CREDIT SAISON CO., LTD.
Annual Report 2007

UNCONSTRAINED BY CONVENTION
Unconstrainedby Convention

We believe in being

DIFFERC O N T E N T S

To Our Stakeholders . . . . . . . . . . . . . . . . . 2

Board of Directors and Auditors . . . . . . . 20

Financial Section . . . . . . . . . . . . . . . . . . . 27

Financial Highlights . . . . . . . . . . . . . . . . . 4

Corporate Governance . . . . . . . . . . . . . . . 22

Report of Independent Auditors. . . . . . . . 58

The Credit Saison Group’s

Corporate Social Responsibility (CSR)

Corporate Information . . . . . . . . . . . . . . . 59

Principal Businesses. . . . . . . . . . . . . . . . 5of Credit Saison. . . . . . . . . . . . . . . . . . . 24

Business Strategy . . . . . . . . . . . . . . . . . . . 6

Organization . . . . . . . . . . . . . . . . . . . . . . . 25

Major Group Companies . . . . . . . . . . . . . 18

Card Tie-Ups . . . . . . . . . . . . . . . . . . . . . . 26

Corporate History. . . . . . . . . . . . . . . . . . . 60

Forward-looking Statements
This annual report contains discussions including management plans, projections, strategies and estimates that are not historical facts. Projections of
future performance are based on management extrapolations from current data, but actual future performance may differ materially from projections.

Aiming to become a non-bank financial institution witha powerful market presence
The Credit Saison Group has established a unique position in its industry as a leading financial
services company by constantly creating new value through an innovative credit card businessconcept, and through products and services that reflect its unwavering attention to customer needs.
Always taking on fresh challenges, constantly innovating, and never being satisfied with thestatus quo, we will continue our quest to become the No. 1 financial services company withcredit cards as its core business, and aim toward becoming a non-bank financial institution witha powerful market presence.

ENT

About the cover
Credit Saison considers credit cards to be a powerful brand communication tool and focuses effort on
credit card image strategy. We aim to increase card brand value by establishing a unique and impactful corporate identity based on the concepts “Aspirations and dreams,” “No. 1” and “Differentiationfrom competitors.”
The theme for fiscal 2007 is “A contest of abilities,” and the motif is a racehorse. To us, a racehorse galloping thunderously around a racecourse, bearing the hopes and dreams of people, is afitting symbol for what we seek to become in the increasingly competitive non-bank industry.

Fiscal 2006 Highlights

Major strategic alliances
Joint venture credit card companies and joint venture marketingcompanies established through joint equity participation■ Shizugin Saison Card
In October 2006, we established Shizugin
Saison Card Co.,Ltd. in a joint equity
investment with Shizuoka Bank, Ltd.

■ Daiwa House Financial
In November 2006, we established Daiwa House
Financial Co., Ltd. in a joint equity investment
with Daiwa House Industry Co., Ltd.

■ Yamada Financial
In June 2006, we established Yamada
Financial Co., Ltd. in a joint equity investment
with Yamada Denki Co., Ltd.

■ Yamaguchi Financial GroupIn March 2007, we agreed to enter into a business alliance with
Yamaguchi Financial Group, Inc. (YMFG).

New affinity cards■ KAWATOKU Card (Apr.)■ KDDI THE CARD (May)■ YAMADA LABI Card (Jul.)■ VIORO Card (Aug.)■ SEIBU PRINCE CARD (Sep.)■ SoftBank Card (Feb. 2007)■ Tokyo Metro To Me CARD (Mar. 2007)■ KIPS PiTaPa Card (Mar. 2007)■ J:COMMUNITY Card (Mar. 2007)’06 h

Service enhancement and newrevenue sources■ Eikyu Fumetsu.com
In October 2006, welaunched Eikyu
Fumetsu.com, an online
shopping mall exclusively
for SAISON CARD Net
Answer members.

200,000 points— a visit to the world’s largest
flower show and a one-year membership for twoin The Royal Horticultural Society (Japan).

■ Saison Asset Management■ Takashimaya Credit
In March 2007, we strengthened ouralliance with Takashimaya Credit
Co., Ltd. by raising our equity staketo 33.4%.

In March 2007, Saison AssetManagement Co., Ltd., an
investment trust management company established inJune 2006 as a wholly owned subsidiary, established andcommenced direct sales of its own investment trust funds:*Saison Vanguard Global Balance Fund
*Saison Asset Formation Achiever Fund

■ THOROUGHBRED CLUB SAISONIn June 2006, we launched THOROUGHBRED CLUBSAISON, a membership-based joint capital investment
scheme where SAISONCARD members caninvest in thoroughbred
racehorses.

3

CREDIT SAISON 2007

Financing business■ Credit guarantee businessAt the fiscal 2006 year-end, the guarantee balance exceeded ¥100 billion.

■ Real estate mortgage loans
At the fiscal 2006 year-end, the loan balance exceeded ¥220 billion.

2006 was a year of

highlights

ACHIEVEM
Stock market listings of affiliated companies■ Atrium listed on the First Section of theTokyo Stock Exchange
In December 2006, Atrium Co., Ltd. was listed on the First Section of
the Tokyo Stock Exchange, only nine months after a successful IPO on
the JASDAQ Securities Exchange.

■ Listing of JPN COLLECTION SERVICE
In October 2006, JPN COLLECTION SERVICE Co., Ltd. was listed on
the Hercules market of the Osaka Securities Exchange.

Groundbreaking executive promotions■ Credit Saison’s first female director: Chikako Yokoi
Ms. Yokoi joined Credit Saison in 1986. She is currently working toenhance customer services as the Deputy General Manager of theCredit Division.

■ Credit Saison’s first director in his thirties:
Hong Tae Kim
Mr. Kim joined Credit Saison in 2002. At age 31, he is the Company’s
youngest director.

To Our Stakeholders

Credit Saison is working to firmly ground its operations inthree principles that are fundamental to business activities atthe leading edge of the service industry—putting customers
first, respecting the interests of business partners, andfostering a corporate culture of creative innovation.
By following these principles, we will
outperform the competition, continue to takeon fresh challenges to meet the expectationsof customers, shareholders and business
partners, and fulfill our social responsibilities.

2

CREDIT SAISON 2007

In fiscal 2006, the Credit Saison Group posted record-high consolidated ordinary income as a result of
expansion of the credit card business and excellent business performance from Group companies, notably in
the Real Estate segment.
On a non-consolidated basis, the Company achieved higher revenues and profits for the 23rd consecutive
term by steadily accomplishing a range of objectives set forth at the beginning of the term, including a numberof strategic alliances in the credit card business and the launch of new businesses. It was truly a year of
progress toward our objective of becoming the leading company in the finance industry.
At the same time, we also faced pressure to reconstruct the basic business model of several businesses
due to revisions of the Money-Lending Business Control and Regulation Law and other laws, and a generaltightening of regulations. The interest rate cap on cashing services will significantly affect the credit cardbusiness, and it will be difficult to achieve a profit increase again in fiscal 2007.
In the non-bank industry, there is increasing realignment to compensate for falling profits caused bystricter regulatory control and higher funding cost, and the industry is further diversifying. Nevertheless,for individual companies and for the industry as a whole, these major changes in the business environment
represent an excellent opportunity to take the next step forward. The Credit Saison Group will under nocircumstances let this opportunity pass us by.
We have established a three-year medium-term objective of accomplishing internal innovation and laying thefoundation for a new type of non-bank financial services company, and this year we will take the first step
toward this goal. In this uncertain environment, we intend to proceed steadily through progressive managementthat remains one step ahead, incorporates leading-edge technologies and management methods, and makes thebest possible use of the capabilities of individual employees.
Business conditions in Japan are likely to recover, and personal consumption is certain to develop
favorably. We are determined to successfully fulfill future objectives by leveraging the strengths we havehoned over the years—innovative products and services, overwhelming sales power, and a brand identitythat is distinctively different from that of our competitors—while avoiding over-reliance on thesestrengths, thinking flexibly and responding quickly to changing market needs.
We look forward to sharing these exciting new challenges and dramatic developments from the Credit
Saison Group with our shareholders.

July 2007

Hiroshi Rinno
President and CEO

CREDIT SAISON 2007

3

Financial Highlights
CREDIT SAISON CO., LTD. and Consolidated Subsidiaries
As of and for the years ended March 31

Millions of yen

2007% change

Thousands of
U.S. dollars(Note 3)

2007

2006

2005

2007/2006¥ 333,683¥ 274,666¥ 240,385

21.5$ 2,825,668

Selling, general and administrative expenses

242,149

193,126

172,02425.4

2,050,548

Financial cost

16,333

11,965

9,771

36.5

138,307

Operating income

75,201

69,57558,5908.1

636,813

Net income

14,82242,22031,818(64.9)

125,512

Total shareholders’ equity (Note 2)

399,828

360,717i
301,31010.8

3,385,794

2,299,607

2,062,735

1,512,949

11.5

19,473,343

4.0

12.8

11.4

Consolidated:
Operating revenues (Note 1)

Total assets
Return on shareholders’ equity (ROE) (%)
Return on assets (ROA) (%)

0.7

2.4

2.2

Shareholders’ equity ratio (%)

16.2

17.5

19.9

Per share data (in yen and U.S. dollars) (Note 2):
Net income per share

82.79

237.29185.00(65.1)

0.70

Net assets per share

2,077.69

2,014.20

1,721.35

3.1

17.59

¥4,299,048¥3,146,729¥2,596,185

36.6

36,404,844

3,433,872

2,527,808

2,078,117

35.8

29,078,432

865,176

618,920

518,06939.8

7,326,412

Total cardholders (millions)

24.91

22.79

16.90

9.3

Active cardholders (millions)

12.49

11.68

8.83

6.9

New cardholders (millions)

3.60

2.71

2.09

32.8

Credit card business data (Non-consolidated):
Card transaction volume
Credit card-related shopping services
Cash advances

Notes: 1. “Operating revenues” does not include consumption taxes, etc.
2. Treasury stock is deducted from capital. In addition, treasury stock is subtracted from the total number of shares outstanding in computing per share data.
3. Japanese yen amounts have been translated into U.S. dollars at the rate of ¥118.09= U.S.$1, the approximate exchange rate on March 31, 2007, for theconvenience of the reader.

Note:

4

Operating Revenues

Net Income (Loss) and ROE

Total Assets and ROA(Millions of yen)

(Millions of yen / %)(Millions of yen / %)As a result of non-operating losses due to its agreement to a rehabilitation plan for The Seibu Department Stores, Ltd., which entailed a loss on revaluation of
investment securities, the Company recorded a net loss of ¥6,026 million for the year ended March 31, 2003, and ROE and ROA for that year are not presented.

CREDIT SAISON 2007

The Credit Saison Group’s Principal Businesses

Credit Saison’s core business is the credit card business, and our key assets are two powerful credit
card brands, SAISON CARD and UC Card, and 25 million cardholders. We also engage in thefinance business and other businesses, in which we leverage the expertise accumulated in the credit
card business. Although the credit card business contributes about 80% of total revenues, the contribution from our other business areas is increasing year by year.

Credit Card Business
Shopping, cash advanceand agency serviceUC■ A wealth of corporate customers
through the Mizuho Financial Group’sbusiness network■ A brand image of reliability and security■ Engagement with male customers

SAISON■ No annual fee, SAISON Permanent Points—
highly competitive, highly differentiated fromcompetitors’ products, promoted as the customers’ main credit card
■ Maintains independence—Partnerships withexcellent companies unconstrained by corporategroup affiliation■ Alliances in the retail market (Millennium
Retailing, Takashimaya, Seiyu, Parco, Yamada
Denki, etc.)—Market understanding from thecustomer perspective, effective response tocustomer needs

Ideal partners
25 million cardholders

Credit Guarantee
Business
Unsecured loans to
individual customers, offeredin cooperation with financial
institutions

Loan Business

Lease Business

Real estate mortgage loans to
individuals and businesses

Vendor leases, with emphasis
on office computer equipment

CREDIT SAISON 2007

5

Business Strategy

To create new corporate value amid sweeping change in the business environment, Credit Saison will review
its conventional business models, implement business structure reform, and practice highly efficient management. We will develop a network of strategic alliances in the credit card business through means including
M&A, further expand the finance business, and continuously work to expand our business activities andconstruct a risk-diversified business portfolio through new business development.

The merger with UC CARD—
progress and business impact
In January 2006, the Company completed its merger withUC CARD’s credit card issuance business, thereby
expanding its scale tremendously by becoming a credit
card issuer with two major brands: SAISON and UC.
As a result, the total number of cards issued reached24.91 million at the fiscal 2006 year-end. Annual card
shopping transaction volume reached ¥3,433.8 billion,
representing a credit card market transaction volume
share in Japan of about 14.2% for the Credit Saison
Group, including subsidiaries and affiliates (based on the
Company’s estimated share figures for fiscal 2005).
The integration has strengthened our business relationship with Mizuho Financial Group, which was the
backbone of UC CARD, and led to the issuance of anumber of major affinity cards, including the MMC card,
an affinity card with Mizuho Group, as well as cards
issued with Yamada Denki and Softbank.
In addition to the impact of scale expansion, theintegration made it possible to reduce organizational
operation costs by reorganizing and consolidating
duplicated organizations at SAISON and UC (seeOrganization, page 25) and integrating personnel. We
are also proceeding with reorganization and consolidation of card functions and services that take maximum
advantage of the respective strengths of SAISON andUC, such as the integration of loyalty point systems andmutual use of T&E services.

Establishment of a joint processing company
In October 2007, Credit Saison, Mizuho Bank, Ltd. and
UC Card Co., Ltd. will establish Qubitous Co., Ltd., a joint
credit card processing company. In April 2008, the capital

6

CREDIT SAISON 2007

structure of Qubitous will change to joint ownership by
Credit Saison and Mizuho Bank, Ltd., and the Company
will concentrate nearly all processing operations for
SAISON and UC into the new company.
In addition to handling processing for cards issued by
Credit Saison, its subsidiaries and affiliates as well as
UC-affiliated companies, Qubitous will solicit businessfrom other companies in the credit card industry. In thisway, we aim to achieve scale expansion, increase efficiency
by means of full-capacity operation of processes and systems, and construct a comprehensive processing systemthat attains the highest levels of quality and quantity inJapan. Future plans call for contributing to the profitabilityof the credit card industry as a whole by securing a position of cost leadership in processing operations.

Company profile
Company name:Date of establishment:
Head office address:

Qubitous Co., Ltd.
October 1, 2007
1-1, Higashi-Ikebukuro 3-chome,
Toshima-ku, Tokyo(address in the register)

Number of employees:

Approx. 600(at the time of establishment)

Capitalization:
Capital structure:¥100 million
Step 1 (at establishment)
UC Card: 100%
Step 2 (upon completion of concentration ofprocessing operations)Credit Saison: 51%
Mizuho Bank: 49%
President:
Kyosuke Togano (currently a director of Credit Saison)
Vice President:
Shigeru Matsuura (currently senior managing director of UC Card)In our view, growth comes from being

INNOVATIVECREDIT SAISON 20077

… and from bridging boundaries through creative

ALLIANCES

8

CREDIT SAISON 2007

Strategic Alliances

Progress of Strategic Capital Alliances

Takashimaya Credit

Lawson CS Card

Resona Card

Idemitsu Credit

Network of 8,500
convenience stores

Network of 600
bank branches

Network of 5,000
gas stations

30% share

22.4% share

50% share

Yamada Financial

Shizugin Saison Card

Daiwa House Financial

YM Saison

Network of 20
department stores

Network of 350 stores

Network of 190
bank branches

Network of 130 group
offices and branches

Network of 270
bank branches

33.4% share

34% share

50% share

40% share

50% share

Contribution to consolidated ordinary income

Promotion of strategic alliances
To establish competitive advantage through scale
expansion in the credit card business, the Company takes
advantage of its uniqueness and independence to enter
into business alliances that cut across business formats
and corporate affiliations. To date, we have entered into
alliances with partners in wide-ranging industries,
including department stores, railway companies,
telecommunication companies and commercial facilities.
We issue affinity cards with about 200 companies (seeCard Tie-Ups, page 26).
Since 2002, the cornerstone of the Company’s sales
strategy has been to establish joint venture companies
in joint equity investments with excellent companies
from a wide variety of industries.
In February 2002, we entered into an alliance with
Lawson, Inc. and established LAWSON CS Card, Inc.,and in October 2003, we took an equity stake in Idemitsu
Credit Co., Ltd. in a tie-up with Idemitsu Kosan Co., Ltd.
In August 2004, we took an equity stake in Resona Card
Co., Ltd. in an alliance with Resona Bank, Ltd., and also
entered into equity participation in Takashimaya Credit
Co., Ltd.
In fiscal 2006, we entered into a succession of major
capital tie-ups and established joint venture companies
with leading companies in several industries. We established Yamada Financial Co., Ltd. with Yamada Denki

Co., Ltd., Japan’s third largest retailer, Shizugin Saison
Card Co., Ltd. with Shizuoka Bank, Ltd., and Daiwa
House Financial Co., Ltd. with Daiwa House Industry,Co., Ltd. In fiscal 2007, we established the joint venturecompany YM Saison Co., Ltd. in an alliance with
Yamaguchi Financial Group, Inc.
These joint venture companies include credit cardcompanies, marketing companies and other types offinance companies. To build stronger partnerships with
our alliance partners, Credit Saison provides each of themwith personnel with many years of experience in the credit card business and retail finance business. In this way,
we aim to bolster the business of our business partners
and put the businesses of the joint venture companies ona growth trajectory. We have developed each of thesejoint venture companies into companies that cancontribute to profits within two to three years of theirestablishment. The fact that all of the companies established in fiscal 2005 or before operated profitably infiscal 2006 is testament to our success.
In the development of new alliance partners, as amarketing strategy, we are considering a business model
for creating regional credit cards. Through a scheme
involving the creation of three-party alliances among
the Company, leading regional financial institutions andmajor local retailers, we aim to make these the mostpowerful credit cards in their respective regions.

CREDIT SAISON 2007

9

Sales Network

Sales network restructuring
The Company’s greatest strength is its sales network,
which is centered on 12 branches and 174 Saison
Counters across Japan. In fiscal 2006, we acquired 4.28
million new credit cards, mainly through this network.
Healthy growth in the number of credit cards goes handin hand with expansion in the scope of credit card usage
and is tied to card transaction volume growth.
Nevertheless, there is still substantial room for improvements in profitability, and the Company will restructure
its sales network as a step toward rectifying this.
In our credit card development activities, we willplace importance on quality. Having analyzed usage
trends for each card type, we will refrain from new solicitation or renewal of cards with low usage rates while atthe same time engaging in promotions targeting high-frequency users, such as offers to convert to GOLD or
PLATINUM cards. We will work to further increase card
usage rates by providing asset investment services andprivate bank services to affluent customers.
In response to the spread of the Internet and improvement in Web usability in recent years, the Company has
actively engaged in cardholder development that makes
effective use of the Web. Web-based card development
enables us to curb personnel expenses compared withconventional face-to-face development and increases
profitability by contributing to an increase in the numberof Net Members1, a high percentage of whom are highvalue customers.
We will promote the Net Member program to our 25
million existing cardholders, and strive to reduce the costof communication with cardholders by actively utilizing

10

CREDIT SAISON 2007

the Web. Alongside these measures, we will reorganize
and consolidate the nationwide network of Saison
Counters and Satellite Offices2 to increase the efficiencyof the sales network.
1 Net Members are cardholders who use the Company’s Internet-based comprehensive cardholder service programs (service names: Net Answer for Saison
cards, @Unet for UC cards). Net Members can confirm credit card transaction
statements and other card information and access a number of functions, such as
online cashing or membership point exchange.
2 In fiscal 2007, the Company will reduce the number of Satellite Offices to 10 byclosing 25 offices. It will also close about 20% of the 174 Saison Counters.

The collective strength of
the Credit Saison GroupOur group companies are steadily raising their businessperformance in areas outside the credit card business.
The real estate business is developing favorably, in partdue to a brisk real estate market. Atrium Co., Ltd., theheart of the Group’s real estate operations, was listed on
the First Section of the Tokyo Stock Exchange inDecember 2006.
Meanwhile, the loan service provider JPN
COLLECTION SERVICE Co., Ltd. improved its business performance by strengthening new businesses, suchas a service for collecting receipts for public utility
charges on behalf of public offices, and was listed on the
Hercules market of the Osaka Securities Exchange in
October 2006.
Finance businesses such as the lease business (fiscal
2006 term-end receivables balance of ¥224.7 billion), thecredit guarantee business (guarantee balance of ¥124.0
billion), and the real estate mortgage loan business (loanbalance of ¥205.1 billion) grew substantially in fiscal 2006,
contributing 17% of non-consolidated ordinary income.

… from finding new ways of reaching

CUSTOMERSCREDIT SAISON 200711

… and from exploring new areas of

GROWTH

12

CREDIT SAISON 2007

New Businesses

To develop new revenue sources, the Company
constantly creates business models that make use of
its unique capabilities, and that involve enhanced
cardholder services and the commercialization of new
financial services.

Eikyu Fumetsu.com
In October 2006, Credit Saison launched Eikyu
Fumetsu.com, an online shopping mall for the exclusive
use of Saison Card Net Members.

Distinctive features■ The direct sales method has been adopted to keep
fees to a minimum.
■ The company offers two fund products that invest in
funds such as index funds from The VanguardGroup, one of the world’s largest investment trust
companies, and the Sawakami Fund of Sawakami
Asset Management, a pioneer of long-term investments in Japan.
■ The funds have won strong customer support. Results
during the four-month period after launch were 12,000
accounts and total invested assets of ¥7.0 billion.

Distinctive features and future developments■ About 200 leading electronic commerce retailers invarious categories have opened online shops in the
shopping mall.
■ Net Members who shop at the mall and make payments using SAISON CARDs or UC Cards* can collectfrom 2 to 19 times the ordinary number of SAISONPermanent Points (“Eikyufumetsu Points”).
■ A version of Eikyu Fumetsu.com for mobile phoneusers was launched in July 2007.
■ Marketing research, Internet advertising and otherfee-based businesses targeting Net Members will belaunched.
* UC Card cardholders will be accommodated from the second halfof fiscal 2007.

Profits from commissions received from participating
electronic commerce retailers will be returned to customers in the form of member points. This scheme will bea first-ever experiment for the credit card industry, andwe plan to develop it as a new business.

Saison Asset Management Co., Ltd.
In March 2007, Saison Asset Management Co., Ltd., an
investment trust management company established inJune 2006 as a wholly owned subsidiary of the Company,
launched its own investment trust funds.

To meet the needs of ordinary consumers who want tosteadily build financial assets for the future, the company
provides, at a low cost, world-class long-term investment
trust funds invested in long-term investments.

THOROUGHBRED CLUB SAISONIn July 2006, we launched THOROUGHBRED CLUBSAISON, an investment scheme where SAISONCARD cardholders can invest in thoroughbred racehorses. This system involves dividing ownership ofracehorses purchased by THOROUGHBRED CLUBSAISON into from 200 to 400 lots, in which members
are invited to invest anonymously. Members earn dividends in accordance with the number of lots they own
in a winning horse.
THOROUGHBRED CLUB SAISON currently has
about 50 racehorses actively racing. The Company hasentered into an alliance with Cosmo View Farm, one ofJapan’s most prominent horse farms, to select and raise
racehorses. Investors can experience the pleasures ofracehorse ownership, watch over the development of theirhorses and cheer them on as they gallop over the turf.
Our objective in engaging in these businesses is not merely to complement the credit card business, but also to provide services that emphasize communication with customers and enable customers to live out their dreams.

CREDIT SAISON 200713

Medium-term Management Vision

Business Portfolio● Mortgage Loan Business● Credit Guarantee Business● Leasing Business● Settlement Agency Business● Corporate Loan Business● Businesses Utilizing Card Members’ Database● e-commerce● Marketing • Research • Advertising, etc.
● Insurance Agency Business and Securities
Agency Business● New Businesses, etc.

Credit Card
Service Business

Other
Businesses

Creation of a non-bank financial institution
with a powerful market presence
In advance of full-scale enforcement of the revision of
the Money-Lending Business Control and Regulation
Law at the end of 2009, the Company lowered the annualinterest rate on cash advances to 18% or less, not only
for new borrowing but also on the existing balance. As aresult, we forecast a reduction in annual revenues of¥25.0 billion on a non-consolidated basis and ¥30.0 billion on a consolidated basis.
The Company’s business environment is becoming
increasingly adverse, due to factors including a substantial reduction in revenues caused by the eliminationof so-called “gray zone interest,” an increase in credit
cost resulting from the handling of claims for repayment of excessive interest charges, and an increase in
the cost of funds. However, in our view, these changes
bring opportunities.
We have positioned 2007 as the start of a new growthstage and a year in which we must rise to the challenge oftransforming our business models.
In the credit card business, we aim to achieve a market share of 30% (on a transaction volume basis) by

14

CREDIT SAISON 2007

● Credit Card Business● Agency Business

FinanceBusiness

implementing an alliance strategy (see page 9) and considering capital alliances with leading companies inwide-ranging industries, as well as through M&A. In our
cashing and loan services, we aim to increase cash
advances and card loan balances by capturing high-value
customers and achieve a market share of 5% (on abalance basis). While increasing revenues, we will continue our cost-cutting efforts by restructuring our sales
network (see page 10) and increase Web usage in ourbusiness processes.
Furthermore, to secure balanced revenues from anumber of businesses with different risk profiles, we willcommence full-scale operation of finance businesses inother areas than credit cards. By constructing a businessportfolio unconstrained by the regulatory framework towhich a specialized credit card company is subject, we
aim to become a next-generation non-bank financial services company with a powerful market presence.
Credit Saison will mount an all-out effort toachieve our target of consolidated ordinary income of¥70.0 billion (in the range of ¥45.0 to ¥50.0 billion ona non-consolidated basis) in the fiscal year ending
March 31, 2010.

By thinking differently, we will fulfill our vision of

LEADERSHIPCREDIT SAISON 200715

… and utilize each employee’s unique

CAPABILITIES16CREDIT SAISON 2007

Human Resources Strategy

Management Track Profile at Credit Saison
Male/Female Ratio at Department Manager Level

Male/Female Ratio at Section Manager Level

Average ratio in Japanese companies,
based on Japanese enterprise data (%)

(Age)

50~59

86.4

13.6

2.5

50~59

40~49

82.4

17.6

2.5

40~49

5.0 6.0

30~39

2.8

Total

100 (%)

0

30~39

95.0

Total
0

86.0
20

14.0

40

60

80

Age of Employees at Supervisor Level and Higher (Female)
(Age)

~29
30~34
35~39
40~44
45~49
50~54
55~59
Total
0

Average ratio in Japanese companies,
based on Japanese enterprise data (%)

(Age)

82.2

17.8

76.0

24.0
86.3

81.8
20

40

60

4.9
4.8

13.7

6.2

18.2

5.1

80

100 (%)

Age of Employees at Supervisor Level and Higher (Male)
(Age)

70
109
93
61
38
23
17
20

40

60

80

100

411
120 (people)

Workplace orientation
At Credit Saison, we have made workplace orientation a
corporate philosophy. We consider employees working
in direct contact with customers to be invaluable corporate assets that positively represent the company andstrive to satisfy customers. At Ubiquitous, a customer
service center with a staff of about 3,000 employees, ahigh proportion of which are women, we have installed
attractive employee facilities, including comfortable,
refreshing air conditioning and a café.
To reward the efforts of our staff members, including frontline workers, we granted stock options to all
employees, not only executives and managers, threetimes during the period from 2002 to 2005.

The merit system and flexible
human resource systems
To continuously develop the skills and capabilities ofour employees, we have set up a human resources
system that enables us to make full use of the ambitions and capabilities of each individual, regardlessof gender, age or academic background. When hiring, to rapidly meet the staffing requirements of new
businesses, we consistently scout for individuals withhighly developed specialized skills who can make an
immediate contribution.
Credit Saison has also taken steps to help its female
employees to achieve a healthy work-life balance, includ-

17

~29
30~34
35~39
40~44
45~49
50~54
55~59
Total

53
100
57
39
29
22
0

20

40

60

80

100

317
120 (people)

ing the provision of maternity and childcare leave inexcess of the statutory requirements. Other systems
designed to expand the work options available to employees include the “route change” system, which allows
employees to change their employment formats, and aflexible re-employment system. In addition, employees
who are caring for children or elderly relatives can havetheir working hours reduced. Over 100 employees havetaken this option. Because women are able to remain in
employment longer under this system, there has also
been an increase in the percentage of women promoted
to executive positions, including directorships.

Developing innovative leaders
As the era of “salarymen” protected by lifetime
employment and seniority systems comes to an end,
the Company is focusing on fostering innovative,
leadership-oriented businessmen and businesswomen
who can create new value and develop new customers.
To develop the next generation of executives to takethe Credit Saison Group forward, we provide our
employees with opportunities to gain business experience in different corporate cultures by dispatching themto partner companies and affiliates.
We also strive to foster a management mindset byholding monthly seminars on various management
aspects. These seminars, in which general managers
take part, are hosted by the president.

CREDIT SAISON 200717

Major Group Companies(As of March 31, 2007)

Saison Fundex Group
Saison Fundex Corporation

House Planning Co., Ltd.

Loan business: In addition to its VIP, Carriere and CashReserve card loans for individual borrowers, Saison
Fundex has also achieved strong growth with targetedloans and loans secured by real estate. Another businessarea is project finance for companies in the real estate sector. Saison Fundex provides a range of financial support
tailored to the specific nature of each project.

Real estate and construction: House Planning has
built its business by making customer satisfaction its
first priority. Its goal is to supply comfortable, reliable
and safe residential properties, especially detachedhouses, on high-quality land.

Vivre Group
Vivre Co., Ltd. / A&A Co., Ltd.
Amusement services: Focusing on the concept of“comfortable amusement spaces” that satisfy customers,
the companies operate 32 amusement facilities in Japan.
They strive to develop amusement facilities that satisfy
customers by offering a comfortable, sound and relaxing
experience with high-quality service.

Other Group companies

18

JPN COLLECTION SERVICE Co., Ltd.

Uraku Aoyama Co., Ltd.

Loan collection agency business: JPN
COLLECTION SERVICE Co., Ltd. specializes
primarily in the management and collection of small
unsecured loans. Operating nationwide through fivecenters, it offers unique services that combine highly
efficient collection with excellent security. Other
activities include research and back-up services.
JPN COLLECTIONSERVICE is dynamically
expanding its businessactivities and currently
has over 220 alliancepartners in its three areasof activity.

Membership club operation and property leasing:This company operates the Uraku Aoyama MembershipClub and leases 24 properties. Club facilities include agym¸ restaurant and hotel, all in an elegant and luxurious
setting. Through its leasing business, Uraku Aoyama
creates attractive properties through community-focusedplanning and development activities.

CREDIT SAISON 2007

Atrium Group
Atrium Co., Ltd.

Atrium Servicing Co., Ltd.

Real estate liquidation, real estate investment funds
and real estate loan guarantees: Atrium produces
value by regenerating real estate. As the core company
in the Atrium Group, this company has regenerated over
10,000 properties in the 15 years since its establishment.
Its extensive knowledge and expertise in the field of realestate regeneration and revitalization have become adriving force for growth. Because Atrium’s activities
encompass both finance and real estate, it has thecapacity to create its own solutions for a wide range ofreal estate problems.
Dedicated to customer satisfaction, it is determined to build and maintain an excellent reputation
based on consistent regulatory compliance and good
corporate governance.

Loan servicing: Atrium Servicing buys specified
monetary claims and earns income by managing andrecovering these claims as a special servicer. As one of
the few approved servicers that are also licensed forthe real estate business, the company has an important
advantage in this area. It aims to maximize recoveries
by acquiring collateral properties itself and improving
their value. While remaining alert to market changes,
Atrium Servicing aims to expand its business activities
to include business regeneration as well as real estate
regeneration.

AIC Co., Ltd.
Real estate liquidation: AIC buys and sells development real estate and business real estate for medium- tolong-term ownership. It also provides due diligence services for the Atrium Group, including surveys, valuations and risk-return analyses, credit screening services,
as well as asset management and property management
services for rental real estate.

Saison Information Systems Co., Ltd.

Saison Automobile and Fire Insurance Co., Ltd.

Information processing services: Saison Information
Systems develops and operates systems, including cardbusiness and distribution systems. It also develops packages, especially communications middleware based on
HULF technology. Under its medium-term management
policy, Saison Information Systems is implementing fivereform programs based on its philosophy of “meeting thechallenge of change.”

Non-life insurance: This company provides non-life
insurance services, especially for individuals. Under its
alliance with Sompo Japan Insurance Inc., it is developing new business activities targeting cardholders andmodifying its business structure to provide an increased
emphasis on direct marketing.

CREDIT SAISON 200719

Board of Directors and Auditors(as of June 24, 2007)

Hiroshi Rinno

Teruyuki Maekawa

Toshiharu Yamamoto

President and CEO

Executive Vice President
Head of Management Division
Director Responsible for Public Relations Office andAudit OfficeSenior Managing Director
Head of Credit Division

The rock’n roll songs that I first encounteredin my youth stand out among my memories
like glittering jewels. Everyone should hear
“A Rockin’ Good Way” performed as a duetby Brook Benton and Dinah Washington.
Rock’n roll opened my eyes and made me
more aware of life.

Our challenge is to rediscover the ideals on
which this company was founded. We must
avoid pride and conceit and move forward
steadily and with humility by improving ourbusiness capabilities and focusing our totalenergies on our management priorities. I want
to be able to look back without regrets.

We all have a finite time to live. The choicesthat we make as individuals determine how wespend that finite time, and whether our lives
are filled with achievements or regrets.

Hideki Miyauchi

Hidetoshi Suzuki

Kazuhusa Inada

Senior Managing Director
Head of Finance Division

Managing Director
Head of Credit Card Division

Managing Director
Head of Administrations Devision

We face unprecedented challenges, and wemust turn them into opportunities. Our credo is“never retreat, never flatter, never give up.”
My formula is that 10% theory + 90% action
equals 200% results. My key word is “people.”

Peter’s Principle states that each employee
tends to rise to his level of incompetence. Thismeans that, in a merit-based system, everyone
sooner or later reaches his or her limit of competence. Through active management, we aim tobecome a company where this does not apply.

We aim to be a community of people whohave ambitious dreams and clear goals andare willing to work with tireless determination to achieve them. I will not let anyone
hinder our efforts to achieve this ideal.

Naoki Takahashi

Mitsusuke Yamamoto

Managing Director
Head of Business Strategy Division

Managing Director
Deputy Head of Credit Card Division,
General Manager, UC Division

I specialize in marketing and finance. My
management philosophy is to avoid the pathof hegemony and follow the royal road. We
need to have cool heads and warm hearts.

20

CREDIT SAISON 2007

We face a challenging business environment,
and we need to confront those challenges
with perseverance and hard work. In particular, we need to enhance customer satisfaction
by providing a wide range of services in the
UC market.

Kenzo Tada

Takayoshi Yamaji

Kyosuke Togano

Chikako Yokoi

Director
General Manager, Alliance Division

Director
General Manager, Saison Division

Director
Head of System Division

Director
Depury Head of Credit Division

I’ve decided to quit smoking, andI’m beginning to believe that it’s
possible, even for someone who
smoked two or three packs a day.
My approach to work is the same.
I like new challenges.

To maintain strong customer
support in a difficult businessenvironment, we need to be optimistic, energetic and positive.

Although I specialize in digitalsystems, I have an analog personality. I like logical thought,
but I am sports-oriented in my
behavior.

I believe in earning confidence
through customer dialog andworking resolutely to build a good
customer base. Our goal is to be
the industry leader in excellence.

Hideo Suzuki

Hong Tae Kim

Hiroshi Yamamoto

Yoshiro Yamamoto

Director
Head of Sales Division

Director
Head of Retail Finance Division

Director
Deputy Head of Finance Division

Director (External)

I am determined to be honest,
and to do what I believe is rightin ways that everyone recognizes
as right.

This is a time of dramatic change
in the credit card and non-bankindustries. I aim to build a teamthat will earn recognition for management expertise.

Our goal is to build a general
financial company capable ofproviding our customers with
optimal solutions. My approachis to combine intense curiositywith a positive outlook.

We have entered an era of fierce
competition. I aim to use myexperience and knowledge toensure that our executive staff isable to channel their full abilities
in the right direction, using theright methods.

Hiromichi Sato

Masaru Sakurai

Hiroshi Tomizawa

Kotaro Matsumoto

Atsushi Toki

Standing Statutory Auditor

Standing Auditor (External)

Standing Auditor (External)

Standing Auditor (External)

Auditor (External)

My talents are intense
curiosity, the ability to act
quickly, and the ability toretrieve order from chaos. I
express these qualities
through my passion forbooks, tidiness, weeding,pruning and beauty.

I will do my best, drawing
on my experience as head of
CSR promotion at NEC, toensure that Credit Saison cancontinue to achieve growth
while also fulfilling its social
responsibilities.

My role as external auditor
is to examine business activities from a wide range ofperspectives. I will use all of
my past experience to perform this task to the best of
my ability.

I will work to ensure that
Credit Saison earns andmaintains a good public reputation as an excellent company, not only in terms of its
business activities, but also
from the perspective of
broadly defined compliance.

My field of specialization isbusiness law, including
Japanese company law. As
an external auditor, I will
use my knowledge to ensurethat all of the actions of
directors and other officers
are in accordance with laws
and regulations.

CREDIT SAISON 200721

Corporate Governance

The Credit Saison Group is striving to enhance its business base and become Japan’s No. 1 non-bank financial company. We recognize that, along with the achievement of business objectives, the reinforcement of corporate governance isvital for obtaining the understanding and support of all our stakeholders—our customers, business partners, employees
and society. To increase management transparency and strengthen management supervision functions, the Company isdeveloping internal control systems and strengthening its compliance posture.
The Company plans and implements compliance measures,and engages in risk management. To that end, the Company
has established the Compliance Department as a dedicateddepartment to ensure the observance of laws, regulations andcorporate ethics, and the Compliance Committee and Risk
Management Committee as dedicated organizations to ensurecompliance and risk management.
The Internal Audit Office audits compliance, risk
management, internal control systems and corporate governancein the organizational operations and business activities of theentire Credit Saison Group, and makes evaluations andrecommendations based on the results.
The Company will continue to work toward the optimal
management structure, considering factors including global
corporate governance trends and relevant statutes.

Corporate governance system
The Board of Directors consists of 16 directors, including one
outside director. It decides important management mattersand supervises the directors’ performance. To ensure thatbusiness is conducted properly and soundly and to strengthen
corporate governance, the Board has acted to develop effective internal control systems and establish and maintain aframework to ensure group-wide compliance with laws, regulations and the Articles of Incorporation.
To ensure that directors perform their duties appropriately,
the Board operates in accordance with the Board of Directors
Regulations. The directors perform their duties in accordancewith the Corporate Law, and properly manage the divisions
under their control in accordance with the Organizational and
Segregation of Duties Regulations to ensure that their businessactivities are executed appropriately and efficiently.
The Company has introduced a statutory auditor system. The
Board of Corporate Auditors consists of five statutory auditors,
including four outside statutory auditors. The statutory auditors
conduct rigorous audits by attending Board of Directors meetings and other important meetings, reading important resolution
documents, and examining the conduct of business and the stateof the Company’s assets. The Board of Corporate Auditors also
audits the effectiveness and functioning of internal control systems and strives to ensure the early detection of problems andimprovement of accuracy. To assist the statutory auditors in theirduties, the Company has established the Auditors’ Secretariat,
which consists of specialists in internal auditing.

Remuneration for directors andstatutory auditors
Under the new Corporate Law, the Company has revised its
remuneration system for directors to clarify their responsibility
for business execution and results and increase the independence of statutory auditors and outside directors. The Company
has eliminated the previous retirement bonus system and unifiedcompensation for the performance of duties, including directors’
bonuses, and worked to increase awareness of the importance ofbusiness performance by promoting director ownership ofCompany shares.

Corporate Governance StructureManagement Monitoring System
General Shareholders’ Meeting
Election

Auditors

Election

Election

Board of Directors
Election • Delegation • Supervision

Cooperation

Audit Office

Guidance
Audit

Monitoring

22

CREDIT SAISON 2007

Representative

Important Committees

Delegation of Management Authority

Departments
ComplianceDepartment

Guarantee of effectivenessManagement
Function

Timely disclosure and provisionof materials

Monitoring
Board ofCorporate Auditors Inspection

Remuneration, etc., paid to directors and statutory auditors infiscal 2006 is as follows:
Details of remuneration for directors
Total remuneration paid to directors in fiscal 2006:¥1,213 million (including ¥11 million to an outside director)
Total annual remuneration paid to statutory auditors in fiscal 2006:¥55 million (including ¥25 million to outside statutory auditors)
Remuneration for independent auditors
Remuneration based on duties performed pursuant to Article 2,
Paragraph 1 of the Certified Public Accountants Law: ¥47 million
Other remuneration: ¥3 million

Overview of internal control systems
As per the Corporate Law, the Board of Directors has set basic
policies for directors to build a system that ensures compliancewith laws, regulations and the Articles of Incorporation and theadequacy and efficiency of its business. These policies are basedon a fundamental Company philosophy: “Always realize profitable growth and maximize the satisfaction of customers andother stakeholders by pursuing innovative ideas and strategies.”
To develop internal controls in accordance with the
Financial Instruments and Exchange Law (the so-called “J-SOX
Law”), the Company has formed an internal project and isproceeding with group-wide preparations for full-scale
implementation in April 2008.
With these systems, the Company aims to link internal control to the fulfillment of corporate social responsibilities byenhancing business performance and maximizing shareholder
benefit while building trust with stakeholders throughappropriate and efficient business operations.

Rigorous implementation and enhancement ofcompliance
Based on this reinforcement of corporate governance and internal controls, the Compliance Committee and Compliance
Division are taking the lead in ensuring compliance with laws
and regulations, fairness and morality in business activities. The
Crisis Management Committee has a central role in developinga group-wide management structure for crisis management andensuring a rapid response to crises.
Senior Managing Director Toshiharu Yamamoto chairs theCompliance Committee, which reports to the Board of
Directors. To discuss compliance-related matters, theCommittee convenes several times a year, and its secretariat
meets more than 20 times a year.
Executive Vice President Teruyuki Maekawa chairs the
Crisis Management Committee, which has developed agroup-wide communication system and responds rapidly tocrisis situations.
In fiscal 2006, to further enhance compliance, the Company
reviewed its code of ethics and established standards of conduct
and employee conduct guidelines. To ensure familiarity and obser-

vance within the Company rules, regulations and ethics, we havepublished these standards and guidelines in Our Compliance, apamphlet distributed to regular and contract employees.
The Company is working to prevent misconduct and scandals
by publicizing its compliance consultation desk. The consultation
desk strives to create a user-friendly environment by maintaining
systems inside and outside the Company for accepting
inquiries, including dedicated addresses on the Company
intranet and the Internet. When a report is received, theCompliance Division cooperates closely with an attorney toconfirm the validity of the report and quickly resolve thematter, reports to the Board of Directors and Board of
Corporate Auditors without delay, and then takes action toprevent reoccurrence.
In addition, the Compliance Division invites outside lecturers
to conduct compliance training for executives, including directors and division managers. The Company appoints complianceofficers and compliance coordinators in each division, and thedivisions take the initiative in conducting compliance training incooperation with the Compliance Division.
In fiscal 2007, the Company will endeavor to increase
compliance issue awareness by announcing that complianceofficers and coordinators will also serve as J-SOX officers
and coordinators.

Security and reliability of information systems
As the use of IT grows, maintaining the security and stability of
information systems is becoming increasingly important toensure that customers can rely on the Company’s credit cards.
Here, we have implemented countermeasures against system
disruptions, which may be caused by a wide variety of factors,
including natural disasters, accidents or computer viruses.
Higher systems efficiency was achieved by centralizing clericalwork. Credit Saison will continue efforts to keep its systems
secure, reliable and efficient.

Risk management
To prevent and appropriately respond to risk, the Company has
established risk management systems based on the Regulations
Concerning Management of Risk of Loss and Crisis
Management Regulations. The Company conducts periodic
internal education and training for people working with risk
management, and the Board of Directors periodically examines
the regulations and issues revisions and improvements.

Proactive disclosure of information
The Company proactively discloses business information
through results briefings, investment conferences, IR meetingsand other events, and strives to ensure highly transparent management by posting financial result summaries, IR activities
and other information on its website.
URL for corporate and IR information:
http://corporate.saisoncard.co.jp/co.nsf/en/index.html

CREDIT SAISON 200723

Corporate Social Responsibility (CSR) of Credit Saison

We aim to fulfill our social responsibilities by providing returns to our shareholders through activities that satisfy customers, are based on mutual respect for our interests and the interests of our business partners, and instill shared ideals
and goals in our employees. We will also build a reputation for reliability by adapting flexibly to a changing businessenvironment, and by ensuring regulatory compliance in all business activities.

The Credit Saison approach to CSR
Our concept of CSR is not limited simply to regulatory compliance and the creation of profit. We believe that CSR also means
responding to the needs of citizens, communities and society,and developing business methods and activities that meet andsurpass these needs. This concept guides our CSR activities,
which are based on three perspectives:(1) Activities that are essential to our corporate survival andthe interests of our customers, employees, shareholders
and investors
Our corporate mission is to conduct our business activities in asound, appropriate and timely manner. This requires continual
effort to improve management transparency and strengthen thesystems used to monitor the achievement of management targets.
(2) Activities that contribute to society and the fulfillment of
our responsibilities through our core business activities
in the areas of credit cards and lending
In addition to being convenient, credit cards drive economic
activity as extremely effective tools for settlements. Our priority
is to prevent excessive use leading to heavy indebtedness, while
ensuring that credit cards help to enrich the lives of our customers and contribute to economic development. As a financecompany, we are entrusted with personal credit information. We
carefully manage this information in accordance with thePrivate Information Protection Law, and use it to prevent excessive indebtedness through the prudent provision of credit andappropriate monitoring after credit is provided.
■ Appropriate management of personal information
We manage personal information in accordance with laws,
regulations and other requirements, including guidelines andindustry rules. We have established internal corporate rules,
and give our employees training in ethics. Our efforts to raiseawareness of information management include the use of the“private information manager” qualification established by theJapan Consumer Credit Industry Association. This qualification
is now basically compulsory for employees who handle personal information. Security measures have also been strengthened,with the use of leased lines, limited access authorization,
encryption, and restricted access to data terminals. Since May
2006, Credit Saison has been authorized to use the Privacy
Mark, a certification given to businesses with appropriate systems for handling personal information.
■ Preventing excessive indebtedness
We recognize the risks of credit, and strive to prevent excessive
borrowing by monitoring borrowers’ credit status after loans
have been issued. Assistance for customers includes changes tocontract terms and repayment amounts.
24

CREDIT SAISON 2007

(3) Activities that contribute to society in ways that are
unique to Credit Saison
Tens of thousands of people, including our employees and theirfamilies, depend on the Credit Saison Group. We recognize our
responsibilities as an employer, and work constructively toresolve any employment issues. As a distribution sector credit
card company, we aim to use our business activities to provide
services and contribute to society.
■ Resolving employment issues
Credit Saison aims to provide amenable working environments
for all employees, regardless of age or gender. We have madeseveral workplace improvements in response to changes caused
by Japan’s falling birthrate and expanding aged population.
These include systems to help female employees continue working after marriage and childbirth, and more flexibility for
employees caring for older relatives. We also actively reemploy retirees.
■ Developing unique services
Credit Saison maintains two-way communication with customers through a nationwide network of 174 service counters.
Customer communication is also an important characteristic of
our credit card business. We are always ready to advise customers about their credit use, and offer unique services to meettheir needs.
This commitment to service is not limited to individual customers. We also work with our many partner companies toadvance our mutual interests through the issuance of affinity
cards and corporate cards.

Environmental protection and social contribution
Our customers can participate in social contribution activities
with their cards. For example, points earned through card use
can be used to make donations to charities, including the World
Heritage Programme and World Terakoya Movement of the
National Federation of UNESCO Organizations in Japan, theenvironmental activities of the Forest Culture Association, andguide dog training by the Japan Guide Dog Association.
Our credit cards are made from recycled materials, and weuse environment-friendly materials to produce printed materials
for customers. We encourage our employees to participate in thegovernment’s COOL BIZ initiative, designed to reduce the needfor air conditioning in offices by introducing special summer
dress codes. Other initiatives include the reduction of paper use in
our offices, and the sorting of office waste to facilitate recycling.

Organization

Management Division This division is responsible for the
implementation of the new medium-term management plan,
the aim of which is to maintain and build Credit Saison’spresence as a non-bank finance company in a rapidly changing
business environment. Our goal is to curb cost increases bymodifying our business structure and improving the stabilityof fund procurement activities. We are also working actively
to improve the corporate value of the Credit Saison Groupthrough M&A activities.

card by providing top-quality services at all stages from card
application processing to credit screening, invoicing, collection
and customer inquiry processing.
Sales Division This is the front-line organization for profitfocused efforts to reach our target market share of 30% byattracting cardholders and building the cardholder base. In thecurrent year, the Sales Division will undertake a major review
of its outlet strategy and restructure its sales network to ensure
optimal use of resources.

Administrations Division The mission of the Administrations
Division is to ensure regulatory compliance and fairness andmaintain high ethical standards in the business activities ofCredit Saison by enhancing and strengthening corporate governance. Another goal is the revitalization of Credit Saison’s
human resources, leading to the creation of a reform-oriented
corporate culture imbued with a sense of urgency and the spiritof competition.

Credit Card Division The mission of the Credit Card
Division is to increase turnover by maintaining good customer communications and actively using the full potential of
the Saison and UC brands to expand the partner base. It isalso working to improve efficiency by developing andenhancing Web-based systems and expanding the Net Answer
membership program.

Business Strategy Division The activities of the Business
Strategy Division include the planning and development of new
business activities, products and services, such as Eikyu
Fumetsu.com, through alliances with financial institutions andcompanies in various industries. It also provides operational
support for new products and services.

Retail Finance Division The goal of this division is to turn the
reduction of the maximum interest rate under the Money-Lending
Business Control and Regulation Law into an opportunity byincreasing the balance of credit card cash advances and cardloans. Its medium- to long-term target is a 5% share of outstanding loans, and its strategies for the achievement of this target
include the use of M&A to expand the scale of operations.

System Division The System Division designs and develops
systems to rationalize existing operations and support thedevelopment of new products and services. It also designs
and develops next-generation systems. It is currently preparing
for the establishment of Qubitous Co., Ltd., a new joint
processing company.
Credit Division As the core division in the group’s new joint
processing company, the Credit Division aims to ensure that
customers will choose a Credit Saison card as their first credit

Finance Division The Finance Division provides financial
solutions to a wide-range of customer needs, especially loans
secured by real estate. Its goals are to optimize asset quality andincrease earnings through the expansion of the loan balance.
Strategic Project Office Activities include the coordinationand monitoring of group-wide projects in response to industry
restructuring and other strategic issues, and the coordination,
development and promotion of new alliances.

CREDIT SAISON 200725

Card Tie-Ups
Credit Saison has expanded its affinity card range across wide-ranging sectors. With a total cardholder base of 25 million,
it issues more than 200 affinity cards, including those issued by affiliates, under SAISON and UC brands.

Standard

SAISON CARD International

Gold Card SAISON International

SAISON American Express Card

SAISON Platinum
American Express Card

UC CardUC Card GoldUC Translucent

DAIBA Seaside-PASS

Shopping

Sogo Co., Ltd.

The Seibu Department
Stores, Ltd.

The Loft Co., Ltd.

Ryohin Keikaku Co., Ltd.

Parco Co., Ltd.

Mitsui Fudosan Co., Ltd.

Toys“R”Us-Japan, Ltd.

PRINTEMPS GINZA Co.,LTD.

Kawatoku Co., Ltd.

Tokyo Midtown Management
Co., Ltd.

Takashimaya Company,
LimitedTakashimaya Company,
Limited

Yamada Financial Co., Ltd.

LAWSON CS Card, Inc.

Daiwa House Financial
Co., Ltd.

United Airlines, Inc.

TOHO Cinemas Ltd.

Japan Football Association

Tokyo Metro Co., Ltd.

Resona Card Co., Ltd.

Shizugin Saison Card Co., Ltd.

Sony Bank Inc.

Monex, Inc.

KDDI CORPORATIONSOFTBANK MOBILE Corp.

WOWOW Inc.

NIFTY Corporation

Honda Motor Co., Ltd.

Mazda Motor Corporation

Japan Automobile Federation

YANASE & CO., LTD.

World Wide Fund for
Nature JapanTOKYO GAS Co., Ltd.

Waseda University

Travel & Entertainment

SEIBU Group

Financial Institutions

Mizuho Bank, Ltd.

Internet and Communications

NTT DoCoMo, Inc.

Automotive

Idemitsu Credit Co., Ltd.

Social Contribution and Others

Tokyo Gas Energy Co., Ltd.

26

CREDIT SAISON 2007

Japan Leukaemia Research
FundFinancial Section

C O N T E N T S

Six-year Summary of Selected
Financial Data . . . . . . . . . . . . . . . . . . . . 28
Management’s Discussion
and Analysis . . . . . . . . . . . . . . . . . . . . . 29
Consolidated Balance Sheets . . . . . . . . . . 36

Consolidated Statements of Income. . . . . 38
Consolidated Statements of
Changes in Net Assets. . . . . . . . . . . . . . 39

Notes to Consolidated
Financial Statements . . . . . . . . . . . . . . . 41
Report of Independent Auditors. . . . . . . . 58

Consolidated Statements ofCash Flows . . . . . . . . . . . . . . . . . . . . . . 40

CREDIT SAISON 200727

Six-year Summary of Selected Financial Data
As of and for the years ended March 31

Thousands of
U.S. dollars(Note 4)

Millions of yen

2007

2002

2007

¥ 333,683 ¥ 274,666 ¥ 240,385 ¥ 220,332 ¥ 212,242 ¥ 214,838
242,149
193,126
172,024
156,502
147,018
141,795
16,333
11,965
9,771
9,825
12,81013,37075,201
69,57558,59054,00552,41459,673
14,82242,22031,81822,420(6,027)
18,225$ 2,825,668
2,050,548
138,307
636,813
125,512¥ 399,828 ¥ 377,127 ¥ 301,310 ¥ 258,253 ¥ 236,028 ¥ 242,594
2,299,607 2,062,612 1,512,949 1,352,710 1,280,823 1,256,899
1,608,307 1,480,380 1,146,928 1,011,563
965,082
885,270$ 3,385,794
19,473,343
13,619,333¥$

As of and for the years ended March 31

2006

2005

2004

2003

CONSOLIDATED
For the year:
Operating revenues (Note 1)
Selling, general and administrative expenses
Financial cost
Operating income
Net income (loss)

At year-end:
Total net assets (Note 2)
Total assets
Interest-bearing debt (Note 3)

Per share data (in yen and U.S. dollars):
Net income (loss) per share
Net assets per share

82.79 ¥ 237.29 ¥ 185.00 ¥ 130.55 ¥ (36.57) ¥ 108.56
2,077.69
2,013.85
1,721.35
1,519.13
1,380.26
1,436.58

0.70
17.59

Key financial ratios (%):
4.0
0.7
16.2

Return on shareholders’ equity (ROE)
Return on assets (ROA)
Shareholders’ equity ratio

12.8
2.4
17.5

11.4
2.2
19.9

9.1
1.7
19.1

—
—
18.4

7.8
1.2
19.3

NON-CONSOLIDATED
For the year:
Operating revenues (Note 1)
Selling, general and administrative expenses
Financial cost
Operating income
Net income (loss)¥ 270,275 ¥ 216,453 ¥ 190,248 ¥ 175,725 ¥ 171,843 ¥ 154,204
204,765
156,887
135,403
123,746
121,111
105,555
14,067
9,700
8,186
7,154
7,607
7,402
51,442
49,886
46,65944,825
43,124
41,248
10,221
27,131
25,79824,396(5,026)
12,286$ 2,288,720
1,733,974
119,121435,61786,553¥ 349,754 ¥ 341,423 ¥ 298,502 ¥ 261,793 ¥ 237,175 ¥ 243,492
1,962,996 1,761,666 1,290,067 1,155,776 1,085,349 1,057,841
1,350,134 1,239,043
948,561
828,639
779,451
698,510$ 2,961,758
16,622,881
11,433,093¥$

At year-end:
Total net assets (Note 2)
Total assets
Interest-bearing debt (Note 3)

Per share data (in yen and U.S. dollars) (Note 2):
Net income (loss) per share
Net assets per share
Dividends per share

57.03 ¥ 152.21 ¥ 149.78 ¥ 142.00 ¥ (30.34) ¥72.50
1,945.22
1,904.13
1,703.39
1,536.51
1,383.04
1,436.80
28.00
26.00
20.00
18.00
18.00
18.00

0.48
16.47
0.24

Key financial ratios (%):
Return on equity (ROE)
Return on assets (ROA)
Equity ratio

3.0
0.6
17.8

8.5
1.8
19.4

9.2
2.1
23.1

9.8
2.2
22.7

—
—
21.9

5.2
1.2
23.0

TRANSACTION VOLUME: NON-CONSOLIDATED
Credit-card-related shopping services
Shopping loans
Guarantees
Cash advances and specialty loans
Agency services
LeasesMerchandise sales
OthersTotal volume of new contracts¥3,433,872 ¥2,527,808 ¥2,078,117 ¥1,912,211 ¥1,808,625 ¥1,629,199
5,693
6,952
9,440
13,36817,37019,26785,43162,09736,17931,68453,43456,317
1,058,335
739,038
592,359555,984
600,447
555,132
809,992
747,998576,270
328,120
398,725
400,026
87,48890,011
82,99973,66571,96051,789
—
—
—
2,763
9,445
9,282
10,700
9,794
8,317
6,605
9,789
9,427
5,491,515 4,183,698 3,383,681 2,924,399 2,969,794 2,730,438$29,078,432
48,209723,440
8,962,105
6,859,107
740,859—
90,60946,502,794

Notes: 1. Operating revenues does not include consumption taxes.
2. Effective from the year ended March 31, 2007, the Company adopted “Accounting Standard for Presentation of Net Assets in the Balance Sheet” (ASBJ Statement No. 5) and“Implementation Guidance on Accounting Standard for Presentation of Net Assets in the Balance Sheet” (ASBJ Guidance No. 8). Under the previous accounting standard, total
net assets were recorded as shareholders’ equity. The figure for total net assets for the year ended March 31, 2006 has been calculated using the new accounting standards.
Figures for prior years utilize the old standards.
3. Interest-bearing debt includes asset-backed securities.
4. Japanese yen amounts have been translated into U.S. dollars at the rate of ¥118.09= U.S.$1, the approximate exchange rate on March 31, 2007, for the convenience of the reader.

28

CREDIT SAISON 2007

Management’s Discussion and Analysis

THE CREDIT SAISON GROUPThe Credit Saison Group is comprised of five business segments: “Credit &Finance,” “Entertainment,” “Real Estate,” “Lease,” and “Other.” Credit &Finance is the most important segment, consisting mainly of consumer credit
business such as consumer credit cards and loans to individuals.
Approximately 80% of total operating revenue in fiscal 2006 was provided bythis one segment.
Operating revenues of the Group consist primarily of fees from affiliatedstores generated by credit card and installment purchases, and customer
fees generated by revolving account payments, card cash advance transactions, specialty loans and other transactions.
Operating expenses consist primarily of advertising expenses, point
redemption costs, costs of uncollectible receivables, personnel expenses,
payment fees, and financial costs. A significant percentage of advertisingand personnel expenses represent the cost of acquiring new customers
including new cardholders to generate future revenue growth.
CHANGES IN THE SCOPE OF CONSOLIDATION
During the current fiscal year, The Credit Saison Group reduced its consolidated subsidiaries by two to nine companies. The Group had nine affiliatedcompanies accounted for by the equity method, adding three companies during the current fiscal year, namely Shizugin Saison Card Co., Ltd., Daiwa
House Financial Co., Ltd., and Takashimaya Credit Co., Ltd. With regard toconsolidated subsidiaries, A.I.C.LLC. changed its name to A.I.C. Co., Ltd. asof February 14, 2007 in accordance with the accounting standards specified
in the Corporate Law, and Noa Planning Co., Ltd. changed its name to Vivre
Co., Ltd. as of March 1, 2007 as a result of a merger with Vivre Co., Ltd.
Meanwhile, Saison Direct Marketing Co., Ltd. passed a resolution dissolving
itself at the extraordinary meeting of shareholders held on July 26, 2006,
and completed its liquidation on February 28, 2007.
ANALYSIS OF INCOME STATEMENTS
The Japanese economy in fiscal 2006 proved resilient, with steady capital
investments, further improvement in employment conditions along with therecovery of corporate earnings, and modest growth in personal consumption,

Total Operating Revenues

supported by strong corporate results. In the non-banking sector, however,with the promulgation of the Amendment to the Money Lending BusinessControl and Regulation Law December 2006, the business environment has
become increasingly challenging. Among other things, revenues havedecreased due to the enforcement of restrictions on new lending and cuts ininterest rates of loans to customers, and a requirement for additional funding
to the allowance for losses on interest repayments based on applicable guidance from the Japanese Institute of Certified Public Accountants.
During the current fiscal year, Credit Saison’s operating revenues
increased by 21.5% year on year to ¥333,683 million. Operating income
increased by 8.1% year on year to ¥75,201 million. However, current term
net income decreased by 64.9% year on year to ¥14,822 million.
Operating Revenues and Expenses, and Operating Income
In fiscal 2006, operating revenues increased by 21.5%, or ¥59,017 million,
compared to the previous fiscal year, to ¥333,683 million. This is because
our main segment, Credit & Finance, posted ¥274,231 million, an increaseof 27.9%, or ¥59,781 million, year on year. This was made possible throughthe merger with UC CARD Co., Ltd. (card issuance business) in January
2006 and expansion in our consumer credit business in areas such as consumer credit cards and loans to individuals. The Real Estate segment also
contributed with a strong performance, increasing by 8.2%, or ¥1,509 million, year on year to ¥19,870 million.
Operating expenses amounted to ¥258,482 million, an increase of
26.0%, or ¥53,391 million, compared to the previous fiscal year. A major
cause of this was the cost of uncollectible receivables which increased by
29.3% year on year to ¥60,417 million due to an increase in installment
accounts receivables including an increase in credit card receivables from thegrowth of transaction volume, an increase in receivables intervened by third
parties including attorneys, and an increase in claims for interest repayments.
With increased spending on advertisements and promotions aimed atacquiring new credit cardholders through aggressive sales development
activities, advertising expenses in the Credit & Finance business segment
increased by 38.2% over last year to ¥25,375 million. In addition, both theallowance for point program and the fees paid increased as the credit cards

Breakdown of Selling, General and Administrative (SG&A) Expenses(Millions of yen)

(Millions of yen)

Years ended March 31,

Cost of uncollectible receivables

2007

2006

% change¥ 60,417¥ 46,711

29.3

53,272
536
4,065
2,543
181,731

44,276694—
1,741
146,41420.3(22.7)—
46.1
24.1

25,375
11,20540,47250,900¥ 242,149

18,362
8,418
37,15534,646¥ 193,126

38.2
33.1
8.9
46.9
25.4

Included in above:
Allowance for losses on accounts receivable
Losses on accounts receivable
Provision for losses on interest repayment
Allowance for losses on guarantees
SG&A expenses excluding cost of uncollectible receivables
Included in above:
Advertising expenses
Provision for point program
Personnel expenses
Fees paid
Total SG&A expenses

CREDIT SAISON 200729

and card transaction volume grew. For fiscal 2006, therefore, additions to
the provisions for point program amounted to ¥11,205 million, an increase of
33.1% year on year, and fees paid increased by 46.9% year on year to¥50,900 million.
As a result, operating income for fiscal 2006 increased by 8.1%, or¥5,626 million, over the previous year to ¥75,201 million.

REVIEW OF OPERATIONS BY SEGMENT
Credit & FinanceThis segment consists of the credit, lending, and servicer (loan collection
agency) businesses. Segment operating revenues for fiscal 2006 increased
by 25.4% year on year to ¥284,192 million, and segment operating income
increased by 12.4% year on year to ¥61,485 million.

Non-Operating Revenues and Expenses, and Net Income
Net non-operating losses increased by ¥22,811 million year on year to¥41,591 million, the main reasons being provision for losses on interest
repayments of ¥40,925 million and ¥5,447 million in depreciation expenses
of lease assets.
As a result, net income before income taxes decreased by 33.8% year on
year to ¥33,610 million. Income taxes, etc., amounted to ¥14,270 million.
Consequently, current term net income decreased 64.9%, or ¥27,398 million, year on year to ¥14,822 million, and current term net income per sharedecreased from ¥237.29 per share to ¥82.79 per share.

1. Credit Card BusinessIn the credit card business sector, the market scale has been continuously
growing, as the use of credit cards for regular payments for mobile phonebills, public utility bills, etc., has increased. With the scope of credit card
usage expanding to the ETC (electronic toll collecting) system and the medical field, the penetration of mobile credit has begun.
Meanwhile, concerning the situation where the cap interest rate wasraised pursuant to the Law Concerning the Regulation of Receiving of Capital
Subscription, Deposits and Interest on Deposits and the amendment to the
Money Lending Business Control and Regulation Law with the regulations of
total volume as its core cast its effect, sector companies are compelled toreconstruct their respective business models. Therefore, further sector reorganization can be expected. In this environment, we made a variety ofalliances to expand our customer base and enhance our position as a leading
company in the credit card business sector.
The number of new cardholders for fiscal 2006 totaled 4 million, andthe number of cardholders as of March 31, 2007 totaled 25 million, an
increase of 9.3% year on year. In addition, card shopping transaction volume
amounted to ¥3,433.8 billion, an increase of 35.8% year on year, and thenumber of active holders of such cards was 12 million for fiscal 2006, anincrease of 6.9% year on year. Also, the balance of shopping-related revolving credit contracts amounted to ¥239.4 billion, an increase of 9.6% year on
year, of which ¥10.0 billion has been securitized by the Company, resulting
in a balance of ¥229.3 billion. Furthermore, cash advances and Cash Plus
Loan receivables totaled ¥579.2 billion, an increase of 4.9% year on year, of
which ¥30.0 billion has been securitized by the Company, resulting in a balance of ¥550.5 billion.

POLICY FOR RETURN TO SHAREHOLDERSDividend Policy
Credit Saison works to increase shareholder value by investing internal capital resources efficiently to strengthen its corporate structure, reduce operating costs and achieve sustainable growth in its businesses. The Company’s
fundamental policy regarding distribution of profits is to secure sufficientinternal capital resources for the above purposes while providing appropriate,stable and sustainable dividends to shareholders.
Dividends per Share
Based on the above dividend policy, Credit Saison increased dividends per
share for fiscal 2006 by ¥2 to ¥28 per share. It is the Company’s policy tomake efficient investments of internal capital reserves to facilitate the achievement of the low cost operation and sustainable expansion of its business.
In addition, as a shareholder benefit, we have set up a special complimentary program which will provide ‘SAISON Eikyufumetsu Points (a point
system that allows customers to accumulate unlimited credit card points
redeemable at any time)’. These points will be given to shareholders who arealso Saison Card holders in proportion to their respective share holdings.

Operating Revenues and Operating Income by Segment(Millions of yen)

Operating Revenues
Years ended March 31,

2007

2006

Credit & FinanceOperating Income% change

2007

2006

% change¥ 284,192¥ 226,597

25.4¥ 61,485¥ 54,694

12.4

Entertainment

16,92017,919

(5.6)

2,045

2,688

(23.9)

Real Estate

20,575

19,300

6.6

9,499

9,512

(0.1)

Lease

6,795

7,183

(5.4)

2,171

3,336

(34.9)

Other

6,579

5,135

28.1

5,425

3,852

40.8

Total

335,061

276,134

21.3

80,62574,0828.8(1,378)(1,468)—(5,424)(4,507)—

333,683

274,666

21.5

75,201

69,575

8.1

Eliminations or corporate
Consolidated

Note: Operating revenues and operating income of each segment include intersegment operating revenues.

30

CREDIT SAISON 2007

Key Initiatives in the Credit Card Business during Fiscal 2006

New Developments and Future Initiatives

Alliance Network Expansion and New Initiatives

N Launch of an online shopping mall “Eikyufumetsu.com”

N Growth in cardholders through promotions of strategic alliances

Credit Saison and Yamada Denki Co., Ltd., the top home appliances
retailer in Japan, entered into a comprehensive business alliance relationship for the credit card business. Both companies contributed capitaland established Yamada Financial Co., Ltd., which started offering the‘Yamada LABI Card’ in July 2006.
We strengthened our business alliance with the Takashimaya Groupand issued the new ‘Takashimaya Card GOLD’ for the high wealth market, and at the same time consolidated the respective processing operations for this new card and the existing ‘Takashimaya Card’ into one
operation to achieve further efficiency.
In January, 2007, we entered into a business alliance with SoftBank
Mobile Corp. and started issuing the ‘SoftBank Card,’ the official credit
card for SoftBank mobile phone service subscribers.
Moreover, in order to explore new customer types, we entered two
alliance agreements in the retail finance business area; one with The
Shizuoka Bank, Ltd., in July 2006; and another with Yamaguchi Financial
Group, Inc. in March 2007. Under these agreements, we will integrate
the local bank’s “local network capacity” with Credit Saison’s “customercentric marketing capacity,” and provide more complete financial services for a wide range of customers in the region.
N Initiative for exploring the small-sum payment and settlement market

With regard to the new mobile credit services that have been rapidly
spreading, we introduced the ‘KDDI THE CARD SAISON’ that works for‘QUICPayTM,’ and also added the ‘i DTM’, a mobile phone’s credit card
function from NTT DoCoMo Inc., to the ‘Mizuho Mileage Club Card’. We
are striving to realize services that will meet our customers’ needs.
In addition, we began an initiative to explore the small-sum payment
and settlement market by utilizing E-Money. For example, we started
offering the PASMO auto-charge service on the ‘Prince Card,’ the ‘Tokyo
Metro To Me CARD,’ and other cards. We also introduced the ‘KIPS
PiTaPa Card’ in conjunction with the launch of the PiTaPa system at railway stations by Kintetsu Corporation in April 2007.
Strengthening of Our Business BaseN Strengthening of the organization

In order to maximize the synergy effect between the SAISON and UC subsequent to the merger with UC CARD Co., Ltd. (card issuance business),
in September 2006, Credit Saison consolidated the functions of the
Headquarters of UC and the Credit & Finance business segment. In
February 2007, we carried out changes to our organization, aiming for an
overall slimmer organization. This initiative allowed us to efficiently utilize
our business assets and build an agile organizational structure.
N Ensuring of Credit risk management

With regard to Credit risk, while the number of voluntary bankruptcies
has been stabilizing, the receivables intervened for by third parties suchas attorneys and claims for interest repayments have been on the rise.
Therefore, the Company is focusing on improving the quality of its
receivables by continuously enhancing its screening and monitoringprocesses, while striving to provide each customer with the most appropriate credit line and ensuring well-balanced finance management
between revenues and risks.

As online shopping markets have been rapidly expanding, Credit Saisonhas started an online shopping mall called “Eikyufumetsu.com” for its Net
Answer members as one of the new services making the best use of its
original Eikyufumetsu points.
N Expansion of investment-related services

Mainly in response to the asset building needs of baby boomer juniors
and women, Credit Saison established the wholly owned subsidiary
Saison Asset Management Co., Ltd., which obtained a license to operate
as an investment trust company from the Financial Service Agency andcommenced business operations in January 2007. Products offeredinclude original investment trust products that incorporate products
offered by Sawakami Asset Management Inc., the pioneer of long-term
investments in Japan, as well as The Vanguard Group, one of the largest
mutual fund companies in the world.
2. Card Loan Business
Credit Saison Group provides a variety of credit card loans including loans
through such cards as the ‘Speed Cashing,’ the ‘Cash Reserve’ and the ‘VIP
Loan Card,’ which bases its appeal on ample credit limits. In addition, in March
2006, the Company started offering a new loan card product called the ‘SAISON Card Loan,’ which can respond to each customer’s various funding needs
with a generous credit line and an interest rate that corresponds to an individual customer’s creditworthiness. The number of loan cards issued totaled 230
thousand cards, a 15.4% increase year on year. The balance of card loan
receivables amounted to ¥81.9 billion, a 16.7% increase year on year.
3. Other Consumer Loans
In addition to card loans, Credit Saison provides a variety of unsecured consumer loans. These include ‘Member’s Loans’ for SAISON Card cardholders.
The balance of other consumer loan receivables was ¥67.0 billion, a 4.5%
year-on-year decrease.
4. Real Estate Finance Business
Credit Saison is engaged in the financing business collateralized by realestate properties, mainly providing business loans. In this business, theCompany utilizes its capability for real estate evaluations, know-how of realestate securitization, and the network it has been building over the years
through its real estate business. Business loans for real estate companies
remained strong, with the balance of loans being ¥221.3 billion, an increaseof 111.1% compared to the previous fiscal year.
5. Credit Guarantee Business
Credit Saison focused on obtaining high-quality facilities by utilizing its closebusiness relationships with affiliated financial institutions in both sales andmanagement. The number of business alliances increased by 18 from theend of the previous fiscal year, including The Chiba Bank, Ltd. with which weentered into an alliance in March 2007 in the guarantee business for unsecured consumer loans.
6. Servicer (Loan Collection Agency) BusinessWith its focus on the agency business for small amount unsecured loan
receivables, Credit Saison Group made progress into new business areas
including collections for government and municipal offices and public utilities

CREDIT SAISON 200731

in addition to credit card companies and financial institutions. The Company
also incorporated know-how in credit management and collection acquired
over the years into its system, building a highly efficient business operation.
Entertainment BusinessThis segment consists of the amusement business and other operations. In theamusement business, Credit Saison continued to create sound, safe, and comfortable facilities that have the support of their regional communities. However,
due to stricter regulations on game machines, operating revenues decreased
5.6% from the previous year to ¥16,920 million, while operating income
decreased by 23.9% to ¥2,045 million compared to the previous year.
Real Estate BusinessThis segment consists mainly of the real estate securitization business, servicer business, and real estate fund business.
In the real estate and real estate-related financial markets in which the
Atrium Group engaged itself, real estate transactions have gained momentum. Demand for investments in real estate investment trusts (J-REIT) andprivately placed real estate funds has grown, and vacancy rates in the centerof Tokyo and other large cities have decreased, while rents have risen. In
such environment, the Company carried out aggressive sales activities in theReal Estate business segment.
As a result, the real estate business, helped by strong earnings from
Atrium Group increased operating revenue by 6.6% over the previous year to¥20,575 million.

companies, the Company’s lease transaction volume decreased by 2.8%
year on year to ¥87.4 billion. Operating revenues decreased by 5.4% year on
year to ¥6,795 million, and operating income decreased by 34.9% year on
year to ¥2,171 million.
OthersThis segment is comprised of the insurance agency business, etc. Operating
revenues increased by 28.1% year on year to ¥6,579 million, and operating
income increased by 40.8% year on year to ¥5,425 million.
Note: Atrium Co., Ltd. is involved in 2 of our business segments: Real Estate and Credit & Finance (inthe areas of real estate finance business and credit guarantee business). For the period ending
February 2007, consolidated revenues were ¥105,195 million (a 42.2% increase year on year),consolidated ordinary income was ¥13,874 million (a 59.4% increase year on year), and consolidated net income was ¥7,086 million (a 60.8% increase year on year). Some of the consolidated
subsidiaries of Atrium Co., Ltd. that are insignificant in terms of the effect on the Company’s consolidated financial statements are not included in the scope of consolidation by the Company.
Note: Analysis by location is not contained herein, since the Company has no consolidated overseas
subsidiaries or branches.

3) Real estate fund business
The Company strived to achieve an increase in the values of real property
holdings through large-scale renewal of the property portfolio. It also sought
the improvement and stabilization of cash flow and operating ratio throughadequate leasing, and pursued the ‘maximization of asset value’ by reducing
the expense ratio through stricter property management.

LIQUIDITY AND FINANCIAL POSITION
Fund Procurement and Liquidity Management
The Credit Saison Group emphasizes stability and low cost when procuring
funds, and pursues the diversification of fund procurement methods. Key
procurement methods include negotiated transactions with banks, farming
and forestry-related financial institutions, life insurance companies, and nonlife insurance companies. In addition, the Group procures funds indirectly
through syndicated loans and committed lines of credit, and can procure
funds directly by issuing corporate bonds and commercial paper, and securitizing receivables. Consolidated interest-bearing debts (including those procured through off-balance sheet securitizations in the amount of ¥130.0 billion) as of March 31, 2007 totaled ¥1,608.3 billion. Of this total, loans
accounted for 65.5%, bonds accounted for 17.1%, commercial paper
accounted for 6.3%, and securitized receivables accounted for 11.1%.
With regard to indirect fund procurement, in an effort to mitigate refinance risks and reduce costs, the Company is attempting to form further
alliances with existing lenders. It also aims to diversify the sources of procurement and examine new counterparties, targeting financial institutions withwhich the Company can expect long-term stable transactions. In terms of
direct fund procurement, in an effort to mitigate liquidity risk and reduce costs
the Company not only utilizes corporate bonds and commercial paper, butalso structures new fund procurement schemes including securitization ofreceivables which will be unaffected by the creditworthiness of the Company.
To support smooth fund procurement from the capital market, Credit
Saison Co., Ltd. has obtained credit ratings for the bonds it issues. The
Company has been given an “A+” rating for domestic unsecured corporate
debentures, and an “a-1” rating for domestic commercial paper by Rating
and Investment Information, Inc.
With regard to securing liquidity, of the total assets held by the Credit
Saison Group, the installment accounts receivables with the credit card business as its core accounts for 72.7%. Their yearly average turnover is morethan three times, helping the Company maintain a high level of liquidity.

Lease Business
The overall leasing market remains steady, supported by strong corporate
capital investment. However, due to the amendment to the notification of the
Act on Specified Commercial Transactions and increasing lease transactionrelated troubles stemming from inappropriate sales methods by some sales

Cash Flow
Net Cash Provided by Operating Activities
Net cash provided by operating activities was ¥11,990 million (net cash of¥99,343 million was used in the previous fiscal year.) The factors include:
net income before income taxes and minority interest amounting to ¥33,610

1) Real estate distribution business
Credit Saison engaged in smooth acquisitions of properties and wellplanned sales of real estate properties, improved the investment efficiencyof the real estate business, and carried out further securitization of assets
held for sale (beneficiary rights in trusts) to be accounted for as off balance
sheet transactions with the aim of converting it from an asset-oriented business to a fee business.
2) Servicer businessAs financial institutions make progress in writing off bad loans and competition in purchasing among servicer companies becomes fierce, the Company
is placing a particular emphasis on sales activities targeting regional financial institutions. Also, amid the general perception that the real estate market has hit a low, the Company strived to ensure collections through foreclosures of real estate properties, and steadily enhanced initiatives for “business revival facilities”.

32

CREDIT SAISON 2007

million; allowance for losses on interest repayments increasing to ¥38,399
million; ¥65,130 million as depreciation and amortization expenses was
charged; payables (mainly accounts payable to card member stores)
increased by ¥57,048 million because the last day of the fiscal year for settlement of accounts did not fall under a business day for financial institutions;and receivables increased by ¥272,686 million as card business transaction
volume grew and the scale of the loans collateralized by real estate properties expanded.
Meanwhile, the Company securitized the balance of the business receivables at the end of fiscal 2006 and received proceeds of ¥90.0 billion.
Net Cash Used in Investing Activities
Net cash used in investing activities was ¥82.8 billion, a decrease of 30.3%
year on year. This is due mainly to the acquisition of tangible and intangible
fixed assets including lease assets at a cost of ¥96,204 million.
Net Cash Provided by Financing Activities
Net cash provided by financing activities decreased by 70.9% year on year to¥66,835 million. This is the result of: income of ¥196.6 billion from longterm borrowings as part of focusing on medium- and long-term fund procurement, and income of ¥58,611 million from the issuance of corporate
bonds; and, on the other hand, expenditure of ¥89,152 million due to thedecrease in short-term debts, expenditure of ¥58,368 million on repayments
for long-term borrowings, expenditure of ¥16,455 million on redemptions ofcorporate bonds, and net decrease of ¥11.7 billion in commercial paper.
As a result, cash and cash equivalents at the end of fiscal 2006
decreased by ¥3,917 million from the previous year to ¥62,397 million.
Assets, Liabilities and Shareholders’ Equity
Total assets at the end of fiscal 2006 increased by 11.5% or ¥236,995 million from the end of the previous fiscal year to ¥2,299,607 million.
Current assets increased by 12.2% or ¥202,874 million from the end of

Composition of InterestBearing Debt
(Billions of yen/%)Changes in
Total Net Assets andCapital Adequacy Ratio(Millions of yen/%)the previous fiscal year to ¥1,872,307 million. The main contributing factor
was the increase in inventories including the increase in installment accountreceivables from the growth in card transaction volume, purchased loan
receivables, and real estate properties for sale. Of the balance at the end of
fiscal 2006, card shopping receivables in the amount of ¥100.0 billion(monthly payment of ¥90.0 billion and revolving of ¥10.0 billion) and cash
advance receivables in the amount of ¥30.0 billion were securitized to beaccounted as off-balance sheet transactions.
Property and equipment increased by 3.0% or ¥6,012 million from theend of the previous fiscal year to ¥205,952 million, mainly because leaseassets increased by ¥25,863 million from the end of the previous fiscal year.
Investments and other assets increased by 14.5% or ¥28,109 million year
on year to ¥221,348 million. The main contributing factor was the increaseof deferred income taxes by ¥15,231 million over a year earlier.
Total liabilities as of the end of the current fiscal year increased by¥214,294, a 12.7% increase year on year to ¥1,899,779 million.
Current liabilities increased by ¥23,953 million, a 2.7% increase fromthe end of the previous fiscal year, to ¥924,123 million. This is due primarily
to the increase in bills and notes payable and other payables as well as theincrease in corporate bonds scheduled to be redeemed within 1 year and theallowance for losses on interest repayments.
Long-term liabilities increased by ¥190,341 million, a 24.2% increase
from the end of the previous fiscal year, to ¥975,656 million. Long-term debt
increased by ¥148,387 million, a 20.1% increase from the end of the previous fiscal year, to ¥888,209 million.
As a result of the above, interest-bearing debts amounted to ¥1,478.3
billion, an increase of 4.8%, or ¥67,927 million from the end of the previous
fiscal year. (Interest-bearing debts including securitized receivables areaccounted for as off-balance sheet transactions in the amount of ¥130.0 billion amounted to ¥1,608,307 million.)
Total net assets increased by 6.0% or ¥22,701 million from the end of
the previous fiscal year to ¥399,828 million. Meanwhile, the Company’s regulatory capital adequacy ratio was 16.2%, a decline from 17.5% year on year,
and its ROE was 4.0%, a decline of 12.8% year on year.
CREDIT RISKSOf total receivables (i.e., the balance calculated by adding up the balance ofinstallment accounts receivables, and the balance of contingent liabilities
related to the credit and finance businesses, and the balance of lease receivables undue), receivables overdue by more than 90 days amounted to¥52,591 million, an increase of 20.8% year on year. The balance of theallowance for uncollectible receivables (current assets) at the end of fiscal
2006 was ¥65,207 million, an increase of 12.1% year on year.
Consequently, the ratio of the allowance to the receivables overdue for morethan 90 days was 129.5%, decreased from 138.9% at the end of the previous fiscal year.
Note: The Company changed the method used to estimate the allowance for losses on interest
repayments starting fiscal 2006. Due to this change, a certain part of losses on interest repayments that used to be accounted for as the allowance for uncollectible receivables was transferred to the allowance for losses on interest repayments. Figures for fiscal 2006 in Tables 3
and 4 are listed based on the method subsequent to said change.

Loans
Asset-backed securities
Commercial paper
Bonds

Total net assets
Shareholders’ Equity ratio

RISK INFORMATION
The following presents an overview of operating, accounting and other issues
that exert or could exert a significant influence on investor decisions. Forwardlooking statements are Credit Saison Group estimates as of March 31, 2007.

CREDIT SAISON 200733

the Regulation of Receiving of Capital Subscription, Deposits and Interest on
Deposits (the Capital Subscription Law) and other regulations, which may
mandate that the Credit Saison Group operate below the maximum allowable
limits; changes in the terms of customer contracts; and interest rates applicable to other companies in the consumer credit business. The Credit Saison
Group may be unable to price its products and services to reflect higher
interest rates on the capital it procures, which would have the potential toreduce the Group’s interest margin.

1. Operating Conditions
Results and financial position in the Credit Saison Group’s primary Credit and
Finance business are subject to the influence of domestic economic conditions. Factors contingent upon economic conditions, including worsening of
the employment environment, disposable household income or consumer
spending, affect or may affect transaction volume and repayment in Groupbusinesses including credit cards, loans, credit guarantees, and real estate
mortgage loans, and therefore have the potential to negatively impact Group
operating revenues and cost of uncollectible receivables. Recently, an
increasing number of individuals have assumed substantial loan and credit
card obligations from multiple financial institutions. This problematic economic situation also has the potential to affect Group results. Small andmedium-sized companies are the principal customer group of the Lease segment. Factors contingent upon economic conditions, including contraction incapital expenditures and deteriorating corporate performance, have thepotential to negatively impact operating revenues, losses on receivables andother results as well as financial position.

3. Competitive Environment
Financial system has undergone substantial deregulation in recent years,
which has resulted in energetic restructuring of the retail financial services
industry in Japan. Large mergers in the credit card industry, the entry ofcompetitors from other industries and other events have caused competition
to intensify. In this changing market, the results and financial position of theCredit Saison Group may be negatively impacted by the occurrence of events
such as reduced profitability due to a decrease in fee rates from member
stores or changes in the terms of transactions with business partners.

2. Changes in Cost of Funds
Changes in financial conditions and reduction in the Credit Saison Group’s
credit rating may increase interest rates on funds the Group procures andhave the potential to negatively impact operating revenues and other results
as well as financial position. Changes in interest rates on loans and other
instruments are impacted by a wide array of considerations. These include
the maximum interest rates and fees as prescribed by the Law Concerning

4. Unfavorable Performance among Primary Alliance Partners
In the credit card business, the Credit Saison Group has agreements including
affinity card issuance and member store contracts with numerous companies
and organizations. Unfavorable performance among these alliance partners
has the potential to negatively impact the Credit Saison Group’s performanceand financial position. For example, the Credit Saison Group acquires approxi-

Comparison of Delinquent Receivables and the Allowance to Receivables(Millions of yen)

2007

2006

¥ 2,162,198¥ 1,861,829

16.1(2) Receivables overdue by more than 90 days

52,591

43,521

20.8(3) Collateralized portion included in (2)

2,237

1,626

37.6

(4) Allowance for losses on receivables includedin current assets

65,20658,18912.1

Receivables overdue by more than 90 days as apercentage of receivables [(2)÷(1)](1) Receivables% change

2.4%

2.3%

—

Ratio of allowance of losses on receivables to receivables
overdue by more than 90 days [(4)÷((2)–(3))]

129.5%

138.9%—(Reference) Receivables overdue by more than 90 days
excluding collateralized portion as a percentageof receivables [((2)–(3))÷(1)]

2.3%

2.3%

—

Delinquency Ratio(over 90 days) andWrite-off Ratio(on a non-consolidated
basis)

Changes in the Allowance for Uncollectible Receivables(Millions of yen)

2007

2006

¥ 65,948¥ 46,969

40.4

Increase

55,01460,581(9.2)

Decrease (Reversal)

50,38841,603

21.1

Allowance for losses on receivables at the end of the year

70,57465,948

7.0

536

694

(22.7)

Allowance for losses on receivablesat the beginning of the year

(Reference) Losses on receivables

34

CREDIT SAISON 2007

% change

Write-off ratio
Delinquency ratio (more than 90 days)(%)

mately 50 percent of new cardholders through the outlets of alliance partners
in the retailing industry. Reduced ability to attract customers or lower sales
among these companies has the potential to negatively impact the Credit
Saison Group’s operating revenues. In addition, the Credit Saison Group has
capital relationships with a number of its alliance partners. Unfavorable performance among such alliance partners has the potential to incur impairment
losses on investment securities in the Credit Saison Group’s portfolio.
5. System Operation Problems
The Credit Saison Group relies heavily on computer systems and communication networks in numerous aspects of its main businesses, including thecredit card business. A number of situations could compromise the Credit
Saison Group’s sales capabilities, damage its credibility and cause otherproblems that would have the potential to negatively impact the Credit Saison
Group’s performance and financial position. These situations include Groupand counterparty system inoperability resulting from temporary system overload due to factors such as system errors or spikes in access caused byGroup or counterparty hardware or software problems; breakdown in communication networks resulting from factors including natural disasters andaccidents; and illegal or inappropriate system operation.
6. Leakage of Personal Information and Other Issues
The Credit Saison Group maintains a large volume of personal information
concerning its cardholders and others, and implements appropriate controls
throughout the Group. However, based on the Private Information Protection
Law, incidents such as leakage or illegal use of this information are regulatory violations that could result in administrative guidance, orders or fines. This
would damage the Credit Saison Group’s credibility and cause other problems that would have the potential to negatively impact the Credit Saison
Group’s performance and financial position.
7. Regulatory Changes
The Credit Saison Group operates in accordance with current regulations
and the risks that result from these regulations. The Group’s businesses are
subject to the Installment Sales Law, the Money-Lending Business Control
and Regulation Law, the Capital Subscription Law and other laws.
Circumstances arising from amendments to or changes in the interpretationof these laws in the future would have the potential to negatively impact theCredit Saison Group’s operations, performance and financial position. The
type, content and degree of potential regulatory revisions are difficult to predict, and the Credit Saison Group has no control over their potential impact
on its operations.
Moreover, the portion of interest that is higher than the interest rate ceiling set by the Interest Rate Restriction Law can be deemed invalid and may
be subject to claims for reimbursement. Future regulatory revisions or regulatory trends that unexpectedly expanded such reimbursement claims would
have the potential to negatively impact the Credit Saison Group’s performance and financial position.

investment securities and investments and loans to affiliates, or unfavorable
performance among investees, has the potential to incur evaluation losses.
9. Retirement Benefit Obligations
A decrease in the fair value of the assets in the pension plans of the Credit
Saison Group and changes in the actuarial assumptions used to calculate
retirement benefit obligations have the potential to negatively impact theCredit Saison Group’s results and financial position.
OUTLOOK FOR THE FISCAL YEARENDING MARCH 2008
With the influence of the amendment to the Money Lending Business Control
and Regulation Law making the credit card business environment increasingly challenging, and industry reorganization expected to accelerate, Credit
Saison will focus on the “creation of customer services that receive support
from customers,” developing innovative services and expanding our customer base.
At a meeting held on March 28, 2007, the Board of Directors passed aregulation for lowering the interest rates for cash advances without waiting
for the completion of the period of interim measures, and also lowered theinterest rates irrespective of the new accounts’ balance and the existingaccounts’ balance. It was a decision made from the viewpoint of placing theutmost priority on our customers’ interest. Accordingly, we will change theloan interest rate, as the actual annual percentage rate, to 18.0% or lower,for ‘SAISON cash advances’ starting with the balance as of July 17, and for‘UC cash advances’ (lump sum payment method) starting with the amounthandled on June 11.
At a meeting held on May 17, 2007, pursuant to the master agreement
dated January 30, 2007 by and between Credit Saison Co., Ltd., Mizuho
Bank, Ltd. and UC Card Co., Ltd., the Board of Directors passed a resolution
for entering into a business restructuring agreement for the purpose of pursuing “consolidation and reorganization” aimed at building a new businessmodel, including the establishment of a joint processing company for bothparties’ credit card businesses. Pursuant to the agreement, the credit card
processing businesses owned by the Company and UC Card Co., Ltd.,
respectively, will be separated from both companies’ respective credit cardbusinesses, and consolidated into one newly established joint processing
company. After separating our processing business, we will focus on the
expansion of scale mainly around the cardholders business.
Based on the activities described above, for the period ending in March
2008, Credit Saison will prepare a new Medium Term Management Plan anddrive structural reform, continuously striving to expand its market share throughstrategic alliances and focusing on further expansion of its revenue base.
Under such circumstances, the Company forecasts the following consolidated results for the period ending March 2008: operating revenues of ¥340.0
billion; operating income of ¥56.4 billion, and net income of ¥26.0 billion.

8. Impairment Loss of Property and Equipment and
Evaluation Losses
A material decline in the fair value of the Credit Saison Group’s land andbuildings, or a projected decline in operating income in businesses employing such assets that is not deemed to be temporary, will incur impairment
losses that have the potential to negatively impact the Credit Saison Group’s
results and financial position. Moreover, a material decline in the fair value of
CREDIT SAISON 200735

Consolidated Balance Sheets
CREDIT SAISON CO., LTD. and Consolidated Subsidiaries
As of March 31, 2007 and 2006

Thousands of
U.S. dollars (Note 2)

Millions of yen

2007

2007

2006

ASSETS
Current Assets:
Cash and deposits¥

55,962¥

66,314$473,889

Receivables:
Notes and installment accounts receivable (Note 4)
Short-term loans
Less: Allowance for losses on receivables

1,673,437

1,487,473

14,170,855

5,225

1,027

44,250(65,207)(58,189)(552,179)

1,613,455

1,430,311

13,662,926

Securities

1,500

—

12,700Inventories

147,956

122,268

1,252,913

Deferred income taxes (Note 10)

19,471

10,619164,883

33,96339,921

287,604

1,872,307

1,669,433

15,854,915

286,304

260,4412,424,456

Buildings and improvements

35,42436,051

299,976

Fixtures and equipment

28,147

26,958238,350

Prepaid expenses and other current assets
Total current assets
Property and Equipment, at Cost:
Equipment for lease (Note 7)

Less: Accumulated depreciation

349,875

323,450

2,962,782(155,455)(131,760)(1,316,409)

194,420

191,690

1,646,373

Land

11,5328,250

97,653

Total property and equipment

205,952

199,940

1,744,026

Investment securities (Note 8)

106,274

103,221899,942

Long-term loans

29,341

29,909248,457

Intangible assets

41,04929,453

347,609

Lease deposits

8,431

8,760

71,396

Deferred income taxes (Note 10)

31,841

16,610269,633

Other

10,161

13,42786,045

Less: Allowance for losses on receivables(5,367)(7,759)(45,448)

(382)

(382)

(3,232)

Investments and Other Assets:

Less: Allowance for losses on investment securities
Total investments and other assets
Total assets
The accompanying notes are an integral part of these statements.

36

CREDIT SAISON 2007

221,348

193,239

1,874,402¥ 2,299,607¥ 2,062,612$ 19,473,343

Thousands of
U.S. dollars (Note 2)

Millions of yen

2007

2006

2007

470,858
86,700113,000
180,222
7,097
4,244
2,256
—
352
2,305
33,136900,170$ 3,232,356
906,849
857,820
2,009,161
307,906
43,40818,2901,355—
95,237353,197
7,825,579

888,209
6,493
940
2,543
49
36,20534,657
108
6,452
975,656

739,822
7,404
855
1,741
35
29,023—
194
6,241785,315

7,521,459
54,982
7,963
21,534415
306,588
293,479914
54,636
8,261,970

75,23180,876204,130(6,047)354,190

74,45978,176
194,180(4,155)
342,660

637,063
684,873
1,728,594(51,210)2,999,320

19,152(183)
18,96926,669399,828¥ 2,299,607

18,057(62)
17,995
16,472
377,127¥ 2,062,612

162,182(1,545)
160,637
225,837
3,385,794$ 19,473,343

LIABILITIES AND SHAREHOLDERS’ EQUITYCurrent Liabilities:
Short-term loans (Note 6)
Current portion of long-term debt (Note 6)
Commercial paper
Notes and accounts payable
Accrued taxes on income
Unearned income
Accrued employees’ bonuses
Accrued directors’ bonuses
Allowance for losses on business downsizing
Allowance for losses on interest repayments
Accrued expenses and other current liabilities
Total current liabilities¥

381,708
107,090
101,300
237,262
36,361
5,126
2,160
160
—
11,24741,709924,123¥

Long-term Liabilities:
Long-term debt (Note 6)
Accrued pension and severance costs (Note 9)
Accrued retirement benefits to directors and statutory auditors
Allowance for losses on guarantees
Allowance for losses on warranty for defects
Allowance for losses on point program
Allowance for losses on interest repayments
Negative goodwill
Other
Total long-term liabilities
Commitments and Contingent Liabilities (Note 14)
Net assets
Shareholders’ Equity (Note 15):
Common stock
Additional paid-in capital
Retained earnings
Less: Treasury stock, at cost
Total shareholders’ equity
Accumulated Gains (Losses) from Revaluation and Translation Adjustments
Unrealized gains (losses) on other securities
Unrealized gains (losses) on hedging derivatives
Total accumulated gains (losses) from revaluation and translation adjustments
Minority Interests in Consolidated Subsidiaries
Total net assets
Total liabilities and net assets

CREDIT SAISON 200737

Consolidated Statements of Income
CREDIT SAISON CO., LTD. and Consolidated Subsidiaries
For the years ended March 31, 2007, 2006 and 2005

Thousands of
U.S. dollars (Note 2)

Millions of yen

2007

2006

2005

2007

¥ 274,231
16,874
19,870
6,763
6,190
9,755
333,683¥ 214,450
17,884
18,361
7,143
4,838
11,990274,666¥ 183,618
16,99012,632
6,803
8,083
12,259240,385$ 2,322,215
142,892
168,260
57,27352,42082,6082,825,668

242,149
16,333
258,482

193,126
11,965205,091

172,024
9,771
181,795

2,050,548
138,3072,188,855

75,201

69,57558,590636,813

3,057
708
1,775
3,000
1,104
4,009
13,653

8,380
6,396
1,671
—
—
3,497
19,944

—
2,371
—
—
—
5,027
7,398

25,8905,991
15,03325,4089,349
33,947
115,618

—
631
2,369
5,447
2,720
—
40,925—
3,152
55,244(41,591)
33,61024,857
3,419
80
—
—
—
2,305
3,037
5,026
38,724(18,780)
50,795

—
4,783
1,156
—
—
1,840
—
—
3,787
11,566(4,168)54,422—
5,346
20,063
46,13023,031—
346,551—
26,693467,814(352,196)
284,617(41,688)
27,41819,3404,518¥ 14,822(16,375)
9,419
43,8391,619¥ 42,220(23,238)
1,413
32,597779¥ 31,818(353,025)
232,182
163,774
38,262$ 125,512

Operating Revenues (Note 12):Financing and administration fees
Income from the entertainment business
Income from the real estate business
Income from the lease business
Other income
Financial income
Total operating revenues

Operating Expenses:
Selling, general and administrative expenses
Financial cost
Total operating expenses

Operating Income
Non-operating Revenues:
Gain on sales of investment in subsidiaries and affiliates
Gain on changes in equity interest
Equity in earnings of equity method-affiliated companies
Equity in earnings of limited liability partnerships and other similar partnerships
Gain on reversal of allowance for losses on receivables
Other
Total non-operating revenues

Non-operating Expenses:
Amortization of goodwill
Loss on evaluation of investment securities
Impairment loss of property and equipment, and other assets (Note 11)
Depreciation expenses of lease assets
Loss on changes in equity interest
Equity in losses of equity method-affiliated companies
Provision for losses on interest repayments
Provision for losses on receivables
Other
Total non-operating expenses

Non-operating Income (Loss)
Income (loss) before Income Taxes
Income Taxes (Note 10):
Current
DeferredIncome (loss) before Minority Interests
Minority interest in income (loss) of consolidated subsidiaries

Net Income (Loss)

Yen

U.S. dollars (Note 2)

2007

2006

2005

¥ 2,077.69
82.79
80.31
¥
28.00

¥ 2,013.85
237.29220.65¥
26.00¥ 1,718.60
185.00180.21
¥
20.00

2007

Per Share Data
Net assets
Net income, basic
Net income, diluted
Dividends
The accompanying notes are an integral part of these statements.

38

CREDIT SAISON 2007$$

17.594
0.701
0.680
0.237

Consolidated Statements of Changes in Net Assets
CREDIT SAISON CO., LTD. and Consolidated Subsidiaries
For the years ended March 31, 2007, 2006 and 2005

Millions of yen

Balance at March 31, 2004

Number ofshares ofcommon stock
issued(thousands)

Commonstock

Additional
paid-in capital

171,725¥ 63,668¥ 67,134

Unrealized
gains (losses)
on othersecurities

Unrealized
gains (losses)on hedging
derivatives¥ 4,686—

2,578¥ 7,264(480)¥ (480)3,493¥ 3,924

10,793¥ 18,057

418¥ (62)

12,548¥ 16,472

1,095¥ 19,152(121)¥ (183)

10,197¥ 26,669

Unrealized
gains (losses)
on othersecurities

Unrealized
gains (losses)on hedging
derivatives

Minority
interests$ 630,524 $ 662,009 $1,644,338 $ (35,188) $ 152,913
125,512(39,422)(1,834)(16,022)
16,327
6,539
6,537
9,269
$ 637,063 $ 684,873 $1,728,594 $ (51,210) $ 162,182$ (527)$ 139,485(1,018)$ (1,545)

86,352$ 225,837

Net income for the year ended March 31, 2005
Cash dividends
Directors and statutory auditors’ bonuses
Decrease resulting from inclusion of affiliatedcompanies in the scope of consolidation

Retainedearnings

Treasurystock¥ 126,719 ¥ (3,954)
31,818(3,058)
(171)

3,238
1,656

3,393
2,465

160
3,389
2,465

176,619¥ 69,526¥ 73,148

Conversion of convertible bonds
Execution of stock option
Accumulated changes in fair value
Net income for the year ended March 31, 2006
Cash dividends
Directors and statutory auditors’ bonuses¥ 155,101 ¥ (3,729)
42,220(3,498)(174)

Increase resulting from inclusion of subsidiaries
in the scope of consolidation

310

Increase resulting from merger with equity
method-affiliated company

221

Net (increase) decrease in treasury stock *(426)

Gain on sale of treasury stock

4,098

4,933

99
4,929

180,717¥ 74,459¥ 78,176

596

772

1,928
772

181,313¥ 75,231¥ 80,876

Execution of stock option
Accumulated changes in fair value
Net income for the year ended March 31, 2007
Cash dividends
Directors and statutory auditors’ bonuses
Net (increase) decrease in treasury stock *Gain on sale of treasury stock
Execution of stock option¥ 194,180 ¥ (4,155)
14,822(4,656)(216)(1,892)

Accumulated changes in fair value
Balance at March 31, 2007

431

225

Gain on sale of treasury stock

Balance at March 31, 2006

¥

(207)

Net (increase) decrease in treasury stock *Balance at March 31, 2005

Minority
interests¥ 204,130¥ (6,047)

Thousands of U.S. dollars (Note 2)
Number ofshares ofcommon stock
issued(thousands)

Balance at March 31, 2006

180,717

Net income for the year ended March 31, 2007
Cash dividends
Directors and statutory auditors’ bonuses
Net (increase) decrease in treasury stock *Gain on sale of treasury stock

596

Execution of stock option
Accumulated changes in fair value

Balance at March 31, 2007

181,313

Commonstock

Additional
paid-in capital

Retainedearnings

Treasurystock

The accompanying notes are an integral part of these statements.
*Net (increase) decrease in treasury stock is the difference between the book value of purchased treasury stock and sales of treasury stock.

CREDIT SAISON 200739

Consolidated Statements of Cash FlowsCREDIT SAISON CO., LTD. and Consolidated Subsidiaries
For the years ended March 31, 2007, 2006 and 2005

Thousands of
U.S. dollars (Note 2)

Millions of yen

2007
Cash Flows from Operating Activities:
Income (loss) before income taxes
Adjustments to reconcile income (loss) before income taxes to net
cash provided by (used in) operating activities:
Depreciation and amortization
Allowance for losses on receivable
Accrued pension and severance costs
Allowance for losses on point program
Allowance for losses on interest repaymants
Allowance for other reserves
Interest and dividends receivable
Interest expenses
Equity in (earnings) losses of equity method-affiliated companies
Equity in (earnings) of limited liability partnerships and other similar partnerships
Foreign currency exchange (gain) loss
Realized (gain) loss on investment securities
Loss on evaluation of investment securities
Net (gain) loss on changes in equity interest
Impairment loss of property and equipment, and other assets
Loss on disposal of property and equipment, and other assets
Changes in operating assets and liabilities:(Increase) decrease in trade receivables
Proceeds from liquidation of trade receivables(Increase) decrease in inventories(Increase) decrease in other assets
Increase (decrease) in payables
Increase (decrease) in other liabilities
Directors and statutory auditors’ bonuses
SubtotalInterest and dividends received
Interest paid
Income taxes refunded
Income taxes paid
Net Cash Provided by (Used in) Operating Activities
Cash Flows from Investing Activities:
Payments for purchases of investment securities
Proceeds from sales or redemption of investment securities (Note 3(w))
Payments for purchases of property and equipment, and other assets
Proceeds from sales of property and equipment,and other assets
Payments for short-term and long-term loans
Proceeds from short-term and long-term loans
Proceeds from merger with equity method-affiliated company(Increase) decrease in other assets
Net Cash Provided by (Used in) Investing Activities
Cash Flows from Financing Activities:
Increase (decrease) in short-term debts
Increase (decrease) in commercial paper
Proceeds from long-term debts
Repayments of long-term debts
Proceeds from issuance of bonds
Repayment of bonds
Proceeds from payables under securitized lease receivables
Repayment of payables under securitized lease receivables
Proceeds from issuance of new stock
Proceeds from minority shareholders
Proceeds from sales of treasury stock
Purchases of treasury stock
Cash dividends paid
Cash dividends paid to minorities
Net Cash Provided by (Used in) Financing Activities
Translation Gain (Loss) on Cash and Cash Equivalents
Increase (Decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents at the Beginning of Year
Increase in Cash and Cash Equivalents Resulting from
Addition of Subsidiaries to the Scope of Consolidation
Cash and Cash Equivalents at the End of Year
The accompanying notes are an integral part of these statements.

40

CREDIT SAISON 2007¥¥

33,6102006¥

50,795

¥

2005

2007

54,422$ 284,617

65,130
9,825
(911)
7,182
38,399612(9,878)
17,101(1,775)(3,000)(61)(3,873)
576
2,012
2,369
14,42076,603
6,962
(173)
6,630
2,305
1,671
(12,416)
12,200(1,671)—
152(8,946)
3,419(6,395)80
18,971

43,272
7,723
(277)
—
—
503
(10,778)
10,448
1,840
—
(135)
(725)
4,783
(2,371)
1,156
17,513

551,530
83,199(7,714)60,818325,166
5,186(83,646)
144,805(15,033)(25,408)(513)(32,795)
4,876
17,04020,063
122,114(272,686)
90,000(25,658)(5,844)57,0485,593(250)
19,941
9,861(15,968)
11,026(12,870)
11,990(187,686)—(35,915)(12,595)
7,249
1,192
(184)
(77,752)
12,678(11,684)—(22,585)(99,343)(146,655)
30,000(16,397)
(762)
8,323
7,414
(174)
9,123
10,545(10,091)—(34,291)(24,714)(2,309,142)
762,131(217,273)(49,491)
483,087
47,361(2,118)168,860
83,504(135,217)
93,370(108,983)
101,534(13,261)
24,462(96,204)386(4,190)5,561—
446(82,800)(49,463)
22,020(92,803)517(2,490)
1,496
2,398
(481)
(118,806)(29,504)
4,912(91,698)
1,467(4,701)
7,757—(1,881)(113,648)(112,298)
207,142(814,667)
3,267(35,481)
47,092—3,780(701,165)(89,152)(11,700)
196,600(58,368)
58,611(16,455)—(12,000)
1,544
2,580
19,189(19,198)(4,655)(161)
66,83558(3,917)66,314(81,091)
56,000236,003(74,441)
79,523(32,493)
30,000(3,000)9,862
12,811308(20)(3,498)(88)
229,876
24
11,75154,30812,402(14,000)
117,020(23,817)
43,968(20,462)—(3,127)
4,931
5,003
428
(22)
(3,058)(5)
119,261(12)(19,113)73,421(754,950)(99,077)
1,664,832(494,266)
496,326(139,343)—(101,617)
13,075
21,846
162,498(162,573)(39,422)(1,364)565,965493(33,173)
561,558—
54,308—$ 528,385—
62,397¥

255
66,314¥

Notes to Consolidated Financial Statements
CREDIT SAISON CO., LTD. and Consolidated Subsidiaries

Note

1

BASIS OF PREPARATION OF
FINANCIAL STATEMENTS

The accompanying consolidated financial statements have been preparedbased on the accounts maintained by CREDIT SAISON CO., LTD. (the“Company”) and its consolidated subsidiaries (together the “Companies”) in
accordance with the provisions set forth in Japanese Corporate Law and the
Securities and Exchange Law. They also conform to the Financial Statement
Regulations promulgated by the Ministry of Finance, as well as to accounting
principles and practices generally accepted in Japan, which differ from international financial reporting standards in certain respects as to applicationand disclosure requirements.
Certain items presented in the consolidated financial statements filedwith the Ministry of Finance have been reclassified in these accounts for theconvenience of readers outside Japan.
Note

2

U.S. DOLLAR AMOUNTSJapanese yen amounts have been translated into U.S. dollars at the rate of¥118.09=US$1, the approximate exchange rate on March 31, 2007, for theconvenience of the reader. These translations should not be construed as
representations that Japanese yen amounts actually represent, have been or
could be converted into U.S. dollars at this or any other rate.
Note

3

SIGNIFICANT ACCOUNTING POLICIES(a) Basis of consolidation and accounting for investments
in affiliated companies
As at March 31, 2007, the consolidated financial statements include theaccounts of the Company and its nine (eleven for 2006) material subsidiaries.
At March 31, 2007, Saison Direct Marketing Co., Ltd., previously consolidated, was excluded from the scope of consolidation due to the liquidation ofthis company.
Vivre Co., Ltd. previously consolidated, has been excluded from the scopeof consolidation as it has been merged with a consolidated subsidiary, Noa
Planning Co., Ltd. (renamed Vivre Co., Ltd. effective from March 1, 2007). Dueto this, the consolidated fiscal period includes only 11 months (April 1,
2006–February 28, 2007) of Vivre, Co., Ltd.
Also, A&A Co., Ltd. changed its book-closing date to February 28 startingfrom the current fiscal year. Due to this, the consolidated fiscal period of A&A
Co., Ltd. was only 11 months (April 1, 2006–February 28, 2007).
Furthermore, A.I.C. LLC. changed its name to A.I.C. Co., Ltd. effectivefrom February 14, 2007, in accordance with the accounting standards specified in the Corporate Law.
All significant intercompany accounts and transactions and unrealized
profit among the Companies, if any, have been eliminated on consolidation.
Unconsolidated subsidiaries would have no material effect on the consolidated financial statements of the Companies and have therefore been excluded
from consolidation.
The investments in nine (six for 2006) material affiliates are accounted
for by the equity method. Effective from the year ended March 31,2007,
Shizugin Saison Card Co., Ltd., Daiwa House Financial Co., Ltd. andTakashimaya Credit Co., Ltd have been included in these affiliates due toacquisition of equity.
Investments in unconsolidated subsidiaries and affiliates not accounted
for by the equity method are stated at cost, due to their immaterial effect on
the consolidated financial statements of the Companies.
The full portion of the assets and liabilities of the consolidated subsidiaries
is marked to fair value as of the acquisition of control, and any differences

between net assets at fair value and the investment amounts are recognized
as goodwill, which is amortized on a straight-line basis over an effective period extending to within 20 years. However, if the amount is not material, it ischarged to income when incurred.
(b) Financial instruments
The Companies adopted Japanese accounting standards for financial instruments.
i Derivatives
All derivatives are stated at fair value, with changes in fair value included in
net profit or loss for the period in which they arise, except for derivatives thatare designated as “hedging instruments” (see iii. Hedge accounting ).
ii Securities
Securities held by the Companies are classified into four categories:
Trading securities, which are held for the purpose of generating profits on
short-term differences in prices, are stated at fair value, with changes in fairvalue included in net profits or loss for the period in which they arise.
Held-to-maturity debt securities that the Companies intend to hold tomaturity are stated at cost after accounting for premiums or discounts on
acquisition, which are amortized over the period to maturity.
Investments of the Companies in equity securities issued by unconsolidated subsidiaries and affiliates are accounted for by the equity method.
Exceptionally, investments in certain unconsolidated subsidiaries and affiliates are stated at cost.
Securities not included in the above categories are defined as “othersecurities.” Other securities that have market prices are stated at fair value,
and the cumulative change in fair value is not credited or charged to income,but net unrealized gains or losses on these securities are reported as a separate item in shareholders’ equity at a net-of-tax amount.
Other securities that do not have market prices are stated at cost using
the moving-average method. Equities of limited liability partnerships forinvestment business and of other similar partnerships (defined as “securities”
by Article 2, Section 2 of the Securities and Exchange Law) are valued at the
net equity equivalents based on the recently available financial statements ofthe partnership corresponding to the reporting dates of the financial statements defined by the partnership agreements.
In cases where the fair value of held-to-maturity debt securities, equity
securities issued by unconsolidated subsidiaries and affiliates, or other securities has declined significantly and such impairment of the value is notdeemed temporary, those securities are written down to fair value, and theresulting loss is included in net profit or loss for the period.
iii Hedge accounting
Derivatives used as hedging instruments by the Companies are principallyinterest rate swaps and currency swaps. The related hedged items are bankloans and debt securities issued by the Companies.
The Companies use interest rate swaps and currency swaps to manage
their exposure to fluctuations in interest rates and foreign exchanges. The
Companies do not enter into derivatives for speculative purposes.
As per the accounting standard for derivative financial instruments, a) all
derivatives are recognized as either assets or liabilities and measured at fairvalue, 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 andeffectiveness between the hedging instruments and hedged items, gains orlosses on derivatives are deferred until maturity of the hedged transactions.
CREDIT SAISON 2007

41

The interest rate swaps that qualify for hedge accounting and meet specific matching criteria are not remeasured at market value, but the differentials paid or received under the swap agreements are recognized and included in interest expense or income.
(c) Inventories
Inventories are stated at cost determined principally by the specific identification method. Supplies are stated at cost determined principally by the latest
purchase cost method.
(d) Property and equipment
Depreciation of property and equipment is computed principally by thestraight-line method over the estimated useful lives of the assets, except forequipment for lease, which is depreciated over the lease term. Additionally,
estimated losses caused by disposal of lease assets due to cancellation, etc.,
of lease contracts are presented as depreciation and amortization.
In the case of losses caused by the disposal of a lease property when leasecharges remained unpaid by the customer over the term, losses were previously
treated by the Company as an expense when the loss was incurred.
However, given the trend for increase of losses caused by disposal ofsuch equipment for lease, effective from the year ended March 31, 2007, inorder to indicate the actual state of transactions more accurately, theCompany recorded as a depreciation expenses an estimated loss amount for
future disposal of leased properties, based on results from the disposals ofsuch equipment for lease.
Because of this change, the Company recorded as non-operating
expenses, additional depreciation expenses for lease assets of ¥5,477 million (US$46,129 thousand) estimated at the beginning of the year ended
March 31, 2007, in accordance with the new estimation method.
As a result, compared with the previous method, operating revenues,
operating income, each decreased by ¥193 million (US$1,632 thousand),and income before income taxes decreased by ¥5,640 million (US$47,761
thousand).
(e) Leased properties
Finance leases are accounted for as operating leases, except where thelease is deemed to transfer ownership of leased property to the lessee.
(f) Intangible assets
Depreciation of intangible assets is computed principally by the straight-line
method over the estimated useful lives of the assets, except for equipment
for lease, which is depreciated over the lease term. Additionally, estimatedlosses caused by disposal of lease assets due to cancellation, etc., of lease
contract are presented as depreciation and amortization.
(g) Allowance for losses on receivables
Receivables are classified into four risk categories: bankrupt, doubtful, substandard and normal.
The Companies individually provide a specific reserve for bankrupt anddoubtful receivables based on the fair value of any underlying collateral.
The Companies provide collectively a general reserve for substandard
and normal receivables, applying a ratio determined based on the
Companies’ loan loss experience.
(h) Accrued employees’ bonuses
Accrued employees’ bonuses are provided at the estimated amounts, which
are to be paid for services rendered prior to the year-end.

42

CREDIT SAISON 2007(i) Allowance for directors’ bonuses
Allowance for directors’ bonuses is maintained at the amount accrued at theend of fiscal year, based on the estimated future payments and service period.
(j) Allowance for losses on business downsizing
Allowance for losses on business downsizing is provided at the estimatedamount required to discontinue certain operations of consolidated subsidiaries.
(k) Allowance for losses on interest repayments
Formerly, refund of interest on loans to customers was charged to income at
the time of payment. Effective from the year ended March 31, 2006, reflecting expansion of interest repayment allowance for losses on interest repayment is provided at the estimated amount based on payment experience,
required to refund upon customers’ legal claims.
The effect of this change was to decrease income before income taxesby ¥2,305 million for the year ended March 31, 2006.
Following the statement from the Japanese Institute of Certified Public
Accountants (JICPA) regarding “auditing of allowance for losses on interest
repayments to consumer finance companies” (Report No. 37 dated October
13, 2006, issued by the Special Committee by Category of Business of theJapanese Institute of Certified Public Accountants), effective from the year
ended March 31, 2007, the Company has changed its method of estimatingallowance for losses on interest repayments.
Because of this change, the Company recorded, as non-operating
expenses, provision for losses on interest repayments of the ¥40,925 million(US$346,551 thousand) the difference between the allowance booked at the
beginning of the year ended March 31, 2007 and the allowance of ¥7,505
million (US$63,550 thousand), including the allowance for losses on receivables of ¥5,200 million (US$44,031 thousand) transferred at the beginningof the year, estimated by the previous method.
As a result, compared with the amounts estimated under the previous
method, operating income increased by ¥5,334 million (US$45,165 thousand) and income before income taxes decreased by ¥35,591 million(US$301,385 thousand).
(l) Allowance for losses on investment securities
An allowance for losses on investment securities is provided for losses oninvestments in subsidiaries and affiliated companies based on their financial conditions.
(m) Accrued pension and severance costs
Accrued pension and severance costs are provided for employees’ retirement
benefits based on the projected benefit obligation and the fair value of pension plan assets at the end of the fiscal year.
Unfunded past service costs and actuarial differences of the plans areamortized over a period of nine to eleven years, within the average remaining
services period at the time of occurrence. Amortization of unfunded past
service costs and amortization of actuarial differences start from occurrence
and from the following fiscal year, respectively.
(n) Accrued retirement benefits to directors andstatutory auditors
Directors and statutory auditors customarily receive lump-sum payments
upon termination of services, subject to shareholders’ approval.
The Companies provide for retirement allowance in an amount equal to
the total benefits calculated based on the unfunded retirement plan for the
directors and statutory auditors.

(o) Allowance for losses on guarantees
An allowance for losses on guarantees is provided for potential losses arisingfrom the Companies’ guarantee obligations of customers’ liabilities (personalloans to individuals from the banks with which the Companies have guarantee service arrangements).
The allowance is provided at an amount determined by the applying theratio of the Companies’ loss experience to the balance of guarantees outstanding at each year-end.
(p) Allowance for losses on warranty for defects
An allowance for losses on warranty for defects is provided for the potential
repair costs on sold real estate (detached houses and store-combined houses) due to the Companies’ warranty for defects. The allowance is provided at
the amount estimated based on the past experience of repair costs.
(q) Allowance for losses on point program
To stimulate card usage, the Company provides cardholders with credit card
points, which can be exchanged for various commodities and services.
Allowance for losses on point program is provided based on estimated usageof card points outstanding at year-end and exchange experience. Formerly,
expected cost of usage of credit card points on SAISON CARD was calculated
based on points outstanding at year-end and included in accrued expenses.
Effective from the year ended March 31, 2006, reflecting the abolition of an
expiration date for credit card points on SAISON CARD, the allowance is provided based on estimated usage of card points outstanding at year-end andexchange experience.
The effect of this change was to increase income before income taxes by¥597 million for the year ended March 31, 2006.
The expected cost of usage of credit card points as of March 31, 2005,
amounting to ¥20,986 million, is included in accrued expenses in current liabilities on the consolidated balance sheet.
(r) Income taxes
Deferred income taxes are recorded to reflect the impact of temporary differences between assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes.
(s) Accounting Standard for Directors’ Bonus
Effective from the year ended March 31, 2007, the Company has adopted“Accounting Standard for Directors’ Bonus” (Accounting Standards Board ofJapan Statement No. 4 issued on November 29, 2005).

As a result, compared with the amounts calculated under the standards
used in the previous fiscal year, operating income and income before
income taxes for the year ended March 31, 2007 decreased by ¥258 million (US$2,187 thousand), respectively. Of this amount, ¥160 million(US$1,355 thousand) was presented as accrued directors’ bonuses and¥98 million (US$832 thousand) was included in accrued expenses andother current liabilities.
(t) Accounting standard for presentation of net assets inthe balance sheet
Effective from the year ended March 31, 2007, the Company has applied“Accounting Standards for Presentation of Net Assets in the Balance Sheet”(Accounting Standards Board of Japan Statement No. 5), and “Implementaion
Guidance for Accounting Standards for Presentation of Net Assets in the
Balance Sheet (Accounting Standards of Japan Guidance No. 8)” both issued
by the Accounting Standards Board of Japan on December 9, 2005.
“Net assets” in the balance sheets for the year ended March 31, 2007
is presented according to the revision of “Regulations Concerning the
Terminology, Form and Presentation Methods of Consolidated Financial
Statements” dated April 25, 2006. Furthermore, the Company presented its
net assets in the balance sheets using the new presentation as of March
31, 2006.
The consolidated statements of changes in net assets for the year ended
March 31, 2005 and 2006 are presented under the new standard.
(u) Impairment loss of property and equipment, and otherassetsFixed assets are reviewed for impairment whenever events or changes in circumstances indicate material change in the carrying amount of an asset.
(v) Purchased receivables with pledged real estate
Formerly, receivables purchased with pledged real estate were included ininstallment account receivable and possible uncollectible amounts were
accounted for as allowance for losses on receivables. Effective from the year
ended March 31, 2006, in reconsideration of transactions, the purchased
receivables are included in inventories and possible uncollectible amounts
were accounted for as inventory evaluation losses. Previously reported figures on the consolidated balance sheet as of March 31, 2005 are reclassified to conform with the current accounting policy.
This change had no effect on income before income taxes for the year
ended March 31, 2006.

(w) Supplementary cash flow information
Cash and cash equivalents in the consolidated statements of cash flows comprise cash in hand, demand deposits in banks and highly liquid, short-term investments with a low risk of fluctuation in value that are scheduled to mature within three months of acquisition.
The balance of cash and cash equivalents as of March 31, 2007, 2006 and 2005 is reconciled with the respective consolidated balance sheets as follows:
Thousands of
U.S. dollars

Millions of yen

Consolidated balance sheet:
Cash and deposits
Securities
Short-term loans
Segregated trustee deposits
Cash and cash equivalents at end of year

2007

2006

2005

2007

¥ 55,962
1,500
5,000
(65)
¥ 62,397¥ 66,314———¥ 66,314¥ 54,308———¥ 54,308$ 473,889
12,70042,344(548)$ 528,385

CREDIT SAISON 2007

43

Thousands of
U.S. dollars

Millions of yen

Non-cash financing activities are as follows:
Conversion of convertible bonds
Common stock increased due to conversion of convertible bonds
Additional paid-in capital increased due to conversion of convertible bonds
Convertible bonds decreased due to conversion
Acquisition of investment securities by stock for stock and contribution in kind

2007

2006

—
—
—
¥ 11,513

—
—
—
—

2005

2007

3,393
3,389
¥ 6,782¥ 10,231———$ 97,493¥

As of January 1, 2006, the Company merged with UC CARD CO., LTD. (card issuance business). The assets and liabilities acquired through this merger
were summarized as follows:
As of January 1, 2006

Millions of yen

Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities¥ 279,711
25,000¥ 304,711
238,637
12,224¥ 250,861(x) Description of proceeds from sales or redemption of investment securities

Proceeds from sales of investment securities
Proceeds from redemption of investment securities
Proceeds from distribution of limited liability partnerships and other similar partnerships or return of capital
Total proceeds from sales or redemption of investment securities

Millions of yen

Thousands of
U.S. dollars

2007

2007

¥ 10,248
6,655
7,558
¥ 24,461$

86,78656,35863,998$ 207,142(y) Reclassification
Certain reclassifications of previously reported figures have been restated to conform with current classifications.

Note

4

NOTES AND INSTALLMENT ACCOUNTS RECEIVABLE

As of March 31, 2007 and 2006, liquidated revolving receivables and single-payment card shopping receivables were as follows, and the following amounts oftrust beneficiary rights and other receivable generated from liquidation or operational transactions were included in notes and installment accounts receivable.
Thousands of
U.S. dollars

Millions of yen

Liquidated receivables:
Revolving card shopping
Single-payment card shopping, etc.
Revolving card cashing
Trust beneficiary rights and other receivables include:
Revolving card shopping
Single-payment card shopping, etc.
Revolving card cashing
Acquisition from operational transactions

44

CREDIT SAISON 2007

2007

2006

¥ 10,100
90,00028,750¥ 40,401—
28,75036,841
161,515
14,730867

11,120144,687
17,049—2007$

85,529762,131
243,461
311,972
1,367,730
124,740
7,338

Note

5

LOAN COMMITMENTS

The Companies provide cashing and card loan services that supplement their credit card operations. The unexercised loans contingent with the loan commitments in these businesses were as follows:
Thousands of
U.S. dollars

Millions of yen

Total loan limits
Loan executions

2007

2006

2005

2007

¥ 8,622,256
652,817¥ 7,969,439¥ 7,948,562
614,051¥ 7,334,511¥ 5,835,727
467,085¥ 5,368,642$ 73,014,274
5,528,126$ 67,486,148

Most of the contracts for the above loan commitments were for cashing services supplementary to credit card services furnished to the Company’s cardholders,such that not all unexecuted loans will be exercised.
The above amounts include the commitments connected with the liquidated revolving receivables on card cashing.

Note

6

SHORT-TERM LOANS AND LONG-TERM DEBT

Short-term loans are represented principally by 30 to 365 day notes to banks and other financial institutions, with an average interest rate of 1.07% as ofMarch 31, 2007.
Commercial paper is issued by the Companies, with an average interest rate of 0.60% as of March 31, 2007.
Long-term debt as of March 31, 2007 and 2006 consisted of the following:Thousands of
U.S. dollars

Millions of yen

2007

2006

2007

¥ 672,356
274,943
48,000995,299(107,090)¥ 888,209¥ 534,124
232,398
60,000826,522(86,700)¥ 739,822$ 5,693,594
2,328,245
406,4708,428,309(906,849)$ 7,521,460

Year ending March 31

Millions of yen

Thousands of
U.S. dollars

2008
2009
2010
2011
2012 and thereafter¥ 107,090
89,586122,096
98,551
577,976$ 906,849
758,626
1,033,925
834,542
4,894,367

Average 1.47% mortgage or secured loans from banks, insurance companies andother financial institutions, due in installments through 2016
0.42% to 2.41% bonds, due in installments through 2016
Average 0.78% on payables under securitized lease receivables*
Subtotal
Less: Current portion*Payables under securitized lease receivables result from liquidation.

The aggregate annual maturities of long-term debt subsequent to March 31, 2007 are as follows:

As is customary in Japan, short- and long-term bank loans are made under general agreements that provide that additional security and guarantees for present
and future indebtedness will be given upon request of the bank under certain circumstances, and that any collateral so furnished will be applicable to all indebtedness to the bank. To date, the Companies have not received any such requests from their banks.

CREDIT SAISON 2007

45

Note

7

LEASE TRANSACTIONS(a) Finance lease (lessee)
Finance leases as of March 31, 2007 and 2006 and for the years then ended are summarized as follows:i. Pro forma capitalization of leased items
Thousands of
U.S. dollars

Millions of yen

Building:
Acquisition cost
Accumulated depreciation
Net book value
Software:Acquisition cost
Accumulated depreciation
Net book value
Other (fixtures and equipment)
Acquisition cost
Accumulated depreciation
Net book value
Total:
Acquisition cost
Accumulated depreciation
Net book value

2007

2006

2007

¥ 1,217(697)
520¥ 1,391(724)
667$ 10,306(5,901)
4,405

—
—
—

1
(1)
0

—
—
—

3,068
(1,345)
1,723

3,576
(1,591)
1,985

25,980(11,389)
14,591

4,285(2,042)¥ 2,243

4,968(2,316)¥ 2,652

36,286(17,291)$ 18,995

ii. Minimum future lease payments
Thousands of
U.S. dollars

Millions of yen

2007
Due within one year
Due after one year
Total

2007

2006

¥

780
1,560
¥ 2,340

¥

934
1,853
¥ 2,787$

6,603
13,210$ 19,813

The impairment loss account for leased assets amounted to ¥10 million (US$92 thousand) and ¥10 million as of March 31, 2007 and 2006, respectively.
iii. Lease payments, depreciation equivalent and interest equivalentThousands of
U.S. dollars

Millions of yen

Lease payments
Reversal of impairment loss account for leased assets
Depreciation equivalentInterest equivalent
Impairment loss

2007

2006

¥ 1,000
4
916
78
10

¥ 1,052
27
964
102
—

2007
$

8,470
36
7,760
660
82

Depreciation equivalent is computed by the straight-line method under assumption that the lease term equals the useful life, and that there is no residual value.
Interest equivalent, which represents aggregate lease payments less the acquisition cost equivalent, is allocated over the lease term based on theinterest method.

46

CREDIT SAISON 2007

(b) Equipment for lease (lessor)
Equipment for lease as of March 31, 2007 and 2006 and for the years then ended is summarized as follows:i. Acquisition cost and accumulated depreciation
Thousands of
U.S. dollars

Millions of yen

Equipment:
Acquisition cost
Accumulated depreciation
Net book value
Software:Acquisition cost
Accumulated depreciation
Net book value
Total:
Acquisition cost
Accumulated depreciation
Net book value

2007

2006

2007

¥ 286,304(123,197)
163,107¥ 260,441(101,860)
158,581$ 2,424,456(1,043,244)
1,381,212

23,401(7,030)16,371

14,708(3,257)
11,451

198,158(59,531)
138,627

309,705(130,227)¥ 179,478

275,149(105,117)¥ 170,032

2,622,614(1,102,775)$ 1,519,839

ii. Minimum future lease revenue
Thousands of
U.S. dollars

Millions of yen

Due within one year
Due after one year
Total

2007

2006

2007

¥ 46,245
147,698¥ 193,943¥ 40,397
137,003¥ 177,400$ 391,609
1,250,727$ 1,642,336

The above amounts include lease receivables, which were sold under liquidation of lease receivables.
iii. Lease revenue, depreciation equivalent and interest equivalentThousands of
U.S. dollars

Millions of yen

Lease revenue
Depreciation
Interest equivalent

2007

2006

2007

¥ 53,624
53,26910,203¥ 46,935
40,2659,529$ 454,095
451,086$ 86,401

Interest equivalent, which is aggregate lease revenues less acquisition cost, is allocated over the lease term based on the interest method.
The above amount of depreciation includes ¥5,447 million (US$46,130) in additional depreciation expenses of lease assets recorded as non-operating expenses.
(c) Operating leases (lessee)
Minimum future lease payments as of March 31, 2007 and 2006 are as follows:
Thousands of
U.S. dollars

Millions of yen

2007
Due within one year
Due after one year
Total

¥

686
2,752
¥ 3,438

2007

2006
¥
¥

153
85
238

$

5,807
23,306$ 29,113

CREDIT SAISON 2007

47

Note

8

OTHER SECURITIESAs of March 31, 2007 and 2006, acquisition costs and amounts on the consolidated balance sheets of other securities that have market value are summarized below:
Thousands of
U.S. dollars

Millions of yen

2007
Acquisition
cost

Balance sheet amountexceeding acquisition cost:
Equity shares
Bonds
Government
Corporate
Other
Subtotal
Balance sheet amountnot exceeding acquisition cost:
Equity shares
Bonds
Corporate
Other
Subtotal
TOTAL

Note

9

Balancesheet
amount2007

2006
Difference

Acquisition
cost

Balancesheet
amountDifference

Acquisition
cost

Balancesheet
amountDifference¥ 21,337 ¥ 54,896 ¥ 33,559¥ 12,433 ¥ 40,476 ¥ 28,043$ 180,687 $ 464,862 $ 284,175

1,500
100
209
23,146

1,500
103
218
56,7170
3
933,571—
16
171
12,620—17
198
40,691—
1
27
28,071

12,700847
1,773
196,00712,700
0
872
25
1,850
77
480,284 284,277

5,158

3,920

(1,238)

778

520

(258)

43,68033,196

200
194
(6)
903
843
(60)
85
83
(2)
384
369
(15)
5,443
4,197
(1,246)
2,065
1,732
(333)
¥ 28,589 ¥ 60,914 ¥ 32,325 ¥ 14,685 ¥ 42,423 ¥ 27,738(10,484)

1,694
1,646
(48)
717
700
(17)
46,09135,542 (10,549)$ 242,098 $ 515,826 $ 273,728

RETIREMENT BENEFIT PLANS

The Company and some of its consolidated subsidiaries had defined benefit plans composed of a corporate pension plan and a lump-sum payment plan.
Effective October 1, 2004, the Company and some of its consolidated subsidiaries changed the former defined benefit pension plans to cash balance plans.
Moreover, as per the Defined Contribution Pension Plan Law, a certain portion of future benefits was shifted either to defined contribution plans or to prepaid retirement benefit payment plans at employee’s option.
Reflecting these changes, the Companies recognized “Gains on revision of pension plans” amounting to ¥283 million, which is included in other non-operating revenues for the year ended March 31, 2005, in conformity with “Accounting for Transfer between Different Pension Plans” (Application Guide No. 1 issued by the
Accounting Standards Board of Japan) and prior service obligation was incurred.
(a) Accrued pension and severance costs
Accrued pension and severance costs as of March 31, 2007 and 2006 are calculated below:
Thousands of
U.S. dollars

Millions of yen

Retirement benefit obligations
Plan assets
Funded status
Unrecognized actuarial differences
Unrecognized prior service obligations
Accrued pension and severance costs

48

CREDIT SAISON 2007

2007

2006

2007

¥ (10,600)
4,802(5,798)3,486(4,181)(6,493)¥ (10,514)
4,335(6,179)3,692(4,917)(7,404)$ (89,761)
40,663(49,098)
29,520(35,404)(54,982)

(b) Retirement benefit expenses
Retirement benefit expenses for the years ended March 31, 2007, 2006 and 2005 are stated below:
Thousands of
U.S. dollars

Millions of yen

Service costs
Interest costs
Expected return on plan assets
Actuarial difference recognized as expense
Prior service obligations recognized as expenses
Other *
Retirement benefit expenses
Gains on revision of pension plans
Total

2007

2006

2005

2007

¥ 491
207
(153)
616
(596)
254
¥ 819
—
¥ 819

¥ 458
200
(59)
633
(606)
191
¥ 817
—
¥ 817

¥ 681
264
(67)
652
(479)
86
¥ 1,137
(283)
¥ 854

$ 4,156
1,754(1,292)
5,215(5,044)2,150$ 6,939—$ 6,939*Other represents payments to defined contribution pension fund, etc.

The principal assumptions used in determining retirement benefit obligations and other components for the Companies’ plans are stated below:

Discount rate
Expected return on plan assets
Period of recognition of past service obligations
Period of recognition of actuarial differences

Note

10

2007

2006

2005

2.0%
3.5%
9–11 years evenly
9–11 years evenly

2.0%
1.5%
9–11 years evenly
9–11 years evenly

2.0%
1.5%
9–11 years evenly
9–11 years evenly

DEFERRED TAX ASSETS AND LIABILITIES(a) Effective tax rate
The effective income tax rates of the Companies differ from the statutory tax rates for the years ended March 31, 2007, 2006 and 2005 for the following reasons:Statutory tax rate
Reconciliation:
Expenses not deductible for tax purposes
Non-taxable dividend income
Inhabitants taxes per capita
Amortization of goodwill
Equity in net earnings (losses) of affiliated companies
Increase (decrease) of evaluation allowance
Reduction of deferred tax assets resulting from tax rate revision
Net gains on changes in equity interest
Income tax credit
Income tax paid for the past fiscal year, etc.
Other
Effective tax rate

2007

2006

2005

40.70%

40.70%

40.70%

0.76(0.16)
0.56(0.08)(2.15)(3.28)—
2.44(0.15)
2.60
1.22
42.46%

0.27(34.88)0.37(0.20)(1.34)
13.59—(5.12)(1.19)—
1.50
13.70%

0.22(0.09)
0.30(0.15)
1.38
0.55
0.29
(1.77)(1.31)—(0.02)
40.10%CREDIT SAISON 200749

(b) Deferred income taxes
Deferred income taxes as of March 31, 2007 and 2006 comprised the following:Thousands of
U.S. dollars

Millions of yen

Deferred tax assets:
Inventories
Amortization of goodwill
Accumulated impairment losses of property and equipment, and other assets
Accumulated depreciation expense of property and equipment, and other assets
Investment securities
Allowance for losses on receivables
Allowance for losses on interest repayments
Accrued expenses
Accrued enterprise taxes
Accrued pension and severance costs
Allowance for losses on point program
Other allowance
Accumulated deficit carryforwards
Unrealized losses on hedging derivatives
Unrealized losses on other securities
Other
SubtotalLess evaluation allowance
Total deferred tax assets
Deferred tax liabilities:
Accrued refundable enterprise taxes
Capital gains deferred for tax purposes
Unrealized gains on other securities
Other
Total deferred tax liabilities
Net deferred tax assets

2007

2006

2007

¥ 2,660
4,997
3,033
2,377
4,946
8,093
18,683
358
2,640
2,643
14,735
2,303
414
19
101
3,556
71,558(6,369)65,189¥ 1,255
6,662
2,046
—
4,831
7,707
938
296
628
2,923
11,813
1,973
413
—
3
3,596
45,084(7,283)37,801$ 22,521
42,31325,682
20,13041,887
68,536
158,207
3,035
22,354
22,382
124,781
19,506
3,502
159
857
30,111
605,963(53,932)
552,031—(212)(13,663)(2)(13,877)¥ 51,312

(101)
(212)
(10,265)(47)(10,625)¥ 27,176—(1,793)(115,705)(17)(117,515)$ 434,516

Net deferred tax assets are presented on the consolidated balance sheets as of March 31, 2007 and 2006 as follows:
Thousands of
U.S. dollars

Millions of yen

Current assets
Investment and other assets
Current liabilities—other
Long-term liabilities—other50

CREDIT SAISON 2007

2007

2006

2007

¥ 19,471
31,841——¥ 10,619
16,610(35)(17)$ 164,883
269,633
—
—

Note

11

IMPAIRMENT LOSSES OF PROPERTY AND EQUIPMENT, AND OTHER ASSETSFor the year ended March 31, 2007, the Companies wrote down the book value of amusement facilities and operating facilities from which operating income had
deteriorated and was not expected to recover in the short term.
The Companies also wrote down the book value of office assets according to a transferring plan of a subsidiary company.
The Companies recorded impairment losses for the year on the following assets:
March 31, 2007

Asset
Certain amusement facilities
Operating facilities
Official assets

Description
Buildings, Other (Fixtures, furniture, other), Lease deposits
Buildings, Other (Fixtures, furniture, other), Software
Buildings, Land, Other (Fixtures, furniture, other)

Location
Kanto region
Tokyo
Tokyo, Osaka

For the year ended March 31, 2006, the Companies recorded impairment losses amounting to ¥80 million. Due to its insignificance in amount, the details are omitted.
For the year ended March 31, 2005, the Companies wrote down the book value of amusement facilities, mail-order sales facilities and operating facilities from which
operating income had deteriorated and was not expected to recover in the short term.
The Companies recorded impairment losses for the year on the following assets:
March 31, 2005

Asset
Certain amusement facilities
Mail-order sales facilities
Operating facilities

Description
Buildings, Other (Fixtures, furniture, other)
Buildings, Other (Fixtures, furniture, other), Software
Buildings, Other (Fixtures, furniture, other)

Location
Kanto region
Tokyo
Tokyo

Accumulated impairment losses were subtracted directly from individual assets. Impaiment loss on property and equipment, and other assets recognized for the years
ended March 31, 2007, 2006 and 2005 are as follows:
Thousands of
U.S. dollars

Millions of yen

Property and equipment:
Buildings and improvements
Land
Other (Fixtures and equipment, other assets)
Investment and other assets:
Intangible assets
Lease deposits
Other
Current liabilities
Other
Total

2007

2006

2005

2007

¥ 1,635
14
623

¥ 20
—
39

¥ 551
—
515

$ 13,849
117
5,283

1
86
—

21
—
—

53
—
—

6
726
—

10
¥ 2,369—¥ 80

37¥ 1,15682$ 20,063

Regarding operating facilities and official assets, the recoverable amount is measured as the net selling price, which is principally determined by real estate appraisersor other independent third parties.
Regarding certain amusement facilities and mail-order sales facilities, the recoverable amount is measured as value in use, which is the present value of net cash
flows discounted at 5.0 percent.
The assets of the Companies are grouped by the operation unit that is able to control income efficiently. However, real estate for lease and idle assets are groupedby the physical unit, and operating facilities and amusement facilities is grouped by site.

CREDIT SAISON 2007

51

Note

12

OPERATING REVENUES

Operating revenues for the years ended March 31, 2007, 2006 and 2005 comprised the following revenues and expenses:
Thousands of
U.S. dollars

Millions of yen

Financing and administration feesEntertainment business (Note 2):
Sales
Cost of sales
Income from entertainment sales
Real estate business (Note 1):
Sales
Costs of sales
Income from real estate business
Lease business:
Sales
Cost of sales
Lease income
Other business:
Sales
Cost of sales
Other income
Financial income
Total operating revenues

2007

2006

2005

2007

¥ 274,231¥ 214,450¥ 183,618$ 2,322,215

126,070
109,196
16,874

143,548
125,664
17,884

108,546
91,556
16,9901,067,577
924,685
142,892

94,51774,647
19,87070,132
51,771
18,361

58,40045,768
12,632

800,382
632,122168,260

68,83162,068
6,763

65,62358,4807,143

57,53550,732
6,803

582,869
525,596
57,273

6,533
343
6,190
9,755
¥ 333,683

6,888
2,050
4,838
11,990¥ 274,666

13,432
5,349
8,083
12,259¥ 240,385

55,321
2,901
52,42082,608$ 2,825,668

Notes: 1. As described in Note 3 (v), effective from the year ended March 31, 2006, in reconsideration of transactions, collection of receivables and the corresponding cost are included in sales and cost of
sales, respectively. Previously reported figures for the year ended March 31, 2005 are reclassified to conform with the current accounting policy.
2. Effective from the year ended March 31, 2006, as a consolidated subsidiary, the operating amusement section of the Entertainment business carried out special prize exchange operations in the specific areas to the outside agents. The cost of these prizes, formerly deducted from sales, is included in cost of sales. Effect of the change was to increase sales and cost of sales by ¥22,696 million forthe year ended March 31, 2006, but it had no effect on the income from the Entertainment business.

Note

13

DERIVATIVES

Contractual values or notional principal amounts and unrealized profits (losses) on derivative transactions as of March 31, 2007 and 2006 are summarized below:(a) Interest rate transactions
Millions of yen

2007

2006

Contractual value or
notional principal amountContractual value or
notional principal amount

Total

Over-the-counter interest rate swaps:
Floating-rate receipt/fixed-rate payment
Total¥ 12,471¥ 12,471

Unrealized
profit (loss)

Over 1 year

¥
¥

250
250

¥ (125)¥ (125)

Total

Over 1 year

¥ 19,119¥ 19,119¥ 12,471¥ 12,471

Thousands of U.S. dollars

2007
Contractual value or
notional principal amount

Over-the-counter interest rate swaps:
Floating-rate receipt/fixed-rate payment
Total

Total

Over 1 year

$ 105,606$ 105,606$ 2,117$ 2,117

Unrealized
profit (loss)$ (1,057)$ (1,057)

Notes: 1. Fair value is calculated based on prices and other information presented by financial and other institutions with which the Companies have concluded derivatives agreements.
2. Hedged derivatives transactions are excluded.

52

CREDIT SAISON 2007

Unrealized
profit (loss)¥ (455)¥ (455)(b) Foreign exchange transactions
Millions of yen

2007

2006

Contractual value or
notional principal amountContractual value or
notional principal amount

Total

Currency swaps:
Yen received/U.S. dollars paid
Total

—
—

Unrealized
profit (loss)

Over 1 year

Total

—
—

—
—

Unrealized
profit (loss)

Over 1 year

534
¥ 534

—
—

¥

(6)
(6)

Thousands of U.S. dollars

2007
Contractual value or
notional principal amount
Total

Currency swaps:
Yen received/U.S. dollars paid
Total

—
—

Unrealized
profit (loss)

Over 1 year

—
—

—
—

Notes: 1. Fair value at year-end is calculated based on prices and other information presented by financial and other institutions with which the Company has concluded derivatives agreements.
2. Receivables and payables in foreign currencies, which are shown in the consolidated balance sheets at the fixed yen amounts under the foreign exchange forward contracts, are excluded from theabove schedule.
3. Hedged derivatives transactions are excluded.

Note

14

COMMITMENTS AND CONTINGENT LIABILITIESAs of March 31, 2007, the Companies were contingently liable as credit guarantors for customers borrowing from the alliance banks, LAWSON CS Card
Inc., and other affiliates to a total of ¥139,972 million (US$1,185,302 thousand), ¥11,955 million (US$101,236 thousand) and ¥252 million (US$2,131
thousand), respectively.

Note

15

SHAREHOLDERS’ EQUITY(a) Common stock
The Company has 300,000,000 authorized shares, of which 181,312,925 shares were issued as of March 31, 2007.
(1) Type and number of shares issued and treasury stock(Thousands of shares)

Balance at March 31, 2005
Number of shares increase
Number of shares decrease
Balance at March 31, 2006
Number of shares increase
Number of shares decrease
Balance at March 31, 2007

Issued shares(Common stock)

Treasury stock(Common stock)

176,619
4,098 *1—
180,717596 *4

1,675
89 *2
31 *3
1,733
4,690 *5
4,712 *6—
181,313

Notes: 1. Increase in issued shares
Number of subscription rights issued: 4,098 thousand shares
2. Increase in treasury stock
Acquisition in the market by affiliate companies: 79 thousand shares
Acquisition from consolidated subsidiaries: 6 thousand shares
Acquisition of fractional shares: 4 thousand shares
3. Decrease in treasury stock
Sales by consolidated subsidiaries: 31 thousand shares
Sales of fractional shares: less than a thousand shares

1,710
4. Increase in number of issued shares
Number of subscription rights issued: 596 thousand shares
5. Increase in treasury stock
Acquisition by ToSTNeT-2: 4,684 thousand shares
Acquisition from consolidated subsidiaries: 4 thousand shares
Acquisition of fractional shares: 2 thousand shares
6. Details of decrease:
Sales from third-party allotment: 4,684 thousand shares
Sales by consolidated subsidiaries and equity-method affiliates: 28 thousand shares
Sales of fractional shares: less than a thousand shares

CREDIT SAISON 200753

(b) Stock option plans(1) The Company has the following option plans for directors, statutory auditors, officers, employees and corporate counselors of the Companies as of March
31, 2007. The option plans have been approved by the General Shareholders’ Meetings.
Dateofapproval

Number ofsubscription
rights unexercised

June 25, 2005

16,868June 27, 2003

5,791

June 27, 2002

4,273

Type andnumber oftargeted shares

Common stock
1,686,800 shares
Common stock579,100 shares
Common stock
427,300 shares

Subscription
price

Effective
periodJune 30, 2007 toJune 29, 2010
June 30, 2005 toJune 29, 2008
June 30, 2004 toJune 29, 2007

¥3,740 per share¥2,095 per share¥2,978 per share

Issue
price

Per share
addition tocommon stock¥3,740¥1,870¥2,095¥1,048¥2,978¥1,489Notes: 1. Conditions of execution
In the event a granted person retires or resigns under the regulations, subscriptions right may be exercised within two years after that. In the event a granted person retires voluntarily or dies, subscriptions right will be canceled.
2. Transfer of stock option
Transfer of stock option to the third person needs the approval of the Board of Directors’ Meeting.

(2) Stock option for certain subsidiaries
Dateof
approval

Number ofsubscription
rights unexercised

December 16, 2006

4,896

September 13, 2004

7,092

Type andnumber oftargeted shares

Common stock489,600 shares
Common stock709,200 shares

Subscription
price

Effective
period¥162 per share¥259 per share

Issue
price

December 17, 2005 to
December 16, 2008
September 14, 2006 to
September 13, 2009

¥162
¥259

(c) Dividend(1) Dividend payment
Type of share

Resolution

Commonstock

General Meeting of Shareholders
on June 24, 2006(¥ million)

Thousands of
U.S. dollars

Dividend
per share (¥)

Thousands of
U.S. dollars

Record date

Effective date

4,656

39,422

26.00

0.220

March 31,2006

June 24,2006

Total amount(2) For dividend payments with an effective date in the year ended March 31, 2008, the record date occurred in the year ended March 31, 2007.
Type of share

Source ofpayment

Commonstock

Retainedearnings

Resolution

General Meeting of Shareholders
on June 23, 2007

54

CREDIT SAISON 2007(¥ million)

Thousands of
U.S. dollars

Dividend
per share (¥)

Thousands of
U.S. dollars

Record date

Effective date

5,030

42,595

28.00

0.237

March 31,2007

June 23,2007

Total amount

Note

16

SEGMENT INFORMATION(a) Business segments
Segment information by business segment for the years ended March 31, 2007, 2006 and 2005 was as follows:
Millions of yen

Operating revenues

Year ended March 31, 2007

Outsidecustomers

Intersegment

Credit & FinanceEntertainment
Real estate
Lease
Other
Total
Eliminations or corporate
Consolidated¥ 283,986 ¥ 206
16,87446
19,870
705
6,763
32
6,190
389
333,683
1,378—(1,378)¥ 333,683 ¥ —Operatingexpenses

OperatingincomeAssetsDepreciation

Loss onimpairment

Capitalexpenditures

¥

—
2,277
92
—
—
2,369
—
¥ 2,369¥ 14,148
4,593
5,272
75,11943
99,175877¥ 100,052

Loss onimpairment

Capitalexpenditures

¥

—
79
—
—
1
80
—
80

¥ 9,723
5,751
1,614
76,68632
93,806155¥ 93,961

Loss onimpairment

Capitalexpenditures¥¥ 18,106
6,331
381
69,953
17
94,78892¥ 94,880

Total¥ 284,192 ¥ 222,707 ¥ 61,485 ¥1,738,434 ¥ 7,989
16,92014,8752,045
27,3592,97820,575
11,076
9,499
188,997
326
6,795
4,624
2,171
185,807 53,438
6,579
1,154
5,425
3,458
48
335,061 254,436
80,625 2,144,055 64,779(1,378)4,046(5,424)
155,552123¥ 333,683 ¥ 258,482 ¥ 75,201 ¥2,299,607 ¥ 64,902

Millions of yen

Operating revenues

Year ended March 31, 2006

Outsidecustomers

Intersegment

Credit & FinanceEntertainment
Real estate
Lease
Other
Total
Eliminations or corporate
Consolidated¥ 226,440 ¥ 157
17,88435
18,361
939
7,143
40
4,838
297
274,666
1,468—(1,468)¥ 274,666—

Operatingexpenses

OperatingincomeAssetsDepreciation

Total¥ 226,597 ¥ 171,903 ¥ 54,694 ¥1,548,240 ¥ 6,666
17,91915,231
2,688
36,5483,180
19,3009,788
9,512
165,407
333
7,183
3,847
3,336
175,362 40,467
5,135
1,283
3,852
4,045
47
276,134 202,052
74,082 1,929,602 50,693(1,468)3,039(4,507)133,010117¥ 274,666 ¥ 205,091 ¥ 69,575 ¥2,062,612 ¥ 50,810¥

Millions of yen

Operating revenues

Year ended March 31, 2005

Outsidecustomers

Intersegment

Credit & FinanceEntertainment
Real estate
Lease
Other
Total
Eliminations or corporate
Consolidated¥ 195,877 ¥ 344
16,99038
12,632
740
6,803
51
8,083
276
240,385
1,449—(1,449)¥ 240,385—

Operatingexpenses

OperatingincomeAssetsDepreciation

Total¥ 196,221 ¥ 148,020 ¥ 48,201 ¥1,094,545 ¥ 4,293
17,02815,6701,358
33,925
3,084
13,372
7,836
5,536
108,878
271
6,854
4,218
2,636
154,655 34,603
8,359
3,955
4,404
7,509
68
241,834 179,699
62,135 1,399,512 42,319(1,449)2,096(3,545)112,957121¥ 240,385 ¥ 181,795 ¥ 58,590 ¥1,512,469 ¥ 42,440

—
951
—
—
205
1,156
—
¥ 1,156

CREDIT SAISON 2007

55

Thousands of U.S. dollars

Operating revenues

Year ended March 31, 2007

Credit & FinanceEntertainment
Real estate
Lease
Other
Total
Eliminations or corporate
Consolidated

Outsidecustomers

Intersegment

Operatingexpenses

OperatingincomeAssetsDepreciation

Loss onimpairment

Capitalexpenditures

Total$2,404,823 $ 1,751 $2,406,574 $1,885,913 $520,661 $14,721,264 $ 67,649
142,892391
143,283
125,961
17,322
231,676
25,214
168,260
5,968
174,228
93,79480,434 1,600,447
2,758
57,273268
57,541
39,155
18,386 1,573,434 452,526
52,4203,294
55,714
9,772
45,942
29,286410
2,825,668 11,672 2,837,340 2,154,595 682,745 18,156,107 548,557— (11,672)(11,672)
34,260 (45,932) 1,317,236
1,041$2,825,668 $— $2,825,668 $2,188,855 $636,813 $19,473,343 $549,598$— $119,808
19,28338,896780
44,643— 636,116—
362
20,063 839,825—
7,428$20,063 $847,253

Notes: 1. Business segments are defined in consideration of the operations of the Companies.
2. Change of business segments
Effective from the year ended March 31, 2005 the Companies changed the former segmentation to the following items in order to make the information more useful:(a) Credit & Finance: Shopping loans, finance and collection of receivables(b) Entertainment: Amusement(c) Real estate: Sales of real estate, real estate leasing(d) Lease: Equipment leasing(e) Other: Insurance agency business
3. Significant components of ’Eliminations or corporate’ are as follows:
Thousands of
U.S. dollars

Millions of yen

2006

2007
Non-allocable operating expenses
Corporate assets

¥

5,153
166,968¥

4,030
139,249

2005
¥

3,242
120,6932007$

43,636
1,413,906

Non-allocable operating expenses include administrative expenses incurred by the management control department of the Company. Corporate assets include surplus funds, long-term investments(investment securities) and assets used by the management control department of the Company.
4. As described in Note 3 (d), the Company recorded as an additional depreciation expense an estimated loss amount for future disposals of lease properties, based on past results from disposal of such
equipment for lease from the year ended March 31, 2007. As a result, compared with the previous method, in the Lease segment, operating revenues and operating income each decreased by ¥193
million (US$1,632 thousand). Also, depreciation increased by ¥5,640 million (US$4,776 thousands).
5. As described in Note 3 (s), the Company has adopted the Accounting Standards for Directors’ Bonus from the year ended March 31, 2007. As a result, compared with the previous fiscal year, operating expenses in the Credit & Finance segment and the Real estate segment increased by ¥21 million (US$175 thousand) and ¥78 million (US$657 thousand), respectively, while consolidated
increased by ¥160 million (US$1,355 thousand). For each of these, operating income decreased by the same amount.
6. As described in Note 3 (k), the Company has changed its method of estimating allowance for losses on interest repayments from the year ended March 31, 2007. As a result, compared with the previous method, operating expenses decreased by ¥5,334 million (US$45,165 thousand) and operating income increased by the same amount.
7. As described in “Note 3 (q), reflecting the abolition of expiration date, allowance for losses on point program card points is provided based on estimated usage of card points outstanding at yearend exchange and experience from the year ended March, 31, 2006. This change caused the operating income of the Credit & Finance segment to increase by ¥597 million for the year ended
March 31, 2006.

(b) Geographic information
The Company is not required to prepare information for geographic segments since no consolidated subsidiaries or branches are located outside Japan.
(c) Overseas sales
The Company is not required to prepare information for overseas sales since the aggregated amounts of overseas sales of the companies are not material (less than
10% of consolidated sales).

56

CREDIT SAISON 2007

Note

17

RELATED PARTY TRANSACTION

Consolidated fiscal year
April 1, 2006 to March 31, 2007

Attribute ..................................................................................................................... Affiliated company
Company name ........................................................................................................ UC CARD CO., LTD.
Address ...................................................................................................................... Chiyoda-ku, Tokyo
Capital ........................................................................................................................ ¥500 million (US$4,234 thousand)Business details ....................................................................................................... Credit & finance
Percentage of ownership (voting rights) .............................................................. Direct 31.0%
Related contents
Multiple offices of directors ............................................................................. Yes
Relationship in business .................................................................................. Entrusted to handle credit cards issued by Credit Saison
Transaction details ................................................................................................... Settlement of accounts for franchise stores of credit card andcollection of installment accounts receivable (see note below)
Total transaction amount ........................................................................................ ¥1,156,953 million (US$9,822,620 thousand)Account title
Accounts payable .............................................................................................. ¥71,408 million (US$604,688 thousand)Prepaid expenses and other current assets (other receivable) ............... ¥6,523 million (US$55,237 thousand)Transaction policy and terms
Note: Commission to entrusted businesses for handling the settlement of accounts for franchise stores and collection of installment accounts
receivable is determined with consideration to market price and other factors.

Note

18

SUBSEQUENT EVENTSAt the May 17, 2007 meeting of the Board of Directors, the Company reached
an agreement in principle with Mizuho Bank, Ltd. and UC CARD CO., LTD.
The aim of this agreement, which is in line with a basic agreement reachedon January 30, 2006, is to integrate and realign credit card operations. In thisagreement, the Company scheduled a spin-off of the processing work of its
credit card business.
(1) Details of the business integration and realignment
Along with the construction of a next-generation joint system that is now underreview, the Company and UC CARD CO., LTD. will achieve full-scale integration
and realignment in all areas of their credit card operations. This will create themost competitive company in the credit card business. Specialized units will be
set up for each business category, while the three companies will cooperate inevery aspect of operations, including business activities, capital and personnel.
Basically, UC CARD CO., LTD. will establish a new processing company(hereinafter referred to as “the new company”), which processes all transactionsof credit card business and the Company’s credit card processing business willbe spun off and integrated into the new company.
Subsequent to this integration, the Company will have a 51% share in the
new company. After the spin-off of its credit card processing business, theCompany will mainly strive to expand the credit card issuance business.

(2) Main points of the spin-off
1. Schedule for spin-off
Date for conclusion of spin-off contract: Unscheduled
Date when the spin-off takes effect: April 1, 2008 (scheduled)
2. Spin-off method
The Company is currently conducting the spin-off, and the spun-off business will
be absorbed into the new company that UC CARD CO., LTD. will establish. This
spin-off fully meets the requirements described in Article 784-3 of the JapaneseCorporate Law, and the Company plans to go ahead with it without obtaining
approval at the General Meeting of Shareholders.
3. Details of rights and responsibilities to be taken over by the new company
From the Company, the new company will take over assets, liabilities, rights andresponsibilities, and contract-related processing work of credit cards, (including
the credit screening work, information work, promotion work and administrative
business including credit card transactions in progress, except in some special
business areas).
4. Other particulars of the spin-off
Undecided at this time

CREDIT SAISON 2007

57

Report of Independent Auditors
CREDIT SAISON CO., LTD. and Consolidated Subsidiaries
For the years ended March 31, 2007, 2006 and 2005

58

CREDIT SAISON 2007

Corporate Information(As of March 31, 2007)

CREDIT SAISON CO., LTD.

Composition of Shareholders:

52F Sunshine 60 Bldg., 1-1,
Higashi-Ikebukuro 3-chome,
Toshima-ku, Tokyo 170-6073, Japan
Telephone: 81-3-3988-2111
www.saisoncard.co.jp

Head Office:

9,895

Number of Shareholders:

Incorporated:

May 1, 1951

Paid-in Capital:¥75,231 million

Securities companies 4.11%
Other corporations
9.26%
Individuals and others 4.51%
Financial
institutions

31.05%
Foreign investors

51.07%
Number of Employees: Consolidated: 2,631
Non-consolidated: 1,629

Major Shareholders:March 31

Stock Listing:Tokyo Stock Exchange, First Section

Ticker No.:

8253

Independent Auditor:

MISUZU Audit Corporation

State Street Bank and Trust Company
13,183The Seibu Department Stores, Ltd.
11,600The Master Trust Bank of Japan, Ltd.
(trust account)
10,814
Japan Trustee Services Bank, Ltd. (trust account) 9,968
Mizuho Corporate Bank, Ltd.
5,093
JPMorgan Chase Oppenheimer Funds
JASDAQ Account
4,293
State Street Bank and Trust Company 505103
4,202
Goldman Sachs International
3,457
Mellon Bank N.A. as agent for its client
Mellon Omnibus US Pension
3,183

Note: From June 23, 2007, the Independent Auditor has
been changed to Deloitte Touche Tohmatsu.

Transfer Agent:

Common Stock
Authorized:
Common Stock
Outstanding:Number of shares(Thousands)

Name

Closing of Accounts:

Percentage ofownership (%)

7.27
6.40
5.96
5.50
2.81
2.37
2.32
1.91
1.76

Note: During the Company’s fiscal year, the following companies filed a “Notification of Change”
regarding the status of their major shareholdings, stating that they held shares as below as ofMarch 31, 2007 (the required notification date). We were not able to confirm the number ofshares that these companies actually held in their own names as of the close of the term; therefore, they are not included in the above list of major shareholders.

The Sumitomo Trust & Banking
Co., Ltd.
Stock Transfer Agency Department
1-4-4, Marunouchi, Chiyoda-ku,
Tokyo

Number of shares(Thousands)

Name

NOMURA ASSET MANAGEMENT CO., LTD.*and 3 other companies
13,439Mizuho Bank, Ltd.* and 4 other companies
13,207
JPMorgan Asset Management (UK) Ltd.*and 3 other companies
6,234
Deutche Bank AG London*and 12 other companies
5,757
BARCLAYS GLOBAL INVESTORS Ltd.*and 9 other companies
4,738
Fidelity Investments Japan Ltd.
3,422

300,000 thousand shares

181,313 thousand shares

Percentage ofownership (%)

7.41
7.28
3.44
3.18
2.61
1.89

Note: Asterisks (*) in the “Name” column of the above chart denote the name of the entity filingnotification in the case of joint shareholdings.

Monthly Stock Price Range:
Other corporations

(Yen)
7,000

Common stock price range (Left scale)Tokyo stock price index (Right scale)
3,500

6,000

3,000

5,000

2,500

4,000

2,000

3,000

1,500

2,000

1,000

1,000

500

0

01/1

02/1

03/1

04/1

05/1

06/1

07/1

CREDIT SAISON 2007

059

Corporate History
Apr. Exchanges shares of Saison Securities Co., Ltd. forshares of Monex, Inc. (currently Monex Beans
Holdings, Inc.).

1951 May The Company is established as a retailer specializing
in installment sales

1968 Jun. The Company is listed on the first section of theNov. A supporting company contract for the Japan nationalsoccer team is concluded.

Tokyo Stock Exchange

1976 Mar. The Seibu Department Stores, Ltd. and the Company
establishes a shareholding relationship and develops
a consumer credit system for the Saison Group.

2002 Jan. An agreement is reached with LAWSON, INC.
and the Mitsubishi Corporation to jointly establish
LAWSON CS Card, Inc.

1980 Aug. The Company’s name is changed from Midoriya
Department Stores to Seibu Credit Co., Ltd.

1982 Aug. Credit Saison begins to build a nationwide network of Saison Counters to process Seibu Card
issues, and to install automated cash dispensers.

1983 Mar. The name Seibu Card is changed to SAISON CARD.
1988 Jul. Credit Saison reaches agreements with VISA and

Feb. Transfers shares of Saison Life Insurance Co., Ltd. to
GE Edison Life Insurance Co. (currently AIG Edison
Life Insurance Company). Equity participation in
LAWSON CS Card, Inc.

MasterCard and issues SAISON Visa Card and
SAISON MasterCard.

New membership point service SAISON Dream isstarted (currently Eikyufumetsu Points, or
SAISON Permanent Points in English).

1989 Oct. The Company’s name is changed to Credit Saison
Co., Ltd.

1991 Jan. The affinity card business is started.
1991

Total transaction volume surpasses¥1 trillion.

1992 Apr. Credit Saison begins to issue Saison Postal Savings

1,000,000 points — around-the-world
cruise for two on the ASUKA II.

Cards, the first cards in Japan to support signatureless transactions (in Seiyu food outlets).

1992

Total number of cardholders surpasses
10 million

May A business alliance is formed with Saison
Automobile and Fire Insurance Co., Ltd. and The
Yasuda Fire & Marine Insurance Co., Ltd. (currently
Sompo Japan Insurance Inc.).

1995 Jun. SAISON JCB CARD is issued in cooperation withJCB Co., Ltd.

1997 Oct. SAISON American Express Card is issued throughJun. Stock options are granted to all employees for the
first time in the company’s history.

an affiliation with AMERICAN EXPRESS

2003 Jan. Begins using SAISON CARD EXPRESS for speedy
online card issuance.
Feb. SAISON Four Beat Card issued.
Mar. A special benefit plan for shareholders is introduced.

1998

May Launches an electricity bill credit card payment service for The Kansai Electric Power Co., Inc.

The transaction volume of credit-cardrelated shopping services exceeds¥1 trillion.

Aug. An agreement is reached on a comprehensive alliancewith the card division of Idemitsu Kosan Co., Ltd.

1999 Mar. Starts the SAISON Postal Savings Global Service,with a card offering credit, debit and cashing functions in Japan and overseas.

Sep. Start of SAISON STATION, (an information
terminal for rapid application and issuance of cards).
Super Value Plus, an insurance product exclusively
for cardholders, is issued through a business alliance
between Credit Saison, Saison Automobile and Fire
Insurance Co., Ltd. and Sompo Japan Insurance Inc.

Sep. Issues combined credit/cash cards with
regional banks.

1999

Total transaction volume surpasses ¥2 trillion

2000 Aug. Net Answer, a web site for cardholders, is started.
2001 Mar. Nominated for inclusion in the Nikkei Stock Average(Nikkei 225).

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CREDIT SAISON 2007

’65

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2004 Feb. A decision is taken to form a strategic equity and2006 Jan. Credit Saison merges with UC CARD Co., Ltd.
(card issuance business).

business tie-up with Resona Holdings, Inc.
Apr. A basic agreement is reached with Takashimaya

An alliance is formed with Toyota Financial Services
Securities Corporation to provide new financial services and products.

Company, Limited on a strategic alliance in thecredit card business.

Feb. An alliance is formed with Central Tanshi On-line
Trading Co., Ltd.; SAISON Foreign Exchange
sales begin.

Idemitsu Card mydoplus is issued.
Aug. A basic agreement on forming a strategic alliancein the credit card business is concluded with theMizuho Financial Group, Inc., Mizuho Bank, Ltd.
and UC CARD Co., Ltd.

Mar. Atrium Co., Ltd., a consolidated subsidiary, lists its
shares on JASDAQ.
A new loan product, SAISON Loan Card, is issued.
May Agrees to issue SEIBU PRINCE Card fromautumn 2006.

Sep. A real estate mortgage loan business is launched.

Jun. A comprehensive alliance is formed with Yamada

Denki Co., Ltd. in the credit card business.

TAKASHIMAYA SAISON Card is issued.

Jul. Agrees to form a business alliance with The

Oct. An alliance is formed with Tokyo Gas Co., Ltd.
enabling card payment of city gas bills.

Shizuoka Bank, Ltd.

Resona Card+S (Resona Card SAISON) is issued.

2005 Feb. SAISON Postal Savings Gold Visa Card is issued.
Apr. The new credit center Ubiquitous starts operation.

A basic agreement is concluded on strengthening thealliance with the Takashimaya Group.
Oct. The Eikyu Fumetsu.com online shopping mallis opened.
JPN COLLECTION SERVICE Co., Ltd. is listed on
the Hercules section of the Osaka Stock Exchange.

Mizuho Mileage Club Card SAISON is issued.
Sep. An alliance is formed with The Tokyo Electric Power
Company, Incorporated enabling card payment ofelectricity bills.

Nov. A shareholder agreement is signed with Daiwa House
Industry Co., Ltd. and a joint venture is established.

Oct. Chojo-SAISON Credit Card for Japanese expatriatesin Shanghai is issued.

Dec. Atrium Co., Ltd. is listed on the First Section of theTokyo Stock Exchange.

SAISON Platinum American Express Card isissued.

2006

Total transaction volume surpasses¥2 trillion (non-consolidated)2007 Jan. A basic agreement is reached on the establishment ofa joint processing company with Mizuho Bank, Ltd.
and UC Card Co., Ltd.
Feb. Credit Saison begins to issue Softbank Cards andTokyo Metro To Me Cards.
A business alliance is formed with The Sumitomo
Trust and Banking Co., Ltd. to launch term
deposits with SAISON Permanent Points(Eikyufumetsu Points).
Dec. Credit Saison acquires an additional 12.4% of theshares of Resona Card Co., Ltd., making this company an equity-method affiliate.

Mar. Saison Asset Management Co., Ltd. launches its own
investment trusts.
An agreement is reached on a comprehensive alliancewith the Yamaguchi Financial Group.
Jun./Jul. The maximum interest rate for cash advances isreduced to 18%.
Jul. A credit card payment facility is introduced for waterand sewage charges in the 23 wards of Tokyo.
Aug. Credit Saison begins to accept applications for the
Yamakataya Card, issued in partnership with
Yamakataya Group.

’04

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’06

’07
CREDIT SAISON 2007

61

52F Sunshine 60 Bldg., 1-1, Higashi-Ikebukuro 3-chome, Toshima-ku, Tokyo 170-6073, Japan
Telephone: +81-3-3988-2111
www.saisoncard.co.jp
www.uccard.co.jp