85

(3,500)(6,650)(32,944)(40,605)

59,289(382,201)(11,328)3,700(106,627)

26,687(24,139)

251,195

3,411

6,734

32,107

Decrease (increase) in short-term guarantee deposits

(625)

(988)

(5,883)

Increase (decrease) in guarantee deposits received

1,315(1,093)

12,378

(12)

(123)

(113)

(62)

(229)

(584)

Increase (decrease) in allowance for doubtful accounts
Decrease (increase) in assets for retirement benefits and increase(decrease) in liabilities for retirement benefits
Increase (decrease) in financial instruments transactions reserve
Other, net
Sub-total(47)(1,309)

(442)

994

164

9,356

(8,616)54,670(81,099)

Interest and dividend received

2,725

2,589

25,649Interest paid

(1,144)(1,235)(10,768)

Income taxes paid
Net cash provided by (used in) operating activities(5,842)(3,807)(54,989)(12,877)

52,217(121,207)(1,500)(1,011)(14,119)

-

3,001

-

Cash flows from investing activities:
Payment for short-term investments
Proceeds from sale of short-term investments
Payment for purchase of property and equipment

(584)

(900)

(5,497)(2,606)(5,314)(24,529)

Payment for purchase of investment securities(280)(1,515)(2,636)

Proceeds from sale of investment securities

5,980

3,069

56,288Other, net(349)(1,425)(3,285)661(4,095)

6,222

Payment for purchase of intangible assets

Net cash provided by (used in) investing activities― 19 ―Cash flows from financing activities:
Increase (decrease) in short-term borrowings

20,507(42,498)

193,025

Proceeds from long-term borrowings

1,000

200

9,413

Payments on long-term borrowings

(692)

(604)

(6,514)

Proceeds from sale of treasury stock

-

1

-

Purchase of treasury stock

(22)

(14)

(207)

Proceeds from sale of parent’s stock held by subsidiaries

56

808

527

-

(215)

-

Purchase of treasury stock by subsidiaries
Dividends paid

(4,910)(4,872)(46,216)

Dividends paid to non-controlling interests of subsidiaries

(31)

(35)

(292)

Purchase of subsidiaries’ stock that do not result in change inscope of consolidation
Other, net(490)(2,393)(532)(4,612)

15,418(50,154)

145,124

(253)

(27)

(2,381)

Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents

2,949(2,059)27,758Cash and cash equivalents, beginning of year

51,191

53,250481,843

Cash and cash equivalents, end of year (note 23)¥

54,140See accompanying notes to consolidated financial statements.

― 20 ―¥

51,191$

509,601

Notes to Consolidated Financial Statements
Okasan Securities Group Inc. and Consolidated Subsidiaries－

Year ended March 31, 2018

1. BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements include the accounts of Okasan Securities
Group Inc. (the “Company”) and its subsidiaries.
The Company and its domestic subsidiaries maintain their books of account and prepare theirfinancial statements in conformity with financial accounting standards of Japan, and its
foreign subsidiary in conformity with those of the country of its domicile.
“Practical Solution on unification of Accounting Policies Applied to Foreign Subsidiaries for
Consolidated Financial Statements” (ASBJ Practical Issues Task Force (PITF) No. 18, May 17,2006) requires that for the preparation of consolidated financial statements, the accounting
policies and procedures applied to a parent company and its subsidiaries for similartransactions and events under similar circumstances should be unified, in principle, andfinancial statements prepared by foreign subsidiaries in accordance with IFRSs or thegenerally accepted accounting principles in the United States (U.S. GAAP) tentatively may be
used for the consolidation process, however, the items listed in the PITF should be adjusted in
the consolidation process so that net income is accounted for in accordance with Japan GAAP
unless they are not material. The Company made necessary modification to the consolidated
financial statements according to the PITF.
The accompanying consolidated financial statements have been prepared in accordance withthe provisions set forth in the Japanese Financial Instruments and Exchange Law and its
related accounting regulations, and in conformity with accounting principles and practices
generally accepted in Japan and applicable to Japanese securities companies.
In preparing the accompanying consolidated financial statements, certain reclassifications
have been made in the financial statements issued domestically in Japan in order to present
them in a form which is more familiar to readers outside Japan. In addition, the notes to theconsolidated financial statements include information which is not required under accounting
principles generally accepted in Japan but is presented herein as additional information.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESa.

Consolidation— The consolidated financial statements include the accounts of theCompany and its 10 subsidiaries. Two affiliates are accounted for by equity method at
March 31, 2018. The “Accounting Standards for Consolidation” require the control or
influence concept for the consolidation scope of subsidiaries and affiliates. Under thecontrol or influence concept, a company in which the Company or its consolidated
subsidiaries, directly or indirectly, are able to exercise control over operations is fully
consolidated, and a company over which the Company and/or its consolidated subsidiaries
have the ability to exercise significant influence is accounted for by the equity method.
Investments in affiliates are accounted for by the equity method.
All significant intercompany balances and transactions have been eliminated inconsolidation.

b.

Cash and cash equivalents— For the purposes of the statement of cash flows, the Company
considers all highly liquid investments with insignificant risk of changes in value whichhave maturities of generally three months or less when purchased to be cash equivalents.

c.

Trading assets and liabilities— Trading assets and liabilities, including securities andfinancial derivatives for trading purposes are recorded on a trade date basis at fair value.
Revenues and expenses related to trading securities transactions are recorded on a tradedate basis. Changes in the fair values are reflected in “net gain on trading” in theaccompanying consolidated statement of income. Gains and losses arose from derivatives
held or issued for trading purposes are also reported as “net gain on trading” in theaccompanying consolidated statement of income, which includes realized gains and losses
as well as changes in the fair values of such instruments. Securities owned for― 21 ―

non-trading purposes, shown in the accompanying consolidated balance sheet as“Short-term investments” and “Investment securities” are discussed below.
d.

Securities—The Company examines the intent of holding securities for non-trading
purposes, and classifies those securities as (a) debt securities intended to be held tomaturity (“held-to-maturity debt securities”), (b) equity securities issued by an affiliatedcompany and (c) all other securities not classified in any of the above categories(“available-for-sale securities”).
Held-to-maturity debt securities are stated at amortized cost. Available-for-sale securities
with market value are stated at market, based on quoted market prices. Realized gains
and losses on sale of such securities are computed using the gross-average cost.
Unrealized gains or losses on such securities, net of related taxes, are recorded in otheraccumulated comprehensive income. Debt securities classified as “available-for-salesecurities” for which fair value is not available are stated at the amortized cost. Equity
securities classified as “available-for-sale securities” for which market value is not available
are stated at the gross-average cost.

e.

Hedging transactions— The Company states derivative financial instruments at fair value
and recognize changes in the fair value as gains or losses unless derivative financial
instruments are used for hedging purposes. Valuation gains or losses on hedging
instruments are mainly deferred as assets or liabilities until the gains or losses onunderlying hedged instruments are realized.
The Company and certain subsidiaries
have entered into interest rate swap agreements for hedging interest rate exposures. The
difference in amounts to be paid or received on interest rate swap agreements is recognizedover the life of the agreement as an adjustment to interest expense.

f.

Collateralized securities transactions— Collateralized securities transactions consist of
securities borrowed and loaned transactions. Securities borrowed transactions generally
require the Company to provide the counterparty with collateral in the form of cash. And
securities loaned transactions, the Company generally receives collateral in the form of
cash. The Company monitors the market value of the securities borrowed or loaned andrequires additional cash, as necessary, to ensure that such transactions are adequately
collateralized. Under the “Uniform Accounting Standards of Securities Companies”,
securities borrowed and loaned transactions are accounted for as financing transactions.
Securities borrowed or loaned that are cash collateralized are recorded at the amount ofcash collateral advanced or received.

g. Allowance for doubtful accounts— Allowance for doubtful accounts of the Company and its
domestic consolidated subsidiaries are provided on the estimated historical deterioration
rate for normal accounts, and based on specifically assessed amounts for doubtful accounts.
An overseas consolidated subsidiary provides specifically assessed amount for doubtful
accounts.
h. Property and equipment— Property and equipment are stated at cost. Depreciation ofproperty and equipment of the Company and its domestic consolidated subsidiaries iscomputed substantially by the declining-balance method at rates based on the estimateduseful lives of the assets, while the straight-line method is applied to buildings purchased
in Japan on or after April 1, 1998 and to leasehold improvements and structures purchased
in Japan on or after April 1, 2016. And in an overseas subsidiary, depreciation is computedby the straight-line method.
The range of useful lives is principally from 3 to 50 years for buildings and from 3 to 15
years for equipment.
i.

Intangible assets— Intangible assets are carried at cost less amortization. Software forinternal use is amortized under straight-line method based on internally estimated usefullife (5 years). Amortization of other intangible assets is calculated by the straight-line
method at rates based on the estimated useful lives of respective assets.

j.

Retirement and severance benefits— Liabilities for retirement benefits are provided mainly
at an amount calculated based on the retirement benefit obligation and the fair value of thepension plan assets at the balance sheet dates, as adjusted for the unrecognized actuarial
gain or loss and unrecognized prior service benefit or cost. The retirement benefit
obligation is attributed to each period by the benefit formula basis. Actuarial gain or loss
― 22 ―

is amortized in the subsequent year that it occurs by the straight-line method within the
average remaining years of service of the employees of 5 years.
Certain domestic consolidated subsidiaries have unfunded defined benefit pension plans for
directors and corporate auditors based on their internal rule. The provision for the plans
has been made in the accompanying consolidated financial statements for vested benefits towhich directors and corporate auditors are entitled if they were to retire and severimmediately at the balance sheet date.
k.

Leases—Leased assets related to finance lease transactions without title transfer are
depreciated on a straight-line basis, with the lease periods as their useful lives and noresidual value.

l.

Income taxes—Income taxes in Japan applicable to the Company and its domestic
consolidated subsidiaries consist of corporate tax, inhabitant tax and business tax.
The “Accounting Standards for Income Taxes” require that deferred income taxes be
accounted for under the asset and liability method. Deferred tax assets and liabilities arerecognized for the expected future tax consequences of events that have been included on
the financial statements or tax return. Under this method, deferred tax assets andliabilities are measured using enacted tax rates expected to apply to taxable income in theyears in which those temporary difference are expected to be recovered or settled, and theeffect on deferred tax assets and liabilities of a change in tax rates is recognized in incomein the period that includes the enactment date.
The Company has filed consolidated tax returns in Japan.

m. Foreign currency transactions— Under the “Accounting Standards for Foreign Currency
Transactions,” receivables and payables denominated in foreign currencies are translated
into yen at the rate of exchange at the balance sheet dates and gains or losses resulting
from the translation of foreign currencies are credited or charged to income. Assets andliabilities, and revenues and expenses of an overseas subsidiary are translated into yen at
the rate of exchange at the balance sheet dates, a comprehensive adjustment resulting fromtranslation is presented as “Foreign currency translation adjustments” in a component of
net assets.
n.

Asset retirement obligations— The Company recognizes an asset retirement obligation
which is a statutory or similar obligation with regard to the removal of assets as a liability.
An asset retirement obligation is recognized as a liability at the time that the asset isincurred by its acquisition, construction, development or ordinary use. When an asset
retirement obligation is recognized as a liability, the asset retirement cost corresponding to
it is included in the cost of the relevant asset by the same amount.

o.

Accounting standards issued but not yet applied
1. Implementation Guidance on Tax Effect Accounting etc.
・ Implementation Guidance on Tax Effect Accounting (ASBJ Guidance No. 28 revised by
the Accounting Standards Board of Japan on February 16, 2018)
・ Implementation Guidance on Recoverability of Deferred Tax Assets (ASBJ Guidance No.
26 finally revised by the Accounting Standards Board of Japan on February 16, 2018)(1) Overview
ASBJ made the following revisions that were deemed necessary on Implementation
Guidance on Tax Effect Accounting, etc. basically following their relevant contents, when
Practical Guidelines on Tax Effect Accounting were transferred to the AccountingStandards Board of Japan from under the control of the Japanese Institute of Certified
Public Accountants.
(Major revised accounting treatments)
・ Accounting treatment on taxable temporary difference from subsidiary’s stocks, etc.
in non-consolidated financial statements
・ Accounting treatment on recoverability of deferred tax assets in companies that
qualifies as Category 1(2) Planned applicable date
The accounting standards are to be applied from the beginning of the year ending March
31, 2019.
(3) Impact of application of these accounting standards, etc.

― 23 ―

The Company is currently evaluating the impact of application of these accounting
standards to the consolidated financial statements.
2. Accounting Standards for Revenue Recognition etc.
・ Accounting Standards for Revenue Recognition (ASBJ Statement No. 29, March 30,
2018)
・ Implementation Guidance on Accounting Standard for Revenue Recognition (ASBJ
Guidance No. 30, March 30, 2018)(1) Overview
The International Accounting Standards Board (IASB) and US Financial AccountingStandards Board (FASB) co-developed a new comprehensive revenue recognition
standard and published “Revenue from Contracts with Customers” in May 2014 (IFRS
No. 15 in IASB, Topic 606 in FASB). Given that IFRS No. 15 will be applied from thefiscal year starting on or after January 1, 2018 and Topic 606 from the fiscal year
starting after December 15, 2017, the Accounting Standards Board of Japan has
developed comprehensive accounting standards for revenue recognition and publishedthem together with implementation guidance
The ASBJ basic policy in developing accounting standards for revenue recognition isthought to be setting accounting standards, with the incorporation of the basic principles
of IFRS No. 15 as a starting point, from a standpoint of comparability between financial
statements, which is one of the benefits of ensuring consistency with IFRS No. 15, and tobe adding alternative accounting treatments without losing comparability if there is an
item that we should take into account in practices, etc. that have been conducted inJapan.
(2) Planned applicable date
The accounting standards are to be applied from the beginning of the year ending March
31, 2022.
(3) Impact of application on these accounting standards
The Company is currently evaluating the impact of application of these accounting
standards to the consolidated financial statements.
p.

Reclassifications— Certain reclassifications have been made to the prior years’ consolidated
financial statements to conform to the presentation used in consolidated statements as ofand for the year ended March 31, 2018.

― 24 ―

3.

BASIS OF FINANCIAL STATEMENT TRANSLATION
The translations of the yen amounts into U.S. dollars are included solely for the convenience ofthe reader, using the prevailing exchange rate at March 30, 2018, which was ¥106.24 to U.S. $1.
The convenience translations should not be construed as representations that the yen amounts
have been, could have been, or could in the future be, converted into U.S. dollars at this or any
other rate of exchange.

4.

TRADING ASSETS AND LIABILITIES
Trading assets and trading liabilities at March 31, 2018 and 2017 consist of the following:
Millions of yen
2018
2017
Trading assets:
Securities and other
Derivatives¥ 112,118 ¥ 149,438
20
44¥ 112,138 ¥ 149,482

Trading liabilities:
Securities and other
Derivatives

¥
¥

5.

62,961 ¥ 138,256
50
51
63,011 ¥ 138,307

Thousands of
U.S. dollars

2018$ 1,055,328
188$ 1,055,516$$

592,630471
593,101MARGIN TRANSACTIONS
Margin transactions at March 31, 2018 and 2017 consist of the following:
Millions of yen
2018
2017
Assets:Loans receivable from customers
Cash deposits as collateral for securities
borrowed from securities finance companies
Liabilities:
Borrowings from securities finance companies
Proceeds from securities sold for customers’
accounts

Thousands of
U.S. dollars

2018¥ 48,517¥ 35,432$ 456,674

2,961¥ 51,478

4,828¥ 40,260

27,871$ 484,545

¥

¥

$

6,503

5,503
¥ 12,006

4,071

8,018
¥ 12,089

61,21051,798$ 113,008

Loans receivable from customers are stated at amounts equal to the purchase price of therelevant securities, which are collateralized by customers’ securities and customers’ deposits inthe form of cash or securities. Proceeds from securities sold for customers’ accounts are statedat the sales prices of the relevant securities on the respective transaction dates.

― 25 ―

6.

COLLATERALIZED SECURITIES TRANSACTIONSCollateralized securities transactions at March 31, 2018 and 2017 consist of the following:Thousands of
U.S. dollars

Millions of yen
2018
2017

7.

2018

Assets:Cash collateral for securities borrowed¥ 87,549¥ 141,522$ 824,068

Liabilities:
Cash collateral for securities loaned¥ 19,373¥ 46,659$ 182,351

SECURITIES FOR NON-TRADING PURPOSES
Balance sheet amount, fair value, gross unrealized gain and gross unrealized loss ofheld-to-maturity debt securities with fair value at March 31, 2018 and 2017 are summarized asfollows:
Millions of yen
Gross
Gross
Balance unrealized unrealized Fair value
gain
loss
sheet
t
At March 31, 2018
Government, corporate and other bonds

¥

47

¥

3

¥

-

¥

50

¥

53

¥

1

¥

-

¥

54

At March 31, 2017
Government, corporate and other bonds

Thousands of U.S. dollars
Gross
Gross
Balance unrealized unrealized Fair value
sheet
gain
loss
t

At March 31, 2018
Government, corporate and other bonds$― 26 ―

443

$

28

$

-

$

471

Acquisition cost, balance sheet amount, gross unrealized gain and gross unrealized loss ofavailable-for-sale securities with fair value at March 31, 2018 and 2017 are summarized
as follows:
Millions of yen
Gross
Gross
Acquisition unrealized unrealized
Balance
cost
gain
loss
sheet
t
At March 31, 2018
Current:
Government, corporate and other bonds ¥Other¥
Non-current:
Equity securities
Other

1,500
1,500

¥ 12,848
1,086¥ 13,934¥-¥¥ 21,784
120¥ 21,904

¥

¥

27
27

¥

¥ 22,721
55¥ 22,776

¥

¥

¥

¥

-

¥
¥

1,500
1,500

(125) ¥ 34,507
(66)
1,140
(191) ¥ 35,647

At March 31, 2017
Current:
Government, corporate and other bonds ¥

77
77

Other
¥
Non-current:
Equity securities
Other

At March 31, 2018
Current:¥ 12,822
1,936¥ 14,758

¥

¥

95
95

(298) ¥ 35,245
(97)
1,894
(395) ¥ 37,139

Thousands of U.S. dollars
Gross
Gross
Acquisition unrealized unrealized
Balance
cost
gain
loss
sheet
t

Government, corporate and other bonds $Other$
Non-current:
Equity securities
Other

¥

- ¥
(9)
(9) ¥

14,11914,119$ 120,934
10,222$ 131,156$$-$ 205,045
1,130$ 206,175

$
$
$
$

-

$
$

14,11914,119(1,177) $ 324,802(621)
10,731(1,798) $ 335,533

Securities classified as available-for-sale securities for which fair value is not available areunlisted equity securities amounting to ¥6,748 million ($63,517 thousand) and ¥6,340 million,
and investments in limited partnership and similar partnership amounting to ¥205 million($1,930 thousand) and ¥100 million at March 31, 2018 and 2017, respectively.

― 27 ―

For the years ended March 31, 2018 and 2017, proceeds from sales of available-for-salesecurities, gross realized gains and gross realized losses are as follows:
Millions of yen
Proceeds fromsales of
Gross realized Gross realized
available-forgains
lossessale securities
March 31, 2018¥¥¥
Equity securities
5,036
4,965
0
Government, corporate and other bonds
Other
944
45
63
¥
¥
¥
5,980
5,010
63
March 31, 2017
Equity securities

¥

1,150
3,001
1,919
6,070

Government, corporate and other bonds

Other
¥

¥

¥

¥

372
0
3
375

(64)
(0)
(119)
(183)

¥

Thousands of U.S. dollars
Proceeds fromsales of
Gross realized Gross realized
available-forgains
lossessale securities
March 31, 2018
Equity securities$

Government, corporate and other bonds

Other
$
8.

47,4028,886
56,288$$$46,734423
47,157

0
593
593

$

INVESTMENTS IN AFFILIATES
The aggregate carrying amount of investments in affiliates at March 31, 2018 and 2017 are¥5,287 million ($49,765 thousand) and ¥4,899 million, respectively.

9.

BORROWINGS
The weighted-average interest rates applicable to the short-term borrowings are 0.56 % and0.77% at March 31, 2018 and 2017, respectively.
Long-term borrowings at March 31, 2018 and 2017 consist of the following:Thousands of
U.S. dollars

Millions of yen
2018
2017
Borrowings, maturing in installments through2022; bearing weighted average interest of 2.01%
at March 31, 2018
¥ 13,308
Borrowings, maturing in installments through2021; bearing weighted average interest of 2.16%
at March 31, 2017
Less current installments

¥

3,260
¥ 10,048― 28 ―¥

2018-$ 125,263

13,000-3,140

30,685

9,860$

94,578

Lease liabilities at March 31, 2018 and 2017 consist of the following:Thousands of
U.S. dollars

Millions of yen
2018
2017
Lease liabilities maturing in installments through2023; bearing weighted average interest of 3.09%
at March 31, 2018¥
Lease liabilities maturing in installments through2023; bearing weighted average interest of 2.98%
at March 31, 2017
Less current installments
¥

1,268

¥

2018

-

$

11,935

-

884

-

391

435

3,680

877

¥

449

$

8,255

(1) Current installments of long-term borrowings are included in short-term borrowings in
the accompanying balance sheet.
(2) Long-term borrowings included subordinated borrowings provided in Article 176 of the“Cabinet Office Ordinance Concerning Financial Instruments Business” (the Prime
Minister’s Office Ordinance No. 52, 2007) as follows:
Millions of Yen
2018
2017
Long-term borrowings
Current installments of long-term borrowings

¥

4,000
2,000

¥

6,000
-

Thousands of
U.S. dollars

2018$

37,651
18,825

Annual maturities of borrowings after March 31, 2019, are as follows:Year ending March 31
2020
2021
2022
2023

Millions ofyen

Thousands of
U.S. dollars

¥

$

4,438
3,050
2,360
200

41,77328,70922,214
1,883

Annual maturities of lease liabilities after March 31, 2019, are as follows:Year ending March 31
2020
2021
2022
2023

Millions ofyen

Thousands of
U.S. dollars

¥

$

257
211
175
137

2,419
1,986
1,647
1,290

To meet its liquidity needs stably and expeditiously and to strengthen financial operations, theCompany established a commitment line of ¥21,000 million ($197,666 thousand) with 7
financial institutions at both March 31, 2018 and 2017, respectively.
As is customary in Japan, both short-term and long-term bank borrowings are made undergeneral agreements which provide that security and guarantees for present and futureindebtedness will be given upon request of the bank, and that the bank shall have the right tooffset cash deposits against obligations that have become due or, in the event of default, against
all obligations due the bank.

― 29 ―

10. PLEDGED ASSETSAt March 31, 2018 and 2017, the carrying value of assets pledged is as follows:
Millions of Yen
2018
2017
¥

Cash in banks
Trading assets
Property and equipment
Investment securities

1,827
13,436
4,525
14,094¥ 33,882

¥

2,044
2,554
7,205
12,184¥ 23,987

Thousands of
U.S. dollars

2018$17,197
126,468
42,592
132,662$ 318,919

Assets in the above table are pledged for the following liabilities:
Millions of yen
2018
2017
Short-term borrowings
Borrowings from securities finance companies
Long-term borrowings¥ 13,441
606
5,946¥ 19,993

¥

¥

5,754
736
3,360
9,850

Thousands of
U.S. dollars

2018$ 126,515
5,704
55,968$ 188,187

In addition to above, at March 31, 2018, trading assets, etc. amounting to ¥53,143 million($500,216 thousand) and investments securities amounting to ¥1,313 million ($12,359
thousand) are deposited as guarantee for settlement of trading accounts and securities borrowed,
respectively. At March 31, 2017, trading assets, etc. amounting to ¥66,601 million andinvestments securities amounting to ¥300 million were deposited as guarantee for settlement oftrading accounts and securities borrowed, respectively.
The fair value of the securities pledged at March 31, 2018 and 2017 are as follows:
Millions of Yen
2018
2017
¥ 5,514Loaned securities on margin transactions
Securities pledged as collateral for borrowing from
6,842
securities finance companies
Loaned securities
19,360Other
43,804¥ 75,520¥

8,196

Thousands of
U.S. dollars

2018$

51,901

4,047

64,401

46,60427,994¥ 86,841

182,229
412,312710,843$

The fair value of the securities received as collateral at March 31, 2018 and 2017 are as follows:
Millions of Yen
2018
2017
Securities received on margin transactions
Securities borrowed
Securities pledged as collateral
Other― 30 ―¥ 44,122
87,41859,5144,790¥ 195,844¥ 33,597
146,305
37,321
6,572¥ 223,795

Thousands of
U.S. dollars

2018$415,305
822,835
560,184
45,087$ 1,843,411

11.

INCOME TAXESThe Company and its domestic subsidiaries are subject to Japanese corporate, inhabitant andbusiness taxes based on income.
The tax effects of significant temporary differences and tax loss carryforwards which resulted indeferred tax assets and deferred tax liabilities at March 31, 2018 and 2017 are as follows:
Millions of yen
2018
2017
Deferred tax assets:
Tax loss carryforwards
Liability for retirement benefits (employees)
Depreciation and amortization
Accrued bonuses
Allowance for doubtful accounts
Asset retirement obligations
Financial instruments transactions reserve
Accrued business tax
Impairment loss on land etc.
Retirement benefits payable for directors andcorporate auditors
Loss on devaluation of investment securities
Cost recognized for the stock options
Loss on devaluation of golf memberships
Liability for retirement benefits (directors andcorporate auditors)
Other

¥

Valuation allowance
Total
Deferred tax liabilities:
Unrealized gain on available-for-sale securities
Land revaluation excess
Other
Total
Net deferred tax liabilities
¥

2,898
1,721
1,460
719
435
396
392
284
226

¥

2,938
1,633
182
652
407
376
378
275
225

Thousands of
U.S. dollars

2018$27,27816,19913,742
6,768
4,095
3,727
3,690
2,673
2,127

162
136
72
50

176
170
49
52

1,525
1,280
678
471

45
248
9,244
(4,750)
4,494

43
229
7,785
(4,431)
3,354

424
2,334
87,011(44,710)42,301(6,616)(1,457)(587)(8,660)(4,166) ¥(6,809)(1,457)(473)(8,739)(5,385)(62,274)(13,714)(5,526)(81,514)$ (39,213)

Net deferred tax assets at March 31, 2018 and 2017 are reflected in the accompanying
consolidated balance sheet under the following captions:
Millions of yen
2018
2017
Current assets – Deferred income taxes
Investments and other assets – Deferred income taxes

Current liabilities – Deferred income taxes
Non-current liabilities – Deferred income taxes― 31 ―

¥

1,037
2,414
(25)
(7,592)¥ (4,166)

¥

1,002
1,441
(38)
(7,790)¥ (5,385)

Thousands of
U.S. dollars

2018

$

9,761
22,722(235)(71,461)$ (39,213)

A reconciliation of the statutory tax rate and the effective tax rate as a percentage of income
before income taxes and non-controlling interests for the year ended March 31, 2018 is asfollows:
30.7%
1.3
(0.3)
0.9
(0.2)
(2.7)
6.6
(2.4)
0.1
34.0%

Statutory tax rate
Expenses not deductible for tax purposes
Income not credited for tax purposes
Per capita tax
Equity in gain of affiliates
Valuation allowance
Expired tax loss carryforward
Tax credits for salary increase
Other
Effective tax rate

The reconciliation of the statutory tax rate and the effective tax rate for the year ended March
31, 2017 is not subject to disclosure because the difference between the rates does not exceed 5%of the statutory tax rate.
12. RETIREMENT AND PENSION PLANS
The Company and its domestic consolidated subsidiaries have a defined contribution retirement
and pension plan (Securities Omnibus DC Okasan Plan), a corporate defined benefit pension
plan and an unfunded retirement and severance plan that provide for lump-sum payment ofbenefits.
Defined benefit plans
Followings are the information of defined benefit plans at March 31, 2018 and 2017 and for theyears then ended.
(1) Reconciliation of changes in retirement benefit obligation
Millions of yen
2018
2017
Retirement benefit obligation at beginning of year ¥ 14,158
Service cost
774
Interest cost
11
Actuarial gain or loss
150
Benefits paid
(670)
Other
¥ 14,423
Retirement benefit obligation at end of year

¥ 14,175
762
(139)
(643)
3
¥ 14,158

Thousands of
U.S. dollars

2018$ 133,264
7,285
104
1,412
(6,306)$ 135,759

Note: 1. Certain consolidated subsidiaries adopt the simplified method for calculation ofretirement benefit obligation
2. Retirement benefit expenses of the consolidated subsidiaries adopted the simplified
method are included in above service cost.

― 32 ―

(2) Reconciliation of changes in plan assets
Millions of yen
2018
2017
¥

Plan assets at beginning of year
Expected return on plan assets
Actuarial gain or loss
Employer contributions
Benefits paid
Other
Plan assets at end of year

¥

9,173
44
425
273
(399)
9,516

¥

¥

8,943
43
306
267
(389)
3
9,173

Thousands of
U.S. dollars

2018
$

$

86,342
414
4,001
2,570
(3,756)89,571(3) Reconciliation between net of retirement benefit obligation and plan assets, and liability
or asset for retirement benefits recognized in consolidated balance sheet
Millions of yen
2018
2017
¥

Funded retirement benefit obligation
Plan assets
Unfunded retirement benefit obligation
Net of liability and assets for retirement benefits
Liability for retirement benefits
Asset for retirement benefits
Net of liability and asset for retirement benefits

¥
¥
¥

8,463
(9,516)(1,053)
5,960
4,907

¥

6,341
1,434
4,907

¥

¥

¥

Thousands of
U.S. dollars

2018

8,405
(9,173)
(768)
5,753
4,985

$

5,753
768
4,985

$

79,659(89,571)(9,912)
56,100$ 46,188$

59,686
13,49846,188(4) The components of retirement benefit expenses
Millions of yen
2018
2017
¥

Service cost
Interest cost
Expected return on plan assets
Amortization of actuarial gain or loss
Retirement benefit expenses

¥

774
11
(44)
(311)
430

¥

¥

762
(43)
86
805

Thousands of
U.S. dollars

2018
$

$

7,285
104
(414)
(2,928)4,047(5) Remeasurements of retirement benefit plans before related tax effects
Millions of yen
2018
2017
¥

Actuarial gain or loss

(36)

¥

532

Thousands of
U.S. dollars

2018
$

(339)

(6) Accumulated remeasurements of retirement benefit plans before related tax effects
Millions of yen
2018
2017
¥

Unrecognized actuarial gain or loss

― 33 ―

389

¥

425

Thousands of
U.S. dollars

2018
$

3,662

(7) Plan assets(a) Percentage by major category of plan assets

Equity securities
General accountDebt securities
Other
Total

2018

2017

36%
32
19
13
100%

35 %
34
18
13
100%

(b) Determination procedure of long-term expected rate of return
In determining long-term expected rate of return on plan assets, the Company
considers the current portfolio of plans assets, actual performance result,investment policy and market trend.
(8) Basis for calculation of actuarial assumptions
The assumptions used in accounting for the above plans at March 31, 2018 and 2017 are
as follows:
2018
2017

0.07%
0.50%

(a) Discount rate(b) Long-term expected rate of return

0.08%
0.50%

Defined contribution plans
The amount to be paid by the Company and consolidated subsidiaries to the defined contributionplans is ¥202 million ($1,901 thousand) and ¥199 million for the years ended March 31, 2018and 2017, respectively.
Retirement benefits for directors and corporate auditors
Directors and corporate auditors are not covered by the plans described above. For such
persons, certain consolidated subsidiaries have unfunded defined benefit pension plans. Under
the plans, directors and corporate auditors are entitled to lump-sum payments based on thecurrent rate of pay and length of service when they leave the Company.
At March 31, 2018 and 2017, the subsidiaries provide for the amount of ¥147 million ($1,384
thousand) and ¥132 million, respectively.
13.

ASSET RETIREMENT OBLIGATIONS
The asset retirement obligation is based on estimated future restoration liabilities related toleasehold contracts of branch offices and so on.
The obligation is calculated based on the estimated period of use of 9 to 58 years and discounted
rate of 0.00% to 2.33%.
The following table provides the Company’s total asset retirement obligation for the years ended
March 31, 2018 and 2017:
Millions of yen
2018
2017
Balance, beginning of year
Liabilities incurred by asset acquisition
Accretion expenses
Liabilities settled
Other increase (decrease)
Balance, end of year

― 34 ―¥¥

1,041 ¥
61
12
(15)
1,099 ¥

842
253
12
(66)
1,041

Thousands of
U.S. dollars

2018
$

$

9,799
574
113
(141)
10,345

14.

FINANCIAL INSTRUMENTS TRANSACTIONS RESERVEThe Financial Instruments and Exchange Law of Japan requires a securities company to set
aside a reserve in proportion to its securities and other related trading or derivativetransactions to cover possible customer losses incurred by default of the securities company on
securities or derivative transactions.
Financial instruments transactions reserve is calculated based on Article 46-5, Paragraph 1 of
the Financial Instruments and Exchange Law.

15.

SHAREHOLDERS' EQUITYThe Companies Act provides that an amount equal to 10% of distributions from retained
earnings paid by the Company and its Japanese subsidiaries be appropriated as a legal reserve(a component of retained earnings) or as additional paid-in capital (a component of capitalsurplus). No further appropriations are required when the total amount of the additional
paid-in capital and the legal reserve equals 25% of their respective stated capital. The
Companies Act also provides that additional paid-in capital and legal reserve are available forappropriations by the resolution of the shareholders. Balances of the legal reserve are included
in retained earnings in the accompanying consolidated balance sheet.
Cash dividends and appropriations to the legal reserve charged to retained earnings for theyears ended March 31, 2018 and 2017 represent dividends paid out during those years and therelated appropriations to the legal reserve. The amount available for dividends is based on theamount recorded in the Company’s non-consolidated books of account in accordance with theCompanies Act.
Dividends paid during the year ended March 31, 2017 which was approved by the Board of
Directors held on May 17, 2016 are as follows:(a) Total dividends¥4,873 million(b) Cash dividends per common share¥25(c) Record date
March 31, 2016(d) Effective dateJune 8, 2016
Cash dividends for treasury stock held by subsidiaries of ¥122 million were excluded from theabove table.
Dividends paid during the year ended March 31, 2018 which was approved by the Board of
Directors held on May 17, 2017 are as follows:(a) Total dividends¥4,910 million ($46,216 thousand)(b) Cash dividends per common share¥25 ($0.24)(c) Record date
March 31, 2017(d) Effective dateJune 8, 2017
Cash dividends for treasury stock held by subsidiaries of ¥85 million ($800 thousand) were
excluded from the above table.
Dividends to be paid after the balance sheet date but the record date for the payment belongs to
the year ended March 31, 2018 which was approved by the Board of Directors held on May 22,2018 are as follows:(a) Total dividends¥4,997 million ($47,035 thousand)(b) Dividend source
Retained earnings(c) Cash dividends per common share¥25 ($0.24)(d) Record date
March 31, 2018(e) Effective dateJune 8, 2018
Cash dividends for treasury stock held by subsidiaries are not excluded from the above table.

― 35 ―

16.

STOCK OPTIONS
The cost recognized for the stock options is ¥87 million ($819 thousand) and ¥82 million whichis included in selling, general and administrative expenses for the years ended March 31, 2018and 2017, respectively.
Description of each stock option plans at March 31, 2018 is as follows:
2nd
Stock option plans
1st

3rd

Plan approved onJune 26, 2015

Plan approved onJune 29, 2016

Plan approved onJune 29, 2017

Individuals granted
the stock option

6 directors of theCompany (except foraudit andsupervisorycommittee members)
and 23 directors of its
subsidiary (Okasan
Securities Co., Ltd.)

5 directors of theCompany (except foraudit andsupervisorycommittee members)
and 22 directors of its
subsidiary (Okasan
Securities Co., Ltd.)

Type and number ofshares to be issued
upon the exercise of
the stock option
Grant dateCondition for
execution of right

129,400 shares ofcommon stock

216,000 shares ofcommon stock

5 directors of theCompany (except foraudit andsupervisorycommittee members),
4 directors of its
subsidiary (Okasan
Securities Co., Ltd.)and 17 executive
officers of its
subsidiary (Okasan
Securities Co., Ltd.)144,700 shares ofcommon stock

July 13, 2015
No condition for
execution of right isrequired.
There are no
stipulations onrequisite service
period.
From July 14, 2015
to July 13, 2045

July 14, 2016
No condition for
execution of right isrequired.
There are no
stipulations onrequisite service
period.
From July 15, 2016
to July 14, 2046

July 14, 2017
No condition for
execution of right isrequired.
There are no
stipulations onrequisite service
period.
From July 15, 2017
to July 14, 2047

Stipulations onrequisite service
periodExercisable period

A summary of the scale and movement of the stock option plan for the year ended March 31,2018 is as follows:
1st
2nd
3rd
Non-vested:
Outstanding at March 31, 2017
GrantedForfeited
VestedOutstanding at March 31, 2018
Vested:Outstanding at March 31, 2017
VestedExercised
Forfeited
Outstanding at March 31, 2018--

144,700
144,700-

110,300
10,200100,100

216,000
20,000196,000

144,700
144,700

A summary of information for the stock option plan is as follows:
1st
2nd
Exercise price
Average stock price at exercise
Fair value at the grant date

¥1 ($0.01)¥706 ($6.65)¥715 ($6.73)― 36 ―¥1 ($0.01)¥706 ($6.65)¥383 ($3.61)

3rd¥1 ($0.01)¥614 ($5.78)

The fair value of the 3rd stock options was estimated using the Black-Scholes option-valuation
model with the following assumptions:
Expected volatility *1
39.724%
Expected remaining outstanding period *2
5.3 years
Expected dividend *3¥25 ($0.24) per share
Risk-free interest rate *4-0.041%*1 Expected volatility is based on the actual stock prices traded from March 27, 2012 to July24, 2017.
*2 Expected remaining outstanding period is based on the actual service period of theCompany’s directors, directors, executive officers and corporate auditors of its subsidiaryand their retired age.
*3 Expected dividend is based on the dividends paid in the year ended March 31, 2017.
*4 Risk-free interest rate is the government bond yield for a term consistent with the
expected remaining outstanding period.
The number of rights to vest in the future periods is determined based on the actual forfeited
number of the stock options because it is difficult to estimate forfeiture in the future.
17.

SURPLUS ON LAND REVALUATIONAt March 31, 2002, a consolidated subsidiary revaluated its own land for business activities inaccordance with the “Law Concerning Land Revaluation” (the “Law”) effective March 31, 1998.
The net unrealized gain, net of related taxes and non-controlling interests, are reported as“Surplus on land revaluation” in a component of net assets and the related deferred tax
liabilities are included in non-current deferred income taxes.
Fair values of the land are determined based on the values specified in Article 2-1, 2-3 and 2-5 of
the Enforcement Ordinance of the Law concerning Land Revaluation.
Because the fair value of the land at both March 31, 2018 and 2017 is over the book value of theland after the revaluation, the difference between the fair value and the book value of the land is
not disclosed.

18.

CAPITAL ADEQUACY REQUIREMENTS
In Japan, securities companies are subjected to risk-based capital adequacy rules establishedand administered by the Financial Services Agency. Securities subsidiaries report their capital
adequacy ratio as defined pursuant to these rules. The authorities will take certain
administrative measures if such ratio declines below 120%. Capital adequacy ratios of Okasan
Securities Co., Ltd. are 468.9% and 505.2% at March 31, 2018 and 2017, respectively.

19.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Major elements of selling, general and administrative expenses for the years ended March 31,2018 and 2017 are summarized as follows:
Millions of yen
2018
2017
¥ 13,164 ¥ 12,809
33,81832,409
7,463
6,794
6,432
5,773
3,609
3,504
1,287
1,196
(3)
17
3,268
2,804
¥ 69,038 ¥ 65,306

Commissions and brokerage
Employees’ compensation and benefits
Occupancy and rental
Data processing and office supplies
Depreciation and amortization
Taxes other than income taxes
Provision for doubtful accounts
Other― 37 ―

Thousands of
U.S. dollars

2018$ 123,908
318,31770,24760,542
33,97012,114(28)
30,761$ 649,831

20. IMPAIRMENT LOSS
Because the Company revised the utilization plan for the internet trading system of theconsolidated subsidiary, Okasan Information Systems Co., Ltd., an impairment loss on thesystem was recognized for the year ended March 31, 2018 as follows:
Location
Taito City, Tokyo

Classification
SoftwareLease assets
Furniture and fixtures

Usage

Classification

Business assets

Software and Other

Millions ofyen

Thousands of
U.S. dollars

¥

$

4,693
125
5
4,823

44,173
1,177
47
45,397

The assets that are used for business are grouped according to the classification for
management reporting on the basis of each company.
The recoverable value for the assets is measured by its value in use and the assets whose cash
flow is not expected in the future are determined to have no value.
21.

OTHER COMPREHENSIVE INCOME (LOSS)
The reclassification adjustment and the related income tax effects allocated to each componentof other comprehensive income (loss) for the years ended March 31, 2018 and 2017 are as
follows:
Thousands of
U.S. dollars

Millions of yen
2018
2017
Net unrealized holding gain (loss) on
available-for-sale securities:
Arising during the year
Reclassification adjustment
Before tax amountTax benefit (expense)
Net-of-tax amount¥

Surplus on land revaluation:
Tax benefit (expense)

4,253 ¥
(4,938)
(685)
179
(506)

2018

1,452
(172)
1,280
(321)
959

$

40,032(46,480)(6,448)
1,685(4,763)---Foreign currency translation adjustments:
Arising during the year

(227)

(23)

(2,137)

Remeasurements of defined benefit plans:Arising during the year
Reclassification adjustment
Before tax amountTax benefit (expense)
Net-of-tax amount

275
(311)
(36)
11
(25)

445
87
532
(163)
369

2,588
(2,927)
(339)
104
(235)

Share of other comprehensive loss of affiliates
accounted for by equity method:
Arising during the year

332

(122)

3,125

(426) ¥

1,183

Total other comprehensive income (loss)― 38 ―¥$(4,010)22.

PER SHARE INFORMATION(a)Net Income per Share
Basic and diluted net income per share, and reconciliation of the numbers and the amounts usedin the basic and diluted net income per share computations for the years ended March 31, 2018and 2017 are as follows:
Yen
U.S. dollars
2018
2017
2018
¥

Basic net income per share
Diluted net income per share

29.56
29.50

¥

52.93
52.85

Millions of yen
2018
2017
¥
Net income attributable to owners of the parent
Net income not applicable to common shareholders
Net income attributable to owners of the parent¥
available to common shares

$

0.28
0.28

Thousands of
U.S. dollars

2018

5,853
-

¥ 10,487-$

55,092-

5,853¥ 10,487$

55,092

Number of shares(Thousand)
2018
2017
Weighted average number of shares outstanding on
which basic net income per share is calculated
Number of diluted shares (stock acquisition rights)(b)

198,010

198,115407

293

Net Assets per Share
Net assets per share, and reconciliation of the numbers and the amounts used in the net assets
per share computations at March 31, 2018 and 2017 are as follows:
Yen
U.S. dollars
2018
2017
2018
¥ 791.46

Net assets per share¥ 792.05

Millions of yen
2018
2017
Total net assets
Amount deducted from total net assets:
Stock acquisition rights
Non-controlling interests
Net assets applicable to common stockholders― 39 ―

7.45

Thousands of
U.S. dollars

2018¥ 180,049¥ 178,257$ 1,694,738

236
23,100¥ 156,713

162
21,335¥ 156,760

2,221
217,432$ 1,475,085

Number of shares(Thousand)
2018
2017
Number of shares outstanding at the end of year on
which net assets per share is calculated$

198,005

197,917

23.

SUPPLEMENTARY CASH FLOW INFORMATION
Reconciliation between “Cash on hand and in banks” in the accompanying consolidated balance
sheet and “Cash and cash equivalents” in the accompanying consolidated statement of cash
flows at March 31, 2018 and 2017 are as follows:
Millions of yen
2018
2017
Cash on hand and in banks

24.

Thousands of
U.S. dollars

2018¥ 56,700$ 563,328

Time deposits that have maturities of over three(5,708)(5,509)months when acquired¥ 54,140 ¥ 51,191
Cash and cash equivalents(53,727)$ 509,601¥ 59,848

COMMITMENTS AND CONTINGENCIESAt March 31, 2018 and 2017, the Company and certain subsidiaries have guaranteed
approximately ¥6 million ($56 thousand) and ¥7 million of employee mortgage loans to financial
institutions, respectively. If an employee defaults on his/her loan payments, the Company
and/or certain subsidiaries are required to perform under the guarantee.

25.

LEASES(a)Finance Lease
The Company leases certain computer terminals, communication equipment and software
under finance leases.

(b)

Operating Lease
Future minimum lease payments required under noncancellable operating leases at March
31, 2018 and 2017 are as follows:
Millions of yen
2018
2017
¥ 1,759
1,946¥ 3,705

Within one year
Over one year

― 40 ―¥ 1,599
3,488¥ 5,087

Thousands of
U.S. dollars

2018$ 16,557
18,317$ 34,874

26.

FINANCIAL INSTRUMENTS
Conditions of Financial instruments(1) Management policy
The Company and subsidiaries (the “Group”) primary engages in financial instruments
trading business, which include trading in securities, brokerage for trading in securities,
underwriting and distribution of securities, public offering and secondary distribution of
securities and private offering of securities. For the above mentioned business, the Group
uses its own resources and finances funds through bank loans and call money etc.
The Group makes short-term deposits and loans for margin transaction, and operates
securities trading for the Group own accounts for fund management purposes.
Regarding the trading business, the Group works to do brokerage for trading in securities
smoothly and contribute to a sound market system in an Exchange transaction, and works tomake fair prices and transact smoothly in a Non-Exchange transaction and to reduce losses
from deals etc.
Regarding the derivative financial instruments, the Group uses interest rate swaps to hedge
future fluctuations of interest rates and does not enter into interest rate swaps for trading or
speculative purposes.
(2) Financial instruments and risks
The main financial assets of the Group consist of cash on hand and in banks, cash segregatedas deposits for customers and others, trading assets, receivables on margin transactions,
receivables on collateralized securities transactions and investment securities.
The cash in banks are exposed to credit risk of banks. Most of cash segregated as deposits
for customers and others are cash segregated as deposits for customers, and are segregatedfrom the Group own assets and trusted to banks in accordance with the Japanese Financial
Instruments and Exchange Law. The trusted funds are secured by the Trust Act.
Trading position is made for meeting customers’ various needs, complementing the market
and hedging the position. Such trading involves market and counterparty risks which
possibly effect on the financial position of the Group. Market risk is the risk arising fromfuture changes in the market values of securities, interest rates and foreign currency
exchange rates, and counterparty risk is the risk arising from default by the counterparty.
Receivables on margin transactions consist of loans receivable from customers and cash
deposits as collateral for securities borrowed from securities finance companies, and are
exposed to credit risk of counterparties. Receivables on collateralized securities transactions
consist of cash collateral for securities borrowed, and are exposed to counterparty risk.
Investment securities are exposed to issuer’s credit risk and market risk.
The main financial liabilities of the Group consist of trading liabilities, payables on margintransactions, payables on collateralized securities transactions, deposits received, guarantee
deposits received and borrowings.
Payables on margin transactions consist of borrowings from securities finance companies
and proceeds from securities sold for customers’ accounts. Payables on collateralized
securities transactions consist of cash collateral for securities loaned and are received ascollateral for a loan of bonds such as government bonds. Deposit received is temporary
unsettled amount arising from transaction with customers. Guarantee deposits received isdeposit received for margin transactions from customers. Part of financial liabilities, suchas borrowings, are exposed to liquidity risk that is the risk for the Group not to make apayment on due date. The borrowings with variable interest rate are exposed to interest
rate fluctuation risk.
The Group uses derivative financial instruments as part of asset and liability management.
For trading purpose, the Group uses derivatives listed on exchange such as stock index
futures and bond futures, as well as over-the-counter derivatives such as forward foreignexchange transactions. For non-trading purpose, the Group uses interest rate swaps.
Interest rate swaps are used to hedge future cash flow fluctuation arising from interest rate
fluctuations on the borrowings. The difference in amounts to be paid or received on interest
rate swaps is recognized over the life of the agreements as an adjustment to interest expense,
if the agreements meet certain hedging criteria (“exceptional accounting method”). Interest
rate swaps are exposed to interest rate fluctuation risk, however, counterparties are limited
to the lender.
(3) Financial instruments risk management
The Group maintains appropriate risk management and control measures in order tomaintain the Group financial stability and to effectively use the Group business resources.
The Company controls its purchases, sales and market risk of investment securities in― 41 ―

accordance with investment securities management rules.
Okasan Securities Co., Ltd., our core firm, controls market fluctuation risk principally
through position limits, and counterparty risk principally through credit limits by eachfinancial instrument. Primarily, trading department checks the position and the gain or
loss. Secondarily, risk control department ascertains the position and the assessed risks
reported by the trading department, and supervise the position.
The loss on proprietary trading position estimated by VaR is ¥86 million ($809 thousand)calculated using historical method (holding period: one day, confidence interval: 99%,
observation period: 1,250 days) at March 31, 2018. The Company ascertained the reliability
and validity of the model daily by performing a comparison back-test of VaR and actual profit
and loss.
In order to reduce the risks, receivables on margin transactions are controlled by daily credit
management through setup of inception criteria for margin transactions and limits for open
interest, deposits reception when market fluctuates in accordance with customer
management rules. Liquidity risk is controlled based on fund management plan inaccordance with liquidity risk management rules. The Group also makes contingency plan
to mitigate liquidity crisis.
Securities subsidiaries other than Okasan Securities Co., Ltd. also maintain appropriate risk
controls.
(4) Supplemental explanation regarding fair value of financial instruments
The contract amount of the derivative transactions does not represent the risk of thederivative transactions.

― 42 ―

Fair value of financial instruments
The carrying amounts on the consolidated balance sheet, fair value, and differences at March
31, 2018 and 2017 are as follows.
Financial instruments, of which it is extremely difficult to measure the fair value, are notincluded. (Please see “(2) Financial instruments of which the fair value is extremely difficult
to measure”.)
Millions of yen
2018

2017

Carrying
value

Fair value

Differences

Carrying
value

Fair value

Differences¥ 59,848¥ 59,848¥-¥ 56,700¥ 56,700¥

68,932

68,932-65,39665,396-112,118

112,118-

149,438

149,438

-

47

50

3

53

54

1

37,14837,148-37,23437,234

-

9,689

9,689

-

7,036

7,036

-

51,47851,478-40,26040,26087,5493,682

87,5493,682-

141,522
3,058

141,5223,058¥ 430,491¥430,494¥

3¥ 500,697¥ 500,698¥

1¥ 62,961¥ 62,961¥-¥ 138,256¥ 138,256¥-

12,006

12,006

12,08912,08919,37337,48436,50789,647
10,04819,37337,48436,507
89,663
10,11916
71

46,65934,24335,192
69,0709,860

46,65934,24335,192
69,070
9,995

Total

¥ 268,026¥268,113¥

87¥ 345,369¥ 345,504

Derivative transactions

¥

¥

¥

-

¥

¥

Assets:Cash on hand and in banks
Cash segregated as deposits
for customers and others
Trading assets, short-term
investments and investment
securities
Trading securities
Held-to-maturity debt
securities

Available-for-salesecurities
Receivables arising fromunsettled trades
Receivables on margintransactions
Receivables on collateralized
securities transactions
Short-term guarantee deposits
Total
Liabilities:
Trading liabilities
Trading securities
Payables on margintransactions
Payables on collateralized
securities transactions
Deposits received
Guarantee deposits received
Short-term borrowings
Long-term borrowings

(30)

(30)

― 43 ―

-

(8)

-

-

0
135
¥

135

(8) ¥

-

Thousands of U.S. dollars
2018
Carrying
value
Fair value Differences
Assets:Cash on hand and in banks
Cash segregated as deposits
for customers and others
Trading assets, short-term
investments and investment
securities
Trading securities$ 563,328 $-

648,833

648,833-

1,055,328

1,055,328

-

442

471

29

349,661

349,661-

91,19991,199-484,545484,545-824,068
34,657824,068
34,657-$ 4,052,061$ 4,052,090 $29$ 592,630$ 592,630 $-

113,008

113,008-

182,351
352,824
343,628

182,351
352,824
343,628-

843,816

843,966

150

94,57895,247669$ 2,523,654 $819$ 563,328

Held-to-maturity debt
securities

Available-for-salesecurities
Receivables arising fromunsettled trades
Receivables on margintransactions
Receivables on collateralized
securities transactions
Short-term guarantee deposits
Total
Liabilities:
Trading liabilities
Trading securities
Payables on margintransactions
Payables on collateralized
securities transactions
Deposits received
Guarantee deposits received
Short-term borrowings
Long-term borrowings
Total$ 2,522,835

Derivative transactions$(282) $

(282) $-* Derivative receivables and payables are on net basis. Items that are net payables areshown in parenthesis.
(1) Fair value measurement of financial instruments
Assets:Cash on hand and in banks, Cash segregated as deposits for customers and others,
Receivables arising from unsettled trades, Receivables on margin transactions, Receivables
on collateralized securities transactions and Short-term guarantee deposits
The carrying amount approximates fair value because of the short maturity of these
instruments.
Trading assets, Short-term investments and Investment securities
The carrying amount approximates fair value because the carrying amount of equity
securities, debt securities and beneficiary certificates is calculated by quoted market price.
The carrying amount of certificate of deposit approximates fair value because of the shortmaturity of these instruments. Please see note 4. TRADING ASSETS AND
LIABILITIES and see note 7. SECURITIES FOR NON-TRADING PURPOSES for
information by category.

― 44 ―

Liabilities:
Trading liabilities
The carrying amount approximates fair value because the carrying amount of equity
securities, debt securities and beneficiary certificates is calculated by quoted market price.
Please see note 4. TRADING ASSETS AND LIABILITIES for information by category.
Payables on margin transactions, Payables on collateralized securities transactions, Deposits
received, Guarantee deposits received and Short-term borrowings
The carrying amount approximates fair value because of the short maturity of these
instruments. Fair value of current installments of long-term borrowings included in
short-term borrowings is calculated as below. (See Long-term borrowings.)
Long-term borrowings
The carrying amount of long-term borrowings with variable interest rate approximatesfair value because the fair value is reflected the fluctuation of interest market in a shortperiod and credit status of the Company does not change so much from when the Company
borrowed. Fair value of long-term borrowings with fixed interest rate is based on thepresent value of future cash flows of interest and principal payments discounted using thecurrent borrowing rate for similar borrowings of a comparable maturity.
Fair value of certain long-term borrowings with interest rate swaps for which exceptional
accounting method applied are based on the present value of future cash flows of interest
and principal payments discounted using the current borrowing rate for similarborrowings of a comparable maturity.
Derivative Transactions:
Please see note 27. DERIVATIVES.
(2) Financial instruments of which the fair value is extremely difficult to measure
Millions of yen
2018
2017
¥
Unlisted equity securities
Investments in limited partnership and similar
partnership¥Total― 45 ―

6,748

¥

205
6,953

6,340

Thousands of
U.S. dollars

2018
$

100
¥

6,440

63,516
1,930$

65,446

(3) Projected future redemption of monetary claim and securities with maturities
March 31, 2018
Millions of yen
Due after
Due after
one yearfive years
Due within
throughthroughDue after
one yearfive years
ten yearsten years
Cash on hand and in banks
Cash segregated as
deposits for customers andothers¥59,848

¥

-

¥

-

¥

-

68,932

-

-

-

-

48

-

-

1,500

889

235

-

51,478---87,549

-

-

-

3,682

-

-

-

Trading assets, short-term
investments and investment
securities:
Held-to-maturity debt
securities:

Government bonds
Available-for-salesecurities with maturities:
Other
Receivables on margintransactions
Receivables on collateralized
securities transactions
Short-term guarantee
deposits¥ 272,989¥$

563,328¥

235¥

Thousands of U.S. dollars
Due after
Due after
one yearfive years
throughthroughfive years
ten years

Due within
one year
Cash on hand and in banks
Cash segregated as
deposits for customers andothers

937

$

-

$

-

-

Due after
ten years$-

648,833

-

-

-

-

452

-

-

14,119

8,368

2,212

-

484,545---824,068---

34,657---

Trading assets, short-term
investments and investment
securities:
Held-to-maturity debt
securities:

Government bonds
Available-for-salesecurities with maturities:
Other
Receivables on margintransactions
Receivables on collateralized
securities transactions
Short-term guarantee
deposits$ 2,569,550$― 46 ―

8,820

$

2,212

¥

-

March 31, 2017

Millions of yen
Due after
Due after
one yearfive years
throughthroughfive years
ten years

Due within
one year
Cash on hand and in banks
Cash segregated as
deposits for customers andothers

56,700

¥

¥

-

¥

-

Due after
ten years
¥

-

-

-

-

-

54

-

-

95

1,647

230

-

40,260---141,522---

65,396

Trading assets, short-term
investments and investment
securities:
Held-to-maturity debt
securities:

Government bonds
Available-for-salesecurities with maturities:
Other
Receivables on margintransactions
Receivables on collateralized
securities transactions
Short-term guarantee
deposits

3,058¥ 307,031

¥

1,701

¥

230

¥

-

(4) The annual maturities of the long-term debt and other interest-bearing debt
March 31, 2018
Millions of yen
Due after

Due after

Due afterDue

one year

two years

three

four

withinthroughthrough

years

years

Due after

one year

two years

three

throughthroughfive years

four

five years

years

Due after

years

Short-term borrowings
Long-term borrowings
Borrowings fromsecurities finance

¥

Total

¥

86,387 ¥
3,260

- ¥
4,438

- ¥
3,050

- ¥
2,360

- ¥
200

-

6,503
96,150 ¥4,438 ¥

3,050 ¥

2,360 ¥

200 ¥-Thousands of U.S. dollars
Due after

Due after

Due afterDue

one year

two years

three

four

withinthroughthrough

years

years

Due after

one year

two years

three

throughthroughfive years

four

five years

years

Due after

years

Short-term borrowings
Long-term borrowings
Borrowings fromsecurities financeTotal$ 813,131 $
30,685- $41,773- $28,709- $22,214

- $
1,883

-

61,210$ 905,026 $

41,773 $28,709 $22,214 $1,883 $-― 47 ―

March 31, 2017

Millions of yen
Due after

Due after

Due afterDue

one year

two years

three

four

withinthroughthrough

years

years

Due after

one year

two years

three

throughthroughfive years

four

five years

years

Due after

years

Short-term borrowings
Long-term borrowings
Borrowings fromsecurities finance

¥

Total

¥

65,930 ¥
3,140

- ¥
3,020

- ¥
4,000

- ¥
2,840

- ¥
-

-

4,071
73,141 ¥3,020 ¥

4,000 ¥

2,840 ¥

- ¥-* Borrowings from securities finance companies are deemed to be settled within one year.
27.

DERIVATIVES
Derivatives utilized for trading purposes
The contract or notional amounts and fair value of derivative financial instruments for trading
purposes held at March 31, 2018 and 2017 are summarized as follows:(1) Stocks
March 31, 2018

Millions of yen
Contract ornotional
Valuationamounts Fair value gain (loss)

Stock index futures:
Written
Purchased
Stock index options:
Written
Purchased
Stock options traded over-the-counter:
Written
Purchased¥

2,554 ¥
1,166

(27) ¥
0

(27)
0

6
10

5
6

1
(4)

2
1

2
2

(0)
1
(29)

¥

Thousands of U.S. dollars
Contract ornotional
Valuationamounts Fair value gain (loss)

Stock index futures:
Written
Purchased
Stock index options:
Written
Purchased
Stock options traded over-the-counter:
Written
Purchased― 48 ―$ 24,040 $ (254)
10,9750$ (254)
0

56
94

47
57

9
(37)

19
10

19
19

(0)
9
$ (273)

March 31, 2017

Millions of yen
Contract ornotional
Valuationamounts Fair value gain (loss)

Stock index futures:
Written
Purchased
Stock index options:
Written
Purchased¥

1,393 ¥
1,582
9
21

7 ¥
(2)

7
(2)

9
35

0
14
19

¥

The fair value of stock index futures and stock index options is computed using prices on themarket and the fair value of stock options traded over-the-counter is computed based on theunderlying stock prices, volatilities and interest rate.
Gain or loss on deemed settlement is disclosed in the “Fair value” column of stock index
futures above.
(2) Bond
March 31, 2018
Millions of yen
Contract ornotional
Valuationamounts Fair value gain (loss)

Bond futures:
Written
Purchased¥ 16,447 ¥
906

13 ¥
(1)
¥

13
(1)
12

Thousands of U.S. dollars
Contract ornotional
Valuationamounts Fair value gain (loss)

Bond futures:
Written
Purchased$ 154,810 $
8,528

122
(9)

$
$

122
(9)
113

March 31, 2017
Millions of yen
Contract ornotional
Valuationamounts Fair value gain (loss)

Bond futures:
Written¥

4,510 ¥

2

¥
¥

2
2

The fair value of bond futures and bond options is computed using prices on the market.
Gain or loss on deemed settlement is disclosed in the “Fair value” column above.

― 49 ―

(3) Foreign exchange
March 31, 2018
Millions of yen
Contract ornotional
Valuationamounts Fair value gain (loss)

Forward foreign exchange:
Written:
Russian ruble
Brazilian real
Australian dollar
Mexican Peso
Indian rupee
South African rand
Other
Purchased:
U.S. dollars

¥

330
322
311
283
259
186
284

¥

170

(2) ¥
2
1
(9)
(5)
(3)
(1)

(2)
2
1
(9)
(5)
(3)
(1)

0

0
(17)

¥

Thousands of U.S. dollars
Contract ornotional
Valuationamounts Fair value gain (loss)

Forward foreign exchange:
Written:
Russian ruble
Brazilian real
Australian dollar
Mexican Peso
Indian rupee
South African rand
Other
Purchased:
U.S. dollars$

3,106 $
3,031
2,927
2,664
2,438
1,751
2,673

(19)
19
9
(85)
(47)
(28)
(9)

1,600

0

$

(19)
19
9
(85)
(47)
(28)
(9)

0
$ (160)March 31, 2017
Millions of yen
Contract ornotional
Valuationamounts Fair value gain (loss)

Forward foreign exchange:
Written:Indian rupee
Australian dollar
Russian ruble
Brazilian real
Mexican PesoSouth African rand
Other

¥

604
569
544
388
316
280
547

¥

(10) ¥
(6)
(15)
(3)
(8)
5
(4)
¥

(10)
(6)
(15)
(3)
(8)
5
(4)
(41)

The fair value of foreign exchange margin trading is computed using prices on the market.
The fair value of forward foreign exchange is based on the difference between the present
value of future cash flows of receipt amount and the present value of future cash flows of
payment amount. Gain or loss on deemed settlement is disclosed in the “Fair value” column
of forward foreign exchange above.

― 50 ―

Derivatives utilized for non-trading purposes
Derivative transactions to which hedge accounting are applied at March 31, 2018 and 2017
are summarized as follows:
Contract or notional amounts
Nature of transaction

Hedged items

Interest rate swaps:
Variable rate received
for fixed rateLong-term
borrowings

Millions of yen
2018
2017

¥

6,200

¥

5,340

Thousands of
U.S. dollars

2018

$

58,358*1 Hedge accounting method is the exceptional accounting method which is the difference inamounts to be paid or received on interest rate swaps being recognized over the life of theagreements as an adjustment to interest expense.
*2 Fair value of derivative financial instrument is included in fair value of the long-termborrowings as hedged items for certain long-term borrowings for which interest rate swap
contracts are used to hedge the interest rate fluctuations.
28.

INVESTMENT AND RENTAL PROPERTYThe Company and certain consolidated subsidiaries own their rental office buildings, land etc.
(hereafter “rental property”) in Tokyo and other areas. Income from the rental property is ¥32
million ($301 thousand) and ¥25 million for the years ended March 31, 2018 and 2017,
respectively.
The amounts recognized in the consolidated balance sheet and fair values related to the rental
property are as follows:
Millions of yen
2018
2017
Consolidated balance sheet amount:
Balance at beginning of the year

¥

¥

5,421
14
5,435

¥

6,303

¥

Increase/(decrease)
Balance at end of the year
Fair value

Thousands of
U.S. dollars

2018
$

¥

5,490
(69)
5,421

$

51,026132
51,158

¥

6,322

$

59,328The above fair value is based on real-estate appraisals, and is estimated by the Company.
29. BALANCES AND TRANSACTIONS WITH RELATED PARTY
For the year ended March 31, 2017, the Company purchased associated company’ stocks from Mr.
Tetsuo Kato who owns 0.28% shares of the Company and is Vice Chairman of the Board of
Directors in the amount of ¥700 million, from Ms. Yasuko Kato who owns 0.02% shares of theCompany and is close relatives of the Company’s directors in the amount of ¥337 million andfrom Santo Co., Ltd. who owns 0.25% shares of the Company and whose major shares are ownedby the Company’s directors and their close relatives in the amount of ¥1,357 million. The
amount is determined based on the price appraised by the third party.

― 51 ―

30.

SEGMENT INFORMATIONThe reported segments of the Company are the business units for which the Company is able toobtain respective financial information separately in order for the Board of Directors to conductperiodic investigation to determine distribution of management resources and evaluate theirbusiness results.
“Securities business”, “Asset management business” and “Support business” are the Company’s
reported segments.
“Securities business” renders trading and brokerage for trading in securities, underwriting anddistribution of securities, public offering and secondary distribution of securities and private
offering of securities. “Asset management business” renders investment management andinvestment advisory.
“Support business” renders information processing services,administrative support services, custodianship and temping services, etc.
Segment operating revenues, income, assets, liabilities and others are calculated by accounting
methods similar to those employed to prepare the accompanying consolidated financial
statements.
Segment income is calculated based on operating income in the consolidated statement ofincome.
Intersegment revenues and transfer are based on arms-length transactions.
Operating revenues, income, assets, liabilities and others by reported segments
The reported segment information for the Company and its consolidated subsidiaries for theyears ended March 31, 2018 and 2017 are summarized as follows:
Millions of yen
2018
Reported segments
Asset

Securities

Operating revenues:
Revenues from third¥
partiesIntersegment
revenues¥
Totalmanagement

Support

Total

Adjustments

Consolidated

68,575 ¥12,379 ¥963 ¥81,917 ¥4¥

81,921

4,434
73,009 ¥1
12,380 ¥11,331
12,294 ¥15,766
97,683 ¥(15,766)(15,762) ¥81,921(847) ¥

12,595 ¥(875) ¥

11,720

Segment income¥

12,044 ¥1,398 ¥

Segment assets¥ 434,109 ¥

19,452 ¥28,721 ¥ 482,282 ¥(4,522) ¥ 477,760

Segment liabilities¥ 308,478 ¥

1,749 ¥

15,022 ¥ 325,249 ¥(27,538) ¥297,711

95 ¥

3,609

Others:Depreciation
Interest anddividend income
Interest expense
Equity in gain ofaffiliates
Impairment loss
Investments inaffiliates

Increase in property
and equipment andintangible assets

¥

608 ¥

34 ¥

2,872 ¥

3,514 ¥

2,077
1,390

-

1
-

2,078
1,390

(332)
(227)

1,746
1,163

93
-

-

0
4,823

93
4,823

-

93
4,823

5,240

-

-

5,240

-

5,240

574

4

3,474

4,052

4

4,056

― 52 ―

Millions of yen
2017
Reported segments
Asset

Securities

Operating revenues:
Revenues from third¥
partiesIntersegment
revenues¥
Total

67,053 ¥management

Support

12,672 ¥

4,269

908 ¥

-

Total

Adjustments

80,633 ¥8¥

11,03815,307(15,307)

Consolidated

80,641-

71,322 ¥12,672 ¥11,946 ¥95,940 ¥(15,299) ¥80,641427 ¥

14,303 ¥(147) ¥

14,156

Segment income¥

12,505 ¥1,371 ¥

Segment assets¥ 508,595 ¥

18,400 ¥32,953 ¥ 559,948 ¥(7,103) ¥ 552,845

Segment liabilities¥ 386,939 ¥

1,658 ¥

21,036 ¥ 409,633 ¥(35,045) ¥ 374,588

Others:Depreciation
Interest anddividend income
Interest expense
Equity in gain ofaffiliates
Impairment loss¥

Investments inaffiliates

Increase in property
and equipment andintangible assets

701 ¥

29 ¥

2,632 ¥

3,362 ¥

142 ¥

3,504

1,788
1,380

-

6
-

1,794
1,380

(301)
(201)

1,493
1,179

41
233

-

-

41
233

-

41
233

4,852

-

-

4,852

-

4,852

937

291

6,035

7,263

3

7,266

Thousands of U.S. dollars
2018
Reported segments
Asset

Operating revenues:
Revenues from third
parties$Intersegment
revenues
Total

Support

Total

Securities

management

645,473 $

116,519 $

41,736687,2099
116,528

106,655
115,719

148,400
919,456

9,064 $

771,056 $Adjustments

Consolidated

38 $771,094(148,400)(148,362)

771,094

Segment income$

113,366 $13,159 $(7,973) $118,552 $(8,236) $110,316

Segment assets$ 4,086,116 $

183,095 $

270,341 $ 4,539,552 $(42,564) $4,496,988

Segment liabilities$ 2,903,595 $

16,463 $141,397 $ 3,061,455 $(259,205) $2,802,250

894 $

33,970

Others:Depreciation
Interest anddividend income
Interest expense
Equity in gain ofaffiliates
Impairment loss
Investments inaffiliates

Increase in property
and equipment andintangible assets$

5,723 $

320 $

27,033 $33,076 $19,55013,084-9-

19,55913,084(3,125)(2,137)

16,434
10,947875--

045,397875
45,397-875
45,39749,322--

49,322-

49,322

5,403

38

32,69938,14038

38,178― 53 ―

1.

(1) Components of “Adjustments in segment income” are as follows:
Millions of yen
2018
2017
Elimination of intersegment transactions

Unallocated company-wide expenses

¥

2,858
(3,733)
¥
(875)

¥

2,770
(2,917)¥(147)

Thousands of
U.S. dollars

2018
$
$

26,901(35,137)(8,236)Company-wide expenses are holding company’s expenses.
(2) Components of “Adjustments in segment assets” are as follows:
Millions of yen
2018
2017
Elimination of intersegment balances
Unallocated company-wide assets¥ (48,320) ¥ (57,400)
43,79850,297¥ (4,522) ¥ (7,103)

Thousands of
U.S. dollars

2018$ (454,819)
412,255$ (42,564)

Company-wide assets are holding company’s assets.
(3) Components of “Adjustments in segment liabilities” are as follows:
Millions of yen
2018
2017
Elimination of intersegment balances
Unallocated company-wide liabilities¥ (46,131) ¥ (54,616)
18,593
19,571¥ (27,538) ¥ (35,045)

Thousands of
U.S. dollars

2018$ (434,215)
175,010$ (259,205)

Company-wide liabilities are holding company’s liabilities.
2.

Segment income is adjusted with operating income in the consolidated statement of income.

Related information
1. Information by products and services
Disclosures are omitted because the required information is given in the above segment information.
2. Geographical information(1) Operating revenues
Disclosures are omitted because operating revenues from customers in Japan are over 90% of
operating revenues in the consolidated statement of income.
(2) Property and equipment

Disclosures are omitted because property and equipment located in Japan are over 90% of property
and equipment in the consolidated balance sheet.

3. Information by major customers
Disclosures are omitted because no particular third party whose operating revenues are over 10% of
operating revenues in the consolidated statement of income exists.
Information of impairment loss on fixed assets by reported segments
The information is not applicable for the years ended March 31, 2018 and 2017.
Goodwill by reported segments
The information is not applicable for the years ended March 31, 2018 and 2017.
Negative goodwill incurred by reported segments
The information is not applicable for the years ended March 31, 2018 and 2017.
― 54 ―

― 55 ―

REFERENCE

DATA― 56 ―

Okasan Securities Co., Ltd.
Balance Sheets － March 31, 2018
Thousands of
U.S. dollars

Millions of yen
2018

2017

2018

ASSETS
Current assets:
Cash on hand and in banks¥

13,009¥15,117$

122,449

Cash segregated as deposits for customers andothers27,77924,479261,474

Trading assets

111,120

149,171

1,045,934

Receivables arising from unsettled trades

10,2206,439

96,197

Receivables on margin transactions

44,65336,542

420,303

Receivables on collateralized securities transactions

87,549141,522824,068

Short-term guarantee deposits

2,064

2,309

19,428Deferred income taxes

880

911

8,283

Other current assets

2,902

2,985

27,316

(6)

(5)

(56)

Total current assets

300,170

379,470

2,825,396

Property and equipment, net of accumulated
depreciation

3,120

3,128

29,367

282

290

2,654

663

540

6,241

Allowance for doubtful accounts

Intangible assets, net
Investments and other assets:
Investment securities
Securities in associated companies

211

211

1,986

Long-term guarantee deposits

3,653

3,630

34,384

Deferred income taxes

1,282

1,349

12,067

Prepaid pension cost

647

293

6,090

Other

1,041

1,021

9,799

Allowance for doubtful accounts

(674)

(682)

(6,344)

6,823

6,362

64,223

Total investments and other assets
TOTAL

¥

― 57 ―

310,395¥

389,250$

2,921,640

Okasan Securities Co., Ltd.
Balance Sheets－(Continued)－ March 31, 2018
Thousands of
U.S. dollar

Millions of yen
2018

2017

2018

LIABILITIES AND NET ASSETS
Current liabilities:
Trading liabilities¥

62,983¥

138,274$

592,837

Payables on margin transactions

10,061

11,073

94,701

Payables on collateralized securities transactions

19,332

46,659181,965

Deposits received

24,71722,535

232,653

Guarantee deposits received

7,670

7,485

72,195

Short-term borrowings

78,51552,315739,034

Income tax payables

643

1,133

6,052

Other current liabilities

7,811

8,016

73,522

211,732

287,490

1,992,959

Long-term borrowings

4,000

6,700

37,651

Liability for retirement benefits

4,946

4,775

46,555

Other non-current liabilities

1,498

1,488

14,10010,444

12,96398,306

847

800

7,973

223,023

301,253

2,099,238

5,000

5,000

47,063

Capital surplus

29,20029,200274,849

Retained earnings

53,15553,778500,330

87,35587,978822,242

17

19

160

87,372

87,997

822,402

Total current liabilities
Non-current liabilities:

Total non-current liabilities
Financial instruments transactions reserve
Total liabilities
Net assets
Shareholder's equity:
Common stock
Authorized―240,000 shares
Issued―100,000 shares in 2018 and 2017

Total shareholder's equity
Accumulated other comprehensive income:Unrealized gain on available-for-sale securities
Total net assets
TOTAL

¥

― 58 ―

310,395¥

389,250$

2,921,640

Okasan Securities Co., Ltd.
Statement of Income － Year ended March 31, 2018
Thousands of
U.S. dollar

Millions of yen
2018

2017

2018

Operating revenues:
Commissions¥

Net gain on trading

36,266¥25,748Interest and dividend income

31,380$30,318341,359242,357

1,230

1,044

11,57863,24462,742595,294

Interest expense

1,051

1,070

9,893

Net operating revenues

62,193

61,672585,401

Selling, general and administrative expenses

50,357

48,799473,993

11,836

12,873

111,408

Operating income
Other income (expenses):
Reversal of (provision for) financial instruments
transactions reserve

(46)

687

(433)

Other, net

338

392

3,182

292

1,079

2,749

12,128

13,952

114,157

Current

3,652

4,666

34,375

Deferred

99

(351)

932

3,751

4,315

35,307

Income before income taxes
Income taxes:

Net income¥― 59 ―

8,377

¥

9,637

$

78,850BOARD OF DIRECTORSCORPORATE DATA(At August, 2018)(At August, 2018)
Company Name

Vice Chairman

OKASAN SECURITIES GROUP INC.

Tetsuo Kato

Date of Establishment

President
Hiroyuki Shinshiba

August 25, 1944

Director

Head Office

Mitsuru Tanaka

1-17-6 Nihonbashi, Chuo-ku,

Director

Tokyo 103-8268, Japan

Hiroyuki Shindo

Muromachi Head OfficeDirector

2-2-1 Nihonbashi Muromachi, Chuo-ku,

Akira Terayama

Tokyo 103-0022, Japan

Audit & Supervisory Committee Members

Phone Number

Director+81-3-3272-2222

Nobuyuki Natsume

Paid-in Capital

Outside Director

18,590 Million Yen

Seishi Higo

Subsidiaries

Outside Director

10 companies

Hirokazu Kono

Listed Stock Exchanges

Outside Director

Tokyo Stock Exchange

Tsuneo Muneoka

Nagoya Stock Exchange

ORGANIZATION CHART(At August, 2018)
General meeting of shareholders

Board of Directors
President

Audit & Supervisory Committee
Audit & Supervisory Committee Office
Management Conference
Executive MeetingGroup System Control Conference
Internal Audit Dept.
Corporate Strategy Dept.

Corporate Strategy DivisionCorporate Legal Dept.

Group CSO
Group CLO
Group CIO

Group Affiliated Companies Support Dept.
Public and Investor Relations Dept.
Information Technology Strategy Dept.
Secretariat

Personnel Division

Personnel Planning Dept.

Group CHRO

Treasury Planning Dept.
Administrative Division

General Affairs Dept.

Group CFO

Internal Control Promotion Office
Risk Management Dept.

Group CRO

Corporate Relationship Management Dept.

― 60 ―

http://www.okasan.jp/