AIFULC O R P O R AT I O N

A N N U A L R E P O R T 2 0 01

PROFILE

In 1967, President Yoshitaka Fukuda founded the Company's predecessor in Kyoto to provide
loans to individuals. The firm was incorporated as Marutaka Co., Ltd. in 1978, and began serving
the Kyushu and Kyoto areas of Japan. In 1982, Marutaka changed its name to AIFUL Corporationand the Company has since expanded its activities throughout Japan.
In March 1995, the Company introduced its first Ojidosan machine.
During the year ended March 31, 1997, the Company became the fourth largest company in
the Japanese consumer finance industry in terms of total amount of loans outstanding.
In July 1997, the Company made an initial public offering of its shares in the Japanese OTC
market. In October 1998, the Company listed its shares on the Second Sections of the Tokyo Stock
Exchange (TSE), Osaka Securities Exchange (OSE) and Kyoto Stock Exchange. The Kyoto Stock
Exchange was subsequently merged into the OSE on March 1, 2001. In March 2000, the Company
listed its shares on the First Sections of the TSE and OSE. Its Tokyo Stock Exchange securities codeis 8515.
In March 2001, the Company acquired Life Co., Ltd.

N O N - C O N S O L I D AT E D F I N A N C I A L H I G H L I G H T S
AIFUL Corporation
Years ended March 31

Millions of Yen% Change

Thousands of
U.S. Dollars

2001

2000

01/00

2001

¥272,553
180,078
92,47548,512¥239,200
154,490
84,71044,104

13.9
16.6
9.2
10.0

$2,198,008
1,452,242
745,766
391,226

At Year-End:Balance of loans outstanding ................................................ 1,159,734
Total assets ............................................................................. 1,586,409
Long-term debt, including current portion thereof .............. 1,186,674
Total shareholders’ equity ......................................................
302,601
Number of shares outstanding .............................................. 84,876,000

1,001,080
1,182,468
863,469
252,903
56,103,000

15.8
34.2
37.4
19.7
51.3

9,352,694
12,793,629
9,569,951
2,440,331% Change

U.S. Dollars

For the Year:
Total income ..........................................................................
Total expenses .......................................................................
Income before income taxes .................................................
Net income .............................................................................

Per Share Data:
Net income ............................................................................
Cash dividends .......................................................................

Yen¥ 572.38
50¥ 524.09
60

9.2
-16.7

$

4.62
0.40

Notes: 1. The U.S. Dollar amounts have been translated for convenience only at ¥124=$1, the rate of exchange at March 31, 2001.
2.Net income per share has been computed based on the weighted average number of shares outstanding during each period, after retroactive
adjustment for stock splits.

Contents
Noteworthy Events ..................................................................... 1
Message from the President .................................................... 2
Special Feature ............................................................................ 4
Financial Section ...................................................................... 19
Board of Directors ..................................................................... 66
Investor Information .................................... inside back cover
Cautionary Remark Regarding Forward-Looking Statements
Statements made in this document with respect to AIFUL’s plans, strategies and beliefs and other statements that are not historical facts areforward-looking statements based on the assumptions and beliefs of the Company’s management in light of the information currently available to it and involve risks and uncertainties which may affect the Company’s future performance. Potential risks and uncertainties in
AIFUL’s areas of business include, without limitation, social conditions, economic conditions and financial conditions.

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First QuarterMay 22, 2000

Implements Stock Split
AIFUL implemented a stock split of 1.5 shares for 1 share of common stock.

June 1, 2000

Lowers Interest Rates, Consolidates Acquisitions
The Financing Law, which was revised in December 1999, went into
effect, lowering the maximum interest rate from 40.004%, to 29.2%.
Also on this date, AIFUL consolidated Happy Credit Corporation, amedium-sized consumer credit company that is the surviving entity
from a merger with Sky Corporation, and Sinwa Co., Ltd.

Second Quarter
July 10, 2000

Launches i-mode and e-cashing Services
AIFUL introduced services that allow wireless and i-mode Internet
users to apply for credit online, have their loan limits raised, and simulate repayments. The Company has a patent pending on the business model it uses to increase lending limits.

Third Quarter
October 12, 2000

Agrees to Sponsor Troubled Consumer Credit Company
Following approval from the Tokyo District Court, AIFUL concluded asponsorship agreement with Kazuhiko Shimokawabe, the receiver forLife Co., Ltd., a consumer finance company under court-authorized
reorganization.

Fourth Quarter
January 18, 2001

Establishes Businext with Sumitomo TrustAIFUL and The Sumitomo Trust & Banking Co., Ltd. foundedBusinext Corporation, a small business finance company whichstarted operations in April 2001 at two branches, in Tokyo and Osaka.

March 23, 2001

Procures Funds through Syndicated Loan
To help finance the acquisition of Life, the Company obtained ¥70 billion in funds through a syndicated loan lead-managed by Aozora
Bank, Ltd. Other members of the 41-institution syndicate included
Sumitomo Trust and The Yasuda Trust & Banking Co., Ltd. Of these,
20 institutions conducted business with AIFUL for the first timethrough the loan.

March 28, 2001

Receives Funding for Life
Life received ¥273 billion from a collateralized financing arrangement provided by Morgan Stanley Dean Witter Principal Funding
Inc. and Sumitomo Trust as part of reorganization.

March 31, 2001

Acquires LifeAIFUL acquired Life to fully enter the consumer finance sector.
1

M E S S A G E

F R O MT H E

P R E S I D E N T

O

ur acquisition of Life Co., Ltd., has allowed
us to reach an advantageous position in consumer finance as a comprehensive financial services company and seize new revenue and earnings
opportunities. We will draw on our capabilities in consumer financial services to harness greater
economies of scale, pursue synergies between our shopping loan operations, streamline management
and improve our business performance.

Operating Environment
In fiscal 2000, ended March 31, 2001, the government revised the Contributions Law (in June 2000),
lowering the maximum interest rate from 40.004%, to 29.2%. This triggered a realignment of ourindustry in which leading consumer finance companies formed joint ventures and assurance allianceswith banks. AIFUL itself responded to change by acquiring Life.
As top players have diversified and differentiated their competitive strategies, a battle to attract customers has started, reaching beyond the traditional boundaries between consumer finance, shopping loan and credit card companies, and banks.
Fiscal 2000 Initiatives
Based on a corporate philosophy aimed at winning social support for its operations, the AIFUL Groupis endeavoring to expand its activities by satisfying the needs of all its customers.
The year under review saw intensifying competition across traditional financial services boundaries, something that the AIFUL Group has long advocated.
As part of our drive to become a comprehensive financial services company, we have complemented our product diversification strategy by pursuing a channel diversification strategy to attract
more customers. Our product approach encompasses three core areas of unsecured, home equity andsmall business loans, supported by the aggressive development of new offerings. In the second halfof fiscal 2000, we became an industry leader in the number of new unsecured loan customers.
Our channel diversification strategy focuses on mergers and acquisitions, shopping loans andcredit cards, and the Internet. As part of our mergers and acquisitions strategy, we have strengthened the marketing capabilities of Happy Credit Corporation and Sinwa Co., Ltd.—two midranked2consumer finance firms we took over in fiscal 1999. In April 2001, we formed Businext Corporation
with The Sumitomo Trust & Banking Co., Ltd., signaling our entry into middle-risk markets as a lenderto small businesses.
As part of our consumer credit and credit card strategy, in March 2001 we acquired Life, which had
filed for reorganization under the Japanese Corporate Reorganization Law. Our goal was to cultivate
customers that were impossible to approach through our consumer finance business. The acquisition of Life and the consequent broadening of our customer channels have deep significance for the
AIFUL Group as it endeavors to become a top player in the medium and long terms.
Under our Internet strategy, we increased customer convenience by launching e-cashing, which isaccessible through regular and i-mode web browsers. We have quickly completed work on online
services to meet future demand requirements, notably those that instantly process loan applications
and allow customers to check credit limits.

Group Performance
In fiscal 2000, the efforts described above and heavy advertising, particularly on television, helped us
boost the number of new unsecured loans 6.7%, to 453,000. From the second half of the term, we
became the industry leader in terms of the number of new loans. Consequently, loans outstanding
reached ¥1,159,734 million at year-end. Unsecured loans and home equity loans were ¥921,891 millionand ¥225,645 million, respectively, while small business loans stood at ¥12,198 million.
As a result of these factors, non-consolidated total income was ¥272,553 million, while net income
was ¥48,512 million. On a consolidated basis, total income and net income were ¥281,719 million and¥48,253, respectively.
Looking Ahead
In the years ahead, competition in the consumer finance industry will intensify into a fight for survival. We will see new players enter this business through mergers and acquisitions and businessalliances. Companies already in the industry will expand into other areas. In addition, more foreigncompanies will become rivals in Japan.
We will tackle these challenges by becoming a comprehensive provider of products and services
in consumer finance. In acquiring Life, we have taken a dramatic step beyond the consumer financing market, which is worth between ¥8 and ¥9 trillion, to gain a presence in the ¥22 trillion shopping loan and credit card sector. We will draw on the brands of all AIFUL Group companies to takeadvantage of synergies, maximize AIFUL Group value and become a megacompetitive winner.

Yoshitaka Fukuda
President and Chief Executive Officer
June 27, 2001

3

S P E C I A L

4F E A T U R E

Broadening Our Reachcompanies

of comprehensive retail financing

extended ¥9,660 billion in con-

to individuals. The strategy empha-

sumer loans in Japan in fiscal 2000,

sizes diversifying our products,

up 10.1% from a year earlier. This

expanding our core business, man-

was almost triple the ¥3,296 billion

aging risk assets and maintaining a

in such loans a decade earlier.

sound financial position.

Consumerfinance

Japan’s consumer finance mar-

We aim to strengthen our com-

ket is highly competitive. AIFUL’s

petitive position by diversifying our

rivals include credit card and con-product and customer development

sumer credit companies, such as

channels, as well as through acqui-installment sales finance compa-

sitions. The takeover of Life Co.,nies. Many of these players offer

Ltd. has positioned the AIFUL

unsecured loans. Recently, someGroup to offer lending and credit

Japanese commercial banks haveservices to consumers as a compre-

entered the arena through joint

hensive retail consumer financing

ventures with consumer financeservices company.

companies.
We have implemented a strategy
to become a broad-based provider

5

E X P A N D I N GC O R EB U S I N E S S

The competitive profile of the consumer
finance industry will likely change in theyears ahead. To date, the industry has
expanded by mass-marketing unsecured
consumer loans. We believe that competition in unsecured consumer lending will
intensify, with growth slowing in themedium to long terms as young adults
become a smaller proportion of the population and the market matures. Productdiversification is crucial to sustain momentum, retain and attract low-risk customers,
meet demand for higher borrowing levels(only available through unsecured lending)and spread credit portfolio risk.

Unsecured Loans
Our unsecured consumer loans to individuals do not require collateral or third-party
guarantees. The credit limit is normally¥500,000 per customer, but once the credit
department at headquarters assesses thecredit of a loan applicant, the ceiling per
customer may be raised to ¥3 million.
Unsecured loans are central to our business and should remain important in theforeseeable future. Outstanding unsecuredloans constituted 79.5% of our aggregate
loan balances at the end of fiscal 2000. This
proportion should gradually decline owing
to the market forces and diversification
efforts described earlier.

To date, the industry has expanded bymass-marketing unsecured consumer
loans.
6

Secured Loans
We offer secured loans to individuals providing home mortgages as collateral and, insome cases, to corporations using property
as collateral. Almost half of our securedloans use first mortgages, with junior mortgages accounting for the balance. The

E X P A N D I N G

credit department sets credit limits after
evaluating property and creditworthiness.
Secured loans to individuals and corporations represented just 17.8% of our total
outstanding loans at the end of fiscal 2000.
Nonetheless, we believe the prospects aregood for secured loans to consumers andwe can draw on our solid market positionand limited competition to take advantageof this potential. At fiscal 2000 year-end,
secured loans stood at ¥225,645 million, up
24.4% from a year earlier. We seek toincrease the proportion of secured loans to
individuals in our lending portfolio.
Our strength in the secured loans market reflects our accumulated expertise, thenationwide availability of loans at manned
loan offices and limited competition.
We aim to manage exposure to thedomestic property market’s risks by providing secured loans that average just ¥3.7
million per account, with a broad interest
rate range that mirrors credit risks. We generally limit secured loans to 70% of
appraised collateral value. In some cases,
the ratio may be up to 100% for customers
meeting income and other criteria. We
minimize risks by lending predominantly
to customers with proven credit histories
as unsecured borrowers and by geographically dispersing loans.

C O R EB U S I N E S S

Larger rivals lend principally to salaried
workers. In contrast, AIFUL has longserved the self-employed. The small business loan market has substantial growthpotential. We can capitalize on new opportunities in the small business lending market because we are committed to serving
the self-employed and offer financethrough our manned loan offices.
We have instituted procedures toreduce risks specific to small businessloans. Small enterprises are highly vulnerable to economic fluctuations. We control
credit by analyzing macroeconomic conditions and the small business climate andfurther mitigate risks by requiring thirdparty guarantees for loans above ¥2 million, lending primarily to customers withgood credit histories as unsecured borrowers and by risk-adjusting interest rates.
AIFUL will continue to build expertise inthis area and increase the proportion ofsuch funding in its overall lending portfolio.

Total Balance of Loans
Outstanding

Number ofCustomer Accounts(Millions of Yen)

(Thousands)

1,200,000

Number of Branches

2,500

1,500

2,000

1,200

1,500

900

1,000

600

500

300

1,000,000

Small Business Loans
We make small business loans of up to ¥4
million each to small business owners. We
traditionally required such customers toprovide guarantors with regular occupations and incomes. From May 2001, however, we began extending loans of up to ¥2
million without such guarantors.

800,000

600,000

400,000

200,000

0

97

98

99

00

01

0

97

98

99

00

Small Business Loans
Secured Loans

Small Business Loans
Secured Loans

Unsecured Loans

Unsecured Loans

01

0

97

98

99

00

01

Unstaffed Branches
Staffed Branches
Unmanned Loan-Contracting
Machines

7

E X P A N D I N GC O R EWe seek to maximize profitability by pursuing economies of scale—expanding andstreamlining core operations.
We will expand core business byenhancing our customer base. Our efforts
focus on attracting more customers directly
while achieving growth indirectly throughsubsidiaries and cost-efficient acquisitions.
We also aim to increase the number ofloans per account by tailoring products tocustomers with superior credit histories
and sound financial positions.
In March 2000, one of our subsidiaries
agreed to acquire the consumer financebusinesses of Happy Credit Corporationand Sky Corporation, whose loan assets
were ¥16.9 billion and ¥5.5 billion, respectively. Both firms operated mainly in the
Kansai region. The subsidiary then renamed
itself Happy Credit Corporation. At the endof fiscal 2000, Happy Credit’s loan portfolio was worth ¥27,106 million, representing

8

B U S I N E S S

20% growth in less than one year after
AIFUL took over that company.
In June 2000, we used a share swap totake over Sinwa Co., Ltd., a consumer
finance company based in the Chubu
region, with ¥13.9 billion in loan assets at
June 30, 2000. At the end of fiscal 2000,
that company’s loan assets were ¥16,861
million, or more than 20% higher than at
the time of acquisition.
In April 2001, we invested ¥1,800 million to launch Businext Corporation with
the Sumitomo Trust & Banking Co., Ltd., aspart of a drive to diversify our business
lending portfolio. Businext provides unsecured loans mainly for working capital tosmall business owners and corporations.
Consumer finance companies have traditionally ignored such enterprises. Businext
requires a representative director of a borrowing corporation as guarantor. Loans are
generally between ¥500,000 and ¥10 million per borrower.

E X P A N D I N G

The AIFUL brand enjoys strong recognitionand customer acceptance in Japan’s consumer finance industry. We harness diverse
marketing techniques to broaden our customer base and establish a favorable public image. The advertising department
places broadcast and print advertisements
and erects billboards. Local branches publicize our activities by distributing tissue
packs bearing our logo. We have steppedup television advertising as well. In fiscal
2000, television broadcasters started allowing consumer finance companies to advertise during prime time. We also sponsor
sporting and other community events.
In October 1999, AIFUL launched an inhouse corporate branding project team tohelp solidify the Company’s reputation.

C O R EB U S I N E S S

From fiscal 2000, AIFUL started runningtelevision commercials depicting thesophisticated interactions between branchstaff and customers. The campaign so
improved the Company’s brand image thatfrom the second half of the term AIFUL
became the industry leader in monthly
new customer numbers. The momentum
has carried over into fiscal 2001.
Our drive to diversify customer accesschannels encompasses the developmentof e-cashing services for wireless andmobile Internet users. We will continue toemphasize advertising and sponsor sporting and other events to build the AIFULGroup’s image.

9

E X P A N D I N GC O R E

Strong asset risk management is critical tomaintaining a high-quality loan portfolio.
We drew on our lending experience todevelop a computerized score-based credit
evaluation system, similar to a company
rating. Our setup takes into accountnumerous factors relevant to assessing
prospective customers. They include borrowings from other firms, occupation,
years of employment and credit history.
We assign one of 13 rating categories to an
applicant, based on which the scoring system determines the ceiling and interest rate
for a loan. The system uses and contributes
to our extensive database, evaluating bothindividual and overall loan risks.

10

B U S I N E S S

We upgraded our scoring system in
December 1998 to reflect the recent stateof the Japanese economy. The system alsouses actuarial data on income level, occupation, marital status and the age of eachloan applicant. We plan to launch a newversion of our scoring system in April 2002.
We have used our broad empirical
database to develop a sophisticated scoring system as part of a ranking methodology for self-employed borrowers that supports our small business loans operations.
Consequently, in fiscal 2000 we kept
bad debt write-offs at just 3.5% of totalloans while increasing total loans outstanding an industry-leading 15.8%.

E X P A N D I N G

AIFUL Corporation’s capital procurement
efforts continued to gain ground during theyear under review. To insulate theCompany against the effect of the Bank ofJapan abandoning its zero interest rate policy, the Company obtained long-termloans, fixed the interest rates paid by theCompany through various interest rate
hedges, and increased the percentage ofcapital raised directly by issuing corporate
bonds. As a result, AIFUL Corporation has
been almost completely unaffected by thechanging interest rate environment.
We currently manage interest rate risk
through interest rate swap agreements andinterest rate caps. At the end of fiscal 2000,
we hedged 65.8% of total borrowings inthese ways or accrued interest at fixed
rates. We are preparing for greater competition by creating a cost-efficient structurethat can withstand higher borrowing costs.
We also aim to lower our reliance on nonbank funds.

C O R EB U S I N E S S

We obtain syndicated loans fromdomestic and international lenders, whileworking to diversify our funding sources.
On a different note, the steady growthof balance of loans outstanding and thecapital invested in Life during the year
under review led AIFUL to issue standard
domestic bonds to the sum of ¥220,000
million. This was part of efforts to procure
more capital directly from markets, andtook the direct capital procurement ratio to
31.7% at the end of the year. AIFUL willcontinue to diversify capital procurement
methods and strive to obtain low-cost, stable sources of funding.

11

A C Q U I S I T I O NAIFUL acquired Life at the end of March
2001.
Founded in 1952, Life is a major
Japanese consumer credit company.
12O F

L I F EAIFUL acquired Life at the end of March 2001.
Founded in 1952, Life is a major Japanese
consumer credit company. After reorganization,Life’s loans and installment accounts receivabletotaled ¥606 billion (including off-balance-sheet
items and before allowances) at the end of fiscal 2000. This amount included ¥162 billion in
per-item shopping loans, ¥130 billion in credit
card cash loans and ¥63 billion in credit card
shopping loans. Another ¥64 billion was inconsumer finance loans, with ¥184 billion inguarantees for third-party consumer loans.
From the 1980s until its failure and nationalization in 1998, The Long-Term Credit Bankof Japan, Ltd.,now Shinsei Bank, Ltd.,was Life’s
lead lender. Once the bank failed, Life began
to encounter funding difficulties that hampered its operations. At the same time, Life’s
assets suffered and loan collection difficulties
increased as the domestic economy deteriorated. In auditing the financial statements forfiscal 1999, Life’s independent certified
accountants demanded significantly higher
provisions for bad debt, which would haverendered Life insolvent. These factors
prompted Life to file with the Tokyo District
Court for reorganization under the Corporate
Reorganization Law on May 19, 2000.
On September 29, 2000, AIFUL won preferred negotiation rights to acquire Life. On
October 12, 2000, we concluded a sponsorshipagreement with Life’s reorganization trustee,through which we could acquire Life subject tothe approval of the reorganization plan by therequisite number of Life’s creditors and thecourt. Between then and March 30, 2001, we
agreed to second several senior executives tohelp manage Life. Under this arrangement,
Yoshitaka Fukuda, our president and CEO,became an additional reorganization trusteeof Life, assisted by other senior AIFUL officers.
On January 31, 2001, the required majority ofLife creditors and the court authorized ourreorganization plan.

A C Q U I S I T I O NLife is now firmly placed to compete in the
consumer credit industry. During the reorganization proceedings, Life disposed of
doubtful receivables, eliminated less profitable assets and booked most of its nonperforming assets. The proceedings did
not greatly harm Life’s brand image, as thefirm retained most of its customers andmember merchants.
The revitalized Life complements ourbusinesses in several ways, offering:• An established credit card business witha respected brand name and fully operational credit card infrastructure, incorporating card and invoice issuance, collections and settlements;• A fully deployed and skilled work force,with special expertise in developing new
financial products and the skills to
expand customer and member merchantoperations;• A solid network of member merchants andalliances with credit card issuers, includinginternational credit card companies;O F

L I F E

• A large, stable customer base thatenhances the demographic diversity of
our clientele; and• A management with extensive experience in the consumer credit industry.
Just as important, Life has a strong capital base to support the growth. Its ratio of
equity to total assets (including off-balancesheet items) is around 10%. The firm also
enjoys substantial funding from AIFUL.

13

A C Q U I S I T I O N

At the close of fiscal 2000, Life had 7.48
million credit card holders, with 74,000
member merchants accepting its cards oradvancing its installment credit. Life’s primary business lines include:
Per-Item Shopping Loans
These comprise loans to consumers to buy
specific goods and services from thirdparty vendors who deal with the consumers and document their loans. Except
for auto loans, the funding is generally
unsecured. Credit extension generally
reflects Life’s evaluation of the creditworthiness of the third-party vendors and their

14

O F

L I F E

customers. The average per-item shopping
loan advance was ¥200,000 in fiscal 2000.
The return (before credit losses and othercosts) on loans was 10% to 11%. Borrowers
generally repay per-item shopping loans
within two years. These loans stood at¥162 billion at the end of fiscal 2000.
Advances for the year totaled ¥73.4 billion.
Reflecting our strategy of focusing on
quality customers and return-risk performance, Life terminated most of its auto loan
operations by the end of fiscal 2000
because of low profit margins.

A C Q U I S I T I O N

Credit Card Cashing andShopping Loans
Life issues several types of credit card,
including its proprietary Life cards. It alsooffers joint cards with member merchants,
which holders use at merchants’ outlets, aswell as joint cards with domestic and international credit card companies, notablyLife MasterCard, Life Visa and Life JCB
cards. We will launch an AIFUL Life card,
which we will also ally with domestic andinternational issuers. Credit card cashingloans represent cash advances on credit
cards. Each card type lets holders purchasegoods at Life-affiliated stores or receive
cash advances from Life ATMs.
In fiscal 2000, Life issued 1.95 million
new credit cards. In Japan, customers canuse Life credit cards at the establishmentsof 74,000 member merchants. During theterm, credit card shopping loan advances
totaled ¥221 billion. The year-end balanceof credit card loan advances was ¥150.9
billion.

O F

L I F E

property-backed loan guarantees to banks
and auto or shopping loan guarantees.
Third parties fund these loans, but Life
records the amounts on its balance sheets
in line with accounting principles andpractices generally accepted in Japan. At
the close of fiscal 2000, Life’s bank loan
guarantees totaled ¥79.2 billion, while thebalance of other loan guarantees was¥184.3 billion.
While it has mostly withdrawn from theproperty-backed guarantee and auto loan
segments, Life is reviewing the rates of its
bank loan guarantees and may expand volumes where rates are attractive.

Consumer Finance Loans
Life Cash Plazas provide these loans without requiring collateral or guarantors, usually within 30 or 40 minutes of an application. The credit limit is generally between¥100,000 and ¥500,000 per customer,
although Life can authorize a ceiling of ¥2
million for repeat customers. In fiscal 2000,
the average balance of these loans was¥330,000 and the total balance of loans was¥64 billion. Advances totaled ¥35 billion.
Loan Guarantees
Life provides three fee-based loan guarantee services, generating revenues fromfees. It issues guarantees for borrowers
from banks and other financial institutions,15A C Q U I S I T I O NLife is central to our goal of becoming
Japan’s top provider of comprehensive
retail consumer financing products andservices. To this end, we formulated a business plan that reflects Life’s autonomy andits membership in the AIFUL Group.
The core elements of the plan are to
expand and improve Life’s consumer credit
businesses by applying our credit assessment, collection and other expertise to thatcompany’s operations while taking steps toenhance Life’s brand image and exploit
economies of scale. We created the following business plan for Life:
Share Our Credit Expertise
Our consumer lending expertise andour credit evaluation approach will help
Life expand and improve its consumer
credit businesses.

16

O F

L I F EBy applying our credit expertise toLife’s consumer credit portfolio, emphasizing more profitable lines, we aim to build
Life’s business by expanding its customer
base and per-customer credit limits whileconstraining risk.
The high credit quality of Life’s customers justifies increased credit limits andtheir greater use of credit facilities. Life’s
traditional lending practices led to credit
facility usage rates and credit limits thatwere significantly below AIFUL’s.
We will continually reassess the borrowing capacity of Life’s customers to
expand borrowings while controlling credit
risk. As part of this effort, all Life’s business lines will gradually adopt our credit
scoring system to increase profitability
without compromising risk management.
Applying our relatively low-cost andefficient collection system to Life’s loan
portfolio should significantly increase Life’s
earnings. To boost efficiency while lowering costs, we are replacing branch-based
activities with back office operations insuch areas as monitoring payments andissuing payment notices.
Life is diversifying its distribution channels to broaden access for existing andpotential customers. These efforts center on:• Opening 60 new Life Cash Plaza loan
offices by the end of March 2002, including 50 unmanned Plazas, to increase
nationwide product and service availability while controlling operating costs;• Harnessing the Internet, automatic loan
contracting machines and other channels, supported by documentation fromprocessing centers, to assess credit
swiftly and more accurately;• Cutting the time needed to process credit
applications;A C Q U I S I T I O N• Rationalizing back office operations andhaving surplus employees handle collections at head office and sales offices,bringing Life’s collection process into linewith ours and strengthening Life’s sales
force; and• Increasing substantially Life’s advertisingbudget.
Apply Our Proprietary Expertise andCorporate Philosophy
We will modify Life’s credit card businessmodels to emphasize profitability, betterfocusing them on the needs of its customers and member merchants. We areconsidering the following measures:• Assigning each credit card customer asingle aggregate credit card limit to allow
discretion in using cards for shoppingand cashing transactions. The absence ofseparate limits should boost credit card
usage and average transactions, leading
to a higher proportion of high-margin
cash loans;• Diversifying repayment options, such asallowing minimum payments;• Introducing usage incentives to further
differentiate Life’s products while making
them more attractive to new and existing customers;• Continuing to expand Life’s credit cardalliances with major merchants so it canpenetrate the market faster at relatively
low cost and diversify its profit sources;• Enhancing customer service by issuing
credit cards at manned offices, diversifying repayment terms and offering electronic invoicing and payment options to
reduce mailing expenses; and• Promoting such international credit cards
as MasterCard, Visa and JCB, which canbe used more widely and should remain
continually accessible to Life’s customers.

O F

L I F E

Refine Life’s Other Businesses
We are refining Life’s product mix to focus
more heavily on profitable business lines.
To that end, we emphasize such areas ascredit card cashing loans, as we withdraw
Life from less profitable areas, such as automobile loans. We will review the profitability of Life’s existing guarantee contracts
without compromising its relationships
with counterparty financial institutions.

17A C Q U I S I T I O N

Capitalize on Synergies andEfficiencies
Our acquisition of Life created substantial
synergies and efficiencies. While Life willcontinue to operate separately under its
own brand name, we will capitalize on
potential synergies in the following ways:• Reducing costs significantly by jointly
managing back office operations asboth companies are in the consumer
credit business and our infrastructuresare similar;• Integrating some offices and data systems, call centers and other administrative areas to serve both companies’ customers more efficiently (we have alreadyestablished several Life Cash Plazas
beside our branches);High
Sanyo Shinpan
n
Sinwa

AIFUL
Happy Credit

Customer
Risk

Low-- toMiddledle-RiskMarkets
Ma

Life
Businext

Banks

Low
Low

High

Interest Rate

29.2%
AIFUL will quickly penetrate low- to middle-risk markets.

18

L I F E

• Enabling Life customers to use our ATMs
to withdraw and repay funds, announced
on August 1, 2001;• Enhancing the marketing, credit andother databases of both companies using
statistical data from both entities; and• Jointly developing, marketing and selling new products by:— developing new home equity andbusiness loans, such as corporate
credit cards and small property loans
for small businesses, and marketingthese products under the Life brandname;— creating an AIFUL Life credit card; and— pursuing opportunities together in theloan guarantee business.
Energize Life Employees
Finally, any assessment of Life must consider that company’s employees. The
reorganization proceedings and related
financial stresses harmed the morale ofLife’s employees. Our stability and support reversed that situation. We introduced human resources policies thatshould further enhance morale. For example, we replaced tenure-based promotion
with a performance-based framework andadjusted compensation structures accordingly. Life will adopt our extensive internal training and educational system. Suchchanges will help lift the morale of Life
employees to the levels of their AIFUL
colleagues so that both companies can
profitably embrace new challenges andopportunities in the years ahead.

New AIFUL Group
Strategic Targeting

AIFUL
UL
Group
Gro

O F

F I N A N C I A LS E C T I O NContents
Management’s Discussion and Analysis ofOperations and Financial Condition ....................................... 20
Consolidated Balance Sheet ......................................................... 24
Consolidated Statement of Income .............................................. 26
Consolidated Statement of Shareholders’ Equity......................... 27
Consolidated Statement of Cash Flows........................................ 28
Notes to Consolidated Financial Statements................................ 30
Independent Auditors’ Report ...................................................... 43
Non-Consolidated Six-Year Summary ......................................... 44
Non-Consolidated Balance Sheets................................................ 46
Non-Consolidated Statements of Income..................................... 48
Non-Consolidated Statements of Shareholders’ Equity ............... 49
Non-Consolidated Statements of Cash Flows .............................. 50
Notes to Non-Consolidated Financial Statements........................ 51
Independent Auditors’ Report ...................................................... 65

19

MANAGEMENT’SDISCUSSION

OF

AND

O P E R AT I O N S

AIFUL was not required to, and did not, prepare consolidated financial statements before fiscal 2000,
ended March 31, 2001. The consolidation of subsidiaries would not materially change total assets,
retained earnings, total income, or net income reported
in the non-consolidated financial statements for fiscal
years 1996, 1997, 1998, and 1999. The Company prepared consolidated financial statements for fiscal 2000,
as accounts of subsidiaries became significant. The
following discussion and analysis is based on AIFUL’s
non-consolidated financial statements for the period
indicated.

Non-Consolidated Performance
Revenues from AIFUL’s core business mainly compriseinterest on loans to customers, mostly individuals.
Interest on loans accounted for 96.3% of total income
in fiscal 2000. Most of these loans are unsecured loansof less than ¥500,000 ($4,032) per customer. In fiscal
2000, interest on unsecured loans represented 82.4% of
total income. The average yield on unsecured loans
outstanding has decreased from 30.3% in fiscal 1994, to
26.0% in fiscal 2000. Effective June 1, 2000, AIFUL
reduced the maximum interest rate on unsecuredloans, from 29.200%, to 28.835% annually. The average yield on loans outstanding should gradually
decline as the Company further differentiates interest
rates in line with customers’ creditworthiness, credit
histories, collateral and loan categories.
Total income jumped 13.9% in fiscal 2000, to¥272,553 million ($2,198 million), reflecting a 14.3% risein interest on loans as a result of growth in loans outstanding. Loans outstanding at year-end were up 15.8%
from 12 months earlier, at ¥1,159,734 million ($9,353
million). Unsecured loans advanced 13.9% to ¥921,891
million ($7,435 million), secured loans surged 24.4%, to¥225,645 million ($1,820 million), and small businessloans gained 18.5% to ¥12,198 million ($98 million) (allfigures before allowance for doubtful loans). The average yield on loans outstanding slipped 0.68 of a percentage point, to 24.3%, partly because the maximum
20

AND

FINANCIALA N A LY S I SCONDITION

interest rate on unsecured loans fell, to 28.835%. The
average year-end balance per account was up 7.8%, to¥546,672 ($4,409). This was mainly because AIFUL
boosted the volume of large loans by identifying andretaining customers with favorable credit histories. At
year-end, the number of customer accounts was up
7.4% from a year earlier, at 2,121,446, as the Company
raised advertising expenses for television and othermedia and took advantage of the expanding consumer
finance services market. During the term, television
broadcasters began airing consumer finance company
commercials during prime time.
Income before income taxes advanced 9.2%, to¥92,475 million ($746 million), despite a 16.6% hike intotal expenses, to ¥180,078 million ($1,452 million).
The higher expenses stemmed from increased chargeoffs and provisions for doubtful loans, advances tosubsidiary and claims in bankruptcy, interest on borrowings, advertising expenses and other expenses.
Charge-offs and provisions for doubtful loans,advances to subsidiary and claims in bankruptcy rocketed 35.9%, to ¥54,772 million ($442 million), the resultof growth in total loans outstanding and rising customer bankruptcies. The latter reflected Japan’s deteriorating economy.
Increased borrowings caused expenses from intereston borrowings to climb 10.3%, to ¥26,767 million ($216
million). Long-term debt (including current portion of
long-term debt) was up ¥863,469 million at the closeof fiscal 1999, to ¥1,186,674 million ($9,570 million).
Some of that increase reflected borrowings at year-end
to partially finance the acquisition of Life Co., Ltd.
Advertising expenses surged 28.1% to ¥17,043 million ($137 million). Like other leading consumer
finance companies, AIFUL increased television advertising during the term to take advantage of a lifting ofrestrictions on prime-time commercials.
Write-down of investment securities increased
88.8%, to ¥1,531 million ($12 million). Of this amount,¥1,440 million (¥12 million) comprised a write-downof the Company’s investments in the shares and bonds

Total Balance of Loans
Outstanding

Number ofCustomer Accounts(Millions of Yen)

(Thousands)

1,200,000

Income before
Income Taxes(Millions of Yen)

2,500

100,000

50 (%)

2,000

80,00040

1,500

60,00030

1,000

40,00020500

20,00010

1,000,000

800,000

600,000

400,000

200,000

0

97

98

99

00

0

01

97

98

99

00

0

01

97

98

99

0

Small Business Loans
Secured Loans

Income before Income Taxes(Left Scale)

Unsecured Loans

Unsecured Loans

Ratio of Income before Income Taxes
to Total Income (%)(Right Scale)

Net Income per ShareTotal Expenses(Millions of Yen)

(Yen)

(Millions of Yen)

50,00020 (%)

40,00016

30,000

2,000

800

1,500

600

12
1,000

20,0008

10,000

4

98

99

00

01

0

Net Income (Left Scale)
Ratio of Net Income toTotal Income (%) (Right Scale)0200,000

100 (%)

160,000

80

120,000

60

80,00040

40,000

20

400

500

97

01

Small Business Loans
Secured Loans

Net Income

0

00

200

97

98

99

00

01

0

Net Income per Share (Left Scale)
Adjusted Net Income per Share
(Right Scale)

0

97

98

99

00

01

0

Total Expenses (Left Scale)
Ratio of Total Expenses toTotal Income (%) (Right Scale)

21

MANAGEMENT’SDISCUSSION

OF

AND

O P E R AT I O N S

of two large insurance companies that filed for reorganization during the year. AIFUL’s adoption on April
1, 2000, of new accounting standards for investment
securities raised income before income taxes by ¥387
million ($3 million).
Also as of April 1, 2000, AIFUL adopted new
accounting standards for employees’ retirement benefits (see Note 2.g in Notes to Non-Consolidated
Financial Statements). The Company recorded a ¥992
million ($8 million) charge for full amount of transitional obligations for retirement benefits. The provision
for accrued pension and severance costs was ¥1,982
million ($16 million). There were no such line items
in prior periods.
Net income jumped 10.0%, to ¥48,512 million ($391
million).
The normal effective statutory tax rate remained
unchanged, at 41.9%, while the actual effective tax rate
declined slightly, to 47.5%.

Consolidated Performance
Consolidated results in fiscal 2000 principally reflectedparent performance. The balance sheets incorporate
the accounts of Life and that company’s consolidated
subsidiaries, in keeping with AIFUL’s acquisition of Life
on March 31, 2001.
The consolidation of Life will alter consolidated
results in the years ahead. Life will not contribute significantly to earnings in fiscal 2001, however, and is
expected to generate losses during the term, owing tolarge acquisition-related expenses. AIFUL’s consolidated balance sheet at March 31, 2001 carried ¥36,835
million ($297 million) in goodwill, mostly stemmingfrom the takeover of Life. AIFUL will amortize thegoodwill over 10 years, at an annual expense of ¥3,727
million.
AIFUL partially funded the acquisition and reorganization of Life with ¥273 billion ($2,201 million) in
bridge financing, which remains outstanding. The
Company’s consolidated balance sheets do not reflect
this funding and a substantial portion of the former
22

AND

FINANCIALA N A LY S I SCONDITION

Life’s assets, as they are on the books of a special purpose company. In the years ahead, AIFUL’s consolidated accounts will not reflect the bridge financing’s
interest charges, but interest payments will reduce
Life’s return on assets dedicated to service that funding.
The accounts will state provisions for doubtful
accounts related to off-balance-sheet assets supporting
the financing.

Capital Requirements
Funds to support loan growth are the main component of AIFUL’s capital requirements. Loans constituted
73.1% of non-consolidated total assets at the end of
fiscal 2000.
AIFUL needs funds to service debt, including principal and interest payments on borrowings. At yearend, short-term borrowings and current portion of
long-term debt totaled ¥380,757 million ($3,071 million). Long-term debt, less current portion, was¥838,417 million ($6,761 million).
The Company also requires funds for working capital. Cash outlays for operational expenses are mainly
for interest on borrowings and other business
expenses, including employee expenses, rent, advertising and other items. Income taxes necessitate significant cash outlays. Funds for working capital andincome taxes will generally fluctuate with AIFUL’s business and earnings, although some factors may affect
funds requirements in specific years.
The Company uses funds to buy property andequipment. In recent years, AIFUL has allocated mostcapital expenditures to open new loan offices andother facilities. Capital expenditures in fiscal 2000
totaled ¥5,291 million ($43 million).
In fiscal 2000, AIFUL acquired the equity of, and furnished a loan to, Life for ¥181 billion ($1,460 million),
funding this allocation through a syndicated loan, assetbacked securities financing and cash from operations.

Total Assets

Balance of Borrowings

Total Shareholders’ Equity(Millions of Yen)

(Millions of Yen)

(Millions of Yen)

1,600,000

1,200,000

1,200,000

900,000

800,000

98

99

00

0

01

25 (%)

280,000

20

210,000

15

140,000

10

70,000550

25300,000

97

350,00075

600,000

400,0000100 (%)

97

98

99

00

01

0

0

97

Balance of Borrowings (Left Scale)
Ratio of Long-term Debt toTotal Borrowings (%) (Right Scale)

ROE /ROANet Income per Employee(%)(Thousands of Yen)

98

99

00

01

0

Shareholders’ Equity (Left Scale)
Shareholders’ Equity Ratio (%)(Right Scale)

Number of Branches/
Balance of Loans Outstanding
per Branch (Millions of Yen)

50

5.0

15,000

1,500

1,000

40

4.0

12,000

1,200

800

30

3.0

9,000

900

600

20

2.0

6,000

600

400

10

1.0

3,000

300

200

0

97

98

99

00

01

0

Return on Assets (Right Scale)
Return on Equity (Left Scale)

0

97

98

99

00

01

0

97

98

99

00

01

0

Number of Branches (Left Scale)
Balance of Loans Outstanding
per Branch (Right Scale)23

C O N S O L I D AT E D

BALANCESHEETAIFUL Corporation and Consolidated Subsidiaries
March 31, 2001

Millions of Yen

Thousands of
U.S. Dollars (Note 3)

2001

2001

ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 9) ...............................................................
Time deposits (Note 9)....................................................................................
Loans (Notes 5 and 9) .....................................................................................
Installment accounts receivable (Note 6).......................................................
Allowance for doubtful loans and receivables ..............................................
Inventories (Note 7) ........................................................................................
Prepaid expenses.............................................................................................
Deferred tax assets (Note 12) .........................................................................
Other current assets (Note 9)..........................................................................
Total current assets...................................................................................

¥ 153,435
2,056
1,261,042
294,558(82,562)
3,036
4,799
12,86527,8401,677,069$ 1,237,379
16,581
10,169,694
2,375,468(665,823)
24,48438,701
103,750
224,516
13,524,750

PROPERTY, PLANT AND EQUIPMENT (Note 9):Land..................................................................................................................
Buildings and structures..................................................................................
Machinery and equipment ..............................................................................
Construction in progress .................................................................................
Total .............................................................................................................
Accumulated depreciation ..............................................................................
Net property, plant and equipment.......................................................

45,95649,984
12,071
25
108,036(32,156)
75,880370,613403,097
97,347201
871,258(259,323)
611,935

8,232

66,387

4,381
11,85935,331
95,637(15,833)
36,835
7,178
8,809
10,944
2,798
9,120
20,091
8,174
112,588¥1,865,537(127,685)
297,056
57,88771,04088,25822,56573,548162,024
65,920907,968$15,044,653

INVESTMENTS AND OTHER ASSETS:
Investment securities (Notes 8 and 9) ............................................................
Investments in and advances to unconsolidated subsidiaries
and associated companies (Note 13) ..........................................................
Claims in bankruptcy (Note 5) .......................................................................
Allowance for advances to an unconsolidated subsidiaryand claims in bankruptcy ............................................................................
Goodwill ..........................................................................................................
Software, net ....................................................................................................
Long-term loans (less current portion)...........................................................
Lease deposits..................................................................................................
Long-term prepayments ..................................................................................
Deferred tax assets (Note 12) .........................................................................
Deferred loss on hedged items.......................................................................
Other assets......................................................................................................
Total investments and other assets .......................................................
TOTAL.................................................................................................................
See notes to consolidated financial statements.

24

LIABILITIES AND SHAREHOLDERS’ EQUITYCURRENT LIABILITIES:
Short-term borrowings (Note 9) .....................................................................
Current portion of long-term debt (Note 9)...................................................
Trade notes payable ........................................................................................
Trade accounts payable ..................................................................................
Income taxes payable......................................................................................
Accrued expenses............................................................................................
Other current liabilities (Note 6).....................................................................
Total current liabilities.............................................................................

Millions of Yen

Thousands of
U.S. Dollars (Note 3)

2001

2001

¥

47,323351,200
13,048
212,720
25,861
7,135
31,972689,259$

381,637
2,832,258
105,226
1,715,484
208,556
57,540257,8395,558,540

LONG-TERM LIABILITIES:Long-term debt (less current portion) (Note 9) .............................................
Liability for retirement benefits (Note 10)......................................................
Interest rate swaps...........................................................................................
Other long-term liabilities ...............................................................................
Total long-term liabilities ........................................................................

840,742
7,144
20,091
602
868,579

6,780,177
57,613
162,024
4,855
7,004,669

MINORITY INTERESTS.....................................................................................

1,149

9,266

SHAREHOLDERS’ EQUITY (Notes 11 and 16):
Common stock,¥50 par value, authorized, 224,000,000 shares;
issued, 84,876,000 shares..........................................................................
Additional paid-in capital................................................................................
Retained earnings ............................................................................................
Net unrealized gain on available-for-sale securities ......................................
Total shareholders’ equity.......................................................................
TOTAL.................................................................................................................

39,78950,528215,978255
306,550¥1,865,537

320,879
407,484
1,741,758
2,057
2,472,178$15,044,653.

25

C O N S O L I D AT E D

S TAT E M E N T

OF

INCOMEAIFUL Corporation and Consolidated Subsidiaries
Year ended March 31, 2001

Millions of Yen

INCOME:Interest on loans.........................................................................................
Interest on deposits, securities and other .................................................
Other income .............................................................................................
Total income .........................................................................................

Thousands of
U.S. Dollars (Note 3)

2001

2001

¥272,237
538
8,944
281,719$2,195,459
4,339
72,1292,271,927

EXPENSES:Interest on borrowings ..............................................................................
Charge-offs and provision for doubtful loans and receivables,
advances to an unconsolidated subsidiary and claims in bankruptcy ...
Salaries and other employees’ benefits.....................................................
Advertising expenses .................................................................................
Rental expenses..........................................................................................
Commissions and fees ...............................................................................
Depreciation and amortization..................................................................
Provision for accrued pension and severance costs ................................
Charge for full amount of transitional obligations for retirement benefits...
Provision for retirement benefits to directors and corporate auditors ....
Other expenses .........................................................................................
Total expenses......................................................................................

26,863

216,637

53,69425,402
17,653
15,662
10,791
4,717
1,992
1,025
72
31,274
189,145

433,016
204,855
142,363
126,306
87,02438,04016,0658,266
581
252,209
1,525,362

INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS.........

92,574

746,565

INCOME TAXES (Note 12):Current ........................................................................................................
Deferred......................................................................................................
Total income taxes...............................................................................

46,204(1,833)44,371

372,613(14,782)
357,831MINORITY INTERESTS IN NET LOSS .......................................................

50

403

NET INCOME................................................................................................

¥ 48,253$ 389,137

Yen

U.S. Dollars

569.32$AMOUNTS PER COMMON SHARE (Note 2.r):
Net income .................................................................................................
Cash dividends applicable to the year......................................................
See notes to consolidated financial statements.

26

¥

50.00

4.59
0.40

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITYAIFUL Corporation and Consolidated Subsidiaries
Year ended March 31, 2001

Thousands
Number of
Shares of Common Stock
Issued andCommonOutstanding
Stock

BALANCE AT APRIL 1, 2000 ......................
Net income ................................................
Cash dividends paid, ¥50 per share ........
Bonuses to directors andcorporate auditors.................................
Stock split (Note 11) .................................
Acquisition of Sinwa Co., Ltd. (Note 11) ...
Net unrealized gain on
available-for-sale securities ..................
Net decrease in treasury stock ................
BALANCE AT MARCH 31, 2001 .................

56,103¥ 39,752

Millions of Yen
Additional
Paid-in
Capital¥ 41,913

Retained
Earnings

Net Unrealized
Gain onTreasury
Available-for-sale Stock,
Securities
at Cost¥ 171,238
48,253(3,381)

¥ (1)

(132)
28,052
721

37

8,615
¥255

84,876¥39,789¥50,528¥215,978

¥255

1
¥ –

Thousands of U.S. Dollars (Note 3)
CommonStock

BALANCE AT APRIL 1, 2000 ......................
Net income ................................................
Cash dividends paid, $0.40 per share .....
Bonuses to directors andcorporate auditors .....................................
Acquisition of Sinwa Co., Ltd. (Note 11) ...
Net unrealized gain on
available-for-sale securities ..................
Net decrease in treasury stock ................
BALANCE AT MARCH 31, 2001 .................

$ 320,581

Additional
Paid-in
CapitalRetained
Earnings

Net Unrealized
Gain onTreasury
Available-for-sale Stock,
Securities
at Cost$ 338,008 $ 1,380,951
389,137(27,266)$ (8)(1,064)298

69,476$ 2,057$320,879$407,484 $1,741,758$2,0578$ –See notes to consolidated financial statements.

27

C O N S O L I D AT E D S TAT E M E N T O F C A S H F L O W SAIFUL Corporation and Consolidated Subsidiaries
Year ended March 31, 2001

Millions of Yen

Thousands of
U.S. Dollars (Note 3)

2001

2001

¥ 92,574$ 746,565(46,008)
4,717(371,032)
38,040

6,463
939
1,531
1,554
382

52,121
7,572
12,347
12,532
3,081(166,813)
4,167
(297)
434
(530)
2,070
(3,538)4,702
93(190,134)(97,560)(1,345,266)
33,605(2,395)3,500(4,274)
16,693(28,532)
37,919750(1,533,339)(786,774)

INVESTING ACTIVITIES:Capital expenditures ..................................................................................
Decrease in long-term loans......................................................................
Acquisitions of businesses (net of cash acquired) ...................................
Increase in loans by acquisition of business ............................................
Decrease in investment in trust.................................................................
Other—net..................................................................................................
Net cash used in investing activities ......................................................

(5,868)5,495(48,547)(22,095)
2,000
(462)
(69,477)(47,323)
44,315(391,508)(178,185)
16,129(3,726)(560,298)

FINANCING ACTIVITIES:Net decrease in short-term borrowings ...................................................
Proceeds from long-term debt (net of bonds issue costs).......................
Repayments of long-term debt ..................................................................
Cash dividends paid .................................................................................
Proceeds from minority shareholders .......................................................
Net cash provided by financing activities .............................................

(74,647)641,688(326,756)(3,413)1,200
238,072(601,992)
5,174,903(2,635,129)(27,524)
9,677
1,919,935

OPERATING ACTIVITIES:
Income before income taxes and minority interests................................
Adjustments for:
Income taxes—paid ................................................................................
Depreciation and amortization...............................................................
Provision for doubtful loans and receivables, advances toan unconsolidated subsidiary and claims in bankruptcy ..................
Bonds issue costs ...................................................................................
Write-down of investment securities .....................................................
Loss on sales of property, plant and equipment ..................................
Loss on disposal of property, plant and equipment.............................
Changes in assets and liabilities:
Increase in loans .....................................................................................
Decrease in claims in bankruptcy..........................................................
Increase in inventories............................................................................
Decrease in prepaid expenses ...............................................................
Decrease in long-term prepayments......................................................
Increase in liability for retirement benefits............................................
Increase in other current assets ............................................................
Increase in other current liabilities ........................................................
Other—net..................................................................................................
Total adjustments ....................................................................................
Net cash used in operating activities .....................................................

28

Millions of Yen

Thousands of
U.S. Dollars (Note 3)

2001

2001

NET INCREASE IN CASH AND CASH EQUIVALENTS .............................

¥ 71,035$ 572,863

CASH AND CASH EQUIVALENTS OF
NEWLY CONSOLIDATED SUBSIDIARIES, BEGINNING OF YEAR.....

1,381

11,137

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR .....................

81,019653,379

CASH AND CASH EQUIVALENTS, END OF YEAR...................................

¥153,435$1,237,379

NON-CASH INVESTING ACTIVITIES:
During the year ended March 31, 2001, the Company acquiredLife Co., Ltd., Sanyo Shinpan Co., Ltd., Businext Corporation,and Sinwa Co., Ltd. as follows:
Fair value of assets acquired ..................................................................
Cash paid for capital stock, less acquired cash and cash equivalents ...
Liabilities assumed ..................................................................................
Value of 721,500 common shares issued for Sinwa .............................

¥417,519
48,547360,320
8,652$3,367,088
391,5082,905,806
69,774

See notes to consolidated financial statements.

29

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
AIFUL Corporation and Consolidated Subsidiaries
Year ended March 31, 2001

30

1. BASIS OFPRESENTINGCONSOLIDATEDFINANCIALSTATEMENTS

The accompanying consolidated financial statements have been prepared in accordance withthe provisions set forth in the Japanese Securities and Exchange Law and its related accounting
regulations, and in conformity with accounting principles and practices generally accepted inJapan, which are different in certain respects as to application and disclosure requirements ofInternational Accounting Standards. The consolidated financial statements are not intended topresent the financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in countries and jurisdictions other than Japan.
In preparing these consolidated financial statements, certain reclassifications and rearrangements have been made to the consolidated financial statements issued domestically in order topresent them in a form which is more familiar to readers outside Japan. In accordance withaccounting procedures generally accepted in Japan, comparative disclosures are not required to
be and have not been presented herein.

2. SUMMARY OF
SIGNIFICANTACCOUNTINGPOLICIES

a. Consolidation – The consolidated financial statements as of March 31, 2001 include the accountsof AIFUL Corporation (the “Company”) and its five significant subsidiaries (together, the “AIFULGroup”). Consolidation of the remaining subsidiaries would not have a material effect on theaccompanying consolidated financial statements. Investments in five unconsolidated subsidiaries
and two associated companies are accounted for on the cost basis. The effect on the consolidated financial statements of not applying the equity method is immaterial. Goodwill on acquisition of subsidiaries of ¥36,835 million ($297,056 thousand) is being amortized using the straightline method over 10 years. However, when the excess of cost over net assets of subsidiaries
acquired is not material, it is charged to income when incurred. All significant intercompany
balances and transactions have been eliminated in consolidation. All material unrealized profit
included in assets resulting from transactions within the AIFUL Group is eliminated.
As for two subsidiaries, Life Co., Ltd. and Sanyo Shinpan Co., Ltd., which are consumercredit companies, only the balance sheets are consolidated since the constructive date ofacquisition was March 31, 2001.
On March 28, 2001, the Company acquired all the shares of Life, a significant subsidiary.
b. Cash Equivalents – Cash equivalents are short-term investments that are readily convertible
into cash and that are exposed to insignificant risk of changes in value. Cash equivalents
include time deposits and certificate of deposits which mature or become due within threemonths of the date of acquisition.
c. Inventories – Inventories include property for sale, property under construction and supplies.
Property for sale is stated at the lower of cost or market, cost being determined by the specific identification method. Depreciation of property for sale currently rented is computed by
the same method, as applied to property, plant and equipment. Property for sale under construction is stated at cost, cost being determined by the specific identification method. Supplies
are stated at the most recent purchase price, which approximates cost determined by the
first-in, first-out method.
d. Investment Securities – Effective April 1, 2000, the AIFUL Group adopted a new accounting
standard for financial instruments, including investment securities.
Held-to-maturity debt securities are reported at amortized cost and available-for-sale securities are reported at fair value, with unrealized gains and losses, net of applicable taxes, reported
in a separate component of shareholders’ equity. The cost of securities sold is determined basedon the moving-average method. Non-marketable available-for-sale securities are stated at cost
determined by the moving-average method.

e. Property, Plant and Equipment – Property, plant and equipment are stated at cost.
Depreciation is computed by the declining-balance method. The range of useful lives is fromthree to 50 years for buildings and structures and from two to 20 years for machinery and equipment.
f. Software – Expenditures for the purchase of software, which meet certain future-tests, arecapitalized as software and amortized by the straight-line method over the estimated useful
lives of five years.
g. Liability for Retirement Benefits – Effective April 1, 2000, the AIFUL Group adopted a
new accounting standard for employees’ retirement benefits and accounted for the net liability
for retirement benefits based on projected benefit obligations and plan assets at the balance
sheet date. The full amount of the net transitional obligations of ¥1,025 million ($8,266 thousand), determined as of the beginning of the year, is charged to income and presented as charge
for transitional obligations for retirement benefits in the consolidated statement of income.
Liability for retirement benefits to directors and corporate auditors are provided at theamount which would be required if they retired at March 31, 2001.
h. Allowances for Doubtful Accounts – The allowance for doubtful accounts is stated inamounts considered to be appropriate based on the AIFUL Group’s past credit loss experienceand an evaluation of potential losses in the receivables outstanding.
i. Leases – All leases are accounted for as operating leases. Under Japanese accounting standards for leases, finance leases that deem to transfer ownership of the leased property to thelessee are to be capitalized, while other finance leases are permitted to be accounted for as
operating lease transactions if certain “as if capitalized” information is disclosed in the notes
to the lessee’s financial statements.
j. Income Taxes – The provision for income taxes is computed based on the pretax income
included in the consolidated statement of income. The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary
differences between the carrying amounts and the tax bases of assets and liabilities. Deferredtaxes are measured by applying currently enacted tax laws to the temporary differences.
k. Appropriations of Retained Earnings – Appropriations of retained earnings are reflectedin the financial statements for the following year upon shareholders’ approval.
l. Foreign Currency Transactions – Effective April 1, 2000, the AIFUL Group adopted arevised accounting standard for foreign currency transactions. In accordance with the revised
standard, all short-term and long-term monetary receivables and payables denominated in foreign currencies are translated into Japanese yen at the exchange rates at the balance sheet date.
The foreign exchange gains and losses from translation are recognized in the consolidated
statements of income to the extent that they are not hedged by forward exchange contracts.
m. Interest on Loans – Interest on loans is recorded on an accrual basis. In accordance withthe practice prevailing in the industry, the AIFUL Group records accrued interest to the extent
that the realization of such income is considered to be certain.
n. Installment Revenue – Fees from customers and member stores applying the add-on method
are generally recorded collectively as unearned income when credit contracts become effective and are recognized in equal installments over the lives of contracts. Fees from customers applying the remaining principal method or revolving method are generally
recognized in equal installments over the lives of contracts.
No revenue is recorded in the consolidated statements of income for the year ended
March 31, 2001 since the constructive date of acquisition of the two consumer credit subsidiaries was March 31, 2001.
31

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
AIFUL Corporation and Consolidated Subsidiaries

o. Interest on Borrowings – Interest on financial liabilities is accounted for as operating
expenses while other interest is included in other expenses.
p. Bonds Issue Costs – Bonds issue costs, which are included in other assets, are amortized ratably over periods up to three years.
q. Derivatives and Hedging Activities – The AIFUL Group uses derivative financial instruments to manage its exposures to fluctuations in interest rates. Interest rate swaps andcaps are utilized by the AIFUL Group to reduce interest rate risks. The AIFUL Group does
not enter into derivatives for trading or speculative purposes.
Effective April 1, 2000, the AIFUL Group adopted a new accounting standard for derivative financial instruments. This standard requires that: a) all derivatives be recognized aseither assets or liabilities and measured at fair value, and gains or losses on derivative transactions are recognized in the consolidated statements of income, and b) for derivatives used
for hedging purposes, if derivatives qualify for hedge accounting because of high correlation and effectiveness between the hedging instruments and the hedged items, gains orlosses on derivatives are deferred until maturity of the hedged transactions.
The interest rate swaps and caps which qualify for hedge accounting and meet specificmatching criteria are not remeasured at market value but the differential paid or received under
the swap or cap agreements are recognized and included in interest expenses or income.
r. Per Share Information – The computation of net income per share is based on theweighted average number of shares of common stock outstanding during the year, retroactively adjusted for stock splits. The weighted average number of common shares used in
the computation was 84,755,313 shares.
Fully diluted net income per share is not presented because no dilutive securities were outstanding.
Cash dividends per share presented in the accompanying consolidated statements of income
are dividends applicable to the year including dividends to be paid after the end of the year.

3. TRANSLATIONINTO
UNITED STATESDOLLARSThe consolidated financial statements are stated in Japanese yen, the currency of the country inwhich the Company is incorporated and operates. The translation of Japanese yen amounts
into U.S. dollar amounts are included solely for the convenience of readers outside Japan andhave been made at the rate of ¥124 to $1, the approximate rate of exchange at March 30, 2001.
Such translations should not be construed as representations that the Japanese yen amounts
could be converted into U.S. dollars at that or any other rate.

4. ACQUISITION OF The Company acquired all the shares of Life on March 28, 2001. Life is one of the largest conLIFE
sumer credit companies in Japan. The total purchase price of ¥103,004 million ($830,677 thousand) including the accompanying cost of ¥1,000 million for the acquisition of Life has been
allocated to assets acquired and liabilities assumed based on estimated fair market value at thedate of acquisition while the balance of ¥32,861 million ($265,008 thousand) was recorded as
goodwill and is being amortized over 10 years on a straight-line basis.
Prior to the acquisition, Life had been under a Tokyo District Court supervised reorganization plan. In conjunction with the reorganization plan and acquisition:•The Company invested ¥102,004 million ($822,613 thousand) cash in Life for newly issued shares;•The Company loaned ¥78,000 million ($629,032 thousand) cash to Life;32

•Life obtained ¥273,000 million ($2,201,613 thousand) (unaudited) pursuant to a bridge financing
agreement (the “Bridge Financing”) with certain financial institutions.
•Life applied the funds received from the Company, the proceeds from the Bridge Financing, and cashon hand to make payments to Life’s existing creditors totaling ¥475,590 million ($3,835,403 thousand)(unaudited). A portion of this amount, ¥1.2 billion, was retained as restricted cash and included inother assets awaiting final acceptance of the settlement agreement by one of Life’s creditors.
To complete the Bridge Financing, Life transferred receivables totaling ¥336,421 million ($2,713,073
thousand) (unaudited) to a trust in exchange for senior and subordinated beneficial interests inthe trust. The senior beneficial interests were then sold to a special purpose company who inturn sold non-recourse debt securities and borrowed additional funds from certain banks. As aresult of these arrangements, the receivables contributed to the trust are pledged as collateral for theoutstanding borrowings of the banks. The Bridge Financing can be increased to a maximum of¥350 billion ($2,822,581 thousand) (unaudited) by transferring additional receivables to the trust.
For purpose of consolidation, the Company has consolidated the balance sheet of Life as of March 31,
2001, the constructive date of the acquisition. The results of operations of Life will be consolidatedwith the Company beginning April 1, 2001. As a result of the off-balance-sheet financing transaction, securitized loans of ¥146,594 million ($1,182,209 thousand) and securitized installment accounts
receivable of ¥119,681 million ($965,169 thousand) were not recognized on the balance sheet.
Life’s results of operations for fiscal 2001 were not available due to the reorganization imposedby the Tokyo District Court and therefore, pro forma information of the combined companies
cannot be prepared. In addition, the effects of the other fiscal 2001 acquisitions on the consolidated financial statements were not significant, therefore, no pro forma combined information
has been presented.

5. LOANS

Loans at March 31, 2001 consisted of the following:

Unsecured ..............................................................................
Secured ..................................................................................
Small business loans..............................................................
Total .................................................................................
Securitized loans....................................................................
Net ....................................................................................

Millions of Yen

Thousands of
U.S. Dollars¥1,167,837
227,601
12,198¥1,407,636(146,594)¥1,261,042$ 9,418,040
1,835,492
98,371$11,351,903(1,182,209)$10,169,694

Loans include loans in legal bankruptcy (primarily presented as claims in bankruptcy in the
consolidated balance sheets) of ¥13,071 million ($105,411 thousand), non-accrual loans of¥25,644 million ($206,806 thousand), accruing loans contractually past due three months or moreas to principal or interest payments of ¥7,196 million ($58,032 thousand) and restructured loansof ¥34,002 million ($274,210 thousand) at March 31, 2001.
Loans in legal bankruptcy are loans in which accruals of interest are discontinued (excluding
the portion recognized as bad debts), based on management’s judgment as to the collectivity of33

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
AIFUL Corporation and Consolidated Subsidiaries

principal or interest resulting from the past due payment of interest or principal and other factors.
Allowance for claims in bankruptcy is stated at such amount less net realizable value of collateral.
Non-accrual loans are loans in which accruals of interest are discontinued and those otherthan loans in legal bankruptcy and loans granting deferral of interest payment to the debtors infinancial difficulties to assist them in their recovery and are regularly received. Accruing loans
contractually past due three months or more as to principal or interest payments are loans for which
payments of principal or interest have not been received for a period of three months or more
beginning with the next business day following the last due date for such payments. Loans classified as loans in legal bankruptcy and non-accrual loans are excluded from accruing loans contractually past due three months or more.
Restructured loans are loans on which creditors grant concessions (e.g., reduction of the statedinterest rate, deferral of interest payment, extension of maturity date, waiver of the face amount, orother concessive measures) to the debtors in financial difficulties to assist them in their recovery andeventually enable them to pay creditors. Loans classified as loans in legal bankruptcy, non-accrualloans and accruing loans contractually past due three months or more are excluded.
The securitized loans, which were not recognized in the balance sheets, amounted to¥146,594 million ($1,182,209 thousand) at March 31, 2001.

6. INSTALLMENT
ACCOUNTSRECEIVABLE

Installment accounts receivable and unearned income, included in other current liabilities at
March 31, 2001, consisted of the following:Thousands of
U.S. Dollars

Millions of Yen

Receivables
Credit card shopping loans ................... ¥ 36,032
Per-item shopping loans .......................
73,713
Loan guarantees..................................... 184,778
Other ......................................................
35¥294,558

Unearned
Income
¥ 164
1,968
2,949
¥5,081

Receivables$ 290,581
594,460
1,490,145
282$2,375,468

Unearned
Income$ 1,323
15,871
23,782$40,976

In addition, the AIFUL Group has unearned income of ¥201 million ($1,621 thousand) related toloans other than those shown in the above table.
The securitized installment accounts receivable, which were not recognized in the balance
sheet, amounted to ¥119,681 million ($965,169 thousand) at March 31, 2001.
Per-item shopping loans included the rights for payment in substitution of ¥23,138 million($186,597 thousand).

7. INVENTORIESInventories at March 31, 2001 consisted of the following:

Property for sale ....................................................................
Property for sale under construction....................................
Supplies..................................................................................
Total .................................................................................

34

Millions of Yen

Thousands of
U.S. Dollars¥1,175
1,622
239¥3,036$ 9,476
13,081
1,927$24,484

8. INVESTMENT
SECURITIESInvestment securities as of March 31, 2001 consisted of the following:
Millions of Yen

Thousands of
U.S. Dollars¥7,942
290¥8,232$64,048
2,339$66,387

Non-current:
Marketable equity securities ............................................
Government and corporate bonds..................................
Total .................................................................................

Information on the marketable securities classified as available-for-sale at March 31, 2001 was asfollows:
Millions of Yen

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

Cost

Unrealized
Gains

Unrealized
LossesFair
Value¥5,773280¥6,053

¥830
1
¥831

¥591

¥6,012281¥6,293¥591

Thousands of U.S. Dollars

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

Cost

Unrealized
Gains

Unrealized
LossesFair
Value$46,556
2,258$48,814$6,6948$6,702$4,766$48,484
2,266$50,750$4,766

Available-for-sale securities and held-to-maturity securities whose fair value is not readily
determinable as of March 31, 2001 were as follows:
Carrying AmountThousands ofMillions of Yen
U.S. Dollars

Available-for-saleEquity securities..........................................................
Held-to-maturity ............................................................
Total ...........................................................................

¥1,9309¥1,939$15,56473$15,637

Proceeds from sales of available-for-sale securities for the year ended March 31, 2001 were ¥11
million ($89 thousand). Gross realized losses on these sales, computed on the moving-average
cost basis, were ¥5 million ($40 thousand) and gross realized gains were not material.
The carrying values of debt securities by contractual maturities for securities classified as availablefor-sale and held-to-maturity at March 31, 2001 are as follows:
Millions of Yen

Due after one year through five years

Availablefor-sale¥281

Held-tomaturity¥9

Thousands of
U.S. Dollars

Availablefor-sale$2,266

Held-tomaturity$73
35

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
AIFUL Corporation and Consolidated Subsidiaries

9. SHORT-TERM
BORROWINGSAND
LONG-TERM
DEBT

Short-term borrowings generally due in one year at March 31, 2001 consisted of the following:
Millions of Yen

Thousands of
U.S. Dollars¥15,000
24,8002,500$120,968
200,000
20,161

5,023¥47,323

40,508$381,637

Millions of Yen

Thousands of
U.S. Dollars

Loans from banks, 1.12% to 3.075%, due serially to 2006...........
Loans from other financial institutions, 1.6% to 2.45%,
due serially to 2006 ..................................................................
Syndicated loans, 2.1% due 2004 ..................................................
Unsecured 2.6% yen straight bonds, due 2001 ............................
Unsecured 2.35% to 2.425% yen straight bonds, due 2002 .........
Unsecured 1.5% to 3.2% yen straight bonds, due 2003 ...............
Unsecured 2.0% to 2.53% yen straight bonds, due 2004 .............
Unsecured 1.86% yen straight bonds, due 2005 ..........................
Unsecured 3.27% yen straight bonds, due 2006 ..........................
Unsecured 2.51% yen straight bonds, due 2007 ..........................
Unsecured 3.28% yen straight bonds, due 2009 ..........................
Unsecured 2.93% to 3.0% yen straight bonds, due 2010 .............
Unsecured 3.65% Euroyen straight bonds, due 2003...................
Unsecured variable rate Euroyen straight bonds, due 2006
(2.136% at March 31, 2001)......................................................
Unsecured 1.73% medium-term notes, due 2002.........................
Unsecured 1.75% medium-term notes, due 2002.........................
Unsecured 3.0% medium-term notes, due 2008...........................
Unsecured 3.5% medium-term notes, due 2015...........................
Other (principally from leasing and factoring companies),
0.98% to 5.4%, due serially to 2006 .........................................
Total..........................................................................................

¥ 400,165$ 3,227,137

245,434
70,0006,000
40,00075,000135,000
10,00015,00020,0008,000
20,0009,500

1,979,307
564,516
48,387
322,581604,839
1,088,710
80,645
120,968
161,290
64,516161,290
76,61315,000
3,000
3,000
3,000
15,000120,968
24,19324,19324,193
120,968

98,843
1,191,942

797,1219,612,435

Less current portion .......................................................................
Long-term debt, less current portion......................................

(351,200)¥ 840,742(2,832,258)$ 6,780,177

Commercial paper, 0.828% ............................................................
Loans from banks, 1.12% to 3.0% .................................................
Loans from other financial institutions, 1.6% to 2.45% ................
Other (principally from leasing and factoring companies),
2.4% to 2.9%..............................................................................
Total..........................................................................................

Long-term debt at March 31, 2001 consisted of the following:

The Company has an interest rate swap agreement that effectively converts variable rate interest
payable on ¥3,000 million ($24,193 thousand) of medium-term notes, due 2002, to a fixed rateof 1.75%.
Included in Other (principally from leasing and factoring companies) in the table above is aloan totaling ¥35,000 million ($282,258 thousand), proceeds of which were used for the Lifeacquisition. The loan bears interest at LIBOR plus 0.06% per annum and is due May 9, 2006.

36

The aggregate annual maturities of long-term debt at March 31, 2001 were as follows:Year ending March 31

2002........................................................................................
2003........................................................................................
2004........................................................................................
2005........................................................................................
2006........................................................................................
2007 and thereafter................................................................
Total..............................................................................

Millions of Yen

Thousands of
U.S. Dollars¥ 351,200
333,535
231,107145,293
32,957
97,850¥1,191,942$2,832,258
2,689,798
1,863,766
1,171,718
265,782
789,113$9,612,435

At March 31, 2001, the following assets were pledged as collateral for short-term borrowings
and long-term debt (including current portion of long-term debt):

Time deposits ........................................................................
Loans ......................................................................................
Investment securities .............................................................
Property, plant and equipment, net ofaccumulated depreciation.................................................
Total..............................................................................
Related liabilities:
Short-term borrowings ......................................................
Long-term debt(including current portion of long-term debt) ................
Other..................................................................................
Total..............................................................................

Millions of Yen

Thousands of
U.S. Dollars¥
394
541,725
398

$
3,177
4,368,750
3,210

10,506¥553,023

84,726$4,459,863¥ 15,260$ 123,064

460,531295¥476,086

3,713,960
2,379$3,839,403

In addition, if requested by lending financial institutions, the AIFUL Group has committed topledge collateral for loans other than those shown in the above table. At March 31, 2001,
related liabilities for which lending financial institutions can request the Company to pledge
collateral consisted of the following:
Millions of Yen

Short-term borrowings ..........................................................
Long-term debt(including current portion of long-term debt) ................
Total..............................................................................

¥

7,000

128,330¥135,330

Thousands of
U.S. Dollars$

56,452

1,034,919$1,091,371

At March 31, 2001, cash and cash equivalents, and other current assets amounting to ¥3,730 million ($30,081 thousand) were pledged as collateral for the interest rate swap contracts.

37

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
AIFUL Corporation and Consolidated Subsidiaries

The Company’s debt agreements contain various covenants which, among other things, require
the maintenance of certain financial ratios related to maintenance of a specified ratio (calculatedsemi-annually) of total liabilities to tangible net worth, a limitation on delinquent loan receivables as a percentage of loan receivables (calculated quarterly) and a limitation on write-offs as apercentage of total receivables (calculated quarterly). At March 31, 2001, the Company was incompliance with all such covenants.

10.RETIREMENT
AND PENSIONPLANS

The Company and certain of its consolidated subsidiaries have contributory and non-contributory
funded pension plans covering substantially all employees. Under the pension plans, employees
terminating their employment are, in most circumstances, entitled to pension payments basedon their average pay during their employment, length of service and certain other factors. If
the termination is involuntary, employees are usually entitled to larger payments than in thecase of voluntary termination.
Liability for retirement benefits includes retirement benefits to directors and corporate auditorsof ¥954 million ($7,694 thousand) at March 31, 2001.
The liability for employees’ retirement benefits at March 31, 2001 consisted of the following:

Projected benefit obligation..................................................
Fair value of plan assets........................................................
Unrecognized actuarial loss ..................................................
Net liability ......................................................................

Millions of Yen

Thousands of
U.S. Dollars¥18,361(11,424)(747)¥ 6,190$148,072(92,129)(6,024)$ 49,919

The components of net periodic benefit costs for the year ended March 31, 2001 are as follows:

Service cost ............................................................................
Interest cost............................................................................
Expected return on plan assets ............................................
Recognized actuarial loss ......................................................
Amortization of transitional obligation.................................
Net periodic benefit costs.............................................

Millions of Yen

Thousands of
U.S. Dollars

¥ 814
125
(92)
1,145
1,025
¥3,017$ 6,565
1,008
(742)
9,234
8,266
$24,331

Assumptions used for the year ended March 31, 2001 are set forth as follows:
Discount rate
Expected rate of return on plan assets
Recognition period of actuarial gain/loss:
Company
One consolidated subsidiary
Amortization period of transitional obligation

38

3.0%
3.0% to 3.5%
Full amount charged to income as incurred
10 years
Full amount charged to income as incurred11.SHAREHOLDERS’ The Japanese Commercial Code (the “Code”) requires at least 50% of the issue price of new
EQUITY
shares, with a minimum of the par value thereof, to be designated as stated capital as determinedby resolution of the Board of Directors. Proceeds in excess of amounts designated as statedcapital are credited to additional paid-in capital.
The Code provides that an amount at least equal to 10% of the aggregate amount of cash dividends and certain other cash payments which are made as an appropriation of retained earnings applicable to each fiscal period shall be appropriated and set aside as a legal reserve until
such reserve equals 25% of stated capital. The Company’s legal reserve amount, which is included
in retained earnings, totals ¥1,301 million ($10,492 thousand) as of March 31, 2001, and is notavailable for dividends but may be used to reduce a deficit by resolution of the shareholders.
The Company may transfer portions of additional paid-in capital and legal reserve to statedcapital by resolution of the Board of Directors. The Company may also transfer portions of unappropriated retained earnings, available for dividends, to stated capital by resolution of the shareholders.
Under the Code, the Company may issue new common shares to existing shareholders without consideration as a stock split pursuant to resolution of the Board of Directors. The Company
may make such a stock split to the extent that the aggregate par value of the shares outstanding
after the stock split does not exceed the stated capital. However, the amount calculated by dividing the total amount of shareholders’ equity by the number of outstanding shares after the stock
split cannot be less than ¥1,000.
On May 22, 2000, the Company made a three-for-two stock split to shareholders of record
on March 31, 2000. As a result, the number of shares issued increased by 28,051,500 shares.
On June 1, 2000, the Company acquired all 650,000 shares of the common stock of Sinwa Co.,
Ltd. in exchange for 721,500 shares of the Company’s common stock, according to an agreement dated April 27, 2000. On the exchange of common stock, ¥37 million ($298 thousand)and ¥4,398 million ($35,468 thousand) were credited to common stock and additional paid-in
capital, respectively, based on the book value of the acquired net assets. In addition, effective
June 1, 2000, the above shares were revalued at market in accordance with the purchase methodof accounting which resulted in an increase to additional paid-in capital of ¥4,217 million($34,008 thousand).
Dividends are approved at the Shareholders’ General Meeting held subsequent to the fiscal
year to which the dividends are applicable. Interim dividends may also be paid upon resolution of the Board of Directors, subject to certain limitations imposed by the Code.

39

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
AIFUL Corporation and Consolidated Subsidiaries

12. INCOME TAXESThe Company and its domestic subsidiaries are subject to Japanese national and local income
taxes which, in the aggregate, resulted in a normal effective statutory tax rate of approximately
41.9% for the year ended March 31, 2001.
The tax effects of significant temporary differences and tax loss carryforwards which resulted
in deferred tax assets and liabilities at March 31, 2001 are as follows:
Millions of Yen
2001

Thousands of
U.S. Dollars
2001

Deferred tax assets:
Tax loss carryforwards......................................................
Provision for doubtful loans.............................................
Provision for employee retirement benefits ....................
Depreciation and amortization.........................................
Enterprise tax payable ......................................................
Revaluation of subsidiary’s property in accordancewith corporation reorganization law ...........................
Accrued bonuses...............................................................
Charge-offs for doubtful loans .........................................
Other..................................................................................
Total..............................................................................

¥30,444
8,565
2,499
2,287
1,847

$245,516
69,073
20,15318,444
14,895

945
937
516
1,964
¥50,004

7,621
7,556
4,161
15,839$403,258

Less valuation allowance ..................................................
Net.................................................................................

(27,834)¥22,170(224,468)$178,790¥$

Deferred tax liabilities:
Unrealized gain on available-for-sale securities ..............
Other..................................................................................
Total..............................................................................
Net deferred tax assets .........................................

184
1
¥ 185
¥21,985

1,484
8$ 1,492$177,298

A reconciliation between the normal effective statutory tax rate for the year ended March 31, 2001
and the actual effective tax rate reflected in the accompanying consolidated statement of income
is as follows:
2001

Normal effective statutory tax rate ....................................................
Additional taxation on undistributed income ...................................
Inhabitant’s taxes ................................................................................
Expenses not deductible for income taxes purposes.......................
Other—net ..........................................................................................
Actual effective tax rate......................................................................

41.9%
4.5
0.9
0.2
0.4
47.9%

13.RELATED PARTY Advances to an unconsolidated subsidiary at March 31, 2001 were ¥4,003 million ($32,282 thousand).
In consideration of the unconsolidated subsidiary’s financial condition, the Company does not
TRANSACTIONS
charge interest on such advances.

40

14. LEASESThe AIFUL Group leases vehicles, computer equipment, furniture and fixtures, office space andother assets.
Total rental expenses for the year ended March 31, 2001 were ¥16,034 million ($129,306 thousand) including ¥6,322 million ($50,984 thousand) of lease payments under finance leases.
Pro forma information of leased property such as acquisition cost, accumulated depreciation,
obligations under finance leases, depreciation expense, and interest expense of finance leases that
do not transfer ownership of the leased property to the lessee on an “as if capitalized” basis for theyear ended March 31, 2001 was as follows:

Acquisition cost.............................................................
Accumulated depreciation............................................
Net leased property..............................................

Millions of Yen
Machinery andEquipment

Thousands of
U.S. Dollars
Machinery andEquipment¥30,213
21,481¥ 8,732$243,653
173,234$ 70,419

Millions of Yen
Machinery andEquipment

Thousands of
U.S. Dollars
Machinery andEquipment¥ 5,251
6,505¥11,756$ 42,347
52,459$ 94,806

Obligations under finance leases:

Due within one year.....................................................
Due after one year........................................................
Total ........................................................................

Depreciation expense and interest expense, which are not reflected in the accompanying consolidated statement of income, computed under a declining-balance method and the interest method,
for the year ended March 31, 2001 were as follows:

Depreciation expense...................................................
Interest expense............................................................

15. DERIVATIVES

Millions of Yen

Thousands of
U.S. Dollars¥ 5,533414$ 44,621
3,339

The AIFUL Group enters into interest rate swap and interest rate cap contracts as a means ofmanaging its interest rate exposures on certain liabilities.
Such derivative transactions are entered into to hedge interest exposures incorporated within
its business. Accordingly, market risk in these derivatives is theoretically offset by opposite
movements in the value of hedged liabilities. The Company does not hold or issue derivatives
for trading and speculative purposes.
Because the counterparties to these derivatives are limited to major financial institutions, theAIFUL Group does not anticipate any losses arising from credit risk.
Derivative transactions entered into by the AIFUL Group have been made in accordance withinternal policies which regulate the authorization and credit limit amount.

41

N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
AIFUL Corporation and Consolidated Subsidiaries

The fair value of the AIFUL Group’s derivative financial instrument at March 31, 2001 is asfollows:
Millions of Yen
Notional
AmountInterest rate capsPurchased interest
rate caps....................

¥1,500Thousands of U.S. Dollars

Fair Value

Unrealized
Loss

Notional
AmountFair Value

Unrealized
Loss

¥2

¥24

$12,097$16$194

Estimated fair values were obtained from banks.
A portion of interest rate caps which either qualify for hedge accounting or meet specificmatching criteria is excluded from the disclosure of market value information.
The notional amount of derivatives which is shown in the above table does not represent
the amounts exchanged by the parties and does not measure the AIFUL Group’s exposure tocredit or market risk.

16. SUBSEQUENTEVENTSa. At the Shareholders’ General Meeting held on June 27, 2001, the Company’s shareholders
approved the following stock option plan for the Company’s directors and key employees.
The plan provides for granting options to directors and key employees to purchase up to
223,000 shares of the Company’s common stock. The options will be granted to purchasecommon stock at the higher of 103% of the average fair market price for the previous monthof option grant or the fair market price at the time of grant.
The stock options are exercisable from July 1, 2003 to June 30, 2006. The Company plans
to issue acquired treasury stock upon exercise of the stock options.
The treasury stock will be purchased from the open market for a total consideration not toexceed ¥4,100 million ($33,065 thousand).
b. On May 22, 2001, the Board of Directors of the Company resolved to propose the following
plan of appropriation of retained earnings for the year ended March 31, 2001 for approval at
the Shareholders’ General Meeting held on June 27, 2001:

Cash dividends, ¥30 ($0.24) per share ........................
Bonuses to directors and corporate auditors ..............

17. SEGMENT
INFORMATION

42

Millions of Yen

Thousands of
U.S. Dollars¥2,546
87$20,532
702

Most of the AIFUL Group’s business is related to lending a single segment. The AIFUL Group
does not operate outside Japan. Accordingly, information about industry and geographic segments was not presented.

INDEPENDENTAUDITORS’REPORT

To the Board of Directors of
Aiful Corporation:
We have examined the consolidated balance sheet of Aiful Corporation and consolidated subsidiaries as of March 31, 2001, and the related consolidated statements of income, shareholders’equity, and cash flows for the year then ended, all expressed in Japanese yen. Our examination was made in accordance with auditing standards, procedures and practices generally
accepted and applied in Japan and, accordingly, included such tests of the accounting records
and such other auditing procedures as we considered necessary in the circumstances.
In our opinion, the consolidated financial statements referred to above present fairly the financial position of Aiful Corporation and consolidated subsidiaries as of March 31, 2001, and theresults of their operations and their cash flows for the year then ended in conformity withaccounting principles and practices generally accepted in Japan.
As discussed in Note 2, effective April 1, 2000, the consolidated financial statements havebeen prepared in accordance with the new accounting standards for employees’ retirement
benefits and financial instruments.
Our examination also comprehended the translation of Japanese yen amounts into U.S. dollar
amounts and, in our opinion, such translation has been made in conformity with the basis statedin Note 3. Such U.S. dollar amounts are presented solely for the convenience of readers outside Japan.

DELOITTE TOUCHE TOHMATSU
Kyoto, JapanSHIMBASHI & CO.
Osaka, Japan

June 27, 2001

43

N O N - C O N S O L I D AT E D

SIX-YEARSUMMARY

AIFUL Corporation
Years ended March 31

Millions of Yen
2001

Results for the Fiscal Year:
Total income ........................................................................
Total expenses ....................................................................
Income before income taxes ..............................................
Income taxes .......................................................................
Adjustment on corporation tax, etc. ...................................
Net income ..........................................................................
At Year-End:Balance of loans outstanding .............................................
Total assets ..........................................................................
Short-term borrowings ........................................................
Long-term debt, including current portion thereof ...........
Total shareholders’ equity ..................................................
Per Share Data:
Net income ..........................................................................
Adjusted for stock splits ..................................................
Shareholders’ equity.............................................................
Adjusted for stock splits ..................................................
Cash dividends ....................................................................
Adjusted for stock splits ..................................................
Other Data:
Number of shares outstanding at year-end .......................
Number of customer accounts at year-end.........................
Number of branches at year-end.........................................
Number of employees at year-end ....................................

44

¥

2000

1999

272,553
180,078
92,47545,011
1,048
48,512¥ 239,200
154,490
84,71042,3991,793
44,104¥ 205,536
140,777
64,75936,311–
28,448¥ 1,159,734
1,586,409
32,5001,186,674
302,601¥ 1,001,080
1,182,468
28,700863,469
252,903¥ 837,982
996,524
58,900704,275
203,749

¥

¥

¥

572
–
3,565
–
50
–

84,876,000
2,121,446
1,529
3,477

786
524
4,508
3,005
60
40

56,103,000
1,975,068
1,311
3,263

611
339
4,358
2,421
60
33

46,752,500
1,822,261
1,009
3,141

Millions of Yen
1998

1997

1996

¥ 180,181
117,080
63,101
38,097–25,004¥ 150,176
94,27655,90033,095–22,805¥ 122,695
97,411
25,284
15,197–
10,087¥ 702,446
876,727
98,000600,505
146,255¥ 591,630
724,31439,548557,963
93,055¥ 465,656
589,539
31,758473,62165,447

¥

¥

¥

602
334
3,421
1,901
60
33

42,752,500
1,706,030
807
2,731

1,548
344
5,957
1,324
10
2

15,621,000
1,530,094
654
2,521

7,308
162
47,414
1,054
100
2

Notes
1. Net income per share has been computed based on theweighted average number of shares outstanding during
each period and shareholders’ equity per share is basedon the number of shares outstanding at the end of eachperiod.
2. Stock split (10 for 1) on August 1, 1996.
3. Warrant exercised on September 27, 1996 (1,818,000
shares, ¥2,750).
4. Stock split (2.5 for 1) on May 20, 1997.
5. On June 18, 1997, by resolution of the Shareholders’
General Meeting, the number of common shares issued
was increased from 55 million to 150 million.
6. Capital increased through issuance of shares by public
offering on July 30, 1997 (3,700,000 shares, ¥56,832).
7. On April 16, 1998, the Company issued 4,000,000 sharesof common stock to the amount of ¥33,084 million, in
offshore transactions under regulations of the UnitedStates Securities Act of 1993 (“the Securities Act”), andin the United States in accordance with Rule 144A of the
Securities Act. Of the total, ¥16,544 million and ¥16,540
million were credited to common stock and additional
paid-in capital, respectively.
8. Stock split (1.2 for 1) on May 20, 1999.
9. Stock split (1.5 for 1) on May 22, 2000.

1,380,300
1,217,649
458
2,411

45

N O N - C O N S O L I D AT E D

BALANCESHEETSAIFUL Corporation
March 31, 2001 and 2000

Thousands of
U.S. Dollars (Note 3)

Millions of Yen

2001

ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 7) ....................................................
Time deposits........................................................................................
Loans (Notes 4 and 7) ..........................................................................
Allowance for doubtful loans ..............................................................
Net loans...........................................................................................
Inventories (Note 5) .............................................................................
Investment in trust................................................................................
Prepaid expenses..................................................................................
Deferred tax assets (Note 8) ................................................................
Advances to associated company ........................................................
Other current assets (Note 7)...............................................................
Total current assets ........................................................................
PROPERTY, PLANT AND EQUIPMENT (Note 7):
Land.......................................................................................................
Buildings and structures.......................................................................
Machinery, vehicles and equipment....................................................
Construction in progress ......................................................................
Total ..................................................................................................
Accumulated depreciation....................................................................
Net property, plant and equipment............................................
INVESTMENTS AND OTHER ASSETS:
Investment securities (Notes 6 and 7) .................................................
Investments in and advances to subsidiaries andassociated companies (Note 9).........................................................
Claims in bankruptcy (Note 4).............................................................
Allowance for advances to subsidiaryand claims in bankruptcy..................................................................
Software ................................................................................................
Long-term loans (less current portion)................................................
Lease deposits.......................................................................................
Long-term prepayments .......................................................................
Deferred tax assets (Note 8) ................................................................
Deferred loss on hedged items (Note 2.q)..........................................
Other assets...........................................................................................
Total investments and other assets ............................................
TOTAL ......................................................................................................
See notes to non-consolidated financial statements.

46¥

95,391378
1,159,734(45,115)
1,114,619
2,454
–
4,172
9,240
200
12,763
1,239,217

2000¥

81,019862
1,001,080(37,625)
963,455
2,158
2,000
4,607
9,006
–
9,337
1,072,444

2001$

769,282
3,048
9,352,694(363,831)
8,988,863
19,790–33,64574,516
1,613
102,928
9,993,685

41,21235,146
10,57625
86,959(19,569)
67,39042,97430,584
10,262
1,080
84,900(17,448)
67,452

332,355
283,435
85,290202
701,282(157,814)
543,468

4,888

6,001

39,419227,805
11,845

3,832
16,011

1,837,137
95,524(15,829)
2,365
8,706
8,549
2,172
1,645
20,091
7,566
279,803¥1,586,410(19,095)
3,289
14,724
8,475
1,616
998
–
6,721
42,572¥1,182,468(127,653)
19,07370,21068,944
17,516
13,266
162,024
61,0162,256,476$12,793,629

Millions of Yen

2001

LIABILITIES AND SHAREHOLDERS’ EQUITYCURRENT LIABILITIES:
Short-term borrowings (Note 7)...........................................................
Current portion of long-term debt (Note 7)........................................
Trade notes payable .............................................................................
Trade accounts payable .......................................................................
Income taxes payable...........................................................................
Accrued expenses.................................................................................
Other current liabilities.........................................................................
Total current liabilities..................................................................
LONG-TERM LIABILITIES:Long-term debt (less current portion)(Note 7) ...................................
Liability for retirement benefits (Notes 2.g and 10)............................
Interest rate swaps................................................................................
Other long-term liabilities ....................................................................
Total long-term liabilities .............................................................

¥

32,500348,257
3,774
5,449
25,5305,040
1,345
421,895

Thousands of
U.S. Dollars (Note 3)

2000

¥

28,700290,307
2,482
3,639
25,1413,909
830
355,008

2001$

262,097
2,808,524
30,43543,944
205,887
40,645
10,847
3,402,379

838,417
3,061
20,091
345
861,914573,1621,035–
360
574,557

6,761,427
24,686
162,024
2,782
6,950,919

39,78946,311
1,301
214,969231
302,601¥1,586,410

39,752
41,913
952
170,286–
252,903¥1,182,468

320,879
373,476
10,492
1,733,621
1,863
2,440,331$12,793,629

CONTINGENT LIABILITIES (Note 14)

SHAREHOLDERS’ EQUITY (Notes 11 and 15.b):Common stock:¥50 par value, authorized, 224,000,000 shares
at March 31, 2001 and 2000;
issued and outstanding,
84,876,000 shares at March 31, 2001 and56,103,000 shares at March 31, 2000 ..........................................
Additional paid-in capital .....................................................................
Legal reserve .........................................................................................
Retained earnings .................................................................................
Net unrealized gain on available-for-sale securities ...........................
Total shareholders’ equity ............................................................
TOTAL ......................................................................................................
See notes to non-consolidated financial statements.

47

N O N - C O N S O L I D AT E D

S TAT E M E N T S

OFINCOMEAIFUL Corporation
Years ended March 31, 2001 and 2000

Thousands of
U.S. Dollars (Note 3)

Millions of Yen

INCOME:Interest on loans ...................................................................................
Interest on deposits, securities and other ...........................................
Sales of property for sale .....................................................................
Other income ........................................................................................
Total income....................................................................................

2001

2000

2001

¥262,581
1,237
40
8,695
272,553¥229,693
498
1,087
7,922
239,200$2,117,589
9,976
322
70,121
2,198,008

26,76757

24,2591,208

215,863460

54,772
24,06517,04315,001
10,463
1,166
1,531
103
4,205
1,982

40,30725,027
13,303
14,874
9,534
1,791
811
358
4,631
–

441,710
194,073
137,444
120,976
84,379
9,403
12,347830
33,911
15,984

EXPENSES:Interest on borrowings .........................................................................
Cost of sales of property for sale.........................................................
Charge-offs and provision for doubtful loans,advances to subsidiary and claims in bankruptcy...........................
Salaries and other employees’ benefits ...............................................
Advertising expenses............................................................................
Rental expenses ....................................................................................
Commissions and fees..........................................................................
Supplies.................................................................................................
Write-down of investment securities ...................................................
Write-down of inventories ...................................................................
Depreciation and amortization ............................................................
Provision for accrued pension and severance costs...........................
Charge for full amount of transitional obligations
for retirement benefits.......................................................................
Provision for retirement benefits to directors
and corporate auditors ......................................................................
Other expenses.....................................................................................
Total expenses ................................................................................

992

–

8,000

67
21,864
180,07890
18,297
154,490

540
176,322
1,452,242

INCOME BEFORE INCOME TAXES......................................................

92,47584,710745,766

INCOME TAXES (Note 8):
Current ..................................................................................................
Deferred ................................................................................................
Total income taxes .........................................................................
NET INCOME ..........................................................................................

45,011(1,048)43,963¥ 48,512

42,399(1,793)40,606¥ 44,104

362,992(8,452)354,540$ 391,226

Yen

U.S. Dollars

AMOUNTS PER COMMON SHARE (Note 2.r):
Net income............................................................................................

¥572.38¥524.09$4.62

Cash dividends applicable to the year ................................................

50.00

60.00

0.40

See notes to non-consolidated financial statements.

48

NON-CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITYAIFUL Corporation
Years ended March 31, 2001 and 2000

Thousands

Millions of Yen

Number of
Shares of Common Stock
Issued andCommonOutstanding
Stock

BALANCE AT MARCH 31, 1999......................
Adjustment of retained earnings for
newly applied accounting fortax allocation .............................................
Net income ....................................................
Cash dividends paid, ¥60 per share ............
Transfer to legal reserve ...............................
Bonuses to directors and corporate auditors
Stock split (Note 11)......................................
BALANCE AT MARCH 31, 2000......................
Net income ....................................................
Cash dividends paid, ¥50 per share ............
Transfer to legal reserve ...............................
Bonuses to directors and corporate auditors
Stock split (Note 11)......................................
Acquisition of Sinwa Co., Ltd. (Note 11) .....
Net unrealized gain on
available-for-sale securities.......................
BALANCE AT MARCH 31, 2001......................

46,753¥ 39,752

Additional
Paid-in
CapitalLegal
Reserve¥ 41,913¥

636 ¥ 121,448

316
9,350
56,10339,752

41,913952

349
28,052721

84,876

37¥39,789

Net Unrealized
Gain onRetained Available-for-saleEarnings
Securities

8,211
44,104(3,085)(316)(76)
170,286
48,512(3,381)
(349)
(99)

4,398

¥46,311¥1,301 ¥214,969

¥231
¥231

Thousands of U.S. Dollars (Note 3)

CommonStock

BALANCE AT MARCH 31, 2000 .......................................
Net income ......................................................................
Cash dividends paid, $0.40 per share............................
Transfer to legal reserve ................................................
Bonuses to directors and corporate auditors ................
Stock split (Note 11) .......................................................
Acquisition of Sinwa Co., Ltd. (Note 11).......................
Net unrealized gain on available-for-sale securities .....
BALANCE AT MARCH 31, 2001 .......................................

Additional
Paid-in
CapitalLegal
Reserve

Net Unrealized
Gain onRetained Available-for-saleEarnings
Securities$ 320,581 $ 338,008 $ 7,677 $ 1,373,274
391,226(27,266)
2,815(2,815)(798)
298

35,468$320,879 $373,476 $10,492 $1,733,621$1,863$1,863

See notes to non-consolidated financial statements.

49

N O N - C O N S O L I D AT E D S TAT E M E N T S O F C A S H F L O W SAIFUL Corporation
Years ended March 31, 2001 and 2000

Thousands of
U.S. Dollars (Note 3)

Millions of Yen

OPERATING ACTIVITIES:
Income before income taxes .....................................................................
Adjustments for:
Income taxes—paid ................................................................................
Depreciation and amortization...............................................................
Provision for doubtful loans, advances to subsidiaryand claims in bankruptcy....................................................................
Bonds issue costs ...................................................................................
Write-down of investment securities .....................................................
Write-down of inventories......................................................................
Loss on disposal of property, plant and equipment .............................
Changes in assets and liabilities:
Increase in loans .....................................................................................
Decrease in claims in bankruptcy..........................................................
Decrease (increase) in inventories.........................................................
Decrease (increase) in prepaid expenses..............................................
Decrease (increase) in long-term prepayments ....................................
Increase in other current assets ............................................................
Increase in trade notes payable .............................................................
Increase in trade accounts payable........................................................
Increase in other current liabilities.........................................................
Increase (decrease) in liability for retirement benefits .........................
Other—net ..................................................................................................
Total adjustments ....................................................................................
Net cash used in operating activities .....................................................

2000

2001

¥ 92,475¥ 84,710(44,623)
4,205(36,776)
4,631(359,863)
33,911

4,224
939
1,531
103
304

8,711
386
811
358
213

34,065
7,572
12,347830
2,452(158,654)
4,166
(399)
435
(556)
(3,426)
1,292
1,810
1,646
2,026
915
(184,062)(91,587)(163,098)
600
778
(313)
519
(1,824)
253
633
1,306
(25)
7
(182,830)(98,120)(1,279,468)
33,597(3,218)3,508(4,484)(27,629)
10,41914,597
13,274
16,3397,380(1,484,371)(738,605)$

745,766

INVESTING ACTIVITIES:Capital expenditures...................................................................................
Decrease (increase) in long-term loans.....................................................
Purchases of marketable and investment securities .................................
Purchases of investments ...........................................................................
Decrease (increase) in investment in trust................................................
Payment for purchase of Life Co., Ltd.......................................................
Increase in investments in and advances to subsidiaries
and associated companies ......................................................................
Other—net ..................................................................................................
Net cash used in investing activities ......................................................

(5,291)
6,018
(22)
—
2,000
(103,004)(4,840)(8,584)(600)(3,000)(1,000)—(42,669)
48,532(178)—
16,129(830,677)(116,734)
1,097(215,936)

(357)
372
(18,009)(941,403)
8,847(1,741,419)

FINANCING ACTIVITIES:Net increase (decrease) in short-term borrowings ..................................
Proceeds from long-term debt (net of bonds issue costs) .......................
Repayments of long-term debt ..................................................................
Cash dividends paid ..................................................................................
Net cash provided by financing activities..............................................

3,800
638,988(317,512)(3,381)
321,895(28,800)
450,275(293,092)(3,085)125,298

30,645
5,153,129(2,560,581)(27,266)
2,595,927

NET INCREASE IN CASH AND CASH EQUIVALENTS..............................

14,372

9,169

115,903

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR......................

81,01971,850653,331

CASH AND CASH EQUIVALENTS, END OF YEAR ...................................

¥ 95,391¥ 81,019$

769,282

NON-CASH INVESTING ACTIVITIES:Common stock issued for the acquisition of Sinwa Co., Ltd. ..................

¥

—

$

35,766

See notes to non-consolidated financial statements.

50

2001

4,435

N O T E S T O N O N - C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
AIFUL Corporation
Years ended March 31, 2001 and 2000

1. BASIS OFPRESENTINGNONCONSOLIDATEDFINANCIALSTATEMENTS

The accompanying non-consolidated financial statements of AIFUL Corporation (the “Company”)
have been prepared from the Company’s non-consolidated financial statements issued for domestic reporting purposes in accordance with the provisions set forth in the Japanese Securities andExchange Law. The Company maintains its accounts and records in accordance with the provisions set forth in the Commercial Code of Japan (the “Code” ) and in conformity with accounting principles and practices generally accepted in Japan, which are different in certain respects as
to application and disclosure requirements of International Accounting Standards. The nonconsolidated financial statements are not intended to present the financial position, results ofoperations and cash flows in accordance with accounting principles and practices generally
accepted in countries and jurisdictions other than Japan.
In preparing these non-consolidated financial statements, certain reclassifications andrearrangements have been made to the Company’s financial statements issued domestically inorder to present them in a form which is more familiar to readers outside Japan.
In accordance with accounting procedures generally accepted in Japan, comparative disclosures are not required to be and have not been presented herein.
Certain reclassifications have been made to the prior years’ non-consolidated financial statements to conform to the classifications used in 2001.

2. SUMMARY OF
SIGNIFICANTACCOUNTINGPOLICIES

a. Non-Consolidation – The non-consolidated financial statements do not include the accounts ofsubsidiaries. Investments in subsidiaries and associated companies are stated at cost.
Consolidation of the Company’s subsidiaries would not significantly change the total assets,
retained earnings, total income, or net income reported in the accompanying non-consolidated
financial statements for the year ended March 31, 2000.
On March 28, 2001, the Company acquired all the shares of Life Co., Ltd., and separately
prepared consolidated financial statements for the year ended March 31, 2001, as its subsidiaries’
accounts were significant.
b. Cash Equivalents – Cash equivalents are short-term investments that are readily convertible into cash and that are exposed to insignificant risk of changes in value. Cash equivalents include time deposits and certificate of deposits which mature or become due within
three months of the date of acquisition.
c. Inventories – Inventories include property for sale, property under construction and supplies.
Property for sale is stated at the lower of cost or market, cost being determined by the specific identification method. Depreciation of property for sale currently rented is computed by
the same method, as applied to property, plant and equipment. Property for sale under construction is stated at cost, cost being determined by the specific identification method. Supplies
are stated at the most recent purchase price, which approximates cost determined by first-in,
first-out method.
d. Investment Securities – Prior to April 1, 2000, investment securities listed on a stock
exchange were valued at the lower of cost or market, cost being determined by the movingaverage method. All other securities are stated at cost, determined by the moving-averagemethod, except that write-downs are recorded for securities with values considered to besignificantly impaired at year-end.
Effective April 1, 2000, the Company adopted a new accounting standard for financial
instruments, including investment securities.

51

N O T E S T O N O N - C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
AIFUL Corporation
Years ended March 31, 2001 and 2000

Held-to-maturity debt securities are reported at amortized cost and available-for-sale securities are reported at fair value, with unrealized gains and losses, net of applicable taxes,
reported in a separate component of shareholders’ equity. The cost of securities sold isdetermined based on the moving-average method. Non-marketable available-for-sale securities are stated at cost determined by the moving-average method.
The adoption of this new accounting method resulted in an increase of income before
income taxes by ¥387 million ($3,121 thousand) for the year ended March 31, 2001.
e. Property, Plant and Equipment – Property, plant and equipment are stated at cost.
Depreciation is computed by the declining-balance method. The range of useful lives is fromthree to 50 years for buildings and structures and from two to 20 years for machinery, vehicles and equipment.
f. Software – Expenditure for the purchase of software, which meet certain future-tests, are capitalized as software and amortized by the straight-line method over the estimated useful livesof five years.
g. Liability for Retirement Benefits – Effective April 1, 1995, the Company amended previously adopted severance and retirement plans and established a contributory funded pension plan, transferring all prior plans’ obligations for employees’ retirement benefits (including
all plan assets of the trusteed pension plan) to the new pension plan. Also, reversals of theexcess portion of employees’ retirement benefits are added to income equally over sevenyears beginning with the fiscal year ended March 31, 1997 pursuant to the applicable tax
regulations. Under the plan, prior service costs are charged to income over 10 years.
Effective April 1, 2000, the Company adopted a new accounting standard for employees’
retirement benefits and accounted for the net liability for retirement benefits based on projected benefit obligation and plan assets at the balance sheet date. The transitional obligation and actuarial losses resulting from adoption of the above accounting standard were
fully charged to income for the year ended March 31, 2001. As a result of adopting this new
standard, income before income taxes decreased by ¥2,031 million ($16,379 thousand).
Liability for retirement benefits to directors and corporate auditors are provided at theamount which would be required if they retired at each balance sheet date.
The balances of retirement benefits include those to directors and corporate auditors in
the amount of ¥945 million ($7,621 thousand) and ¥909 million for the years ended March
31, 2001 and 2000, respectively.
h. Allowances for Doubtful Loans, Advances to Subsidiary and Claims in Bankruptcy –Allowances for doubtful loans, advances to a subsidiary and claims in bankruptcy are statedat the higher of either management’s estimate or the maximum amount which is allowed undertax regulations (the actual rate of past charge-offs) at March 31, 2000.
Effective April 1, 2000, a new accounting method for allowances for doubtful accounts
was applied. Allowances for doubtful loans, advances to subsidiary and claims in bankruptcy are stated at management’s estimate. As a result of such application, which included
the impairment of golf club membership in other assets, income before income taxes
decreased by ¥128 million ($1,032 thousand) for the year ended March 31, 2001.
i. Income Taxes – The provision for income taxes is computed based on the pretax income
included in the non-consolidated statements of income. The asset and liability approach is used
to recognize deferred tax assets and liabilities for the expected future tax consequences of
temporary differences between the carrying amounts and the tax bases of assets and liabilities.
Deferred taxes are measured by applying currently enacted tax laws to the temporary differences.
52

j. Appropriations of Retained Earnings – Appropriations of retained earnings are reflectedin the financial statements for the following year upon shareholders’ approval.
k. Interest on Loans – Interest on loans is recorded on an accrual basis. In accordance withthe practice prevailing in the industry, the Company records accrued interest to the extent thatthe realization of such income is considered to be certain.
l. Interest on Borrowings – Interest on financial liabilities is accounted for as operating
expenses while other interest is included in other expenses.
m. Bonds Issue Costs – Bonds issue costs, which are included in other assets, are amortized ratably over periods up to three years.
n. Leases – All leases are accounted for as operating leases. Under Japanese accounting standards for leases, finance leases that deem to transfer ownership of the leased property to thelessee are to be capitalized, while other finance leases are permitted to be accounted for as
operating lease transactions if certain “as if capitalized” information is disclosed in the notes
to the lessee’s non-consolidated financial statements.
o. Foreign Currency Transactions – Prior to April 1, 2000, short-term receivables andpayables denominated in foreign currencies were translated into Japanese yen at the current
exchange rates at each balance sheet date, while long-term receivables and payables denominated in foreign currencies were translated at historical rates.
Effective April 1, 2000, the Company adopted a revised accounting standard for foreign currency transactions. In accordance with the revised standard, all short-term and long-termmonetary receivables and payables denominated in foreign currencies are translated into
Japanese yen at the exchange rates at the balance sheet date. The foreign exchange gains andlosses from translation are recognized in the statements of income to the extent that they are
not hedged by forward exchange contracts. The effect of the application of such standard
on income before income taxes was immaterial.
p. Leveraged Lease – The Company initially records, as other assets, an investment of ¥100 million in an anonymous association which is engaged in aircraft leasing, at cost, and adjusts
the carrying amount of such investment to recognize the Company’s interests in the earnings
or losses of such association. If accumulated losses attributable to the Company exceed¥100 million, the excess amount is accounted for as other long-term liabilities and the current losses as other expenses and the current profit as other income. Other long-term liabilities attributable to the anonymous association were ¥118 million ($952 thousand) and ¥127
million, and other income was ¥8 million ($65 thousand) and ¥2 million for the years ended
March 31, 2001 and 2000, respectively.
q. Derivatives and Hedging Activities – The Company uses derivative financial instruments
to manage its exposures to fluctuations in interest rates. Interest rate swaps and caps are utilized by the Company to reduce interest rate risks. The Company does not enter into derivatives for trading or speculative purposes.
Effective April 1, 2000, the Company adopted a new accounting standard for derivative
financial instruments. This standard requires that: a) all derivatives be recognized as either
assets or liabilities and measured at fair value, and gains or losses on derivative transactions
are recognized in the statements of income, and b) for derivatives used for hedging purposes, if derivatives qualify for hedge accounting because of high correlation and effectiveness between the hedging instruments and the hedge items, gains or losses on derivatives
are deferred until maturity of the hedged transactions.

53

N O T E S T O N O N - C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
AIFUL Corporation
Years ended March 31, 2001 and 2000

The interest rate swaps and caps which qualify for hedge accounting and meet specificmatching criteria are not remeasured at market value but the differential paid or received
under the swap or cap agreements are recognized and included in interest expenses orincome.
r. Per Share Information – The computation of net income per share is based on the weighted
average number of shares of common stock outstanding during each year, retroactively adjusted
for stock splits. The weighted average number of common shares used in the computation forthe years ended March 31, 2001 and 2000 was as follows:
Average Number of Shares

2001
2000

84,755,420
84,154,500

Cash dividends per share presented in the accompanying non-consolidated statements ofincome are dividends applicable to the respective years including dividends to be paid after
the end of the year without giving retroactive adjustment for any subsequent stock split.
Fully diluted net income per share is not presented because no dilutive securities were outstanding for the years ended March 31, 2001 and 2000.

3. TRANSLATIONINTO
UNITED STATESDOLLARSThe non-consolidated financial statements are stated in Japanese yen, the currency of the country in which the Company is incorporated and operates. The translation of Japanese yen amounts
into U.S. dollar amounts are included solely for the convenience of readers outside Japan andhave been made at the rate of ¥124 to $1, the approximate rate of exchange at March 30, 2001.
Such translations should not be construed as representations that the Japanese yen amounts
could be converted into U.S. dollars at that or any other rate.

4. LOANS

Loans at March 31, 2001 and 2000 consisted of the following (before allowance for doubtful loans):Thousands of
U.S. Dollars

Millions of Yen

2001

Unsecured ........................................................
Secured.............................................................
Small business loans........................................
Total ...........................................................

54¥ 921,891
225,645
12,198¥1,159,734

2000¥ 809,362
181,429
10,289¥1,001,080

2001$7,434,605
1,819,718
98,371$9,352,694

Registered moneylenders are required to disclose the following information under the NonBank Bond Law.
Thousands of
U.S. Dollars

Millions of Yen

Loans in legal bankruptcy...............................
Non-accrual loans............................................
Accruing loans contractually past due
three months or more as to principal
or interest payments ..................................
Restructured loans ...........................................
Total ...........................................................

2001

2000

2001

¥ 13,058
20,137¥16,299
15,797$105,306
162,395

6,874
23,814¥63,883

5,250
20,321¥57,667

55,436
192,048$515,185

Loans in legal bankruptcy are loans in which accruals of interest are discontinued (excluding
the portion recognized as bad debts), based on management’s judgment as to the collectibilityof principal or interest resulting from the past due payment of interest or principal and otherfactors. Allowances for claims in bankruptcy are stated at such amount less net realizable valueof collateral.
Non-accrual loans are loans in which accruals of interest are discontinued and those otherthan loans in legal bankruptcy and loans granting deferral of interest payment to the debtors infinancial difficulties to assist them in their recovery. Loans classified as loans in legal bankruptcy and past due loans are excluded.
Restructured loans are loans on which creditors grant concessions (e.g., reduction of the statedinterest rate, deferral of interest payment, extension of maturity date, waiver of the face amount, orother concessive measures) to the debtors in financial difficulties to assist them in their recovery
and eventually enable them to pay creditors. Loans classified as loans in legal bankruptcy, nonaccrual loans and accruing loans contractually past due three months or more are excluded.

5. INVENTORIESInventories at March 31, 2001 and 2000 consisted of the following:Thousands of
U.S. Dollars

Millions of Yen

Property for sale ..............................................
Property for sale under construction..............
Supplies............................................................
Total ...........................................................

2001

2000

2001

¥ 819
1,622
13
¥2,454

¥ 901
1,243
14
¥2,158$ 6,605
13,080105$19,79055

N O T E S T O N O N - C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
AIFUL Corporation
Years ended March 31, 2001 and 2000

6. INVESTMENT
SECURITIES

Carrying value and market value of marketable securities included in investment securities at
March 31, 2000 were as follows:
Millions of Yen

2000

Carrying
Value¥3,966

Investment securities .............................................................

MarketValue¥5,255The difference between the above carrying amounts and the amounts shown in the accompanying non-consolidated balance sheets principally consists of non-marketable securities for which
there is no readily available market from which to obtain or calculate the market value thereof.
Disclosure of cost and fair value of marketable securities at March 31, 2001 is not presented herein,
as such information is not required on non-consolidated financial statements.

7. SHORT-TERM
BORROWINGSAND
LONG-TERM
DEBT

Short-term borrowings, generally due in one year, at March 31, 2001 and 2000 consisted of thefollowing:

Commercial paper, 0.828% to 0.912% ............
Loans from banks, 1.12% to 3.625% ...............
Loans from other financial institutions,1.475% to 3.4% ..........................................
Syndicated loans, 2.036% ................................
Other (principally from leasing andfactoring companies), 2.5% to 3.8% ..........
Total ...........................................................

56

Thousands of
U.S. Dollars

Millions of Yen

2001

2000

2001

¥15,000
15,000¥15,000
11,500$120,968
120,968

2,500

1,200

20,161¥32,500

1,000¥28,700$262,097

Long-term debt at March 31, 2001 and 2000 consisted of the following:Thousands of
U.S. Dollars

Millions of Yen

Loans from banks, 1.001% to 5.1%,
due serially to 2006...............................................
Loans from other financial institutions,
1.9% to 4.7%, due serially to 2006 .......................
Syndicated loans, 1.7% to 2.6%,
due to 2004............................................................
Unsecured 2.0% yen straight bonds,
due 2000 ................................................................
Unsecured 2.6% yen straight bonds,
due 2001 ................................................................
Unsecured 2.35% to 2.425%
yen straight bonds, due 2002 ...............................
Unsecured 1.5% to 3.2% yen straight bonds,
due 2003 ................................................................
Unsecured 2.0% to 2.53% yen straight bonds,
due 2004 ................................................................
Unsecured 1.86% yen straight bonds,
due 2005 ................................................................
Unsecured 3.27% yen straight bonds,
due 2006 ................................................................
Unsecured 2.51% yen straight bonds,
due 2007 ................................................................
Unsecured 3.28% yen straight bonds,
due 2009 ................................................................
Unsecured 2.93% to 3.0% yen straight bonds,
due 2010 ................................................................
Unsecured 3.65% Euroyen straight bonds,
due 2003 ................................................................
Unsecured variable rate Euroyen straight bonds,
due 2006 (2.136% at March 31, 2001)..................
Unsecured 1.73% medium-term notes,
due 2002 ................................................................
Unsecured 1.75% medium-term notes,
due 2002 ................................................................
Unsecured 3.0% medium-term notes,
due 2008 ................................................................
Unsecured 3.5% medium-term notes,
due 2015 ................................................................
Other (principally from leasing andfactoring companies), 0.98% to 6.9%,
due serially to 2006...............................................
Total ......................................................................
Less current portion ..............................................
Long-term debt,
less current portion .....................................

2001

2000

2001

¥398,990¥331,065$3,217,661

245,434

255,705

1,979,307

70,00030,580564,51630,000
6,000

6,000

48,38740,00040,000322,58175,0005,000

604,839

135,000

25,0001,088,710

10,00015,00080,64515,00020,000120,968
161,290

8,000

8,000

64,51620,00010,000161,290

9,500

9,500

76,61315,00015,000120,968

3,000

3,000

24,193

3,000

3,000

24,1933,000

24,19315,000120,968

94,7501,186,674(348,257)

76,619863,469(290,307)764,113
9,569,951(2,808,524)¥838,417¥573,162$6,761,427
57

N O T E S T O N O N - C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
AIFUL Corporation
Years ended March 31, 2001 and 2000

The Company has an interest rate swap agreement that effectively converts variable rate interest
payable on ¥3,000 million ($24,193 thousand) of medium-term notes, due 2002, to a fixed rateof 1.75%.
Included in Other (principally from leasing and factoring companies) at March 31, 2001 in
the table above is a loan totaling ¥35,000 million ($282,258 thousand), proceeds of which wereused for the Life acquisition. The loan bears interest at LIBOR plus 0.06% per annum and is due
May 9, 2006.
The aggregate annual maturities of long-term debt at March 31, 2001 were as follows:
Millions of Yen

Thousands of
U.S. Dollars¥ 348,257
331,516
230,801
145,293
32,957
97,850¥1,186,674$2,808,524
2,673,516
1,861,298
1,171,718
265,782
789,113$9,569,951

Year ending March 31

2002........................................................................................
2003........................................................................................
2004........................................................................................
2005........................................................................................
2006........................................................................................
2007 and thereafter................................................................
Total..............................................................................

At March 31, 2001, the following assets were pledged as collateral for short-term borrowings
and long-term debt (including current portion of long-term debt):

Loans..................................................................................
Investment securities.........................................................
Property, plant and equipment, net ofaccumulated depreciation ............................................
Total..............................................................................
Related liabilities:
Short-term borrowings ......................................................
Long-term debt(including current portion of long-term debt) ............
Total..............................................................................

Millions of Yen

Thousands of
U.S. Dollars¥522,867
137$4,216,669
1,105

9,774
¥532,778

78,823$4,296,597

¥

$

500

455,967¥456,467

4,032

3,677,153$3,681,185

In addition, if requested by lending financial institutions, the Company has committed to pledge
collateral for loans other than those shown in the above table.

58

At March 31, 2001, related liabilities for which lending financial institutions can request theCompany to pledge collateral consisted of the following:
Millions of Yen

Short-term borrowings ..........................................................
Long-term debt(including current portion of long-term debt) ................
Total ..................................................................................

¥

7,000

127,657¥134,657

Thousands of
U.S. Dollars$

56,452

1,029,492$1,085,944

Cash and cash equivalents and other current assets, which were pledged as collateral for interest
rate swap contracts, amounted to ¥3,730 million ($30,081 thousand) at March 31, 2001.

8. INCOME TAXESThe Company is subject to Japanese national and local income taxes which, in the aggregate,
resulted in normal effective statutory tax rates of approximately 41.9% for the years ended March
31, 2001 and 2000. The tax effects of significant temporary differences which resulted in deferred
tax assets and liabilities at March 31, 2001 and 2000 are as follows:

Thousands of
U.S. Dollars

Millions of Yen

Current deferred tax assets:
Charge-offs for doubtful loans ...............................
Provision for doubtful loans ...................................
Write-down of property for sale ............................
Unrecorded accrued interest on loans ...................
Accrued bonuses .....................................................
Enterprise tax payable ............................................
Other........................................................................
Current deferred tax assets ......................

2001

2000

2001

¥ 516
6,164
27
122
501
1,839
71
¥9,240

¥ 431
6,329
54
108
277
1,764
43
¥9,006$ 4,161
49,710
218
984
4,040
14,831
572$74,516

¥ 402

¥ 363

$ 3,242

Non-current deferred tax assets:
Depreciation and amortization ...............................
Non-deductible interest expense
on liabilities for land..........................................
Provision for employee retirement benefits ..........
Provision for retirement benefits
to directors and corporate auditors ..................
Other........................................................................
Total...................................................................

83
851

177

669
6,863

396
80
¥1,812

381
77
¥ 998

3,194
645
$14,613

Non-current deferred tax liabilities:
Unrealized gain on available-for-sale securities ....
Total...................................................................
Net deferred tax assets ..............................

167
167¥1,645¥ 998$1,347$1,347$13,266

59

N O T E S T O N O N - C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
AIFUL Corporation
Years ended March 31, 2001 and 2000

A reconciliation between the normal effective statutory tax rates for the years ended March 31,
2001 and 2000 and the actual effective tax rates reflected in the accompanying non-consolidated statements of income is as follows:
Years ended March 31

Normal effective statutory tax rate ....................................................
Increase in tax rate resulting from:
Additional taxation on undistributed income...............................
Other, net .......................................................................................
Actual effective tax rate......................................................................

2001

2000

41.9%

41.9%

4.4
1.2
47.5%

4.7
1.3
47.9%

9. RELATED PARTY
TRANSACTION

Advances to subsidiaries at March 31, 2001 and 2000 were ¥118,015 million ($951,734 thousand) and ¥3,403 million, respectively.
In consideration of the subsidiary’s financial condition the Company does not charge interest on a part of such advances.

10.RETIREMENT
AND PENSIONPLANS

The Company has contributory and non-contributory funded pension plans covering substantiallyall employees. Under the pension plans, employees terminating their employment are, in mostcircumstances, entitled to pension payments based on their average pay during their employment, length of service and certain other factors. If the termination is involuntary, employees
are usually entitled to larger payments than in the case of voluntary termination.
The liability for employees’ retirement benefits at March 31, 2001 consisted of the following:

Projected benefit obligation..................................................
Fair value of plan assets........................................................
Net liability ......................................................................

Millions of Yen

Thousands of
U.S. Dollars¥ 5,543
3,427¥ 2,116$ 44,702
27,637$ 17,065

The components of net periodic benefit costs for the year ended March 31, 2001 are as follows:

Service cost ............................................................................
Interest cost............................................................................
Expected return on plan assets ............................................
Recognized actuarial loss ......................................................
Amortization of transitional obligation.................................
Net periodic benefit costs.............................................

60

Millions of Yen

Thousands of
U.S. Dollars

¥ 803
126
(92)
1,145
992
¥2,974$ 6,476
1,016
(742)
9,234
8,000
$23,984

Assumptions used for the year ended March 31, 2001 are set forth as follows:
Discount rate
Expected rate of return on plan assets
Recognition period of actuarial gain/loss
Amortization period of transitional obligation

3.0%
3.0%
Full amount charged to income as incurred
Full amount charged to income as incurred

11.SHAREHOLDERS’ Under the Code, at least 50% of the issue price of new shares, resolved by the Board of Directors
EQUITYwith a minimum of the par value, is to be designated as stated capital. The portion which is tobe designated as stated capital is determined by resolution of the Board of Directors. Proceeds
in excess of the amounts designated as stated capital are credited to additional paid-in capital.
The Company may transfer portions of additional paid-in capital to stated capital by resolutionof the Board of Directors.
Under the Code, the Company is required to appropriate as a legal reserve portions ofretained earnings in the amount equal to at least 10% of cash payments appropriated in eachfinancial period, including cash dividends and bonuses to directors and corporate auditors until
the reserve equals 25% of the stated capital. This reserve is not available for cash dividends but
may be used to reduce a deficit by resolution of the shareholders or transferred to the statedcapital by resolution of the Board of Directors.
The Company may also transfer portions of unappropriated retained earnings to stated capital by resolution of the shareholders.
Under the Code, the Company may issue new shares of its common stock to the existing
shareholders without consideration pursuant to resolution of the Board of Directors as a stock
split. The Company may make such a stock split to the extent that the amount calculated by multiplying the number of issued shares after the stock split by par value per share does not exceed
the stated capital and that the amount calculated by dividing the total amount of shareholders’equity by the number of issued shares after the stock split shall not be less than ¥1,000.
At the Shareholders’ General Meeting held on June 29, 1999, the number of common shares
the Company is authorized to issue was increased from 150 million to 224 million.
On May 22, 2000, the Company made a three-for-two stock split to shareholders of record
on March 31, 2000. As a result, the number of shares issued increased by 28,051,500 shares.
On June 1, 2000, the Company acquired all 650,000 shares of the common stock of Sinwa Co.,
Ltd. in exchange for 721,500 shares of the Company’s common stock, according to an agreement dated April 27, 2000. On the exchange of common stock, ¥37 million ($298 thousand)and ¥4,398 million ($35,468 thousand) were credited to common stock and additional paid-in
capital, respectively, based on the book value of the acquired net assets.
Retained earnings of the Company as of March 31, 2001 included ¥164,422 million($1,325,984 thousand) which is designated as a general reserve but is available for future dividends subject to approval by the shareholders and legal reserve requirements. Dividends areapproved at the Shareholders’ General Meeting held subsequent to the fiscal year to which
they relate and are reflected in the non-consolidated statements of shareholders’ equity when
duly declared and paid.

61

N O T E S T O N O N - C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
AIFUL Corporation
Years ended March 31, 2001 and 2000

12. LEASESThe Company leases vehicles, computer equipment, furniture and fixtures, office space and otherassets.
Total rental expenses including lease payments under finance leases, for the years ended
March 31, 2001 and 2000 were as follows:
Thousands of
U.S. Dollars

Millions of Yen

Years ended March 31:
2001 ..................................
2000 ..................................

Total Rental
Expenses

Lease Payments
under FinanceLeases¥15,001
14,874¥6,117
6,352

Total Rental
Expenses

Lease Payments
under FinanceLeases$120,976$49,331

Pro forma information of leased property such as acquisition cost, accumulated depreciation,
obligation under finance leases, depreciation expense, and interest expense of finance leases that
do not transfer ownership of the leased property to the lessee on an “as if capitalized” basis forthe years ended March 31, 2001 and 2000 were as follows:
Millions of Yen
Machinery, Vehicles
and Equipment

Acquisition cost ............................................
Accumulated depreciation ...........................
Net leased property..............................

Thousands of
U.S. Dollars
Machinery, Vehicles
and Equipment

2001

2000

2001

¥25,727
18,933¥ 6,794¥27,497
18,710¥ 8,787$207,476
152,686$ 54,790

Obligations under finance leases:
Millions of Yen

Due within one year ....................................
Due after one year .......................................
Total........................................................

Thousands of
U.S. Dollars

2001

2000

2001

¥4,3905,139¥9,529¥ 5,309
6,379¥11,688$35,40341,444$76,847

Depreciation expense and interest expense, which are not reflected in the accompanying non-consolidated statements of income, computed under a declining-balance method and the interest
method, respectively, for the years ended March 31, 2001 and 2000 were as follows:

Millions of Yen

Depreciation expense ..................................
Interest expense ...........................................

62

Thousands of
U.S. Dollars

2001

2000

2001

¥5,360388¥5,605493$43,2263,129

13. DERIVATIVESThe Company enters into interest rate swap and interest rate cap contracts as a means of managing its interest rate exposure on certain liabilities.
Such derivative transactions are entered into to hedge interest exposures incorporated within
the Company’s business. Accordingly, market risk in these derivatives is theoretically offset by
opposite movements in the value of hedged liabilities. The Company does not hold or issue
derivatives for trading and speculative purposes.
Because the counterparties to these derivatives are limited to major financial institutions, theCompany does not anticipate any losses arising from credit risk.
Derivative transactions entered into by the Company have been made in accordance withinternal policies which regulate the authorization and credit limit amounts.
The Company had outstanding derivatives contracts as follows:
Millions of Yen
March 31

2000

Interest rate swaps:
Fixed rate payment, floating rate receipt...........
Interest rate caps:
Purchased interest rate caps...............................

Contract or
Notional Amount

Fair Value

Unrealized
Loss¥207,880¥(7,351)¥7,351240,000

330

1,255

Estimated fair values were obtained from banks.
The contract or notional amounts of derivatives which are shown in the above table do not
represent the amounts exchanged by the parties and do not measure the Company’s exposure
to credit or market risk.
Information on derivatives at March 31, 2001 is not presented herein, as such information is
not required for non-consolidated financial statement presentation.

63

N O T E S T O N O N - C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
AIFUL Corporation
Years ended March 31, 2001 and 2000

14. CONTINGENT
LIABILITIESAt March 31, 2001, the Company had the following contingent liabilities:
Millions of Yen

Guarantees and similar items of bank loans...............

15. SUBSEQUENTEVENTS¥395

Thousands of
U.S. Dollars$3,185a. At the Shareholders’ General Meeting held on June 27, 2001, the Company’s shareholders
approved the following stock option plan for the Company’s directors and key employees.
The plan provides for granting options to directors and key employees to purchase up to
223,000 shares of the Company’s common stock. The options will be granted to purchasecommon stock at the higher of 103% of the average fair market price for the previous monthof option grant or the fair market price at the time of grant.
The stock options are exercisable from July 1, 2003 to June 30, 2006. The Company plans
to issue acquired treasury stock upon exercise of the stock options.
The treasury stock will be purchased from the open market for a total consideration not toexceed ¥4,100 million ($33,065 thousand).
b. On May 22, 2001, the Board of Directors resolved to propose the following plan of appropriations of retained earnings for the year ended March 31, 2001 for approval at the Shareholders’
General Meeting held on June 27, 2001:

Cash dividends, ¥30 ($0.24 ) per share .......................
Transfer to legal reserve...............................................
Bonuses to directors and corporate auditors ..............

64

Millions of Yen

Thousands of
U.S. Dollars¥2,546265
87$20,532
2,137
702

INDEPENDENTAUDITORS’REPORT

To the Board of Directors of
Aiful Corporation:
We have examined the non-consolidated balance sheets of Aiful Corporation as of March 31,
2001 and 2000, and the related non-consolidated statements of income, shareholders’ equity,and cash flows for the years then ended, all expressed in Japanese yen. Our examinations weremade in accordance with auditing standards, procedures and practices generally accepted andapplied in Japan and, accordingly, included such tests of the accounting records and such otherauditing procedures as we considered necessary in the circumstances.
In our opinion, the non-consolidated financial statements referred to above present fairly thefinancial position of Aiful Corporation as of March 31, 2001 and 2000, and the results of its
operations and its cash flows for the years then ended in conformity with accounting principles
and practices generally accepted in Japan applied on a consistent basis.
As discussed in Note 2, effective April 1, 2000, the non-consolidated financial statements havebeen prepared in accordance with new accounting standards for employees’ retirement benefits and financial instruments.
Our examinations also comprehended the translation of Japanese yen amounts into U.S. dollar
amounts and, in our opinion, such translation has been made in conformity with the basis
stated in Note 3. Such U.S. dollar amounts are presented solely for the convenience of readers
outside Japan.

DELOITTE TOUCHE TOHMATSU
Kyoto, JapanSHIMBASHI & CO.
Osaka, Japan

June 27, 2001

65

BOARDOF

DIRECTORSAIFUL Corporation
As of June 27, 2001

President / Representative Director

Yoshitaka Fukuda

Senior Managing Director / Representative Director Taichi Kawakita
Senior Managing Directors

Restaurant & Entertainment Department

Katsuhide Horiba

General Manager – Finance Division

Takashi Noda

General Manager – Business Development Division

Sadatoshi Kobayashi

Information Systems Department
Administration Office

Managing Director

Yuji Kataoka

General Manager – Management Planning Division

Directors

Yasutaka Fukuda

Deputy General Manager – Finance Division
General Manager – Finance Department

Yoshimasa Nishimura

Inspection Department

Koji Imada

General Manager – Personnel Division

Shintaro Hashima

General Affairs Department
Legal Department

Takashi Koumoto

General Manager – Accounting Department

Yoshinori Sogabe

Public Relations Department

Masami Munetake

Administration Department
Credit Risk Management Department
Operation Department

Yasuo Yanagibashi

General Manager – Loan Business Division

Masayuki Sato
Hiroshi Abe
Kazumitsu Oishi
Standing Corporate Auditors

Tadao Mushiake
Yoshitaka Ebisuzaki

Corporate Auditor

66

Yoshinobu Azuma

Deputy General Manager – Personnel Division

INVESTORI N F O R M AT I O NAIFUL Corporation
As of March 31, 2001

Corporate Name......................................... AIFUL Corporation
Date of Establishment ............................... April 1967
Financial Year ............................................ April 1 to March 31
Independent Auditors............................... Deloitte Touche Tohmatsu / Shimbashi & Co.
Transfer Agent and Registrar .................. The Sumitomo Trust & Banking Co., Ltd.
Paid-in Capital ............................................ ¥39,789 million
Number of Shares of Common Stock ..... Authorized: 224,000,000 shares
Issued and Outstanding: 84,876,000 shares
Number of Shareholders .......................... 4,844
Number of Employees .............................. 3,477

For further information and additional copies of this annual report, please contact:
Financial Headquarters
Investor Relations Section
Tokyo Office
Tokyo-Ekimae Bldg. / 5th Floor
1-5, Yaesu 2-chome, Chuo-ku, Tokyo 104-0028, Japan
http://www.ir-aiful.com
e-mail: ir-aiful@oak.ocn.ne.jp
Corporate Headquarters
381-1, Takasago-cho, Gojo-Agaru, Karasuma-Dori, Shimogyo-ku, Kyoto 600-8420, Japan
Phone: 075-201-2000

Copyright © 2001 AIFUL Corporation

http:www.ir-aiful.com