Winning is Good.

CREDIT SAISON CO., LTD.

| Annual Report 2006

ealiz e your dreams

CONTENTS
Toward 2007 — Realize your dreams ........................ Inside CoverFinancial Highlights.................................................................. 2
To Our Stakeholders ................................................................. 3

Realize your dreams ................................................................. 8
Major Group Companies ........................................................ 16
Board of Directors and Auditors .............................................. 18
Corporate Governance ............................................................ 19
Corporate Social Responsibility (CSR) of Credit Saison ........... 21
Card Tie-Ups.......................................................................... 22
Financial Section..................................................................... 23
Corporate History ................................................................... 52
Corporate Information ............................................................ 54

To publicize SAISON Permanent Points (“Eikyufumetsu Point” ) in 2004 and 2005, Credit Saison ran“The Giant Swing,” a TV commercial with an extraordinary impact that featured an elderly man
performing on the horizontal bars. As a supporter of the Japanese soccer team, Credit Saison isemphasizing the concepts of “international,” “number one” and “soccer” in 2006 as its spreads its
corporate message with the catch phrase Realize your dreams. In addition, our new TV commercial
features Ronaldinho, a soccer player who embodies these three concepts, to represent Credit Saison’scommitment to becoming the true number-one company in the credit card industry.

CREDIT SAISON CO., LTD.

1

Toward 2007 — Realize your dreams
Credit Saison, as a leading company in the service industry, has established acard business philosophy for the new era and realized a number of dreams to be
the Number-One Card Issuer.
Our route happens to overlap the brilliant path of Ronaldinho, one of thebest football players in the world. Born and raised in a disadvantaged
environment, he started to kick a soccer ball when he was two years old; wasselected as a member of the Brazilian team at fourteen, and in the 2002
FIFA World Cup™ of which we still have fresh memories, he played as amember of the Brazil A team, contributed to the team’s victory and received thehighest praise and evaluation. Now, he plays for and leads FC Barcelona, theleading club in the Spanish League where top-class players of the worldcompete with each other. His unpredictable, fantastic and wonderful plays aswell as his cheerful personality capture the eyes and hearts of people
throughout the world and continue to fascinate them.
Merged with UC CARD Co., Ltd. (card issuancebusiness). “New Credit Saison” created with the
combined membership of the two brands “SAISON CARD” and UC Card - totaling morethan 22 million (January 2006).

Started issuing “Mizuho Mileage Club Card
SAISON,” a credit card integrated with the ATM
card of Mizuho Bank, Ltd. (April 2005).

Started full-scale operations of “Ubiquitous,”a state-of-the-art credit center that combines
hardware (operational functions) andsoftware (human capabilities) (April 2005).

Started approaching new customer
segments and issuing “SAISON Platinum
American Express Card,” a premium cardwith enhanced Travel and Entertainment
and a higher status (September 2005).

Reached agreement with Shizuoka Bank, Ltd.
to form a business alliance in the area of
retail finance (July 2006).

As a new strategic financial product in retail finance,started issuing “SAISON Loan Card,” a card intended
exclusively for loans (March 2006).

Reached agreement to raise our ownership
percentage in Takashimaya Credit Co., Ltd. andprovide commissioned processing services for“TAKASHIMAYA CARD” (July 2006).

Formed a comprehensive alliance with
Yamada Denki Co., Ltd. in the credit cardbusiness. Established Yamada Financial
Co., Ltd. through joint investment with
Yamada Denki and started issuing“Yamada LABI Card” (June 2006).

Strengthened ties with Resona Group. Raised
our ownership percentage in Resona Card Co.,
Ltd. to make it an equity affiliate of Credit
Saison (December 2005).

Atrium Co., Ltd., a consolidated subsidiary,
listed its shares on JASDAQ (March 2006).

Financial Highlights

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

Millions of yen% change

Thousands of
U.S. dollars(Note 3)

2006

2005

2004

2006/2005

2006

Consolidated:
Operating revenues (Note 1)
Selling, general and administrative expenses
Financial cost
Operating income
Net income¥ 274,666
193,126
11,96569,57542,220¥ 240,385
172,024
9,771
58,59031,818¥ 220,332
156,502
9,825
54,00522,420

14.3
12.3
22.5
18.7
32.7

$ 2,338,182
1,644,042
101,857
592,283
359,409

Total shareholders’ equity (Note 2)
Total assets
Return on shareholders’ equity (ROE) (%)
Return on assets (ROA) (%)
Shareholders’ equity ratio (%)

360,717
2,062,735
12.8
2.4
17.5

301,3101,512,949
11.4
2.2
19.9

258,253
1,352,710
9.1
1.7
19.1

19.7
36.3

3,070,718
17,559,675

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

237.292,014.20

185.001,721.35

130.55
1,519.13

28.3
17.0

2.02
17.15

Credit Card Business Data (Non-consolidated):
Card transaction volume
Credit-card-related shopping services
Cash advances
Total cardholders (Millions)
Active cardholders (Millions)
New cardholders (Millions)¥3,146,729
2,527,808
618,921
22.79
11.68
2.71

¥2,596,186
2,078,117
518,069
16.90
8.83
2.09

¥2,408,698
1,912,211
496,489
15.87
8.41
1.86

21.2
21.6
19.5
34.9
32.3
29.7

$26,787,513
21,518,756
5,268,757

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 ¥117.47= U.S.$1, the approximate exchange rate on March 31, 2006, for the convenience of the reader.

Operating Revenues

Net Income (Loss) and ROE

Total Assets and ROA(Billions of yen)(Billions of yen / %)(Billions of yen / %)

45

300

Net Income (Loss) (left scale)ROE (right scale)

15

250
30

2,500

Total Assets (left scale)
ROA (right scale)

2.5

2,000

2.0

1,500

1.5

1,000

1.0

500

0.5

10

200

150
15

5

100

0

50

0

0

-10

0

02

03

04

05

06

02

03

04

05

06

0

02

03

04

05

06

Note: 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 ¥6,027 million for the year ended March 31, 2003, and ROE and ROA for that year are not presented.

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.

2

CREDIT SAISON CO., LTD.

To Our Stakeholders“We continue to takeon fresh challenges
to achieve new goals.”
The Credit Saison Group aims to be the numberone financial services company. Toward this end,
we are working to expand and strengthen ourbusiness foundation through large-scale alliances,mergers and acquisitions and even the creation of
new businesses.

Hiroshi Rinno
President and CEO

CREDIT SAISON CO., LTD.

3

Overview of Fiscal 2005
Revenues and income increased due tocontinued growth in the credit & financeand real estate businesses. Net income
increased 32.7 percent year-on-year to¥42.2 billion.
2006, operating revenues increased 14.3 percent

As a credit card industry leader, the Credit
Saison Group worked aggressively in fiscal
2005 toward acquiring a 30 percent shareof shopping-related credit card transaction
volume by making full use of its leadershiprole in industry restructuring.

year-on-year to ¥274.7 billion because of expansion

Fiscal 2005 was the final year of our medium-of the consumer credit business, which includes theterm management plan, which began in fiscal

core credit card business and consumer loans, as

2001. During those five years, the credit card

well as significant growth in the real estate business.

industry has undergone a significant transformation

In the credit card business, total cardholders

in Japan. Mergers and acquisitions have acceler-

increased 5.89 million during the year to 22.79

ated, narrowing the number of leading participants

million as of March 31, 2006, due to the addition

to four groups, including the Credit Saison Group.

of 4.27 million cardholders (as of January 1, 2006)

As an industry leader, the Credit Saison Group hasfrom the merger with UC CARD Co., Ltd. (cardfocused on creating innovative services that are

issuance business)* and 3.22 million new credit

supported by our customers. In the final year of ourcard applicants. Active cardholders exceeded the 10

medium-term management plan, we attained all

million mark, increasing 2.85 million to 11.68

our major objectives, with significant increases of

million as of the fiscal year end due to factors such

100 percent in total cardholders, 80 percent inas growth in the use of credit cards for

active cardholders and 66 percent in consolidated

electronic toll collection (ETC), insurance,ordinary income compared with fiscal 2000.

During fiscal 2005, the year ended March 31,(*Note)UC CARD Co., Ltd. separated
the UC Card issuance businessand member merchant andprocessing operations on October
1, 2005. This merger applies tothe issuance business. Accordingly,“UC CARD Co., Ltd.” or “UC
CARD” as used in this reportrefers to the UC Card issuancebusiness only, unless otherwise
stated. The member merchant andprocessing company continues
to operate as a consolidated
subsidiary of Mizuho Financial
Group, Inc. and an equity affiliateof Credit Saison.

Percentage of Credit Card Use in
Personal Consumption
(%)

U.S.
Japan

30

25

23.8 23.7 23.9 24.0

24.6

22.5
20.6 21.0

21.4

20

15

10
5.9

6.3

6.6

7.0

7.6

8.2

8.5

9.4

10.2

5

0

96

U.S.:

97

98

99

00

01

public utilities and other regularly recurring
payments.

(Japan – U.S. Comparison)

02

03

04

Estimated figures based on the
Nilson ReportJapan: Estimated figures based on
Consumer Credit Statistics inJapan, Japan Consumer Credit
Industry Association

CREDIT SAISON CO., LTD.

The credit card business in Japan is entering aphase of major change, yet the proportion of credit

Operating income increased 18.7 percent

transactions made by individual consumers is still

year-on-year to ¥69.6 billion. In the credit &less than half that of the United States. It is afinance business, in addition to strong growthmarket with great future growth potential.

in shopping-related credit card transactions

Moreover, payment systems that take the place of

resulting from the recovery of the Japanese

cash are gaining considerable attention, with theeconomy and expansion of channels for daily

spread of Osaifu-Keitai® (Mobile Wallet) and otheruse, the scope of our business expanded due

mobile credit services, and electronic money systems

to the merger with UC CARD. Despite asuch as Suica® and Edy. At the same time, we recog-

one-time charge for amortization of goodwill

nize the importance of proceeding cautiously inin connection with the merger with UC

response to trends in the business environment,

CARD, factors such as income growth from

including discussing loan interest rate limits androbust marketing activities and a gain on theprovisions for interest repayment.

sales of securities held by our consolidated

Looking ahead, it will be critically important for

subsidiary Atrium Co., Ltd., which was listed

Credit Saison to use this wave of change as an

on JASDAQ in March 2006, increased net

opportunity to increase profit by working to expand

income a substantial 32.7 percent year-on-

its customer base.

year to ¥42.2 billion.

4

Initiatives to Become Number One in
the Industry

To Our Stakeholders

Management Objectives for Fiscal 2010
ExpandCardholder BaseStrengthen Operating
Foundation
Improve Capital
Efficiency

Objective: Increase the cumulative total of new cards issued by 25 million
during the period of the medium-term management plan
Note: Including cards of capital and business alliance partners

Objective: As quickly as possible during the period of the medium-term
management plan, establish an operating foundation that canconsistently generate consolidated ordinary income of ¥100 billion
Objective: Establish an earnings structure that can consistently
generate ROE above 10%. Work to improve capital efficiency to achieve thechallenging goal of ROE of 15% over the medium to long term

Progress of Strategic Alliances

the period from April 1, 2006 to March 31, 2011,

In April 2005, under a strategic business allianceis now underway. We previously set a medium- towith Mizuho Financial Group, Inc., Mizuho Bank,

long-term target of achieving a 30 percent share ofLtd. and UC CARD, we began acquiring new

the industry. To do this, economies of scale andcardholders through the bank channel bydifferentiation are the most important factors. The

commencing the issuance of the “Mizuho Mileage

management objectives of the new plan employ

Club Card SAISON,” which functions as both anboth qualitative and quantitative approaches aimed

ATM card for Mizuho Bank, Ltd. and a SAISON

at making Credit Saison the number-one financial

CARD. In January 2006, we also added American

services company. The first objectives are to expand

Express to our existing brand offerings of VISA,

the cardholder base by increasing the cumulative

MasterCard and JCB, expanding the lineup to four.

number of new cards issued by at least 25 million

Following merger with UC CARD, Credit

within the plan period, including cards of capital

Saison has over 22 million cardholders and issues

and business alliance partners, and to establish an

affinity cards for more than 200 alliance partners

operating foundation that can consistently generate

under the SAISON CARD and UC Card brands.

consolidated ordinary income of ¥100 billion. At

By making full use of the features and benefits ofthe same time, we aim to improve capital efficiency

both brands, and through aggressive marketing andby establishing an earnings structure that canaccelerated business development based on

consistently generate ROE above 10 percent while

economies of scale, we aim to become the indus-

working to achieve the challenging goal of ROE of

try’s largest credit card issuer with overwhelming

15 percent over the medium to long term.

customer support.

The Credit Saison Group does not aim tosimply become a larger credit card company.

Expanding Our Offerings by
Fiscal 2010

While expanding the business base around theUnder its new medium-term management
plan, the Credit Saison Group aims to
expand its offerings as a leading-edge service
provider with a focus on expanding existing
businesses and areas where it can achievesynergy with the credit card business.

affiliated companies will maximize use of their

Our new medium-term management plan, for

While pursuing businesses that can generatecore credit card business, Credit Saison and its
combined management resources, including assets
and know-how, to strengthen the lease, credit
guarantee, loan, real estate, entertainment andservicer (loan collection agency) businesses andbroaden the range of business opportunities.

CREDIT SAISON CO., LTD.

5

synergy with the credit card business, we will also

player in the world today, as our image character

consider establishing completely new service

together with the catch phrase “Realize o seu sonho”

businesses targeting cardholders. Unconstrained(Realize your dreams) to promote our corporate

by convention, we intend to dominate the indus-

identity as a company aiming to be number one.

try by making maximum use of innovative ideas to

Looking forward, we will continue to developachieve strategies and responsiveness that put us

unique corporate identity campaigns aimed at

far ahead of the competition.

heightening our corporate image and raising thebrand value of SAISON CARD.

Management Strategy for Fiscal 2006
The Credit Saison Group will develop
business in an innovative and speedy
manner to quickly achieve the objectives ofthe medium-term management plan.

2. Promote Strategic Alliances
Credit Saison aggressively promotes businessalliances. Efforts to date have secured the Group an
approximately 17 percent share of the credit card

In fiscal 2006, the first year of the new medium-market, including capital alliance partners. To

term management plan, we will focus on theachieve our target share of 30 percent, we will

following three key policies to quickly attain thestrengthen the operating foundation by further

position of number-one financial services company.

expanding the number of comprehensive businessalliances, which we began forming in 2002, and

1. Promote Branding Strategies

through alliances and mergers and acquisitions that

Credit Saison considers credit cards to be amake use of Credit Saison’s competitive advantages,

form of media. That is why we work to establish a

including the UC brand. Specifically, we plan touniform image for the SAISON CARD. In 2004,

promote strategic alliances including the provision

we launched a popular series of TV commercialsof capital, human resources and know-how withentitled “The Giant Swing,” featuring an elderly

retail, business services, financial, consumer credit,

man performing on the horizontal bars, to increase

information technology, railway and other compa-

awareness of SAISON Permanent Points

nies. In June 2006, we signed a comprehensive(“Eikyufumetsu Point”), which never expire andagreement in the credit card business with Yamada

can be exchanged for items at any time. In 2006,

Denki Co., Ltd., a leading mass retailer of home

we co-sponsored the main sporting event of theelectronics, under which we established Yamada

year, the 2006 FIFA World Cup™, and featured

Financial Co., Ltd., a new jointly funded company,

Ronaldinho, arguably the number-one soccer

and began issuing a new UC brand card. In July

Market Share of Shopping-Related Credit Card
Transactions Volume(Company’s own estimate excluding duplicate transactions posted byaffiliated stores)

Credit Saison 8.5%

16.7%

UC CARD 2.7%
Capital alliances 5.5%

2006, we reached an agreement with The Shizuoka
Bank, Ltd. to form a business alliance aimed at
establishing a successful business model for aregional retail finance business.
Capital alliance partners LAWSON CS Card,
Inc., Idemitsu Credit Co., Ltd., Resona Card Co.,
Ltd. and Takashimaya Credit Co., Ltd. are beginning to steadily contribute to income as they movefrom the up-front investment to the income-gener-

Other credit cardcompanies

ating stage. We will enhance marketing towardachieving a Group objective of 5 million new card
applications in fiscal 2006.

6

CREDIT SAISON CO., LTD.

To Our Stakeholders

As customer interest shifts from saving tofuture, we plan to structure operations aroundinvestment, the Credit Saison Group is also

higher-status customer segments by providing

planning the commercialization of appealingenhanced travel and entertainment services that

financial services. We will provide unique services

differentiate our offerings from other company’s

to our more than 22 million cardholders, includ-

platinum and gold cards.

ing an insurance agency business, a securities

Through the above measures, we plan to achieve

brokerage business, a bank agency business and an

our targets for the end of March 2007 of operating

investment business.

revenues of ¥328.0 billion, operating income of¥74.0 billion and net income of ¥39.0 billion.

3. Expanding into New Markets
Credit Saison’s corporate policy is to take on

Aiming for Dramatic Growthquickly identify customer needs and business oppor-

We will work to accelerate the pace ofgrowth in order to raise corporate andshareholder value.

tunities and respond by taking on various challenges.

Credit Saison works to provide a full lineup of

In the area of mobile credit services, where theservices that support the various lifestyles of its

number of participants is growing, we are conduct-

customers while aggressively promoting innova-

ing studies from various perspectives toward thetions that are firmly based on customer satisfaction

establishment of a service that matches customer

to increase convenience.

fresh challenges, constantly innovate and never besatisfied with the status quo. We will continue toneeds. Credit Saison has joined the Mobile

In fiscal 2006, we will work to raise corporate

Payment Promotion Association* to promote theand shareholder value by integrating SAISON

diffusion of QUICPay™, and has formed a

CARD and UC Card services to maximize thebusiness alliance with NTT DoCoMo, Inc.,

benefits of the merger with UC CARD and by

Mizuho Bank, Ltd. and UC CARD to provide

developing various alliance strategies in line with

Osaifu Keitai®-based services that promote accept-

market changes.

ance of iD™ and other brands.

(*Note)The Mobile Payment Promotion
Association was formed in
October 2005 by JCB Co., Ltd.
and other credit card companies
to promote the early diffusion of
noncontact, mobile payment
services and to develop the related
infrastructure.

Credit Saison focuses on how to build a frame-

Credit Saison has been providing cash

work that maintains the enthusiasm of its employ-advances and non-secured cardholder loans as

ees in their jobs, as it is their sensitivity and capabil-incidental services on its credit cards to meet theities that underpin the growth and development offinancial needs of its cardholders. To meet a wider

the Company’s operations. In June 2006, Credit

range of financial needs, however, we have begun

Saison appointed its first female director and firstissuing the “SAISON Loan Card,” a new card

director in his thirties. We will continue age- andstrictly for loans, and have positioned it as a prior-gender-neutral promotions to cultivate personnel

ity product. Our aim is full-scale entrance into thewho will drive our medium-term management plan

field of retail loans by planning products that give

forward. Look for the Credit Saison Group to takecustomers more options through interest rates thaton new challenges and achieve new breakthroughs.

match a broad range of uses and individual creditworthiness and application processes that better

July 2006

meet their needs.
By issuing a premium card, the “SAISON
Platinum American Express Card,” we have also
begun acquiring customers who were not previ-

Hiroshi Rinno

ously regular users of the SAISON CARD. In the

President and CEO
CREDIT SAISON CO., LTD.

7

a dream reali ze d

riumphCredit Saison is rapidly advancing toward
triumph as the leading card issuer in the industry.

8

CREDIT SAISON CO., LTD.

➥ Merger with UC CARD Gives Rise to a New Credit Saison
The January 2006 merger with UC CARD Co., Ltd. (card issuance business) transformed Credit Saison into an issuing company with over 22 million cardholders for boththe SAISON CARD and UC Card brands. UC CARD makes use of the customer baseand network of Mizuho Financial Group, Inc., a financial industry leader, to provide
diverse products to individual and corporate customers in Japan. With approximately
35,000 companies on its roster, including major corporations, government agencies andeducational institutions, UC CARD is building a strong customer base centered on
corporate members and businessmen by issuing multifunction cards that have a variety
of applications, such as ID cards for employees and students, room access control andsecurity cards for computer access.
SAISON CARD has built an organized retail network of good customers focused on
young people and women, who are the biggest users, while UC Card’s strength lies in its
bank-related network. By making full use of the features and benefits of both thesebrands, and through aggressive marketing and accelerated business development basedon economies of scale, Credit Saison aims to become the industry’s leading card issuer
with overwhelming customer support.
Network

Customers

Organized retail networkof good customers

Women andyoung generation++

Bank-related network ofmajor corporations

Corporate cardholders andbusinessmen

Strongest retailbusiness channel

Fusion of financial andretail services
Innovative
marketing ideas

Omnidirectionalcustomer base

➥ Working to Become the Number-One Card Issuer
In April 2005, we began issuing the “Mizuho Mileage Club Card SAISON,” whichfunctions as a Mizuho Bank ATM card and a SAISON CARD. This establishedMizuho Bank as a new channel that gives us access to the bank’s approximately 26
million customers.
We will also maximize use of the Mizuho Financial Group’s network by cooperating in aggressive sales targeting its large corporate customers, with which we previously
had no contact. As a new initiative that makes use of the UC Corporate Card customer
base, we will promote mutual customer referrals between companies issuing corporatecards and established affinity card issuers.
The “Ubiquitous” credit center, which started operations in April 2005, provides asingle source for all customer credit cycle functions: application and registration, credit
screening, billing, response to customer inquiries and collection. Handling the needs ofmore than 22 million cardholders, Ubiquitous supports Credit Saison’s growth.
Looking forward, we will expand our business further by maximizing use of Ubiquitous
to strengthen our operational framework.

CREDIT SAISON CO., LTD.

9➥ A Growth Strategy Based on Alliances
In enhancing its alliance network and developing new products and cards, Credit
Saison’s management strategy is to develop new business schemes that give it a competitive advantage by setting it apart from competitors, and to provide alliance partners withassets – capital, human resources and know-how – that achieve mutual growth for theCompany and its alliance partners. At present, Credit Saison issues cards for approximately 200 alliance partners under the SAISON CARD and UC Card brands. In fiscal
2006, we are scheduled to issue affinity cards with SEIBU Railway Co., Ltd. and
Yamada Financial Co., Ltd. Looking ahead, we plan to target a broad range of companies, not just those in the retail and financial industries, in promoting strategic alliances.
To begin acquiring higher-status customers, who were not previously regular users of
the SAISON CARD, we have issued a premium card, the “SAISON Platinum American
Express Card,” through an alliance with American Express. With this new card and the“Gold Card SAISON,” we are working to structure operations around the premium
customer segment.

➥ The Capability to Develop Innovative Services
With interest in investment rising among regular consumers, Credit Saison aims tocommercialize financial services that appeal to cardholders. We provide a variety of
products through insurance agency, securities brokerage and other businesses. In addition
to Monex, Inc. account opening services and the sale of Japanese government bonds, infiscal 2005 Credit Saison formed an alliance with Toyota Financial Services Securities
Corporation. Under this alliance, Credit Saison’s securities brokerage business handles
special financial products that only Toyota can provide, such as foreign-denominatedbonds issued by Toyota’s financial subsidiaries. To facilitate the expansion of this business,
we have established new SAISON Counters with enhanced financial service functions,primarily in major urban centers. In the area of foreign currency investment products, wehave jointly developed SAISON Foreign Exchange, original foreign exchange margintrading products targeting cardholders, under an alliance with Central Tanshi On-line
Trading Co., Ltd. Moreover, we regularly hold popular seminars on asset managementwith Sawakami Asset Management Inc. to help cultivate new long-term investors.
Credit Saison has been developing services that defy conventional industry standards,
such as “immediate issuance, immediate credit,” signature-free transactions and allowing
customers to set their own credit limits. Of these services, SAISON Permanent Points(“Eikyufumetsu Point”), which never expire and can be accumulated indefinitely, enjoystrong customer support and help motivate customers to apply for a card and use it more
often. We will continue to develop new services based on innovative ideas that delightcustomers.

10

CREDIT SAISON CO., LTD.

a dream re a l ize delightCredit Saison continues to delightits stakeholders.

CREDIT SAISON CO., LTD.

11

a dre a m re a l i zed

restige

Credit Saison firmly maintains a dominantpresence based on innovative management.
12

CREDIT SAISON CO., LTD.

➥ Securing and Developing Responsive Personnel
Securing and developing responsive personnel is an important task supporting theadvancement of Credit Saison’s growth strategies. In addition to new graduates, we actively
recruit mid-career workers by scouting personnel with highly specialized skills who can
immediately add to our strategic capabilities. In addition, we have established a variety of
personnel systems that offer new prospects for individual employees. These include aRoute Change system under which employees can change their status to hourly wage
contract workers (Workmates) because of marriage, childbirth, childcare and other major
turning points, and Work Re-entry, a system for rehiring former employees. Applying
these personnel systems, ingraining a meritocracy and promoting the recruitment of
women led to the appointment of Credit Saison’s first director in his thirties, and its firstfemale director, in fiscal 2006.
Organizational enhancements are also progressing in conjunction with the integrationof new employees from UC CARD. In addition, Credit Saison proactively assigns middlemanagement and other employees to affiliates and alliance partners to give them experiencein management and the overall business flow and to establish a network. This experience is
expected to play a major part in shaping their careers.

➥ Building a Framework that Maintains Job Enthusiasm
Among the various options that exist for relationships between an individual and anorganization, Credit Saison focuses on how to maintain job enthusiasm. We are concentrating our efforts on introducing measures that enhance employee motivation, based on
the view that the way to success lies in employees finding the work they love or learning tolove the work they have already chosen.
In addition to the Job Entry System, which permits employees to submit job transfer
requests directly to the Personnel Department, and the Job Competition System, whichallows those at the section manager level and higher to submit job position requests, we arebuilding an enhanced framework that allows individual employees to get the jobs they lovethrough measures such as internal solicitations for positions in newly established sections.
Credit Saison also aims to develop leaders for the next generation. We encourage section
managers to think beyond the bounds of our internal operations by dispatching them totraining exchanges with companies in different businesses. In this way, we are generating
opportunities to broaden their perspectives.

Management Track Profile
Male/Female Ratio at Department Manager Level

Male/Female Ratio at Section Manager Level

Female(Age)
30 – 3912.3%
40 – 49
8.3%
50 – 59
12.8%
Total
13.6%
0
20

Female(Age)
30 – 3920.8%
40 – 4915.5%
50 – 59
30.2%
Total
21.4%
0
20

Male
87.7%
91.7%
87.2%
86.4%
40

60

80

100

Male
79.2%
84.5%
69.8%
78.6%
40

60

Age of Employees at Supervisor Level and Higher(Age)
20 – 24 Female
25 – 29
30 – 34
35 – 39
40 – 4445 – 49
50 – 54
55 – 59
262
Total

80

100

(Number of employees)
0 0

33

Male
13

77

39
97

70
61

48
37

20
12
2

26
26
299

(As of March 31, 2006)
CREDIT SAISON CO., LTD.

13

➥ Contributions of Capital Alliance Partners in the Credit Card Business
Capital alliance partners LAWSON CS Card, Inc., Idemitsu Credit Co., Ltd.,
Resona Card Co., Ltd. and Takashimaya Credit Co., Ltd. are beginning to steadily
contribute to income as their business structures move from the up-front investment
to the income-generating stage. The network of 7,600 LAWSON convenience stores,
6,000 Idemitsu gas stations, 650 staffed bank branches of Resona Holdings, Inc. and
19 Takashimaya department stores also generates immeasurable business opportunities. Since the beginning of fiscal 2006, we have also established the joint venture
Yamada Financial Co., Ltd. with Yamada Denki Co., Ltd., which operates 320 storesnationwide. In addition, we have reached an agreement with The Shizuoka Bank, Ltd.
to create a successful business model for a regional retail finance business, and plan toestablish a joint venture company.
Looking ahead, we will continue working aggressively to expand into new channels
based on comprehensive alliances employing capital, human resources and know-howthat only Credit Saison can offer. Our aim in fiscal 2006 is to achieve 5 million newcard applications, including those of our capital alliance partners.

Group Objective: More Than 5 Million New Cards Issued Annually

LAWSONCS Card

Idemitsu
CreditResonaCard

Takashimaya
CreditYamadaFinancial

Shizugin
SAISON
Card 2

Total cardholders:

Total cardholders:

Total cardholders:

Total cardholders:

2.3 million

2.1 million

2.3 million

1.8 million

Equity Share:

Equity Share:

Equity Share:

Equity Share:

Equity Share:

Equity Share:

30%

50%

22.4%

33.4% 1

34%

50%

(Provisional name)Growth in Consolidated Ordinary Income
Notes: 1. Equity share in Takashimaya Credit Co., Ltd. pursuant to agreement between the Company and Takashimaya Co., Ltd.
in July 2006 (equity share as of July 2006: 10 percent).
2. Shizugin SAISON Card (provisional name) is scheduled to be established in October 2006.

➥ Mobilizing Comprehensive Group Strengths
The business of Group companies operating in areas outside the credit cardbusiness has been steadily expanding in recent years. In particular, operating incomeof the Atrium Group, which handles the real estate business, increased 66 percent
year-on-year to ¥20.8 billion as a result of factors such as aggressive property acquisition and enhanced efforts to offer development plans that meet market needs. In
addition, Atrium Co., Ltd., the core business of the Atrium Group, listed its shares on
JASDAQ in March 2006.
Results of the lease, credit guarantee, loan, entertainment and servicer (loan collection agency) businesses all increased significantly compared with the previous fiscal
year. The Credit Saison Group will continue working to improve corporate value andbecome the number-one finance company in the industry by generating greatersynergy to strengthen its operating foundation.

14

CREDIT SAISON CO., LTD.

a d rea m reali zed

lory
Credit Saison is mobilizing total Group
strengths to increase corporate value by
advancing toward fresh challenges.

CREDIT SAISON CO., LTD.

15

Major Group Companies (As of March 31, 2006)

Positioning the credit card business as our core business, Credit Saison works toward enhancement of
the Group’s corporate value by strengthening synergies among Group companies.

Saison Fundex Group

Atrium Group■ House Planning Co., Ltd.

■ SAISON FUNDEX CORPORATIONReal estate transactions: The company promptly evaluatesbusiness operations and provides a full range of support, fromland acquisition to property development. It offers contract
construction services and land/single house development
business for housing providers.

Loans business: The company’s core business is todevelop personal loan products. The individualloan business, real estate mortgage loan business,
as well as card loan businesses such as C-plan
Card, Cash Reserve and VIP loan continue
to show favorable growth.

■■ Atrium Co., Ltd.
Real estate transactions/Credit and financial services:
As a core member of the Atrium Group, the company
aims to revitalize real estate in Japan, and has renovatedmore than 10,000 properties in fourteen years since its
foundation. Focusing on the integration of real estateand finance, the company revitalizes properties with its
unique expertise and value-added business model.

Equity Method Affiliates

Other Companies■ JPN Servicer Co., Ltd.
Servicer (loan collection agency): Primarily focusedon the collection of small unsecured loans, thecompany achieves high efficiency and good collection
results by employing a unique system and highsecurity in its operations at five centers nationwide.
The company is actively expanding by developing a
research business and a support services business. The
total number of alliance partners in all threebusinesses currently exceeds 210.

■ LAWSON CS Card, Inc.

■■ Uraku Aoyama Co., Ltd.
Membership club management/Property management: The company operates a membership club
named uraku AOYAMA and leases 25 properties.
The membership club provides an elegant andcomfortable space which includes fitness facilities, arestaurant and a hotel, while the property management business plans and develops attractive, community-based utilization of properties.

16

CREDIT SAISON CO., LTD.

Credit and financial services: The company began
issuing “LAWSON PASS” in August 2002 using
Lawson’s sales network and Credit Saison’s expertise in
the credit card business. This point card, which alsofunctions as a credit card, became the first in theconvenience store industry to acquire over 2.3 million
users since its launch four years ago.

CREDIT SAISON GROUPOPERATION SEGMENTS■ Credit & Finance■ Entertainment■ Real Estate■ OtherVivre Group■ AIC Inc.
■ Atrium Servicing Co., Ltd.
Servicer (loan collection agency):
Specializing in disposal of realestate mortgage loans, the company
offers highly competitive sourcing
and servicing strength based on
knowledge and experience in theproperty business accumulated in
Atrium Co., Ltd., the parent
company.

Real estate transactions: The
company aims for stable rent
revenues from medium- to long-termholdings of primarily developablecommercial-use revenue properties
and income on the sale of holdings
whose value the company hasenhanced.

■ NOA Planning Co., Ltd.

■ Vivre Co., Ltd. / A&A Co., Ltd.

Consultancy: The company develops
attractive amusement facilities, operated
by Vivre Co., Ltd., that stay one stepahead of customers’ needs, while meetingthe high standards of surrounding
communities.

Amusement services: Focusing on the concept of“comfortable amusement spaces” that satisfy
customers, the companies operate 33 amusement
facilities in Japan. They strive to develop amusement facilities that satisfy customers by offering a
comfortable, sound and relaxing experience withhigh-quality service.

■ Resona Card Co.,Ltd.

■ Idemitsu Credit Co., Ltd.
Credit and financial services: As the
only credit company in the oil industry,the company aggressively expanded its
business at gas stations, and the numberof credit cards issued exceeds two
million. The company is working
toward further business expansion bylaunching a new type of credit card that
integrates Credit Saison’s expertise into
its existing card.

Credit and financial services: As the credit card company of theResona Group, the company has issued 2.3 million cards and provides
services closely linked to the lifestyles of its cardholders. Through thebusiness alliance with Credit Saison, the company started issuing the“Resona Card + S (Resona Card SAISON)” in October 2004 and isaggressively working to achieve further expansion.

■ Saison Information
Systems Co., Ltd.
Information processing services:
The company develops communications middleware packages such as
HULFT, and conducts information
system planning and operations in
the credit card and retail distribution businesses. The company isimplementing “Five reforms” basedon its medium-term management
policy, “Challenge to changes.”■ UC CARD Co., Ltd. (Member merchant and processing company)
Credit and financial services: A core credit card company in the Mizuho
Financial Group, UC CARD specializes in payment processing through astrategic business alliance between Credit Saison and Mizuho. It aims to
be a comprehensive payment processing services company with the ability
to provide a wide range of payment services in and beyond the field ofcredit cards.

■ Saison Automobile andFire Insurance Co., Ltd.
Non-life insurance: Operates businesscentered on insurance for individuals.
After concluding an alliance with
Sompo Japan Insurance Inc., thecompany is implementing structuralreforms of business operations focusedon developing new business targeting
Saison cardholders and enhancing
direct marketing.

CREDIT SAISON CO., LTD.

17

Board of Directors and Auditors (As of June 24, 2006)

From left:

Teruyuki Maekawa*Executive Vice President
Assistant to the President
General Manager of Alliance Division
In charge of Public Relations Office and Audit Office

Hiroshi Rinno*
President and CEO

Atsushige Takahashi*
Senior Managing Director
Assistant to the President
General Manager of Finance Division

From right:

Kazuhusa Inada
Managing Director
General Manager of Credit Card Division
Deputy General Manager of Alliance Division

From left:

Naoki Takahashi
Managing Director
General Manager of Strategy Division
Deputy General Manager of Credit
Card Division

Hidetoshi Suzuki
Managing Director
General Manager of Management Division and
System Division

Shinji Hojo
Managing Director
Deputy General Manager ofManagement Division

Toshiharu Yamamoto
Senior Managing Director
General Manager of Credit Division and Retail
Banking Division

Mitsusuke Yamamoto
Managing Director
General Manager of UC Division

Hiromichi SatoManaging Director
Deputy General Manager of Finance Division

From left:

Hideo Suzuki
Director
General Manager of Sales Division

From right:

Hisayuki Kurata

Director
Deputy General Manager of Alliance Division

Kenzo Tada

Director
General Manager of Administration Division

Hong Tae Kim
Director
Deputy General Manager of Strategy Division
General Manager of Corporate Planning Dept.

Kyosuke Togano
Director
Deputy General Manager of System Division

Yoshiro Yamamoto**

Chikako Yokoi

Director

Director
Deputy General Manager of Credit Card
Division

Akira Kuramitsu
Director
General Manager of East-Japan Business Dept.

Takayoshi Yamaji
Director
Deputy General Manager of UC Division

From left:

From right:

Seiji Sugiyama**

Isamu Sato**

AuditorStanding Statutory Auditor

Atsushi Toki**

Toshio Sakai

AuditorStanding Statutory Auditor*Representative Director **Outside director or auditor

18

CREDIT SAISON CO., LTD.

Corporate Governance

The Credit Saison Group realizes the importance of creating innovative services and continuously raising corporate
value. At the same time, it must strengthen supervisory functions that increase transparency in management andachieve business objectives. These are key factors for carrying out Credit Saison’s basic management policies andgaining shareholders’ understanding and support. Consequently, Credit Saison is taking various measures thatenhance its system of corporate governance.

Internal Control System
The Company’s Board of Directors has set basic policies for
directors to structure a system that ensures the Company’s compliance with statutes and the Company’s articles of incorporation, as
well as the adequacy and efficiency of its business. The basic policies
are based on one of the Company’s fundamental philosophies — to“always realize profitable growth and maximize the satisfaction ofcustomers and other stakeholders by pursuing innovative ideas andstrategies.” In structuring the internal control system, the Company
works to maximize shareholders’ interests by pursuing efficiency andeffectiveness to improve business results and earnings while maintaining the adequacy of business.

corporate ethics. Also, the internal Audit Office conducts audits ofcompliance, risk management, internal control systems, governanceand other matters in the organizational operations and business activities of Credit Saison and its group companies, and makes evaluations
and recommendations based on these audits.
Credit Saison will continue to consider the most suitable management structure, taking into consideration factors including international trends in corporate governance and relevant statutes.

Compensation and Other Remuneration of Directors
and Auditors
Compensation and other remuneration paid to directors andauditors in fiscal 2005 are as follows.

Corporate Governance System
The Board of Directors consists of nineteen members, one ofwhom is from outside Credit Saison. The Board of Directors sets
basic policies for the Company’s business execution and supervises
directors’ execution of their duties. With a view to enhancing corporate governance to ensure that the Company’s business is conducted
properly and soundly as a whole, the Board of Directors is working tostructure an effective internal control system and establish a framework for the company-wide observance of statutes and the articles ofincorporation. Furthermore, in order to ensure that directors execute
their duties properly, the Board of Directors operates in accordancewith the rules for the Board of Directors. Directors properly manage
or oversee the divisions under their supervision or charge in accordance with the rules regarding organizations and allocation of duties
so that the divisions may execute their duties efficiently.
Credit Saison applies the auditor system, with a Board ofAuditors consisting of four auditors. Three of the four auditors arefrom outside Credit Saison. The Board of Auditors checks the effectiveness and function of the internal control system and strives todetect problems early and improve accuracy. In accordance with theauditing policies decided by the Board of Auditors, each auditor
conducts rigorous audits by attending meetings of the Board of
Directors and other important meetings, listening to reports on
business activities from directors and others, reviewing documents
containing important decisions, and examining the condition of theCompany’s business operations and assets. The Company has alsoestablished the Auditors’ Secretariat consisting of experts in internal
audit to assist auditors in executing their duties. As an additional step
to develop and implement measures for compliance, the Company
has set up the Compliance Division as well as the Compliance
Committee — dedicated bodies for the observance of statutes andCompensation paid to directors and auditors

Total amount of compensation paid to directors
in fiscal 2005:¥510 million
Total amount of compensation paid to auditors
in fiscal 2005:¥ 58 million
Compensation and other remuneration paid to independent auditors

Compensation based on duties performed pursuant to theCertified Public Accountants Law (1948, Law No. 103)
Paragraph 2, Section 1:¥ 38 million
Compensation other than the above:¥ 3 million

Thorough Implementation and Enhancement of Compliance
Credit Saison has structured a company-wide compliancesystem centered on the Compliance Committee and theCompliance Division, which was newly established in March 2006,
to ensure legal compliance, fairness and ethical conduct in its corporate activities.
Senior Managing Director Toshiharu Yamamoto serves as chairman of the Compliance Committee. The committee convenes several
times each year, and its secretariat meets more than 20 times
annually, to carry out initiatives such as drawing up a code of ethics
and standards of conduct, and creating a unit to promote compliance. The committee also produces and distributes a compliancehandbook for regular and contract employees. A compliance consultation desk has been set up in the Company, and inquiries are also
accepted through a company intranet and a special Internet address.
Cases referred to the desk are promptly reported to the Board of
Directors and the Board of Auditors so that any violations may beresolved early.
CREDIT SAISON CO., LTD.

19

Corporate GovernanceIn addition, the Compliance Division uses outside guest lecturers
to conduct compliance training for executives, including directors anddivision managers, as well as for general employees. Also, employees
responsible for and in charge of compliance are assigned to eachdivision and conduct training programs at the division’s initiative.

Approach to Increased Use of Information Technology
Against the backdrop of society’s increased use of information
technology (IT), Credit Saison ensures that customers can rely on its
credit cards by placing the highest priority on safety and reliability insystems operation. Under this operating environment, by fully
activating the new Ubiquitous credit center and expanding the KansaiCommunication Center, Credit Saison has upgraded its businesssystems ranging from screening through collection, and secured andrationalized their safety and reliability through countermeasuresagainst systems disruptions that may be caused by natural disasters,
accidents or computer viruses. Work centralization has also improved
efficiency. Credit Saison will continue efforts to keep its systems safe,
reliable and efficient through the future.

Risk Management
In terms of risk management, the Company has set up rules forloss risk management and crisis management to minimize risks andto deal with them properly if they occur. In order to achieve theseobjectives, the Company conducts in-house education and training
on a regular basis for employees of every rank concerned with therules for loss risk management and crisis management, and the Boardof Directors checks these rules from time to time and directs thatthey be amended or improved as needed in order to maintain the risk
management system.

Proactive Disclosure of Information
The Company proactively discloses information through such
events as business results briefings, investment conferences and IR
meetings, and makes further efforts to increase transparency inmanagement by posting business results summaries, IR activities andother relevant information on the Company’s homepage.
For corporate and IR information visit:
http://corporate.saisoncard.co.jp/co.nsf/en/index.html

Management Structure (as of July 31, 2006)
In March 2006, the Company set up certain new organizations and reorganized others with a view to maximizing the effect of the merger
with UC CARD Co., Ltd. and to properly allocate management resources for the growth of divisions and Group companies.
Auditors

Shareholders’Meeting
Board of Auditors

20

Board of Directors

Board of Managing Directors

Management Meeting

General Managers’ Meeting

Public Relations Office

Audit Office

Management Division

Administration Division• Corporate Planning Dept.
• Related Business Dept.
• Finance & Accounting Dept.

• General Affairs Dept.
• Human Resources Dept.
• CS Promotion Dept.
• Compliance Dept.

Strategy Division• Business Development Dept.
• Investment Business Dept.
• Overseas Business Dept.

Credit Division

Sales Division

Credit Card Division

Retail Banking Division• Credit Planning Dept.
• Information Center• Kansai Information Center• Promotion Center• Screening Center• Credit Management Center• Operation Center• Sales Planning Dept.
• East-Japan Business Dept.
(7 branches)• West-Japan Business Dept.
(5 branches)• Marketing Dept.
• Saison Card Dept.
• Millennium Card Dept.
• Takashimaya Card Dept.
• Postal Savings Card Dept.
• AMEX Card Dept.
• Affinity Card Dept.

• Insurance Dept.
• Cash Advance Dept.
• Loan Dept.

CREDIT SAISON CO., LTD.

System Division

Alliance Division• System Promotion Dept.
• IT Promotion Dept.
• System Planning Dept.

• Mizuho Alliance
Promotion Dept.
• Alliance Promotion Dept.
• Alliance Planning Dept.

UC Division• UC Business Planning Dept.
• MMC Card Dept.
• LABI Card Dept.
• Sales Dept. (I)• Sales Dept. (II)• Sales Dept. (III)• Solutions Promotion Dept.
• Corporate Service Dept.
• Customer Service Dept.
• Credit Planning Dept.
• Credit Dept.

Finance Division• Business Planning Dept.
• Lease Business Dept.
• Credit Guarantee Dept.
• Financing Dept.

Corporate Social Responsibility (CSR) of Credit Saison

The Company conducts its business to realize the management philosophy that “we will certainly succeed and as a result,will be able to reward our shareholders if we create Customer Satisfaction, respect the mutual interests of ourbusiness partners and gain employees’ empathy,” while duly focusing on thorough compliance as well.
The Company’s Perspective on CSR
In addition to pursuing the basic management philosophy of“Customers First and Customer Satisfaction,” the Company is taking
further steps toward fulfilling CSR from the viewpoint that a company
is a public institution.
Credit Saison’s perspective on CSR is that a company should not
only fulfill such minimum responsibilities as legal compliance andprofit contribution as a social entity but should also conduct business in
response to or beyond the express and implied expectations of citizens,
communities and broader society.
Based on this viewpoint, the Company looks at CSR from threedifferent perspectives and formulates action plans accordingly:
1. Actions the Company should take to exist as a corporate entity andbring profits to customers, employees and investors, led by shareholders,
2. Actions the Company can take to contribute internally through thecore credit card and financing business, and;3. Contributions to society that only Credit Saison can make, or that Credit
Saison is in the best position to make.

Perspective 1 Action Plans
As explained in the Corporate Governance section, the Company isimplementing programs to enhance corporate governance.

Perspective 2 Action Plans
As a credit card company handling customers’ credit information,
Credit Saison believes it is critical to properly manage private information and respect its value in accordance with the objectives of thePrivate Information Protection Law. Furthermore, since the age, sex,
living environment and other conditions of employees are not particularly significant to our business, the Company proactively approaches awide spectrum of people as prospective employees.
✦Proper Management of Private Information
Regarding the management of private information, the Company
observes not only relevant statutes but also guidelines and rules in theindustry and internal rules. At the same time, the Company conducts
in-house training and ethical education, and practically obligates
employees to be “private information managers” as certified by theJapan Consumer Credit Industry Association, so that awareness necessary for proper management may foster and permeate throughout theentire organization. In addition, the Company has enhanced security byusing special lines, setting a limit on the number of personnel withaccess authorization, coding information and controlling entry into andexit from the places where information terminals are installed, among
other initiatives. Furthermore, the Company is continuing to reinforce
information management and as a specific token of such efforts in May
2006 obtained the “Privacy Mark” accorded to providers that properly
manage private information.

✦Employment Policy
The Company strives to proactively employ a wide spectrum ofpeople regardless of age and sex, and create an ideal working environment. More than 170 SAISON Counters located nationwide are run byfemale employees, including managers. Also, taking into account the
declining birthrate, the Company was among the first to provide a
working environment that allows female employees to keep their jobs
even after they marry and have families. The Company actively
promotes programs to rehire retired employees as well.

Perspective 3 Action Plans
Essentially, credit cards not only provide customers with theconvenience of getting what they want now and paying for theirpurchases later but also constitute a payment method that has a very
important impact on overall economic activity. However, in light ofproblems associated with heavy debtors, it is an important mission of
the Company to work to curb overuse of cards and restore the soundness of the credit card market.
We believe that thinking about how to enrich our customers’ lives
and how to make contributions to economic progress is an importantpart of our CSR activities.
We also believe that another responsibility is to pursue not only ourown profits but also coexistence with other companies, and in thiscontext we consider it an important part of our CSR activities to form
mutually beneficial alliances with other companies in the card business.

Environmental Protection and Social Contributions
The Company offers means for individual customers to makecontributions to society through the use of their cards.
In order to support customers in making donations that they
may be somewhat hesitant to make on their own, the accumulationof SAISON Permanent Points (“Eikyufumetsu Point”) allows users tomake donations through the use of their cards. Items available
include those that may be donated to support World Heritage activities and the World Terakoya Movement through the National
Federation of UNESCO Association in Japan (NFUAJ), to theForest Culture Association for its activities to protect forests and theenvironment, to the Japan Guide Dog Association (JGDA) for its
training of guide dogs, to the Japan Association for UNHCR(United Nations High Commissioner for Refugees) for its aid torefugees and to the NPO Peace Winds Japan (PWJ) for its assistancefor restoration or development in the aftermath of conflicts or
natural disasters.
In addition, the Company uses recyclable materials for credit cards
and environment-friendly materials for statements and literature sent
to customers. The Company also encourages its employees to takemeasures to prevent global warming, actively promotes “Cool Biz” andcalls for thorough recycling of printed materials for internal use.
CREDIT SAISON CO., LTD.

21

Card Tie-Ups

Shopping

Sogo Co., Ltd.

The Seibu Department Stores, Ltd.

Takashimaya Company, Limited

The Loft Co., Ltd.

Ryohin Keikaku Co., Ltd.

Mitsui Fudosan Co., Ltd.

BALS Corporation

Toys“R”Us-Japan, Ltd.

PRINTEMPS GINZA Co., LTD.

Kagoshima Terminal Building Inc.

PRIME PLACE Co., Ltd.

Parco Co., Ltd.

Yamada Financial Co., Ltd.

Kawatoku Co., Ltd.

Ishimaru Denki Co., Ltd.

SEIBU Group

United Airlines, Inc.

SEIBU LIONS, Inc.

JTB Corp.

TOHO Cinemas Ltd.

Japan Football Association

Yamaha Corporation

PADI, Inc.

Keihin Electric Express Railway Co., Ltd.

FEG INC.

Mizuho Bank, Ltd.

JAPAN POST

Sony Bank Inc.

Monex, Inc.

The Shonai Bank, Ltd.

NTT DoCoMo, Inc.

NIFTY Corporation

KDDI CORPORATIONWOWOW Inc.

Mazda Motor Corporation

Japan Automobile Federation

Japan Highway Public Corporation

Honda Motor Co., Ltd.

Tokyo Gas Energy Co., Ltd.

Japan Leukaemia Research FundWorld Wide Fund for Nature JapanTOKYO GAS Co., Ltd.

Resona Card Co., Ltd.

LAWSON CS Card, Inc.

Idemitsu Credit Co., Ltd.

Waseda University

Travel &Entertainment

Financial
Institutions

Internet andCommunications

Automotive

YANASE & CO., LTD.

SocialContribution

Processing
Businessand Others

22

CREDIT SAISON CO., LTD.

THE BANK OF CHINA LIMITEDFinancial Section

CONTENTSManagement’s Discussion and Analysis.................................... 24
Six-year Summary of Selected Financial Data ....................... 24

Consolidated Balance Sheets ................................................. 32
Consolidated Statements of Income......................................... 34
Consolidated Statements of Shareholders’ Equity..................... 35
Consolidated Statements of Cash Flows................................... 36
Notes to Consolidated Financial Statements ............................ 37
Report of Independent Auditors .............................................. 51

CREDIT SAISON CO., LTD.

23

Management’s Discussion and Analysis
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
As of and for the years ended March 31

2006

CONSOLIDATED
For the year:
Operating revenues (Note 1) ................... ¥ 274,666
Selling, general andadministrative expenses.....................
193,126
Financial cost........................................
11,965
Operating income ................................
69,575
Net income (loss)..................................
42,220At year-end:
Total shareholders’ equity (Note 2) ........... ¥ 360,717
Total assets ............................................
2,062,735
Interest-bearing debt (Note 3)...................
1,480,380
Per share data (in yen and U.S. dollars) (Note 2):
Net income (loss) per share.................... ¥ 237.29
Net assets per share...............................
2,014.20
Key financial ratios (%):
Return on shareholders’ equity (ROE).....
12.8
Return on assets (ROA) ..........................
2.4
Shareholders’ equity ratio ......................
17.5
NON-CONSOLIDATED
For the year:
Operating revenues (Note 1) ..................... ¥ 216,453
Selling, general andadministrative expenses.....................
156,887
Financial cost .........................................
9,700
Operating income..................................
49,866
Net income (loss) ...................................
27,131
At year-end:
Total shareholders’ equity (Note 2) ........... ¥ 341,423
Total assets ............................................
1,761,666
Interest-bearing debt (Note 3)...................
1,239,043
Per share data (in yen and U.S. dollars) (Note 2):
Net income (loss) per share.................... ¥ 152.21
Net assets per share...............................
1,904.13
Dividends per share ...............................
26.00
Key financial ratios (%):
Return on shareholders’ equity (ROE).....
8.5
Return on assets (ROA) ..........................
1.8
Shareholders’ equity ratio ......................
19.4
TRANSACTION VOLUME: NON-CONSOLIDATED
Credit-card-related shopping services... ¥2,527,808
Shopping loans ..................................
6,952
Guarantees ........................................
62,097
Cash advances and specialty loans .....
739,038
Agency services..................................
747,998
Leases ................................................
90,011
Merchandise sales..............................
—
Others................................................
9,794
Total volume of new contracts...............
4,183,698

2005

2004

2003

2002

¥ 240,385¥ 220,332¥ 212,242¥ 214,838

172,024
9,771
58,59031,818

156,502
9,825
54,00522,420147,018
12,81052,414(6,027)

141,795
13,37059,673
18,225¥ 301,310
1,512,949
1,146,928¥ 258,253
1,352,710
1,011,563¥ 236,028
1,280,823
965,082¥ 242,594
1,256,899
885,270¥¥¥

185.001,721.35

130.55
1,519.13(36.57) ¥ 108.56
1,380.26
1,436.58

11.4
2.2
19.9

9.1
1.7
19.1

—
—
18.4

7.8
1.2
19.3

¥ 190,248¥ 175,725¥ 171,843¥ 154,204

135,4038,186
46,65925,798

123,746
7,154
44,82524,396

121,111
7,607
43,124(5,026)

105,555
7,402
41,24812,286¥ 298,502
1,290,067
948,561¥ 261,793
1,155,776
828,639¥ 237,175
1,085,349
779,451¥ 243,492
1,057,841
698,510¥¥¥149.78
1,703.39
20.00

142.001,536.51
18.00(30.34) ¥72.50
1,383.04
1,436.80
18.00
18.00

9.2
2.1
23.1

9.8
2.2
22.7

—
—
21.9

5.2
1.2
23.0

¥2,078,117
9,440
36,179592,359576,270
82,999—8,317
3,383,681¥1,912,211
13,36831,684555,984
328,120
73,6652,763
6,605
2,924,399¥1,808,625
17,37053,434600,447
398,725
71,9609,445
9,789
2,969,794¥1,629,199
19,26756,317555,132
400,026
51,7899,282
9,427
2,730,438

2001

2006

¥ 188,061 $ 2,338,182
128,187
15,747
44,125
13,5481,644,042
101,857
592,283
359,409¥ 225,947 $ 3,070,718
1,719,109 17,559,675
833,076 12,602,196¥

81.04 $
1,351.19

2.02
17.15

6.2
0.8
13.1

¥ 133,777 $ 1,842,626
87,371
8,605
37,80016,522

1,335,553
82,576424,497
230,963¥ 232,393 $ 2,906,473
1,031,360 14,996,732
659,099 10,547,736¥

97.49 $
1,371.30
18.00

1.30
16.21
0.22

7.3
1.7
22.5

¥1,420,243 $21,518,756
20,771
59,178
14,646528,618
500,645
6,291,295
401,084
6,367,563
35,192766,243
11,678—
8,914
83,3782,413,174 35,615,030

Notes: 1. “Operating revenues” does not include consumption taxes.
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. “Interest-bearing debt” includes asset-backed securities.
4. Japanese yen amounts have been translated into U.S. dollars at the rate of ¥117.47= U.S.$1, the approximate exchange rate on March 31, 2006, for the convenience ofthe reader.

24

CREDIT SAISON CO., LTD.

The Credit Saison Group generates operating revenues in five segments:
Credit & Finance, Entertainment, Real Estate, Lease and Other. Credit &Finance is the largest of these segments. It consists primarily of consumer
credit cards and loans to individuals, and accounted for approximately 80
percent of operating revenues in fiscal 2005, the year ended March 31, 2006.
Operating revenues consist primarily of fees from affiliated stores
generated by credit card and installment purchases, and customer fees
generated by revolving accounts, card cash advance transactions, specialty loans andother transactions. Operating expenses consist primarily of advertisingexpenses, losses on accounts receivable, personnel expenses, fees and financial costs.
Advertising and personnel expenses represent a significant percentage of
operating expenses. Overall, these costs are directly related to acquiring new
cardholders to generate future revenue growth.

Changes in the Scope of Consolidation
The Credit Saison Group consisted of Credit Saison Co., Ltd. and 11
consolidated subsidiaries as of March 31, 2006. AIC Inc., a subsidiary in the realestate liquidation business, was added to the scope of consolidation during
fiscal 2005. The Credit Saison Group had six affiliates accounted for by the equity
method as of March 31, 2006, an increase of one from a year earlier as a result of
the addition of affiliate Resona Card Co., Ltd. On October 1, 2005, the card
issuance business and the member merchant and processing operations of UC
CARD Co., Ltd. were separated into two companies. UC CARD Co., Ltd.
(member merchant and processing operations) is included among affiliates
accounted for by the equity method. UC CARD Co., Ltd. (card issuancebusiness) merged with Credit Saison Co., Ltd. on January 1, 2006 and ceased tooperate as a discrete entity. In this annual report, UC CARD Co., Ltd. refers to
the card issuance business, unless otherwise specified.

Analysis of Income Statements
Steady economic recovery continued in fiscal 2005, with a continuing
increase in capital investment amid strong corporate earnings and solid
employment conditions and personal consumption.
Operating revenues increased 14.3 percent year-on-year to ¥274,666
million. Operating income increased 18.7 percent year-on-year to ¥69,575
million. Net income increased 32.7 percent year-on-year to ¥42,220 million.

Operating Revenues and Expenses, and Operating Income
For fiscal 2005, operating revenues increased 14.3 percent, or ¥34,281
million, compared with the previous fiscal year to ¥274,666 million.
Expansion in operating revenues centered on the consumer credit businesses ofcredit cards and loans to individuals in the Credit & Finance segment.
Performance was also strong in the Real Estate segment, in which operating
revenues increased a substantial 45.4 percent year-on-year to ¥18,361 million.

Total Operating Revenues(Millions of yen)

04

Breakdown of Selling, General and
Administrative (SG&A) Expenses
Years ended March 31(Millions of yen / %)

2006

2005

Cost of uncollectible receivables ¥ 46,711 ¥ 43,861
Included in above:
Allowance for losses on
accounts receivable
44,27638,783Losses on accounts
receivable
694
3,825
Allowance for losses on
guarantees
1,741
1,253
SG&A expenses excluding costof uncollectible receivables
146,414 128,162
Included in above:
Advertising expenses
18,362
24,699Provision for point exchange
8,418—
Personnel expenses
37,15532,853
Fees paid
34,64628,066
Total SG&A expenses¥193,126 ¥172,024% change

6.5%

14.2
(81.8)
38.9
14.2(25.7)
—
13.1
23.4
12.3%

Financial cost increased 22.5 percent year-on-year to ¥11,965 million.
The balance of interest-bearing debt increased, and the Credit Saison Group
moved to lengthen maturities and increase the ratio of fixed-rate debt.
As a result, operating income for fiscal 2005 increased 18.7 percent, or¥10,985 million, compared to the previous fiscal year to ¥69,575 million.

274,666

06
05

Operating expenses increased 12.8 percent, or ¥23,296 million,
compared with the previous fiscal year to ¥205,091 million. A primary factor wasa year-on-year increase of 23.4 percent, or ¥6,580 million, in fees paid as a resultof issues including the merger with UC CARD Co. Ltd. In addition, higher
transaction volume increased expenses associated with SAISON Permanent
Points (“Eikyufumetsu Point”: a point program that allows customers toaccumulate unlimited credit card points and exchange them at any time).
Through fiscal 2004, expenses associated with the exchange of points under thisprogram were included in advertising expenses. Beginning with fiscal 2005,
however, these expenses are reported as a separate item, provision for point
exchange. The result of this change was to reduce advertising and promotion
expenses by 25.7 percent year-on-year to ¥18,362 million. In addition,
expenses associated with the exchange of points that were included inadvertising expenses for fiscal 2004 totaled ¥7,841 million.
The cost of uncollectible receivables, which is included in selling, general andadministrative (SG&A) expenses, increased 6.5 percent year-on-year to¥46,711 million. The merger with UC CARD Co., Ltd. added to growth inreceivables, primarily credit card installment accounts receivable. This resulted in
an increase in allowance for losses on accounts receivable and allowance for losses
on guarantees. However, the number of personal bankruptcies in Japan
trended downward and the Credit Saison Group has strengthened initial
lending and credit monitoring. As a result, losses on accounts receivable
decreased a substantial 81.8 percent year-on-year.

240,385
220,332

03

212,24202

214,838(Years ended March 31)

CREDIT SAISON CO., LTD.

25

Non-Operating Revenues and Expenses, and Net Income

1. Credit Card Business

Non-operating revenues more than doubled to ¥19,944 million because
the Credit Saison Group generated gain on sales of investments in subsidiaries andaffiliates totaling ¥8,380 million, and net gain on changes in equity interest
increased to ¥6,396 million from ¥2,371 million for the previous fiscal year due toan increase in the value of equity interest. Non-operating expenses more than tripled
year-on-year to ¥38,724 million, due largely to amortization of goodwill
totaling ¥24,857 million in connection with the merger with UC CARD Co., Ltd.
Also as a result of the merger, the Credit Saison Group recorded provision for losses
on interest repayment totaling ¥2,305 million and provision for losses onreceivables totaling ¥3,037 million. Consequently, non-operating loss increased to¥18,780 million from ¥4,168 million for the previous fiscal year.
As a result, income before income taxes decreased 6.7 percent year-on-yearto ¥50,795 million. Provision for income taxes decreased to ¥6,956 million from
¥21,825 million for the previous fiscal year. Consequently, net income
increased 32.7 percent, or ¥10,402 million, year-on-year to ¥42,220 million. Net
income per share increased to ¥237.29 from ¥185.00 for the previous fiscal year.

Full-scale restructuring of the retail finance industry has become evenmore pronounced, and the credit card industry’s structure is changing
significantly. Amid these conditions, several industry and operating
environment trends require attention, including the increasingly energetic
debate regarding regulatory change and the establishment of reserves forinterest repayment. On the other hand, consumer spending is recovering, the useof credit cards to make payments has expanded to areas such as public
utilities and medical bills, and the extension of credit through new means
such as mobile phones has begun. These and other factors are supporting
continued expansion in the credit card market.
In this operating environment, Credit Saison merged with UC CARD
Co., Ltd. on January 1, 2006. This added UC CARD’s 4.27 million credit card
holders (as of January 1, 2006) to Credit Saison’s overall total. Moreover,results in the three months following the merger benefited from the addition of
UC CARD’s credit card transaction volume.
For fiscal 2005, new credit card applications totaled 2.71 million. As of
March 31, 2006, the number of cardholders increased 5.89 million from ayear earlier to 22.79 million, and the number of active cardholders increased 2.85
million to 11.68 million.
In addition, card shopping transaction volume increased 21.6 percent
year-on-year to ¥2,527.8 billion. Cash advance transaction volume increased 19.5
percent year-on-year to ¥618.9 billion. The volume of shopping-related
revolving credit contracts increased 22.9 percent year-on-year to ¥218.5
billion. The Credit Saison Group liquidated ¥40.0 billion of these contracts,
resulting in a balance of revolving credit contracts receivable totaling ¥178.1 billion
as of March 31, 2006. Cash advance and Cash Plus Loan receivables totaled¥552.0 billion, an increase of 33.4 percent from a year earlier. The Credit
Saison Group liquidated ¥30.0 billion of these contracts, resulting in abalance of cash advance and Cash Plus Loan receivables totaling ¥523.3
billion as of March 31, 2006.

Shareholder Returns Policy
Dividend 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 securesufficient internal 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 Co., Ltd. increased
cash dividends by ¥6.00 to ¥26.00 per share for fiscal 2005. In addition,
the Company distributed complimentary SAISON Permanent Points(“Eikyufumetsu Point”) to shareholders who are SAISON CARD cardholders
in proportion to the number of shares held.

Key Initiatives in the Credit Card Business during Fiscal 2005
Alliance Network Expansion and Acquisition of Cardholders

Review of Operations by Segment
Credit & FinanceThis segment consists of the credit, lending and servicer (loan collection
agency) businesses. Segment operating revenues increased 15.5 percent year-onyear to ¥226,597 million. Segment operating income increased 13.5 percent yearon-year to ¥54,694 million.

◆ Growth in Cardholders through Promotion of Strategic Alliances
Based on the strategic business alliance with Mizuho Financial
Group, Inc., Mizuho Bank, Ltd. and UC CARD Co., Ltd., in April
2005 Credit Saison began issuing the “Mizuho Mileage Club Card
SAISON,” which functions as both an ATM card for Mizuho Bank,
Ltd. and a SAISON CARD. As a result, the Credit Saison Groupstarted acquisition of cardholders at bank retail counters, a new channel for

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

Years ended March 31

2006

Operating Revenues
2005

Credit & Finance¥226,597
17,91919,3007,183
5,135
276,134(1,468)¥274,666¥196,221
17,02813,3726,854
8,359
241,834(1,449)¥240,385

Entertainment
Real Estate
Lease
Other
Total
Eliminations or corporate
Consolidated% change

15.5%
5.2
44.3
4.8
(38.6)
14.2
—
14.3%

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

26

CREDIT SAISON CO., LTD.

2006

Operating Income
2005% change¥54,694
2,688
9,512
3,336
3,852
74,082(4,507)¥69,575¥48,201
1,358
5,536
2,636
4,404
62,135(3,545)¥58,590

13.5%
97.9
71.8
26.6
(12.5)
19.2
—
18.7%

the Group. With the addition of the American Express brand in January
2006, the “Mizuho Mileage Club Card SAISON” now features a lineup offour major international brands including MasterCard, VISA and JCB.
As a result of the merger with UC CARD Co., Ltd., the Credit Saison
Group is now the issuer for more than 22 million credit card holders ofboth the SAISON CARD and UC Card brands. The Credit Saison
Group also issues affinity cards for both brands in cooperation withmore than 200 alliance partners.
The Credit Saison Group has also begun issuing the “SAISON
Platinum American Express Card,” a premium card that targets high-status
customer segments. This has allowed the Group to approach newcustomer segments in which it had experienced difficulty acquiring
cardholders for the conventional SAISON CARD. The Credit Saison
Group also provided consulting services to the Bank of China, which isinterested in issuing credit cards to Japanese customers, and began
issuing the “Chojo-SAISON Credit Card” to Japanese nationals living inShanghai, China. This card allows payment in Chinese yuan.

mobile phone bills. Moreover, in cooperation with Saison Automobile andFire Insurance Co., Ltd., Credit Saison developed and launched a credit
card industry first: Automobile Anshin Insurance, an automobile
insurance product specifically for cardholders. These were among the
products and services the Credit Saison Group developed to stimulate
SAISON CARD usage in various lifestyles and situations.
◆ Thorough Credit Screening
The Credit Saison Group has been continuously strengthening
initial lending and credit monitoring as part of a focus on continuously
enhancing the soundness of receivables by strengthening management ofreceivables risk. At the same time, the Credit Saison Group has beenworking to extend credit appropriate to each customer by relentlessly
working to administer credit in a manner that balances revenues andrisk. The delinquency ratio has been trending downward, and the start ofoperation of the Ubiquitous credit center has enhanced the accuracy of
credit screening while improving credit collection capabilities. As aresult, the Credit Saison Group is improving the soundness of its
receivables.

Strengthening Our Business Foundation◆ The New “Ubiquitous” Credit Center Begins Full-Scale Operation
The Credit Saison Group constructed the new Ubiquitous credit
center with the aim of improving service and enhancing processing
capabilities in the expanding credit card business. Full-scale operations
began in April 2005. Ubiquitous provides a single source for all
customer credit cycle functions, including application and registration,
credit screening, billing, collection and information services, which had
been distributed among five locations. This has enabled the Credit
Saison Group to respond even more smoothly to customers, and has
improved operating efficiency. Moreover, it has allowed the Group to
further raise the quality of services provided to customers. The
Ubiquitous credit center’s “Thanks Call” is representative. Ubiquitous
makes Thanks Calls to new cardholders to express gratitude and explain
card functions and services. This has increased card usage and expanded thenumber of active cardholders.
◆ Brand Awareness and Penetration and Measures to Stimulate Card Usage
The Credit Saison Group worked to enhance awareness andpenetration of SAISON Permanent Points (“Eikyufumetsu Point”),
which never expire and can be exchanged for items at any time, bybuilding on a popular television commercial in the previous year called“The Giant Swing” that featured an elderly man performing on thehorizontal bars. In 2006, the Credit Saison Group put thisadvertisement on a global stage with versions for Paris and London.
Moreover, the Credit Saison Group worked with The Sumitomo Trust &Banking Co., Ltd. to develop a Fixed-Term Deposit with SAISONPermanent Points, which awards points according to card usage eachmonth. In addition, the Credit Saison Group created plans underwhich cardholders can use their points to obtain the opportunity toparticipate in events, and added items that allow cardholders to use
their points to support international cooperative organizations.
Through these and other programs, the Credit Saison Groupmaximized the differentiation of the SAISON CARD with Saison
Permanent Points and thus stimulated card usage.
In conjunction with expansion in new channels in which credit
cards can be used for payment, Credit Saison strengthened automatic
payments in areas including gas, electricity and other utility bills, andNew Developments and Initiatives◆ Responding to the Emergence of Mobile Credit
A number of new mobile credit services have become available
recently, and the Credit Saison Group has been studying them fromvarious perspectives in working to provide services that meet the needs ofcustomers. In addition to joining the Mobile Payment Promotion
Association* to promote the diffusion of QUICPay™, the Credit
Saison Group formed a business alliance with NTT DoCoMo, Inc.,
Mizuho Bank, Ltd. and UC CARD Co., Ltd. to promote DoCoMo’siD® credit card brand. These were among the Credit Saison Group’s efforts
to provide services centered on Osaifu-Keitai ® (Mobile Wallet). In
addition, the SAISON CARD and UC Card can be used to recharge Edyelectronic money.
◆ Expansion of Investment-related Services
Customers are shifting their focus from saving to investing, which is
driving expansion in investment-related services. The Credit Saison
Group has been opening securities brokerage accounts and sellingJapanese government bonds under an agreement with Monex, Inc., and has
also entered a new agreement with Toyota Financial Services Securities
Corporation. While expanding securities brokerage services, the Credit
Saison Group has also entered an agreement with Central Tanshi On-line
Trading Co., Ltd. that has resulted in the joint development of
SAISON Foreign Exchange, original foreign exchange margin-trading
products for SAISON cardholders.
* The Mobile Payment Promotion Association was formed in October 2005 by JCB Co., Ltd.
and other credit card companies to promote the rapid diffusion of noncontact mobile
payment services and to develop the related infrastructure.

2. Card Loan Business
The Credit Saison Group provides a variety of card loans, including loans
through the C-Plan Card and the Cash Reserve Card, the Ladies Loan forworking women, and the VIP Loan Card, which bases its appeal on an ample
credit limit.
The number of loan cards issued increased 10.0 percent year-on-year to 200
thousand, and the balance of card loans receivable increased 16.7 percent
year-on-year to ¥70.2 billion. Moreover, the Credit Saison Group initiated

CREDIT SAISON CO., LTD.

27

transactions through the new “SAISON Loan Card” in March 2006. This
dedicated loan card meets various needs for capital because it offers a wide
range of credit limits, with interest rates determined by the creditworthiness of
the individual.

3. Other Consumer Loans
In addition to card loans, the Credit Saison Group provides a variety of
unsecured consumer loans. These include the Member’s Loan for SAISONCARD cardholders. Other consumer loans receivable increased 16.3 percent yearon-year to ¥70.2 billion.

4. Loans
The Credit Saison Group operates in the real estate mortgage loanbusiness with an emphasis on business loans, using its real estate evaluation
capabilities, know-how related to real estate liquidation and a network
acquired through the real estate distribution business. The balance of loan
receivables totaled ¥104.8 million as of March 31, 2006, an increase of 97.1
percent from a year earlier.

1. Real Estate Distribution Business
The Credit Saison Group participates in several real estate distribution
markets. In the building renovation business, the Group renovates real estate assets
acquired at auction and through the conventional real estate distribution
market to supply high-value-added products. The servicing business entails
acquiring nonperforming loans collateralized by real estate and real estate thatcollateralized such loans, adding value to them and then selling them. In the realestate fund business, the Credit Saison Group emphasizes development
projects in generating stable leasing revenue from income-producing businessproperties held over the medium-to-long term. Another objective of thisbusiness is generating capital gains by selling properties after adding value to them.
In the real estate loan guarantee business, the Credit Saison Group generates
income from fees and other sources from companies such as financial
institutions by appraising real estate and guaranteeing obligations.

2. Property Management Business
The Credit Saison Group leases space to tenants in properties that it
owns, and subleases properties that it manages and administers on behalf ofproperty owners.

5. Credit Guarantee Business
The Credit Saison Group uses close relationships spanning sales andadministration in alliances with financial institutions to concentrate on
acquiring quality contracts. Transaction volume with both new and existingcustomers increased substantially during the past fiscal year. Credit guarantee
transaction volume increased 91.1 percent year-on-year to ¥71.2 billion.

Lease

The Credit Saison Group has systematically deployed the skills andknow-how in credit collection administration it has acquired over many years to
structure a low-cost operating system. In addition, the Group has aggressively
entered agreements with firms such as credit card companies and financial
institutions in working to expand commissioned business. As a result, theCredit Saison Group has commission contracts with 21 companies, including IY
Card Service Co., Ltd. and Kumamoto Family Bank, Ltd.

The overall leasing market grew marginally compared to the previous fiscal
year. The Credit Saison Group continued to expand this business through its
strategy of emphasizing specialized markets, primarily in the communication andbusiness equipment sectors. As a result, lease transaction volume increased 8.4
percent year-on-year to a record ¥90.0 billion. Segment operating revenues
increased 4.8 percent year-on-year to ¥7,183 million, and segment operating
income increased 26.6 percent year-on-year to ¥3,336 million.
The Specific Commercial Transaction Law has been amended against abackground of problems with lease transactions stemming from theinappropriate sales methods of some sales companies. Centered on the Japan
Leasing Association, the Credit Saison Group and other lease companies are taking
steps such as strengthening administration and training at sales offices inworking to restore the trust of the market.

Entertainment

Other

This segment consists of the amusement business and other operations. In
the amusement business, the Credit Saison Group placed priority on creating
sound, stable and comfortable facilities that have the support of the regions inwhich they are located. As a result, operating revenues rose 5.2 percent year-onyear to ¥17,919 million, and operating income increased 97.9 percent year-onyear to ¥2,688 million.

This segment includes mail-order sales and other operations. Operating
revenues decreased in the mail-order sales business because the Credit Saison
Group transferred sales activities to an external company. As a result, segment
operating revenues decreased 38.6 percent year-on-year to ¥5,135 million,
and segment operating income decreased 12.5 percent year-on-year to ¥3,852
million.

Real Estate

Note: The Credit Saison Group does not present geographic segment information because no
consolidated subsidiaries or branches are located outside Japan.

6. Servicer (Loan Collection Agency) BusinessThis segment consists of real estate distribution and property management.
During fiscal 2005, the Credit Saison Group aggressively acquired properties
and strengthened its involvement in development projects to meet market needs inthe real estate distribution business. In the real estate fund business,participation in large-scale projects contributed to results. Moreover, the Credit
Saison Group added subsidiary AIC Inc. to the scope of consolidation during fiscal
2005 because of its increasing materiality. As a result, segment operating
revenues increased 44.3 percent year-on-year to ¥19,300 million, and segment
operating income increased 71.8 percent year-on-year to ¥9,512 million.

28

CREDIT SAISON CO., LTD.

Liquidity and Financial Position
Fund Procurement and Liquidity Management
The Credit Saison Group emphasizes low cost and stability in procuring
funds, and works to diversify fund procurement methods. The Group
primarily procures funds from banks, farming- and forestry-related financial
institutions, life insurance companies and non-life insurance companies. In
addition, the Credit Saison Group procures funds indirectly throughsyndicated loans and committed lines of credit. The Group also procures
funds directly by issuing corporate bonds, convertible bonds and commercial

paper (CP), and also liquidates card shopping receivables, cash advancereceivables and lease receivables.
As of March 31, 2006, interest-bearing debt, including ¥70.0 billion in assetbacked securities accounted for as off-balance-sheet transactions, totaled¥1,480.4 billion. Of this total, loans accounted for 67.9 percent, bonds
accounted for 15.7 percent, CP accounted for 7.6 percent, and asset-backed
securities accounted for 8.8 percent.
While continuing to maintain relationships with existing lenders, theCredit Saison Group is working to lower refinancing risk and reduce costs in ways
such as initiating relationships with new lenders to diversify funding sources. In
addition, the Credit Saison Group is also reducing liquidity risk and lowering costsby employing new direct fund procurement methods other than bonds and CP.
These methods include liquidating receivables, an approach that is not
influenced by the Group’s financial condition.
Credit Saison Co., Ltd. has obtained credit ratings to support smoothfund raising. Rating and Investment Information, Inc., a Japanese credit
rating agency, maintains an A+ issuer rating on Credit Saison, and a credit
rating of a-1 on Credit Saison’s short-term debt. In addition, although we did not
request it, Standard & Poor’s (S&P) gave Credit Saison an A- rating.
Composition of Interest-Bearing Debt

(Billions of yen)
67.9%

8.8% 7.6%

15.7%

65.6

13.3 5.0

16.1

06

1,480.4

05

1,146.9
63.9

12.5

7.0

16.6

04

1,011.6
59.4

10.8

14.9

14.9

965.1

03
61.9

02

7.6

13.0

17.5

885.3

(Years ended March 31)
Loans

Asset-backed securities

Commercial paper

Bonds

Receivables, primarily associated with the credit card business, accountfor 72.1 percent of the Credit Saison Group’s assets. With an average annual
receivables turnover rate of 3 times, the Credit Saison Group maintains a highlevel of liquidity.

Cash Flow
Net Cash Used in Operating Activities
Net cash used in operating activities totaled ¥99,343 million, more thantriple the level of the previous fiscal year. Favorable business conditions
resulted in income before income taxes of ¥50,795 million. Depreciation
and amortization, a non-cash item, totaled ¥51,746 million. Trade
receivables increased ¥187,686 million due to growth in transaction volume inthe credit card business.

Net Cash Used in Investing Activities
Net cash used in investing activities increased 4.5 percent year-on-year to¥118,806 million. Payments for purchases of property and equipment andother assets used cash totaling ¥92,803 million for reasons including theacquisition of lease assets. In addition, payments for purchases of investment
securities, including shares of UC CARD Co., Ltd., totaled ¥49,463 million.
Proceeds from sales or redemption of investment securities, including shares ofAtrium Co., Ltd., totaled ¥22,020 million. In addition, the merger with UC
CARD Co., Ltd. resulted in proceeds from merger with affiliated company by theequity method totaling ¥2,398 million.

Net Cash Provided by Financing Activities
Net cash provided by financing activities increased 92.8 percent year-on-yearto ¥229,876 million. As a result of the Credit Saison Group’s emphasis on stablemedium- and long-term fund procurement, proceeds from long-term debts
totaled ¥236,003 million and proceeds from issuance of bonds totaled¥79,523 million. Decrease in short-term debts used cash totaling ¥81,091
million, and repayment of long-term debts used cash totaling ¥74,441
million.
As a result of the above, cash and cash equivalents at the end of the year
increased ¥12,006 million from a year earlier to ¥66,314 million. Beginning withfiscal 2005, subsidiary AIC Inc. has been added to the scope of consolidation
because of its increasing materiality. This had the effect of increasing cash and cash
equivalents as of March 31, 2006 by ¥255 million. The Credit Saison Group willcontinue working to enhance internal capital resources, and will use internal
capital resources to invest in business opportunities that arise from theGroup’s main strategic alliances.

Assets, Liabilities and Shareholders’ Equity
As of March 31, 2006, total assets increased ¥549,786 million, or 36.3
percent, from a year earlier to ¥2,062,735 million.
Current assets increased ¥514,908 million, or 44.6 percent, from a year earlier
to ¥1,669,435 million. Primary factors included an increase in tradereceivables resulting from the increase in credit card transaction volume. In
addition, growth in loans purchased and real estate for sale resulted in an
increase in inventories. The Credit Saison Group liquidated ¥40.0 billion in
revolving card shopping receivables and ¥30.0 billion in cash advancereceivables, which moved them off the balance sheet.
Property and equipment increased ¥14,203 million, or 7.6 percent, from a year
earlier to ¥199,940 million. A primary factor was an increase of ¥13,300
million in the net book value of equipment for lease compared to the previous fiscal
year-end. Investments and other assets increased ¥20,675 million, or 12.0
percent, from a year earlier to ¥193,360 million. The primary factor was anincrease of ¥11,387 million in deferred income taxes.
As of March 31, 2006, total liabilities increased ¥477,831 million, or
39.6 percent, from a year earlier to ¥1,685,546 million.
Current liabilities increased ¥189,448 million, or 26.7 percent, from ayear earlier to ¥900,170 million. Primary factors included increases in notes andaccounts payable, short-term loans and commercial paper. Beginning withfiscal 2005, the Credit Saison Group began recording allowance for losses on
business downsizing and allowance for losses on interest repayment, which
totaled ¥352 million and ¥2,305 million, respectively.
Long-term liabilities increased ¥288,383 million, or 58.0 percent, from a year
earlier to ¥785,376 million. Long-term debt increased ¥258,724 million, or 53.8
percent, from a year earlier to ¥739,822 million.
As a result, interest-bearing debt on the balance sheet increased ¥383,452
million, or 37.3 percent, from a year earlier to ¥1,410,380 million. Including¥70.0 billion in asset-backed securities accounted for as off-balance-sheettransactions, interest-bearing debt totaled ¥1,480,380 million.
Shareholders’ equity increased ¥59,408 million, or 19.7 percent, from a year
earlier to ¥360,717 million. The ratio of shareholders’ equity to total assets was
17.5 percent, compared with 19.9 percent a year earlier. Return on average total
shareholders’ equity (ROE) increased to 12.8 percent from 11.4 percent a
year earlier.

CREDIT SAISON CO., LTD.

29

Overview of Allowance for Losses on Receivables (Millions of yen / %)Total Shareholders’ Equity and Equity Ratio(Millions of yen / %)06

360,71717.5

05

301,31019.9

04258,25319.1

03

236,028
18.4

02(Years ended March 31)

242,594
19.3
Total shareholders’ equity

Equity ratio

Credit Risk
Receivables (the balance of installment accounts receivable plus thebalance of contingent liabilities related to the credit and finance businesses
and leasing receivables due before the balance sheet date) overdue by morethan 90 days increased 4.9 percent compared to a year earlier to ¥43,521
million. The allowance for losses on receivables increased 40.3 percent from a year
earlier to ¥58,189 million. Consequently, the ratio of allowance for losses onreceivables to receivables overdue by more than 90 days (excluding thecollateralized portion) included in current assets was 138.9 percent, compared to121.9 percent at the previous fiscal year-end.
Comparison of Overdue Receivables and Allowance for Losses
on Receivables to Receivables
As of March 31(1) Receivables(2) Receivables overdueby more than 90 days
(3) Collateralized portion
included in (2)(4) Allowance for losses onreceivables included incurrent assets
Receivables overdue by
more than 90 days as apercentage of receivables[(2) ÷ (1)]Ratio of allowance of losses onreceivables to receivables
overdue by more than
90 days [(4) ÷ ((2) – (3))](Reference) Receivables overdueby more than 90 days
excluding collateralized
portion as a percentage ofreceivables [((2) – (3)) ÷ (1)](Millions of yen / %)

2006

2005

¥1,861,829 ¥1,413,266

As of March 31

Allowance for losses onreceivables at the
beginning of the year
Increase
Decrease (Reversal)
Allowance for losses onreceivables at theend of the year
(Reference) Losses
on receivables

2006

2005

% change¥46,969
60,581
41,603¥39,246
39,87032,147

19.7%
51.9
29.4

65,94846,969

40.4

694

3,825

(81.8)

Delinquency Ratio (More than 90 Days) and Write-off Ratio:
Non-consolidated
2.02

06

3.50
2.12

03

(Years ended March 31)

2.98

2.04

04

02

2.46

2.01

05

(%)

2.54
1.64

2.15

Delinquency ratio (more than 90 days)

Write-off ratio% change

31.7%

43,521

41,495

4.9

1,626

7,476

(78.2)

58,18941,484

40.3

2.3%

2.9%

—

138.9%

121.9%

—

2.3%

2.4%

—

Risk Information
The following presents an overview of operating, accounting and otherissues that exert or could exert a significant influence on investor decisions.
Forward-looking statements are Credit Saison Group estimates as of March
31, 2006.

1. Operating Conditions
Results and financial position in the Credit Saison Group’s primaryCredit and Finance business are subject to the influence of domestic
economic conditions. Factors contingent upon economic conditions,
including worsening of the employment environment, disposable householdincome or consumer spending, affect or may affect transaction volume andrepayment in Group businesses including credit cards, loans, credit
guarantees, and real estate mortgage loans, and therefore have the potential tonegatively 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 toaffect Group results. Small and medium-sized companies are the principal
customer group of the Lease segment. Factors contingent upon economic
conditions, including contraction in capital expenditures and deteriorating
corporate performance, have the potential to negatively impact operating
revenues, losses on receivables and other results as well as financial position.

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 Groupprocures and have the potential to negatively impact operating revenues andother results as well as financial position. Changes in interest rates on loans andother instruments are impacted by a wide array of considerations. These
include the maximum interest rates and fees as prescribed by the Law
30

CREDIT SAISON CO., LTD.

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

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

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 alliancepartners has the potential to negatively impact the Credit Saison Group’s
performance and financial position. For example, the Credit Saison Groupacquires approximately 50 percent of new cardholders through the outlets ofalliance partners in the retailing industry. Reduced ability to attract
customers or lower sales among these companies has the potential tonegatively impact the Credit Saison Group’s operating revenues. In addition, theCredit Saison Group has capital relationships with a number of its alliancepartners. Unfavorable performance among such alliance partners has thepotential to incur impairment losses on investment securities in the Credit Saison
Group’s portfolio.

7. Regulatory Changes
The Credit Saison Group operates in accordance with current
regulations and the risks that result from these regulations. The Group’sbusinesses are subject to the Installment Sales Law, the Money-Lending
Business Control and Regulation Law, the Capital Subscription Law andother laws. Circumstances arising from amendments to or changes in theinterpretation of these laws in the future would have the potential tonegatively impact the Credit Saison Group’s operations, performance andfinancial position. The type, content and degree of potential regulatory
revisions are difficult to predict, and the Credit Saison Group has no control overtheir potential impact on its operations.
Moreover, the portion of interest that is higher than the interest rateceiling set by the Interest Rate Restriction Law can be deemed invalid andmay 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.

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 havethe potential to negatively impact the Credit Saison Group’s results andfinancial position. Moreover, a material decline in the fair value of 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.

5. System Operation Problems

Outlook for the Year Ending March 31, 2007

The Credit Saison Group relies heavily on computer systems andcommunication networks in numerous aspects of its main businesses,
including the credit card business. A number of situations could compromise theCredit 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 Group andcounterparty system inoperability resulting from temporary system overload
due to factors such as system errors or spikes in access caused by Group or
counterparty hardware or software problems; breakdown in communication
networks resulting from factors including natural disasters and accidents; andillegal or inappropriate system operation.

The Credit Saison Group is working to enhance the services it provides tosupport various customer lifestyles and further raise convenience for its
customers by energetically promoting innovation based on a thoroughcommitment to customer satisfaction. During fiscal 2006, the year ending
March 31, 2007, the Credit Saison Group expects the ongoing restructuring of thecredit card industry to accelerate. The Group must maximize the synergy effect ofthe merger with UC CARD Co., Ltd. and make progress in integrating the services
offered by the SAISON CARD and the UC Card. The Group will also work toincrease corporate and shareholder value by developing the various strategic
alliances it has created to respond appropriately to its changing market.
In addition, the Credit Saison Group will begin a new five-year mediumterm management plan during fiscal 2006. Based on this plan, the Group will
work to expand existing businesses. Moreover, the Group will focus on areas thatexhibit synergy with the credit card business to expand operations as aleading-edge service provider with the aim of becoming Japan’s number-one
finance company.
Based on the above, the Credit Saison Group’s consolidated performance
objectives for the year ending March 31, 2007, as announced on May 18,
2006, are operating revenues of ¥328.0 billion, operating income of ¥74.0
billion and net income of ¥39.0 billion.

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 thisinformation 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.

CREDIT SAISON CO., LTD.

31

Consolidated Balance Sheets

CREDIT SAISON CO., LTD. and Consolidated Subsidiaries
As of March 31, 2006 and 2005
Thousands of
U.S. dollars (Note 2)

Millions of yen

2006

2005

2006

ASSETS
Current Assets:
Cash and deposits ...........................................................................................

¥

66,314¥54,308$564,522

Receivables:
Notes and installment accounts receivable (Note 4)......................................

1,487,473

1,023,096

Short-term loans..........................................................................................

1,027

15,126

12,662,576
8,743

Less: Allowance for losses on receivables .....................................................

(58,189)(41,484)(495,353)................................................................................................................

1,430,311

996,738

12,175,966

Inventories.......................................................................................................

122,268

70,021

1,040,842

Deferred income taxes (Note 10) .....................................................................

10,61917,90290,395Prepaid expenses and other current assets .......................................................

39,923

15,558339,856

Total current assets..........................................................................................

1,669,435

1,154,527

14,211,581

Equipment for lease (Note 7) ...........................................................................

260,441

232,246

2,217,087

Buildings and improvements............................................................................

36,051

36,667

306,893

Fixtures and equipment ...................................................................................

26,95827,271

229,491

Property and Equipment, at Cost:................................................................................................................

323,450

296,184

2,753,471

Less: Accumulated depreciation.......................................................................

(131,760)(116,823)(1,121,649)................................................................................................................

191,690

179,361

1,631,822

Land................................................................................................................

8,250

6,376

70,233

Total property and equipment .........................................................................

199,940

185,737

1,702,055

Investment securities (Note 8) ..........................................................................

103,005

98,612876,857

Long-term loans ..............................................................................................

29,90929,324

254,613

Intangible assets ..............................................................................................

29,453

19,951

250,730

Lease deposits .................................................................................................

8,760

8,606

74,575

Deferred income taxes (Note 10) .....................................................................

16,6105,223

141,400

Other .............................................................................................................

13,764

16,455

117,166

Less: Allowance for losses on receivables .........................................................

(7,759)(5,486)(66,053)

Investments and Other Assets:

Less: Allowance for losses on investment securities ..........................................

(382)

—

(3,249)Total investments and other assets ..................................................................

193,360

172,685

1,646,039

Total assets......................................................................................................

¥2,062,735¥1,512,949$17,559,675

The accompanying notes are an integral part of these statements.

32

CREDIT SAISON CO., LTD.

Thousands of
U.S. dollars (Note 2)

Millions of yen

2006

2005

2006

Short-term loans (Note 6) ................................................................................

¥ 470,858¥ 389,526$ 4,008,319

Current portion of long-term debt (Note 6) .....................................................

86,70099,304

738,063

LIABILITIES AND SHAREHOLDERS’ EQUITYCurrent Liabilities:

Commercial paper ...........................................................................................

113,000

57,000961,948

Notes and accounts payable ............................................................................

180,222

102,511

1,534,190

Accrued taxes on income ................................................................................

7,097

13,21360,419Unearned income ............................................................................................

4,244

3,388

36,131

Accrued employees’ bonuses...........................................................................

2,256

1,740

19,208

Allowance for losses on business downsizing...................................................

352

—

2,999

Allowance for losses on interest repayment .....................................................

2,305

—

19,622

Accrued expenses and other current liabilities..................................................

33,13644,040282,079

Total current liabilities......................................................................................

900,170

710,722

7,662,978Long-term debt (Note 6)..................................................................................

739,822

481,098

6,297,961

Long-Term Liabilities:
Accrued pension and severance costs (Note 9).................................................

7,404

7,121

63,026

Accrued retirement benefits to directors and statutory auditors .......................

855

796

7,279
14,821

Allowance for losses on guarantees .................................................................

1,741

1,253

Allowance for losses on warranty of defects ....................................................

35

59

298

Allowance for losses on point program............................................................

29,023—247,067

Consolidation adjustments ..............................................................................

194

488

1,654

Other ..............................................................................................................

6,302

6,178

53,651

Total long-term liabilities .................................................................................

785,376496,993

6,685,757

Minority Interests in Consolidated Subsidiaries ............................................

16,472

3,924

140,222

Commitments and Contingent Liabilities (Note 14)
Shareholders’ Equity (Note 15):
Common stock................................................................................................

74,45969,526

633,852

Additional paid-in capital.................................................................................

78,176

73,148665,503

Retained earnings............................................................................................

194,180

155,101

1,653,017

Unrealized gains on other securities.................................................................

18,057

7,264

153,720................................................................................................................

364,872305,039

3,106,092

Less: Treasury stock, at cost .............................................................................

(4,155)(3,729)(35,374)

Total shareholders’ equity................................................................................

360,717

301,3103,070,718

Total liabilities and shareholders’ equity ...........................................................

¥2,062,735¥1,512,949$17,559,675

CREDIT SAISON CO., LTD.

33

Consolidated Statements of Income

CREDIT SAISON CO., LTD. and Consolidated Subsidiaries
For the years ended March 31, 2006, 2005 and 2004
Thousands of
U.S. dollars (Note 2)

Millions of yen

2006

2005

2004

2006

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

¥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¥174,963
15,605
10,180
5,526
7,487
6,571
220,332$1,825,572
152,244
156,306
60,807
41,183102,070
2,338,182

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

193,126
11,965205,091

172,024
9,771
181,795

156,502
9,825
166,327

1,644,042
101,857
1,745,899

Operating Income..............................................................................

69,57558,59054,005592,283

Non-Operating Revenues:
Gain on sales of investments in subsidiaries and affiliates..........................
Net gain on changes in equity interest ..............................................
Equity in earnings of affiliated companies by the equity method .......
Other................................................................................................
Total non-operating revenues ...........................................................

8,380
6,396
1,671
3,497
19,944

—
2,371
—
5,027
7,398

—
—
—
1,992
1,992

71,33954,442
14,22829,769169,778

24,857
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

—
999
7,570
1,069
—
—
5,850
15,488(13,496)
40,509211,605
29,108677—
19,62225,85442,784
329,650(159,872)
432,411(16,375)
9,419
43,8391,619¥ 42,220(23,238)
1,413
32,597779¥ 31,818(23,928)
5,906
22,48767¥ 22,420(139,401)
80,181
373,191
13,782$ 359,409

2006

2005

2004

2006

¥2,014.20
237.29220.6526.00¥1,721.35
185.00180.2120.00¥1,519.13
130.55127.7918.00$17.147
2.020
1.878
0.221

Non-Operating Expenses:
Amortization of goodwill ..................................................................
Loss on evaluation of investment securities .......................................
Impairment loss of property and equipment, and other assets (Note 11)...
Equity in losses of affiliated companies by the equity method .............
Provision for losses on interest repayment .........................................
Provision for losses on receivables .....................................................
Other................................................................................................
Total non-operating expenses ...........................................................
Non-Operating Income (Loss) ...........................................................
Income before Income Taxes ............................................................
Income Taxes (Note 10):
Current ................................................................................................
Deferred...............................................................................................
Income before Minority Interests.....................................................
Minority interest in income of consolidated subsidiaries ........................
Net Income .........................................................................................

Yen

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

34

CREDIT SAISON CO., LTD.

U.S. dollars (Note 2)

Consolidated Statements of Shareholders’ Equity

CREDIT SAISON CO., LTD. and Consolidated Subsidiaries
For the years ended March 31, 2006, 2005 and 2004
Millions of yen
Number ofshares ofcommon stock
issued (thousands)

Commonstock

Additional
paid-in capital

Retainedearnings

Balance at March 31, 2003..................................
Net income for the year ended March 31, 2004.....
Cash dividends.......................................................
Directors’ and statutory auditors’ bonuses..............
Decrease resulting from inclusion ofsubsidiaries in the scope of consolidation .............
Gain on sale of treasury stock ................................
Conversion of convertible bonds ............................
Accumulated changes in fair value .........................
Net increase in treasury stock.................................
Balance at March 31, 2004..................................

171,410———¥63,337———¥66,788———¥107,687
22,420(3,076)
(160)

—
—
315
—
—
171,725

—
—
331
—
—
63,668

—
16
330
—
—
67,134

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 ..............
Gain on sale of treasury stock ................................
Conversion of convertible bonds ............................
Execution of stock option.......................................
Accumulated changes in fair value .........................
Net decrease in treasury stock................................
Balance at March 31, 2005..................................

—
—
—

—
—
—

—
—
3,238
1,656
—
—
176,619

Net income for the year ended March 31, 2006.....
Cash dividends.......................................................
Directors’ and statutory auditors’ bonuses..............
Increase resulting from inclusion of subsidiaries
in the scope of consolidation ...............................
Increase resulting from merger of affiliatedcompany accounted for by the equity method......
Gain on sale of treasury stock ................................
Execution of stock option.......................................
Accumulated changes in fair value .........................
Net increase in treasury stock.................................
Balance at March 31, 2006..................................

Unrealized
gains (losses) onother securities¥

Treasury
stock

(938)
—
—
—

¥ (846)
—
—
—

(152)
—
—
—
—
126,719

—
—
—
5,624
—
4,686

—
—
—
—
(3,108)(3,954)———31,818(3,058)
(171)

—
—
—

—
—
—

—
—
3,393
2,465
—
—
69,526

—
160
3,389
2,465
—
—
73,148

(207)
—
—
—
—
—
155,101

—
—
—
—
2,578
—
7,264

—
—
—
—
—
225
(3,729)

—
—
—

—
—
—

—
—
—

42,220(3,498)
(174)

—
—
—

—
—
—

—

—

—

310

—

—

—
—
4,098
—
—
180,717

—
—
4,933
—
—
¥74,459

—
99
4,929
—
—
¥78,176

221
—
—
—
—
¥194,180———
10,793—¥18,057

—
—
—
—
(426)
¥(4,155)

Thousands of U.S. dollars (Note 2)

Balance at March 31, 2005..................................
Net income for the year ended March 31, 2006.....
Cash dividends.......................................................
Directors’ and statutory auditors’ bonuses..............
Increase resulting from inclusion ofsubsidiaries in the scope of consolidation .............
Increase resulting from merger of affiliatedcompany accounted for by the equity method .....
Gain on sale of treasury stock ................................
Execution of stock option.......................................
Accumulated changes in fair value .........................
Net increase in treasury stock.................................
Balance at March 31, 2006..................................

Number ofshares ofcommon stock
issued (thousands)

Commonstock

Additional
paid-in capital

Retainedearnings

Unrealized
gains (losses) onother securities

Treasurystock

176,619———$591,864———$622,697———$1,320,346
359,409(29,781)(1,481)$ 61,833———$(31,749)
—
—
—

—

—

—

2,644

—

—

—
—
4,098
—
—
180,717——
41,988——$633,852—
841
41,966——$665,503

1,880
—
—
—
—
$1,653,017———
91,887—$153,720————(3,625)$(35,374)

The accompanying notes are an integral part of these statements.
CREDIT SAISON CO., LTD.

35

Consolidated Statements of Cash FlowsCREDIT SAISON CO., LTD. and Consolidated Subsidiaries
For the years ended March 31, 2006, 2005 and 2004
Thousands of
U.S. dollars (Note 2)

Millions of yen

Cash Flows from Operating Activities:
Income before income taxes............................................................................
Adjustments to reconcile income before income taxes to net
cash provided by (used in) operating activities:
Depreciation and amortization ................................................................
Increase (decrease) in allowance for losses on receivables ........................
Increase (decrease) in accrued pension and severance costs .....................
Increase (decrease) in allowance for losses on point program...................
Increase (decrease) in allowance for losses on interest repayment ............
Increase (decrease) in allowance for other reserves ..................................
Interest and dividends receivable .............................................................
Interest expenses.....................................................................................
Equity in (earnings) losses of affiliated companies by the equity method ...
Amortization of goodwill.........................................................................
Foreign currency exchange (gain) loss......................................................
Realized (gain) loss on investment securities ............................................
(Gain) 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 ...............................................
Subtotal ..............................................................................................
Interest and dividends received................................................................
Interest paid ............................................................................................
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.....................
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 affiliated company by the equity method ......
(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 ...............................................................
Repayment 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.
36

CREDIT SAISON CO., LTD.

2006

2005

2004

2006

¥ 50,795¥ 54,422¥ 40,509

51,746
6,962
(173)
6,630
2,305
1,671
(12,416)
12,200(1,671)
24,857152(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
17,51337,501
3,510
929
—
—
43
(5,978)
9,892
1,069
—
(22)
92
999
—
7,570
13,920440,50259,266(1,473)56,44019,622
14,225(105,693)
103,854(14,228)
211,605
1,292(76,153)
29,108(54,442)
677
161,495(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)(88,980)
30,000(6,065)
10,945(2,305)
6,738(163)
60,204
5,962(10,026)(1,094)55,046(1,597,737)—(305,739)(107,223)
61,712
10,151(1,564)(661,892)
107,923(99,460)(192,258)(845,687)(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)(7,965)22,618(74,047)
1,937(9,761)679—(2,164)(68,703)(421,067)
187,452(790,020)
4,404(21,197)
12,732
20,417(4,097)(1,011,376)(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

30,764(73,000)
68,795(26,059)
64,724(40,200)—(8,217)—62
110(3,089)(3,076)—
10,814(91)(2,934)75,725(690,320)
476,717
2,009,051(633,701)
676,968(276,603)
255,384(25,538)
83,954
109,059
2,618(167)(29,781)(752)
1,956,889
207
100,033
462,312255¥ 66,314—¥ 54,308

630¥ 73,421$$

432,411

2,177
564,522

Notes to Consolidated Financial Statements

CREDIT SAISON CO., LTD. and Consolidated Subsidiaries

1. BASIS OF PREPARATION OF FINANCIAL STATEMENT
The accompanying consolidated financial statements have been prepared based 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 theCommercial Code of Japan and the Securities and Exchange Law, and in conformity with accounting principles and practices generally
accepted in Japan and Financial Statement Regulations (ordinances promulgated by the Ministry of Finance), which are different fromInternational Accounting Standards in certain respects as to application and disclosure requirements.
Certain items presented in the consolidated financial statements filed with the Ministry of Finance have been reclassified in theseaccounts for the convenience of readers outside Japan. The consolidated financial statements are not intended to present theconsolidated financial positions, results of operation and cash flows in accordance with accounting principles and practices generally
accepted in countries and jurisdictions other than Japan.
2. U.S. DOLLAR AMOUNTSJapanese yen amounts have been translated into U.S. dollars at the rate of ¥117.47=U.S.$1, the approximate exchange rate on March
31, 2006, for the convenience 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.
3. SIGNIFICANT ACCOUNTING POLICIES(a) Basis of consolidation and accounting for investments in affiliated companies
As at March 31, 2006, the consolidated financial statements include the accounts of the Company and its eleven (ten for 2005)
material subsidiaries. Effective from the beginning of the year ended March 31, 2006, AIC Inc. has been included in the scope of
consolidation in light of the increased materiality to the overall group of this Company.
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 six (five for 2005) material affiliates are accounted for by the equity method. Effective from the beginning of thelatter half of the year ended March 31, 2006, Resona Card Co., Ltd. has been included in these affiliates due to additional acquisitionof equity.
The previous UC CARD Co., Ltd. was divided into UC CARD Co., Ltd. (card issuance business) and UC CARD Co., Ltd. (member
merchant and processing company), effective October 1, 2005. The latter company has been included in the affiliates and the former
company was merged into the Company, effective January 1, 2006.
Investments in unconsolidated subsidiaries and affiliates not accounted for by the equity method are stated at cost, due to theirimmaterial 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 (consolidation
adjustments), which is amortized equally over five years on a straight-line basis.
(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 that are 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 fair value included in net profit or loss for the period in which they arise.
Held-to-maturity debt securities that the Companies intend to hold to maturity 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 “other securities.” 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 thesesecurities are reported as a separate item in shareholders’ equity at a net-of-tax amount.

CREDIT SAISON CO., LTD.

37

Other securities that do not have market prices are stated at cost using the moving-average method. Equities of limited liability
partnerships for investment 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 equivalent based on the recently available financial statements of the partnerships
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 not deemed temporary, those securities are written
down to fair value, and the resulting loss is included in net profit or loss for the period.
Other securities held by the Companies at the year-ends are all presented as “non-current.”
iii. Hedge accounting
Derivatives used as hedging instruments by the Companies are principally interest rate swaps and currency swaps. The related hedged
items are bank loans 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 foreignexchanges. 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 andmeasured at fair value, and gains or losses on derivative transactions are recognized in the consolidated statements of income, and b) for
derivatives used for hedging purposes, if derivatives qualify for hedge accounting because of high correlation and effectiveness between
the hedging instruments and the hedged items, gains or losses on derivatives are deferred until maturity of the hedged transactions.
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 the straight-line method over the estimated useful lives of theassets, except for equipment for lease, which is depreciated over the lease term.
(e) Intangible assets
Intangible assets are amortized by the straight-line method over the useful lives specified by the Japanese Income Tax Law, except forsoftware, of which useful life is estimated at five years by the Companies. Goodwill acquired during the year ended March 31, 2006
was charged to income at the time of acquisition under the enforcement law of the Commercial Code of Japan.
(f) Leased properties
Finance leases are accounted for as operating leases, except where the lease is deemed to transfer ownership of the leased property to
the lessee.
(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 and doubtful 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.
( i ) Allowance for losses on business downsizing
Allowance for losses on business downsizing is provided at the estimated amount required to discontinue certain operations ofconsolidated subsidiaries.
( j ) Allowance for losses on interest repayment
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 amountbased on payment experience, required to refund upon customers’ legal claims.
The effect of this change was to decrease income before income taxes by ¥2,305 million (US$19,622 thousand) for the year ended
March 31, 2006.
(k) Allowance for losses on investment securities
Allowance for losses on investment securities is provided for losses on investments in subsidiaries and affiliated companies based on
their financial conditions.

38

CREDIT SAISON CO., LTD.

( l ) Accrued pension and severance costs
Accrued pension and severance costs are provided for employees’ retirement benefits based on the projected benefit obligation andthe fair value of pension plan assets at the end of the fiscal year.
Unfunded past service cost and actuarial differences of the plans are being amortized over a period of nine to eleven years, within
the average remaining service period at the time of occurrence. Amortization of unfunded past service cost and amortization of
actuarial differences start from occurrence and from the following fiscal year, respectively.
(m) Accrued retirement benefits to directors and statutory auditors
Directors and statutory auditors customarily receive lump-sum payments upon termination of services, subject to shareholders’ approval.
The Companies provide for retirement allowances in an amount equal to the total benefits calculated based on the unfunded
retirement plan for the directors and statutory auditors.
(n) Allowance for losses on guarantees
Allowance for losses on guarantees is provided for potential losses arising from the Companies’ guarantee obligations of customers’
liabilities (personal loans to individuals from the banks with which the Companies have guarantee service arrangements).
The allowance is provided at an amount determined by applying the ratio of the Company’s loss experience to the balance ofguarantees outstanding at each year-end.
(o) Allowance for losses on warranty of defects
Allowance for losses on warranty of defects is provided for the potential repair costs on sold real estate (detached houses and storecombined houses) due to the Companies’ warranty of defects. The allowance is provided at the amount estimated based on the pastexperience of repair costs.
(p) Allowance for losses on point program
To stimulate card usage the Company provides card holders with credit card points, which can be exchanged for various commodities
and services. Allowance for losses on point program is provided based on estimated usage of card points outstanding at year-end andexchange 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 ofan expiration date for credit card points on SAISON CARD, the allowance is provided based on estimated usage of card points
outstanding at year-end and exchange experience.
The effect of this change was to increase income before income taxes by ¥597 million (US$5,082 thousand) for the year ended
March 31, 2006.
Expected cost of usage of credit card points as of March 31, 2005, amounting to ¥20,986 million, is included in accrued expenses incurrent liabilities on the consolidated balance sheet.
(q) 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.
( r ) Appropriation of retained earnings
Cash dividends and bonuses to directors and statutory auditors are recorded in the financial year that a proposed appropriation ofretained earnings is approved by the General Meeting of Shareholders of the Company.
( s ) Changes in presentation of loss on disposal of property and equipment, other assets
Formerly, loss on disposal of casino machines held by the consolidated subsidiary operating Entertainment business was included in
non-operating expenses in the consolidated statements of income. Considering recent frequent occurrence of replacement of themachines, the loss is included in selling, general and administrative expenses in the consolidated statements of income, effective fromthe year ended March 31, 2004. As a result, operating income decreased by ¥1,865 million for the year ended March 31, 2004, but
had no effect on income before income taxes.
( t ) Impairment loss of property and equipment, and other assets
Effective from the year ended March 31, 2004, under the “Accounting Standard for Impairment of Fixed Assets,” fixed assets arereviewed for impairment whenever events or changes in circumstances indicate material change in the carrying amount of an asset.
Impairment loss on property and equipment, and other assets amounted to ¥80 million (US$677 thousand), ¥1,156 million and ¥7,570
million for the years ended March 31, 2006, 2005 and 2004, respectively.
( u ) Purchased receivables with pledged real estate
Formerly, receivables purchased with pledged real estate were included in installment accounts receivable and possible uncollectible
amounts were accounted for as allowance for losses on receivables. Effective from the year ended March 31, 2006, in reconsiderationof 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 toconform with the current accounting policy.
This change had no effect on income before income taxes for the year ended March 31, 2006.
CREDIT SAISON CO., LTD.

39

(v) Supplementary cash flow information
Cash and cash equivalents in the consolidated statements of cash flows comprise cash on hand, demand deposits in banks and highly
liquid, short-term investments with low risk of fluctuation in value that are scheduled to mature within three months from acquisition.
The balance of cash and cash equivalents as of March 31, 2006, 2005 and 2004 is reconciled with the respective consolidatedbalance sheets as follows:
Thousands of
U.S. dollars

Millions of yen

2006

2005

2004

2006

Consolidated balance sheet:
Cash and deposits............................................................................................

¥66,314¥54,308¥73,421$564,522

Cash and cash equivalents at end of year.........................................................

¥66,314¥54,308¥73,421$564,522

Thousands of
U.S. dollars

Millions of yen

2006

2005

2004

2006

¥ 331

—
—

Non-cash financing activities are as follows:
Conversion of convertible bonds
Common stock increased due to conversion of convertible bonds ................

—¥ 3,393

Additional paid-in capital increased due to conversion of convertible bonds .

—

3,389

330

Convertible bonds decreased due to conversion...........................................

—

6,782

661

—

Acquisition of investment securities by debt to equity swaps ...........................

—

—

9,772

—

Acquisition of investment securities by stock for stock and contribution in kind—

10,231——

Effective as of January 1, 2006, the Company merged with UC CARD Co., Ltd. (card issuance business).
The assets and the liabilities acquired by the merger with UC CARD Co., Ltd. (card issuance business) are summarized as follows:
Millions of yen

Thousands of
U.S. dollars¥279,711
25,000¥304,711¥238,637
12,224¥250,861$2,381,123
212,824$2,593,947$2,031,471
104,063$2,135,534

Current assets...................................................................................................................................
Noncurrent assets ............................................................................................................................
Total assets ......................................................................................................................................
Current liabilities...............................................................................................................................
Noncurrent liabilities .........................................................................................................................
Total liabilities ...................................................................................................................................

(w) Reclassification
Certain reclassification of previously reported figures have been made to conform with the current classification.
4. NOTES AND INSTALLMENT ACCOUNTS RECEIVABLE
As of March 31, 2006 and 2005, liquidated revolving receivables and single-payment card shopping receivables were as follows, and thefollowing amounts of trust beneficiary rights generated from liquidation were included in notes and installment accounts receivable.
Millions of yen

Liquidated receivables:
Revolving card shopping ...................................................................................
Single-payment card shopping ..........................................................................
Revolving card cashing.......................................................................................
Trust beneficiary rights:
Revolving card shopping ....................................................................................
Single-payment card shopping ...........................................................................
Revolving card cashing.......................................................................................

40

CREDIT SAISON CO., LTD.

Thousands of
U.S. dollars

2006

2005

2006

¥ 40,401—
28,750¥40,400
50,00028,750$ 343,923—
244,745¥ 11,120
144,687
17,049¥15,811
98,326
15,515$ 94,662
1,231,691
145,131

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

2006

2005

2006

Total loan limits .....................................................................................................
Loan executions .....................................................................................................

¥7,948,562
614,051¥5,835,727
467,085$67,664,613
5,227,300......................................................................................................................

¥7,334,511¥5,368,642$62,437,313

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.
6. SHORT-TERM LOANS AND LONG-TERM DEBT
Short-term loans are represented principally by 30 to 365 day notes to banks, with an average interest rate of 0.60% as of March 31, 2006.
Long-term debt as of March 31, 2006 and 2005 consisted of the following:Thousands of
U.S. dollars

Millions of yen

2006

2005

2006

Average 1.32% mortgage or secured loans from banks, insurancecompanies and other financial institutions, due in installments through 2016 ....
0.22125% (variable) to 1.85% bonds, due in installments through 2016 ...............
Average 0.70% on payables under securitized lease receivables* ...........................

¥534,124
232,398
60,000¥362,562
184,840
33,000$4,546,900
1,978,355
510,769

Subtotal.............................................................................................................
Less: Current portion .............................................................................................

826,522(86,700)

580,402(99,304)

7,036,024(738,063)......................................................................................................................

¥739,822¥481,098$6,297,961*Payables under securitized lease receivables result from liquidation.

The aggregate annual maturities of long-term debt subsequent to March 31, 2006 are as follows:
Years ending March 31

Millions of yen

Thousands of
U.S. dollars

2007.....................................................................................................................................................
2008.....................................................................................................................................................
2009.....................................................................................................................................................
2010.....................................................................................................................................................
2011 and thereafter .............................................................................................................................

¥ 86,700
103,232
85,133109,015
442,442$ 738,063
878,794
724,720928,020
3,766,427

As is customary in Japan, short- and long-term bank loans are made under general agreements, which provide that additional
security and guarantees for present and future indebtedness will be given upon request of the bank under certain circumstances, andthat 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 CO., LTD.

41

7. LEASE TRANSACTIONS(a) Finance leases (lessee)
Finance leases as of March 31, 2006 and 2005 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

2006

2005

2006

Buildings:
Acquisition cost .................................................................................................
Accumulated depreciation .................................................................................

¥ 1,391(724)¥ 1,514(603)$ 11,845(6,167)

Net book value ..................................................................................................

667

911

5,678

Software:Acquisition cost .................................................................................................
Accumulated depreciation .................................................................................

1
(1)

100
(57)

10
(6)

Net book value ..................................................................................................

0

43

4

Other (fixtures and equipment):
Acquisition cost .................................................................................................
Accumulated depreciation .................................................................................

3,576(1,591)

3,582(1,158)30,436(13,540)

Net book value ..................................................................................................

1,985

2,424

16,896

Total:
Acquisition cost .................................................................................................
Accumulated depreciation .................................................................................

4,968(2,316)

5,196(1,818)42,291(19,713)

Net book value ..................................................................................................

¥ 2,652¥ 3,378$ 22,578

ii. Minimum future lease payments
Millions of yen

Thousands of
U.S. dollars

2006

2005

2006

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

¥ 934
1,853

¥ 959
2,568

$ 7,951
15,777

Total ......................................................................................................................

¥2,787¥3,527$23,728

Impairment loss account of leased assets amounted to ¥10 million (US$93 thousand) and ¥37 million as of March 31, 2006 and2005, respectively.
iii. Lease payments, depreciation equivalent and interest equivalentMillions of yen

Lease payments......................................................................................................
Reversal of impairment loss account of leased assets ..............................................
Depreciation equivalent..........................................................................................
Interest equivalent..................................................................................................
Impairment loss......................................................................................................

Thousands of
U.S. dollars

2006

2005

2006

¥1,052
27
964
102
—

¥1,004
—
936
108
37

$8,956
226
8,207
870
—

Depreciation equivalent is computed by the straight-line method under the assumption that the lease term equals the useful life, andthat 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 the interest method.

42

CREDIT SAISON CO., LTD.

(b) Equipment for lease (lessor)
Equipment for lease as of March 31, 2006 and 2005 and for the years then ended is summarized as follows:i. Acquisition cost and accumulated depreciation
Thousands of
U.S. dollars

Millions of yen

2006

2005

2006

Equipment:
Acquisition cost .................................................................................................
Accumulated depreciation .................................................................................

¥ 260,441(101,860)¥232,246(86,965)$2,217,087(867,120)

Net book value ..................................................................................................

158,581145,281

1,349,967

Software:Acquisition cost .................................................................................................
Accumulated depreciation .................................................................................

14,708(3,257)6,140(1,352)

125,206(27,722)Net book value ..................................................................................................

11,451

4,788

97,484

Total:
Acquisition cost .................................................................................................
Accumulated depreciation .................................................................................

275,149(105,117)

238,386(88,317)

2,342,293(894,842)

Net book value ..................................................................................................

¥ 170,032¥150,069$1,447,451

ii. Minimum future lease revenue
Millions of yen

Thousands of
U.S. dollars

2006

2005

2006

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

¥ 40,397
137,003¥ 34,773
121,882$ 343,889
1,166,281

Total ......................................................................................................................

¥177,400¥156,655$1,510,170

The above amounts include lease receivables which were sold under liquidation of lease receivables.
iii. Lease revenue, depreciation equivalent and interest equivalentMillions of yen

Lease revenue ........................................................................................................
Depreciation equivalent..........................................................................................
Interest equivalent..................................................................................................

Thousands of
U.S. dollars

2006

2005

2006

¥46,935
40,265
9,529¥40,597
34,2898,471$399,553
342,764
81,117

Interest equivalent, which is aggregate lease revenues less acquisition cost, is allocated over the lease term based on the interest
method.
(c) Operating leases (lessee)
Minimum future lease payments as of March 31, 2006 and 2005 are as follows:
Millions of yen

Thousands of
U.S. dollars

2006

2005

2006

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

¥153
85

¥182
76

$1,299729

Total ......................................................................................................................

¥238

¥258

$2,028CREDIT SAISON CO., LTD.

43

8. OTHER SECURITIESAs of March 31, 2006 and 2005 acquisition costs and amounts on the consolidated balance sheets of other securities that have market
prices are summarized below:
Millions of yen

Balance sheet amountexceeding acquisition cost:
Equity shares....................................
Bonds

Thousands of U.S. dollars

2006

2005

2006

Acquisition
cost

Balancesheet
amountBalancesheet
amountBalancesheet
amount¥12,433¥40,476 ¥28,043

Difference

Acquisition
cost

Difference¥ 7,178 ¥19,799 ¥12,621

Acquisition
cost

Difference$105,840 $344,565 $238,725

Corporate ....................................
Other ...............................................

16
171

17
198

1
27

—
40

—
41

—
1

131
1,457

141
1,689

10
232

Subtotal...................................

12,62040,691

28,071

7,218

19,84012,622

107,428

346,395

238,967

778

520

(258)

5,624

5,547

(77)

6,620

4,430

(2,190)

903
384

843
369

(60)
(15)

129
3,724

117
3,053

(12)
(671)

7,691
3,271

7,179
3,136

(512)
(135)

1,732

(333)

9,477

8,717

(760)

17,582

14,745(2,837)

Balance sheet amount notexceeding acquisition cost:
Equity shares....................................
Bonds
Corporate ....................................
Other ...............................................
Subtotal...................................

2,065

Total........................................

¥14,685¥42,423 ¥27,738¥16,695 ¥28,557 ¥11,862$125,010 $361,140 $236,130

9. RETIREMENT BENEFIT PLANS
The Company and some of its consolidated subsidiaries had defined benefit plans composed of a corporate pension plan and a lumpsum 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 isincluded 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 wasincurred.
(a) Accrued pension and severance costs
Accrued pension and severance costs as of March 31, 2006 and 2005 are as calculated below:
Millions of yen

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

44

CREDIT SAISON CO., LTD.

Thousands of
U.S. dollars

2006

2005

2006

¥(10,514)
4,335(6,179)3,692(4,917)(7,404)¥(9,891)
3,889(6,002)
4,412(5,531)(7,121)$(89,499)
36,900(52,599)
31,428(41,857)(63,026)

(b) Retirement benefit expenses
Retirement benefit expenses for the year ended March 31, 2006, 2005 and 2004 are as 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 ...............................

2006

2005

¥ 458
200
(59)
633
(606)

¥ 681
264
(67)
652
(479)

¥

2004

2006

965
362
(86)
678
(119)

$ 3,900
1,698
(505)
5,390
(5,156)

Other* .............................................................................................

191

86

—

1,628

Retirement benefit expenses.............................................................
Gains on revisions of pension plans ..................................................

817
—

1,137
(283)

1,800
—

6,955
—

Total ................................................................................................

¥ 817

¥ 854

¥1,800$ 6,955*Other represents payments to defined contribution pension fund.

The principal assumptions used in determining retirement benefit obligations and other components for the Companies plans are asstated below:
2006
2005
2004
Discount rate...............................................................................................................
Expected return on plan assets ....................................................................................
Period of recognition of past service obligations ..........................................................
Period of recognition of actuarial differences ...............................................................

2.0%
1.5%
9–11 years
evenly9–11 years
evenly2.0%
1.5%
9–11 years
evenly9–11 years
evenly2.0%
1.5%
9–11 years
evenly9–11 years
evenly10. 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, 2006, 2005 and2004 for the following reasons:
2006
2005
2004
Statutory tax rate ........................................................................................................
Reconciliation:
Expenses not deductible for tax purposes ................................................................
Non-taxable dividend income ..................................................................................
Inhabitants taxes per capita .....................................................................................
Amortization of consolidation adjustments..............................................................
Equity in net earnings (losses) of affiliated companies by the equity method ............
Increase of evaluation allowance .............................................................................
Reduction of deferred tax assets resulting from tax rate revision ..............................
Net gain on changes in equity interest.....................................................................
Income tax credit.....................................................................................................
Other ..........................................................................................................................

40.70%

40.70%

42.05%

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

0.22(0.09)
0.30(0.15)
1.38
0.55
0.29
(1.77)(1.31)(0.02)

0.22(1.17)
0.34(0.19)
1.11
1.30
1.33
.—
(1.14)
0.64

Effective tax rate .........................................................................................................

13.70%

40.10%

44.49%CREDIT SAISON CO., LTD.

45

(b) Deferred income taxes
Deferred income taxes as of March 31, 2006 and 2005 comprised the following:
Millions of yen

2006

Thousands of
U.S. dollars

2005

2006

742
—
2,879
1,920
5,987
—
8,842
1,080
2,898
—
1,543
1,464
231
1,655

$ 10,679
56,715
17,417
41,13065,611
7,986
2,518
5,350
24,882
100,556
16,7973,516
24
30,611

Deferred tax assets:
Inventories .........................................................................................................
Amortization of goodwill ...................................................................................
Accumulated impairment losses of property and equipment, and other assets....
Investment securities ..........................................................................................
Allowance for losses on receivables ....................................................................
Allowance for losses of interest repayment ........................................................
Accrued expenses .............................................................................................
Accrued enterprise taxes ....................................................................................
Accrued pension and severance costs.................................................................
Allowance for losses on point program ..............................................................
Other allowance ................................................................................................
Accumulated deficit carryforwards .....................................................................
Unrealized losses on other securities ..................................................................
Other.................................................................................................................

¥ 1,255
6,662
2,046
4,831
7,707
938
296
628
2,923
11,813
1,973
413
3
3,596

Subtotal .................................................................................................................
Less evaluation allowance ......................................................................................

45,084(7,283)29,241(824)

383,792(62,003)

Total deferred tax assets.........................................................................................
Deferred tax liabilities:
Accrued refundable enterprise taxes ..................................................................
Capital gains deferred for tax purposes ..............................................................
Unrealized gains on other securities ...................................................................
Other.................................................................................................................

37,801

28,417321,789

(101)
(212)
(10,265)
(47)

—
(212)
(5,060)(36)(859)(1,802)(87,382)(404)¥

Total deferred tax liabilities.....................................................................................

(10,625)(5,308)(90,447)

Net deferred tax assets...........................................................................................

¥ 27,176¥23,109$231,342

Net deferred tax assets are presented on the consolidated balance sheets as of March 31, 2006 and 2005 as follows:
Millions of yen

Current assets .......................................................................................................
Investment and other assets ..................................................................................
Current liabilities–other ..........................................................................................
Long-term liabilities–other......................................................................................

Thousands of
U.S. dollars

2006

2005

2006

¥10,619
16,610(35)(17)¥17,902
5,223
—
(17)

$ 90,395
141,400
(302)
(151)

11. IMPAIRMENT LOSSES OF PROPERTY AND EQUIPMENT, AND OTHER ASSETSFor the year ended March 31, 2006, the Companies recorded impairment losses amounting to ¥80 million (US$677 thousand). Due toits 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

Description

Location

Certain amusement facilities
Mail-order sales facilities
Operating facilities

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

Kanto region
Tokyo
Tokyo

For the year the ended March 31, 2004, the Companies wrote down the book value of the real estate beneficiary rights, and nonoperating properties for which recovery in value was not likely because of the decrease in domestic real estate prices.
Moreover, the Companies wrote down the book value of operating facilities and amusement facilities from which operating income
had deteriorated and was not expected to recover in the short term.

46

CREDIT SAISON CO., LTD.

The Companies recorded impairment losses for the year on the following assets:
March 31, 2004

Asset

Description

Location

Real estate for lease
Real estate beneficiary rights
Operating facilities
Certain amusement facilities
Idle assets

Land, Buildings
Investments and other assets
Buildings, Other (Fixtures, furniture, other)
Buildings, Other (Fixtures, furniture, other)
Land, Buildings, Other

Tokyo
Osaka
Tokyo
Kanto region
Tokyo

Accumulated impairment losses were subtracted directly from individual assets. Impairment loss on property and equipment, andother assets recognized for the years ended March 31, 2005 and 2004 are as follows:
Millions of yen

2005
Property and equipment:
Buildings and improvements .............................................................................................................
Land .................................................................................................................................................
Other (fixtures and equipment, other assets) .....................................................................................
Investment and other assets:
Other ................................................................................................................................................
Current liabilities:
Other ................................................................................................................................................
Total .....................................................................................................................................................

2005

2004

¥ 551
—
515

¥3,125
2,114
601

53

1,730

37

—

¥1,156¥7,570Regarding operating facilities, real estate for lease, real estate beneficiary rights, and idle assets, the recoverable amount is measured
at the net selling price, which is principally determined by real estate appraisers or other independent third parties.
Regarding certain amusement facilities and mail-order sales facilities, the recoverable amount is measured at value in use, which isthe 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 forlease and idle assets are grouped by the physical unit, and operating facilities and amusement facilities are grouped by site.
12. OPERATING REVENUES
Operating revenues for the years ended March 31, 2006, 2005 and 2004 comprised the following revenues and expenses:
Thousands of
U.S. dollars

Millions of yen

2006

2005

2004

2005

Financing and administration fees ..................................................
Entertainment business (Note 2):
Sales ..........................................................................................
Cost of sales ..............................................................................

¥214,450¥183,618¥174,963$1,825,572

143,548
125,664

108,546
91,556

95,586
79,981

1,221,996
1,069,752

Income from entertainment business .........................................

17,884

16,99015,605

152,244

Real estate business (Note 1):
Sales ..........................................................................................
Cost of sales ..............................................................................

70,132
51,771

58,40045,76854,21444,034

597,027
440,721

Income from real estate business ...............................................

18,361

12,632

10,180156,306

Lease business:
Sales ..........................................................................................
Cost of sales ..............................................................................

65,62358,48057,53550,732

46,33240,806558,634
497,827

Lease income .............................................................................

7,143

6,803

5,526

60,807

Other business:
Sales ..........................................................................................
Cost of sales ..............................................................................

6,888
2,050

13,432
5,349

14,8007,313

58,63817,455

Other income............................................................................

4,838

8,083

7,487

41,183Financial income ............................................................................

11,99012,2596,571

102,070

Total operating revenues................................................................

¥274,666¥240,385¥220,332$2,338,182

Notes: 1. As described in Note 3 (u), 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 years ended March 31, 2005 and 2004 are reclassified toconform with the current accounting policy.
2. Effective from the year ended March 31, 2006, as a consolidated subsidiary, operating amusement section of entertainment business, committed special
prize exchange operations in the specific areas to the outside agents, cost of prize, formerly deducted from sales, is included in cost of sales. Effect of thechange was to increase sales and cost of sales by ¥22,696 million (US$193,208 thousand) for the year ended March 31, 2006, but it had no effect on
income from entertainment business.
CREDIT SAISON CO., LTD.

47

13. DERIVATIVES
Contractual values or notional principal amounts and unrealized profits (losses) on derivative transactions as of March 31, 2006 and2005 are summarized below:(a) Interest rate transactions
Millions of yen

2006
Contractual value or
notional principal amount
Total

2005
Unrealized
profit (loss)

Over 1 year

Contractual value or
notional principal amount
Total

Unrealized
profit (loss)

Over 1 year

Over-the-counter interest rate swaps:
Floating-rate receipt / Fixed-rate payment .................

¥19,119¥12,471¥(455)¥24,267¥21,867¥(702)

Total ............................................................................

¥19,119¥12,471¥(455)¥24,267¥21,867¥(702)

Thousands of U.S. dollars

2006
Contractual value or
notional principal amount
Total

Unrealized
profit (loss)

Over 1 year

Over-the-counter interest rate swaps:
Floating-rate receipt / Fixed-rate payment .................

$162,756$106,163$(3,871)

Total ............................................................................

$162,756$106,163$(3,871)

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.

(b) Foreign exchange transactions
Millions of yen

2006
Contractual value or
notional principal amount
Total

2005
Unrealized
profit (loss)

Over 1 year

Contractual value or
notional principal amount
Total

Unrealized
profit (loss)

Over 1 year

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

¥534

¥—

¥(6)

¥1,028¥—¥(8)

Total ............................................................................

¥534

¥—

¥(6)

¥1,028¥—¥(8)

Thousands of U.S. dollars

2006
Contractual value or
notional principal amount

Unrealized
profit (loss)

Total

Over 1 year

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

$4,549$—$(53)

Total ............................................................................

$4,549$—$(53)

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 the above schedule.
3. Hedged derivatives transactions are excluded.

48

CREDIT SAISON CO., LTD.

14. COMMITMENTS AND CONTINGENT LIABILITIESAs of March 31, 2006, the Companies were contingently liable as credit guarantee for customers borrowing from the alliance banks,
LAWSON CS Card Inc., and other affiliates amounting to ¥103,220 million (US$878,693 thousand), ¥10,191 million (US$86,751
thousand) and ¥219 million (US$1,863 thousand), respectively.
15. SHAREHOLDERS’ EQUITY(a) Common stock
The Company has 300,000,000 authorized shares out of which 180,716,625 shares were issued as of March 31, 2006.
(b) Stock option plans
The Company has the following option plans for directors, statutory auditors, officers, employees and corporate counselors of theCompanies as of March 31, 2006, which were approved by the General Shareholders‘ Meetings.
Dateofapproval

Number ofsubscription
rights issued

June 25, 2005

17,780June 27, 2003

8,629

June 27, 2002

7,857

Type andnumber oftargeted shares

Subscription
priceCommon stock
1,778,000 shares
Common stock
862,900 shares
Common stock
785,700 shares

Issue
price

Per share
addition tocommon stock¥3,740¥1,870¥2,095¥1,048¥2,978¥1,489Effective
periodJune 30, 2007
to June 29, 2010
June 30, 2005
to June 29, 2008
June 30, 2004
to June 29, 2007

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

Notes: 1. Conditions of execution
In the event a granted person retires or resigns under the regulations, a subscription right may be exercised within two years after that. In the event a
granted person dies or retires voluntarily, a subscription right shall be canceled.
2. Transfer of stock option
Transfer of stock option to the third person needs the approval of the Directors‘ Meeting.

16. SEGMENT INFORMATION(a) Business segments
Segment information by business segment for the years ended March 31, 2006, 2005 and 2004 was as follows:
Millions of yen
Operating revenues
OutsideYear ended March 31, 2006

Intercustomers

OperatingTotal

segment

Operatingexpenses

incomeAssetsLoss onCapitalDepreciation impairment expenditures

Credit & Finance .....................
Entertainment .........................
Real estate ..............................
Lease ......................................
Other ......................................

¥226,440
17,884
18,361
7,143
4,838

¥ 157
35
939
40
297

¥226,597
17,91919,3007,183
5,135¥171,903
15,231
9,788
3,847
1,283

¥54,694
2,688
9,512
3,336
3,852

¥1,548,361 ¥ 6,666
36,5483,180
165,409333
175,362 40,467
4,045
47

¥—
79
—
—
1

¥ 9,723
5,751
1,614
76,68632

Total ......................................
Eliminations or corporate ........

274,666—

1,468(1,468)276,134(1,468)202,052
3,039

74,082(4,507)

1,929,725
133,01050,693117

80—

93,806155

Consolidated...........................

¥274,666¥¥274,666¥205,091¥69,575¥2,062,735 ¥50,810¥80¥93,961—

Millions of yen
Operating revenues
OutsideYear ended March 31, 2005 customers

Intersegment

Total

Operatingexpenses

OperatingincomeAssetsLoss onCapitalDepreciation impairment expenditures

Credit & Finance .....................
Entertainment .........................
Real estate ..............................
Lease ......................................
Other ......................................

¥195,877
16,99012,632
6,803
8,083

¥ 344
38
740
51
276

¥196,221
17,02813,372
6,854
8,359¥148,020
15,670
7,836
4,218
3,955

¥48,201
1,358
5,536
2,636
4,404

¥1,094,936 ¥ 4,293
33,925
3,084
108,883271
154,655 34,603
7,509
68

¥

—
951
—
—
205

¥18,106
6,331
381
69,95317

Total ......................................
Eliminations or corporate ........

240,385—

1,449(1,449)241,834(1,449)179,699
2,096

62,135(3,545)

1,399,908
113,041

42,319
121

1,156
—

94,78892

Consolidated...........................

¥240,385—¥240,385¥181,795¥58,590¥1,512,949 ¥42,440¥1,156¥94,880¥

CREDIT SAISON CO., LTD.

49

Millions of yen
Operating revenues
OutsideYear ended March 31, 2004 customers

Intersegment

Operatingexpenses

Total

OperatingincomeLoss onCapitalDepreciation impairment expenditures

AssetsCredit & Finance .....................
Entertainment .........................
Real estate ..............................
Lease ......................................
Other ......................................

¥181,534
15,605
10,180
5,526
7,487

¥ 471
27
781
84
134

¥182,005
15,632
10,9615,610
7,621¥135,205
14,301
6,732
3,680
4,762

¥46,800
1,331
4,229
1,930
2,859

¥1,002,827 ¥ 3,468
37,916
3,202
78,598333
134,737 29,467
6,282
66

¥3,8793,691———¥ 6,345
5,972
349
61,810179

Total ......................................
Eliminations or corporate ........

220,332—

1,497(1,497)

221,829(1,497)

164,680
1,647

57,149(3,144)

1,260,360
92,35036,536
144

7,570
—

74,655137

Consolidated...........................

¥220,332—¥220,332¥166,327¥54,005¥1,352,710 ¥36,680¥7,570¥74,792¥

Thousands of U.S. dollars
Operating revenues
OutsideYear ended March 31, 2006

Intercustomers

segment

Operating
Total

Operatingexpenses

incomeAssetsLoss onCapitalDepreciation impairment expenditures

Credit & Finance.......................
Entertainment...........................
Real estate ................................
Lease ........................................
Other ........................................

$1,927,642
152,244
156,306
60,807
41,183$ 1,332
297
7,989
342
2,533

$1,928,974 $1,463,376
152,541
129,657
164,295
83,326
61,14932,75343,716
10,919$465,598 $13,180,909 $ 56,745
22,884
311,129
27,06980,9691,408,094
2,837
28,396
1,492,821 344,483
32,79734,434
402

$ —
667
—
—
10

$ 82,771
48,95913,742652,808274

Total ........................................
Eliminations or corporate.........

2,338,182—

12,493(12,493)2,350,675 1,720,031(12,493)
25,868630,644(38,361)

431,536996

677—

798,554
1,320

Consolidated ............................

$2,338,182$$2,338,182 $1,745,899$592,283 $17,559,675 $432,532$677$799,874—

16,427,387
1,132,288

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: Mail-order sales
3. Significant components of ‘Eliminations or corporate’ are as follows:
Thousands of
U.S. dollars

Millions of yen

Non-allocable operating expenses ............
Corporate assets ......................................

2006

2005

2004

2006

¥ 4,030
139,249¥ 3,242
120,693¥ 2,560
109,987$ 34,306
1,185,401

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. Accounting change in allowance for losses on point program.
As described in Note 3 (p), effective from the year ended March 31, 2006, 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 year-end exchange and experience. This change caused operating incomeof the credit and finance business to increase by ¥597 million (US$5,082 thousand) for the year ended March 31, 2006.
5. Changes in presentation of loss on disposal of properties.
As described in Note 3 (s), formerly the loss on disposal of casino machines held by the consolidated subsidiary operating Entertainment business was
included in non-operating expenses in the consolidated statements of income. Considering recent frequent occurrence of replacement of the machines, theloss is included in selling, general and administrative expenses in the consolidated statements of income, effective from the year ended March 31, 2004.
6. Accounting standards for impairment of fixed assets
As described in” Note 3 (t) impairment loss of property and equipment, other assets,” the Companies adopted “Accounting Standards for impairment of
Fixed Assets” effective from the year ended March 31, 2004. The effect of the adoption was to recognize impairment losses on the credit and financebusiness. Entertainment business, amounting to ¥3,879 million and ¥3,691 million, respectively. Operating assets of these business decreased by ¥3,879
million and ¥3,658 million, respectively.

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

50

CREDIT SAISON CO., LTD.

Report of Independent Auditors

To the Board of Directors and Shareholders of
CREDIT SAISON Co., LTD.
We have audited the accompanying consolidated balance sheets of CREDIT SAISON Co., LTD. and its subsidiaries
as of March 31, 2006 and 2005, and the related consolidated statements of income, shareholders’ equity, andcash flows for the three years in the period ended March 31, 2006, all expressed in Japanese Yen. These
consolidated financial statements are the responsibility of the Company’s management. Our responsibility is toexpress an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. These standards
require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
the consolidated financial position of CREDIT SAISON Co., LTD. and its consolidated subsidiaries as of March 31,
2006 and 2005, and the consolidated results of their operations and their cash flows for the years then ended inconformity with accounting principles generally accepted in Japan.
As described in Note 3, effective for the year ended March 31, 2006, CREDIT SAISON Co., LTD. changed theiraccounting policy for Allowance for losses on point program.
The amounts expressed in U.S. dollars, which are provided solely for the convenience of the reader, have beentranslated on the basis set forth in Note 2 to the accompanying consolidated financial statements.

ChuoAoyama PricewaterhouseCoopers
Tokyo, Japan
June 24, 2006

CREDIT SAISON CO., LTD.

51

Corporate History

Management Topics
2006

July
July
June
Mar.
Jan.

2005

2004

Concluded a basic agreement on strengthening alliance with Takashimaya Group
Agreed to form a business alliance with The Shizuoka Bank, Ltd.
Formed comprehensive alliance with Yamada Denki Co., Ltd. in credit card business
Atrium Co., Ltd., a consolidated subsidiary, listed its shares on JASDAQ.
Opened “SAISON Desk Hawaii”
Merged with UC CARD Co., Ltd. (card issuance business)

Dec.

Acquired additional 12.4 percent of the shares of Resona Card Co., Ltd.,
which became an equity affiliate of Credit Saison
May Formed an equity and business tie-up with the Mitsubishi
Corporation in the mail-order business and transferred direct
marketing business operations of Saison Direct Marketing Co., Ltd.
Apr. Started operations of the new credit center “Ubiquitous”
Mar. Equity participation in UC CARD Co., Ltd.

Dec.

Entered into a comprehensive business alliance master agreement with theMizuho Financial Group, Inc., Mizuho Bank, Ltd., and UC CARD Co., Ltd.
Sept. Launched a real estate mortgage loan businessAug. Equity participation in Takashimaya Credit Co., Ltd.
Concluded a basic agreement on forming a strategic business alliance in the credit card businesswith the Mizuho Financial Group, Inc., Mizuho Bank, Ltd., and UC CARD Co., Ltd.
Equity participation in Resona Card Co., Ltd.
Apr. Reached basic agreement with Takashimaya Company, Limited on strategic
alliance in the credit card businessFeb. Decided to form a strategic equity and business tie-up with Resona Holdings, Inc.

2006
2003

Achieved increases in both sales
and income for 22 consecutive
fiscal years (non-consolidated)

Oct.
Aug.

Equity participation in Idemitsu Credit Co., Ltd.
Reached agreement on a comprehensive alliance with the card division ofIdemitsu Kosan Co., Ltd.
Mar. Introduced a special benefit plan for shareholders

2005
2002

June
May

Feb.

Jan.

2001

Market capitalization
surpassed 1 trillion yen

Granted stock options to all employees for the first time in the company’s history
Formed business alliance with Saison Automobile and Fire Insurance Co., Ltd.
and The Yasuda Fire & Marine Insurance Co., Ltd. (currently Sompo Japan
Insurance Inc.)
Transferred 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.
Reached agreement to establish LAWSON CS Card, Inc., jointly with
LAWSON, INC., and the Mitsubishi Corporation

1999
Total transaction volume
surpassed 2 trillion yen

1998
Transaction volume of credit-card-related
shopping services exceeded 1 trillion yen

Apr.

Exchanged shares of Saison Securities Co., Ltd. for shares of Monex, Inc.
(currently Monex Beans Holdings, Inc.)
Mar. Selected for inclusion in the Nikkei Stock Average (Nikkei 225)

1992
1989
1980
1976
1968
1951

52

Oct.

Aug.

The Company name was changed to Credit Saison Co., Ltd.

The Company name was changed from Midoriya Department
Stores to Seibu Credit Co., Ltd.

Mar. The Seibu Department Stores, Ltd. and the Company established a shareholding
relationship and developed a consumer credit system for the Saison Group
June

May

Listed on the first section of the Tokyo Stock Exchange

The Company was established as a retailer specializing in installment sales

CREDIT SAISON CO., LTD.

Total number of cardholders
surpassed 10 million

1991
Total transaction volume
surpassed 1 trillion yen

Business Topics

2006

2005

2004

2003

2002

2001
2000

1999

1997
1995
1991
1988
1983

July

Agreed to issue “SEIBU Prince Card” from autumn 2006
Issued a new loan product, “SAISON Loan Card”
Formed alliance with Central Tanshi On-line Trading Co., Ltd.; SAISON Foreign Exchange sales began
Formed alliance with Toyota Financial Services Securities Corporation to provide
new financial services and products

Oct.

Issued “Chojo-SAISON Credit Card” for Japanese in Shanghai.
Issued “SAISON Platinum American Express Card”
Formed business alliance with The Sumitomo Trust and Banking Co., Ltd. to launch term deposits with
SAISON Permanent Points (“Eikyufumetsu Point”)
Sept. Formed alliance with The Tokyo Electric Power Company, Incorporated enabling card payment of electricity bills
Jul. Began sale of a second auto insurance product exclusively for cardholders developed inalliance with Saison Automobile and Fire Insurance Co., Ltd.
Launched “SAISON Wedding Story,” a Web-based comprehensive wedding information service
Apr. Issued “Mizuho Mileage Club Card SAISON”
Feb. Issued “SAISON Postal Savings Gold Visa Card”
O

Dec.
Oct.

Launched securities brokerage service in alliance with Monex Beans Holdings, Inc.
Formed alliance with Tokyo Gas Co., Ltd. enabling card payment of city gas bills
Issued “Resona Card+S (Resona Card SAISON)”
Enhanced travel and entertainment services for “SAISON American Express Card”
Sept. Issued “TAKASHIMAYA SAISON CARD”
Aug. Start of “SAISON MILE CLUB,” (new frequent flyer program)
June Launched “SAISON Housing Information,” a Web-based real estate information service
Apr. Issued the “Idemitsu Card Mydo Plus”
Mar. Formed business alliance with ORIX Corporation in automobile leasing business for individuals

Dec. Enhanced “Gold SAISON CARD” preferred services
Sept. Start of “SAISON STATION,” (an information terminal for rapid application and issuance of cards)
Began issuing “Super Value Plus,” an insurance product exclusively for cardholders, through a business allianceamong Credit Saison, Saison Automobile and Fire Insurance Co., Ltd. and Sompo Japan Insurance Inc.
July Began publishing tour catalog, “SAISON Tabimonogatari,” in cooperation with JTB Corp.
May Began electricity bill credit card payment service for The Kansai Electric Power Co., Inc.
Mar. Began “SAISONPASS” account aggregation service for SAISON CARD holders
Feb. Issued “SAISON Four Beat Card”
Jan. Began using “SAISON CARD EXPRESS” for speedy online card issuance

Sept. Issued “SAISON Japanese Postal Savings Check Card,” which allows users to set their own usage limits
Mar. Introduced “SAISON CARD MAKER,” a speedy, automatic card issuing machine
Feb. Started new membership point service “SAISON Dream”(currently “Eikyufumetsu Point,” or “SAISON Permanent Points” in English)

Nov. Concluded a supporting company contract for the Japan national soccer teamNov. Overseas travel services expanded through an alliance with U.K. travel and financial
service company Travelex plc.
Aug. Started “Net Answer,” a web site for cardholders

Sept. Issued combined credit/cash cards with regional banks
Mar. Started “SAISON Postal Savings Global Service,” with a card offering credit, debit and cashing
functions in Japan and overseas

Oct. “SAISON American Express Card” issued through an affiliation withAMERICAN EXPRESS®
June

Jan.

May
Mar.
Feb.
Jan.

Issued “SAISON JCB CARD” in cooperation with JCB Co., Ltd.

Started the affinity card business

Reached agreements with VISA and MasterCard and issued “SAISON Visa Card” and“SAISON MasterCard”

Mar. The name of Seibu Card was changed to SAISON CARDCREDIT SAISON CO., LTD.

53

Corporate Information (As of March 31, 2006)
CREDIT SAISON CO., LTD.

Number of Shareholders:

Head Office: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

Incorporated:

May 1, 1951

Paid-in Capital:¥74,458 million

Individuals and Others

3.98%

Financial Institutions

31.22%

Foreign Investors

54.09%

Securities Companies

1.61%

Other Corporations

9.10%

Major Shareholders:Name

Number of
Employees:

State Street Bank and Trust Company
The Master Trust Bank of Japan, Ltd. (trust account)
Japan Trustee Services Bank, Ltd. (trust account)
The Seibu Department Stores, Ltd.
Mizuho Corporate Bank, Ltd.
State Street Bank and Trust Company 505103
The Chase Manhattan Bank 385036
Mellon Bank N.A. as agent for its client Mellon
Omnibus US Pension
The Bank of New York Treaty JASDAQ Account
Mellon Bank Treaty Clients Omnibus

Consolidated: 2,546
Non-consolidated: 1,680

Closing of Accounts:

March 31

Stock Listing:Tokyo Stock Exchange, First Section

Ticker No.:

8253

Independent Auditor: ChuoAoyama PricewaterhouseCoopers
Transfer Agent:

Artisan Partners Limited Partnership
Nomura Securities Co., Ltd.* and7 other companies
Fidelity Investments Japan Ltd.
Deutsche Securities, Ltd.* and9 other companies
Mizuho Corporate Bank, Ltd.* and6 other companies

300,000 thousand shares

Common Stock
Outstanding:Number of
Shares(Thousands)

Percentage ofOwnership(%)

16,663
15,57912,048
11,600
4,675
4,398
3,582

9.22
8.62
6.67
6.42
2.59
2.43
1.98

3,183
2,533
2,458

1.76
1.40
1.36

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, 2006 (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.
Number ofPercentage ofSharesOwnership
Name(Thousands)(%)

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

Common Stock
Authorized:

180,716 thousand shares

15,5198.59

12,813
10,993

7.09
6.08

9,460

5.24

8,484

4.70

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:
(Yen)

6,770

Common stock price range (Left scale)Tokyo stock price index (Right scale)

3,500

7,000
6,000
5,000

High
High
Opening
Closing

3,000

Closing
Opening
Low
Low

2,500

4,000

2,000

3,000

1,500

2,000

1,000

1,000

01/1

02/1

03/1

Yearly High and Low Prices:

(Yen)

2002

2003

2004

2005

2006

High

3,320

2,680

3,840

6,550

6,730

Low

1,821

1,881

2,420

3,420

4,570

Note: Stock prices for 2006 are for the period from January 1 to July 31.
54

04/1

CREDIT SAISON CO., LTD.

05/1

06/1

500

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

Printed in Japan with soy ink on recycled paper.