AIFUL Corporation
Annual Report 1999
AIFUL CORPORATIONProfile
On October 1, 1998, AIFUL Corporation listed its shares on the second sections of the Tokyo Stock Exchange and Osaka Stock Exchange, as well as on
the Kyoto Stock Exchange. With a balance of loans outstanding of ¥838.0 billion (US$6,983 million) as of March 31, 1999, AIFUL is one of the leading
consumer finance companies in Japan.
AIFUL’s involvement in consumer finance dates from its establishment in1967 as Marutaka Co., Ltd. We adopted our present name in 1982 on merging
with three associated companies. The consumer finance industry has not always
stimulated positive connotations. Since its establishment, AIFUL has endeavored to upgrade this image by meeting customer needs and living up to society’s trust in us as a publicly company is a management philosophy that continues to drive our success to this day.
As of the end of fiscal 1999, ended March 31, 1999, AIFUL’s services
embrace 1.8 million customer accounts through its 1,009 branches and a network of 14,118 cash dispensers and automated teller machines.

Corporate Headquarters
31 Higashikaigawa-cho, Saiin
Ukyo-ku, Kyoto 615-0057, Japan
Phone 075-321-1701
For further information and additional copiesof this Annual Report, please contact:
Investor Relations Section
Tokyo Office
Tokyoekimae Bldg. / 5th Floor
1-5, 2-Chome Yaesu , Chuo-ku
Tokyo 104-0028, Japan

Contents

Internet Address
http://www.aiful.co.jp
e-mail: IR@aiful.co.jp

Financial Highlights

1

Message from the President

2

Continuing to Achieve High Rates of Growth
Consumer Finance Market

4
6

Product Diversification Strategy

7

Unsecured Loans

8

Secured Loans

9

Small Business Loans

10

Scoring System

11

Product Development

12

Review of Operations

13

Financial Section

17

Board of Directors / Investor Information

38

Copyright © 1999 AIFUL Corporation

Financial Highlights
AIFUL Corporation
Years Ended March 31% Change

Thousandsof U.S. Dollars

1998

1999/98

1999

180,181

14.1$ 1,712,800

Millions of Yen
1999
For the Fiscal Year
Total income¥ 205,536¥

Total expenses

140,777

117,080

20.2

1,173,142

Income before income taxes

64,75963,101

2.6

539,658

Net income

28,44825,00413.8

237,067

Balance of loans outstanding

837,982

702,446

19.3

6,983,183

Total assets

996,524

876,72713.7

8,304,367

Long-term debt, including current portion thereof

704,275

600,505

17.3

5,868,958

Total shareholders’ equity

203,749

146,255

39.3

1,697,909

46,752,500

42,752,500

9.4

At Year-end

Number of shares outstanding

Yen%Change

U.S.Dollars

Per Share Data
Net income¥

610.63

Cash dividends

60.00

¥

601.98

1.4

60.00

0.0

$

5.09
0.50

Notes
1. The U.S. Dollar amounts have been translated for convenience only at ¥120 = $1, the rate of exchange at March 31, 1999.
2. Net income per share has been computed based on the weighted average number of shares outstanding during each period,
after retroactive adjustment for stock splits.

Total Income
Net Income

Balance of Loans Outstanding
Unsecured Loans

Total Assets
Shareholders’ Equity(Millions of Yen)

(Millions of Yen)

(Millions of Yen)

1,000,000

50,000250,000

1,000,000

250,000

800,000

40,000200,000

800,000

200,000

600,000

30,000150,000

600,000

150,000

400,000

20,000100,000

400,000

100,000

200,000

10,00050,000200,000

50,000

0 95

96

97

98

99

Balance of Loans Outstanding
Unsecured Loans

0

95

96

97

98

99

0

Net Income (Left Scale)
Total Income (Right Scale)

0

95

96

97

98

99

0

Total Assets (Left Scale)
Shareholders' Equity (Right Scale)

AI FUL Annual Report1Messagefrom the President

Defining Plans
to Maintain
Our Momentum
Fiscal 1999 Operating Environment
During fiscal 1999, ended March 31, 1999, the Japanese
economy was characterized by a deflationary spiral, whereby
economic recession coincided with a drop in share prices.
Despite these factors, the nationalization of some financial
institutions and the initiation of supplementary economic
stimulus measures engendered encouraging signs of an end to theprolonged recession.
In this difficult economic climate, despite an increase in
unemployment and a rise in personal bankruptcies the consumer

AIFUL Corporation listed its shares on the second sections offinance industry continued to enjoy an outpouring of latent

the Tokyo Stock Exchange and Osaka Stock Exchange on

demand that prompted medium- to long-term growth. The

October 1, 1998. Buoyed by the confidence that this listing
implies, we will continue to offer products that meet a diverse
range of consumer needs, while at the same time enhancing

industry continued to progress toward one controlled largely by a
few leading companies. Industry leaders appear to be diverging
along lines of strategic focus—on the one side, AIFUL and othercompanies that are promoting a diverse range of products; on thethe efficiency of our operations and upgrading our services.

other, companies that are concentrating on specific products

We are convinced that these efforts will contribute to thesuch as unsecured loans. Furthermore, industry competition is

ongoing expansion of our business results.

heating up as a result of such moves as overseas nonbanks
purchasing major Japanese corporations, which is expediting
ever-greater differentiation between companies. In thisenvironment, AIFUL continued to spur the two management
themes of expansion and restructuring in a bid to fortify its
management base.

2

AI FUL Annual ReportOverview of Operations

Our Strategy

Given the current turmoil within the Japanese economy, during

There is an increasing tendency for leading companies in thethe year we considered it prudent to focus on low-risk customers

consumer finance industry to form oligopolistic structures,in the unsecured loan category. For secured loans, wemaking competition problematic. In this environment, we willconcentrated on small-lot loans. We used our accumulated credit

seek to meet customer needs by focusing on our management

expertise to guarantee stable growth in this profitable businessphilosophy of total finance, devising appropriate tactics,

sector, which has become central to our financing activities. In

accurately forecasting market trends and creating a diverse

the area of small business loans, we continued to maintainproduct lineup. In addition, we will continue to use our precise

stringent lending standards for two reasons. First, we have only

scoring method for systematically analyzing credit—a method

recently begun business in this loan area, and our expertise isthat we believe has been essential to our success.

relatively undeveloped. Our second reason for caution is thatIn April 1999, the Financial Industry Lending Bond Issuancemany small business owners are highly susceptible to market

Law was promulgated, going into effect the following month.

conditions.

This law lifts bans on the procurement of funds through the

In December, we introduced our sixth-generation scoringissuance of commercial paper and corporate bonds, effectively

system. The aims of this system are to upgrade our credit systemproviding AIFUL with an additional means of diversifying its

and to curtail credit losses, particularly in view of continued highsources of funds. Based on this law, we believe that fiscal 2000

levels of unemployment and the rise in personal bankruptcies.

will be a major turning point for the consumer finance industry

These activities supported a 19.3% increase in our balance ofas a whole.

loans outstanding in fiscal 1999, to ¥838.0 billion. Of thisThe following pages of this report describe our productamount, our balance of unsecured loans outstanding rose 14.4%,

diversification strategy, which we believe is the key to ourto ¥690.7 billion at the end of the year. The balance of secured

continued expansion, as well as the market forecasting thatloans outstanding gained 44.8%, and the balance of small

underlies this strategy. We believe that adhering to this strategy

business loans outstanding more than doubled, to ¥9.5 billion.

and aggressively promoting diverse fund procurement and other

Buoyed by overall sales performance, total income increased

financial policies will help us maintain a stable business structure

14.1%, to ¥205.5 billion. Income before income taxes edged up

and secure the long-term development of our business

2.6%, to ¥64.8 billion, and net income rose 13.8%, to ¥28.4

performance in a variety of areas.

billion.

Yoshitaka Fukuda
President
June 30,1999
AI FUL Annual Report3Continuing to Achieve High Rates of Growth

AIFUL has grown rapidly from its modest start as an independently operated Kyoto-based consumer finance company in 1967. Only 30 years later, AIFUL has emerged as the fourth largest
company in the industry, with a balance of loans outstanding of ¥838.0 billion and 1.8 million customer accounts.
We believe that the key to our growth has been extremely clear management strategies. AIFUL
has been quick to discern shifts in the market environment through prudent analysis and forecasting, then to establish forthright management strategies upon which to base our businessactivities.
Examples of AIFUL’s management strategies are product diversification—through which weseek to meet evolving consumer needs, the product development that makes product diversification possible and analyzing credit risk. We accomplish this last strategy through our scoring system. Fundamental to each of these strategies is our management philosophy of meeting the needsof all customers to the greatest possible extent.

4

AI FUL Annual ReportBasic Policies
・Developing products
・Expanding market share
・Improving operating
efficiency

Continuing to AchieveHigh Rates of Growth

Medium-TermBusiness Plan

Current Target
・Market share :14%
・Ratio of expenses to balance of loans(excluding financial expenses) :12%
・Branches :1,500

Key Product No.1
・Unsecured loans ─a product category withstimulus

Effects of Product Diversification
・Meeting diverse customer
needs
・Attracting superior customers
・Mitigating risk

Basic Management
Principle

Product diversficiation

Key Product No.2
・Secured loans ─high growth and stability

Key Product No.3
・Small business loans ─a next-generation productcategory

Key Elements to Product
Diversification
・Scoring system
・Strong product development

The Current Situation
・Rapid expansion over the past
decade・Between 700,000 and 800,000
exsisting customers

Trends in the Domestic
Consumer FinanceMarketA promising industry
with ample roomfor growth

Forecast : Unsecured Loans
・High rates of growth through2005 to 2007
・Thereafter,growth likely tostabilize

AI FUL Annual Report

5

M

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K

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A mple Room for Growth in
the Consumer FinanceMarketOverview

our information centers, where we record a cus-

In 1986, the Japanese consumer finance market

tomer’s borrowing history and loan amounts. Cur-had a value of approximately ¥1.9 trillion. During

rently, we collate information on between 700,000

the ensuing decade, the size of this market virtuallyand 800,000 new people each year.

exploded, more than tripling in value to ¥5.9 trilIndependent Forecasting

lion by 1996.
Between 7 million and 8 million people takeTo establish medium-term management strategies,

advantage of Japan’s consumer finance industry. If

AIFUL conducts independent forecasts of the con-the number of people who have used consumer

sumer finance market. In brief, these forecasts first

financing at some point in the past is also included,

establish the number of people in our target market

the market base is estimated to be around 13 mil-of the working population between 20 and 60 years

lion people. Japan’s working population—the tar-of age. We then segment this population by age,get market for the consumer finance industry—isand determine the percentage use of consumer

estimated at 65 million people. Of this population,

finance by age group and the average loan amount

one person in five has taken advantage of the con-for customers in each age group. This information

sumer finance industry, and one in 10 is presently

allows us to simulate future demand.

using these services. Also, in the past several yearsof this simulation suggest sharp growth in the con-

we greatly increased the amount of data stored insumer finance market to the year 2005 up to 2007.

The results

Thereafter, we expect market growth to stabilize.
Future of The Consumer Finance Market(Billions of Yen)
15,00075 %AIFUL’s Growing Market ShareIn recent years, the consumer finance market has
become increasingly oligopolistic, or dominated by

12,00060

a few leading companies. In 1986, the five leading
consumer finance companies controlled a 45%

9,000

45

share of the market. This share had risen to 58% by
1996, and by 2004 this percentage is expected to
exceed 70%. Of the leading companies in Japan’s

6,000

30

consumer finance industry, AIFUL has posted thehighest rate of growth. Consequently, our 3% mar-

3,000

15

ket share in 1986 had more than tripled to 10% by
1996.

0

98

99

00

01

02

03

Total Consumer Finance Market (Left Scale)
Loan Balance for Top 5 Firms (Left Scale)Market Share (Right Scale)6

AI FUL Annual Report

04

05

06

0

D

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I

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N

A Fundamental Policy
Product diversification is the fundamental policy
behind our loan business. The three mainstays ofthis business are unsecured loans (82.4% of the balance of loans outstanding, accounting for ¥690.7
billion), secured loans (16.4% of the balance ofloans outstanding, or ¥137.8 billion) and small
business loans (1.1% of the balance of loans outstanding, or ¥9.5 billion). Following a carefulanalysis of the market, we have tailored our productdiversification strategy to actively focus on threepoints.
First, we aim for continued high rates of growth.
In the near future—possibly until at least 2005 or
2007—the unsecured loan market will continue togrow steadily. AIFUL expects the rate of growth for
unsecured loans to be relatively stable, whereas
secured loans and small business loans will experience high rates of growth, pointing to continued
fast-paced growth for the Company as a whole.

small business loans. Such product offerings enable

The second focus is attracting low-risk customers

us to maintain a stable of prime customers.

and meeting the demand for high levels of borrow-

The third point of focus is on diversifying risk ining. Currently, we set the maximum amount forour credit portfolio. Through product diversifica-

unsecured loans per customers at ¥2 million. How-tion, we are able to disperse risk across our productever, through product diversification for people

lineup instead of concentrating risk on secured

with large financing needs we are able to offerloans, unsecured loans or small business loans.

secured loans using real estate as collateral andB olstering
Competitiveness throughour Product Diversification
Strategy

Balance of Loans Outstanding(Millions of Yen)

95

96

97

98

99

Unsecured Loans

307,994 420,050 527,306 603,662 690,704

Secured Loans

40,21045,58764,286

4

17

38

Small Business Loans

95,128 137,755
3,655

9,523

AI FUL Annual Report

7

U

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S

Four Primary Concepts

Expected Market Growth

At present, four basic concepts underlie our main-

Between 1996 and 1997, we successfully cultivatedstay unsecured loans. These loans are unsecured

the market for unsecured loans by installingand non-guaranteed, and have low balances ranging

unstaffed loan-contracting machines. This activity

in amount from ¥10,000 to ¥2 million. Applica-

resulted in a sharp increase in the number of unse-

tions are processed quickly—typically within 30

cured loan customers during this period, and out-

minutes from the time a customer first enters thestanding loan balances soared. However, we now

branch—and finally, these loans are offeredexpect the number of unsecured customer accounts

through more than 1,000 branches nationwide. In

to fall off somewhat, for three reasons. First, now

this area, our balance of unsecured loans outstand-that the initial installation of loan-contracting

ing amounts to ¥690.7 billion. This figure hasmachines is largely complete we will not benefit

boosted our total of all types of customer accounts

from the same increase in unsecured loan cus-

to 1.8 million accounts with an average balance of

tomers that we enjoyed in 1996 and 1997. Second,¥388,000.

the growth in unsecured loans is likely to be affected by the ongoing recession, and third, an increas-

U nsecured

ing unemployment rate and a rise in personal bankruptcies is causing the industry to adopt stricter
credit standards. Nevertheless, we believe this situa-

Loans—One Key to
AIFUL’s Growthtion will recover with the revival of the Japanese
economy.
We currently attract 400,000 new unsecured loancustomers each year, and the value of this market is

Unsecured Loans Outstanding

forecast to expand to ¥10 trillion by 2004. Extrapolating from these two factors, we expect to see a
1,900

700

sharp rise in this market once the Japanese econo600

1,700

500

1,500

400

1,300

300

1,100

200

900

100

700

0

95

96

97

98

99

500

Unsecured Loans Outstanding (Billions of Yen)(Left Scale)
Number of Customer Accounts (Thousand)(Right Scale)8

AI FUL Annual Report

my recovers.

S

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A IFUL’s
Unsurpassed Lead in
Secured Loans
Strong Growthlored to customer needs, providing us with a sub-

AIFUL’s secured loans category provides financing

stantially higher rate of growth than other compa-

to individuals who offer land, buildings and othernies.

real estate as collateral. At the end of the fiscal year,
38,000 customers held secured loan accounts with

Precise Risk Management

AIFUL with an average balance of ¥3.5 million per

In addition to the superior characteristics of theaccount and our balance of secured loans outstand-products themselves, we excel in risk management.

ing was ¥137.8 billion. In fiscal 1999, the balance

Our average balance of secured loans is relativelyof secured loans outstanding rose 44.8%, while

low, at around ¥3.5 million per person. Anothercredit losses on these loans were less than 1%. As

risk deflator is the fact that the people to whom wethese numbers suggest, performance in this productprovide this type of financing are dispersed geo-

category is stable and growing rapidly. Underscor-graphically throughout the country, rather thaning our success in this area are the favorable charac-

being concentrated in major metropolitan areas.

teristics and originality of our secured loan prod-

Consequently, despite a sharp drop in property val-ucts.

ues, our rate of default on these loans has remained
steady at only 0.51%. Also, 33% of our secured

Existing Expertiseloans are against 40% or less of the real estate’s col-One of AIFUL’s advantages in this area is its preex-

lateral value, 46% against between 40% and 70%

isting expertise, systems and operating manuals thatof this value and 21% against between 70% andensure consistent service at more than 500 staffed

100%. Maintaining such a healthy loan portfolio isbranches throughout Japan. Furthermore, at pre-vital to our stability on this type of loan. Interest

sent we face very little competition in this field

rates on these loans average 18%, but may range

from other companies. AIFUL offers a wide range

between 9% and 26% depending on the level ofof independently developed products that are tai-risk that the borrower represents.
To verify the value of real estate used as collateral,
AIFUL maintains tie-ups with more than 200 realestate companies and real estate appraisers. These
relationships help us seize on up-to-date real estate
information at any time.

AI FUL Annual Report

9S M A L L

B U S I N E S S

L O A N S

A Relatively New Category

The Small Business Loan Market

We began offering small business loans in OctoberSome 6.5 million small businesses operate in Japan,

1997 at our staffed branches throughout Japan. At

including individual proprietorships. The number

the end of the fiscal year, we had 7,000 small busi-

of small business loans outstanding suggests thatness loan accounts, and our balance of these loans

ample room for cultivation remains in Japan’s small

outstanding totaled ¥9.5 billion.

business loan market. Of AIFUL’s 1,500 new

Our small business loan products range in credit

applicants each month, between 400 and 500 new

amount between ¥10,000 and ¥2.4 million, bearsmall business loans are provided, indicating sub-interest rates including transaction costs of between

stantial latent demand. The majority of people to28% and 33% and require the guarantee of at least

whom AIFUL provides small business loans also

one person besides the lender. As another criterion,

hold unsecured loan accounts. Thanks to our scor-

we provide these loans directly to business owners

ing data, such clients generally prove highly reli-rather than to a company.

able.

S mall Business Loans—
Our Third Pillar of
Business with Excellent
Growth Potential

10

AI FUL Annual Report

Taking into account the fact that Japan’s current
economic difficulties have created a severe environment for individual proprietors, we have tightened
our credit requirements. By applying our expertisein product development and credit more precisely,
we expect to offer next-generation products thatwill prove highly popular among our loan products.

S C O R I N GS Y S T E M

S coring System toReduce Credit Losses,
Bolster Lending Volume
Extensive Database

Advanced Scoring System

AIFUL’s rapid growth is due largely to the success

Our scoring system furnishes credit judgementsof our independently developed scoring system.

according to key applicant information, and each

Our scoring system rates individuals in much theapplicant receives a score between 0 and 13, withsame way as specialized rating agencies rate compa-

higher numbers corresponding to lower degrees ofnies. We maintain data on some 3 million people

risk, and 0 indicating that the loan must be refused.

with whom we have had transactions in the past. As

Based on this rating, loan amounts of between

well as for initial credit transactions, we use this

¥50,000 and ¥2 million are made available at inter-system when providing repeat lines of credit. We

est rates ranging from 21.5% to 29.2%.

initiated our first scoring system in 1985. To reflect

Although AIFUL seeks to meet the needs of all its

the most recent data, over the past two or threecustomers, At the same time, the more closely weyears we have revised the content of our system. In

meet these needs the higher the rate of delinquency

December 1998, we switched over to our current

tends to become. Addressing such problems at theirsixth-generation system. This system has beenroot is essential if we are to simultaneously reduce

designed to incorporate information that takes into

credit losses and expand loan volumes. In short, we

account Japan’s lackluster economic situation.

must control credit losses while at the same time

Based on this information, our simulation results

providing financing to the largest possible number

indicate a 5% increase in lending volumes and aof customers. This idea is the basic concept behind

4% reduction in credit losses.

our scoring system.

AI FUL Annual Report11

P R O D U C T

D E V E L O P M E N T

F urther Fueling Growththrough ProductDevelopment
Rising Industry Standing

Excellent Product Development

During the past decade, AIFUL’s balance of loans

AIFUL is convinced that strong product develop-

outstanding has grown by an average rate of 30%,

ment capabilities have enabled us to maintain ourwith average loan credit losses of less than 2.3%.

present rate of growth in operating results and pro-Over the past five years, these figures have averaged

vide the products that best meet customer needs,

24% and 2.4%, respectively, raising us from sixth

whether they are secured loans or small businesslargest to fourth largest in the industry. Whileloans. We designed each of our loan categories

attaining this high rate of growth, we have succeed-

based on careful market analysis. In the area of

ed in keeping our credit losses down. One manage-

secured loans in particular, we believe that we arement strategy—our product diversification strate-ahead of the field in terms of our ability to develop

gy—is largely responsible for this situation. The

and market new products such as second mort-strength of this strategy relies chiefly on our prod-

gages—a concept that is considered novel in Japan.

uct development ability.

The need to spur growth through product development is not limited to the consumer financeindustry. With this understanding, in the future wewill focus on our three product categories—unsecured loans, secured loans and small businessloans—as the basis for developing innovative products.

12

AI FUL Annual Report

Review of Operations

AI FUL Annual Report13Review of Operations

Loan Business

Secured Loans

In fiscal 1999, the total balance of loans outstanding

Secured loans are collateralized with real estate. In fiscalrose 19.3%, to ¥838.0 billion, while interest on loans

1999, the balance of secured loans outstanding grewto customers increased 14.6%, to ¥196.5 billion. Dur-

44.8%, to ¥137.8 billion, or 16.4% of the total balance

ing the same period, the number of customer accountsof loans outstanding. In line with this growth, interest

increased 6.8%, to 1.8 million.

received on secured loans surged 44.9%, to ¥19.8 billion, amounting to 9.6% of total income.

Unsecured Loans

Secured loans constitute a stable high-growth product

The balance of unsecured loans outstanding grew

category for AIFUL and the credit loss on these loans

14.4% from the preceding term, to ¥690.7 billion,

was only 0.51%—a level that has remained virtuallyconstituting 82.4% of the total balance of loans out-

unchanged since the bursting of Japan’s bubble econo-

standing. Interest on unsecured loans rose 11.0%, to

my. By exploiting a level of expertise and business per-¥174.8 billion, comprising 85.1% of total income. The

formance that is unmatched by our rivals, we will con-number of unsecured loan accounts at the end of fiscal

tinue to offer products whose characteristics encourage

1999 was 1.8 million, up 6.1%.

the expansion of our business results.

Total Balance of Loans
Outstanding

Number ofCustomer Accounts(Millions of Yen)

2,000,000

1,000,000

Number of Branches

1,200

1,000

800,000
1,500,000

800
600,000
1,000,000

600

400,000
400
500,000
200,000

0

200

95

96

97

98

99

Small Business Loans
Secured Loans
Unsecured Loans

14

AI FUL Annual Report

0

95

96

97

98

99

Small Business Loans
Secured Loans
Unsecured Loans

0

95

96

97

98

99

Unstaffed Branches
Staffed Branches
Unmanned Loan-Contracting
MachineSmall Business Loansbusiness for backup servicers. AIFUL intends to aggres-

Following secured and unsecured loans, small businesssively increase its involvement in this market, and weloans are our third major product category. During the

expect to apply to this field the debt management andterm, the balance of small business loans outstanding

recovery expertise that we have built up in the con-ballooned 160.5%, to ¥9.5 billion, or 1.1% of the total

sumer financing business.

balance of loans outstanding. Interest from this source

In the service sector, we operate the Arishan chain ofamounted to ¥1.9 billion—a sevenfold year-on-year

11 restaurants that specialize in popular Taiwanese

increase that raised these operations to 0.9% of total

dishes. We are also involved in the amusement industry

income.

through our five Mogura no Uta karaoke parlors. In

AIFUL’s history in the area of small business loans is

fiscal 1999, total income from these other activities

brief, as we first initiated such loans in October 1997.

increased 3.1%, to ¥8.0 billion, or 3.9% of total

However, within the consumer finance industry weincome.

believe that this essentially untapped market holds substantial potential demand and offers ample room forCountering the Millennium Bug

development.

AIFUL began its efforts to counter the potential problems presented by the millennium bug early on. One of

Other Activities

our first efforts to address this challenge was through

Although lending will remain the primary focus of

the 1997 installation of a fourth-generation on-line sys-

AIFUL’s business development, we will continue totem.

pursue business diversification in preparation for the

AIFUL has successfully completed testing and per-stable growth phase of the consumer finance market.

formed necessary alterations to the setting of dates by

One area of diversification was our initiation of opera-

its main computer system, which is an area that istions as a backup servicer, for which we concluded ourthought to be most seriously affected by the millenni-

first contract in fiscal 1999. Backup servicers manage

um bug. By September 1999, we expect to conclude

and seek to recover alternative debt in the event thatthe testing of connections with external equipment. In

the issuing company defaults on its asset-backed securi-

addition, tests of our dispersed system, which includes

ties. In step with the anticipated rise in popularity ofsubsidiaries, are also slated for completion in Septem-

debt securitization, we look forward to an expansion ofber 1999.

AI FUL Annual Report15

When constructing its fourth-generation on-line sys-eral public. As in previous year, AIFUL supported thetem, the Company included expenses to counter the

event as a special corporate sponsor. This marathon inmillennium bug as part of its system construction costs.

Fukuchiyama, Kyoto Prefecture, attracted 10,000 par-Hence, we have already accounted for most of theseticipants, making it one of the largest such competi-

expenses, with the notable exception of approximately

tions in Japan. In addition to proving enjoyable for the¥7.0 million in additional costs incurred to ensure

general public, the event served as an effective means ofcompliance of our dispersed system.

generating enthusiasm and fan followings for regular

To make certain that an understanding of the millen-

runners.

nium bug and all its implications pervades our organi-

In line with its management philosophy of maintain-

zation, we have initiated the Millennium Bug Counter-ing society’s support, in upcoming years AIFUL expects

measures Project. Chairing this project committee isto remain active in its promotion of sporting events.

our Managing Director in charge of the Information

We believe such activities afford us a healthy opportu-

Systems Department. This committee is charged withnity to maintain close contact with regional communi-

the task of providing final confirmation and adjust-ties.

ments to guarantee that each department has made thenecessary progress and employs sufficient countermeasures.

Corporate Citizenship
AIFUL supports a variety of sporting events and community activities in Japan, both as a way of contributing to society and to enhance its corporate image.
In late July 1998, we hosted the four-day AIFUL Cup
PGA Golf Tournament 1998 at the Aomori Country
Club as the 18th stop on the PGA Tour of Japan. Fiscal 1999 marked the first year of our sponsorship of
this tournament. To ensure its smooth operation, we
elicited the energetic support of regional athletic organizations in Aomori Prefecture, which helped cultivate
a sense of regional participation.
We also sponsored the Eighth Fukuchiyama
Marathon, a community event that is open to the gen-

16

AI FUL Annual ReportFinancial Section
Non-Consolidated Financial Statements for the Years Ended March 31, 1999 andContents

1998, and Independent Auditors' Report

6-Year Summary

18

Financial Review

20

Non-Consolidated Balance Sheets

24

Non-Consolidated Statements of Income

26

Non-Consolidated Statements of Shareholders' Equity
Non-Consolidated Statements of Cash Flows28

Notes to Non-Consolidated Financial Statements
Independent Auditors' Report

27

29

37

AI FUL Annual Report17

6-Year Summary
AIFUL Corporation
Years Ended March 31

1999

Millions of Yen
1998

1997

Result for the Fiscal Year
Total income
Total expenses
Income before income taxes
Income taxes
Net income¥205,536
140,777
64,75936,311
28,448¥180,181
117,080
63,101
38,09725,004¥150,176
94,27655,90033,09522,805At Year-end
Balance of loans outstanding
Total assets
Short-term borrowings
Long-term debt, including current portion thereof
Total shareholders’ equity¥837,982
996,524
58,900704,275
203,749¥702,446
876,727
98,000600,505
146,255¥591,630
724,31439,548557,963
93,055¥¥¥Per Share Data (Yen)
Net income
Adjusted for stock splits
Shareholders’ equity
Adjusted for stock splits
Cash dividends
Adjusted for stock splits
Other Data
Number of shares outstanding at year-end
Weighted average number of shares outstanding
Number of customer accounts at year-end
Number of branches at year-end
Number of employees at year-end

18

AI FUL Annual Report

611
—
4,358
—
60
—

46,752,500
46,588,116
1,822,261
1,009
3,141

602
—
3,421
—
60
—

42,752,500
41,536,061
1,706,030
807
2,731

1,548
619
5,957
2,383
10
4

15,621,000
14,729,432
1,530,094
654
2,521

1996

Millions of Yen
1995

1994

¥122,695
97,411
25,284
15,197
10,087¥ 94,024
75,794
18,23010,218
8,012¥ 77,767
66,058
11,7096,550
5,159¥465,656
589,539
31,758473,62165,447¥348,209
472,791
38,200365,449
55,524¥270,629
396,558
59,058289,983
36,685Notes① Net income per share has been computed based on the weighted average
number of shares outstanding during each period and shareholders’ equity

¥

7,308
292
47,414
1,897
100
4

¥

6,472
259
40,226
1,609
100
4

¥

4,169
167
29,6451,186100
4

per share is based on the number of shares outstanding at the end of eachperiod.
② Merged with Marutoh Jisho Co., Ltd., a wholly-owned subsidiary,on March 1,1994.
③ Capital increased through issuance of shares to third parties on March 31,
1995 (142,800 shares, ¥76,900).
④ Stock split (10 for 1) on August 1,1996.
⑤ Warrant exercised on September 27, 1996 (1,818,000 shares, ¥2,750).

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

1,380,300
1,237,891
940,924360
1,951

1,237,500
1,237,500
787,146268
1,688⑥ Stock split (2.5 for 1) on May 20, 1997.
⑦ On June 18, 1997, by resolution of the Shareholders’ General Meeting,the number of common shares issued was increased from 55 million to
150 million.
⑧ Capital increased through issuance of shares by public offering on July 30,
1997 (3,700,000 shares, ¥56,832).
⑨ On April 16, 1998, the Company issued 4,000,000 shares of common
stock to the amount of ¥33,084 million, in offshore transactions underregulations of the United States Securities Act of 1993 (“the SecuritiesAct”), and in the United States in accordance with Rule 144A of the
Securities Act. Of the total, ¥16,544 million and ¥16,540 million werecredited to common stock and additional paid-in capital, respectively.

AI FUL Annual Report19Financial Review
In this review, each fiscal year is taken to mean the financial year ended March 31. Accordingly, fiscal 1999 describes thefinancial year beginning April 1, 1998, and ending March 31, 1999.

REVIEW OF OPERATIONS
IncomeAfter accounting for expenses, income before income

During fiscal 1999, AIFUL posted a 14.1% increase intaxes was up 2.6%, to ¥64.8 billion (US$540 million).

total income, to ¥205.5 billion (US$1,713 million),

In fiscal 1999, the effective tax rate was 56%,

resulting mainly from a 14.6% rise in interest on loans,compared with 60% in fiscal 1998, bringing income

to ¥196.5 billion (US$1,638 million). The primaryreason for these increases was a higher balance of loans

taxes down 4.7%, to ¥36.3 billion (US$303 million).
Consequently, net income rose 13.8%, to ¥28.4 billion

outstanding in each of our three primary categories.

(US$237 million). These increases pushed up net

The balance of unsecured loans outstanding grew
14.4%, to ¥690.7 billion (US$5,756 million). This

income per common share to ¥610.63 (US$5.09),
from ¥601.98.

made up to 82.4% of the total balance of loans
outstanding, down from 85.9% in fiscal 1998.
The balance of secured loans outstanding surged

During fiscal 1999, total expenses grew 20.2%, to44.8%, to ¥137.8 billion (US$1,148 million). This

¥140.8 billion (US$1,173 million). The largest

improvement was largely due to AIFUL’s successful
efforts to minimize the risk of its loan portfolio bycontributor to this increase was a 49.1% rise in chargeoffs and provision for doubtful loans, advances toshifting its weight toward low-risk secured andsubsidiary and claims in bankruptcy, to ¥34.0 billion

guaranteed loans. As a result, in fiscal 1999 secured(US$283 million). Consequently, ratio of totalloans outstanding amounted to 16.4% of total loans

expenses to total income rose from 65.0% to 68.5%.

outstanding, up 2.9 percentage points.

This change was largely a result of higher loan losses,

The balance of small business loans outstanding
expanded 160.5%, to ¥9.5 billion (US$79 million).

20

Expenses

affected by Japan’s overall economic sluggishness,particularly a rise in personal bankruptcies.

Consequently, these loans made up 1.1% of total loans

Interest on borrowings grew 6.9%, to ¥21.1 billion

outstanding, compared with 0.5% in the preceding(US$176 million). At the same time, the ratio of

fiscal year.
Interest on deposits, securities and other rose 170.0%,

interest on borrowings to total income improved,
dropping from 10.9% to 10.3%. As a result of theto ¥0.6 billion (US$5 million), whereas sales ofCompany’s continued expansion, salaries and otherproperty for sale slipped 34.5%, to ¥1.0 billion (US$9employee benefits rose 10.0%, to ¥22.2 billion

million). Other income amounted to ¥7.4 billion(US$185 million). Other expenses amounted to ¥29.0(US$62 million), up 7.1%.

billion (US$242 million), up 30.8%.

AI FUL Annual ReportBalance of Loans
Outstanding

Number ofCustomer Accounts(Millions of Yen)

Income before
Income Taxes(Millions of Yen)

900,000

2,000,000

800,000

1,750,000

700,000

70,00060%

60,00050

1,500,000
50,000600,00040
1,250,000
40,000500,000

30

1,000,000
400,000

30,000750,000
20

300,000
20,000500,000

200,000

0

95

96

97

98

0

99

Small Business Loans
Secured Loans
Unsecured Loans

95

96

97

98

99

0

20%

700

8,000

7,000

98

99

0

150,000

100%

120,000

80

90,00060

60,00040

30,00020

600

25,00015

97(Millions of Yen)

(Yen)

30,00096

Total Expenses

Net Income per Share(Millions of Yen)

95

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

Small Business Loans
Secured Loans
Unsecured Loans

Net Income

10

10,000250,000

100,000

6,000
500

20,000
5,000
400
10

15,000

4,000
300
3,000

10,000
200
5

2,000

5,000

100

1,000

0

95

96

97

98

99

Net Income (Left Scale)
Ratio of Net Income to Total
Income (%) (Right Scale)

0

0

95

96

97

98

99

0

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

0

95

96

97

98

99

0

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

AI FUL Annual Report21

Total Shareholders'EquityBalance of Borrowings

Total Assets(Millions of Yen)

(Millions of Yen)

(Millions of Yen)

800,000

1,000,000

100 %

200,000

25 %

175,000
80

800,000
600,000

20
150,000

60

600,000
400,000

125,000

15

100,000
40

400,000

10
75,000200,000

50,00020

200,000

5
25,000

0

95

96

97

98

0

99

95

96

97

98

99

0

0

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

40%

4.0%

35

3.5

97

98

99

0

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

(%)

96

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

Net Income per Employee

ROE/ROA

95(Millions of Yen)

10,000

1,200

1,200

1,000

1,000

800

800

600

600

400

400

200

200

8,000
30

3.0

6,000
25

2.5

20

2.0

15

1.5

10

1.0

4,000

2,000

0

95

96

97

98

99

Return on Equity(Left Scale)
Returm on Assets(Right Scale)22

AI FUL Annual Report

0

0

95

96

97

98

99

0

95

96

97

98

99

Number of Branches (Left Scale)
Balance of Loans Outstanding
per Branch (Right Scale)0Financial Review

FINANCIAL CONDITION
AssetsShareholders’ Equity

In fiscal 1999, current assets rose 15.0%, to ¥898.8

AIFUL’s total shareholders’ equity rose 39.3%, orbillion (US$7,490 million), mainly due to a 19.3%, or¥57.5 billion(US$479 million), in fiscal 1999, to¥135.5 billion (US$1,129million), rise in the balance¥203.7 billion (US$1,698 million), mostly as a resultof loans outstanding. Property, plant and equipment at
the end of the year was ¥66.7 billion (US$556

of capital increases from overseas—mainly Europe—
during the term.

million), up 1.7%. As a result, at the end of the term

One of AIFUL’s focuses during fiscal 1999 was tototal assets were ¥996.5 billion (US$8,304 million),increase shareholders’ equity to ensure better operating

equivalent to a 13.7% year-on-year increase.

stability. These efforts proved successful. As a result of
its capital increase during the year, the shareholders’Liabilities

equity ratio rose 3.7 percentage points, to 20.4%. At

Current liabilities declined 13.3%, to ¥345.7 billion

the same time, return on equity (ROE) declined 4.6(US$2,881 million). This fall was due mainly to apercentage points, to 16.3%, owing to the substantial

13.8% slide in short-term borrowings and current
portion of long-term debt, to ¥50.6 billion (US$422

rise in shareholders equity. Return on assets (ROA)
also declined 0.1 percentage point, to 3.0%. Despite

million). Long-term liabilities, on the other hand,these decreases, both financial indicators—ROE andincreased 34.7%, to ¥447.1 billion (US$3,725

ROA—remain at healthy levels.

million), largely owing to a 34.9% rise in long-term
debt, to ¥445.6 billion (US$3,713 million). AIFUL

Efficiency

strives to diversify its fund procurement to ensure

AIFUL is endeavoring to bolster its business efficiency

operational stability. As part of our efforts to ensure

through the systemization of marketing andfinancial flexibility, during the year we issued ¥80.5

administrative activities. We are also expanding the use

billion (US$671 million) straight bond.

of our unstaffed loan-contracting machines and

The Company’s primary financing resource is longterm debt from financial institutions. Long-term debt,

extending our network of unstaffed branches.
During fiscal 1999, AIFUL achieved total income per

including its current portion, represents 92.3% of total

employee of ¥65.4 million (US$0.5 million),borrowings, including commercial paper. Of this total,

approximately level with the previous year. Net income

57.9% is subject to fixed interest rates due to the use of

per employee also remained essentially unchanged, atfixed-rate loans, interest rate caps and swap

¥9.1 million (US$0.1million), and the balance of loans

transactions. Such methods have proven effective atoutstanding per employee was ¥266.8 million (US$2.2

hedging against interest rate risk.

million), 3.7% higher than in fiscal 1998.

AI FUL Annual Report23Non-Consolidated Balance Sheets
March 31, 1999 and 1998
AIFUL Corporation

Millions of Yen

ASSETS
Current Assets:
Cash and cash equivalents:
Cash
Time deposits (Note 7)
Total
Marketable securities
Loans (Notes 4 and 7)
Allowance for doubtful loans
Net loans
Inventories (Notes 5 and 7)
Investment in trust
Prepaid expenses
Other current assets
Total current assets
Property, Plant and Equipment (Note 7):Land
Buildings and structures
Machinery and equipment
Construction in progress
Total
Accumulated depreciation
Net property, plant and equipment
Investments and Other Assets:
Investment securities (Notes 6 and 7)
Investments in and advances to subsidiary
Claims in bankruptcy
Allowance for advances to subsidiaries
and claims in bankruptcy
Long-term loans (less current portion)
Lease deposits
Long-term prepayments
Other assets
Total investments and other assets
Total

See notes to non-consolidated financial statements.

24

AI FUL Annual ReportThousands of
U.S. Dollars (Note 3)
1999

1999

1998

¥ 21,149
51,06972,218500
837,982(29,061)
808,921
3,143
1,000
5,567
7,451
898,800¥ 26,700
53,415
80,115
702,446(22,115)680,331
4,263
5,000
5,626
6,243
781,578$ 176,242
425,575
601,817
4,166
6,983,183(242,175)
6,741,008
26,192
8,333
46,39262,0927,490,000

43,09828,1339,971
110
81,312(14,587)
66,72542,28825,591
9,637
90
77,606(12,027)
65,579359,150
234,442
83,092916
677,600(121,558)
556,042

6,575
3,475
16,611

3,477
3,475
18,21854,792
28,958138,425(18,948)
6,182
8,038
5,072
3,994
30,999¥996,524(19,213)
3,228
7,476
5,831
7,078
29,570¥876,727(157,900)
51,517
66,98342,26733,283
258,325$8,304,367

AIFUL Corporation

1999

1998

Thousands of
U.S. Dollars (Note 3)
1999

LIABILITIES AND SHAREHOLDERS’ EQUITYCurrent Liabilities:
Short-term borrowings (Note 7)
Current portion of long-term debt (Note 7)
Trade notes payable
Trade accounts payable
Income taxes payable
Accrued expenses
Other current liabilities
Total current liabilities¥ 58,900
258,663
2,229
3,006
19,477
2,706
736
345,717¥ 98,000
270,1903,494
2,894
21,1262,468
475
398,647$ 490,833
2,155,525
18,57525,050162,308
22,5506,134
2,880,975

Long-Term Liabilities:
Long-term debt (less current portion) (Note 7)
Retirement benefits
Other long-term liabilities
Total long-term liabilities

445,6121,060
386
447,058

330,3151,060
450
331,825

3,713,433
8,833
3,217
3,725,483

Shareholders’ Equity (Note 10):
Common stock,¥50 par value, authorized, 150,000,000 shares at March 31,
1999; issued and outstanding, 46,752,500 shares
at March 31, 1999 and 42,752,500 shares
at March 31, 1998
Additional paid-in capital
Legal reserve
Retained earnings
Total shareholders’ equity
Total

39,752
41,913
636
121,448
203,749¥996,524

23,20825,373232
97,442
146,255¥876,727

331,267
349,275
5,300
1,012,067
1,697,909$8,304,367

Millions of Yen

See notes to non-consolidated financial statements.

AI FUL Annual Report25Non-Consolidated Statements of Income
Years Ended March 31, 1999 and 1998
AIFUL Corporation

1999

1998

Thousands of
U.S. Dollars (Note 3)
1999¥196,526
569
1,031
7,410
205,536¥171,479
211
1,574
6,917
180,181$1,637,717
4,741
8,592
61,7501,712,800

21,0881,002

19,7291,449

175,733
8,350

33,96722,185
12,814
13,3391,686
3,158

22,783
20,173
13,144
11,8371,373
3,081

283,058
184,875
106,783
111,158
14,05026,317

76
562
1,863
29,037140,777
64,75936,311¥ 28,448

61
263
993
22,194
117,080
63,101
38,097¥ 25,004

634
4,684
15,525
241,975
1,173,142
539,658
302,591$ 237,067

Millions of Yen

Income:Interest on loans
Interest on deposits, securities and other
Sales of property for sale
Other income
Total income
Expenses:
Interest on borrowings
Cost of sales of property for sale
Charge-offs and provision for doubtful loans,advances to subsidiary and claims in bankruptcy
Salaries and other employee benefits
Advertising expenses
Rental expenses
Supplies
Depreciation
Provision for retirement benefits to directors
and corporate auditors
Write-down of inventories
Stock issue costs
Other expenses
Total expenses
Income before Income Taxes
Income Taxes (Note 8)
Net income

YenAmounts per Common Share (Note 2.o)Net income
Cash dividends applicable to the year

See notes to non-consolidated financial statements.

26

AI FUL Annual Report¥ 610.63
60.00

U.S. Dollars¥ 601.98
60.00

$

5.09
0.50

Non-Consolidated Statements of Shareholders’ Equity
Years Ended March 31, 1999 and 1998
AIFUL Corporation
Thousands
Number of
Shares of Common Stock
Issued andCommonOutstanding
Stock

Balance at April 1, 1997
Net income
Cash dividends paid, ¥10 per share
Transfer to legal reserve
Bonuses to directors and corporate auditors
Stock split (Note 10)
Public offering (Note 10)
Balance at March 31, 1998
Net income
Cash dividends paid, ¥60 per share
Transfer to legal reserve
Bonuses to directors and corporate auditors
Public offering (Note 10)
Balance at March 31, 1999

15,621¥10,333

Additional
Paid-in
CapitalLegal
Reserve

Retained
Earnings¥ 9,832¥ 210¥ 72,680
25,004
(138)
(22)
(82)

22
23,4233,700
42,753

12,87523,20815,541
25,373

232

404
4,000
46,753

16,544¥39,752

CommonStock

Balance at March 31, 1998
Net income
Cash dividends paid, $0.5 per share
Transfer to legal reserve
Bonuses to directors and corporate auditors
Public offering (Note 10)
Balance at March 31, 1999

Millions of Yen$193,400

16,540¥41,913¥ 636

Thousands of U.S. Dollars (Note 3)
Additional
Paid-in
Legal
CapitalReserve$211,442$ 1,933

3,367
137,867$331,267

137,833$349,275$ 5,300

97,44228,448(3,967)(404)(71)¥121,448

Retained
Earnings$ 812,017
237,067(33,058)(3,367)(592)$1,012,067

See notes to non-consolidated financial statements.

AIFUL Annual Report27Non-Consolidated Statements of Cash Flows
Years Ended March 31, 1999 and 1998
AIFUL Corporation

1999

1998

Thousands of
U.S. Dollars (Note 3)
1999¥ 28,448¥ 25,004$ 237,067

33,967
5,472
1,863

22,783
5,702
993

283,058
45,60015,525

76
562

61
263

634
4,684

558
4,000
59
(1,208)(1,265)112(1,649)
280
114
2,029
44,97073,418352(5,000)(1,437)
(853)
155
339
(2,900)
674
(53)
655
21,73446,7384,650
33,333492(10,066)(10,542)933(13,742)2,333
950
16,908374,750
611,817

Investing Activities:
Increase in loans
Increase in long-term loans
Purchases of marketable and investment securities
Capital expenditures
Increase in long-term prepayments
Other - net
Net cash used in investing activities(161,843)(2,954)(5,467)(4,460)(1,555)
3,519(172,760)(128,433)(3,262)(2,010)(7,679)(2,542)(1,150)(145,076)(1,348,692)(24,617)(45,558)(37,167)(12,958)
29,325(1,439,667)

Financing Activities:
Net increase (decrease) in short-term borrowings
Proceeds from long-term debt (Net of bonds issue costs)
Repayments of long-term debt
Proceeds from public offering (Net of stock issue costs)
Cash dividends paid
Net cash provided by financing activities(39,100)
383,945(280,654)
31,221(3,967)91,44558,452285,819(243,277)
27,423(138)
128,279(325,834)
3,199,542(2,338,783)
260,175(33,058)
762,042¥ (7,897)
80,115¥ 72,218¥ 29,941
50,174¥ 80,115$ (65,808)
667,625$ 601,817¥ 20,889
37,960¥ 19,799
40,997$ 174,075
316,333¥¥$

Millions of Yen

Operating Activities:
Net income
Adjustments to reconcile net income to net cash provided byoperating activities:
Charge-offs and provision for doubtful loans,advances to subsidiary and claims in bankruptcy
Depreciation and amortization
Stock issue costs
Provision for retirement benefits to directors
and corporate auditors
Write-down of inventories
Changes in assets and liabilities:
Decrease in inventories
Decrease (increase) in investment in trust
Decrease (increase) in prepaid expenses
Increase in other current assets
Increase (decrease) in trade notes payable
Increase in trade accounts payable
Decrease in income taxes payable
Increase in accrued expenses
Increase (decrease) in other current liabilities
Other - net
Total adjustments
Net cash provided by operating activities

Net Increase (Decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents, Beginning of Year
Cash and Cash Equivalents, End of Year
Additional Cash Flow Information:
Interest paid
Income taxes paid
Noncash Investing Activities—
Capital expenditures by incurring liabilities
See notes to non-consolidated financial statements.
28

AI FUL Annual Report

175

70

1,458

Notes to Non-Consolidated Financial Statements
Years Ended March 31, 1999 and 1998

1. Basis of Presenting Non-Consolidated Financial Statements
The accompanying non-consolidated financial statements of
Aiful Corporation (the “Company”) have been prepared fromthe Company’s non-consolidated financial statements issued
for domestic reporting purposes in accordance with the provisions set forth in the Japanese Securities and Exchange Law.
The Company maintains its accounts and records in accordance with the provisions set forth in the Commercial Codeof Japan (the “Code”) and in conformity with accounting
principles and practices generally accepted in Japan, which are
different in certain respects as to application and disclosure
requirements of International Accounting Standards. The
non-consolidated financial statements are not intended topresent the financial position, results of operations and cash
flows in accordance with accounting principles and practices
generally accepted in countries and jurisdictions other thanJapan.
In preparing these non-consolidated financial statements,
certain reclassifications and rearrangements have been madeto the Company’s financial statements issued domestically inorder to present them in a form which is more familiar toreaders outside Japan. The non-consolidated statements ofcash flows are not required for domestic reporting purpose
but are presented herein for the readers’ convenience.
Certain reclassifications have been made to the prior year’s
non-consolidated financial statements to conform to the classifications used in 1999.
2. Summary of Significant Accounting Policies
a. Non-consolidation - The non-consolidated financial statements do not include the accounts of subsidiaries. Investments in subsidiaries are stated at cost.
Consolidation of the Company’s subsidiaries would not
significantly change the total assets, retained earnings,
total income, or net income reported in the accompanying
non-consolidated financial statements.
b. Cash and Cash Equivalents - For purposes at the statements of cash flows, the Company considers all time
deposits to be cash equivalents. Time deposits have original maturities of one year or less and can be withdrawn on
demand with no diminution of principal.
c. Inventories - Property for sale is stated at the lower of costor market, cost being determined by the specific identification method. Depreciation of leased property is computedby the same method, as applied to property, plant andequipment.

Property for sale under construction is stated at cost,
cost being determined by the specific identification
method.
Supplies are stated at the most recent purchase pricewhich approximates cost determined by first-in, first-out
method.
d. Marketable and Investment Securities - Marketable andinvestment securities listed on a stock exchange are valued
at the lower of cost or market, cost being determined by
the moving-average method. All other securities are statedat cost, which is determined by the moving-averagemethod, except that appropriate write-downs are recorded
for securities with values considered to be significantly
impaired.
e. Property, plant and equipment - Property, plant and equipment are stated at cost. Depreciation is computed by the
declining - balance method at rates based on the useful
lives prescribed under the tax regulations. The range ofuseful lives is principally from 20 to 50 years for buildings(24 to 60 years in 1998), from 3 to 20 years for machinery, equipment and others.
f. Retirement Benefits - Effective April 1, 1995, the Company
amended previously adopted severance and retirement
plans and established a contributory funded pension plan,transferring all prior plans’ obligations for employees’
retirement benefits (including all plan assets of thetrusteed pension plan) to the new pension plan. Also,
reversals of the excess portion of employees’ retirement
benefits are added to income equally over seven years
beginning with the fiscal year ended March 31, 1997 pursuant to the applicable tax regulations. Under the plan,prior service costs are charged to income over ten years.
The net assets in the fund, including a government
pension fund required by Japanese law in the amount of¥439 million, were ¥1,510 million at March 31, 1998 (themost recent date of available information).
Retirement benefit balances include those to directors
and corporate auditors as follows:
At March 31:

1999
1998

Millions of Yen

¥892
850

Thousands of
U.S. Dollars$7,433g. Allowances for Doubtful Loans, Advances to Subsidiary and
Claims in Bankruptcy - Allowances for doubtful loans,

AI FUL Annual Report29Notes to Non-Consolidated Financial Statements
Years Ended March 31, 1999 and 1998

advances to a subsidiary and claims in bankruptcy are stated at the higher of either management’s estimate or the
maximum amount which is allowed under tax regulations(the actual rate of past charge-offs).
h. Income Taxes - Income taxes are provided for at theamounts currently payable for each year. The tax effect of
temporary difference between tax and financial reporting
purpose is not recorded.
i. Interest on Loans - Interest on loans is recorded on an
accrual basis. In accordance with the practice prevailing in
the industry, the Company records accrued interest to theextent that the realization of such income is considered tobe certain.
j. Stock Issue Costs - Stock issue costs are charged to income
as incurred.
k. Bonds Issue Costs - Bonds issue costs, which are included inother assets, are amortized ratably over periods up to three
years.
l. Leases - All leases are accounted for as operating leases.
Under Japanese accounting standards for leases, financeleases that deem to transfer ownership of the leased property to the lessee are to be capitalized, while other financeleases are permitted to be accounted for as operating leasetransactions if certain “as if capitalized” information is disclosed in the notes to the lessee’s non-consolidated financial statements.
m. Foreign Currency Transactions - Short-term receivables
and payables denominated in foreign currencies are translated into Japanese yen at the current exchange rates at thebalance sheet date.
Long-term receivables and payables denominated inforeign currencies are translated into Japanese yen at historical rates except for those hedged by forward exchange
contracts or currency swap agreement which are translated
at such fixed exchange rates. In the case where there is asignificant fluctuation of currencies with possible exchange
losses, long-term receivables or payables denominated inforeign currencies are translated at the current exchange
rates as of each balance sheet date.
The exchange gains arising from the above contract andagreement are deferred and recognized as income ratably
over the term of the contract period. Other exchange gains
and losses are recognized in the fiscal periods in which
they occur.
n. Leveraged Lease - The Company initially records, as otherassets, an investment of ¥100 million in an anonymous
association which is engaged in aircraft leasing, at cost,

30

AI FUL Annual Reportand adjusts the carrying amount of such investment to recognize the Company’s interests in the earnings or losses ofsuch association. If accumulated losses attributable to theCompany exceed ¥100 million, the excess amount isaccounted for as other long-term liabilities and the current
losses as other expenses. Other long-term liabilities were¥129 million ($1,075 thousand) and ¥127 million, andother expenses were ¥2 million ($17 thousand) and ¥9
million for the years ended March 31, 1999 and 1998,
respectively.
o. Per Share Information - The computation of net income
per share is based on the weighted average number ofshares of common stock outstanding during each year
retroactively adjusted for stock splits. The average numberof common shares used in the computation was as follows:Year Ended March 31:

1999
1998

Average
Number of
Shares46,588,116
41,536,061

Cash dividends per share presented in the accompanying
non-consolidated statements of income are dividends applicable to the respective years including dividends to be paid after
the end of the year without giving retroactive adjustment for
subsequent stock split.
Fully diluted net income per share is not presented in
1999 and 1998 because no dilutive securities were outstanding for the years ended March 31, 1999 and 1998, respectively.
3. Translation into United States Dollars
The non-consolidated financial statements are stated inJapanese yen, the currency of the country in which the Company is incorporated and operates. The translation of Japanese yen amounts into U.S. dollar amounts are included solely
for the convenience of readers outside Japan and have been
made at the rate of ¥120 to $1, the approximate rate ofexchange at March 31, 1999. Such translations should not be
construed as representations that the Japanese yen amounts
could be converted into U.S. dollars at that or any other rate.

4. Loans
Loans at March 31, 1999 and 1998 consisted of the following (before allowance for doubtful loans):Thousands of
U.S. Dollars

Millions of Yen

Unsecured (1)Secured (2)Guaranteed (3)
Total

1999

1998

1999

¥690,704
137,755
9,523¥837,982¥603,662
95,1283,656¥702,446$5,755,867
1,147,958
79,358$6,983,183(1) Loans to individuals without offering security or providing a third-party guarantee. The credit limit is generally ¥500,000 per customer.
(2) Loans to individuals or corporations with real estate as collateral. Credit limits are subject to an evaluation of the real estate, creditworthiness of the borrower, and approval of the Credit Department of the Company.
(3) Loans up to ¥2.4 million to self-employed individuals, small business loans, subject to the provision of a third-party guarantee by anindividual with regular occupation and income.
5. Inventories
Inventories at March 31, 1999 and 1998 consisted of the following:Thousands of
U.S. Dollars

Millions of Yen
1999

Property for sale
Property for sale under construction
Supplies
Total

¥

¥

1998

2,998
132
13
3,143

¥

¥

1999

3,545
688
30
4,263

$

$

24,983
1,100
109
26,192

6. Investment Securities
Carrying value and market value of marketable securities included in investment securities at March 31, 1999 and 1998 were as follows:
Thousands of
U.S. Dollars

Millions of Yen
1999

Investment securities

1998

1999

Carrying
Value

Market
Value

Carrying
Value

Market
Value

Carrying
Value

MarketValue¥ 4,753¥ 5,308¥ 2,912¥ 2,970$ 39,608$ 44,233

The difference between the above carrying amounts and the amounts shown in the accompanying non-consolidated balance sheets
principally consist of non-marketable securities for which there is no readily-available market from which to obtain or calculate the market
value thereof.

AI FUL Annual Report31Notes to Non-Consolidated Financial Statements
Years Ended March 31, 1999 and 1998

7. Short-Term Borrowings and Long-Term Debt
Short-term borrowings substantially consisted of commercial paper and notes payable, generally due in one year.
Short-term borrowings at March 31, 1999 and 1998 consisted of the following:Thousands of
U.S. Dollars

Millions of Yen

Commercial paper, 0.9% (1.6% in 1998)
Loans from banks, 1.7% to 3.6% (1.6% to 2.4% in 1998)
Loans from other financial institutions, 3.4%
Syndicated Loans, 2.0%
Other (principally from leasing and factoring
companies), 2.5% to 3.8% (2.0% to 3.6% in 1998)
Total

1999

1998

1999

¥ 30,000
13,500500
10,500¥ 30,000
26,100$ 250,000
112,500
4,166
87,5004,400¥ 58,900

41,900¥ 98,000

36,667$ 490,833

Long-term debt at March 31, 1999 and 1998 consisted of the following:Thousands of
U.S. Dollars

Millions of Yen
1999

1998

1999

¥232,604¥191,622$1,938,367

256,527
29,241
30,0006,000
30,0005,000
9,500

245,61458,4002,137,725
243,675
250,000
50,000250,000
41,666
79,167

105,403704,275(258,663)¥445,612

104,869
600,505(270,190)¥330,315

878,358
5,868,958(2,155,525)$3,713,433

Year Ending March 31

Millions of Yen

Thousands of
U.S. Dollars

2000
2001
2002
2003
2004
Total

¥258,663
231,174
146,829
42,11625,493¥704,275$2,155,525
1,926,450
1,223,575
350,967
212,441$5,868,958

Loans from banks, 1.5% to 5.1% (1.9% to 5.1% in 1998),
due serially to 2004
Loans from other financial institutions, 2.2% to4.7% (2.3% to 4.7% in 1998), due serially to 2004
Syndicated Loans, 2.0%, to 2.6% (2.2% to 2.6% in 1998), due to 2001
Unsecured 2.0% yen straight bonds, due 2000
Unsecured 2.6% yen straight bonds, due 2001
Unsecured 2.35% yen straight bonds, due 2002
Unsecured 3.2% yen straight bonds, due 2003
Unsecured 3.65% Euro-yen straight bonds, due 2003
Other (principally from leasing and factoring companies),
2.6% to 6.9% (2.6% to 9.1% in 1998), due serially to 2002
Total
Less current portionLong-term debt, less current portion

The aggregate annual maturities of long-term debt at March 31, 1999 were as follows:

32

AI FUL Annual ReportAt March 31, 1999, the following assets were pledged as collateral for short-term borrowings and long-term debt (including current portionof long-term debt).
Millions of Yen

Thousands of
U.S. Dollars

Time deposits
Loans
Inventories (property for sale)
Investment securities
Property, plant and equipment, net of accumulated depreciation
Total

¥

820
304,573
392
157
20,051¥325,993$
6,833
2,538,108
3,267
1,308
167,092$2,716,608

Related liabilities:
Short-term borrowings
Long-term debt (including current portion of long-term debt)¥11,000¥272,104$91,667$2,267,533

In addition, the Company has committed to pledge as collateral for loans other than those shown in the above table, if requested by lending
financial institutions.
At March 31, 1999, related liabilities for which lending financial institutions can request to pledge collateral consisted of the following:

Sort-term borrowings
Long-term debt (including current portion of long-term debt)

Millions of Yen

Thousands of
U.S. Dollars¥ 12,000¥130,261$ 100,000$1,085,508

8. Income Taxes
The Company is subject to a number of taxes based on income which, in the aggregate, resulted in normal tax rates of approximately 48%
and 51% in 1999 and 1998, respectively. The actual effective tax rates differed from normal effective statutory tax rates for the following
reasons:
Year Ending March 31

Normal effective statutory tax rates
Increase in tax rate resulting from:
Temporary difference between tax and financial reporting
Additional taxation on undistributed income
Other, net
Actual effective tax rates

1999

1998

48%

51%

3
4
1
56%

4
3
2
60%

9. Related Party Transaction
Advances to a subsidiary at March 31, 1999 and 1998 were ¥3,403 million ($28,358 thousand), and ¥3,403 million, respectively.
The Company exempts interest from such advances in consideration of subsidiary’s financial condition.

AI FUL Annual Report33Notes to Non-Consolidated Financial Statements
Years Ended March 31, 1999 and 1998

10. Shareholders’ Equity
Under the Japanese Commercial Code (the “Code”), at least 50% of the issue price of new shares, with a minimum par value, is to be
designated as stated capital. The portion which is to be designated as stated capital is determined by resolution of the Board of Directors.
Proceeds in excess of the amounts designated as stated capital are credited to additional paid-in capital. The Company may transfer
portions of additional paid-in capital to stated capital by resolution of the Board of Directors.
Under the Code, the Company is required to appropriate as a legal reserve portions of retained earnings in the amount equal to at least
10% of cash payments, appropriated in each financial period including cash dividends and bonuses to directors and corporate auditors,
until the reserve equals 25% of the stated capital. This reserve is not available for cash dividends but may be used to reduce a deficit byresolution of the shareholders or transferred to the stated capital by resolution of the Board of Directors.
The Company may also transfer portions of unappropriated retained earnings to stated capital by resolution of the shareholders.
Under the Code, the Company may issue new shares of its common stock to the existing shareholders without consideration pursuant toresolution of the Board of Directors as a stock split. The Company may make such a stock split to the extent that the amount calculated bymultiplying the number of issued shares after the stock split by par value per share does not exceed the stated capital and that the amountcalculated by dividing the total amount of shareholders’ equity by the number of issued shares after the stock split shall not be less than¥500.
On March 10, 1997, the Board of Directors declared a five-for-two stock split to be distributed on May 20, 1997 to shareholders ofrecord on March 31, 1997. As a result, the number of shares issued increased by 23,431,500 shares.
At the Shareholder’s General Meeting held on June 18, 1997 the number of common shares the Company is authorized to issue wasincreased from 55 million to 150 million.
On July 30, 1997, the Company completed the sale of 3,700,000 shares of its common stock in a public offering. Of the proceeds
totalling to ¥28,416 million, ¥12,875 million and ¥15,541 million were credited to common stock and additional paid-in capital,
respectively.
On April 16, 1998, the Company issued 4,000,000 shares of stock and received gross proceeds totalling to ¥33,084 million. The
offering was made to certain persons in offshore transactions according to Regulation under the United States Securities Act of 1993 as
amended (the “Securities Act”), and in the United States to qualified institutional buyers in accordance with Rule 144A under the
Securities Act. Of the proceeds from the offering, ¥16,544 million and ¥16,540 million were credited to common stock and additional
paid-in capital, respectively.
Retained earnings of the Company as of March 31, 1999 included ¥91,622 million ($763,517 thousand) which is designated as a
general reserve but is available for future dividends subject to approval by the shareholders and legal reserve requirements. Dividends areapproved at the Shareholders’ General Meeting to be held subsequent to the fiscal year to which they relate and are reflected in the nonconsolidated statements of shareholders’ equity when duly declared and paid.
11. Leases
The Company leases vehicles, computer equipment, furniture and fixtures, office space and other assets.
Total rental expenses including lease payments under finance leases, for the years ended March 31, 1999 and 1998 were as follows:
Thousands of
U.S. Dollars

Millions of Yen
Total Rental
Expenses

Lease Payments
Under FinanceLeasesTotal Rental
Expenses

Lease Payments
Under FinanceLeasesYear March 31:

1999
1998

34

AI FUL Annual Report¥13,339
11,837

¥

5,820
4,854

$

111,158$

48,500Pro forma information of leased property such as acquisition cost, accumulated depreciation, obligations under finance leases, depreciation
expense, and interest expense of finance leases that do not transfer ownership of the leased property to the lessee on an “as if capitalized”
basis for the years ended March 31, 1999 and 1998 were as follows:

Acquisition cost
Accumulated depreciation
Net leased property

Millions of Yen

Thousands of
U.S. Dollars

Machinery andEquipment

Machinery andEquipment

1999

1998

1999

¥ 23,439
15,640¥ 7,799¥ 20,477
11,737¥ 8,740$195,325
130,333$ 64,992

Obligations under finance leases:
Thousands of
U.S. Dollars

Millions of Yen
1999

Due within one year
Due after one year
Total

¥

5,188
5,809
¥ 10,997

1998

1999

4,629
6,902
¥ 11,531$ 43,234
48,408$ 91,642¥

Depreciation expense and interest expense, which are not reflected in the accompanying non-consolidated statements of income, computed
under a declining-balance and the interest method, respectively, for the years ended March 31, 1999 and 1998 were as follows:
Thousands of
U.S. Dollars

Millions of Yen
1999

Depreciation expense
Interest expense

¥

5,656
487

1998

¥

5,329
501

1999

$ 47,133
4,058

12. Derivatives
The Company enters into interest rate swap and interest rate cap contracts as a means of managing its interest rate exposure on certain
liabilities.
Such derivative transactions are entered into to hedge interest exposures incorporated with the Company’s business. Accordingly,
market risk in these derivatives is theoretically offset by opposite movements in the value of hedged liabilities. The Company does not holdor issue derivatives for trading and speculative purposes.
Because the counterparties to these derivatives are limited to major domestic financial institutions, the Company does not anticipate any
losses arising from credit risk.
Derivative transactions entered into by the Company have been made in accordance with internal policies which regulate theauthorization and credit limit amount.

AI FUL Annual Report35Notes to Non-Consolidated Financial Statements
Years Ended March 31, 1999 and 1998

At March 31, 1999 and 1998 the Company had outstanding derivatives contracts as follows:
Thousands of
U.S. Dollars

Millions of Yen
1999
Contract or
Notional AmountInterest Rate Swaps:
Fixed rate payment,
floating rate receipt
Interest Rate Caps Purchased interest
rate caps

1998

1999

Fair Value

Unrealized
Contract orGain (Loss) Notional Amount

Fair Value

Unrealized
Contract orGain (Loss) Notional Amount¥109,460¥ (608)¥ (608)¥16,148¥28¥

260,000

850(1,325)

190,000

229(1,535) 2,166,667

Fair Value

Unrealized
Gain (Loss)

28 $ 912,167 $ (5,067) $ (5,067)

7,083(11,042)

Estimated fair values were obtained from banks.
Fees paid on purchased interest rate caps are deferred and amortized over the life of the related contract as adjustments to interest expenseon the related liabilities.
Unamortized deferred fees at March 31, 1999 were ¥2,175 million ($18,125 thousand). Unrealized loss represents the difference
between fair value and unamortized deferred fees.
The contract or notional amounts of derivatives which are shown in the above table do not represent the amounts exchanged by theparties and do not measure the Company’s exposure to credit or market risk.
13. Subsequent Events
a. On January 13, 1999, the Board of Directors declared a six-for-five stock split to shareholders of record on March 31, 1999 with anissue date of May 20, 1999. As a result, the number of issued and outstanding common stock increased by 9,350,500 shares effective
May 20, 1999. This stock split has not been reflected in the computations of the weighted average number of shares and the amounts
per common share reported in the accompanying non-consolidated statements of income. The amounts per common share, adjusted forthis stock split, for the years ended March 31, 1999 and 1998 were ¥508.86 ($4.24) and ¥501.65, respectively.
b. On May 25, 1999, the Board of Directors resolved that the Company was authorized to repurchase, at management’s discretion, up to
5.6 million shares and canceling the shares by crediting corresponding amounts against retained earnings. The number of commonshares the Company is authorized to issue was increased from 150 million to 224 million. These resolutions were approved at the
Shareholders’ General Meeting held on June 29, 1999.
c. On May 25, 1999, the Board of Directors resolved to propose the following plan of appropriations of retained earnings for the year
ended March 31, 1999 for approval at the Shareholders’ General Meeting held on June 29, 1999:

Cash dividends, ¥30 ($0.25) per share
Transfer to legal reserve
Bonuses to directors and corporate auditors

36

AI FUL Annual Report

Millions of Yen

Thousands of
U.S. Dollars¥1,403
148
76$11,692
1,233
633

Independent Auditors’ Report

To the Board of Directors of Aiful Corporation:
We have examined the non-consolidated balance sheets of Aiful Corporation as of March 31, 1999 and 1998, and the related
non-consolidated statements of income, shareholders’ equity, and cash flows for the years then ended, all expressed inJapanese yen. Our examinations were made in accordance with auditing standards generally accepted in Japan and,accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary
in the circumstances.
In our opinion, the non-consolidated financial statements referred to above present fairly the financial position of Aiful
Corporation as of March 31, 1999 and 1998, and the results of its operations and its cash flows for the years then ended inconformity with accounting principles generally accepted in Japan applied on a consistent basis.
Our examinations also comprehended the translation of Japanese yen amounts into U.S. dollar amounts and, in our opinion,such translation has been made in conformity with the basis stated in Note 3. Such U.S. dollar amounts are presented solely
for the convenience of readers outside Japan.

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

June 30, 1999

AI FUL Annual Report37Board of Directors | Investor Information
As of June 29, 1999

As of March 31, 1999

President / Representative Director

Yoshitaka Fukuda

Senior Managing Director / Representative Director

Taichi Kawakita

Restaurant & Entertainment Department
Real Estate Department

Senior Managing Directors

Takashi Noda

General Manager – Finance Division

Managing Directors

Yuji Kataoka
Sadatoshi Kobayashi

General Manager – Management Planning Division
Information Systems Department
Administration OfficeDirectors

Yasutaka Fukuda

Deputy General Manager – Finance Division
General Manager – Finance Department
Inspection Department
General Manager – Personnel Division
General Affairs Department
Legal Department
General Manager – Accounting Department
Public Relations Department
Administration Department
Credit Risk Management Department
Operation Department
General Manager – Loan Business Division
Deputy General Manager – Loan Business Division
General Manager – Promoting Sales Department

Yoshimasa Nishimura
Koji Imada
Shintaro Hashima
Takashi Koumoto
Yoshinori Sogabe
Masami Munetake

Yasuo Yanagibashi
Masayuki Sato
Standing Corporate Auditors

Yasunori Nagai
Tadao Mushiake

Corporate Auditors

Takao Oshima
Yoshinobu Azuma

Corporate NameAIFUL Corporation

Date of Establishment

April 1967

Financial Year

April 1 to March 31

Independent Auditors

Deloitte Touche Tohmatsu | Shimbashi & Co.

Transfer Agent and Registrar

The Sumitomo Trust & Banking Co., Ltd.

Paid-in Capital¥ 39,752 million

Number of Shares of Common Stock

Authorized: 150,000,000 shares
Issued and Outstanding: 46,752,500 shares

Number of Shareholders

3,266

Number of Employees

3,141

38

AI FUL Annual ReportProfile
On October 1, 1998, AIFUL Corporation listed its shares on the second sections of the Tokyo Stock Exchange and Osaka Stock Exchange, as well as on
the Kyoto Stock Exchange. With a balance of loans outstanding of ¥838.0 billion (US$6,983 million) as of March 31, 1999, AIFUL is one of the leading
consumer finance companies in Japan.
AIFUL’s involvement in consumer finance dates from its establishment in1967 as Marutaka Co., Ltd. We adopted our present name in 1982 on merging
with three associated companies. The consumer finance industry has not always
stimulated positive connotations. Since its establishment, AIFUL has endeavored to upgrade this image by meeting customer needs and living up to society’s trust in us as a publicly company is a management philosophy that continues to drive our success to this day.
As of the end of fiscal 1999, ended March 31, 1999, AIFUL’s services
embrace 1.8 million customer accounts through its 1,009 branches and a network of 14,118 cash dispensers and automated teller machines.

Corporate Headquarters
31 Higashikaigawa-cho, Saiin
Ukyo-ku, Kyoto 615-0057, Japan
Phone 075-321-1701
For further information and additional copiesof this Annual Report, please contact:
Investor Relations Section
Tokyo Office
Tokyoekimae Bldg. / 5th Floor
1-5, 2-Chome Yaesu , Chuo-ku
Tokyo 104-0028, Japan

Contents

Internet Address
http://www.aiful.co.jp
e-mail: IR@aiful.co.jp

Financial Highlights

1

Message from the President

2

Continuing to Achieve High Rates of Growth
Consumer Finance Market

4
6

Product Diversification Strategy

7

Unsecured Loans

8

Secured Loans

9

Small Business Loans

10

Scoring System

11

Product Development

12

Review of Operations

13

Financial Section

17

Board of Directors / Investor Information

38

Copyright © 1999 AIFUL Corporation

AIFUL Corporation
Annual Report 1999
AIFUL CORPORATION