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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION  WASHINGTON, D.C. 20549


FORM 20-F

(Mark One)

|                                         |  |                                                                                                 
|---------------------------------------- |  | ------------------------------------------------------------------------------------------------
|o                                        |  | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
|OR                                      
|x                                        |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934            
|For
the fiscal year ended March 31, 2004
|OR                                      
|o                                        |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934        

For the transition period from                      to

Commission file number:
1-31416

Kabushiki Kaisha Nissin(Exact name of Registrant as specified in its charter)

NISSIN CO., LTD.(Translation of Registrants name into English)

|                                                      |  |                                                                                                                            
|----------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------
|Japan
(Jurisdiction of incorporation or organization) |  | Shinjuku L-Tower 25F
6-1, Nishi Shinjuku 1-chome
Shinjuku-ku, Tokyo 163-1525
Japan
(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

|                    |  |                                           |  | 
|------------------- |  | ----------------------------------------- |  | 
|Title of Each Class |  | Name of Each Exchange On Which Registered
|                    |  |                                          
|Common Stock*       |  | New York Stock Exchange                  

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None(Title of Class)

Indicate the number of outstanding shares of each of the issuers classes
of capital or common stock as of the close of the period covered by the annual
report. As adjusted for our two-for-one stock split in May 2004,
252,456,334
shares of our common stock outstanding at March 31, 2004,
including 367,200
shares represented by 183,600 American Depositary Shares.

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes x No o

Indicate by check mark which financial statement item the registrant has
elected to follow:

Item 17 o Item 18 x





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|* |  | Not for trading, but only in connection with the listing of American
Depositary Shares, each representing two shares of our common stock.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------





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TABLE OF CONTENTS PagePART IItem 1.
    
    Identity of Directors, Senior Management and Advisors.
    
    
    4Item 2.
    
    Offer Statistics and Expected Timetable.
    
    
    4Item 3.
    
    Key Information.
    
    
    4Item 4.
    
    Information on the Company.
    
    
    15Item 5.
    
    Operating and Financial Review and Prospects.
    
    
    36Item 6.
    
    Directors, Senior Management and Employees.
    
    
    64Item 7.
    
    Major Shareholders and Related Party Transactions.
    
    
    74Item 8.
    
    Financial Information.
    
    
    76Item 9.
    
    The Offer and Listing.
    
    
    78Item 10.
    
    Additional Information.
    
    
    81Item 11.
    
    Quantitative and
Qualitative Disclosures about Market Risk.
    
    
    96Item 12.
    
    Description of Securities Other Than Equity Securities.
    
    
    99PART IIItem 13.
    
    Defaults, Dividend Arrearages and Delinquencies.
    
    
    99Item 14.
    
    Material Modifications to the Rights of Security Holders and Use of Proceeds.
    
    
    99Item 15.
    
    Controls and Procedures.
    
    
    100Item 16A.
    
    Audit Committee Financial Expert.
    
    
    101Item 16B.
    
    Code of Ethics.
    
    
    101Item 16C.
    
    Principal Accountant Fees and Services.
    
    
    101Item 16D.
    
    Exemptions from the Listing Standards for Audit Committees.
    
    
    101Item 16E.
    
    Purchases of Equity Securities by the Issuer and Affiliated Purchasers.
    
    
    102PART IIIItem 17.
    
    Financial Statements.
    
    
    102Item 18.
    
    Financial Statements.
    
    
    102Item 19.
    
    Exhibits.
    
    
    102Index to Consolidated Financial Statements
    
    
    F-1EX-1.1 ARTICLES OF INCORPORATIONEX-1.2 SHARE HANDLING REGULATIONSEX-1.3 REGULATIONS OF THE BOARD OF DIRECTORSEX-1.4 REGULATIONS OF BOARD OF STATUTORY AUDITORSEX-8.1 LIST OF SUBSIDIARIESEX-12.1 RULE 13a - 14(a) CERTIFICATIONSEX-13.1 SECTION 1350 CERTIFICATIONS
  -2-




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Special Note Regarding Forward-looking Statements This annual report on Form 20-F contains forward-looking statements about
our industry, our business, our plans and objectives, our financial condition
and our results of operations that are based on our current expectations,
assumptions, estimates and projections. These forward-looking statements are
subject to various risks and uncertainties. These statements discuss future
expectations, identify strategies, discuss market trends, contain projections
of results of operations or of financial condition, or state other
forward-looking information. Known and unknown risks, uncertainties and other
factors could cause our actual results to differ materially from and be worse
than those contained in or suggested by any forward-looking statement. We
cannot promise that our expectations, projections, anticipated results,
estimates or other information expressed in or underlying these forward-looking
statements will turn out to be correct. Important risks and factors that could cause our actual results to differ
materially from the forward-looking statements are in Item 3.D and elsewhere in
this annual report on Form 20-F and include, without limitation:  
    
    the effect of weak domestic economic conditions, including
changes in personal bankruptcy and unemployment rates in Japan;
    
    competition from large consumer finance companies and other
financial institutions in the consumer finance and loan servicing
industries;
    
    uncertain liquidity of Japans capital markets and
availability of funding from lenders on favorable terms;
    
    potential changes to legislation, including restrictions on
interest rates, to regulations for the moneylending business and to
government policy, including Japans monetary policy;
    
    our exposure to negative publicity for the consumer or
business finance industries generally or us specifically;
    
    our ability to establish and maintain profitable joint ventures and strategic alliances;
    
    our ability to successfully enter new markets such as loan servicing; and
    
    reliability of information or technological systems and networks. -3-




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PART I 
 Item 1.   Identity of Directors, Senior Management and Advisors. Not required. 
 Item 2.   Offer Statistics and Expected Timetable. Not applicable. 
 Item 3.   Key Information.  A.
    
    Selected Financial Data. You
should read the following selected consolidated financial information together with
Item 5 of this annual report on Form 20-F and our consolidated financial
statements and the notes to the consolidated financial statements
beginning on page F-1. The consolidated income statement data for the years ended March 31, 2000,
2001, 2002, 2003 and 2004 and the consolidated balance sheet data as of March
31, 2001, 2002, 2003 and 2004 that are identified as being in accordance with
accounting principles generally accepted in the United States of America, or
U.S. GAAP, are derived from our consolidated financial statements prepared in
accordance with U.S. GAAP, which have been audited by BDO Sanyu & Co.,
independent accountants. We have included in this annual report on Form 20-F
our consolidated financial statements for the years ended March 31, 2002, 2003
and 2004. -4-




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U.S. GAAP Selected Financial Information Year ended/As of March 31,2000
    
    2001
    
    2002
    
    2003
    
    2004
    
    2004(in millions of yen and thousands of dollars except per share data)Consolidated Income Statement Data:Total interest income
    
    ¥
    26,899
    
    
    ¥
    29,886
    
    
    ¥
    33,976
    
    
    ¥
    39,234
    
    
    ¥
    40,107
    
    
    $
    379,478Total interest expense
    
    
    3,873
    
    
    
    4,166
    
    
    
    3,884
    
    
    
    3,984
    
    
    
    3,724
    
    
    
    35,235Net interest income
    
    
    23,026
    
    
    
    25,720
    
    
    
    30,092
    
    
    
    35,250
    
    
    
    36,383
    
    
    
    344,243Provision for loan losses
    
    
    4,393
    
    
    
    4,566
    
    
    
    7,433
    
    
    
    12,688
    
    
    
    13,461
    
    
    
    127,363Net interest income after
provision for loan losses
    
    
    18,633
    
    
    
    21,154
    
    
    
    22,659
    
    
    
    22,562
    
    
    
    22,922
    
    
    
    216,880Total non-interest income (loss)
    
    
    232
    
    
    
    (409
    )
    
    
    (428
    )
    
    
    846
    
    
    
    838
    
    
    
    7,929Total non-interest expense
    
    
    10,473
    
    
    
    12,030
    
    
    
    13,629
    
    
    
    14,308
    
    
    
    13,101
    
    
    
    123,958Income before income taxes
    
    
    8,392
    
    
    
    8,715
    
    
    
    8,602
    
    
    
    9,100
    
    
    
    10,659
    
    
    
    100,851Income taxes
    
    
    3,937
    
    
    
    3,763
    
    
    
    3,801
    
    
    
    3,924
    
    
    
    4,582
    
    
    
    43,353Net income
    
    ¥
    4,455
    
    
    ¥
    4,952
    
    
    ¥
    4,801
    
    
    ¥
    5,176
    
    
    ¥
    6,077
    
    
    $
    57,498Per Share Data:Net incomeBasic
    
    ¥
    17.30
    
    
    ¥
    19.13
    
    
    ¥
    18.21
    
    
    ¥
    20.08
    
    
    ¥
    24.37
    
    
    $
    0.23Diluted
    
    
    17.24
    
    
    
    19.09
    
    
    
    17.43
    
    
    
    18.62
    
    
    
    22.46
    
    
    
    0.21Cash dividends paid
    
    
    2.09
    
    
    
    2.92
    
    
    
    3.02
    
    
    
    3.19
    
    
    
    4.00
    
    
    
    0.04Consolidated Balance Sheet Data:Cash and cash equivalents
    
    
    
    
    
    ¥
    25,841
    
    
    ¥
    17,116
    
    
    ¥
    23,612
    
    
    ¥
    20,243
    
    
    $
    191,532Loans receivable, net
    
    
    
    
    
    
    122,522
    
    
    
    148,235
    
    
    
    166,977
    
    
    
    166,890
    
    
    
    1,579,052Other
    
    
    
    
    
    
    15,359
    
    
    
    14,946
    
    
    
    15,985
    
    
    
    23,135
    
    
    
    218,895Total assets
    
    
    
    
    
    ¥
    163,722
    
    
    ¥
    180,297
    
    
    ¥
    206,574
    
    
    ¥
    210,268
    
    
    $
    1,989,479Short-term borrowings
    
    
    
    
    
    ¥
    1,740
    
    
    ¥
    1,400
    
    
    ¥
    5,600
    
    
    ¥
    5,563
    
    
    $
    52,635Long-term borrowings
    
    
    
    
    
    
    116,520
    
    
    
    128,659
    
    
    
    148,595
    
    
    
    142,577
    
    
    
    1,349,011Other
    
    
    
    
    
    
    6,155
    
    
    
    6,315
    
    
    
    6,782
    
    
    
    7,670
    
    
    
    72,571Total liabilities
    
    
    
    
    
    
    124,415
    
    
    
    136,374
    
    
    
    160,977
    
    
    
    155,810
    
    
    
    1,474,217Minority interests
    
    
    
    
    
    
    9
    
    
    
    148
    
    
    
    
    
    
    
    161
    
    
    
    1,523Total shareholders equity
    
    
    
    
    
    
    39,298
    
    
    
    43,775
    
    
    
    45,597
    
    
    
    54,297
    
    
    
    513,739Total liabilities and
shareholders equity
    
    
    
    
    
    ¥
    163,722
    
    
    ¥
    180,297
    
    
    ¥
    206,574
    
    
    ¥
    210,268
    
    
    $
    1,989,479
 As we did not prepare U.S. GAAP financial information, other than
consolidated income statement data, prior to the year ended March 31, 2001, we
have also included Japanese GAAP financial information below. The consolidated
income statement data for the years ended March 31, 2000, 2001, 2002, 2003 and
2004 and the consolidated balance sheet data as of March 31, 2000, 2001, 2002,
2003 and 2004 that are identified as being in accordance with Japanese GAAP are
derived from our consolidated financial statements prepared in accordance with
Japanese GAAP, which have been audited by BDO Sanyu & Co. and are not included
in this annual report on Form 20-F. There are significant differences between U.S. GAAP and Japanese GAAP. As
applicable to us, primary differences include differences in loan origination
costs, depreciation of long-lived assets, impairment of assets such as
investment securities and accounting for capital leases, debt, derivatives,
issuance costs of stock and bonds and treasury stock. -5-




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Japanese GAAP Selected Financial Information Year ended/As of March 31,2000
    
    2001
    
    2002
    
    2003
    
    2004
    
    2004(in millions of yen and thousands of dollars except per share data)Consolidated Income Statement Data:Operating income:Interest income from notes and
loans receivable
    
    ¥
    27,119
    
    
    ¥
    30,190
    
    
    ¥
    34,344
    
    
    ¥
    39,073
    
    
    ¥
    38,624
    
    
    $
    365,446Revenue from purchased loans
collected
    
    
    
    
    
    
    
    
    
    
    33
    
    
    
    2,859
    
    
    
    4,538
    
    
    
    42,937Other financial income
    
    
    14
    
    
    
    22
    
    
    
    5
    
    
    
    1
    
    
    
    1
    
    
    
    10Other operating income
    
    
    1,943
    
    
    
    1,895
    
    
    
    2,134
    
    
    
    3,669
    
    
    
    2,531
    
    
    
    23,947Total operating income
    
    
    29,076
    
    
    
    32,107
    
    
    
    36,516
    
    
    
    45,602
    
    
    
    45,694
    
    
    
    432,340Financial costs
    
    
    3,669
    
    
    
    3,894
    
    
    
    3,642
    
    
    
    3,675
    
    
    
    3,389
    
    
    
    32,065General and administrative
expenses
    
    
    11,480
    
    
    
    13,330
    
    
    
    14,906
    
    
    
    15,180
    
    
    
    14,178
    
    
    
    134,147Loan loss-related expenses
    
    
    5,328
    
    
    
    5,507
    
    
    
    8,332
    
    
    
    13,559
    
    
    
    14,099
    
    
    
    133,400Costs of purchased loans collected
    
    
    
    
    
    
    
    
    
    
    22
    
    
    
    2,147
    
    
    
    2,469
    
    
    
    23,361Total operating expenses
    
    
    20,477
    
    
    
    22,731
    
    
    
    26,902
    
    
    
    34,561
    
    
    
    34,135
    
    
    
    322,973Operating income
    
    
    8,599
    
    
    
    9,376
    
    
    
    9,614
    
    
    
    11,041
    
    
    
    11,559
    
    
    
    109,367Other (expense) income, net
    
    
    (578
    )
    
    
    (351
    )
    
    
    (1,057
    )
    
    
    (1,868
    )
    
    
    (785
    )
    
    
    (7,427
    )Income before income taxes
    
    
    8,021
    
    
    
    9,025
    
    
    
    8,557
    
    
    
    9,173
    
    
    
    10,774
    
    
    
    101,940Income taxes
    
    
    3,600
    
    
    
    3,872
    
    
    
    3,739
    
    
    
    3,948
    
    
    
    4,584
    
    
    
    43,372Minority interests
    
    
    
    
    
    
    0
    
    
    
    0
    
    
    
    15
    
    
    
    4
    
    
    
    38Net income
    
    ¥
    4,421
    
    
    ¥
    5,153
    
    
    ¥
    4,818
    
    
    ¥
    5,210
    
    
    ¥
    6,186
    
    
    $
    58,530Per Share Data:Net income  Basic
    
    ¥
    17.17
    
    
    ¥
    19.90
    
    
    ¥
    18.27
    
    
    ¥
    19.91
    
    
    ¥
    24.52
    
    
    $
    0.23Cash dividends paid
    
    
    2.09
    
    
    
    2.92
    
    
    
    3.02
    
    
    
    3.19
    
    
    
    4.00
    
    
    
    0.04Consolidated Balance Sheet Data:Cash and cash equivalents
    
    ¥
    17,149
    
    
    ¥
    25,841
    
    
    ¥
    17,116
    
    
    ¥
    23,612
    
    
    ¥
    20,243
    
    
    $
    191,532Loans receivable, net
    
    
    106,852
    
    
    
    121,775
    
    
    
    147,241
    
    
    
    165,945
    
    
    
    165,853
    
    
    
    1,569,240Purchased loans receivable, net
    
    
    
    
    
    
    
    
    
    
    382
    
    
    
    2,946
    
    
    
    4,342
    
    
    
    41,082Property and equipment
    
    
    3,706
    
    
    
    3,281
    
    
    
    2,309
    
    
    
    1,964
    
    
    
    2,250
    
    
    
    21,289Investment securities
    
    
    4,478
    
    
    
    4,793
    
    
    
    4,217
    
    
    
    3,083
    
    
    
    9,662
    
    
    
    91,418Other assets
    
    
    5,519
    
    
    
    5,799
    
    
    
    6,569
    
    
    
    6,165
    
    
    
    5,606
    
    
    
    53,042Total assets
    
    ¥
    137,704
    
    
    ¥
    161,489
    
    
    ¥
    177,834
    
    
    ¥
    203,715
    
    
    ¥
    207,956
    
    
    $
    1,967,603Short-term borrowings
    
    ¥
    1,872
    
    
    ¥
    1,740
    
    
    ¥
    1,400
    
    
    ¥
    5,600
    
    
    ¥
    5,563
    
    
    $
    52,635Long-term borrowings
    
    
    98,360
    
    
    
    116,520
    
    
    
    128,659
    
    
    
    148,595
    
    
    
    142,577
    
    
    
    1,349,011Other liabilities
    
    
    3,551
    
    
    
    4,239
    
    
    
    4,435
    
    
    
    4,614
    
    
    
    5,822
    
    
    
    55,086Total liabilities
    
    
    103,783
    
    
    
    122,499
    
    
    
    134,494
    
    
    
    158,809
    
    
    
    153,962
    
    
    
    1,456,732Minority interests
    
    
    
    
    
    
    9
    
    
    
    148
    
    
    
    
    
    
    
    161
    
    
    
    1,523Total shareholders equity
    
    
    33,921
    
    
    
    38,981
    
    
    
    43,192
    
    
    
    44,906
    
    
    
    53,833
    
    
    
    509,348Total liabilities, minority
interests and shareholders
equity
    
    ¥
    137,704
    
    
    ¥
    161,489
    
    
    ¥
    177,834
    
    
    ¥
    203,715
    
    
    ¥
    207,956
    
    
    $
    1,967,603
 Exchange Rate Information For convenience, we have translated certain yen amounts in this annual
report on Form 20-F into dollars at the rate of ¥105.69 = $1.00, the mean of
the exchange rate quotations by The Bank of Tokyo-Mitsubishi, Ltd. for buying
and selling spot dollars by telegraphic transfer against yen as of March 31,
2004, the date of our most recent balance sheet included in this annual report
on Form 20-F. -6-




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However, you should not construe such translations as representations that
the yen amounts have been, could have been or could be converted into dollars
at that or any other rate. The following table presents the noon buying rates for Japanese yen per
$1.00 in New York City for cable transfers in foreign currencies as certified
for customs purposes by the Federal Reserve Bank of New York: Year
ended March 31,
    
    High
    
    Low
    
    Average (1)
    
    Period-end2000
    
    
    ¥124.45
    
    
    
    ¥101.53
    
    
    
    ¥110.02
    
    
    
    ¥102.732001
    
    
    125.54
    
    
    
    104.19
    
    
    
    111.65
    
    
    
    125.542002
    
    
    134.77
    
    
    
    115.89
    
    
    
    125.64
    
    
    
    132.702003
    
    
    133.40
    
    
    
    115.71
    
    
    
    121.10
    
    
    
    118.072004
    
    
    120.55
    
    
    
    104.18
    
    
    
    112.91
    
    
    
    104.18Calendar monthJanuary 2004
    
    
    107.17
    
    
    
    105.52
    
    
    
    106.27
    
    
    
    105.84February 2004
    
    
    109.59
    
    
    
    105.36
    
    
    
    106.71
    
    
    
    109.26March 2004
    
    
    112.12
    
    
    
    104.18
    
    
    
    108.52
    
    
    
    104.18April 2004
    
    
    110.37
    
    
    
    103.70
    
    
    
    107.66
    
    
    
    110.37May 2004
    
    
    114.30
    
    
    
    108.50
    
    
    
    112.20
    
    
    
    110.18June 2004
    
    
    111.27
    
    
    
    107.10
    
    
    
    109.43
    
    
    
    109.43
   (1)
    
    Fiscal year information calculated from the average of the exchange rates
on the last days of all the months during the fiscal year. The
noon buying rate for yen on July 16, 2004 was ¥108.77 per $1.00.  B.
    
    Capitalization and Indebtedness. Not required.  C.
    
    Reasons for the Offer and Use of Proceeds. Not applicable.  D.
    
    Risk Factors. We may suffer larger loan losses if defaults on loans by our customers continue
to increase as a result of weak economic conditions in Japan Weak economic conditions in Japan may lead to increased defaults on loans,
which in turn would cause us to increase our charge-offs of loans and our
provisions for loan losses, thereby adversely affecting our results of
operations and financial condition. While the Japanese loan market has grown
rapidly in recent years, the continued sluggishness of the Japanese economy has
resulted in increases in personal bankruptcies, defaults on loans and the level
of unemployment. According to the latest preliminary figures from the Supreme
Court of Japan, there were an all time high of approximately 243 thousand
petitions for personal bankruptcies in Japan during calendar year 2003, after
reaching approximately 215 thousand petitions during calendar year 2002. The
seasonally adjusted unemployment rate in Japan has gradually increased since
1993 and it ranged between 4.9% and 5.5% during 2003. An increase in defaults
on loans by our customers due to these conditions along with growth in our
total loans outstanding has contributed to the rise in our provision for loan
losses, from ¥7,433 million for the year ended March 31, 2002 to ¥12,545 million for the year ended March 31, 2003
to ¥12,824 million for the year ended March 31, 2004. -7-




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If the economic
situation in Japan does not improve or worsens, we may be forced to charge off
loans in excess of our existing provisions for loan losses, to increase our
provisions for loan losses, or to tighten our credit screening policies, which
would limit our acquisition of new customers. Any such event could adversely
affect our financial condition or results of operations. Increasing competition among Japans consumer finance companies and other
financial institutions may adversely affect our ability to increase or maintain
the size of our loan portfolio, the average credit quality of our customers or
the interest rates we charge on our loans The consumer finance and other industries in Japans financial sector are
becoming increasingly competitive. For example, an increasing number of
acquisitions by large consumer finance companies of smaller consumer finance
companies have led to concentration in Japans consumer finance industry. Our
current and potential competitors include: foreign financial institutions, a
number of which have been entering the Japanese consumer finance industry;
large Japanese consumer finance companies, which continue to seek greater
shares of the consumer finance market through extensive marketing, as well as
medium-sized consumer finance companies; Japanese banks and other financial
institutions expanding out of their traditional markets, particularly by
forming joint ventures or acquiring shares in consumer finance companies;
credit card companies, particularly overseas companies, which have formed
distribution relationships and increasingly offer credit cards in Japan as
revolving loans; and non-financial institutions, an increasing number of which
are entering, and are expected to continue to enter, the consumer finance
industry through various means, including acquisitions and alliances. Many of these competitors have substantially greater financial, technical
and marketing resources, larger customer bases, longer histories, greater name
recognition, more extensive physical infrastructure and networks of loan
offices and more established relationships in the finance industry than we do.
Our competitors seek to compete aggressively on the basis of interest rates,
lending terms and the coverage and scale of their network of distribution and
marketing channels. Due to this competitive pressure, we have shifted our loan
portfolio toward our small business owner loans and Wide loans, our guaranteed
products, in order to acquire customers with a lower risk of loan losses.
These loan products usually bear lower interest rates, resulting in a decrease
in the weighted period-end average contractual interest rate on our outstanding
loans over the last two years, from 25.9% at March 31, 2002, to 25.3% at March
31, 2003 and to 24.0% at March 31, 2004. We expect our sale of most of the
outstanding balance of our unguaranteed consumer loans and related interest
receivable to Orient Credit Co., Ltd., or Orient Credit, in June 2004 to
further decrease our weighted average contractual interest rate for the fiscal
year ending March 31, 2005. If we are unwilling or unable to match our
competitors terms, we may fail to increase or maintain the number and average
balance of our customer accounts, and our results of operations or financial
condition could be adversely affected. To the extent that we reduce interest
rates on our products in response to competitive pressures, our interest
margins will decline. Furthermore, the average credit quality of our customers
may decrease if higher quality customers take their business to our
competitors, and our financial condition or results of operations could be
adversely affected. Any future inability to obtain funds from lenders or access the debt capital
markets on favorable terms could impair our ability to extend loans to
borrowers, reduce our competitiveness and the profitability of our lending and
adversely affect our financial condition Ready access to funds on favorable terms is essential to our business.
The differential between the interest rates we charge our customers and the
interest rates we pay to our financing sources is the key factor impacting our
profitability. As of March 31, 2004, our weighted period-end average
contractual interest rate on outstanding loans in our loan portfolio was 24.0%,
while our weighted period-end average contractual -8-




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interest rate was 1.3% for our short-term borrowings and 2.3%
for our long-term borrowings. We raise funds through loans from financial
institutions, primarily regional Japanese banks and non-bank financial
institutions, and the capital markets by issuing debt securities. As of March
31, 2004, the aggregate amount of our borrowings was ¥148,140 million, which
represented approximately 80.3% of our total loans outstanding and purchased
loans as of the same date. As of March 31, 2004, 68.0% of our borrowings, or ¥100,704 million, came
from loans from banks, non-banks, insurance companies and other financial
institutions, and 32.0% of our borrowings, or ¥47,436 million, came from
issuances of corporate bonds, including convertible bonds, and commercial
paper, including asset backed commercial paper. Based on their evaluations of
our long-term or short-term financial prospects, any of these lenders could
cease to finance our business or to offer funds on favorable terms. A
downgrade in our credit ratings or those of similar companies or Japanese
companies generally, for instance, could result in an increase in the interest
rates that lenders charge us. For example, the downgrade of our debt rating by
the Japan Credit Rating Agency in April 2003, together with recent downgrades
of the debt ratings of other consumer finance companies, has forced us to
curtail our debt issuances and increase our reliance on bank loans with
typically higher interest rates. Negative publicity about small business or
consumer finance lenders such as that seen in 1999 about the practices of small
business lenders could also make lenders reluctant to extend credit to the
consumer finance industry, including us. As a result of the ongoing
restructuring of the Japanese financial sector, and regional banks in
particular, our lenders may fail or adopt lending policies unfavorable to us.
A number of other factors largely beyond our control could impair our ability
to borrow, including severe disruptions of the financial markets, negative
views about the prospects for the finance industry generally or further
downgrades of Japans sovereign debt ratings. An inability to obtain sufficient funds from lenders or capital markets on
favorable terms or at all could impair our ability to extend loans to
borrowers, reduce our competitiveness and the profitability of our lending and
adversely affect our financial condition. An increase in prevailing market interest rates would increase our interest
expense and thus could reduce the margins we receive on our loans to our
borrowers Interest rates in Japan have been extremely low for several years,
reflecting government monetary policy including the zero interest rate policy
of the Bank of Japan, which has been in place for most of the period since
February 1999. The official discount rate offered by the Bank of Japan has
remained at 0.1% since September 2001. Partly as a result of this policy, our
weighted period-end average contractual interest rates on our own borrowings
have been extremely low in recent years: 2.2% as of March 31, 2002, 1.7% as of
March 31, 2003 and 1.3% as of March 31, 2004 for our short-term borrowings and
2.7% as of March 31, 2002, 2.4% as of March 31, 2003 and 2.3% as of March 31,
2004 for our long-term borrowings. Although the Bank of Japan has signaled that it plans to maintain the
current interest rate policy to address deflation concerns, the Bank of Japan
may reverse its policy and increase interest rates. In that case, lenders may
increase interest rates on their loans to us and we may not be able to pass our
increased interest expenses to our customers in the form of higher rates on our
loans due to competitive considerations and to the legal limit on interest
rates that we may charge. In particular, we are unable to charge interest rates
beyond the legal limit set by the Contributions Law, which is currently set at
29.2% per year and may decline further when the Japanese government, pursuant
to the law, reviews the legal limit in 2006. See Regulation  The Money
Lending Business Restriction Law, Contribution Law and Interest Rate
Restriction Law  Restrictions on Usury in Item 4.B of this annual report on
Form 20-F
for a further discussion of the legal limit. Any increase in the interest
rates our lenders charge us could thus have an adverse effect on our operating
margins and profitability. -9-




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Negative publicity beyond our control could lead to legislative or regulatory
changes that adversely affect our business The Japanese government responded to criticism of small business loan
collection practices of several prominent lenders in 1999 by introducing new
legislation and regulations that imposed significant burdens on our business,
even though we did not engage in the criticized collection practices. Any
future negative publicity about consumer and small business moneylending and
collection practices could lead to introduction of additional regulations or
laws favoring borrowers that might erode our profitability. For instance, in
response to the growing criticism of unregistered money lenders loan
businesses, in August 2003, the Japanese government enacted amendments to the
Moneylending Business Restriction Law and the Contributions Law. These
amendments set forth guidelines for supervisors of loan operations, who are
individuals required to be designated by all money lenders, and primarily
constrain unregistered money lenders ability to engage in harmful marketing
and loan collection practices and increase penalties on violations of the
statutory maximum interest rate. The amendments also require the Japanese
government, which last reduced the statutory maximum interest rate in June
2000, to review the interest rate again around 2006. As a result, the Japanese
government may further reduce the statutory maximum interest rate at the time
of the next review, particularly if political pressure against the moneylending
business is strong. Any such reduction could adversely affect our business and
results of operations. The growing variety of legal means with which our customers can seek protection
from creditors could require us to increase our provisions for loan losses and
charge-offs In recent years, the number of legal means with which retail borrowers can
seek protection from creditors has increased.  
    
    Special Conciliation Law. Under Japans Special Conciliation
Law, a borrower in financial difficulty may, under the supervision
of a committee consisting of a judge and court-appointed arbitrators
having specialized knowledge of law, finance and other relevant
matters, negotiate with some or all of their lenders to reschedule
or revise payment obligations. The borrower may also petition a
court to order suspension of enforcement procedures against the
borrowers assets during the negotiation procedures, with fewer
requirements for a successful petition compared to under the former
civil conciliation procedures.
    
    Civil Rehabilitation Law. The Civil Rehabilitation Law
provides several alternative procedures for restructuring loan
repayments with the courts approval by individual borrowers in
financial difficulty without declaring personal bankruptcy under the
Bankruptcy Law. A repayment plan established pursuant to one of
these procedures does not require lender approval.
    
    Bankruptcy Law. The Amendment to the Bankruptcy Law was
enacted in May 2004 and will be effective by June 2005. This new
law is a comprehensive amendment aiming to achieve prompt,
efficient, effective and fair procedures, and intends to simplify
the procedure for and improve the debtors protection under personal
bankruptcy. Under this Amendment, an individual debtor can take
advantage of a unified discharge procedure and greater protection
of personal assets. The new law also improved the effectiveness of
the automatic stay, preference, offset and other practical provisions
for fair treatment among creditors.
    
    Regulation of Lawyers and Judicial Scriveners. The
accessibility of lawyers who advise retail borrowers in financial
difficulties has increased due to various recent deregulatory measures, including enforcement of Regulations Concerning
Advertisement by Lawyers, -10-




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which have permitted advertisement by
lawyers since October 2000, and the amendment of the Judicial
Scriveners Law in April 2003, which partly enables proceedings of
reconciliation and civil conciliation by judicial scriveners (shiho
shoshi) in the Summary Court. With a growing number of individuals in Japan experiencing financial
difficulties, the number of customers seeking protection from creditors by
taking advantage of these legal means has increased. For the year ended March
31, 2004, 836 customers applied for procedures under the Special Conciliation
Law and Civil Rehabilitation Law with respect to which we charged off ¥472
million of loans outstanding. These laws may discourage borrowers who would
otherwise make an effort to repay the entirety of their loans from doing so
because of the relative ease of restructuring their loan payments. If this
trend continues, the number of our customers seeking legal protection from
enforcement of terms of payment or adjournment of payment may increase, and if
as a result the number of delinquent loans increases, our provisions for loan
losses may increase and our results of operations could be adversely affected.
Any further amendment to the Bankruptcy Law that increases protection of the
assets of individual debtors and reduces the burden of declaring personal
bankruptcy would also have a materially adverse impact on our results of
operations. While we are generally able to collect a small portion of payments
owed to us pursuant to the Special Conciliation Law and Civil Rehabilitation
Law, we generally recover nothing under personal bankruptcy proceedings. If we are unable or unwilling to comply with revised guidelines to the
Moneylending Business Restriction Law, we may be suspended from the
moneylending business and our registration as a moneylender may be revoked The Moneylending Business Restriction Law and the guidelines under the law
require us to provide each borrower and any guarantor with a written notice
detailing the terms and conditions of the loan and guarantee at the time the
loan agreement or any guarantee agreement is signed as well as at the time of
disbursement if multiple disbursements may be provided under the same
agreement. See Regulation in Item 4.B of this annual report on Form 20-F.
Currently, we ask users of our automated telephone service at the time of each
disbursement to their accounts whether or not they want a written notice as
contemplated in the guidelines to the Moneylending Business Restriction Law.
We mail a written notice to them only upon their request. Based on discussions
with the Financial Services Agency, or FSA, we may need to modify our loan
disbursement practices to include mailing of a written notice even to borrowers
who do not request a notice, and we are considering measures to comply with the
guidelines, as most recently amended. If we mail notices to every borrower, we
may lose potential customers who prefer not to receive mailed notices in the
interest of privacy. However, failure to comply with FSA guidelines empowers
the FSA to impose administrative sanctions for non-compliance, including
suspension of a part or the whole of our business, or cancellation of our
registration as a moneylender. These guidelines create substantial uncertainty
for us. Any failure to maintain the confidentiality of personal information of our
customers could materially adversely affect our results of operations We keep and manage sensitive personal information obtained from our
customers. If we fail to maintain the confidentiality of personal information
for any reason, our results of operations could be
adversely affected in a number of ways. We could be subject to lawsuits
for damages from our customers if they are injured as a result of the release
of their personal information. Also, in May 2003, the Japanese government
promulgated the Law Concerning Protection of Personal Information, the
provisions of which that apply to us will become effective in April 2005. As a
result, failure to maintain the confidentiality of personal information could
subject us to penalty under this new law. We could incur additional expenses
associated with changing our security systems, either voluntarily or in
response to administrative -11-




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guidance or other regulatory initiatives from the
government, or in connection with public relations campaigns designed to
prevent or mitigate damage to our corporate image or reputation. Any such
damage to our reputation could also adversely affect our ability to retain or
acquire customers or to maintain or establish strategic alliances with third
parties. Our strategic alliances, joint ventures and strategic investments to acquire
new customers may not yield attractive returns and could produce losses We have been pursuing various strategic alliances and joint ventures with
consumer finance and other financial companies, which include arrangements to
receive customer referrals and to provide guarantees to the borrowings of the
customers of third parties. We have also in recent years increased our
investments in enterprises that have the potential to complement our business
strategically. The book carrying value of these strategic investments was
¥1,428 million as of March 31, 2003 and ¥1,876 million as of March 31, 2004.
We expect to continue seeking these strategic alliances, joint ventures and
strategic investments to build our customer base, but may not be able to
successfully grow them. These strategic alliances, joint ventures and
strategic investments may not achieve profitability and we may incur impairment
losses as a result of failing to recover any investments or expenditures.
Moreover, the strategic alliances, joint ventures and strategic investments
that aim at specific markets may attract our existing customers, rather than
expand our customer base, and reduce the profitability of our core business. We may change our portfolio of products and services from time to time but fail
to achieve the intended results While we have traditionally been a finance company that specializes in
unsecured lending to individuals in Japan, we intend to review our portfolio of
products and services on an ongoing basis and change them as appropriate to
remain competitive in the markets that we serve. For example, in July 2001, we
established a subsidiary to acquire and service non-performing assets of banks
and other financial institutions. This business has expanded rapidly since its
inception, and the subsidiary now constitutes its own operating segment
beginning in the year ended March 31, 2004. Also, in June 2004, we sold to
Orient Credit, a consumer finance company, most of the outstanding balance of
our unguaranteed consumer loans and related interest receivable in order to
concentrate our resources on providing loans with guarantors such as small
business owner loans and Wide loans and otherwise serving small business
owners. Changes in our portfolio of products or services, including those
described above, may fail to generate the results we intend, and adversely
affect our results of operations or financial condition. For example, as a
result of the increasing competition in the loan servicing market, which tends
to increase the prices at which distressed loans are sold through a bidding
process, we may be unable to purchase these loans at favorable prices or at
all, and our loan collection capability for the purchased loans may not be
sufficient to achieve profitability in our loan servicing segment. Any disruption, outages, delays or other difficulties experienced by our
information or technological systems and networks could adversely affect our
business We rely on internal and external information and technological systems and
networks to generate new business, provide services to customers and manage our
operations. In particular, our business depends on:  
    
    the ability of our automated telephone system to handle high
volumes of phone calls and to provide customers a more convenient
and private alternative to loan office visits; -12-




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
    
    the reliability and security of third-party databases from
which we obtain credit information about our customers;
    
    the reliability of Sanyo Electric Credits wire transfer
service that we use to disburse loans to accounts designated by our
customers; and
    
    the reliability of the financial institutions that hold our
customers accounts from which we automatically deduct their
payments to us. In addition, we depend on the following hardware and software and third
parties to manage transaction and accounting data, confidential customer
information and other back-office operations:  
    
    our main computer housed by an NEC affiliates data center to
which all data are backed up on each business day and which does not
have a back-up system that can replace it;
    
    the fiber optic networks we use to support our daily backup
from our database servers to the main computer;
    
    an NEC affiliate to provide maintenance and support work for
our main computer; and
    
    dedicated lines that connect our main computer and
outsourcing center to our application servers and e-mail servers. Our hardware and software are vulnerable to damage or interruption from
human error, natural disasters, power loss, sabotage, computer hackers,
computer viruses and similar events or the loss of support services from third
parties such as NEC and its affiliates, our main systems solution provider,
telephone carriers and Internet backbone providers. Each of our branch offices
has a server to route incoming phone calls. We do not have redundant servers
at these locations. Any disruption, outages, or delays or other difficulties
experienced by any of these technological and information systems and networks
could result in a decrease in new accounts, loss or exposure of confidential
information, delay in repayment of outstanding borrowings or decreased consumer
confidence in our business, or otherwise adversely affect our results of
operations. Misconduct by an employee or director could harm us and is difficult to detect
and deter Any of our employees and directors could engage in misconduct, which
includes, among others:  
    
    conduct that exceeds the authority given to the employee or
director such as approval of a transaction for which he or she does
not have proper authorization;
    
    concealment of such unauthorized conduct or authorized but
unsuccessful activities that cause material harm to us; and
    
    improper use or disclosure of confidential information. Any such misconduct by an employee or director could result in regulatory
sanctions, legal liability and serious reputational or financial harm to us.
The precautions we take to prevent and detect such misconduct may not always
deter or prevent it. Even if we succeed in managing the conduct of our own
employees and directors, we may suffer reputationally or financially from
misconduct by other lenders in the finance -13-




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industry to the extent it negatively
impacts the consumer finance and small business industries generally. Our president and his family may exercise influence over important business
decisions in a way that conflicts with your interest As a result of the direct and indirect ownership or control of our
outstanding shares by Sakioka family members, who collectively beneficially
owned 42.1% of our outstanding shares as of March 31, 2004, our president and
his family members, including our chairman, can exercise a controlling
influence over important decisions affecting our business and affairs. These
decisions may involve significant corporate transactions such as the sale of
our company, corporate restructuring, investment in other businesses or assets,
or the terms of future financings. The interests of these shareholders in
these and other matters may differ from those of our public shareholders. A sale of our shares held by our major shareholders, including our chairman,
president or members of their family, may adversely affect our share price As of March 31, 2004, our chairman, our president, members of their
immediate family and corporations controlled by them together owned 42.1% of
our outstanding shares. A disposal of any portion of their holdings on the
Tokyo Stock Exchange or otherwise will increase the supply of our shares in the
marketplace and may adversely affect the market price of our shares and
American Depositary Shares. We may have to constrain our business activities to avoid being deemed an
investment company under the U.S. Investment Company Act of 1940 In general, a company which is or holds itself out as being engaged
primarily in the business of investing, reinvesting or trading in securities,
may be deemed to be an investment company under the U.S. Investment Company Act
of 1940. We do not believe that we are an investment company as defined under
the U.S. Investment Company Act of 1940. However, if we were to be deemed an
investment company, we would be prohibited from issuing our securities in the
United States and may have to terminate our U.S. listing or other sponsorship
promoting a U.S. trading market for our issued securities. In order to avoid
these prohibitions, we may be forced to forego otherwise attractive business
opportunities, potentially limiting our growth and our profitability. Because we expect our shares and ADSs will be treated as stock of a passive
foreign investment company, or PFIC, for U.S. federal income tax purposes, you
may be subject to materially adverse tax consequences As we expect that 50% or more of our gross asset value constitutes
passive assets, meaning assets not constituting part of an active trade or
business under U.S. federal tax rules, we expect that our
shares and ADSs will be treated as stock of a passive foreign investment
company, or PFIC, for U.S. federal income tax purposes. U.S. persons who hold
our shares or ADSs, either directly or indirectly, may be subject to materially
adverse U.S. federal income tax consequences upon the sale or disposition of
the shares or ADSs and upon distributions with respect to the shares or ADSs to
the extent the distributions are excess distributions, distributions in
excess of a normal rate of distribution as calculated for passive foreign
investment companies. Gain realized on the sale or other disposition of shares
or ADSs would in general not be treated as capital gain. Instead, if you are a
U.S. holder, you would be treated as if you had realized such gain and certain
excess distributions ratably over your holding period for the shares or ADSs
and would be taxed at the highest tax rate in effect for each such year to
which the gain -14-




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was allocated, together with an interest charge in respect of
the tax attributable to each such year. In addition, dividends that you
receive from us will not be eligible for the 15% tax rate applicable to
qualified dividend income if we are a PFIC either in the taxable year of the
distribution or the preceding taxable year. See United States Tax
Considerations  Passive Foreign Investment Company Rules in Item 10.E of this
annual report on Form 20-F. Holders of ADSs have fewer rights than shareholders and have to act through the
depositary to exercise those rights The rights of shareholders under Japanese law to take actions including
voting their shares, receiving dividends and distributions, bringing derivative
actions, examining our accounting books and records and exercising appraisal
rights are available only to holders of record on our register of shareholders
or our register of beneficial shareholders. Because the depositary, through
its custodian agents, is the registered holder of the shares underlying the
ADSs, an ADS holder cannot take these actions except through and to the extent
permitted by the depositary. If we instruct the depository to provide ADS
holders with the opportunity to vote in a timely manner, the depositary will
make efforts to vote the shares underlying your ADSs as instructed by you. ADS
holders, however, may not be provided with such rights on a timely basis or at
all. If you hold fewer than 100 shares, you do not have the right to vote the shares
or transfer them and if you have ADSs representing fewer than 100 shares, you
cannot withdraw the shares underlying the ADSs and cannot require us to
purchase the underlying shares One hundred of our shares constitute one unit. A holder who owns fewer
than 100 shares owns less than a whole unit. The Japanese Commercial Code
restricts the rights of a shareholder who holds shares of less than a whole
unit. In general, holders of shares constituting less than a unit do not have
the right to vote under the unit share system. Our articles of incorporation
also provide that no share certificates will be issued with respect to any
number of shares constituting less than one unit. As the transfer of shares
normally requires delivery of share certificates, any fraction of a unit for
which no share certificates are issued is non-transferable. Furthermore, under
the unit share system, holders of shares constituting less than a unit have the
right to require us to purchase their shares. However, holders of ADSs that
represent other than multiples of whole units cannot withdraw the underlying
shares representing less than one unit and, therefore, they will be unable to
exercise the right to require us to purchase the underlying shares. As a
result, holders of ADSs representing shares in lots of less than one unit will
not have access to the Japanese markets to sell their shares through the
withdrawal mechanism. See Limitations Affecting Security Holders  Japanese
Unit Share System in Item 10.B of this annual report on Form 20-F. 
 Item 4.   Information on the Company.  A.
    History and Development of the Company. We were established as a joint stock corporation in 1960 in Matsuyama, the
capital of Ehime Prefecture in the northern part of the island of Shikoku,
which is one of Japans four major islands. Our first business was dealing in
discounting commercial bills. In 1967, we started providing real
estate-secured loans. In 1972, we began offering consumer loans and opened
offices throughout Shikoku and became a registered moneylender in 1984. We
started offering small business owner loans in 1981, Wide loans in 1990 and
Business Timely loans in 2000. We steadily expanded beyond our original base
in Shikoku by opening offices in Hiroshima in 1988, Osaka in 1990, Kyushu in
1992, Tokyo in 1994, Nagoya in 1995 and Sendai, Hokkaido and Shizuoka in 1996.
As of March 31, 2004, we had 70 loan offices throughout Japan. -15-




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In recent
years, we have also expanded our customer base through strategic alliances with
consumer finance, leasing and other financial services companies. In 1990, we changed our name from Nissin Shoji Co., Ltd. to Nissin Co.,
Ltd. In 1998, we adopted a dual head-office system, with one head office in
Tokyo through which our operations are primarily managed and the other in
Matsuyama. In July 2001, we established Nissin Servicer Co., Ltd., or Nissin
Servicer, to acquire and service non-performing assets of banks and other
financial institutions. In November 2003, we established NIS Lease Co., Ltd., or NIS Lease, to
commence leasing of equipment and related assets to small and medium-size
business entities. In June 2004, we sold most of the outstanding balance of our unguaranteed
consumer loans and related interest receivable to Orient Credit at a price of
¥32,943 million. See Our Products  Integrated Financial Services  Consumer
Loans in Item 4.B of this annual report on Form 20-F. In July 2004, we established Matsuyama Nissin Investment Consulting (Shanghai) Co., Ltd. in Shanghai to expand our businesses into the Chinese market. Our principal executive office is located at Shinjuku L-Tower 25F, 6-1,
Nishi Shinjuku 1-chome, Shinjuku-ku, Tokyo 163-1525, Japan, and its phone
number is 81-3-3348-2424. Our principal Internet website is
www.nissin-f.co.jp. Information on this website does not form part of this
annual report on Form 20-F. Information about our principal capital expenditures and divestitures is
provided in Item 5.B of this annual report on Form 20-F.  B.
    Business Overview. Overview We are a finance company that primarily engages in unsecured lending to
individuals in Japan, including consumers and small business owners. We also
service distressed loans purchased from third parties. For the year ended
March 31, 2004, our net interest income after provision for loan losses was
¥22,922 million and our net income was ¥6,077 million. Our Markets  Japanese Consumer Finance Industry We compete primarily in the Japanese consumer finance industry, generally
defined as the industry that provides secured and unsecured loans without
restrictions on the purposes of use to Japanese individuals. Although banks
and credit finance companies outside the consumer finance industry also provide
unsecured and secured loans, we compete most directly with other consumer
finance companies. We believe our focus on consumers, in particular consumers
seeking to consolidate debts to multiple lenders, and on small business owners
differentiates us from other consumer finance companies. The consumer finance industry is distinct from the small business finance
industry, which provides loans to small business entities, rather than
individuals. Our loans are extended principally to individuals on the basis of
individual creditworthiness, rather than to entities based upon -16-




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business
creditworthiness, which is the focus of the business finance companies. To the
extent that we provide loans to individual small business owners, however, we
may compete with lenders in the small business finance industry.  Japanese Loan Servicing Industry We compete in the Japanese loan servicing industry through our subsidiary
Nissin Servicer. This industry has grown rapidly in the last few years due to
the accelerated disposal of nonperforming loans by Japanese financial
institutions. As a result of recent measures of the Japanese government to
combat nonperforming loans, major banks are expected to further accelerate
disposition of their nonperforming loans. Although we compete with a variety
of companies for loan servicing opportunities, we consider affiliated companies
of the major consumer finance companies to be our primary competitors.
According to the Ministry of Justice, as of March 31, 2004, 87 companies were
registered as licensed servicing companies, of which eight were affiliated with
major consumer finance companies. Our Products We have two operating segments: integrated financial services and loan
servicing. As part of our integrated financial services segment, we provide
loans to individuals, primarily consumers and small business owners, in niche
markets of the consumer finance industry. Our core products in this segment
are small business owner loans, Wide loans, Business Timely loans and consumer
loans. We also provide secured and other loans, as well as leasing and credit
guarantee services. As part of our loan servicing segment, we mainly service
distressed loans purchased from financial institutions.  Integrated Financial Services Our net interest income after provision for loan losses from our
integrated financial services segment was ¥21,611 million, or 94.3% of our
consolidated net interest income after provision for loan losses, for the year
ended March 31, 2004. Our net income from our integrated financial services
segment was ¥5,671 million, or 93.3% of our consolidated net income, for the
year ended March 31, 2004. The following table provides information on the
average amount of loans outstanding for each category of our loan business
based on the average daily outstanding balance during each fiscal year: Year ended March 31,2000
    
    2001
    
    2002
    
    2003
    
    2004(in millions)Small business owner loans
    
    ¥
    20,892
    
    
    ¥
    27,293
    
    
    ¥
    32,195
    
    
    ¥
    45,311
    
    
    ¥
    55,647Wide loans
    
    
    40,951
    
    
    
    46,543
    
    
    
    50,940
    
    
    
    59,743
    
    
    
    61,592Business Timely loans
    
    
    4
    
    
    
    3,250
    
    
    
    12,238
    
    
    
    17,256
    
    
    
    17,909Consumer loans (1)
    
    
    43,663
    
    
    
    43,016
    
    
    
    45,784
    
    
    
    45,093
    
    
    
    38,600Secured and other loans
    
    
    1,310
    
    
    
    1,969
    
    
    
    1,613
    
    
    
    1,265
    
    
    
    2,496Total average loans outstanding
    
    ¥
    106,820
    
    
    ¥
    122,071
    
    
    ¥
    142,770
    
    
    ¥
    168,668
    
    
    ¥
    176,244
  (1)
    
    Pursuant to an agreement between us and Orient Credit, on June 1, 2004,
we sold most of the outstanding balance of our unguaranteed consumer loans
and related interest receivable to Orient Credit at a price of ¥32,943
million. Small Business Owner Loans Our small business owner loans comprised 31.6% of our total average loans
outstanding for the year ended March 31, 2004. These small business owner
loans are guaranteed, unsecured loans of up to ¥5 million that require one or
more guarantors from individuals with an income -17-




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##### Table of Contents



source separate from the
borrowers. We do not restrict the use of proceeds of these loans. Small business owner loans are currently contracted at a fixed interest
rate of up to 24.09% per year, payable monthly. In addition, we charge an
up-front origination fee of 2% for each loan at the time of cash disbursement.
These loans have initial repayment terms of up to five years and two months.
The average maturity of small business owner loans at March 31, 2004 was 4.8
years. Customers may prepay their small business owner loans at any time
without penalty. Although we do not restrict the use of proceeds from small
business owner loans, we believe that customers generally use the proceeds to
repay existing loans or to obtain working capital for their businesses. Under
normal circumstances, we do not extend additional credit to small business
owner loan customers until they pay off their existing small business owner
loan contracts. As a result, any small business owner loan customer seeking a
new small business owner loan contract must pay off his or her existing loan
and be subject to the same loan approval process as any new customer. In contrast to other lenders that target corporations and other business
entities, we serve almost entirely self-employed individuals, primarily
individual small business owners in a wide range of industries. As of March
31, 2004, approximately 67.5% of the borrowers were male, and 49.2% were
self-employed individuals in small-scale distribution and restaurant
businesses, while the remaining borrowers were self-employed individuals in
such industries as manufacturing, transportation, communication, agriculture
and fishery. We telemarket to small business owners and visit prospective
customers. The loan process often begins when staff at our general branches or
small business owner loan branches call a prospective client to determine the
loan amount to be applied for, followed by a credit check. Our staff then hold
a face-to-face meeting with the client and the guarantor to ensure that all
parties understand the content and implications of the loan agreement. The following table shows the total number of small business owner loan
accounts and the balance of small business owner loans per account: As of March 31,2000
    
    2001
    
    2002
    
    2003
    
    2004Number of small business owner loan accounts
    
    
    12,404
    
    
    
    13,995
    
    
    
    17,472
    
    
    
    23,439
    
    
    
    24,739Balance of loans per account (in thousands)
    
    
    ¥2,034
    
    
    
    ¥2,049
    
    
    
    ¥2,140
    
    
    
    ¥2,300
    
    
    
    ¥2,311
 The following table shows advances, recognized on the date of
disbursement, to our customers of small business owner loans: Year ended March 31,2000
    
    2001
    
    2002
    
    2003
    
    2004(in millions)Advances
    
    
    ¥17,203
    
    
    
    ¥14,706
    
    
    
    ¥22,328
    
    
    
    ¥36,560
    
    
    
    ¥35,061
 As we do not make additional advances under existing small business owner
loan contracts, the majority of the advances are to new customers, with the
balance being made to existing customers under new contracts. Wide Loans  Debt Consolidation Loans We also provide debt-consolidation loans to individuals in Japan indebted
to multiple lenders. We believe this product to be innovative and brand these
loans as Wide loans. Major consumer finance companies in Japan generally do
not offer debt-consolidation loans. These loans -18-




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comprised 34.9% of our total
average loans outstanding for the year ended March 31, 2004. We extend Wide loans of up to ¥5 million at a fixed contractual interest
rate of no greater than 24.09% per year. In addition, we charge an up-front 2%
origination fee payable at the time of disbursement. The loans are repaid in
equal monthly payments, comprising both interest and principal, over a period
of up to five years and two months. The average maturity of Wide loans at
March 31, 2004 was 4.9 years. The borrower must supply one or more guarantors
with an income source separate from that of the borrower. As we require the
proceeds from these loans to be applied to the consolidation of loans from
other consumer finance companies, we generally ask customers to provide
evidence of this use after receiving their loan disbursement but do not control
the actual use of proceeds. Under normal circumstances, we do not extend
additional credit to Wide customers until they pay off their existing Wide loan
contracts. Thus, any Wide loan customer seeking a new Wide loan contract must
pay off his or her existing loan and be subject to the same loan approval
process as any new customer. Our Wide loans usually cater to customers who already have a high level of
outstanding debt with several consumer finance lenders. While these borrowers
have above-average levels of credit risk, a large number of these loans belongs
to customers who have the capacity and will to pay down outstanding debt over
time. These borrowers are mainly looking for lower-cost and more convenient
ways to achieve this goal. Wide loan customers typically enjoy lower monthly
repayments than required by their existing debts. They also need to arrange
for only one fixed payment each month through an ordinary bank transfer from
their bank account rather than visit outlets of multiple consumer finance
companies. As of March 31, 2004, 53.3% of the borrowers were male, and 53.5%
earned less than ¥3 million a year. A substantial number of our Wide loan
customers are former customers for our consumer loans. As of March 31, 2004,
44.4% of our Wide loan customers, accounting for 38.6% of the outstanding
balance of Wide loans, were former consumer loan customers. We believe that we can succeed in this niche by combining our experience
and skills in credit management of guaranteed small business owner loans with
our access to and experience in managing the credit risks of borrowers of
consumer loans. Most finance companies do not have this combination of
experience, skills and access because they tend to focus on one of the two
business segments. Those companies that target consumers typically lack the
experience and skills in the provision of guarantees, while those that provide
guaranteed loans often do not have sufficient expertise in the management of
credit risks of small borrowers or lack access to these borrowers. The following table provides information on the total number of Wide loan
accounts and the balance of Wide loans per account: As of March 31,2000
    
    2001
    
    2002
    
    2003
    
    2004Number of Wide loan accounts
    
    
    25,626
    
    
    
    28,607
    
    
    
    32,075
    
    
    
    36,482
    
    
    
    35,126Balance of loans per account (in thousands)
    
    
    ¥1,728
    
    
    
    ¥1,670
    
    
    
    ¥1,716
    
    
    
    ¥1,754
    
    
    
    ¥1,636
 The following table provides information on advances, recognized on the
disbursement date, to our customers of Wide loans: Year ended March 31,2000
    
    2001
    
    2002
    
    2003
    
    2004(in millions)Advances
    
    
    ¥22,860
    
    
    
    ¥22,106
    
    
    
    ¥28,321
    
    
    
    ¥34,294
    
    
    
    ¥20,709
 -19-




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As we do not generally make additional advances under existing Wide loan
contracts, almost all advances are to new Wide loan customers, including
current customers for our consumer loans, with the balance being made to
existing Wide loan customers under new contracts. Business Timely Loans We extend Business Timely loans, our unguaranteed, unsecured loans made
under pre-approved revolving credit lines, to more creditworthy small business
owners. Holders of our Business Timely Card may borrow unguaranteed and
unsecured Business Timely loans of up to ¥2 million. These loans accounted for
10.2% of our total average loans outstanding for the year ended March 31, 2004. Business Timely loans are currently contracted at a fixed interest rate of
no greater than 27.01% per year, payable monthly. Customers may prepay their
loans at any time without penalty. A Business Timely loan contract is
automatically renewed after three years, provided that the borrower is not in
default for 16 days or more and has maintained a satisfactory credit standing
for at least one year. Furthermore, we conduct a credit assessment of an
account holder with four credit lines or more every three months and of an
account holder with fewer than four credit lines every year. We may terminate
the account for a number of reasons. For example, we may terminate the account
if the holder is found to have increased his or her borrowings from other
institutions. Although we do not restrict use of Business Timely loans, we
believe customers generally use the proceeds to repay existing loans or to
obtain working capital. As a general rule, a customer seeking a Business
Timely Card may have loans outstanding from only up to two consumer finance
companies at the time of application. Customers granted a Business Timely Card
can request transfer of funds to their account using our automated telephone
service on the same or following business day after our approval of the credit
line. We market Business Timely loans along with our small business owner loans.
The provision of Business Timely loans, first introduced in March 2000, allows
us to tap into a segment of the consumer finance industry that we believe has
been underserved. We market this product to more creditworthy small business
owners from whom we do not require a guarantor. As of March 31, 2004,
approximately 37.8% of the borrowers earned ¥9 million or more annually, and
65.5% engaged in wholesale, retail and restaurant businesses. These potential
borrowers often do not have an immediate need for a loan, but value the
security of access to a pre-approved revolving credit line. Of Business Timely
Cards issued, 38.7% had outstanding balances as of March 31, 2004. The following table shows the total number of Business Timely loan
accounts and the average loan balance per Business Timely loan account: As of March 31,2000
    
    2001
    
    2002
    
    2003
    
    2004Total number of Business Timely loan accounts
    
    
    185
    
    
    
    10,673
    
    
    
    22,867
    
    
    
    25,580
    
    
    
    41,723Number of Business Timely loan accounts with
outstanding balances
    
    
    123
    
    
    
    6,479
    
    
    
    13,239
    
    
    
    14,511
    
    
    
    16,163Balance of loans per account (in thousands)
    
    
    ¥798
    
    
    
    ¥1,183
    
    
    
    ¥1,211
    
    
    
    ¥1,192
    
    
    
    ¥1,154
 The following table provides information on advances, recognized on the
disbursement date, to our customers of Business Timely loans: -20-




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Year ended March 31,2000
    
    2001
    
    2002
    
    2003
    
    2004(in millions)Advances to existing
customers (including
repeat customers)
    
    ¥
    5
    
    
    ¥
    5,819
    
    
    ¥
    9,686
    
    
    ¥
    10,030
    
    
    ¥
    9,613Advances to new customers
    
    
    95
    
    
    
    5,384
    
    
    
    6,847
    
    
    
    4,300
    
    
    
    4,323Total
    
    ¥
    100
    
    
    ¥
    11,203
    
    
    ¥
    16,533
    
    
    ¥
    14,330
    
    
    ¥
    13,936
 Consumer Loans Consumer loans comprised 21.9% of our total average loans outstanding for
the year ended March 31, 2004. We extend these unguaranteed revolving loans to
individuals in amounts of up to ¥500,000 or, for more creditworthy customers
who qualify for our VIP consumer loans, up to ¥2 million. We do not restrict
use of proceeds from the loan. These loans are currently contracted at a fixed interest rate of up to
27.01% per year or, for VIP loans, up to 25.55% per year. Payments are due
monthly, but customers may prepay their loans at any time without penalty.
These loans function effectively as a personal revolving loan facility. A
consumer loan contract is automatically renewed after three years, provided
that the borrower is not in default for 16 days or more and has maintained a
satisfactory credit standing for at least six months. After a successful
application, funds are remitted directly into a bank account designated by the
customer on the same or following business day, depending on the time of
application. We then send the customer a contract for completion. Our consumer loan customers represent a broad range of the Japanese
population, but our borrowers are primarily salaried employees, self-employed
persons and housewives. As of March 31, 2004, approximately 51.3% were female,
while 87.2% earned not more than ¥5 million annually. In recent years, we have increasingly shifted our resources away from our
consumer loan business, because of competition from the major consumer finance
companies, which benefit significantly from the scale of their consumer loan
operations. As a result of our recent efforts in reallocating our resources,
the number of consumer loan accounts has gradually declined. Our total
consumer loans outstanding have also been declining since in 2002. In line with this strategic shift, pursuant to an agreement between us and
Orient Credit, on June 1, 2004, we sold most of the outstanding balance of our
consumer loans and related interest receivable to Orient Credit at a price of
¥32,943 million. Following the sale, we will continue to offer consumer loans
to prospective customers, particularly those who are referred to us by our
alliance partners, but we expect that our consumer loan business will operate
at a substantially reduced scale for the foreseeable future. The following table provides information on our total number of consumer
loan accounts and the average loan balance per account: As of March 31,2000
    
    2001
    
    2002
    
    2003
    
    2004Number of consumer loan accounts
    
    
    129,646
    
    
    
    123,200
    
    
    
    125,393
    
    
    
    106,731
    
    
    
    88,809Balance of loans per account (in thousands)
    
    
    ¥327
    
    
    
    ¥351
    
    
    
    ¥368
    
    
    
    ¥384
    
    
    
    ¥401
 Our extension of new credit for consumer loans comprises additional or
repeat lending and advances to new customers. The following table shows
additional advances to existing customers, including repeat customers, and
advances to new customers (all advances are recognized as -21-




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of the date of
disbursement): Year ended March 31,2000
    
    2001
    
    2002
    
    2003
    
    2004(in millions)Advances to existing
customers (including
repeat customers)
    
    
    ¥15,920
    
    
    
    ¥16,733
    
    
    
    ¥18,410
    
    
    
    ¥15,581
    
    
    
    ¥13,376Advances to new customers
    
    
    9,528
    
    
    
    11,477
    
    
    
    13,834
    
    
    
    7,010
    
    
    
    4,162Total
    
    
    ¥25,502
    
    
    
    ¥28,210
    
    
    
    ¥32,244
    
    
    
    ¥22,591
    
    
    
    ¥17,538
 Secured and Other Loans Secured and other loans comprised 1.4% of our total average loans
outstanding for the year ended March 31, 2004. These loans primarily include
loans secured by real estate to condominium developers. We determine interest
rates for these loans on an individual basis, currently ranging between 8% and
17% per year. We also charge a handling fee of 2% on each real estate loan.
As we emphasize a high degree of liquidity for our real estate loans, our real
estate loans typically mature in one month to two years, with the average
maturity of approximately six months. Other Businesses We also guarantee loans to customers of third party lenders based on which
we generate guarantee fees. Since July 2003, we have been providing
credit-guarantee services, including with respect to third party loan
transactions, through our wholly-owned subsidiary Nissin Credit Guarantee Co.,
Ltd., or Nissin Credit Guarantee. In addition, in February 2004, we started
leasing equipment and related assets through our wholly-owned subsidiary NIS
Lease. Loan Servicing Our net interest income after provision for loan losses from our loan
servicing segment was ¥1,311 million, or 5.7% of our consolidated net interest
income after provision for loan losses, for the year ended March 31, 2004. Our
net income from our loan servicing segment was ¥406 million, or 6.7% of our
consolidated net income, for the year ended March 31, 2004. Through our subsidiary Nissin Servicer, which commenced its operations in
October 2001, we mainly service distressed loans that we purchase from other
financial institutions. We seek to renegotiate the terms of these loans with
the borrowers and carry and service the loans through their maturities. These
loans are normally collateralized or carry personal guarantees. The following
table shows information on the aggregate purchase price and aggregate
collection amount of the purchased loans: Year ended March 31,2002 (1)
    
    2003
    
    2004(in millions)Aggregate purchase price of distressed loans
    
    
    ¥403
    
    
    
    ¥4,854
    
    
    
    ¥4,502Aggregate collection amount of distressed loans
    
    
    33
    
    
    
    2,859
    
    
    
    4,538
   (1)
    
    Commenced operations in October 2001. We are currently contemplating numerous plans to further develop our loan
servicing segment, including a listing of the shares of Nissin Servicer on a
stock exchange. -22-




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##### Table of Contents



Loan Acquisition Channels We have various loan acquisition channels for our integrated financial
service and loan servicing segments. Integrated Financial Services We have sought to improve our operating efficiency by relying less on
costly physical infrastructure. Most of our competitors rapidly spread their
physical presence throughout Japan, particularly in the 1990s, with the
establishment of networks of automated loan machines and proprietary ATMs.
Instead we have shifted our focus to eliminate unnecessary physical
infrastructure, relying on telephone, loan office and Internet interaction with
our customers. More recently, we have diversified our loan acquisition
channels by increasingly using the channels of our affiliates and third
parties, as we as seek new ways to develop our loan provision business while
avoiding deterioration in the credit levels of our customers. To further
diversify our business, we have also recently started a loan guarantee business
whereby we guarantee loans provided to customers of our affiliates and third
parties. The following table shows selected information regarding loans
acquired through the channels below for our loan provision business and our
loan guarantee business: Year ended March 31,2003
    
    2004(in millions)Loan provision channels:Direct channels
    
    ¥
    55,707
    
    
    ¥
    53,068Channels of our affiliates
    
    
    4,682
    (1)
    
    
    5,825Channels of third parties
    
    
    8,876
    
    
    
    9,075
    (1)¥
    69,265
    
    
    ¥
    67,968Channels for loans that we guarantee:Direct channels
    
    ¥
    
    
    
    ¥
    Channels of our affiliates
    
    
    177
    
    
    
    1,318Channels of third parties
    
    
    1,327
    
    
    
    2,301¥
    1,504
    
    
    ¥
    3,619
   (1)
    
    We acquired through Swan Credit Co., Ltd., or Swan Credit, loans in an
amount of ¥306 million for the year ended March 31, 2003 and ¥252 million
for the year ended March 31, 2004. Because Swan Credit was our affiliate
for the year ended March 31, 2003, but not for the year ended March 31,
2004, we have included the amount of ¥306 million under Channels of our
affiliates for the year ended March 31, 2003 and the amount of the ¥252
million under Channels of third parties for the year ended March 31,
2004. Channels for Loan Provision Direct Channels. The following are our principal direct channels, which
have traditionally been and continue to be our most important channels to
acquire loans for our loan provision business:  
    
    Automated Telephone Service. We primarily serve customers
through our automated telephone service, which we call the telephone
cashing system. Loan applications through the telephone currently
comprise a majority of all applications and all loans extended.
After opening an account, customers place a toll-free call and
follow pre-recorded instructions on our computer system to receive
computerized services such as those for balance inquiries and
withdrawal of funds up to their authorized limit. These services
enhance convenience for our customers by eliminating the need, and
for some customers embarrassment, of visiting a loan office or ATM
of a -23-




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consumer finance company. They also greatly reduce the need
and costs of personal service from our staff.
    
    Loan Offices. Our loan offices enable loan applicants and
current borrowers to meet with our employees, who provide a full
range of services, including disbursement of cash, collection of
payments and responses to balance inquiries. Loan offices are
generally located near train stations and city centers in buildings
owned or used by banks and insurance companies. A number of our
loan offices also specialize in small business owner loans and
Business Timely loans in order to target these customers. Over the
last several years, we have generally been increasing the number of
employees at these specialized loan offices, although the number of
employees as of March 31, 2004 at these offices decreased as
compared to that as of March 31, 2003, because we have increased the
number of our employees seconded to affiliates and alliance
partners. The following table shows selected information regarding
our loan offices: As of March 31,2000
    
    2001
    
    2002
    
    2003
    
    2004Total loan offices
    
    
    59
    
    
    
    67
    
    
    
    72
    
    
    
    72
    
    
    
    70Loan offices
dedicated to small
business owner loans
and Business Timely
loans
    
    
    14
    
    
    
    20
    
    
    
    22
    
    
    
    22
    
    
    
    21Full-time employees
    
    
    604
    
    
    
    695
    
    
    
    859
    
    
    
    832
    
    
    
    851Full-time employees
at loan offices
dedicated to small
business owner loans
and Business Timely
loans
    
    
    97
    
    
    
    158
    
    
    
    193
    
    
    
    202
    
    
    
    187
  Since March 31, 2004, we have eliminated 17 offices, following the
sale of most of the outstanding balance of our unguaranteed consumer
loans and related interest receivable to Orient Credit. Channels of Our Affiliates. The following are the principal channels of
our affiliates we use for our loan provision business:  
    
    Webcashing.com. We accept applications for all loans through
our affiliate Webcashing.com Co., Ltd., or Webcashing.com, an online
marketing subsidiary of livedoor Co., Ltd. We have a 38% interest
in Webcashing.com. Most applications through Webcashing.com are for
consumer loans. Although Webcashing.com was formerly our
subsidiary, we exchanged 100% of our ownership of Webcashing.com for
17.7% of the equity of i-cf, Inc. in November 2002. In March 2004,
i-cf, Inc. transferred its interest in Webcashing.com to livedoor
Co., Ltd., from which we subsequently purchased during the same
month a 38% interest in Webcashing.com. Webcashing.com engages in a
loan marketing business for us and three
other finance companies. The amount of loans we acquired through
Webcashing.com was ¥3,528 million for the year ended March 31, 2003
and ¥4,064 million for the year ended March 31, 2004.
    
    Ascot. We have a 25% interest in Ascot Co., Ltd., or Ascot,
an Internet operation controlled by leading consumer finance
specialists Acom and Softbank Finance. Ascot operates a website,
through which consumers can apply for an ascotcardallowing them
access to a variety of loan products. Since May 2001, Ascot has
served as a loan application channel primarily for our Business
Timely loans and, to a limited extent, small business owner loans,
receiving commissions for serving as our agent for the loans. The
amount of loans we acquired through Ascot was ¥731 million for the
year ended March 31, 2003 and ¥920 million for the year ended March
31, 2004. -24-




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##### Table of Contents




    
    Shinsei Business Finance. In November 2002, we established
Shinsei Business Finance Co., Ltd., or Shinsei Business Finance, as
a joint venture with Shinsei Bank, to expand our provision of loans
to small business owners. We own a 25% interest in the joint
venture. The amount of loans we acquired through Shinsei Business
Finance was ¥117 million for the year ended March 31, 2003 and ¥841
million for the year ended March 31, 2004. Channels of Third Parties. We maintain numerous referral relationships
with other consumer finance companies and financial institutions. These
relationships provide an opportunity for these companies to generate fees, in
the form of commissions we pay based on acquired loan balances, in respect of
loans that these companies would otherwise reject because of the indebtedness
level of the applicants. We benefit from these relationships because we
believe our credit assessment expertise gives us an advantage in evaluating the
creditworthiness of such borrowers. We continue to negotiate actively to
expand these channels. Channels for Loans That We Guarantee We currently rely exclusively on the channels of an affiliate and a third
party to provide loan guarantees. Channels of an Affiliate  Shinsei Business Finance. In addition to
acquiring loans through Shinsei Business Finance, we use our credit assessment
and credit management expertise to provide guarantees to the loan customers of
Shinsei Business Finance. Our outstanding guarantees amounted to ¥177 million
as of March 31, 2003 and ¥1,318 million as of March 31, 2004. Channels of Third Parties. Our main third-party channel for provision of
loan guarantees is through Sanyo Club Co., Ltd., or Sanyo Club. Our
outstanding guarantees of loans to customers of Sanyo Club amounted to ¥1,327
million as of March 31, 2003 and ¥2,280 million as of March 31, 2004. Loan Servicing We acquire most of the distressed loans for our loan servicing segment
from the banks that provide various banking services to us in the ordinary
course of our and their business. Loan Disbursements We wire loan funds to accounts designated by borrowers. Unlike many of
our competitors, we do not use proprietary automated loan machines to disburse
loans in order to minimize physical
infrastructure. Until May 31, 2004, we also disbursed loans through ATMs
operated by third parties such as local and regional banks with whom we had
entered into access agreements. These ATMs allowed our customers to withdraw,
but not deposit, their funds in return for a small fee paid by us on each
transaction. On May 31, 2004, we ceased all arrangements to use third-party
ATMs. As a result, we now rely entirely on disbursements to bank accounts
designated by customers. Opening of Loan Accounts Effective screening and approval of loan applicants and guarantors are
critical factors in the success of our business. -25-




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##### Table of Contents



Small Business Owner Loans, Wide Loans, Business Timely Loans and Consumer Loans The application procedure focuses principally on confirmation through an
interview of the identity and credit capacity of the customer and, if relevant,
the guarantor. A new customer or guarantor must first provide proof of
identity, date of birth, address, place of work, length and nature of
employment, family situation, existing borrowings from other lenders and other
details. To establish their credit standing, we check the customer information
and, if relevant, guarantor information against our proprietary database and
also check the customer information against other databases. One such database
is maintained by numerous credit information centers solely for use by consumer
and small business finance companies, sales finance companies and credit sales
companies. These credit information centers for consumer and small business
finance companies record all transactions on a real-time basis, as
participating companies are required to provide customer credit information on
an ongoing basis. Another database with information on delinquent loans is
shared by moneylenders, banks and installment sales finance companies. Small Business Owner Loans, Wide Loans and Business Timely Loans Loan approvals for small business owner loans, Wide loans and Business
Timely loans depend on both telephone and face-to-face interviews. The staff
in the local loan office, a loan office manager and our credit screening
department review the information provided by applicants for small business
owner loans, Wide loans and Business Timely loans. The credit screening
department reviews and makes a decision based on the information relating to
the customer and, if applicable, the guarantor forwarded by the loan office
after it completes its check. The information we examine may include
information about the applicants employer or business, including its
registration and financial information. To determine the creditworthiness of potential borrowers, we examine a
combination of factors including their history of borrowings, employment, and
outstanding loans, particularly those that are secured. For small business owner loans and Wide loans, within two or three days
from a successful initial application, the staff at the local loan office visit
the applicant and the guarantor to execute the loan and guarantee agreements
and to discuss the consequences of the guarantee provision to ensure that both
the applicant and the guarantor know the purpose of the loan and the
obligations they separately incur. We have never used blanket guarantees, a
practice for which some small business lenders have come under widespread
social criticism in recent years. A blanket guarantee holds the guarantors
liable for all current and future loans of the borrower, even those of which
the guarantor is not aware. For Business Timely loans, a credit line is established immediately
following a successful application. We conduct a credit assessment of an
account holder with four credit lines or more every
three months and of an account holder with fewer than four credit lines
every year. We may terminate the account for a number of reasons. Consumer Loans We rely almost entirely on telephone interviews for our unguaranteed
consumer loans. Our computerized credit scoring system weighs and analyzes the
information provided by the applicant and, if the loan is approved, produces a
credit line recommendation through the use of statistical data including the
state of the customers transactions with other loan providers and regional
factors. This automated scoring system sets our consumer loans limits with a
final review by the local loan office manager. -26-




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Each loan office has authority to establish a credit limit of up to
¥500,000 per customer, subject to the credit limit established by our credit
scoring system, although the actual amount initially available may be lower
than the authorized limit until a record of punctual payments is established.
Any questions relating to granting the loan or the appropriate limit are
referred by the loan office to our Credit Screening Department based at our
Tokyo Head Office. We make our credit decision at the end of each telephone
interview, which generally lasts approximately 30 minutes. Following the
decision, the loan amount is remitted to the customers bank account on the
same or following business day. Any history of substantial outstanding borrowings or past defaults, shown
in our database or databases maintained by credit information centers, provides
grounds for rejection. In particular, we do not accept any applicant with five
or more loans outstanding from consumer loan companies, and no applicant who
already holds an account with us may borrow more consumer loans. Unsuccessful
applicants for our consumer loans may apply for our small business owner loans
and Wide loans, which require a guarantor independent of the borrower. Our system can adjust the credit line for any customer who regularly
repays and borrows loans under the same agreement. We conduct a credit
assessment of an account holder with four credit lines or more every three
months and of an account holder with fewer than four credit lines every year.
This credit assessment is conducted based on a credit reference on each
customer from a credit information enter for consumer finance companies. This
credit reference, together with our own data, helps us to maintain the
customers credit level at the most appropriate level. Secured Loans Because we provide loans backed by real estate, currently our principal
secured loan product, primarily to business entities, we tailor our screening
and approval process to the individual circumstances of the entities. Also, the
terms of these loans are heavily negotiated. To determine the creditworthiness
of a potential borrower, we examine a combination of factors including from
publicly available information about the borrower, such as its financial
statements, and the value and quality of the secured real estate. Collection Small Business Owner Loans, Wide Loans, Business Timely Loans and Consumer Loans If a borrower fails to make a timely repayment, the loan office that holds
the loan account has initial responsibility for collection of any overdue
repayment. Overdue balances on all loans accrue interest at a penalty rate of
29.2% per year. We have the right in case of non-payment of a loan installment
or any other specified event of default to accelerate the maturity of the loan.
From the first
day of delinquency, our computer system produces automatic daily reports
on overdue repayment. Loan office personnel attempt to contact by telephone
the customer and, if applicable, the guarantor. Most delinquent customers pay
their overdue balances shortly after this notice. When initial collection
efforts fail, loan office personnel continue their collection efforts, and if
necessary, we transfer the loan collection responsibility to our Legal
Department. Each loan office is in charge of collection efforts for a loan account
until it is deemed to be a bad loan account. A loan account becomes bad when
the borrower has decreased or become bankrupt or a legal proceeding has begun
to recover the loan or in the following cases: -27-




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
    
    In the case of a small business owner loan or Wide loan, when
interest payments are delinquent for 44 days;
    
    In the case of a Business Timely loan, when payments are past due for 7 days; and
    
    In the case of a consumer loan, when interest payments are delinquent for 67 days. We transfer all bad loan accounts to our Investigation Department, which
then takes on the collection responsibility. When we choose to provide an
allowance, the Investigation Department continues to examine the possibility of
collection and compile information with which to determine whether or not to
charge off the debts. See Allowance for Loan Losses, Loan Charge-offs and
Provisions for Loan Losses in Item 5.A of this annual report on Form 20-F for
discussion of the determination of our allowance for loan losses. Secured Loans We have not experienced any delinquent or charged-off real estate loans
provided by our newly established Real Estate Financial Department. As this
real estate loan business is new, we are currently in the stage of devising
collection procedures for these loans. Strategic Investments We invest in enterprises that have the potential to complement our
business strategically whose values are expected to appreciate. Some of these
enterprises are our affiliates, and our total initial investments in these
affiliates had amounted to ¥748 million as of March 31, 2004. The remainder of
these enterprises are small enterprises that we view as potential strategic
partners, rather than sources of potential capital gains, and our total initial
investments in these enterprises had amounted to ¥1,169 million as of March 31,
2004. Most recently, in June 2004, we made an initial investment of ¥1,098
million in Xinhua Finance Limited, of which Xinhua News Agency, Chinas largest
news provider, is a 17% owner, to strengthen our presence in China. Marketing We conduct direct telemarketing through our offices specialized in small
business owner and Business Timely loans, rather than extensive general
marketing campaigns, the typical marketing strategy of the major finance
companies. In our experience, local physical presence is important for
successful marketing to prospective customers of these loan products. While in the past we engaged in more traditional sales promotion
techniques to increase our customer base, such as nationwide broadcast
advertisements on television, advertisements in weekly
magazines, telephone directories and newspapers, circulars in newspapers,
leaflets and board advertisements in subways and trains, we currently use these
traditional sales promotion techniques on a limited basis only. Since the
establishment of Webcashing.com, we have devoted marketing resources to
less-costly online advertisements, primarily to push the Internet presence of
Webcashing.com. In addition to serving as another means of customer acquisition, our
strategic alliances and joint ventures provide new opportunities to tailor our
brand building to different customer segments. For example, through
third-party websites, we promote our offerings next to those of our partners,
such as Business Timely loans beside ascotcards. In addition, we recently
entered into an agency agreement with Shinsei Business Finance pursuant to
which our branch offices market the joint ventures products. -28-




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Technology Branch and Office Network The application and e-mail servers in our branches and offices are
connected through fiber optic networks. We outsource our maintenance and
operation work on the networks to an NEC affiliate. Customer Information An outsourcing center in Matsuyama houses our main computer, which stores
all customer information. Our main computer stores information for
approximately 2 million customers and can store information for up to
approximately 3 million customers. At the end of each business day, we send
the accumulated transaction data from our database servers in our branches and
offices to our main computer. We outsource our maintenance and operation work
on the main computer to another NEC affiliate. Although we have back-up
systems for our data, we do not maintain a back-up system that can replace our
main computer in the event our main computer becomes inoperative. Loan Disbursements Our customers must direct funds to accounts maintained by banks or
financial institutions of their choice through Sanyo Electric Credit, which
provides wire transfer service. Until May 31, 2004, when we terminated all
arrangements to use ATMs, customers also had the option of receiving loan
disbursements through ATMs, for which we used Credit and Finance Information
System, or CAFIS, developed by NTT. Competition Consumer Finance Industry Japans consumer finance industry is becoming increasingly competitive.
In the past, the countrys financial system was more strictly regulated. In
recent years, however, the Financial Services Agency, or FSA, and other
government bodies have taken steps to deregulate the financial system and allow
increased competition. For instance, the barriers that once prevented banks
from entering the consumer finance industry, including provisions of the
Banking Law of Japan and other related legislation and guidelines, have been
gradually reduced in recent years. While banks themselves continue to lack
access to a database on credit information available to consumer finance
companies and credit card companies, they may now own consumer finance
subsidiaries that can access the database, an invaluable resource for success
in the industry. As a result, we expect to face additional competition not
only from existing competitors but also from banks and new market entrants in the
future. Our current and potential competitors include:  
    
    foreign financial institutions, a number of which have been
entering the Japanese consumer finance industry, such as GE Capital
through its acquisition of Lake;
    
    large Japanese consumer finance companies, including
Takefuji, Acom, Promise, and Aiful, which continue to seek greater
market shares of the consumer finance market through extensive
marketing, and medium-sized consumer finance companies, such as
Shinki and Credia; -29-




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
    
    Japanese banks and other financial institutions expanding out
of their traditional markets, particularly by forming joint ventures
and alliances with consumer finance companies, including Sumitomo
Mitsui Banking Corporation through its establishment of At-Loan and
an alliance and shareholding agreement with Promise, UFJ Bank
through its establishment of Mobit, The Bank of Tokyo Mitsubishi
through Tokyo-Mitsubishi Cash One and an alliance and shareholding
agreement with Acom, and The Sumitomo Trust and Banking Co. through
Businext Corporation;
    
    credit card companies, particularly overseas companies such
as MasterCard, which have formed distribution relationships with
Acom and Aic and increasingly offer credit cards in Japan as
revolving loans, rather than simply to finance consumption by
individuals; and
    
    non-financial institutions, an increasing number of which are
entering the consumer finance industry through acquisitions,
including Hankyu Corporation, a railway company, that provides
consumer credit services through Station Finance. We compete in our market on the basis of interest rates, speed and
effectiveness of credit assessment and credit risk management, product mix,
ability to identify and maintain relationships with strategic partners for
customer referrals, brand recognition, location and network of offices and
marketing. Loan Servicing Industry We compete in the Japanese loan servicing industry through our subsidiary
Nissin Servicer. The industry has grown rapidly in the last few years due to
the accelerated disposal of nonperforming loans by Japanese financial
institutions. As a result of recent measures of the Japanese government to
combat nonperforming loans, major banks are expected to further accelerate
disposition of their nonperforming loans. However, the competition is also
intensifying as the number of entrants into the industry grows rapidly, with
the effect that the purchase prices of distressed loan have begun to rise.
According to the Ministry of Justice, as of March 31, 2004, 87 companies were
registered as licensed servicing companies, of which we believe eight are
affiliated with consumer finance companies. Our current and potential
competitors include the Japanese financial institutions that have obtained or
may obtain a license to operate in the loan servicing market. We compete in
this market on the basis of ability of identify loan servicing opportunities,
the purchase price we offer, loan servicing capability, effectiveness of credit
assessment and credit risk management and brand recognition. Regulation The Moneylending Business Restriction Law, Contribution Law and Interest Rate Restriction Law We are subject to an extensive regulatory scheme under Japanese law,
including:  
    
    the Law Concerning the Regulation, Etc. of the Money Lending
Business, together with a cabinet order and a ministerial ordinance,
collectively referred to as the Moneylending Business Restriction
Law;
    
    the Law for Control of Acceptance of Contributions, Money
Deposits and Interest, Etc., more commonly known as the
Contributions Law; and
    
    the Interest Rate Restriction Law. -30-




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The Financial Services Agency of Japan, or the FSA, has also released
administrative guidelines to clarify the administrative application of the
Moneylending Business Restriction Law. Registration Requirements Under the Moneylending Business Restriction Law, any company wishing to
engage in moneylending is required to register with the chief officer of the
FSA if it lends through offices in more than one prefecture. The registration
is renewed every three years. The FSA must reject a registration or renewal
application if it contains any untrue statement or omission of a material fact
or the applicant is disqualified under the Moneylending Business Restriction
Law. A disqualified person includes:  
    
    any person who has had its registration revoked because of
specified misconduct or other reasons under the Moneylending
Business Restriction Law within five years prior to the application,
    
    any person who was fined for violating the Moneylending
Business Restriction Law or other specified statues and five years
have not passed since the person completed the payment of the fine
(or became excused from paying it),
    
    any person who was sentenced to imprisonment for any reason
and five years have not yet passed since person completed the term
of imprisonment (or became excused from serving it),
    
    any person in respect of which any of the directors,
statutory auditors or specified senior employees is a disqualified
person,
    
    any person who is a member of a crime syndicate, and
    
    any person who does not meet the minimum net asset
requirement of ¥3 million, in the case of an individual, or ¥5
million, in the case of a corporation. We registered under the Moneylending Business Restriction Law in 1984, and
have since renewed our registration periodically as required. Our registration
permits us to engage in the moneylending business in all prefectures in which
we presently conduct the business. Government Supervision The FSA has general authority to supervise and discipline registered
moneylenders under the Moneylending Business Restriction Law. A registered
moneylender with an outstanding loan balance of more than ¥50 billion at the
end of its fiscal year is required to submit an operational report to the FSA
concerning its operations during the fiscal year, including information on
officers, employees, loan offices, sources of funding and status of loans,
together with its financial statements for the fiscal year, within two months
of the end of such fiscal year. The FSA may request that a registered
moneylender make further reports under the Moneylending Business Restriction
Law. A representative of the FSA may also enter a registered moneylenders
offices, inspect its books, documents and other materials or interview its
officers, employees and other related persons as may be necessary to protect
the interest of its customers. The FSA may suspend all or part of a registered
moneylenders business for up to one year under specified circumstances,
including violation of the Moneylending Business Restriction Law. The FSA must
revoke the registration of a registered moneylender under specified
circumstances, including when it becomes a disqualified person for the purpose
of registration or renewal or when it is in significant violation of the
Moneylending Business Restriction Law. -31-




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Restrictions on Usury The Contributions Law and the Interest Rate Restriction Law primarily
regulate the interest rates we charge. Under the Contributions Law, no person in the moneylending business may
charge interest at a rate exceeding 29.2% per year. Charging or receiving
interest at a rate exceeding 29.2% per year is subject to criminal penalty.
The violation of the maximum interest rate is subject to a criminal sanction of
imprisonment of 5 years or less and/or penalty of ¥10 million or less, in the
case of an individual, and ¥30 million or less, in the case of a corporation.
Pursuant to the proposed amendments to the Contributions Law currently being
discussed at the Japanese Diet, the Japanese government is expected to review
the maximum interest rate legally chargeable around year 2006, in consideration
of funding circumstances, economic and financial conditions and business
practices of moneylenders. The Moneylending Business Restriction Law provides that a loan agreement
with an interest rate exceeding 109.5% per year is invalid. The Interest Rate Restriction Law provides that a loan with an interest
rate exceeding a prescribed rate is invalid with respect to the portion
exceeding the maximum rate. Prescribed rates are:  
    
    20% per year for loans of less than ¥100,000,
    
    18% per year for loans of ¥100,000 or more but less than ¥1,000,000, and
    
    15% per year for loans of ¥1,000,000 or more. The Moneylending Business Restriction Law provides, however, that a
payment by a borrower or guarantor of interest in excess of the rate prescribed
by the Interest Rate Restriction Law to a registered moneylender is valid and
non-refundable so long as the excess interest is paid without coercion, mistake
or threat and additional requirements are satisfied. These additional requirements include:  
    
    delivery to the borrower or the guarantor, as the case may
be, upon execution of the relevant loan or guarantee agreement, of a
prescribed written instrument setting forth the principal terms of
the loan or the guarantee, and
    
    delivery to the borrower or guarantor, upon the payment of
the excess interest, of a written receipt for the payment, unless
the payment is transferred to the bank account of the moneylender,
in which case a written receipt is required upon the borrowers
request. In addition, the FSA guidelines require us to provide the borrower with
written notice of the terms of any loans extended under a loan agreement at the
time of each disbursement, if multiple loans may be provided under the same
loan agreement. As is typical for most other lenders in the Japanese consumer finance and
business finance industries, the interest rates of most of our current loans
exceed the relevant maximum rates permitted under the Interest Rate Restriction
Law. Consequently, collection of unpaid excess interest is legally
unenforceable by lenders. These rates, however, are below the levels that
would subject us to criminal penalty under -32-




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the Contributions Law. When paid by
the borrower, the excess interest portion of loans subject to such rates is
non-refundable so long as we have met the requirements stated above. Previously virtually no borrowers refused to pay interest in excess of the
Interest Rate Restriction Law. More recently, the number of borrowers who
refuse to pay or request refunds, though still very small, has increased,
largely due to increases in the number of individuals in Japan experiencing
financial difficulties as a result of ongoing economic difficulties in Japan.
When a borrower exercises its legal right to refuse to pay interest in excess
of the Interest Rate Restriction Law, the entire unpaid balance of the loan,
and any unpaid interest excluding the unpaid excess interest, becomes
immediately due and payable in accordance with the terms of our contractual
loan agreements. Borrowers who fail to repay the unpaid balance of the loan,
including any unpaid interest due, excluding the unpaid excess interest
portion, are subject to the general collection procedures applicable to all
borrowers discussed in Business  Collection. We do not extend additional
credit to borrowers who have refused to make interest rate payments. On
occasion, we negotiate refunds of previously paid excess interest in certain
situations primarily involving threatened customer bankruptcy or threatened
litigation. For the year ended March 31, 2004, we agreed to return the excess
interest payments totaling approximately ¥134 million with respect to 425
borrowers, compared with return of excess interest payments totaling
approximately ¥72 million with respect to 244 borrowers for the year ended
March 31, 2003 and return of excess interest payments totaling approximately
¥28 million with respect to 107 borrowers for the year ended March 31, 2002.
The effect of the returned payments has been immaterial to our results of
operations. The Interest Rate Restriction Law also applies to discounted loans. A
discounted loan results when an interest amount is deemed to have been deducted
in advance because the stated value of the loan exceeds the actual cash
disbursement in respect of the loan. This deemed interest amount is subject to
the general restrictions on interest under the Interest Rate Restriction Law.
We do not make any discounted loans. Servicer Law With the purpose of protecting borrowers from unfair collection practices,
the Practicing Attorney Law (the Attorney Law) stipulates that no person
other than a qualified attorney can engage in providing legal services or
acquiring claims in order to enforce them against debtors. In February 1999,
the Law Concerning Debt Servicing Business by Servicing Companies (the
Servicer Law) was enforced in order to facilitate third-party debt servicing
for performing and nonperforming loans of financial institutions and to deal
effectively with the sale, liquidation, and servicing of their bad loans. The Servicer Law requires a minimum capital of ¥500 million for a company
to be licensed by the Minister of Justice to conduct third-party servicing. In
addition, to make this law consistent with the provisions of the Attorney Law,
at least one attorney must be appointed as a director of a licensed debt
servicing company. The Servicer Law, as amended in September 2001, covers a range of
financial assets specified in the law, including:  
    
    loan receivables held by financial institutions (including
banks, insurance companies and finance companies licensed under the
Moneylending Business Restriction Law and other miscellaneous
financial entities), specified claims (tokutei saiken) under the
Securitization Law, and other claims as set out by cabinet orders;
and -33-




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
    
    loan receivables under bankruptcy or rehabilitation
proceedings and loan receivables which are securitized through
special purpose vehicles. A licensed servicer is entitled to manage and collect receivables in
relation to the above claims on behalf of its clients or its own account. A
servicer is also able to engage in real estate transactions in connection with
secured loans. According to the Ministry of Justice, as of March 31, 2004,
there were 87 licensed servicing companies in Japan. The Law Concerning Protection of Personal Information On May 30, 2003, the Japanese government promulgated the Law Concerning
Protection of Personal Information (the Personal Information Protection Law).
The Law clarifies the legal duty of a business to protect personal information
by setting out basic principles for a proper treatment of such information.
The Personal Information Protection Law applies to:  
    
    information concerning individuals and does not extend to
corporations, and
    
    the national government, local public organizations and
certain private businesses that are considered to be personal
information handling enterprises. The language of the Personal Information Protection Law contains very
general terms. Regulations will be issued to clarify how the Personal
Information Protection Law will be implemented. It is also likely that
industry associations will establish guidelines for their member organizations,
detailing how such organizations must comply with the Personal Information
Protection Law. The provisions of the law will become effective beginning
April 1, 2005. Personal information, as defined by the Personal Information Protection
Law, is any information that distinguishes a living individual from another
living individual. This includes a persons name, address, birth date,
birthplace, phone number, financial history, employment history, academic
history and occupation. The Personal Information Protection Law applies to
personal information-handling enterprises, or data controllers, defined as
persons that use databases that contain the personal information of 5,000 or
more people. A personal information database is defined as a collection of
information, which is systematically arranged to conduct searches. The Personal Information Protection Law provides the following general
restrictions on the use of personal information:  
    
    the purpose of the use of information must be specified as much as possible;
    
    personal information may not be obtained through fraud or by other illegal means;
    
    upon acquiring the personal information, the use of
information must be notified to the relevant individual or
published;
    
    personal collected should be relevant to the purposes for
which it is to be used and, to the extent necessary for those
purposes, should be accurate and kept up to date;
    
    to prevent loss, unauthorized access, destruction, use,
modification or disclosure of personal information, security
safeguards must be implemented; -34-




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
    
    personal data may not be disclosed or made available to third
parties without the prior consent of the individual to whom the
personal information relates; and
    
    the name and title of the data controller and the purpose of
use of all personal data must be made available to the individual to
whom the personal information relates. Data controllers must deal adequately and promptly with complaints
regarding their use of personal information. For example, a data controller
must appoint a person who is responsible for customer information, and
establish complaint hotlines. If data collectors violate their duty by
disregarding the competent ministers orders, they may be subject to
imprisonment not exceeding six months, or a fine not exceeding ¥300,000. Properties Our head office in Tokyo, Japan occupies 1,847.57 square meters of office
space, and our head office in Matsuyama, Ehime, occupies 1,986.38 square meters
of office space on 642.78 square meters of land. We lease the Tokyo Head
Office space and own the Matsuyama Head Office space. We lease most of our 70
loan offices, located throughout Japan. More than half of our loan offices
operate in the metropolitan regions surrounding Tokyo and Osaka. Legal Proceedings We are not a party to any material legal proceedings. C. Organizational Structure. The table below shows our principal subsidiaries, all of which were
incorporated under the laws of Japan: Shares held by us,directly orName
    
    indirectly
    
    Principal businessNissin Servicer Co., Ltd.
    
    
    89.8
    %
    
    Loan servicing businessNIS Lease
Co., Ltd. (1)(2)
    
    
    100.0
    
    
    Leasing businessNIS
Property Co., Ltd. (2)
    
    
    100.0
    
    
    Real estate-related businessMatsuyama Nissin
Investment Consulting (Shanghai) Co., Ltd. (3)
    
    
    100.0
    
    
    Consulting business
   (1)
    
    Established on November 10, 2003.(2)
    
    Prior to June 22, 2004, NIS Property Co., Ltd., was named Nissin
Credit Guarantee Co., Ltd. and its principal business was providing credit
guarantees. On June 15, 2004, Nissin Guarantee Co., Ltd. transferred its
credit guarantee business operations to NIS Lease Co., Ltd.(3)
    
    Established on July 9, 2004. D. Property, Plants and Equipment. The information required by this item is in Item 4.B of this annual report on Form 20-F. -35-




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Item 5. Operating and Financial Review and Prospects. A. Operating Results. You should read the following discussion and analysis of our financial
condition and results of operations together with Item 3.A of this annual
report onForm 20-Fand our audited U.S. GAAP financial statements, including
the notes to these statements, appearing beginning on page F-1 of this annual
report onForm 20-F. This discussion and analysis is based on U.S. GAAP
financial information except as noted otherwise. This discussion and analysis
contains forward-looking statements that involve risks, uncertainties and
assumptions. Our actual results may differ materially from those anticipated
in these forward-looking statements as a result of factors including but not
limited to those in Item 3.D of this annual report onForm 20-F. Overview We are primarily engaged in the business of providing small unsecured
loans to individuals in Japan, including consumers and small business owners.
Most of our income comes from interest income on loans receivable from this
business, which comprises our integrated financial services segment. We also
acquire and service non-performing debts from banks and other financial
institutions in Japan as part of our loan servicing segment. Our net interest income after provision for loan losses was ¥22,659
million for the year ended March 31, 2002, ¥22,562 million for the year ended
March 31, 2003 and ¥22,922 million for the year ended March 31, 2004. Over the
last three years, the growth of our loan servicing business and decline in our
interest expense counterbalanced the slowdown in the growth of our loan
portfolio and increase in our provision for loan losses, as a result of which
our net interest income after provision for loan losses has remained largely
stagnant. Our net income was ¥4,801 million for the year ended March 31, 2002,
¥5,176 million for the year ended March 31, 2003 and ¥6,077 million for the
year ended March 31, 2004. Our net income has increased steadily, despite the
recent stagnant trend in our net interest income after provision for loan
losses, as a result of our efforts to contain the growth of our non-interest
expenses. Integrated Financial Services We categorize our loans in our integrated financial services into the
following four primary categories:  
    
    Small Business Owner Loans. Small business owner loans are
primarily unsecured loans to self-employed individuals guaranteed by
one or more guarantors. In recent years, the amount of total small
business owner loans outstanding and number of customer accounts
have increased, primarily as a result of our active promotion of
these loans through the direct telemarketing efforts of our offices
specializing in small business owner loans and Business Timely
loans, as well as through referrals from our strategic alliance
partners. As a result, the percentage of interest income derived
from small business owner loans has been increasing.
    
    Wide Loans. Wide loans are unsecured loans used to
consolidate individual debts and guaranteed by one or more
guarantors. In recent years, the amount of total Wide loans
outstanding and, other than for the year ended March 31, 2004,
interest income from Wide loans have increased, primarily as a
result of increases in the number of customer accounts, other than
for the year ended March 31, 2004, and our marketing of these loans
to the customers of our referral partners. The percentages of our
loans outstanding and interest -36-




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income derived from Wide loans have
slightly declined over the last three years.
    
    Business Timely Loans. Business Timely loans are
unguaranteed, unsecured loans to individual small business owners
pursuant to revolving lines of credit. In recent years, Business
Timely loans have continued to grow, reflecting increases in the
number of customer accounts due to active direct telemarketing
efforts since the introduction of this loan product in March 2000,
and the percentage of interest income derived from Business Timely
loans has been increasing.
    
    Consumer Loans. Consumer loans are unguaranteed, unsecured
loans to individuals. As a result of a strategic shift over the
last several years toward promotion of our small business owner
loans, Wide loans and Business Timely loans, the number of consumer
loan accounts and our total consumer loans outstanding have
gradually declined, and the percentage of interest income derived
from consumer loans has been decreasing. In line with this
strategic shift, pursuant to an agreement between us and Orient
Credit, on June 1, 2004, we sold most of the outstanding balance of
our consumer loans and related interest receivable to Orient Credit
at a price of ¥32,943 million. See  Factors Affecting Our
Financial Results  Disposition of Consumer Loans below for a
further discussion. In addition, while traditionally insignificant relative to the rest of our
operations, our provision of secured and other loans grew this past fiscal year
as a result of our new efforts to provide loans secured by real estate. The following table provides information on the average balance of loans
outstanding for each of the years indicated for each of our main product
categories and the percentage of total average loans outstanding represented by
each loan category: Year ended March 31,2002
    
    2003
    
    2004(in millions except percentages)Small business owner loans
    
    ¥
    32,195
    
    
    
    22.5
    %
    
    ¥
    45,311
    
    
    
    26.9
    %
    
    ¥
    55,647
    
    
    
    31.6
    %Wide loans
    
    
    50,940
    
    
    
    35.7
    
    
    
    59,743
    
    
    
    35.4
    
    
    
    61,592
    
    
    
    34.9Business Timely loans
    
    
    12,238
    
    
    
    8.6
    
    
    
    17,256
    
    
    
    10.2
    
    
    
    17,909
    
    
    
    10.2Consumer loans
    
    
    45,784
    
    
    
    32.1
    
    
    
    45,093
    
    
    
    26.7
    
    
    
    38,600
    
    
    
    21.9Secured and other loans
    
    
    1,613
    
    
    
    1.1
    
    
    
    1,265
    
    
    
    0.8
    
    
    
    2,496
    
    
    
    1.4Total average balance of loans outstanding
    
    ¥
    142,770
    
    
    
    100.0
    %
    
    ¥
    168,668
    
    
    
    100.0
    %
    
    ¥
    176,244
    
    
    
    100.0
    %
 The following table shows the interest income from loans and the
percentage of our total interest income from loans derived from each major
category of loans for the years ended March 31, 2002, 2003 and 2004: -37-




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Year ended March 31,2002
    
    2003
    
    2004(in millions except percentages)Small business owner loans
    
    ¥
    7,119
    
    
    
    21.0
    %
    
    ¥
    9,719
    
    
    
    25.2
    %
    
    ¥
    11,378
    
    
    
    29.9
    %Wide loans
    
    
    11,740
    
    
    
    34.6
    
    
    
    13,150
    
    
    
    34.2
    
    
    
    12,829
    
    
    
    33.7Business Timely loans
    
    
    3,232
    
    
    
    9.6
    
    
    
    4,515
    
    
    
    11.7
    
    
    
    4,590
    
    
    
    12.1Consumer loans
    
    
    12,188
    
    
    
    35.9
    
    
    
    11,677
    
    
    
    30.3
    
    
    
    9,750
    
    
    
    25.7Secured and other loans
    
    
    285
    
    
    
    0.8
    
    
    
    205
    
    
    
    0.5
    
    
    
    240
    
    
    
    0.6Total interest revenue from loans receivable
    
    
    34,564
    
    
    
    101.9
    
    
    
    39,266
    
    
    
    101.9
    
    
    
    38,787
    
    
    
    102.0Less amortization of loan origination costs
    
    
    (633
    )
    
    
    (1.9
    )
    
    
    (747
    )
    
    
    (1.9
    )
    
    
    (751
    )
    
    
    (2.0
    )Interest income from loans receivable
    
    ¥
    33,931
    
    
    
    100.0
    %
    
    ¥
    38,519
    
    
    
    100.0
    %
    
    ¥
    38,036
    
    
    
    100.0
    %
 Loan Servicing Through our subsidiary Nissin Servicer, which commenced its operations in
October 2001, we mainly service distressed loans that we purchase from
third-party financial institutions. The table below shows the aggregate
purchase price and aggregate collection amount of distressed loans for each of
the years indicated: Year ended March 31,2002 (1)
    
    2003
    
    2004(in millions)Aggregate purchase price of distressed loans
    
    
    ¥403
    
    
    
    ¥4,854
    
    
    
    ¥4,502Aggregate collection amount of distressed
loans
    
    
    33
    
    
    
    2,859
    
    
    
    4,538
    We expect that the relative importance of this operating segment will
continue to increase in the short to medium term. Factors Affecting Our Financial Results The principal determinants of our profitability have been our net interest
income, the levels of provisions for loan losses and the amount of non-interest
expenses that we incur. Net Interest Income Integrated Financial Services Our net interest income from our integrated financial services is our
interest income minus our interest expense from loans receivable. The
principal determinants of our total interest income are our loan portfolio
size, which is a product of the number of our customer loans accounts and the
average outstanding balance per account, and the average interest rate we
charge on our loans. Our interest expense reflects the funding cost to us of
making loans to our customers. The difference between the interest rates we
charge our customers and the interest rates we pay to finance our loans to
customers largely determines our margins and profitability. Because the
average interest rate per account and average outstanding balance per account
vary by loan product, changes in the relative composition of loan products in
our total portfolio also affect net interest income. Loan Portfolio Size.Our loan portfolio grew steadily in recent years
until the year ended March 31, 2004, during which we slowed the growth by
applying stricter screening standards to loan applications in response to
recent increases in defaults. Growth in our loan portfolio has been driven
principally by growth in the number of customers for our small business owner
loans, Business Timely loans and, other than for -38-




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the year ended March 31, 2004,
Wide loans, while the number of customers for our consumer loans has declined.
Over the recent years, balances per account for our small business owner loans
and consumer loans have generally increased, although balances per account for
our Business Timely loans have decreased and balances per account for our Wide
loans have fluctuated. For additional information on account numbers and
balances per account, see Our Products in Item 4.B of this annual report on
Form 20-F. We believe that the number of customers and our portfolio size for
our small business owner loans, Wide loans and Business Timely loans will
increase as a result of expanded customer acquisition channels for our loans,
including our expanded network of loan offices and our referral arrangements
with other financial service providers, and the overall demand for personal
financing in Japan. However, we expect the number of customers and portfolio
size for our consumer loans will decrease dramatically beginning in the year
ending March 31, 2005, as a result of our recent sale of most of the
outstanding balance of our consumer loans to a third party. See  Disposition
of Consumer Loans below. While the total loan portfolio size will decrease
for the year ending March 31, 2005 as a result of this one-time disposition, we
believe that our loan portfolio will resume growth over the medium to long term
reflecting the continuing growth in our portfolio of small business owner
loans, Wide loans and Business Timely loans. Interest Rates.We determine the interest rates we charge on our loans
based on factors including competition from other lenders, legal restrictions
on interest rates as discussed under Regulation  The Moneylending Business
Restriction Law, Contribution Law and Interest Rate Restriction Law in Item
4.B of this annual report on Form 20-F and the willingness of our customers to
borrow at the interest rates we charge. The weighted period-end average
contractual interest rate on our outstanding loans has been decreasing
gradually, from 26.3% for the year ended March 31, 2001, to 25.9% for the year
ended March 31, 2002, to 25.3% for the year ended March 31, 2003 and to 24.0%
for the year ended March 31, 2004. The weighted period-end average is
determined by calculating the average interest rate for each of our loan
products on the period-end date, weighting these rates by the proportion of
total loans outstanding represented by the loan category on this date, and
averaging these weighted interest rates. The gradual decrease mainly reflects
interest rate-based competition in the consumer finance industry as well as the
growth of our small business owner loans and Wide loans, which carry lower
interest rates than our consumer loans. We lowered the contractual interest
rate on each of our major loan products by 0.73% for the year ended March 31,
2002, but did not reduce the rate further for the year ended March 31, 2003 and
2004. In addition to the above factors, our recent sale of most of the
outstanding balance of our consumer loans will contribute to a further decrease in the weighted
period-end average contractual interest rate on our outstanding loans for the
near term. Interest Expense.Our interest expense fluctuates with changes in market
interest rates, market conditions, the mix of our funding sources, the amount
of our borrowings and our credit ratings.  
    
    Market Interest Rates and Market Conditions. In recent
periods, we have benefited from the extremely low interest rate
environment in Japan created by government policies intended to
combat ongoing economic weakness. The weighted period-end average
rate of long-term borrowings was 2.7% as of March 31, 2002, 2.4% as
of March 31, 2003 and 2.3% as of March 31, 2004. The weighted
period-end average rate of short-term borrowings was 2.2% as of
March 31, 2002, 1.7% as of March 31, 2003 and 1.3% as of March 31,
2004.
    
    Mix of Our Funding Sources and Credit Ratings. Beginning in
the year ended March 31, 2000, when legal restrictions on debt
issuances to fund our lending business were eliminated, we have
increased our borrowings through debt issuances relative to bank
loans, which had previously accounted for substantially all of our
borrowings. To the extent that debt issuances have been available
to us, we have benefited from their typically lower funding costs
than those of bank loans. At March 31, 2000, debt issuances
represented -39-




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approximately 13.9% of our total borrowings. This
percentage was 33.0% at March 31, 2001, 38.1% at March 31, 2002,
30.8% at March 31, 2003 and 32.0% at March 31, 2004. The
percentages as of March 31, 2003 and 2004 reflect our asset backed
commercial paper, which we began issuing in October 2002. The
significant decline in the amount of debt issuances as a percentage
of our total borrowings between March 31, 2002 and 2003 is
principally attributable to the increased difficulty we experienced
in seeking funding from the debt markets following the recent
downgrades of the credit ratings of consumer finance companies,
including us, by rating agencies. Nonetheless, the effect of the
smaller percentages of our debt issuances in recent years as
compared to that of March 31, 2002 has been partly offset by the
gradual decline in the interest rates that banks charge us in recent
years. While the downgrades have harmed our ability to tap the debt
markets, our current intention, subject to market conditions and
other uncertainties, is to increase our proportion of direct
financing to around 40%.
    
    Amount of Our Borrowings. To the extent that the size of our
loan portfolio grows, we rely primarily on borrowings to finance the
growth of the portfolio. We expect the amount of borrowings to
decrease in the near term, because the capital requirement for our
loan provision business will be reduced for the near term as a
result of the recent sale of most of the outstanding balance of our
consumer loans, as discussed in  Disposition of Consumer Loans
below. Loan Servicing Our net interest income from loan servicing is our interest income minus
our interest expense from purchased loans. The factors that affect our
interest expense in our loan servicing segment are largely identical to those
affecting our integrated financial service segment. However, the principal
determinants of our total interest income differ significantly from those
affecting our integrated financial service segment. The principal determinants
of interest income from loan servicing are the amount of purchased loans in our
portfolio, our ability to service distressed loans, including through
negotiation with the borrowers and restructuring of the loan terms, and the
prices at which we purchase the distressed loans. Because we generally do not
recognize interest income on a distressed loan until we fully recover
the purchase cost, our recognition of interest income may be significantly
delayed compared to the recognition of interest income for our integrated
financial services. See  Critical Accounting Policies  Purchased Loans
Receivable and Revenue Recognition. Also, due to increasing competition in
this market, which has created an upward pressure on the purchase prices for
the distressed loans, we expect our interest income from purchased loans as a
percentage of the amount of our purchased loans to decrease over the long term. Provisions for Loan Losses Our provisions for loan losses are allocations made each period to our
existing allowance for loan losses. Our allowances for possible loan losses
are based upon our estimates of probable uncollectable loan losses from known
and inherent risks in our loan portfolio. We determine these allowances based
upon various factors including the status and risk profile of the borrower and,
if applicable, guarantor, economic conditions, unemployment rates, bankruptcy
cases and our historical loss experience. Increases to our allowance are made
by charges to our provision for loan losses. Recoveries of previously
charged-off amounts are deducted from our provision for loan losses for the
year in which the recoveries occur. Based upon our estimated allowance needs,
we then supplement the remaining balance through provisions for loan losses.
Our provisions for loan losses have been increasing in recent periods. These
increases generally reflect growth in the amount of our total loans -40-




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##### Table of Contents



outstanding
and the amount of charge-offs as a result of increases in the number of
defaults, reflecting the difficult economic environment in Japan. Also, our
provision for loan losses in any given fiscal year depends partly on the
adequacy of our allowance for loan losses for the previous fiscal year, as we
must make up for any such inadequacy, if any, with increased provision for loan
losses in the following fiscal year. To the extent that the provision for loan
losses have been increasing due to current economic conditions in Japan, it
signifies the increasing risk that our loan portfolio carries. Additional
detail on provisions for loan losses for our various loan products is included
below under Allowance for Loan Losses, Charge-offs and Provisions for Loan
Losses. Non-interest Expense The most significant components of our non-interest expense are salaries
and employee benefits, occupancy, furniture and equipment, and other general
and administrative expenses.  
    
    Salaries and Employee Benefits. Our salaries and employee
benefits depend on the number of our employees and the compensation
and benefits we provide to each employee. The number of employees
decreased from 859 at March 31, 2002 to 832 at March 31, 2003, but
increased to 851 at March 31, 2004. Also, as of April 1, 2002, we
increased the amount of cash compensation to each employee to make
up for the reduction in the rent subsidy we provide to the employees
who live in the housing units we lease. To the extent that our
operational scale increases over the medium to long term, we expect
our salaries and employee benefits to continue to increase in the
medium to long term. In the short term, however, as a result of the
significant reduction in the scale of our consumer loan business due
to our recent sale of most of the outstanding balance of our
consumer loans and related interest receivable to Orient Credit, we
expect our salaries and employee benefits to remain stable.
    
    Occupancy, Furniture and Equipment. Our expense in
connection with our occupancy, furniture and equipment depends
largely on the number of our loan and other offices and branches and
the associated rents. The number of loan offices was 72 at March
31, 2002 and remained at 72 at March 31, 2003 and decreased to 70 at
March 31, 2004. We expect office
rents to decline significantly in the short term, as we have
eliminated 17 offices since March 31, 2004 following the sale of most
of the outstanding balance of our consumer loans and related interest
receivable to Orient Credit.
    
    Other General and Administrative Expenses. The major items
in our other general and administrative expense include
communication expenses, taxes and duties, travel and transportation
expenses and recruiting expenses. As we continue to make efforts to
reduce operational inefficiencies, we expect our other general and
administrative expenses as a percentage of our non-interest expense
to decrease. Non-interest expense also includes advertising expenses, losses on sale
and impairment of long-lived assets, minority interests and other expenses. We
recognized an impairment of investment in affiliates for the year ended March
31, 2003, but not for the year ended March 31, 2004. Our advertising expenses
declined for each of the past three fiscal years in line with the increasing
importance of referrals. We plan to continue to decrease our advertising
expenses. -41-




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Disposition of Consumer Loans In June 2004, we sold most of the outstanding balance of our unguaranteed
consumer loans and related interest receivable to Orient Credit for ¥32,943
million. We expect that this will decrease our interest income by ¥6,744
million and our net interest income after provision for loan losses by ¥3,741
million for the year ending March 31, 2005, as compared to what our results
would be without the sale. However, our net income is expected to increase by
¥80 million for the year ending March 31, 2005, as compared to what our net
income would be without the sale because we expect the reduction of expenses
associated with our consumer loan business, such as loan loss-related expenses
and non-interest expenses, to largely offset the decline in our interest
income. In addition, for the year ending March 31, 2005, we will recognize a
one-time non-interest income item as a result of the sale. Following the sale,
we will continue to offer consumer loans to prospective customers, particularly
those who are referred to us by our alliance partners, but we expect that our
consumer loan business will operate at a substantially reduced scale for the
foreseeable future. Results of Operations Consolidated Information The following table shows selected income statement data in yen amounts
and as percentages of total interest income for the years ended March 31, 2002,
2003 and 2004: Year ended March 31,2002
    
    2003
    
    2004(in millions except percentages)Total interest income
    
    
    ¥33,976
    
    
    
    100.0
    %
    
    
    ¥39,234
    
    
    
    100.0
    %
    
    
    ¥40,107
    
    
    
    100.0
    %Total interest expense
    
    
    3,884
    
    
    
    11.4
    
    
    
    3,984
    
    
    
    10.2
    
    
    
    3,724
    
    
    
    9.3Net interest income
    
    
    30,092
    
    
    
    88.6
    
    
    
    35,250
    
    
    
    89.8
    
    
    
    36,383
    
    
    
    90.7Provision for loan losses
    
    
    7,433
    
    
    
    21.9
    
    
    
    12,688
    
    
    
    32.3
    
    
    
    13,461
    
    
    
    33.6Net interest income after provision for
loan losses
    
    
    22,659
    
    
    
    66.7
    
    
    
    22,562
    
    
    
    57.5
    
    
    
    22,922
    
    
    
    57.1Total non-interest income (loss)
    
    
    (428
    )
    
    
    (1.3
    )
    
    
    846
    
    
    
    2.2
    
    
    
    838
    
    
    
    2.1Non-interest expense:Salaries and employee benefits
    
    
    5,067
    
    
    
    14.9
    
    
    
    6,233
    
    
    
    15.9
    
    
    
    6,735
    
    
    
    16.8Occupancy, furniture and equipment
    
    
    2,201
    
    
    
    6.5
    
    
    
    2,190
    
    
    
    5.6
    
    
    
    2,060
    
    
    
    5.1Advertising
    
    
    1,838
    
    
    
    5.4
    
    
    
    449
    
    
    
    1.1
    
    
    
    218
    
    
    
    0.6Other general and administrative
expenses
    
    
    4,253
    
    
    
    12.5
    
    
    
    4,389
    
    
    
    11.2
    
    
    
    3,457
    
    
    
    8.6Losses on sale and impairment of
long-lived assets, net
    
    
    145
    
    
    
    0.4
    
    
    
    225
    
    
    
    0.6
    
    
    
    530
    
    
    
    1.3Impairment of investment in affiliates
    
    
    
    
    
    
    
    
    
    
    683
    
    
    
    1.7
    
    
    
    
    
    
    
    Other
    
    
    124
    
    
    
    0.4
    
    
    
    124
    
    
    
    0.3
    
    
    
    97
    
    
    
    0.2Minority interests
    
    
    1
    
    
    
    0.0
    
    
    
    15
    
    
    
    0.1
    
    
    
    4
    
    
    
    0.0Total non-interest expense
    
    
    13,629
    
    
    
    40.1
    
    
    
    14,308
    
    
    
    36.5
    
    
    
    13,101
    
    
    
    32.6Income before income taxes
    
    
    8,602
    
    
    
    25.3
    
    
    
    9,100
    
    
    
    23.2
    
    
    
    10,659
    
    
    
    26.6Income taxes
    
    
    3,801
    
    
    
    11.2
    
    
    
    3,924
    
    
    
    10.0
    
    
    
    4,582
    
    
    
    11.4Net income
    
    
    ¥4,801
    
    
    
    14.1
    %
    
    
    ¥5,176
    
    
    
    13.2
    %
    
    
    ¥6,077
    
    
    
    15.2
    %
 Segment Information We have historically operated as a single segment that consisted of our
business of providing loans to individuals. Beginning for the year ended March
31, 2004, we established our loan servicing business as a new reportable
separate segment that consists of Nissin Servicer, which mainly
acquires and services non-performing debts from banks and other financial institutions in
Japan. The following tables show selected -42-




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segment information for the years
ended March 31, 2002, 2003 and 2004: Year ended March 31,2002Integrated financial
    
    Loanservices
    
    servicing
    
    Total(in millions)Interest income
    
    
    ¥33,966
    
    
    
    ¥10
    
    
    
    ¥33,976Interest expense
    
    
    3,884
    
    
    
    
    
    
    
    3,884Provision for loan losses
    
    
    7,433
    
    
    
    
    
    
    
    7,433Net income
    
    
    4,791
    
    
    
    10
    
    
    
    4,801
 Year ended March 31,2003Integrated financial
    
    Loanservices
    
    servicing
    
    Total(in millions)Interest income
    
    
    ¥38,520
    
    
    
    ¥714
    
    
    
    ¥39,234Interest expense
    
    
    3,951
    
    
    
    33
    
    
    
    3,984Provision for loan losses
    
    
    12,545
    
    
    
    143
    
    
    
    12,688Net income
    
    
    4,968
    
    
    
    208
    
    
    
    5,176
 Year ended March 31,2004Integrated financial
    
    Loanservices
    
    servicing
    
    Total(in millions)Interest income
    
    
    ¥38,038
    
    
    
    ¥2,069
    
    
    
    ¥40,107Interest expense
    
    
    3,603
    
    
    
    121
    
    
    
    3,724Provision for loan losses
    
    
    12,824
    
    
    
    637
    
    
    
    13,461Net income
    
    
    5,671
    
    
    
    406
    
    
    
    6,077
 Year Ended March 31, 2004, Compared to Year Ended March 31, 2003 Total Interest Income Total interest income for the year ended March 31, 2004 was ¥40,107
million, an increase of ¥873 million, or 2.2%, from ¥39,234 million for the
previous fiscal year. Integrated Financial Services. Despite an increase in the average balance
of our loans outstanding, which amounted to ¥176,244 million for the year ended
March 31, 2004 as compared to ¥168,668 million for the previous fiscal year,
interest income from loans receivable was ¥38,036 million, a decrease of ¥483
million, or 1.3%, as compared to ¥38,519 million for the previous year. This
was primarily due to a decrease in the weighted period-end average contractual
interest rate on our loans outstanding from 25.3% at March 31, 2003 to 24.0% at
March 31, 2004, which reflected the growing share of small business owner loans
and Wide loans in our loan portfolio. Small business owner loans and Wide
loans carry slightly lower interest rates than consumer loans. The increase in the average balance of our loans outstanding was led by an
increase in our average balance of small business owner loans of ¥10,336
million, or 22.8%, to ¥55,647 million for the year ended March 31, 2004
compared to ¥45,311 million for the previous year, an -43-




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increase in our average
balance of Wide loans of ¥1,849 million, or 3.1%, to ¥61,592 million for the
year ended March 31, 2004 compared to ¥59,743 million for the previous year,
and an increase in our average balance of Business Timely loans of ¥653
million, or 3.8%, to ¥17,909 million for the year ended March 31, 2004 compared
to ¥17,256 million for the previous year. For the year ended March 31, 2004,
the average balance of consumer loans, however, decreased by ¥6,493 million, or
14.4%, to ¥38,600 million from ¥45,093 million for the previous fiscal year. A
decrease in the number of our loan accounts was more than offset by an increase
in the average balance of our loans outstanding, which reflected our success in
promoting guaranteed loans, which generally have larger balances per account,
than unguaranteed loans. The average balance of our loans outstanding has increased primarily as a
result of increased customer acquisition efforts and customer acquisition
channels mainly through referral relationships with financial service
providers. The balance of loans outstanding derived from referral
relationships, including with our affiliates, as of March 31, 2004 was ¥26,422
million, or 14.7% of our balance of loans outstanding as of the same date, and
we expect that percentage to increase in future periods as we increase our
dependence on referral relationships. Loan Servicing. Interest income from purchased loans amounted to ¥2,069
million for the year ended March 31, 2004, an increase of ¥1,355 million, or
189.8%, as compared to ¥714 million for the previous fiscal year. This
increase was principally due to the rapid growth of our loan servicing business
through our subsidiary Nissin Servicer. Total Interest Expense Total interest expense for year ended March 31, 2004 decreased by ¥260
million, or 6.5%, to ¥3,724 million from ¥3,984 million for the previous fiscal
year. The decrease reflected the 3.9% decrease in our balance of borrowings
between March 31, 2003 and 2004. Moreover, due to our efforts to negotiate
improved borrowing terms, particularly from banks, total interest expense as a
percentage of total interest income decreased from 10.2% for the previous year
to 9.3% for the year ended March 31, 2004. Net Interest Income As a result of the increase in our total interest income and the decrease
in our total interest expense, net interest income for the year ended March 31,
2004 rose by ¥1,133 million, or 3.2%, to ¥36,383 million from ¥35,250 million
for the previous fiscal year. Net Interest Income After Provision for Loan Losses Net interest income after provision for loan losses increased by ¥360
million, or 1.6%, to ¥22,922 million for the year ended March 31, 2004 from
¥22,562 million for the previous fiscal year. Provision for loan losses
increased by ¥773 million or 6.1%, to ¥13,461 million for the year ended March
31, 2004, compared to ¥12,688 million for the previous fiscal year. Provision
for loan losses as a percentage of total interest income increased from 32.3%
for the previous fiscal year to 33.6% for the year ended March 31, 2004. The
increase in our provision for loan losses reflects growth in the outstanding
balance of our loans receivable as well as an increase in loan defaults,
reflecting the difficult economic environment in Japan. Approximately ¥1,587
million of the provision for loan losses represents increased allowance for
loan losses on our loans outstanding as of March 31, 2004, resulting from the
deterioration of the Japanese economy. We expect the number of loan defaults
to continue to increase, given the current economic conditions in Japan. -44-




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Total Non-interest Income (Loss) Total non-interest income (loss) consisted of net losses and impairment of
investment securities of ¥268 million, net gain on sales of subsidiaries and
affiliates of ¥670 million and net guarantee fees received of ¥221 million. As
a result, total non-interest income amounted to ¥838 million for the year ended
March 31, 2004, a decrease of ¥8 million, or 0.9%, as compared to ¥846 million
for the previous fiscal year. Total Non-interest Expense Total non-interest expense decreased by ¥1,207 million, or 8.4%, to
¥13,101 million for the year ended March 31, 2004 from ¥14,308 million for the
previous fiscal year. The decrease resulted primarily from a decrease in our
selling, general and administrative expense such as advertising costs, which
offset an increase in losses on sale and impairment of long-lived assets,
including impairment of ¥591 million for real estate for leases. In addition,
the absence of any loss of impairment in affiliates for the year ended March
31, 2004 also contributed to the decrease in our total non-interest expense.
We incurred impairment of investment in affiliates in an amount of ¥683 million
for the previous fiscal year. Income Before Income Taxes Income before income taxes for the year ended March 31, 2004 increased by
¥1,559 million, or 17.1%, to ¥10,659 million from ¥9,100 million for the
previous fiscal year. The increase resulted from increases in our total net
interest income and decreases in our total non-interest expenses. The increase
in our income before income taxes was partially offset by an increase in our
provision for loan losses. Income Taxes Income taxes for the year ended March 31, 2004 were ¥4,582 million as
compared to ¥3,924 million for the previous fiscal year. The effective tax
rate applicable to us decreased slightly from 43.1% for the previous fiscal
year to 43.0% for the year ended March 31, 2004. Net Income As a result of these factors, net income for the year ended March 31, 2004
increased by ¥901 million, or 17.4%, to ¥6,077 million from ¥5,176 million for
the previous fiscal year. Year Ended March 31, 2003, Compared to Year Ended March 31, 2002 Total Interest Income Total interest income for the year ended March 31, 2003 was ¥39,234
million, an increase of ¥5,258 million, or 15.5%, from ¥33,976 million for the
previous fiscal year. The increase was due to an increase in the average
balance of our loans outstanding, which amounted to ¥168,668 million for the
year ended March 31, 2003 as compared to ¥142,770 million for the previous
fiscal year. We believe that the balance outstanding has increased primarily
as a result of increased customer acquisition efforts and customer acquisition
channels mainly through referral relationships with financial service
providers. The balance of our loans outstanding derived from referral
relationships, including with our affiliates, as of March 31, 2003 was ¥21,820
million, or 8.1% of our balance of our loans outstanding as of the same date. -45-




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##### Table of Contents



The increase in the average balance of loans outstanding was led by an
increase in our average balance of small business owner loans of ¥13,116
million, or 40.7 %, to ¥45,311 million for the year ended March 31, 2003
compared to ¥32,195 million for the year ended March 31, 2002, an increase in
our average balance of Wide loans of ¥8,803 million, or 17.3%, to ¥59,743
million for the year ended March 31, 2003 compared to ¥50,940 million for the
year ended March 31, 2002, and an increase in our average balance of Business
Timely loans of ¥5,018 million, or 41.0%, to ¥17,256 million for the year ended
March 31, 2003 compared to ¥12,238 million for the year ended March 31, 2002.
For the year ended March 31, 2003, the average balance of consumer loans,
however, decreased by ¥691 million, or 1.5%, to ¥45,093 million from ¥45,784
million for the previous fiscal year. The increase in the average balance of
loans outstanding, in turn, was a result of the increase in the number of
accounts. The weighted period-end average contractual interest rate on our loans
outstanding decreased slightly from 25.9% at March 31, 2002 to 25.3 % at March
31, 2003, reflecting the increasing importance of small business owner loans,
Wide loans, and Business Timely loans, which carry slightly lower interest
rates than consumer loans, and competitive pressures on interest rates. Total Interest Expense Total interest expense for year ended March 31, 2003 increased by ¥100
million, or 2.6%, to ¥3,984 million from ¥3,884 million for the previous fiscal
year. The increase reflected the 20.5% increase in our balance of borrowings
between March 31, 2002 and 2003. However, due to our efforts to negotiate
improved borrowing terms and diversify our capital financing methods, with an
increased emphasis on issuance of commercial paper, total interest expense as a
percentage of total interest income decreased slightly from 11.4% for the
previous year to 10.2% for the year ended March 31, 2003. Net Interest Income As a result of the increase in our total interest income exceeding the
increase in our total interest expense, net interest income for the year ended
March 31, 2003 rose by ¥5,158 million, or 17.1%, to ¥35,250 million from
¥30,092 million for the previous fiscal year. Net Interest Income After Provision for Loan Losses Net interest income after provision for loan losses decreased by ¥97
million, or 0.4%, to ¥22,562 million for the year ended March 31, 2003 from
¥22,659 million for the previous fiscal year. Provision for loan losses
increased by ¥5,255 million to ¥12,688 million for the year ended March 31,
2003, or by 70.7%, compared to ¥7,433 million for the previous fiscal year.
Provision for loan losses as a percentage of total interest income increased
from 21.9% for the previous fiscal year to 32.3% for the year ended March 31,
2003. The increase in our provision for loan losses reflects growth in the
number of our customers and outstanding balance of loans receivable as well as
an increase in loan defaults, reflecting the difficult economic environment in
Japan. Approximately ¥1,769 million of the provision for loan losses
represents increased allowance for loan losses on loans outstanding as of March
31, 2003, resulting from the deterioration of the Japanese economy. Total Non-interest Income (Loss) Total non-interest income (loss) consisted of gains and losses on
investment securities, gains on sales of subsidiaries, commission income, rents
and dividends. Non-interest income increased to ¥846 million for the year
ended March 31, 2003 from our total non-interest loss of ¥428 million for the
previous fiscal year. The increase principally reflected commission income of
¥1,267 million from our lease arrangement -46-




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##### Table of Contents



business through Future Create,
formerly our 51.2% subsidiary until March 2003 when we sold a significant
portion of our interest in it, and gains on the sales of subsidiaries Future
Create and Webcashing.com in the amount of ¥324 million. Total Non-interest Expense Total non-interest expense is primarily salaries and employee benefits,
occupancy, furniture and equipment and other general and administrative
expenses. Total non-interest expense increased by ¥679 million, or 5.0%, to
¥14,308 million for the year ended March 31, 2003 from ¥13,629 million for the
previous fiscal year. The increase resulted primarily from increased expenses
for salaries and employee benefits and impairment of investment in affiliates.
The increase was offset in part by decreased advertising expenses. Income Before Income Taxes Income before income taxes for the year ended March 31, 2003 increased by
¥498 million, or 5.8%, to ¥9,100 million from ¥8,602 million for the previous
fiscal year. The increase resulted from the recognition of total non-interest
income, as compared with total non-interest loss for the previous year. The
increase in our income before income taxes was partially offset by an increase
in our total non-interest expense. Income Taxes Income taxes for the year ended March 31, 2003 were ¥3,924 million as
compared to ¥3,801 million for the previous fiscal year. The effective tax
rate applicable to us decreased slightly from 44.2% for the previous fiscal
year to 43.1% for the year ended March 31, 2003. Net Income As a result of these factors, net income for the year ended March 31, 2003
increased by ¥375 million, or 7.8%, to ¥5,176 million from ¥4,801 million for
the previous fiscal year. Financial Condition The following table provides selected balance sheet data as of March 31,
2003 and 2004: As of March 31,2003
    
    2004(in millions)Total assets
    
    ¥
    206,574
    
    
    ¥
    210,268Cash and cash equivalents
    
    
    23,612
    
    
    
    20,243Loans receivable, net
    
    
    166,977
    
    
    
    166,890Investment securities
    
    
    2,234
    
    
    
    9,174Purchased loans receivable, net
    
    
    2,946
    
    
    
    4,342Deferred income taxes
    
    
    2,184
    
    
    
    579Total liabilities
    
    
    160,977
    
    
    
    155,810Long-term borrowings
    
    
    148,595
    
    
    
    142,577Total shareholders equity
    
    
    45,597
    
    
    
    54,297
 Total assets increased by ¥3,694 million to ¥210,268 million at March 31,
2004, as compared to ¥206,574 million at the previous year-end. The increase
primarily reflected an increase in investment securities due to an increase in
the market value of our marketable securities, as well as an increase
in our purchased loans receivable, net, due to growth in our loan servicing business.
The increase was partially offset by a -47-




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##### Table of Contents



decrease in our cash and cash
equivalents and, due to an increase in our unrealized gain in investment
securities, a decrease in our deferred income taxes. Our loans receivable,
net, remained largely the same, reflecting our increasingly strict credit
standards on loan applications, which have significantly slowed the growth in
our outstanding loan balances. As a result of our recent sale of most of the
outstanding balance of our unguaranteed consumer loans and related interest
receivable to Orient Credit, our loans receivable, net, have decreased
significantly and our cash and cash equivalents have increased significantly
subsequent to March 31, 2004, reflecting the proceeds from the sale. This will
continue until we are able to generate additional loan originations to redeploy
this cash. Total liabilities decreased by ¥5,167 million to ¥155,810 million at March
31, 2004, as compared to ¥160,977 million at the previous year-end. The
decrease was primarily due to a decrease in our long-term borrowings, which
reflected our reduced capital requirement for loan provision due to a
significant decline in the number of newly contracted loans. As a result of the above, as well as increases in our common stock and
additional paid-in capital due to exercises of warrants, total shareholders
equity increased by ¥8,700 million to ¥54,297 million as of March 31, 2004, as
compared to ¥45,597 million as of the previous year-end. Allowance for Loan Losses, Loan Charge-offs and Provisions for Loan Losses We make allowances for loan losses to provide for estimated probable
uncollectable loan losses from known and inherent risks in our loan portfolio.
For all of our loan products, we generally determine our allowance for loan
losses based on various factors including the risk profile and status of the
borrower and, if any applicable, guarantor, economic conditions, unemployment
rates, bankruptcy cases and historical loss experience. We have not made any
significant changes in estimation methods or assumptions in calculating the
allowance for loan losses in recent years. Integrated Financial Services Increases to our allowance are made by charges to our provision for loan
losses. Recoveries of previously charged-off amounts are deducted from our
provision for loan losses for the year in which the
recoveries occur. Based on the amount of our loans outstanding and our
allowance ratio, we then supplement the remaining balance through our
provisions for loan losses. The following table provides information on our
allowance for loan losses along with amounts provided for our loan losses and
charge-offs, net of recoveries, with respect to our integrated financial
services segment: Year ended March 31,2000
    
    2001
    
    2002
    
    2003
    
    2004(in millions)Balance at beginning of period
    
    ¥
    6,158
    
    
    ¥
    7,032
    
    
    ¥
    7,482
    
    
    ¥
    8,831
    
    
    ¥
    11,827Provision for loan losses
    
    
    4,393
    
    
    
    4,566
    
    
    
    7,433
    
    
    
    12,545
    
    
    
    12,824Charge-offs, net of recoveries
    
    
    (3,519
    )
    
    
    (4,116
    )
    
    
    (6,084
    )
    
    
    (9,549
    )
    
    
    (11,123
    )Balance at end of period
    
    ¥
    7,032
    
    
    ¥
    7,482
    
    
    ¥
    8,831
    
    
    ¥
    11,827
    
    
    ¥
    13,528
 An increase in defaults on loans by our customers due to economic
conditions and increased bankruptcies along with growth in our total loans
outstanding has contributed to the rise in our provision for loan losses from
¥7,433 million for the year ended March 31, 2002, to ¥12,545 million for the
year ended March 31, 2003 and to ¥12,824 million for the year ended March 31,
2004. Upon closing each reporting period, we charge off our loans in the
following manner: -48-




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##### Table of Contents




    
    Guaranteed Loans. We generally charge off small business
owner loans and Wide loans in default at the end of the semi-annual
period in which the default occurs but, alternatively, may provide
an allowance for loan losses without charging them off. We charge
off guaranteed loans to customers who have declared bankruptcy at
the end of the semi-annual period in which we become aware of the
bankruptcy filing.
    
    Unguaranteed Loans. We generally charge off Business Timely
loans and consumer loans for which interest payments have been
delinquent for 67 days. We charge off Business Timely loans and
consumer loans to customers who have declared bankruptcy immediately
after we become aware of the bankruptcy filing. Because of our
short charge-off period, we do not place Business Timely loans or
consumer loans that have become delinquent loans, which we define as
loans on which interest payments are delinquent, on non-accrual
status before they are charged off. Charge-off Ratios and Allowance Ratios The following table provides information on our loans outstanding,
allowance for loan losses, the ratio of allowance for loan losses to total
loans outstanding, as well as average balance of loans outstanding, loans
charged-off and the ratio of loans charged-off to the average balance loans
outstanding: Year ended/as of March 31,2002
    
    2003
    
    2004(in millions except percentages)Small business owner loansLoans outstanding
    
    ¥
    37,386
    
    
    ¥
    53,915
    
    
    ¥
    57,168Allowance for loan losses
    
    
    1,552
    
    
    
    2,648
    
    
    
    3,677Ratio of allowance for loan losses to loans outstanding
    
    
    4.2
    %
    
    
    4.9
    %
    
    
    6.4
    %Average balance of loans outstanding
    
    
    32,195
    
    
    
    45,311
    
    
    
    55,647Loans charged-off
    
    
    991
    
    
    
    1,641
    
    
    
    2,468Ratio of loans charged-off to average balance of loans
outstanding
    
    
    3.1
    %
    
    
    3.6
    %
    
    
    4.4
    %Wide loansLoans outstanding
    
    ¥
    55,033
    
    
    ¥
    63,993
    
    
    ¥
    57,460Allowance for loan losses
    
    
    1,786
    
    
    
    3,009
    
    
    
    3,661Ratio of allowance for loan losses to loans outstanding
    
    
    3.2
    %
    
    
    4.7
    %
    
    
    6.4
    %Average balance of loans outstanding
    
    
    50,940
    
    
    
    59,743
    
    
    
    61,592Loans charged-off
    
    
    1,229
    
    
    
    2,226
    
    
    
    2,978Ratio of loans charged-off to average balance of loans
outstanding
    
    
    2.4
    %
    
    
    3.7
    %
    
    
    4.8
    %Business Timely loansLoans outstanding
    
    ¥
    16,035
    
    
    ¥
    17,303
    
    
    ¥
    18,659Allowance for loan losses
    
    
    1,228
    
    
    
    1,703
    
    
    
    1,962Ratio of allowance for loan losses to loans outstanding
    
    
    7.7
    %
    
    
    9.8
    %
    
    
    10.5
    %Average balance of loans outstanding
    
    
    12,238
    
    
    
    17,256
    
    
    
    17,909Loans charged-off
    
    
    830
    
    
    
    1,579
    
    
    
    1,787Ratio of loans charged-off to average balance of loans
outstanding
    
    
    6.8
    %
    
    
    9.2
    %
    
    
    10.0
    %Consumer loansLoans outstanding
    
    ¥
    46,180
    
    
    ¥
    40,938
    
    
    ¥
    35,604Allowance for loan losses
    
    
    4,142
    
    
    
    4,315
    
    
    
    3,868Ratio of allowance for loan losses to loans outstanding
    
    
    9.0
    %
    
    
    10.5
    %
    
    
    10.9
    %Average balance of loans outstanding
    
    
    45,784
    
    
    
    45,093
    
    
    
    38,600Loans charged-off
    
    
    3,884
    
    
    
    4,868
    
    
    
    4,426Ratio of loans charged-off to average balance of loans
outstanding
    
    
    8.5
    %
    
    
    10.8
    %
    
    
    11.5
    %
 -49-




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##### Table of Contents



Year ended/as of March 31,2002
    
    2003
    
    2004(in millions except percentages)Secured and other loansLoans outstanding
    
    ¥
    1,444
    
    
    ¥
    1,623
    
    
    ¥
    10,576Allowance for loan losses
    
    
    123
    
    
    
    152
    
    
    
    360Ratio of allowance for loan losses to loans outstanding
    
    
    8.5
    %
    
    
    9.4
    %
    
    
    3.4
    %Average balance of loans outstanding
    
    
    1,613
    
    
    
    1,265
    
    
    
    2,496Loans charged-off
    
    
    48
    
    
    
    24
    
    
    
    102Ratio of loans charged-off to average balance of loans
outstanding
    
    
    3.0
    %
    
    
    1.9
    %
    
    
    4.1
    %TotalLoans outstanding
    
    ¥
    156,078
    
    
    ¥
    177,772
    
    
    ¥
    179,467Allowance for loan losses
    
    
    8,831
    
    
    
    11,827
    
    
    
    13,528Ratio of allowance for loan losses to loans outstanding
    
    
    5.7
    %
    
    
    6.7
    %
    
    
    7.5
    %Average balance of loans outstanding
    
    
    142,770
    
    
    
    168,668
    
    
    
    176,244Loans charged-off
    
    
    6,982
    
    
    
    10,338
    
    
    
    11,761Ratio of loans charged-off to average balance of loans
outstanding
    
    
    4.9
    %
    
    
    6.1
    %
    
    
    6.7
    %
 Charge-off Ratios. Our Business Timely loans and consumer loans have
higher charge-off ratios than our small business owner loans and Wide loans
primarily because Business Timely loans and consumer loans do not require
guarantors and have less rigorous screening requirements than small business
owner loans and Wide loans. While we have changed our loan mix in recent years
to improve our charge-off ratios, the effect of the poor state of the economy
has exceeded any favorable effect of the change in our loan mix, and our
overall charge-off ratio increased from 4.9% for the year ended March 31, 2002,
to 6.1% for the year ended March 31, 2003 to 6.7% for the year ended March 31,
2004. Allowance Ratios. The ratio of allowances for loan losses to total loans
outstanding attributable to all loans except for secured and other loans
increased between March 31, 2003 and March 31, 2004. This increase was
attributable to the continuing stagnation of the Japanese economy, which kept
the unemployment rate at a high level and led to increases in personal
bankruptcies and use of procedures under the Civil Rehabilitation Law by
borrowers who sought protection from creditors. While we have
continued to improve the quality of our loan monitoring processes to make
loans only to creditworthy customers, the weakness in the Japanese economy has
negatively affected the ability of many of our long-standing customers. Delinquent Loans and Non-accrual Loans Delinquent Loans.Delinquent loans still accruing interest are loans with
respect to which interest payments are delinquent, but which have not been put
on non-accrual status or charged-off. Non-accrual Loans.Non-accrual loans are loans that no longer accrue
interest, as collection of the entire principal is deemed unlikely. We place
loans on non-accrual status when they are either partially or fully reserved
for or are charged off due to our assessment that full or partial collection is
unlikely. Our non-accrual loans comprise restructured loans and loans with specific
allowance provided.  
    
    Restructured Loans. Restructured loans comprise loans with
respect to which terms have been revised (such as waiver,
postponement or partial forgiveness of interest or principal
payments) for the benefit of the borrower in order to secure some
return on the loan. Impaired loans are included in restructured
loans and represent loans we have specifically identified as
partially or wholly -50-




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##### Table of Contents



uncollectable due to the bankruptcy of the
borrower, lack of collateral or other various reasons. We reserve
for the amounts of impaired loans and related accrued interest
deemed uncollectable in our allowance for loan losses. The
increases in impaired loans at March 31, 2002, March 31, 2003 and
March 31, 2004 are attributable to increases in the number of
defaults as a result of difficult economic conditions in Japan.
    
    Loans with Specific Allowances Provided. Loans with specific
allowances provided are delinquent loans for which we increase
allowances beyond the general allowance. We provide specific
allowances only for small business owner loans and Wide loans. The following table provides information on our delinquent loans still
accruing interest and our non-accrual loans, which comprises restructured loans
(including impaired loans) and loans with specific allowance provided: As of March 31,2002
    
    2003
    
    2004(in millions)Small business owner loansDelinquent loans still accruing interest
    
    ¥
    770
    
    
    ¥
    1,724
    
    
    ¥
    936Non-accrual loans (1)
    
    
    4,164
    
    
    
    5,969
    
    
    
    8,412Restructured loans
    
    
    2,890
    
    
    
    4,204
    
    
    
    5,768Impaired loans included in restructured loans
    
    
    618
    
    
    
    894
    
    
    
    1,183Loans with specific allowance provided
    
    
    1,274
    
    
    
    1,765
    
    
    
    2,644Wide loanDelinquent loans still accruing interest
    
    ¥
    932
    
    
    ¥
    1,524
    
    
    ¥
    903Non-accrual loans (1)
    
    
    5,080
    
    
    
    7,039
    
    
    
    9,227Restructured loans
    
    
    3,695
    
    
    
    5,231
    
    
    
    6,852Impaired loans included in restructured loans
    
    
    962
    
    
    
    1,364
    
    
    
    1,688Loans with specific allowance provided
    
    
    1,385
    
    
    
    1,808
    
    
    
    2,375Business Timely loansDelinquent loans still accruing interest
    
    ¥
    293
    
    
    ¥
    367
    
    
    ¥
    430Non-accrual loans (1)
    
    
    123
    
    
    
    344
    
    
    
    516Restructured loans
    
    
    123
    
    
    
    344
    
    
    
    516Impaired loans included in restructured loans
    
    
    35
    
    
    
    81
    
    
    
    120Loans with specific allowance provided
    
    
    
    
    
    
    
    
    
    
    Consumer loansDelinquent loans still accruing interest
    
    ¥
    1,392
    
    
    ¥
    1,535
    
    
    ¥
    1,148Non-accrual loans (1)
    
    
    784
    
    
    
    1,055
    
    
    
    1,182Restructured loans
    
    
    784
    
    
    
    1,055
    
    
    
    1,182Impaired loans included in restructured loans
    
    
    310
    
    
    
    449
    
    
    
    528Loans with specific allowance provided
    
    
    
    
    
    
    
    
    
    
    Secured and other loansDelinquent loans still accruing interest
    
    ¥
    51
    
    
    ¥
    149
    
    
    ¥
    93Non-accrual loans (1)
    
    
    203
    
    
    
    241
    
    
    
    243Restructured loans
    
    
    78
    
    
    
    96
    
    
    
    101Impaired loans included in restructured loans
    
    
    
    
    
    
    3
    
    
    
    0Loans with specific allowance provided
    
    
    125
    
    
    
    145
    
    
    
    142TotalDelinquent loans still accruing interest
    
    ¥
    3,438
    
    
    ¥
    5,299
    
    
    ¥
    3,510Non-accrual loans (1)
    
    
    10,354
    
    
    
    14,648
    
    
    
    19,580Restructured loans
    
    
    7,570
    
    
    
    10,930
    
    
    
    14,419Impaired loans included in restructured loans
    
    
    1,925
    
    
    
    2,791
    
    
    
    3,519Loans with specific allowance provided
    
    
    2,784
    
    
    
    3,718
    
    
    
    5,161
   (1)
    
    The amounts of non-accrual loans represent the balance of non-accrual
loans outstanding before allowances of loan losses. -51-




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##### Table of Contents



Loan Servicing We record purchased loans at purchased cost less an allowance for
estimated loan losses, and employ one of two methods to determine if further
allowances are appropriate. Under the cost method, if we determine that we
cannot recover our cost, an allowance for the expected uncollectible portion is
established, and the loan is charged off once we deem the loan uncollectible.
Under the level yield method, which is used for those purchased loans for which
we can reasonably estimate the expected timing and amount of cash flows, if the
carrying amounts of those loans are greater than the present value of expected
future cash flows from those loans, the difference is recorded as an allowance
for the uncollectible portion. The following table provides information on our allowance for loan losses
along with amounts provided for loan losses and charge-offs, net of recoveries,
with respect to our loan servicing segment: Year ended March 31,2002
    
    2003
    
    2004(in millions)Balance at beginning of period
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    131Provision for loan losses
    
    
    
    
    
    
    143
    
    
    
    637Charge-offs, net of recoveries
    
    
    
    
    
    
    (12
    )
    
    
    (51
    )Balance at end of period
    
    ¥
    
    
    
    ¥
    131
    
    
    ¥
    717
 See also Critical Accounting Policies  Purchased Loans Receivable and
Revenue Recognition below. Critical Accounting Policies The following describes our critical accounting policies that affect our
more significant judgments and estimates used in the preparation of our
financial statements. The preparation of our financial statements in
conformity with U.S. GAAP requires us to make estimates and judgments that
affect the reported amounts of assets and liabilities, revenues and expenses,
and related disclosures of contingent liabilities. These estimates are based
on, but not limited to, historical results, industry standards and current
economic conditions, giving due consideration to materiality. Our estimates
are based on information that is currently available to us and on various other
assumptions that we believe are reasonable under the circumstances. Actual
results may vary materially from those estimates, and those estimates could
differ, under different assumptions or conditions. On an ongoing basis, we evaluate our critical accounting policies,
including those related to interest income from loans receivable and loan
origination costs, loans receivable and allowance for loan losses, and
purchased loans receivable and revenue recognition. Interest Income from Loans Receivable and Loan Origination Costs We recognize interest income from our loans except for our purchased loans
on an accrual basis based on the principal amount outstanding. In Japan, the
maximum interest rates are set by law at two general levels: an absolute
maximum rate (legal limit) and a lower interest rate based on the principal
amount of the loan (restricted rate). We may charge interest rates in excess
of the restricted rate as long as it meets the specified requirements. Our
contractual loan interest rates do not exceed the legal limit. However, our
contractual loan interest rates, as is customary in the consumer finance
industry in Japan, normally exceed the restricted rate. Borrowers have a right
to refuse to pay interest in excess of the restricted rate, and we cannot
legally require borrowers to pay the excess interest. However, once a
borrower
has paid interest in -52-




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excess of the restricted rate, and provided that we have
complied with the specified legal documentation and notification procedures, we
have no legal or contractual obligation to refund or otherwise reimburse the
excess interest payments. Based on our recognition of the risk involved in charging interest rates
above the restricted rate, even if under the legal limit, we recognize accrued
interest income on our loans receivable outstanding as of the balance sheet
date at the lower of the restricted rate or the contractual interest rate.
Contractual interest in excess of the restricted rate is recognized as interest
income when collected, provided there are no remaining legal obligations to
refund this excess portion. Accrual of interest income is suspended when loan
principal is charged off or is wholly or partially reserved. The accrued
interest portion of a charged off loan balance is deducted from the current
period interest income and the principal amount is charged off against the
allowance for loan losses. We capitalize direct origination costs and defer fees on successful loan
originations. Loan origination costs, net of loan origination fees, are
deferred and amortized over the contractual life of loans, which averages
approximately forty-four months. Loans Receivable and Allowance for Loan Losses We report loans receivable at the principal amount less an allowance for
loan losses. The allowance for loan losses is maintained at a level that we
believe is adequate to provide for estimated probable uncollectible loan losses
from known and inherent risks in our loan portfolios. Increases to the
allowance are made by charges to the provision for loan losses. Recoveries of
previously charged-off amounts are deducted from the provision for loan losses.
Allowances are reviewed both on an individual
loan and portfolio basis. In evaluating the adequacy of the allowance, we
consider various factors, including current economic conditions, such as
unemployment rates, bankruptcy cases and historical loss experience.
Restructured loans include any loans which are restructured for interest,
principal or the term. Allowances for restructured loans are based on
collection history or legal classification of the borrowers. Our policy is generally to charge off loan balances and cease accrual of
interest as follows:  
    
    Guaranteed Small Business Owner Loans and Wide Loans. Loan
balances are charged off when we believe the likelihood of any
future collection is minimal. Events triggering charge-offs include
bankruptcy of both the borrower and guarantor. In the case that
loans are restructured, we charge off the amount of the recorded
loan balance less the restructured loan balance. Interest accrual
is terminated at the earlier of the date when contractual payments
are 97 days delinquent or the date when all or a part of loan
principal is deemed uncollectible.
    
    Unguaranteed Business Timely Loans and Consumer Loans. Loan
balances are charged off and interest accrual is terminated when a
loans contractual payment becomes 67 days delinquent or upon other
events such as bankruptcy of the borrower.
    
    Secured Loans. Loan balances are charged off when we believe
the likelihood of any future collection is minimal. We consider the
availability and value of collateral in determining the level of
charge-off. Interest accrual is terminated at the earlier of the
date when contractual payments are 97 days delinquent or the date
when all or a part of loan principal is deemed uncollectible. -53-




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Purchased Loans Receivable and Revenue Recognition Cost Recovery Method Purchased loans represent loans purchased from third party originators and
are reported at purchased cost less an allowance for estimated loan losses.
Due to the non-performing status of these loans when initially purchased and
lack of history with the borrowers, we initially recognize revenue from these
loans using the cost recovery method. Under this method, payments from a
borrower are first applied to loan principal. Once the purchased cost is fully
recovered, subsequent receipts are recognized as interest income. If we
determine that we cannot recover our cost, an allowance for the expected
uncollectible portion is established. This determination is made based on
numerous factors including the length of non-payment, extent of deviation from
the agreed upon payment plan, accessibility of the borrower and bankruptcy or
death of the borrower. The loan is written-off once we deem the loan
uncollectible. The amount of the book value of the loans accounted for under
this method was ¥2,820 million, or 91.7% of our total purchased loans, as of
March 31, 2003 and ¥4,213 million, or 83.3% of our total purchased loans, as of
March 31, 2004. Level Yield Method For those purchased loans for which we can reasonably estimate the
expected timing and amount of cash flows, we use those expected future cash
flows to record the loans receivable and amortize the implied interest into
revenue using the level yield method. Our determination to use the level yield
method, rather than the cost recovery method, to account for a purchased loan
depends on our judgment regarding the borrowers ability to meet the
restructured payments following our negotiation with the borrower. If the
carrying amounts of those loans are greater than the present value of expected
future cash flows from those loans, the difference is recorded as an allowance
for the uncollectible portion. The
amount of the book value of the loans accounted for under the level yield
method was ¥257 million, or 8.3% of our total purchased loans as of March 31,
2003 and ¥846 million, or 16.7% of our total purchased loans, as of March 31,
2004. Accounting Developments In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133
on Derivative Instruments and Hedging Activities. SFAS No. 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under SFAS
No. 133. In particular, SFAS No. 149 clarifies under what circumstances a
contract within an initial net investment meets the characteristic of a
derivative and when a derivative contains a financing component that warrants
special reporting in the statement of cash flows. SFAS No. 149 is generally
effective for contracts entered into or modified after June 30, 2003, and did
not to have a material impact on our consolidated financial statements. In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity.
SFAS No. 150 establishes standards for how certain financial instruments with
characteristics of both liabilities and equity shall be classified and
measured. SFAS No. 150 requires that an issuer classify a financial instrument
that is within its scope as a liability (or an asset in some circumstances).
Many of those instruments were previously classified as equity. This statement
is effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. For certain financial instruments, the
classification and measurement provisions of SFAS No. 150 have been
deferred
indefinitely. -54-




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The adoption of SFAS No. 150 did not have a material impact on
our consolidated financial statements. In January 2003, the FASB issued FASB Interpretation (FIN) No. 46,
Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.
FIN No. 46 provides guidance on how to identify a variable interest entity and
determine when the assets, liabilities, non-controlling interests and results
of operations of a variable interest entity must be included in a companys
consolidated financial statements. A company that holds variable interests in
an entity is required to consolidate the entity if the companys interest in
the variable interest entity is such that the company will absorb a majority of
the variable interest entitys expected losses and/or receive a majority of the
entitys expected residual returns, if any. FIN No. 46 also requires that both
the primary beneficiary and all other enterprises with a significant variable
interest in a variable interest entity make certain disclosures. In December
2003, the FASB issued a revision of FIN No. 46, which superseded the original
guidance and revised various aspects of the original guidance, including
effective dates. Under the revised guidance, FIN No. 46 remains effective upon
its issuance for interests in variable interest entities acquired after January
31, 2003. For interests in variable interest entities acquired before February
1, 2003, the revised FIN No. 46 effective date was delayed to March 31, 2004,
with the exception of special-purpose entities, for which the effective date
was December 31, 2003. We had no investments in unconsolidated entities which
are considered a variable interest entity and, therefore, does not expect the
provisions of FIN No. 46 to have a material impact on our consolidated
financial statements. At its November 2003 meeting, the Emerging Issues Task Force (EITF)
reached a consensus on disclosure guidance previously discussed under EITF
03-01, The Meaning of Other-Than-Temporary Impairment and Its Application to
Certain Investments. The consensus provided for certain disclosure
requirements that were effective for fiscal years ending after December 15,
2003. We adopted the disclosure requirements during the fiscal year ended
March 31, 2004. In December 2003, the Accounting Standards Executive Committee issued
Statement of Position (SOP) 03-3, Accounting for Certain Loans or Debt
Securities Acquired in a Transfer. SOP 03-3 addresses accounting for
differences between contractual cash flows and cash flows expected to be
collected from an investors initial investment in loans or debt securities
acquired in a transfer. SOP 03-3 is effective for loan acquired in fiscal
years beginning after December 15, 2004. We are currently assessing the impact
of this statement on our results of operations and financial position but do
not expect the adoption of this statement to have a significant impact. At its March 2004 meeting, the EITF reached a consensus on recognition and
measurement guidance previously discussed under EITF 03-01. The consensus
clarifies the meaning of other-than-temporary impairment and its application to
investments classified as either available-for-sale or held-to-maturity under
FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity
Securities, and investments accounted for under the cost method or the equity
method. The recognition and measurement guidance for which the consensus was
reached in the March 2004 meeting is to be applied to other-than-temporary
impairment evaluations in reporting periods beginning after June 15, 2004. The
adoption of EITF 03-01 is not expected to have a material effect on our results
of operations or financial position. -55-




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B. Liquidity and Capital Resources. Capital Requirements Our principal capital and liquidity needs are for funding loans to
customers and purchases of distressed loans from banks and other financial
institutions, payment of principal and interest on outstanding borrowings,
general and administrative expenses, capital expenditures to finance the growth
of our business, strategic investments and payment of cash dividends and stock
repurchases. Funding Loan Provision and Loan Servicing We require capital to provide new loans and to purchase distressed loans
from banks and other financial institutions. Loan Provision.As we are principally in the business of providing loans
to individuals, our most critical capital requirement is loan provision. As of
March 31, 2004, our total loans outstanding were in the amount of ¥179,467
million, an increase of ¥1,695 million, or 1.0%, as compared to ¥177,772
million as of the end of the previous year. As part of our efforts to address
the recent increase in personal bankruptcies by our customers, our lending
standards have become stricter. Consequently, the growth in our total loans
outstanding has slowed, and our capital requirement for loan provision has been
easier to meet in recent years. However, our capital requirement for loan
provision may become more demanding, as Japans economy improves and we choose
to increase our customer acquisition efforts in response. Loan Servicing.Since October 2001, when we commenced our loan servicing
operations through Nissin Servicer, our capital requirement for purchases of
distressed loans from banks and other financial institutions has been
increasing. We purchased distressed loans in the aggregate amount of ¥4,854
million for the year ended March 31, 2003 and ¥4,502 million for the year ended
March 31, 2004. We expect our capital requirement for our loan servicing
segment to increase in the short to medium term. Payments of Interest and Principal Borrowings We require capital for payments of interest and principal on our
outstanding borrowings. For a further discussion, see  Commitments below. General and Administrative Expenses We also require capital for general and administrative expenses, including
salaries and employee benefits, occupancy, furniture and equipment, and
advertising. In recent years, we have made efforts to reduce our general and
administrative expenses as a percentage of our interest income, and intend to
continue these efforts. Our general and administrative expenses were ¥13,261
million, or 33.8% of our total interest income, for the year ended March 31,
2003 and ¥12,470 million, or 31.1% of our total interest income, for the year
ended March 31, 2004. Capital Expenditures The following table provides our capital expenditures calculated on a cash
basis: For the year ended March 31,2002
    
    2003
    
    2004(in millions)Capital expenditures
    
    
    ¥127
    
    
    
    ¥983
    
    
    
    ¥880
 -56-




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Our capital expenditures for the above stated periods were mainly used in
the establishment and relocation of loan and other offices and branches
throughout Japan, as well as opening of head offices for our subsidiaries. We
have budgeted capital expenditures in the amount of approximately ¥5,021
million for the year ending March 31, 2005, primarily for the relocation of our
head office and branches, as well as acquisition of assets held for leases. Strategic Investments We invest in enterprises that have the potential to complement our
business strategically whose values are expected to appreciate:  
    
    Affiliates. Some of these enterprises are our affiliates.
Our total initial investments in these affiliates had amounted to
¥1,258 million as of March 31, 2003 and ¥748 million as of March 31,
2004. These affiliates had a book carrying value of ¥742 million as
of March 31, 2003 and ¥496 million as of March 31, 2004.
    
    Non-affiliates. The remainder of these enterprises are small
enterprises that we view as potential strategic partners, rather
than sources of potential capital gains. Our total initial
investments in these enterprises had amounted to ¥920 million as of
March 31, 2003 and ¥1,169 million as of March 31, 2004. These small
enterprises had a book carrying value of ¥686 million as of March
31, 2003 and ¥1,380 million as of March 31, 2004. Most recently, in
June 2004, we made an initial investment of ¥1,098 million in Xinhua
Finance Limited, of which Xinhua News Agency, Chinas largest news
provider, is a 17% owner, to strengthen our presence in China. Dividends and Stock Repurchases Cash Dividends.Historically we have paid cash dividends twice per year.
Our board of directors presently intends to continue to pay cash dividends on a
semi-annual basis and to provide a stable level of dividends to our
shareholders. The declaration and payment of dividends, however, depend on our
future earnings, financial condition and other factors, including statutory and
other restrictions on the payment of dividends. We paid cash dividends in an
amount of ¥833 million for the year ended March 31, 2003 and ¥1,001 million for
the year ended March 31, 2004. For a further discussion of cash dividends, see
Dividend Policy  Cash Dividends under Item 8.A of this annual report on Form
20-F. Stock Repurchases.We repurchased 10,803,144 shares for an aggregate
price of ¥2,493 million during the year ended March 31, 2003 and 6,007,418
shares for an aggregate price of ¥1,209 million during the year ended March 31,
2004. We sold 80,000 shares for an aggregate price of ¥20 million during the
year ended March 31, 2003 and 1,340,400 shares for an aggregate price of ¥338
million during the year ended March 31, 2004 as a result of exercises of stock
options. We also purchased an additional 2,169 shares between April 1, 2004
and July 20, 2004 for an aggregate price of ¥1 million and sold an additional
1,027,000 shares between April 1, 2004 and July 20, 2004 for an aggregate price
of ¥259 million as a result of exercise of stock options. At our general
shareholders meeting on June 22, 2004, our shareholders approved an amendment
to our articles of incorporation which permits us to repurchase our shares by
resolution of our board of directors. For a further discussion of cash
dividends, see Dividend Policy  Stock Repurchases under Item 8.A of this
annual report on Form 20-F. -57-




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Capital Resources We seek to manage our capital resources and liquidity to provide adequate
funds for current and future financial obligations. We derive the funds we
require to meet our capital requirements principally from cash flow provided by
operations, borrowings from financial institutions and issuances of bonds and
commercial paper. We also may raise proceeds from the sale of our
shareholdings in our subsidiaries and affiliates. We derive the funding necessary to provide loans to our customers through
borrowings from financial institutions, long-term debt issuances and interest
income. We seek to enhance our ability to tap a diverse range of funding
sources and to lower our funding costs. In support of this strategy, since the
year ended March 31, 2000, when legal restrictions on debt issuances to fund
our lending business were eliminated, we have increased our borrowings from
capital markets through issuances of commercial paper and medium-term and
long-term bonds, and we have reduced the proportion of our borrowings from
banks, insurance companies and other financial institutions. In the last
couple of years, however, direct funding as a percentage of our total
borrowings declined due to the increased difficulty we experienced in seeking
funding from the debt markets following the recent downgrades of the credit
ratings of consumer finance companies, including us, by rating agencies. While
the downgrades have harmed our ability to tap the debt markets, our current
intention, subject to market conditions and other uncertainties, is to increase
our proportion of direct financing to around 40%. We believe that our existing cash and cash equivalents and the amount of
cash that we anticipate will be generated from our business operations,
together with our existing access to borrowings and capital markets, will be
sufficient for us to continue to operate our business at current levels through
the year ending March 31, 2005. Also, proceeds we received from the sale of
most of the outstanding balance of our unguaranteed consumer loans and related
interest receivable to Orient Credit in May 2004 provide us with an additional
one-time capital and liquidity source that will be useful for the near term.
We do not have current plans for any equity offerings for Nissin Co.,
Ltd., and we do not currently expect to significantly increase our indebtedness
through the year ending March 31, 2005. Commitments Our material commitments include long-term borrowings, short-term
borrowings, unfunded credit lines, and operating and capital leases. See Item
5.F of this annual report on Form 20-F for a tabular disclosure of our
contractual obligations. Borrowings Long-term Borrowings We require a significant amount of funds for payment of principal and
interest on our borrowings, most of which are used for extending loans to our
customers. All of our borrowings are denominated in yen. As of March 31,
2004, we had long-term borrowings, including a convertible bond, and asset
backed commercial paper, totaling ¥142,577 million. Of our total long-term borrowings at March 31, 2004, ¥104,807 million were
from loans, principally from banks and other financial institutions, including
asset backed commercial paper. Generally, our long-term loans have a maturity
of one to five years, and accrue interest on a fixed rate basis or on a
floating rate basis. At March 31, 2004, the weighted average contractual rate
at period end of our long-term loans from banks and other financial
institutions was 2.3%. As is customary in Japan, bank loans are made under
general agreements which provided -58-




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that under certain circumstances, security
and guarantees for present and future indebtedness will be given upon request
of the bank, and that the bank shall have the right, as the obligations become
due, or in the event of their default, to offset cash deposits against such
obligations due to the bank. In addition, ¥37,770 million of our total long-term borrowings at March
31, 2004 were from the issuance of long-term bonds. We have a limited history
of debt issuances because consumer finance companies and small business lenders
were barred from using direct financing to fund lending operations until May
1999. Long-term bonds outstanding as of March 31, 2003 and 2004 comprised the
following: As of March 31,2003
    
    2004(in millions)3.00% unsecured bonds, due April 20, 2004
    
    
    ¥10,000
    
    
    
    ¥10,0003.32% unsecured bonds, due April 11, 2003
    
    
    5,000
    
    
    
    2.45% unsecured bonds, due March 28, 2005
    
    
    10,000
    
    
    
    10,0002.30% unsecured bonds with warrants, due April 20, 2004
    
    
    1,500
    
    
    
    1,5002.35% unsecured bonds, due November 1, 2005
    
    
    5,000
    
    
    
    5,0001.90% unsecured bonds, due July 31, 2006
    
    
    
    
    
    
    5000.75% unsecured bonds, due September 19, 2008
    
    
    
    
    
    
    2700.64% unsecured bonds, due March 26, 2007
    
    
    
    
    
    
    5001.70% unsecured convertible bonds, due September 29, 2006
    
    
    10,000
    
    
    
    10,000Total bonds
    
    
    ¥41,500
    
    
    
    ¥37,770
 The aggregate future annual principal and interest commitments of bonds,
long-term loans from banks and other financial institutions as of March 31,
2004 are as follows: Year ending March 31,
    
    (in millions)2005
    
    ¥
    77,7542006
    
    
    44,6842007
    
    
    20,7712008
    
    
    2,9432009 and thereafter
    
    
    126Total future payments for long-term borrowings
    
    ¥
    146,278
 Short-term Borrowings Our short-term borrowings comprise bank loans and commercial paper. Our
short-term borrowings were ¥5,600 million as of March 31, 2003, of which ¥3,200
million were bank loans and ¥2,400 million were commercial paper, and ¥5,563
million as of March 31, 2004, of which ¥2,100 million were bank loans, ¥3,200
million were commercial paper and the remainder were rediscounted notes.
Interest rates on bank loans were fixed contractual interest rates ranging from
2.0% to 2.5% as of March 31, 2003 and from 2.0% to 2.3% as of March 31, 2004.
The weighted average contractual rates at period end were 2.0% at March 31,
2003 and 2004. Interest rates on commercial paper ranged from 1.1% to 1.3% as
of March 31, 2003 and from 0.3% to 1.0% as of March 31, 2004. The weighted
average contractual rate was 1.2% at March 31, 2003 and 0.8% at March 31, 2004.
The interest rate on all rediscounted notes was 2.4% as of March 31, 2004.
All short-term borrowings have terms ranging from two months to twelve months
and are usually renewed at maturity subject to renegotiation of interest rates
and other factors. We pledge some of our loans receivable, cash and certain
other assets as collateral for these loans. -59-




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Debt Service At March 31, 2004, we had contractual commitments to repay ¥75,273 million
in long-term borrowings through the year ending March 31, 2005. We expect to
repay this amount through a combination of new bank borrowings and bond
offerings in a total amount of approximately ¥46,000 million, the proceeds from
our recent sale of most of the outstanding balance of our unguaranteed consumer
loans and related interest receivable to Orient Credit in an amount of ¥32,943
million and new cash from operations. Collateral for Borrowings As of March 31, 2004, we had pledged as collateral for short-term and
long-term borrowings with banks and other financial institutions the following
assets: ¥9 million in deposits of restricted cash in banks, ¥28,295 million in
loans outstanding, ¥679 million in purchased loans, ¥703 million in long-lived
assets, and ¥10 million in insurance policies. The lender may obtain this
collateral in the event of financial default, including missed or delinquent
payments as provided for in the loan agreements. Unfunded Credit Lines Under the terms and conditions of our revolving credit line agreements, we
may, but are not committed to, lend funds to our Business Timely loan and
consumer loan customers. We review credit lines and our related funding needs
based on account usage and customer creditworthiness. We had unfunded credit
lines of ¥41,601 million as of March 31, 2004, of which ¥6,977 million were
unfunded
credit lines with loans outstanding and ¥34,624 million were unfunded
credit lines without loans outstanding. Operating and Capital Leases We lease office space under operating lease agreements that generally
allow us to cancel leases with six months advance notice. We have paid
approximately ¥896 million under our office lease agreements for the year ended
March 31, 2004. In addition, we lease certain equipment, software and vehicles
under capital lease obligations. Total lease payments under these operating
lease and capital lease agreements were ¥1,658 million for the year ended March
31, 2004. Contingencies We have guarantee obligations on the borrowings by the customers of third
parties. See Item 5.E of this annual report on Form 20-F for a further
discussion. We are not a party to any material legal proceedings. Cash Flows We had cash and cash equivalents totaling ¥20,243 million at March 31,
2004, a decrease of ¥3,369 million, or 14.3%, from ¥23,612 million at March 31,
2003. We had cash and cash equivalents totaling ¥23,612 million at March 31,
2003, an increase of ¥6,496 million, or 38.0%, from ¥17,116 million at March
31, 2002. -60-




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The following table shows information about our cash flows during the
years ended March 31, 2002, 2003 and 2004: Year ended March 31,2002
    
    2003
    
    2004(in millions)Net cash provided by operating activities
    
    
    ¥14,786
    
    
    
    ¥21,315
    
    
    
    ¥21,942Net cash used in investing activities
    
    
    (33,871
    )
    
    
    (36,658
    )
    
    
    (18,301
    )Net cash provided by (used in) financing activities.
    
    
    10,360
    
    
    
    21,839
    
    
    
    (7,010
    )Net (decrease) increase in cash and cash equivalents
    
    
    (8,725
    )
    
    
    6,496
    
    
    
    (3,369
    )
 Year Ended March 31, 2004, Compared to Year Ended March 31, 2003 Operating Activities Net cash provided by operating activities for the year ended March 31,
2004 was ¥21,942 million, an increase of ¥627 million, or 2.9%, as compared to
¥21,315 million for the previous fiscal year. This increase was primarily
attributable to an increase in our net interest income and an increase in our
provision for loan losses. As discussed in further detail in Results of
Operations  Year Ended March 31, 2004 Compared to Year Ended March 31, 2003
above, our net interest income increased due to an increase in our total
interest income, coupled with a decrease in our total interest expense, and we
increased our provision for loan losses in response to the continuing difficult
economic conditions in Japan, including an increase in the number of defaults. Investing Activities Net cash used in investing activities for the year ended March 31, 2004
was ¥18,301 million, a decrease of ¥18,357 million, or 50.1%, as compared to
¥36,658 million for the previous fiscal year. This decrease was primarily
attributable to a decrease in cash used for loan originations, net of principal
collections, which reflected our recent efforts to apply stricter lending
standards. An increase in proceeds from sales of investment securities also
contributed to the decrease in net cash used in investing activities. These
contributing factors were offset by an increase in purchases of investment
securities. Financing Activities Net cash used in financing activities was ¥7,010 million for the year
ended March 31, 2004, as compared to net cash provided by financing activities
in the amount of ¥21,839 million for the previous fiscal year. This decrease
was primarily attributable to a decrease in our proceeds from long-term
borrowings, as our capital requirement for loan provision decreased due to the
significant decline in the number of newly contracted loans. An increase in
our net repayment of commercial paper, due to reduction in the cash requirement
for our provision of loans, also contributed to this change. These
contributing factors were offset by an increase in proceeds from exercises of
warrants. Year Ended March 31, 2003, Compared to Year Ended March 31, 2002 Operating Activities Net cash provided by operating activities for the year ended March 31,
2003 was ¥21,315 million, an increase of ¥6,529 million, or 44.2%, as compared
to ¥14,786 million for the previous fiscal year. This increase was primarily
attributable to an increase in our net interest income due to a greater total
amount of loans receivable and an increase in our provision for loan losses,
which reflected growth in our loans -61-




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outstanding as well as an increase in the
number of defaults. Investing Activities Net cash used in investing activities for the year ended March 31, 2003
was ¥36,658 million, an increase of ¥2,787 million, or 8.2%, as compared with
¥33,871 million for the previous fiscal year. This increase was due to an
increase in our purchases of distressed loans, net of proceeds from our
principal collections of distressed loans, which offset a decrease in cash used
for loan originations, net of principal collections. Cash used for loan
origination decreased because the number of new loan contracts decreased. Financing Activities Net cash provided by financing activities for the year ended March 31,
2003 was ¥21,839 million, an increase of ¥11,479 million, or 110.8%, as
compared to ¥10,360 million for the previous fiscal year. This increase was
primarily attributable to an increase in our total borrowings, net of
repayments, which offset the cash we used to purchase treasury stock. We
increased our total borrowings, net of repayments, to meet the increased
capital requirement attributable to the growth in our loan provision business.  C.
    Research and Development, Patents and Licenses, etc. We have not implemented any material research and development policy and
have not conducted any material research and development activities since April
1, 2001.  D.
    Trend Information. The information required by this item is provided in Item 5.B of this
annual report on Form 20-F.  E.
    Off-balance Sheet Arrangements. Our off-balance sheet arrangements that have or are reasonably likely to
have a current or future material effect on us are those pursuant to which we
guarantee the borrowings of customers of third parties, as follows: Sanyo Club Pursuant to an agreement with Sanyo Club, in exchange for guaranteeing 40%
of the outstanding balance of specified borrowings, we receive 40% of the
interest income from the total amount of these borrowings and pay 40% of the
related administrative and other expenses incurred by Sanyo Club. We are
required to pay out on our guarantees for 40% of the outstanding loan balance
of specified borrowings for which payments are 120 days or more delinquent.
Under the loan agreement, borrowers are not required to have a guarantor or to
provide collateral. We maintain reserves for estimated guarantee losses in our
other liabilities on our balance sheet. Shinsei Business Finance In return for a fee, we guarantee borrowings by customers of Shinsei
Business Finance, an affiliate in which we own a 25% interest, with respect to
the following loan products: -62-




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##### Table of Contents




    
    3S Loans. For a guarantee fee of the contractual interest
rate minus 4%, we guarantee 100% of loans outstanding by borrowers
of 3S loans. We are required to pay out on our guarantees of loans
for which payments are 14 days or more delinquent. Borrowers of 3S
loans are required to have one or more guarantors, but not
collateral.
    
    Business Loans. We guarantee 10% of loans outstanding by
borrowers of Business Loans and earn 10% of the interest received
from these loans. We are required to pay out on our guarantees of
loans for which payment are 90 days or more delinquent. Borrowers
of Business Loans are not required to have a guarantor or to provide
collateral. We maintain reserves for estimated guarantee losses in our other
liabilities. The following table shows information about our guaranteed borrowings and
reserves for guarantee losses as of March 31, 2003 and 2004: As of March 31,2003
    
    2004(in millions)Guaranteed borrowings
    
    
    ¥1,504
    
    
    
    ¥3,616Reserves for guarantee losses
    
    
    9
    
    
    
    108
 The following table shows information about our guarantee fees received
and related administrative and other expenses paid by us during the years ended
March 31, 2003 and 2004: Year ended March 31,2002
    
    2003
    
    2004(in millions)Guarantee fees received
    
    
    ¥
    
    
    
    ¥93
    
    
    
    ¥368Administrative and other expenses paid
    
    
    
    
    
    
    (58
    )
    
    
    (147
    )Net guarantee fees received
    
    
    ¥
    
    
    
    ¥35
    
    
    
    ¥221
 As a result of our guarantee commitments, we paid ¥3 million for the year
ended March 31, 2003 and ¥89 million for the year ended March 31, 2004. In addition, our consolidated subsidiary NIS Lease guarantees accounts
receivable of certain borrowers for a fee. As of March 31, 2004, NIS Lease was
liable as a guarantor for accounts receivable of ¥3 million.  F.
    
    Tabular Disclosure of Contractual Obligations. The following table shows our contractual payment obligations under our
agreements as of March 31, 2004: Payments Due by PeriodApril 1,
    
    April 1,
    
    April 1,2004 to
    
    2005 to
    
    2007 to
    
    AfterMarch 31,
    
    March 31,
    
    March 31,
    
    April 1,Contractual obligations
    
    Total
    
    2005
    
    2007
    
    2009
    
    2009(in millions)Long-term
borrowings (1)
    
    
    ¥142,577
    
    
    
    ¥75,273
    
    
    
    ¥64,248
    
    
    
    ¥3,044
    
    
    
    ¥12Capital lease obligations
    
    
    2,126
    
    
    
    727
    
    
    
    1,110
    
    
    
    269
    
    
    
    20Operating lease obligations
    
    
    1,251
    
    
    
    829
    
    
    
    413
    
    
    
    9
    
    
    
    Purchase
commitments (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other long-term liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    ¥145,954
    
    
    
    ¥76,829
    
    
    
    ¥65,771
    
    
    
    ¥3,322
    
    
    
    ¥32
  (1)
    
    Includes only principal payment obligations.(2)
    
    These are commitments pursuant to agreements to purchase goods or
services that are enforceable and legally binding on us and that specify
all significant terms. -63-




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##### Table of Contents



G.
    Safe Harbor. 1.  The safe harbor provided in Section 27A of the Securities Act and
Section 21E of the Exchange Act (statutory safe harbors) shall apply to
forward-looking information provided pursuant to Item 5.E and F of this annual
report on Form 20-F, provided that the disclosure is made by: an issuer; a
person acting on behalf of the issuer; an outside reviewer retained by the
issuer making statement on behalf of the issuer; or an underwriter, with
respect to information provided by the issuer or information derived from
information provided by the issuer. 2.  For purpose of Item 5.G.1 of this Item only, all information required
by Item 5.E.1 and 5E.2 of this Item is deemed to be a forward looking
statement as that term is defined in the statutory safe harbors, except for
historical facts. 3.  With respect to Item 5.E of this annual report on Form 20-F, the
meaningful cautionary statements element of the statutory safe harbors will be
satisfied if a company satisfies all requirements of that same Item 5.E of this
annual report on Form 20-F. 
 Item 6.   Directors, Senior Management and Employees.  A.
    Directors and Senior Management. Directors and Statutory Auditors The following table provides information about our directors, who include
our senior management, and statutory auditors. The shareholdings of certain
directors in the table below overlap to the extent that multiple individuals
may be deemed to share beneficial ownership over the same shares: Percentage ofNumber of Shares
    
    Common StockBeneficially Owned
    
    Outstanding as ofas of March 31,
    
    March 31,Name
    
    Position
    
    Date of Birth
    
    2004 (1)
    
    2004 (2)Directors:Hideo Sakioka
    
    Chairman and
Representative
Director
    
    May 14, 1928
    
    
    77,346,880
    (3)
    
    
    30.6
    %(3)Kunihiko Sakioka
    
    President and
Representative
Director
    
    January 10, 1962
    
    
    78,415,960
    (4)
    
    
    31.1
    (4)Hitoshi Higaki
    
    Managing Director
    
    December 14, 1959
    
    
    596,772
    
    
    
    *Hiroshi Akuta
    
    Director
    
    January 3, 1962
    
    
    233,200
    
    
    
    *
 -64-




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##### Table of Contents



Percentage ofNumber of Shares
    
    Common StockBeneficially Owned
    
    Outstanding as ofas of March 31,
    
    March 31,Name
    
    Position
    
    Date of Birth
    
    2004 (1)
    
    2004 (2)Hidenobu Sasaki
    
    Director
    
    June 29, 1972
    
    
    98,752
    
    
    
    *Toshioki Otani
    
    Director
    
    December 12, 1970
    
    
    207,224
    
    
    
    *Keishi Ishigaki
    
    Director
    
    April 3, 1971
    
    
    171,896
    
    
    
    *Yunwei Chen
    
    Director
    
    January 16, 1969
    
    
    146,720
    
    
    
    *Akihiro Nojiri
    
    Director
    
    November 15, 1968
    
    
    
    
    
    
    Yoshihiko Maki
    
    Director
    
    October 18, 1951
    
    
    50,000
    
    
    
    *Statutory Auditors:Yoshiki Kishimura
    
    Statutory Auditor
    
    August 25, 1944
    
    
    123,464
    
    
    
    *Akio Sakioka
    
    Statutory Auditor
    
    September 22, 1950
    
    
    2,498,612
    
    
    
    *Isao Narimatsu
    
    Statutory Auditor
    
    July 6, 1949
    
    
    40,000
    
    
    
    *Katsuhiko Asada
    
    Statutory Auditor
    
    February 10, 1955
    
    
    
    
    
    
    
   (1)
    
    As adjusted for our May 2004 stock split.(2)
    
    Asterisks indicate beneficial ownership of less than 1%.(3)
    
    Comprised of 8,140,912 shares over which Hideo Sakioka has sole voting
and dispositive power; 34,968,960 shares held by Nissin Building Co.,
Ltd., or Nissin Building, over which Hideo Sakioka may be deemed to share
voting or dispositive power with Kunihiko Sakioka, Michimasa Sakioka and
Midori Moriyama; and 34,237,008 shares held by Shuho Ltd., or Shuho, over
which Hideo Sakioka may be deemed to share voting or dispositive power
with Kunihiko Sakioka. Excludes shareholdings of other Sakioka family
members. Members of the Sakioka family, including the ones listed above,
directly and indirectly held an aggregate of 106,343,404 shares, or 42.1%
of our outstanding shares of common stock, as of March 31, 2004.(4)
    
    Comprised of 9,209,992 shares over which Kunihiko Sakioka has sole voting
and dispositive power; 34,968,960 shares held by Nissin Building, over
which Kunihiko Sakioka may be deemed to share beneficial ownership with
Hideo Sakioka, Michimasa Sakioka and Midori Moriyama; 34,237,008 shares
held by Shuho, over which Kunihiko Sakioka may be deemed to share voting
or dispositive power with Hideo Sakioka. Excludes shareholding of other
Sakioka family members. Members of the Sakioka family, including the ones
listed above, directly and indirectly held an aggregate of 106,343,404
shares, or 42.1% of our outstanding shares of common stock, as of March
31, 2004. As of March 31, 2004, our directors and statutory auditors, as a group,
owned 90,723,512 shares of common stock, if the shares of Nissin Buildings and
Shuho are included, representing 35.9% of our
outstanding common stock. Other than Hideo Sakioka and Kunihiko Sakioka,
whose holdings are disclosed above, no director or statutory auditor owned 1%
or more of our shares. All of our directors are engaged in our business on a full-time basis.
The business address of Hideo Sakioka is 7-6, Chifunemachi 5-chome, Matsuyama
City, Ehime 790-8584, Japan. The business address of our remaining directors
is Shinjuku L-Tower 25F, 6-1, Nishi-Shinjuku l-chome, Shinjuku-ku, Tokyo
163-1525, Japan. Except as described below with respect to Hideo Sakioka, Kunihiko Sakioka
and Akio Sakioka, none of our directors are related to one another. Hideo
Sakioka has been our chairman and representative director since June
2000. Previously he was our president since May 1960. He has also been the
president and representative director of Nissin Building since January 1980 and
representative director of Shuho since March 1989. He is the father of our
president, Kunihiko Sakioka. -65-




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Kunihiko
Sakioka has been our president and representative director since
June 2000. Previously, he served in our numerous executive positions. He is
the son of our chairman, Hideo Sakioka. Hitoshi Higaki has been our managing director since June 2000. He has
also served as general manager of our Operations Control Division since April
2003 and as general manager of our Corporate Planning Department since July
2004. Previously, he served as a director and general manager of our Corporate
Planning Department, Accounting Department and General Affairs Department. Hiroshi Akuta has been our director since June 1996. He has also served
as general manager of our Credit Screening Department since April 2003 and
adviser to our Eastern Japan Investigation Department and Western Japan
Investigation Department since July 2003. Previously, he served as a director
and general manager of our Corporate Planning Department, Investigation
Department, Western Japan Sales Department, Customer Service Department and
Business Audit Department. Hidenobu Sasaki has been our director since June 2002. He has also served
as general manager of our Osaka Branch Office since April 2003 and deputy
general manager of our Sales and Marketing Control Division since July 2003.
Previously, he served as a director and general manager of our Western Japan
Sales Department and also as general manager of our Finance Department and
Sales Department. Toshioki Otani has been our director since June 2002. He has also served
as general manager of our Business Development Department since April 2003 and
deputy general manager of our Sales and Marketing Control Division since July
2004. Previously, he served as general manager of our Eastern Japan Sales
Department, Finance Department and Business Development Department. Keishi Ishigaki has been our director since June 2002. He has also served
as general manager of and adviser to our Sales and Marketing Control Division
since July 2004. Previously, he served as a director and general manager of
our Finance Department and also as general manager of our Western Japan Sales
Department, Osaka Branch Office and Finance Department. Yunwei Chen has been our director since June 2003. She has also served as
general manager of our Investor Relations Department since April 2003.
Previously, she served as deputy general manager of our Corporate Planning
Department. Akihiro Nojiri has been our director since June 2004. He has also served
as general manager of our Finance Department since July 2004. Previously, he
served as general manager and assistant to our president. Before joining us,
he was with the Ministry of Finance of Japan until July 2003. Yoshihiko Maki has been our director since June 2004. He has also served
as general manager of our Real Estate Financial Department since February 2004
and a deputy general manager of our Sales and Marketing Control Division since
July 2004. Previously, he served as adviser to our Sales and Marketing Control
Division. Before joining us, he was with the Tokai Bank, now UFJ Bank, until
June 2001 and the Tokyo Star Bank until June 2003. Yoshiki Kishimura has been our statutory auditor since June 2003.
Previously, he served as corporate adviser to our Finance Department. Akio Sakioka has been our statutory auditor since June 2002. Previously,
he was our managing director as well as adviser to our Business Audit
Department and was also general manager of our Finance Department and Tokyo
Office. He is the nephew of our chairman, Hideo Sakioka. -66-




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Isao Narimatsu has been our statutory auditor since June 2001. He joined
the Miyata Certified Public Tax Accountant Office in April 1979. He opened his
own Isao Narimatsu Certified Public Tax Accountant Office in July 1981. Katsuhiko Asada has been our statutory auditor since June 2004. He joined
the Tokyo office of Arthur Andersen, now KPMG AZSA & Co., in October 1979. He
opened Konishi Asada Certified Public Accountant Firm as a partner in December
2001.  B.
    Compensation. The aggregate compensation to our directors and statutory auditors as a
group for the year ended March 31, 2004 was ¥371 million, which included ¥224
million for their services as directors and statutory auditors, ¥75 million as
compensation to the directors as our employees and ¥72 million in bonuses. In accordance with customary Japanese business practices, a retiring
director or statutory auditor receives a lump-sum retirement payment, subject
to the approval of the general meeting of shareholders. During the year ended
March 31, 2004, we made retirement payments in the aggregate amount of ¥2
million to retiring directors. We did not make any retirement payments to
statutory auditors during the year ended March 31, 2004. During the year ended March 31, 2004, we issued stock options for 560,000
shares to directors and statutory auditors in connection with our July 2003
stock option plan. During the same year, our directors and statutory auditors
exercised as a group stock options for 200,000 shares at a total price of ¥51
million. For the same fiscal year, our directors and statutory auditors
exercised as a group, warrant in connection with our fourth series incentive
warrant plan for 997,400 shares at a total price of ¥288 million. For a
description of our stock option and fourth series incentive warrant plans, see
Item 6.E of this annual report on Form 20-F.  C.
    Board Practices. The following table shows the terms of office of our directors and
statutory auditors and certain other information: Start of
    
    Expiration ofName
    
    Start of first term
    
    current term
    
    current termDirectors:Hideo Sakioka
    
    May 1960
    
    June 2004
    
    June 2005Kunihiko Sakioka
    
    March 1989
    
    June 2004
    
    June 2005Hitoshi Higaki
    
    June 1994
    
    June 2004
    
    June 2005Hiroshi Akuta
    
    June 1996
    
    June 2004
    
    June 2005Hidenobu Sasaki
    
    June 2002
    
    June 2004
    
    June 2005Toshioki Otani
    
    June 2002
    
    June 2004
    
    June 2005Keishi Ishigaki
    
    June 2002
    
    June 2004
    
    June 2005Yunwei Chen
    
    June 2003
    
    June 2004
    
    June 2005Akihiro Nojiri
    
    June 2004
    
    June 2004
    
    June 2005Yoshihiko Maki
    
    June 2004
    
    June 2004
    
    June 2005
 -67-




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Start of
    
    Expiration ofName
    
    Start of first term
    
    current term
    
    current termStatutory Auditors:Yoshiki Kishimura
    
    June 2003
    
    June 2003
    
    June 2007Akio Sakioka
    
    June 2002
    
    June 2002
    
    June 2005Isao Narimatsu (1)
    
    June 2001
    
    June 2004
    
    June 2008Katsuhiko Asada (1)
    
    June 2004
    
    June 2004
    
    June 2008
   (1)
    
    Outside statutory auditors pursuant to the Law for Special Exceptions to
the Commercial Code concerning Audit, etc. of Joint Stock Corporations. Board of Directors Our board of directors has the ultimate responsibility for the
administration of our affairs. Our articles of incorporation provide for not
more than twelve directors. Directors are elected at a general meeting of
shareholders, and the normal term of office of directors is one year, although
they may serve any number of consecutive terms. The board of directors elects
one or more representative directors, who have the authority individually to
represent us. The board of directors elects one president and may also elect
from among its members a chairman of the board of directors, one or more
executive vice presidents, senior managing directors and managing directors.
Our executive officers serve at the discretion of the board of directors. None of our directors have service contracts with us or any of our
subsidiaries providing for benefits upon termination of employment. Board of Statutory Auditors Our articles of incorporation provide for not more than four statutory
auditors, and the Japanese Commercial Code and Law for Special Exceptions to
the Commercial Code concerning Audit, etc. of Joint Stock Corporations set the
minimum at three. Statutory auditors, of whom at least one (effective May 1,
2005, at least half) must be from outside our company, are elected at a general
meeting of shareholders, and the normal term of office of a statutory auditor
is four years (three years in case of statutory auditors appointed before the
general shareholders meeting in June 2003), although they may serve any number
of consecutive terms. Statutory auditors are under a statutory duty to review
the administration of our affairs by the directors and to examine our financial
statements and business reports to be submitted by the board of directors to
the general meetings of shareholders. Statutory auditors also have a statutory
duty to provide their report to the board of statutory auditors, which must
submit its
auditing reports to the board of directors. They have the duties to
attend meetings of the board of directors and to express their opinions, but
they are not entitled to vote. The statutory auditors elect from among
themselves one or more standing auditors who serve on a full-time basis. See
Exhibit 1.4 to this annual report on Form 20-F for our regulations of our board
of statutory auditors. Independent Public Accountants In addition to statutory auditors, we must appoint independent certified
public accountants, who have the statutory duties of examining the financial
statements to be submitted by the board of directors to the general meetings of
shareholders, reporting to the board of statutory auditors and directors, and
examining the financial statements to be filed with the relevant local finance
bureau of the Ministry of Finance. Since the beginning of the year
ended March 31, 1992, we have appointed BDO Sanyu & Co., a
member of the Japanese Institute
of Certified -68-




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##### Table of Contents



Public Accountants, as our independent certified public
accountants. Its address is Aqua Dojima Nishi-kan 14F, 4-16, Dojimahama
1-chome, Kita-ku, Osaka 530-0004, Japan. Significant Differences Between Our Corporate Governance Practices and Those of
New York Stock Exchange-listed U.S. Companies Companies listed on the New York Stock Exchange, or NYSE, must comply with
certain standards regarding corporate governance under Section 303A of the NYSE
Listed Company Manual. However, listed companies that are foreign private
issuers, such as us, are permitted to follow home country practice in lieu of
certain provisions of Section 303A. The following table shows the significant differences between the
corporate governance practices followed by U.S. listed companies under Section
303A of the NYSE Listed Company Manual and those followed by us: Corporate Governance Practices Followed
    
    Corporate Governance Practices Followedby NYSE-listed U.S. Companies
    
    by UsA NYSE-listed U.S. company must have
a majority of directors meeting the
independence requirements under
Section 303A of the NYSE Listed
Company Manual.
    
    Since April 2003, large Japanese
companies have been permitted to
choose between the traditional
corporate governance system based on
a board of statutory auditors (the
statutory auditor system) and a
newly introduced corporate
governance system based on
committees (the committee system).
The vast majority of the Japanese
companies employ the statutory
auditor system. For large Japanese
companies, including us, with the
statutory auditor system, Japans
company law has no independence
requirement with respect to
directors. The task of overseeing
management and accounting firms is
assigned to the statutory auditors,
who are separate from the companys
management. Large Japanese
companies, including us, are
required to have at least one
outside statutory auditor who must
meet independence requirements under
Japans company law. An outside
statutory auditor is defined as a
statutory auditor who has not served
as a director, manager or any other
employee of the company or any of
its subsidiaries for the last five
years prior to the appointment.
Currently, we have two outside
statutory auditors. Effective as of
May 1, 2005, at least 50% of our
statutory auditors will be required
to be outside statutory auditors.
Also, starting on the same date, the
independence requirements for
outside statutory auditors will be
strengthened by extending the
five-year period referred to above
to any time prior to the
appointment.
 -69-




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##### Table of Contents



Corporate Governance Practices Followed
    
    Corporate Governance Practices Followedby NYSE-listed U.S. Companies
    
    by UsA NYSE-listed U.S. company must have
an audit committee composed entirely
of independent directors, and the
audit committee must have at least
three members.
    
    As discussed above, we employ the
statutory auditor system. Under
this system, the board of statutory
auditors is a legally separate and
independent body from the board of
directors. The function of the
board of statutory auditors is
similar to that of independent
directors, including those who are
members of the audit committee, of a
U.S. company: to monitor the
performance of the directors, and
review and express opinion on the
method of auditing by the companys
accounting firm and on such
accounting firms audit reports, for
the protection of the companys
shareholders.Large Japanese companies, including
us, are required to have at least
three statutory auditors.
Currently, we have four statutory
auditors. Each statutory auditor
elected at or before the ordinary
general meeting of our shareholders
in June 2002 has a three-year term,
while each statutory auditor elected
at the ordinary general meeting of
our shareholders held in June 2003
and thereafter has a four-year term.
In contrast, the term of each
director of us is one year.Starting on July 31, 2005, when the
requirements of Rule 10A-3 under the
U.S. Securities Exchange Act of 1934
relating to listed company audit
committees become applicable to
foreign private issuers, we expect
to rely on an exemption under that
rule, which is available to foreign
private issuers with boards of
statutory auditors meeting certain
criteria. We expect to make a
disclosure regarding such reliance
in our annual reports on Form 20-F
for the fiscal year ending March 31,
2006 and thereafter.A NYSE-listed U.S. company must have
a nominating/corporate governance
committee composed entirely of
independent directors.
    
    Directors are elected at a meeting
of shareholders. The board of
directors does not have the power to
fill vacancies in the board.
 -70-




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##### Table of Contents



Corporate Governance Practices Followed
    
    Corporate Governance Practices Followedby NYSE-listed U.S. Companies
    
    by UsStatutory auditors are also elected
at a meeting of shareholders. A
proposal by our board of directors
to elect a statutory auditor must be
approved by a resolution of its
board of statutory auditors. The
board of statutory auditors is
empowered to adopt a resolution
requesting that our directors submit
a proposal for election of a
statutory auditor to a meeting of
shareholders. Statutory auditors
have the right to state their
opinion concerning election of a
statutory auditor at the meeting of
shareholders.A NYSE-listed U.S. company must have
a compensation committee composed
entirely of independent directors.
    
    We determine the compensation for
our directors and statutory auditors
pursuant to the statutory auditor
system, which we employ. Unless
otherwise provided in our articles
of incorporation, total amounts of
compensation for our directors and
statutory auditors are proposed to,
and voted on, a meeting of
shareholders. Our articles of
incorporation do not provide for
such total amounts. Once the
proposals for the total amounts of
compensation are approved at the
meeting of shareholders, our board
of directors allocates the total
amount for the directors among its
members, and our statutory auditors,
unless there is a resolution at the
shareholders meeting or a provision
in the articles of incorporation
relating to allocation of
compensation, allocate the total
amount for the statutory auditors
among themselves.A NYSE-listed U.S. company must
generally obtain shareholder
approval with respect to any equity
compensation plan.
    
    We must obtain shareholder approval
for stock options only if the
underlying shares of our common
stock are to be issued with
specifically favorable conditions
upon the exercise of the stock
options, such as when the price at
which such stock options are
exercisable is substantially lower
than the market price of the common
stock.A NYSE-listed U.S. company must have
an internal audit function, which
must be the sole responsibility of
the audit committee and may not be
allocated to a different committee.
    
    As discussed above, we employ the
statutory auditor system. Under
this system, we have maintained an
internal audit function, in the past
as part of our Business Audit
Department and, since July 2004, as
part of our Internal Audit
Department, which is currently one
of our 17 departments. The Internal
Audit Department has no independence
requirement and reports to our
president.
 -71-




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##### Table of Contents



D.
    Employees. All of our employees are located in Japan. The following table shows the
number of our full-time, part-time and temporary employees at the end of the
each of the years indicated: As of March 31,2002
    
    2003
    
    2004Full-time:Integrated
financial services (1)
    
    
    849
    
    
    
    818
    
    
    
    811Loan servicing
    
    
    10
    
    
    
    14
    
    
    
    40859
    
    
    
    832
    
    
    
    851Part-time (2)
    
    
    74
    
    
    
    78
    
    
    
    87Temporary (3)
    
    
    217
    
    
    
    255
    
    
    
    181Total
    
    
    1,150
    
    
    
    1,165
    
    
    
    1,119
  (1)
    
    The number of employees engaged in the businesses of loan provision,
credit guarantees, leasing and financials mediation services was 818 at
March 31, 2002, 813 at March 31, 2003 and 809 at March 31, 2004.(2)
    
    The average number of part-time employees was 77 for the year ended March
31, 2002, 82 for the year ended March 31, 2003 and 94 for the year ended
March 31, 2004.(3)
    
    Temporary employees are employees dispatched from personnel agencies. We have never experienced any labor disputes and consider our labor
relations to be excellent. None of our employees are members of a trade union
or participate in any collective bargaining organizations. We consider our levels of remuneration, fringe benefits, working
conditions and other allowances, which include lump-sum payments, to be
generally competitive with those offered in Japan by other enterprises in our
industry. Our employees normally must retire when they reach 60 years of age.
We terminated our sponsored pension and retirement plans on March 31, 2002 and
now only participate in the mandatory fully-funded contributory funded plan
under the Japanese Welfare Pension Insurance Law.  E.
    Share Ownership. Share Ownership by Directors, and Statutory Auditors Other than as disclosed in Item 6.A of this annual report on Form 20-F,
none of our directors and statutory auditors beneficially own more than one
percent of our shares of common stock. Stock Option Plans We have the following stock option and incentive warrant plans, where upon
exercise of stock options or warrants we grant to directors and key employees a
specified number of shares: -72-




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
    
    July 2004 Stock Option Plan. We granted stock options
exercisable for a total of 6,660,000 shares at a purchase price per
share of ¥500 to 1,149 of our directors and employees and those of our
subsidiaries and affiliates on July 15, 2004. These are exercisable until July 31, 2007.
    
    July 2003 Stock Option Plan. We granted stock options
exercisable for a total of 1,350,000 shares (not reflecting the
two-for-one stock split that became effective in May 2004) at a
purchase price per share of ¥532 (not reflecting the two-for-one
stock split that became effective in May 2004) to 183 of our
directors and employees on July 16, 2003. As of March 31, 2004,
stock options exercisable for a total of 2,377,000 shares remained
outstanding, and the purchase price per share is ¥266 following the
stock split. These are exercisable until July 31, 2006.
    
    September 2002 Stock Option Plan. We granted stock options
exercisable for a total of 1,495,000 (not reflecting the two-for-one
stock splits that became effective in May 2003 and 2004) shares at a
purchase price per share of ¥995.5 (not reflecting the two-for-one
stock splits that became effective in May 2003 and 2004) to 1,086 of
our directors and employees on September 10, 2002. As of March 31,
2004, stock options exercisable for a total of 3,549,600 shares
remained outstanding, and the purchase price per share is ¥249
following the stock splits. These are exercisable until September
30, 2005. In addition to the July 2004 Stock Option Plan, the resolution adopted at
our annual shareholders meeting on June 22, 2004 allows us to issue stock
options for an additional 1,340,000 shares to our directors, statutory auditors
and employees or those of our subsidiaries and equity-method affiliates during
the fiscal year ending March 31, 2005. The following table shows the stock
options that our directors and statutory auditors owned as of March 31, 2004: Number of sharesissuable upon exerciseof stock options as ofName
    
    Position
    
    March 31, 2004Directors:Hideo Sakioka
    
    Chairman and Representative Director
    
    
    Kunihiko Sakioka
    
    President and Representative Director
    
    
    80,000Hitoshi Higaki
    
    Managing Director
    
    
    80,000Hiroshi Akuta
    
    Director
    
    
    80,000Hidenobu Sasaki
    
    Director
    
    
    80,000Toshioki Otani
    
    Director
    
    
    80,000Keishi Ishigaki
    
    Director
    
    
    80,000Yunwei Chen
    
    Director
    
    
    52,000Akihiro Nojiri
    
    Director
    
    
    Yoshihiko Maki
    
    Director
    
    
    Statutory Auditors:Yoshiki Kishimura
    
    Statutory Auditor
    
    
    80,000Akio Sakioka
    
    Statutory Auditor
    
    
    Isao Narimatsu
    
    Statutory Auditor
    
    
    40,000Katsuhiko Asada
    
    Statutory Auditor
    
    
    652,000
 -73-




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Employee Stock Purchase Plan Our full-time employees are eligible to participate in our employee
shareholders association, which purchases our shares with contributions from
our employees deducted from their salaries. As of March 31, 2004, the
association owned 2,929,168 shares of common stock. We provide a 10% subsidy
in cash on top of the contribution of any employee who has participated in the
association for less than a year and 13% subsidy for those who have
participated for one year or longer. The board of our employee shareholders
association makes decisions as to how to vote all of its shares. 
 Item 7.   Major Shareholders and Related Party Transactions.  A.
    Major Shareholders. To our knowledge, the persons in the following table are the only owners
or beneficial owners or holders of 5% or more of our outstanding common stock
as of March 31, 2004. We are not required by Japanese law to disclose
beneficial ownership of our common stock. As explained in Reporting
Requirements of Shareholders  Report of Substantial Shareholdings in Item
10.B of this annual report on Form 20-F, any person who becomes, beneficially
and solely or jointly, a holder of more than 5% of our outstanding common stock
must file a report with the relevant local finance bureau of the Ministry of
Finance. The information in this table is based upon our shareholders of
record and reports filed with the Financial Services Agency and U.S. Securities
and Exchange Commission. The shareholdings of the major shareholders in the
table below overlap to the extent that multiple individuals may be deemed to
share beneficial ownership over the same shares: Percentage ofNumber of Shares of
    
    Common StockShareholders
    
    Common Stock Owned
    
    OutstandingKunihiko
Sakioka (1)(2)
    
    
    78,415,960
    
    
    
    31.1
    %Hideo
Sakioka (2)(3)
    
    
    77,346,880
    
    
    
    30.6Midori
Moriyama (2)(4)
    
    
    38,992,096
    
    
    
    15.4Michimasa
Sakioka (2)(5)
    
    
    38,745,504
    
    
    
    15.3Japan Trusty Services Bank Co., Ltd.
    
    
    15,067,000
    
    
    
    6.0Master Trust Bank of Japan, Ltd.
    
    
    14,552,000
    
    
    
    5.8
   (1)
    
    Comprises 9,209,992 shares over which Kunihiko Sakioka had sole voting
and dispositive power; 34,968,960 shares held by Nissin Building over
which Kunihiko Sakioka may be deemed to share voting and dispositive power
with Hideo Sakioka, Michimasa Sakioka and Midori Moriyama; and 34,237,008
shares held by Shuho over which Kunihiko Sakioka and Hideo Sakioka may be
deemed to share voting and dispositive power.(2)
    
    Excludes shareholdings of other Sakioka family members. Members of the
Sakioka family, including the ones listed above, directly and indirectly
held an aggregate of 106,343,404 shares, or 42.1% of our outstanding
shares of common stock, as of March 31, 2004.(3)
    
    Comprises 8,140,912 shares over which Hideo Sakioka had sole voting and
dispositive power; 34,968,960 shares held by Nissin Building over which
Hideo Sakioka may be deemed to share voting and dispositive power with
Kunihiko Sakioka, Michimasa Sakioka and Midori Moriyama; and 34,237,008
shares held by Shuho over which Hideo Sakioka and Kunihiko Sakioka may be
deemed to share voting and dispositive power.(4)
    
    Comprises 4,023,136 shares over which Midori Moriyama had sole voting and
dispositive power; and 34,968,960 shares held by Nissin Building over
which Midori Moriyama may be deemed to share voting and dispositive power
with Hideo Sakioka, Kunihiko Sakioka and Michimasa Sakioka.(5)
    
    Comprises 3,776,544 shares over which Michimasa Sakioka had sole voting
and dispositive power; and 34,968,960 shares held by Nissin Building over
which Michimasa Sakioka may be deemed to share voting and dispositive
power with Hideo Sakioka, Kunihiko Sakioka and Midori Moriyama. -74-




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According to our register of shareholders, as of March 31, 2004, 27
shareholders of record with addresses in the United States held 2.52% of our
outstanding common stock. To our knowledge, we are not directly or indirectly owned or controlled by
any government. We know of no arrangements the operation of which may at a
later time result in a change of control of us. Our major shareholders have
the same voting rights as other holders of our common stock.  B.
    Related Party Transactions. Since April 1, 2003, we have not entered into any material related-party
transactions other than those discussed below. Transactions with Any of Our Directors, Corporate Officers, Statutory Auditors
or Companies with Whom They Have a Relationship Transactions with Shuho As of March 31, 2004, members of the Sakioka family owned 100% of Shuho.
Since April 1, 2003, we have paid ¥1 million to Shuho for insurance policies,
and have received ¥1 million in rent for office space we rent to Shuho. The
terms of these transactions were determined in reference to equivalent
transactions with unrelated parties, and the prices for these transactions were
equivalent to those set for the equivalent transactions. Following the
establishment in April 2003 of Nissin Insurance Co., Ltd., a
wholly-owned
subsidiary that provides insurance agency services to us, we no longer receive
insurance agency services from Shuho. Transactions with Nissin Building As of March 31, 2004, members of the Sakioka family owned 93.3% of Nissin
Buildings. Since April 1, 2003, we have received ¥2 million in rent for office
space and parking lots we rent to Nissin Building. The terms of these
transactions were determined in reference to equivalent transactions with
unrelated parties, and the prices for these transactions were equivalent to
those set for the equivalent transactions. Transactions with Michimasa Sakioka Michimasa Sakioka is the elder brother of Kunihiko Sakioka, our president
and representative director. On March 31, 2003, we received an advance payment
from Michimasa Sakioka in the amount of ¥9 million in connection with his
purchase of real estate property from us. He paid ¥77 million to us on April
28, 2003 for a total purchase price of ¥86 million. The purchase price was
determined based on a third-party real estate appraisal. Transactions with Susumu Sakioka Susumu Sakioka is the nephew of Hideo Sakioka, our chairman and
representative director. On March 18, 2004, we received ¥117 million from
Susumu Sakioka in connection with his purchase of a 90% equity interest in Big
Apple, our subsidiary. The purchase price was determined based on a
third-party market value assessment. -75-




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Transactions with Any of Our Principal Shareholders or Affiliates Transactions with Ascot As of March 31, 2004, we owned 25% of Ascot. Since April 1, 2003, we have
paid commissions on customer referrals of ¥35 million to Ascot. The terms of
these transactions were determined in reference to equivalent transactions with
unrelated parties, and the prices for these transactions were equivalent to
those set for the equivalent transactions. Transactions with Shinsei Business Finance As of March 31, 2004, we owned 25% of Shinsei Business Finance. Since
April 1, 2003, we have paid commissions on customer referrals of ¥11 million
to, and received agency commissions of ¥16 million, loan guarantee fees of ¥90
million and bank loan guarantee fees of ¥6 million from, Shinsei Business
Finance. The terms of these transactions were determined in reference to
equivalent transactions with unrelated parties, and the prices for these
transactions were equivalent to those set for the equivalent transactions. Transactions with Webcashing.com As of March 31, 2004, we owned 38% of Webcashing.com. Since April 1,
2003, we have paid commissions on customer referrals of ¥291 million and other
fees of ¥10 million to, and received proceeds from sale of equipment and
software of ¥22 million from, Webcashing.com. The terms of these transactions
were determined in reference to equivalent transactions with unrelated parties,
and the prices for these transactions were equivalent to those set for the
equivalent transactions.  C.
    Interests of Experts and Counsel. Not applicable. 
 Item 8.   Financial Information.  A.
    Consolidated Statements and Other Financial Information. Financial Statements The consolidated financial statements required by this item begin on page
F-1 in this annual report on Form 20-F. Legal or Arbitration Proceedings The information on legal or arbitration proceedings required by this item
is set forth in Item 4.B. of this annual report on Form 20-F. Dividend Policy Cash Dividends Historically we have paid cash dividends twice per year. Our board of
directors recommends the year-end dividend to be paid following the end of each
fiscal year. This recommended dividend is subject
to approval by shareholders
at the general meeting of shareholders required held -76-




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in June of each year.
Following approval of a year-end dividend at our annual shareholders meeting,
we pay the approved year-end dividend to shareholders of record as of March 31.
In addition to these year-end dividends, historically we have paid interim
dividends in the form of cash distributions from our retained earnings to our
shareholders of record as of September 30 in each year. These are approved by
resolution of our board of directors and without shareholder approval. We
normally pay these interim dividends in December. The following table shows the year-end and interim dividends paid to
shareholders of record of our common stock. Dividends per share (As
adjusted) presents each dividend payments as adjusted to reflect the
three-for-one stock split that took effect on May 21, 2001, the two-for-one
stock split that took effect on May 21, 2002, the two-for-one stock split that
took effect on May 20, 2003, and the two-for-one stock split that took effect
on May 20, 2004: Dividends per
    
    Dividends pershare
    
    shareRecord Date
    
    (Actual)
    
    (As adjusted)September 30, 1999 (interim)
    
    
    ¥25.00
    
    
    
    ¥1.04March 31, 2000
    
    
    35.00
    
    
    
    1.46September 30, 2000 (interim)
    
    
    35.00
    
    
    
    1.46March 31, 2001
    
    
    35.00
    
    
    
    1.46September 30, 2001 (interim)
    
    
    12.50
    
    
    
    1.57March 31, 2002
    
    
    12.50
    
    
    
    1.57September 30, 2002 (interim)
    
    
    6.50
    
    
    
    1.63March 31, 2003
    
    
    8.50
    
    
    
    2.13September 30, 2003 (interim)
    
    
    3.75
    
    
    
    1.88March 31, 2004
    
    
    4.75
    
    
    
    2.38
 We presently intend to continue to pay cash dividends on a semi-annual
basis and to provide a stable level of dividends to our shareholders. The
declaration and payment of dividends, however, depend on our future earnings,
financial condition and other factors, including statutory and other
restrictions on the payment of dividends. Dividends paid to shareholders outside Japan on shares of our common
stock, including shares represented by ADSs, are generally subject to a
Japanese withholding tax at the maximum rate of 20%. Reduced rates for
withholding apply to shareholders in some countries that have income tax
treaties with Japan. The withholding rate for U.S. holders is generally 10%,
subject to a temporary measurement. See Japanese Tax Considerations in Item
10.E of this annual report on Form 20-F. There are generally no U.S. or Japanese governmental restrictions on the
distribution of dividends to our shareholders. Stock Repurchases The following table shows information about our repurchases, net of
distributions, since we began repurchasing our shares, following the amendments
to the Commercial Code of Japan in October 2001: -77-




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NetNumber of
    
    Aggregate
    
    Number of
    
    Aggregate
    
    Number of
    
    aggregaterepurchased
    
    repurchase
    
    shares
    
    sale
    
    repurchased
    
    purchaseYear ended/ending March 31,
    
    shares
    
    price
    
    sold
    
    price
    
    shares, net
    
    price(in million)
    
    
    
    
    
    (in million)
    
    
    
    
    
    (in million)2002
    
    
    1,605,136
    
    
    
    ¥347
    
    
    
    
    
    
    
    ¥
    
    
    
    1,605,136
    
    
    
    ¥3472003
    
    
    10,803,144
    
    
    
    2,493
    
    
    
    80,000
    
    
    
    20
    
    
    
    10,723,144
    
    
    
    2,4732004
    
    
    6,007,418
    
    
    
    1,209
    
    
    
    1,340,400
    
    
    
    338
    
    
    
    4,667,018
    
    
    
    8712005 (through July 20, 2004)
    
    
    2,169
    
    
    
    1
    
    
    
    1,027,000
    
    
    
    259
    
    
    
    (1,024,831
    )
    
    
    (258
    )
 At our general shareholders meeting in June 2004, our shareholders
approved an amendment to our article of incorporation, which permits us to
repurchase our shares by resolution of our board of directors.  B.
    Significant Changes. Except as otherwise disclosed in this annual report on Form 20-F, there
has been no significant change in our financial condition since March 31, 2004,
the date of our last audited financial statements. 
 Item 9.   The Offer and Listing.  A.
    Offer and Listing Details. Tokyo Stock Exchange The following table shows the reported high and low sale prices (as
adjusted to reflect stock splits already effected) and the average daily
trading volume of our common stock on the Tokyo Stock Exchange: Price Per Share
    
    Average DailyTrading VolumeYear ended/ending March 31,
    
    High
    
    Low
    
    (in shares)2000
    
    
    ¥373
    
    
    
    ¥133
    
    
    
    ¥712,5842001
    
    
    271
    
    
    
    126
    
    
    
    319,6642002
    
    
    363
    
    
    
    178
    
    
    
    526,4582003
    
    
    285
    
    
    
    180
    
    
    
    504,038First Quarter
    
    
    285
    
    
    
    206
    
    
    
    530,620Second Quarter
    
    
    245
    
    
    
    186
    
    
    
    544,182Third Quarter
    
    
    232
    
    
    
    193
    
    
    
    396,578Fourth Quarter
    
    
    258
    
    
    
    180
    
    
    
    534,9382004
    
    
    464
    
    
    
    189
    
    
    
    697,100First Quarter
    
    
    274
    
    
    
    226
    
    
    
    318,226Second Quarter
    
    
    261
    
    
    
    189
    
    
    
    887,372Third Quarter
    
    
    244
    
    
    
    201
    
    
    
    462,416Fourth Quarter
    
    
    464
    
    
    
    229
    
    
    
    1,126,5722005
    
    
    450
    
    
    
    331
    
    
    
    1,110,425First Quarter
    
    
    450
    
    
    
    331
    
    
    
    1,110,425
 -78-




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Calendar month
    
    Price Per Share
    
    Average DailyTrading VolumeHigh
    
    Low
    
    (in shares)January 2004
    
    
    262
    
    
    
    229
    
    
    
    616,716February 2004
    
    
    338
    
    
    
    256
    
    
    
    1,405,242March 2004
    
    
    464
    
    
    
    320
    
    
    
    1,317,552April 2004
    
    
    449
    
    
    
    378
    
    
    
    819,414May 2004
    
    
    410
    
    
    
    331
    
    
    
    1,053,650June 2004
    
    
    450
    
    
    
    350
    
    
    
    1,434,659
 Share prices on Japanese stock exchanges are determined on a real-time
basis by the equilibrium between bids and offers. These exchanges set daily
price limits, which limit the maximum range of fluctuation within a single
trading day. Daily price limits are set according to the previous days
closing price or special quote. Although transactions may continue at the
upward or downward limit price if the limit price is reached on a particular
trading day, no transactions may take place outside these limits.
Consequently, an investor wishing to sell at a price above or below the
relevant daily limit may not be able to sell his shares at such price on a
particular trading day, or at all. On
July 20, 2004, the closing price of our shares on the Tokyo Stock
Exchange was ¥491 per share. The following table shows selected daily price
limits for a stock on the Tokyo Stock Exchange: Maximum dailyPrevious days closing price or special quote
    
    price movementOver
    
    
    ¥100
    
    
    Less than
    
    
    ¥200
    
    
    
    ¥50Over
    
    
    200
    
    
    Less than
    
    
    500
    
    
    
    80Over
    
    
    500
    
    
    Less than
    
    
    1,000
    
    
    
    100
 New York Stock Exchange The current ADS/share ratio is one ADS per two shares of our common stock.
The following table indicates the trading price of our American Depositary
Shares on the New York Stock Exchange: -79-




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New York StockExchange price perADS
    
    Average dailytrading volume ofYear ended/ending
March 31,
    
    High
    
    Low
    
    ADSs2003
    
    $
    3.62
    
    
    $
    3.00
    
    
    
    7,338Second Quarter (since August 2, 2002)
    
    
    3.96
    
    
    
    3.10
    
    
    
    17,342Third Quarter
    
    
    3.77
    
    
    
    3.23
    
    
    
    3,092Fourth Quarter
    
    
    4.07
    
    
    
    3.00
    
    
    
    4,9042004
    
    
    9.15
    
    
    
    3.19
    
    
    
    3,230First Quarter
    
    
    4.53
    
    
    
    3.92
    
    
    
    2,281Second Quarter
    
    
    4.30
    
    
    
    3.19
    
    
    
    1,796Third Quarter
    
    
    4.51
    
    
    
    3.73
    
    
    
    1,718Fourth Quarter
    
    
    9.15
    
    
    
    4.25
    
    
    
    7,2352005
    
    
    8.31
    
    
    
    5.80
    
    
    
    4,429First Quarter
    
    
    8.31
    
    
    
    5.80
    
    
    
    4,429MonthJanuary 2004
    
    
    4.92
    
    
    
    4.25
    
    
    
    940February 2004
    
    
    6.50
    
    
    
    4.83
    
    
    
    6,537March 2004
    
    
    9.15
    
    
    
    5.80
    
    
    
    13,287April 2004
    
    
    8.31
    
    
    
    7.00
    
    
    
    4,876May 2004
    
    
    7.22
    
    
    
    5.80
    
    
    
    6,805June 2004
    
    
    8.25
    
    
    
    6.65
    
    
    
    1,719
 The table above has been adjusted to reflect the two-for-one stock split
that took effect on May 20, 2004.  B.
    Plan of Distribution. Not applicable.  C.
    Markets. In Japan, our common stock has been listed on the First Section of the
Tokyo Stock Exchange since September 1999. In September 2002, we delisted our
shares from the Osaka Securities Exchange, where our shares had been traded
since September 1999. Our common stock began trading on the Japan Securities
Dealers Associations over-the-counter market in April 1994. In August 2002, we listed our common stock on the New York Stock Exchange
in the form of ADSs evidenced by ADRs. For further information regarding our
American Depositary Receipt program, see our registration statement filed with
the Securities and Exchange Commission on Form F-1 (File No. 333-97229)
declared effective on August 1, 2002.  D.
    Selling Shareholders. Not applicable.  E.
    Dilution. Not applicable. -80-




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F.
    Expenses of the Issue. Not applicable. 
 Item 10.   Additional Information.  A.
    Share Capital. Not required.  B.
    Memorandum and Articles of Association. Purposes in Our Article of Incorporation Article 2 of our articles of incorporation states our purposes as follows:  
    
    Consumer financing, commercial financing and the business of
mediation, guarantee and agency for these financings;
    
    Lease, rent, sale, purchase and intermediation of real estate;
    
    Sale and purchase of securities;
    
    Non-life insurance agency business, activities relating to
the offering of life insurance agency business pursuant to the
Automobile Liability Indemnity Law of Japan;
    
    Investment and managements consulting services for business organizations;
    
    Collection agency;
    
    Computation surrogate business;
    
    Contract for advertising and general publicity;
    
    Factoring;
    
    Development and sale of computer software;
    
    Sale of computers and their peripherals;
    
    Operation and lease of sport peripherals;
    
    Corporate accounting and labor management surrogate business;
    
    Internet service provider business;
    
    Advertising and general publicity business on the Internet;
    
    Intermediation of money loans by utilizing the Internet; -81-




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
    
    Business concerning acceptance of planning, development and
production of software relating to the Internet, and consulting
services therefor;
    
    Business relating to general bridal services;
    
    Business of planning, managing and coordinating various kinds of events;
    
    Business relating to the giving of various kinds of culture
classes and classes for acquiring various kinds of licenses;
    
    Planning and production of advertisements and general publicity, and advertising agency;
    
    Business of offering compulsory automobile inspection services; and
    
    All activities incidental to any of the foregoing items. Provisions Regarding Our Directors There is no provision in our articles of incorporation as to our
directors power to vote on a proposal, arrangement or contract in which a
director is materially interested. The Commercial Code of Japan, however,
requires a director to refrain from voting on such matters at meetings of the
board of directors. The Commercial Code provides that compensation for directors be determined
at a general meeting of shareholders. Our board of directors will determine
the compensation for each director without exceeding the upper limit on the
aggregate amount of compensation for directors as a group approved by the
shareholders meeting. Our board of directors may, by its resolution, leave
this decision to the discretion of our president. The Commercial Code provides that the board of directors must approve
significant loans from any third party to the company. Our regulations of the
board of directors have adopted this policy. Neither the Commercial Code nor our articles of incorporation set a
mandatory retirement age for our directors. There is no requirement concerning the number of shares an individual must
hold to qualify as a director under the Commercial Code or our articles of
incorporation. Rights of Our Shareholders On June 24, 2004, our general shareholders meeting amended our articles
of incorporation to increase our authorized share capital from 480 million
shares to 960 million shares. Rights with Respect to Dividends, Stock Repurchases and Stock Splits Dividends Under our articles of incorporation, our financial accounts are closed on
March 31 of each year, and we pay annual dividends, if any, to shareholders,
beneficial shareholders and pledgees of record as of that date. The Japanese
Commercial Code permits a joint stock corporation to distribute profits by
interim dividends as cash distributions if its articles of incorporation
so provide. Our articles of incorporation permit us -82-




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to make interim dividends
and we pay these interim dividends, if any, to shareholders, beneficial
shareholders and pledgees of record as of September 30 of each year by
resolution of the board of directors. Under our articles of incorporation, we
are not obligated to pay any dividends left unclaimed for a period of three
years after the date on which they first became payable. For information as to
Japanese taxes on dividends, see Japanese Tax Considerations in Item 10.E of
this annual report on Form 20-F. The Commercial Code provides that, until the aggregate of our legal
reserve and additional paid-in capital is at least one-quarter of our stated
capital, we may not make any distribution of profits by way of annual cash
dividends or interim dividends unless we set aside in our legal reserve an
amount equal to at least one-tenth of any amount paid out by us as an
appropriation of retained earnings, including any payment by way of annual
dividends and bonuses to directors and statutory auditors, or equal to
one-tenth of any interim dividend. We may distribute profits by annual dividends out of the excess of our net
assets, on a non-consolidated basis, over the aggregate of:  
    
    our stated capital;
    
    our additional paid-in capital;
    
    our accumulated legal reserve;
    
    the legal reserve to be set aside for the fiscal year;
    
    the excess, if any, of unamortized expenses incurred in
preparation for commencement of business and in connection with
research and development over the aggregate of the amounts listed
above other than our stated capital; and
    
    the excess, if any, of the aggregate market value of assets
stated at market value pursuant to the Commercial Code over their
aggregate acquisition cost. In the case of interim dividends, we calculate our net assets by reference
to the balance sheet at the last closing of our accounts. The assets, however,
are adjusted to reflect:  
    
    any subsequent payment made by appropriation of retained
earnings and transfer to legal reserve following the payment;
    
    any subsequent transfer of retained earnings to stated
capital; and
    
    if a resolution of an ordinary general shareholders meeting
has authorized us to acquire our shares, the total purchase price of
those shares by us, so long as the resolution has not expired and
regardless of whether or not the shares are purchased. We may not pay any interim dividends where the amount of our net assets
does not exceed at the end of the fiscal year the aggregate of our stated
capital, our additional paid-in capital, our accumulated legal reserve, the
legal reserve for the fiscal year and other items listed above. -83-




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In Japan, the ex-dividend date and record date for dividends precede the
date of determination of the amount of the dividend. The price of our shares
generally goes ex-dividend on the third business day prior to the record date. Repurchase of Our Shares Following the amendments effective as of October 1, 2001, except as
otherwise permitted by the Commercial Code, we may acquire our shares for any
purpose subject to the authorization of shareholders at an ordinary general
shareholders meeting or a resolution of the board of directors pursuant to our
articles of incorporation. Shares on a Japanese stock exchange or traded in
the over-the-counter market may be acquired (i) through the public stock
market, (ii) by tender offer or (iii) with purchase from specific shareholders
(authorized by a special resolution at the ordinary shareholders meeting)
during the period up to the close of the following ordinary general
shareholders meeting. Any acquisition of shares must satisfy the requirement
that the total purchase price not exceed the aggregate of:  
    
    the retained earnings available for year-end dividend payment
(after taking into account any reduction of the stated capital,
additional paid-in capital or legal reserve, if the reduction of the
stated capital, additional paid-in capital or legal reserve is
authorized at the same ordinary general meeting of shareholders),
less
    
    the sum to be paid by appropriation of retained earnings for
the fiscal year and any transfer of retained earnings to stated
capital. We may hold our own shares acquired in compliance with the Commercial Code
and may generally cancel or dispose of those shares by a resolution of our
board of directors. In addition, we may acquire our shares by:  
    
    repurchasing those that constitute less than one unit upon the request of their holder,
    
    repurchasing those from our subsidiary company,
    
    redeeming redeemable shares or
    
    a business transfer, merger or corporate split. Stock Splits We may at any time split our shares in issue by resolution of our board of
directors. When our board of directors approves a stock split, we may amend
our articles of incorporation without shareholder approval to increase the
number of our authorized shares in proportion to the stock split if we have
only one class of outstanding shares. Generally, shareholders do not need to exchange share certificates for new
ones following a stock split, but certificates representing the additional
shares resulting from the stock split will be issued to shareholders. Before a
stock split, we must give public notice of the stock split, specifying the
record date for the stock split, not less than two weeks prior to the record
date. In addition, promptly after the stock split takes effect, we must send
notice to each shareholder specifying the number of entitled shares. -84-




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Voting Rights A shareholder is generally entitled to one vote per one unit of our
shares. In general, under the Japanese Commercial Code, a general meeting of
shareholders may adopt a resolution by a majority of the voting rights
represented at the meeting. The Japanese Commercial Code and our articles of
incorporation require a quorum for the election of directors and statutory
auditors of not less than one-third of the total number of voting rights held
by all shareholders. Our shareholders are not entitled to cumulative voting in
the election of directors. A corporate shareholder, having more than
one-quarter of its voting rights directly or indirectly held by us, does not
have voting rights. We have no voting rights with respect to our own common
stock. Shareholders may exercise their voting rights through proxies, provided
that those proxies are also shareholders who have voting rights. Our
shareholders also may cast their votes in writing. Our board of directors may
entitle our shareholders to cast their votes by electrical devices. Following the April 1, 2003 amendments of the Japanese Commercial Code,
our articles of incorporation provide for a quorum of one-third of voting
rights and approval of two-thirds of the voting rights presented at the meeting
of any material corporate actions such as:  
    
    a reduction of the stated capital,
    
    amendment of the articles of incorporation (except amendments
that the board of directors are authorized to make under the
Commercial Code as described in  Rights with Respect to
Dividends, Stock Repurchases and Stock Splits above and
Limitations Affecting Security Holders  Japanese Unit Share
System below),
    
    the removal of a director or statutory auditor,
    
    establishment of a 100% parent-subsidiary relationship
through a share exchange or share transfer requiring shareholders
approval,
    
    a dissolution, merger or consolidation requiring shareholders approval,
    
    a company split requiring shareholders approval,
    
    a transfer of the whole or an important part of our business,
    
    the taking over of the whole of the business of any other
corporation requiring shareholders approval, and
    
    issuance of new shares at a specially favorable price (or any
issuance of share subscription options or bonds with share
subscription options with specially favorable conditions) other than
a subscription right offer to whole shareholders. The depositary will endeavor to vote deposited shares based in accordance
with instructions from ADR holders. With respect to voting by holders of ADRs,
see Exhibit 2.2 to this annual report on Form 20-F for a form of our deposit
agreement. -85-




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Subscription Rights Holders of our shares have no preemptive rights under our articles of
incorporation. Under the Japanese Commercial Code, the board of directors may
determine that shareholders receive subscription rights in connection with a
particular issue of new shares. In this case, we must give the rights on
uniform terms to all of our shareholders as of a specified record date by at
least two weeks prior public notice to shareholders of the record date. Each
of these shareholders must receive an individual notice at least two weeks
prior to the date of expiration of the subscription rights. The board of directors may make rights to subscribe for new shares at or
substantially below the market price of shares. Accordingly, rights offerings
can result in substantial dilution or prevent rights holders from realizing the
economic value of those rights. Liquidation Rights In the event of liquidation, our assets remaining after payment of all
debts, liquidation expenses and taxes will be distributed among our
shareholders in proportion to the number of shares they own. Liability to Further Calls or Assessments All of our currently outstanding shares are fully paid and nonassessable. Shareholders Rights to Bring Actions Against Directors The Japanese Commercial Code contains provisions that allow shareholders
who have held our shares for six months to demand our board of directors to
observe its duties to protect the company. Derivative actions may be brought
in situations including where the company lends money to directors, engages in
self-interested transactions or violates any law, ordinance or the articles of
incorporation. If our board of directors has not instituted an action within
thirty days of the shareholders demand, the shareholder may initiate a lawsuit
as a derivative action. The Commercial Code also provides an exception to the
thirty day waiting period, when a wait of thirty days might cause the company
irreparable damage. In these cases, the shareholder may institute the action
immediately, but must notify the company without delay. For example, if we
could suffer irreparable damage from an illegal act of our director, a
shareholder who has owned a share continuously for the previous six months may
seek a provisional injunction prohibiting the director from performing the
illegal act. In addition, pursuant to the Commercial Code, shareholders have a
right to institute a direct lawsuit for recovery of monetary damages against a
director, statutory auditor or accountant if any such officer causes damage to
a shareholder by his or her gross negligence or willful conduct. Limitations Affecting Security Holders Japanese Unit Share System Recent amendments to the Japanese Commercial Code abolished the unit share
system called tan-i-kabu as of October 1, 2001, and introduced a new unit
share system called tan-gen-kabu. These legal changes deem us to have amended
our articles of incorporation as of October 1, 2001, so that 100 shares now
constitute one new unit of our shares. The Commercial Code currently permits
our board of directors by itself to reduce, but not to increase, the number of
shares that will constitute a new unit or abolish the new unit share system
entirely by a board resolution. An increase in the number of shares that
constitute a unit requires a general shareholders meeting. In any case, the
number of shares constituting
a new unit may not exceed the fewer of 1,000 shares and one-two hundredths
(1/200) of the number of all issued shares. -86-




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Under the new unit share system, shareholders have one voting right for
each unit of shares they hold. Any number of shares less than a full unit
carries all shareholders rights except for those relating to voting rights. Our articles of incorporation provide that no share certificates will be
issued with respect to any number of shares constituting less than one unit.
As the transfer of shares normally requires delivery of share certificates, any
fraction of a unit for which no share certificates are issued is
non-transferable. Right of a Holder of Shares Representing Less Than One Unit to Require Us to Purchase Its Shares A holder of our shares representing less than one unit may at any time
require us (through a participating institution in the case of a beneficial
shareholder under the central clearing system) to purchase them at their last
selling price as reported by the Tokyo Stock Exchange on the day of the
request. Alternatively, if the stock exchange does not report any sale of our
shares on the day of the request, the holder of these shares may require us to
purchase them at their first subsequent trading price on the stock exchange,
less any applicable brokerage commission. Because holders of our ADRs
representing less than one unit cannot withdraw the underlying shares from
deposit, however, these holders will not be able to exercise this right as a
practical matter. Other Rights of a Holder of Shares Representing Less Than One Unit A holder of our shares representing less than one unit has the following rights:  
    
    to receive distribution of dividends of profit or interest,
    
    to acquire shares and/or cash by way of retirement,
consolidation, division, conversion, exchange or transfer of shares,
company split or merger,
    
    to be allotted rights to subscribe for new shares and other
securities when we grant the rights to shareholders;
    
    to participate in any distribution of surplus assets upon
liquidation; and
    
    to bring a derivative action and a lawsuit seeking to enjoin
directors illegal activities that may cause irreparable damage to
the company. Voting Rights of a Holder of Shares Representing Less Than One Unit A holder of our shares representing less than one unit cannot exercise any
voting rights pertaining to those shares. For calculation of the quorum for
various voting purposes, we will exclude the aggregate number of shares
representing less than one unit from the number of voting rights. A holder of
shares representing one or more whole units will have one vote for each one
unit of shares except as stated in Rights of Our Shareholders  Voting Rights
above. -87-




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Rights of Foreign Investors Other than the Japanese unit share system described above, the laws of
Japan, our articles of incorporation and our other constituent documents do not
limit the rights of non-residents or foreign shareholders to hold or exercise
voting rights on our shares. Reporting Requirements of Shareholders Report of Substantial Shareholdings The Securities and Exchange Law of Japan requires any holder of shares,
including in the form of ADRs, who has become a holder of more than 5% of the
total issued shares of a company listed on any Japanese stock exchange or whose
shares are traded on the over-the-counter market to file with the relevant
local finance bureau of the Ministry of Finance, within five business days, a
report concerning those shareholdings. A holder must file a similar report to
reflect any change of 1% or more in any shareholding. Copies of any reports
must also be furnished to us and to all Japanese stock exchanges on which our
shares are listed or, in the case of shares traded on the over-the-counter
market, the Securities Dealers Association of Japan. For this purpose, shares
issuable upon exercise of share subscription options are taken into account in
determining both the number of shares held by that holder and our total issued
share capital. As a result, the above reporting requirements will apply to
holders of more than 5% of our total issued shares including such subscription
options and bonds with share subscription options. Acquisition or Disposition of Shares or ADSs In general, non-residents of Japan and corporations whose principal
offices are located outside Japan may acquire shares of stock of a Japanese
company listed on any Japanese stock exchange or traded in any over-the-counter
market in Japan from resident of Japan without any restriction but subject to
the requirement under the foreign exchange regulations and securities law as
described below. Under the Foreign Exchange and Foreign Trade Law, foreign
exchange and foreign trade transactions are, with minor exceptions relating to
inward direct investments generally inapplicable to our shares, only subject to
post transaction reporting requirements. Non-residents of Japan, including
foreign corporations not resident in Japan, who acquire or dispose of shares of
common stock or ADSs, are generally not required to submit post transaction
reports. The Minister of Finance, however, has the power to impose a licensing
requirement for transactions in limited circumstances. If a foreign investor:  
    
    acquires shares of a Japanese company listed on a Japanese
stock exchange or traded on an over-the-counter market in Japan and
    
    as a result of this acquisition, directly or indirectly
holds, aggregated with existing holdings, 10% or more of the issued
 shares of the company, the foreign investor is, in general, required to report the acquisition to the
Minister of Finance and any other competent ministers within 15 days from and
including the date of acquisition. In exceptional cases, a prior notification
is required in respect of the acquisition. -88-




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Ordinary General Meeting of Shareholders We normally hold our ordinary general meeting of shareholders in June of
each year in Matsuyama, or in a neighboring area, or Shinjuku, Tokyo. In
addition, we may hold an extraordinary general meeting of shareholders whenever
necessary by giving at least two weeks advance notice stating the place, time,
and purpose of the meeting. Under the Japanese Commercial Code, notice of any
shareholders meeting must be given to each shareholder having voting rights
or, in the case of a non-resident shareholder, to its resident proxy or mailing
address in Japan in accordance with our share handling regulations, at least
two weeks prior to the date of the meeting. Clearing System for Our Shares A holder of our shares may choose to participate, directly or indirectly,
in the central clearing system for share certificates under the Law Concerning
Central Clearing of Share Certificates and Other Securities of Japan.
Participating shareholders must deposit certificates representing all of their
shares with the Japan Securities Depository Center, or JASDEC, the depositary
under the clearing system. If a holder is not a participating institution such
as a securities company or bank having a clearing account with the clearing
system, it must participate through a participating institution. All shares
deposited with the clearing system will be registered in the name of the
clearing system on our register of shareholders. Each participating
shareholder will in turn be registered on our register of beneficial
shareholders and be treated in the same way as shareholders registered on our
register of shareholders. Delivery of share certificates is not necessary for
transfer of deposited shares. Entry of the share transfer in the books
maintained by the clearing system for participating institutions, or in the
book maintained by a participating institution for its customers, has the same
effect as delivery of share certificates. The registered beneficial owners may
exercise the rights attached to their shares, such as voting rights, and will
receive dividends (if any) and notices to shareholders directly from us. The
shares held by a person as a registered shareholder and those held by the same
person as a registered beneficial owner are aggregated for these purposes.
Beneficial owners may at any time withdraw their deposited shares and receive
share certificates. Settlement for Our Shares Settlement of a transaction concerning shares listed on any of the stock
exchanges in Japan will normally occur on the fourth dealing day after the
transaction. Settlement in Japan is made by physical delivery of share
certificates or through JASDEC as described above. As described above, shareholders not resident in Japan are required to
provide a mailing address within Japan or to appoint a standing proxy in Japan.
A local standing proxy can usually handle the transfer of shares and
registration of purchases and the application for reduced withholding tax. See
Japanese Tax Considerations in Item 10.E of this annual report on Form 20-F. Transfer Agent for Our Shares The Mitsubishi Trust and Banking Corporation is the transfer agent for our
shares. Its office is located at 4-5, Marunouchi 1-chome, Chiyoda-ku, Tokyo
100-8212, Japan. The Mitsubishi Trust and Banking Corporation maintains our
register of shareholders and records transfers of record ownership upon
presentation of share certificates. -89-




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Record Date for Our Shares The close of business on March 31 is the record date for our year-end
dividends, if paid, and the close of business on September 30 is the same for
our interim dividends, if paid. We set March 31 as the record date for
determining shareholders entitled to vote at the ordinary general meeting of
shareholders. In addition, we may set a record date, or close our register of
shareholders, for a period not in excess of three months at any one time, for
determining the shareholders entitled to other rights and for other purposes by
giving at least two weeks prior public notice. The trading of our shares and
the delivery of certificates therefore may continue while the register of
shareholders is closed. Our shares are generally traded ex-dividend or ex-rights in the Japanese
stock exchanges on the third business day before a record date (or if the
record date is not a business day, the fourth business day prior thereto), for
the purpose of dividends or rights offerings. C. Material Contracts. We have not been a party to any material contract other than contracts
entered into in the ordinary course of business, since April 1, 2002. D. Exchange Controls. There are no laws, decrees, regulations or other legislation that affect
our ability to import or export capital for our use or our ability to pay
dividends to nonresident holders of our shares. E. Taxation. United States Tax Considerations This section, United States Tax Considerations, describes the material
U.S. federal income tax consequences of owning shares or ADSs. This section
applies to you only if you hold your shares or ADSs as capital assets for tax
purposes. This section does not apply to you if you are a member of a special
class of holders subject to special rules, including:  
    
    a dealer in securities,
    
    a trader in securities that elects to use a mark-to-market
method of accounting for your securities holdings,
    
    a tax-exempt organization,
    
    a life insurance company,
    
    a person liable for alternative minimum tax,
    
    a person that actually or constructively owns 10% or more of our voting stock,
    
    a person that holds shares or ADSs as part of a straddle or a
hedging or conversion transaction, or
    
    a person whose functional currency is not the dollar. -90-




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This section is based on the U.S. Internal Revenue Code of 1986, as
amended, its legislative history, existing and proposed regulations, published
rulings and court decisions, all as currently in effect, as well as on the
Convention Between the Government of the United States of America and the
Government of Japan for the Avoidance of Double Taxation and the Prevention of
Fiscal Evasion with Respect to Taxes on Income (the Treaty). These laws are
subject to change, possibly on a retroactive basis. In addition, this section
is based in part upon the representations of the depositary and the assumption
that each obligation in the deposit agreement and any related agreement will be
performed in accordance with its terms. You are a U.S. holder if you are a beneficial owner of shares or ADSs and you are:  
    
    a citizen or resident of the United States,
    
    a corporation created or organized under the laws of the
United States or any of its political subdivisions,
    
    an estate whose income is subject to U.S. federal income tax
regardless of its source, or
    
    a trust if a U.S. court can exercise primary supervision over
the trusts administration and one or more U.S. persons are
authorized to control all substantial decisions of the trust.  You should consult your own tax advisor regarding the United States
federal, state and local and other tax consequences of owning and
disposing of shares and ADSs in your particular circumstances. In general, and taking into account the earlier assumptions, for U.S.
federal income tax purposes, if you hold ADRs evidencing ADSs, you will be
treated as the owner of the shares represented by those ADRs. Exchanges of
shares for ADRs, and ADRs for shares, generally will not be subject to U.S.
federal income tax. Passive Foreign Investment Company Rules As we expect 50% or more of our gross asset value will constitute passive
assets, meaning assets not constituting part of a trade or business, as
determined for passive foreign investment company purposes, we expect that our
shares and ADSs will be treated as stock of a passive foreign investment
company, or PFIC, every year for U.S. federal income tax purposes, and except
as otherwise stated, the remainder of this discussion so assumes. The
conclusion is a factual determination made annually, which we will update in
our future reports on Form 20-F. In addition, we expect that our subsidiaries
will be treated as PFICs for U.S. federal income tax purposes. You will be
treated as an indirect shareholder of your proportionate interest in the shares
of such subsidiaries. U.S. holders of shares or ADSs of a PFIC must file U.S. Internal Revenue
Service Form 8621 every year in which they continue to hold such shares. If you are a U.S. holder you will be subject to the special PFIC tax rules
or, if you make a mark-to-market election, the mark-to-market rules. -91-




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Special PFIC Tax Rules This subsection applies to you if you are a U.S. holder and do not make a
mark-to-market election. You will be subject to special PFIC tax rules with
respect to:  
    
    any gain you realize on the sale or other disposition of your
 shares or ADSs (including the pledging of your shares or ADSs as
security for a loan) and
    
    any excess distribution, a distribution in excess of a normal
rate of distribution as calculated for PFIC purposes, that we make
to you (generally, any distributions to you during a single taxable
year that are greater than 125% of the average annual distributions
received by you in respect of the shares or ADSs during the three
preceding taxable years or, if shorter, your holding period for the
 shares or ADSs). In addition, if any of our subsidiaries are deemed a PFIC, a distribution
from that subsidiary to us, a disposition of that subsidiary by us, or a
transaction through which your indirect ownership of such subsidiary is
decreased (including additional offerings of our shares or ADSs) will be
treated as a distribution or disposition subject to the special PFIC tax rules.
You will be entitled, however, to increase your basis in the shares or ADSs
you directly own to reflect the gain realized upon such distributions, or
dispositions. Moreover, you will not be taxed when we distribute to you the
income that you already included in income for tax purposes. Under these special PFIC tax rules:  
    
    the gain or excess distribution will be allocated ratably
over your holding period for the shares or ADSs,
    
    the amount allocated to the taxable year in which you
realized the gain or excess distribution will be taxed as ordinary
income,
    
    the amount allocated to each prior year, with certain
exceptions, will be taxed at the highest tax rate in effect for that
year and
    
    the interest charge generally applicable to underpayments of
tax will be imposed in respect of the tax attributable to each such
prior year. Amounts subject to these special PFIC tax rules will not be eligible for the
dividends-received deduction generally allowed to U.S. corporations in respect
of dividends received from other U.S. corporations. In addition, dividends
that you receive from us will not constitute qualified dividend income to you
if we are a PFIC either in the taxable year of the distribution or the
preceding taxable year. Dividends that you receive that do not constitute
qualified dividend income are not eligible for taxation at the 15% maximum rate
applicable to qualified dividend income even if the dividend does not
constitute an excess distribution. Instead, you must include the gross amount
of any such dividend paid by us out of our accumulated earnings and profits (as
determined for United States federal income tax purposes) in your gross income,
and it will be subject to tax at rates applicable to ordinary income. If you receive distributions that are not subject to the special PFIC tax
rules (i.e., your shares or ADSs are not treated as stock of a PFIC), you must
include in your gross income the gross amount of any dividend paid by us out of
our current or accumulated earnings and profits (as determined for U.S. federal
income tax purposes). You must include any Japanese tax withheld from the
dividend payment in this gross -92-




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amount even though you do not in fact receive it. The dividend is
ordinary income that you must include in income at the ordinary income tax rate
when you, in the case of shares, or the depositary, in the case of ADSs,
receive the dividend, actually or constructively. The dividend will not be
eligible for the dividends-received deduction generally allowed to U.S.
corporations in respect of dividends received from other U.S. corporations. The
amount of any distribution that you must include in your income as a U.S.
holder will be the dollar value of the yen payments made, determined at the
spot yen/dollar rate on the date the distribution is includible in your income,
regardless of whether the payment is in fact converted into dollars.
Generally, any gain or loss resulting from currency exchange fluctuations
during the period from the date you include the dividend payment in income to
the date you convert the payment into dollars will be treated as ordinary
income or loss and will not be eligible for the special tax rate applicable to
qualified dividend income. The gain or loss generally will be income or loss
from sources within the United States for foreign tax credit limitation
purposes. If you receive distributions that are not subject to the special
PFIC tax rules and that are in excess of current and accumulated earnings and
profits, as determined for U.S. federal income tax purposes, you will be
treated as having received a non-taxable return of capital to the extent of
your basis in the shares or ADSs and thereafter you will recognize capital
gain, which will be taxed in accordance with the special PFIC tax rules
described above. Mark-to-market Rules The special PFIC tax rules described above will not apply to you if you
make an effective mark-to-market election, that is, you elect to mark-to-market
annually the gains and losses in our shares or ADSs and our shares or ADSs are
treated as marketable stock. Under the mark-to-market rules, you will include
as ordinary income each year the excess, if any, of the fair market value of
your shares or ADSs at the end of the taxable year over your adjusted basis in
your shares or ADSs. These amounts of ordinary income will not be eligible for
the favorable tax rates applicable to qualified dividend income or long-term
capital gains. You may also take an ordinary loss in respect of the excess, if
any, of the adjusted basis of your shares or ADSs over their fair market value
at the end of the taxable year (but only to the extent of the net amount of
previously included income as a result of the mark-to-market election). Your
basis in the shares or ADSs will be adjusted to reflect any such income or loss
amounts. In addition, notwithstanding any election you make with regard to the
shares or ADSs, dividends that you receive from us will not constitute
qualified dividend income to you if we are a PFIC either in the taxable year of
the distribution or the preceding taxable year and such dividends will
therefore not be eligible for taxation at the 15% maximum rate applicable to
qualified dividend income. It is unclear how the mark-to-market rules apply to
a PFIC whose shares are marketable stock, but owns subsidiary PFICs whose
shares are not marketable stock. Please consult your tax advisor as to the availability and tax
consequences of a mark-to-market election. Foreign Tax Credit Subject to the general limitations that apply to the creditability of
foreign income taxes, the Japanese tax withheld in accordance with the Treaty
and paid over to Japan will be creditable against your U.S. federal income tax
liability. To the extent a refund of the tax withheld is available to you
under Japanese law or under the Treaty, the amount of tax withheld that is
refundable will not be eligible for credit against your U.S. federal income tax
liability. Special rules apply for calculating the amount of the foreign tax credit
with respect to excess distributions if you are governed by the special PFIC
tax rules described above. For example, if you did not make a mark-to-market
election, the section 904 tax credit limitation would be applied separately
with respect to the amount of excess distribution allocable to each such
taxable year and carryovers, if any, are not allowed. -93-




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Dividends will be income from sources outside the United States, but
generally will be passive income, which is treated separately from other
types of income for purposes of computing the foreign tax credit allowable to
you. Special rules apply in determining the foreign tax credit limitation with
respect to dividends that are subject to the maximum 15% tax rate. In certain situations as described under Japanese Tax Considerations
below, the purchase in a tender offer and cancellation of shares by us is
treated as a dividend payment for Japanese tax purposes subject to withholding
tax. For U.S. federal income tax purposes, such transactions generally would
not be a taxable event and would not give rise to foreign source income. You
would not be able to use the foreign tax credit arising from the Japanese
withholding tax unless you had additional foreign source income. Japanese Tax Considerations This section, Japanese Tax Considerations, is a summary of the principal
Japanese tax consequences to owners of our shares or ADSs who are non-resident
individuals or non-Japanese corporations without a permanent establishment in
Japan to which the relevant income is attributable. As tax laws are frequently
revised, the statements regarding Japanese tax laws below are subject to
changes in the applicable Japanese laws or tax treaties, conventions or
agreements, or in their interpretation, occurring after the date of this
prospectus. This summary is not exhaustive of all possible tax considerations
that may apply to specific investors under particular circumstances. Potential
investors should satisfy themselves as to:  
    
    the overall tax consequences of the acquisition, ownership
and disposition of our shares or ADSs, including specifically the
tax consequences under Japanese law,
    
    the laws of the jurisdiction of which they are resident, and
    
    any tax treaty between Japan and their country of residence,
by consulting with their own tax advisers. Generally, a non-resident shareholder is subject to Japanese withholding
tax on dividends paid on our shares. Stock splits are generally not subject to
Japanese income or corporation tax, as it is characterized merely as an
increase of number of shares, as opposed to an increase of value of shares,
from Japanese tax perspectives. Due to the 2001 Japanese tax legislation
effective from April 1, 2001, a conversion of retained earnings or legal
reserve (but, in general, other than additional paid-in capital) into stated
capital on a non-consolidated basis is not characterized as a deemed dividend
for Japanese tax purposes, and therefore such a conversion does not trigger
Japanese withholding taxation. Under the 2001 tax legislation, if we purchase our listed shares (i) by a
tender offer or (ii) from a specific shareholder other than through a market
purchase for the purpose of cancellation with retained earnings, the selling
shareholders, whether individuals or corporations, are in general required to
recognize:  
    
    the deemed dividend corresponding to a distribution of
retained earnings proportionally computed by a statutory formula on
a pro rata basis allocating the selling price into the repayment of
share capital portion, including additional paid-in capital, and
retained earnings -94-




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portion on a non-consolidated basis,
and
    
    capital gain or loss computed as a difference between the
basis of shares subject to the tender offer at the shareholders
level and the amount of the consideration for the tender offer,
deducting the amount corresponding to the deemed dividend computed
as (i) above. On the other hand, in the case of individual shareholders, no deemed
dividend is required to be recognized until March 31, 2005 due to the operation
of a temporary measurement. Therefore, they are only required to recognize
capital gain or loss of the shares subject to the tender offer. In the
meantime, when shares are acquired by us, whether by way of a tender offer or
otherwise, for the purpose of cancellation with retained earnings, the
shareholders, whether individuals or corporations, whose shares are not
acquired by us were previously deemed to have received a dividend corresponding
to the notional increase of share value by the share cancellation under the old
tax law before the 2001 tax legislation. However, under the 2001 tax
legislation, no deemed dividend taxation occurs for the remaining shareholders,
whether individuals or corporations, whose shares are not cancelled. Unless a tax treaty, convention or agreement reduces the maximum rate of
withholding tax, the rate of Japanese withholding tax applicable to dividends
on the listed shares paid by us to non-resident shareholders is:  
    
    7% for dividends to be paid between January 1, 2004 and March
31, 2008 as a temporary measurement; and
    
    15% thereafter, except for dividends paid to any individual
shareholder who holds 5% or more of our issued shares, in which case
the applicable rate is 20%. Japan has income tax treaties, conventions or agreements that generally
reduce the above-mentioned withholding tax rate to 15% for portfolio investors
with, among others, Australia, Belgium, Canada, Denmark, Finland, France,
Germany, Ireland, Italy, Luxembourg, The Netherlands, New Zealand, Norway,
Singapore, Spain, Sweden, Switzerland, and the United Kingdom. Under the new
tax treaty between United States and Japan, of which withholding tax treatment
is applicable effective from July 1, 2004 to dividends declared thereafter, the
withholding tax rate on dividends is 10% for portfolio investors, if they are
qualified U.S. residents eligible to enjoy treaty benefits. By virtue of the
operation of the preservation doctrine under each tax treaty, if the Japanese
statutory rate is lower than the maximum rate applicable under the Tax Treaty,
the Japanese statutory rate shall apply. In the case where the treaty rare
applies, Non-resident shareholders entitled to a reduced Japanese withholding
tax rate on our dividends are required to submit an Application Form for Income
Tax Convention regarding Relief from Japanese Income Tax on Dividends through
us to the relevant tax authority before payment of dividends. A standing proxy
for non-resident shareholders may provide this application service. See
Settlement for Our the Shares in Item 10.B of this annual report on Form
20-F. With respect to ADSs, this reduced rate is applicable if the depositary
or its agent submits two Application Forms for Income Tax Conventionone before
payment of dividends and the other within eight months of our fiscal year end.
To claim this reduced rate, a non-resident holder of ADSs will be required to
file proof of taxpayer status, residence and beneficial ownership, as
applicable, and to provide other information or documents as may be required by
the depositary. Non-resident holders who do not submit an application in
advance will be entitled to claim the refund of taxes withheld in excess of the
rate of an applicable tax treaty from the relevant Japanese tax authority. -95-




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Gains derived from the sale of our shares or ADSs outside Japan, or from
the sale of our shares within Japan by a non-resident shareholder as a
portfolio investor, are generally not subject to Japanese income or corporation
taxes. Japanese inheritance and gift taxes may be assessed against an individual
who has acquired our shares or ADSs as a legatee, heir or donee, even if the
individual is not a Japanese resident. F. Dividends and Paying Agents. Not required. G. Statement by Experts. Not applicable. H. Documents on Display. We file periodic reports and other information with the Securities and
Exchange Commission. The Securities and Exchange Commission maintains an
Internet site at www.sec.gov that contains reports and other information
regarding issuers that file electronically with the SEC. You may read and copy
any document that we file with the Securities and Exchange Commission at the
Securities and Exchange Commissions public reference room at 450 Fifth Street,
N.W., Washington, D.C. 20549. Please call the Securities and Exchange
Commission at 1-800-SEC-0330 for further information on the operation of its
public reference room. You may also inspect our reports filed with the
Securities and Exchange Commission and other information at the New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005. Some of this
information may also be found on our website at www.nissin-f.co.jp/index.html.
This information is not incorporated by reference into this annual report on
Form 20-F. I. Subsidiary Information. Not applicable. 
 Item 11. Quantitative and Qualitative Disclosures about Market Risk We are exposed to the market risks of interest rate changes and changes in
the market values of our investments. We do not have any significant exposures
to fluctuations in foreign exchange rates since we conduct substantially all of
our business activities in Japanese yen. Interest Rate Risk Liability-side Risk Our exposure to changes in interest rates arises primarily from our
long-term borrowings that bear interest at floating rates and our cash and cash
equivalents. As discussed in Capital Requirements in Item 5.B of this annual
report on Form 20-F, we require a significant amount of borrowings to fund our
lending activities. Our cash is predominantly invested in loans to
individuals, including small business owners. -96-




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The following table shows the repayment schedule for our outstanding bonds
and other long-term borrowings and the average interest rates on these
borrowings. As ofMarch 31,Year ending March 31,
    
    
    
    
    
    20042005
    
    2006
    
    2007
    
    2008
    
    2009
    
    Thereafter
    
    Total
    
    Fair value(in millions except percentage)Bonds
    
    ¥
    21,560
    
    
    ¥
    5,060
    
    
    
    ¥11,060
    
    
    ¥
    60
    
    
    ¥
    30
    
    
    
    ¥
    
    
    
    ¥37,770
    
    
    
    ¥38,626Average interest rate
    
    
    2.69
    %
    
    
    2.35
    %
    
    
    1.66
    %
    
    
    2.40
    %
    
    
    2.40
    %
    
    
    
    
    
    
    2.35
    %Floating (1)
    
    
    28,867
    
    
    
    20,136
    
    
    
    4,454
    
    
    
    571
    
    
    
    32
    
    
    
    
    
    
    
    54,060
    
    
    
    54,060Average interest rate
    
    
    2.40
    %
    
    
    1.86
    %
    
    
    2.23
    %
    
    
    2.29
    %
    
    
    2.15
    %
    
    
    
    
    
    
    2.18
    %Fixed
    
    
    24,846
    
    
    
    18,536
    
    
    
    5,002
    
    
    
    2,301
    
    
    
    50
    
    
    
    12
    
    
    
    50,747
    
    
    
    50,256Average interest rate
    
    
    2.34
    %
    
    
    2.31
    %
    
    
    2.19
    %
    
    
    2.62
    %
    
    
    5.20
    %
    
    
    5.20
    %
    
    
    2.33
    %
   (1)
    
    Floating interest rate borrowings include asset-backed commercial paper. Our debt obligations mature at various times through June 2009 and carry
interest rates of change between 0.3% and 5.2%. Our borrowings bear either a
fixed rate or a floating rate indexed to the Tokyo Inter-Bank Offered Rate, or
TIBOR, or the short-term or long-term prime rate in Japan. In order to reduce
our exposure to fluctuations in interest rates on floating rate borrowings, we
utilize derivative instruments such as interest rate swap contracts. As of
March 31, 2004, we had one outstanding interest rate swap agreement in an
amount of ¥483 million, which matures in August 2006. Under this agreement, we
receive payments at TIBOR plus 1.25% and make payments at an interest rate of
2.19%. The weighted average interest rate on our short-term borrowings was 2.2%
at March 31, 2002, 1.7% at March 31, 2003 and 1.3% at March 31, 2004, and our
weighted average long-term borrowing rate on floating-rate borrowings was 2.9%
at March 31, 2002, 2.4% at March 31, 2003 and 2.2% at March 31, 2004. The following table illustrates the after tax impact of a hypothetical
increase in our average borrowing rates on our short-term borrowings and
floating-rate long-term borrowings: Assumed weighted average interest rate3%
    
    4%
    
    5%(in millions)Net income as reported
    
    
    ¥6,077
    
    
    
    ¥6,077
    
    
    
    ¥6,077Net income as adjusted for hypothetical increase in interest rates
    
    
    5,765
    
    
    
    5,389
    
    
    
    5,012
 We believe that the likelihood of hypothetical increases in our average
borrowing rates is significantly greater than that of hypothetical decreases,
as the weighted average interest rate is currently very low. The official
discount rate offered by the Bank of Japan has remained at 0.1% since September
2001. Asset-side Risk Integrated Financial Services As we lend at fixed rates, interest rates on our currently outstanding
balances are not typically subject to fluctuation other than for regulatory
reasons. However, the interest rates we charge to new customers or existing customers who pay off their outstanding loans -97-




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and enter into new contracts with us are subject to any downward pressure caused by
competitive, regulatory or other reasons. The following table indicates the average contractual maturity, weighted
by loans outstanding, of each of our loan categories at the end of each of the
years indicated: As of March 31,2003
    
    2004(years)Small business owner loans
    
    
    4.8
    
    
    
    4.8Wide loans
    
    
    4.9
    
    
    
    4.9Business Timely loans
    
    
    3.0
    (1)
    
    
    3.0
    (1)Consumer loans
    
    
    3.0
    (1)
    
    
    3.0
    (1)Secured and other loans
    
    
    6.8
    
    
    
    5.9
   (1)
    
    The average maturity of 3.0 years for Business Timely loans and consumer
loans is based on the three-year term of the loan contract, which is
automatically renewable. The following table indicates the average interest rate, weighted by loans
outstanding, of each of our loan categories for each of the years indicated: Year ended March 31,2003
    
    2004Small business owner loans
    
    
    21.4
    %
    
    
    20.4
    %Wide loans
    
    
    22.0
    
    
    
    20.8Business Timely loans
    
    
    26.2
    
    
    
    25.6Consumer loans
    
    
    25.9
    
    
    
    25.3Secured and other loans
    
    
    16.2
    
    
    
    9.6
 Our weighted average lending rate per year on loans receivable was 24.2%
for the year ended March 31, 2002, 23.3% for the year ended March 31, 2003 and
22.0% for the year ended March 31, 2004. The following table illustrates the
after tax impact of a hypothetical decrease in our average lending rates on our
loans receivable: Assumed weighted average interest rate per year21.5%
    
    21.0%
    
    20.5%(in millions)Net income as reported
    
    
    ¥6,077
    
    
    
    ¥6,077
    
    
    
    ¥6,077Net income as adjusted for hypothetical decrease in interest rates
    
    
    5,556
    
    
    
    5,044
    
    
    
    4,531
 
 Based on the weighted average lending rate of 22.0% per year for the year
ended March 31, 2004 and rate of change in our weighted average lending rate on
loans receivable in the past few years, we believe the above range of 21.5% to
20.5% per year reasonably captures the likely changes in the weighted average
lending rate on loans receivable during the fiscal year ending March 31, 2005. As discussed in further detail in Our Products  Consumer Loans in Item
4.B of this annual report on Form 20-F, on June 1, 2004, we sold most of the
outstanding balance of our unguaranteed consumer loans and related interest
receivable to Orient Credit. Because the effect of this sale on our
sensitivity to changes in our lending rates on loans receivable remains
uncertain, the above table does not reflect this effect. -98-




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The uncertainty is based in part on the fact that,
while our consumer loans have a higher average lending rate than our small
business owner loans and Wide loans, they have a higher charge-off ratio than
all of our other loan products, particularly our small business owner loans and
Wide loans. As a result, the improvement in our profit margin is expected to
mitigate the negative impact from our reduced weighted average lending rate.
Also, we expect the reduction of expenses associates with our consumer loan
business, such as through closing of offices, to offset to a certain extent the
downward pressure on our net income created by the sale. Furthermore, we
believe that our ongoing efforts to shift our resources on our non-consumer
loan businesses will have a positive effect on our net income growth. See
Factors Affecting Our Financial Results  Disposition of Consumer Loans in
Item 5.A of this annual report on Form 20-F for a further discussion of the
quantitative impact of the sale. Loan Servicing The interest rates we charge on our purchased loans are heavily negotiated
and vary significantly, depending primarily on the quality of the loan. To the
extent that the Japanese economy continues to improve and the amount of
non-performing loans in Japan declines, the interest rates we charge on our
purchased loans may decline as a result of improvement in the quality of the
loans we purchase. Investment Price Risk We invest in marketable and non-marketable equity securities for business
and strategic purposes. The book carrying value of these equity securities was
¥2,227 million as of March 31, 2003, of which ¥720 million were non-marketable,
and ¥8,650 million as of March 31, 2004, of which ¥367 million were
non-marketable. We also have non-equity investments, all of which are
non-marketable. These non-equity investments amounted to ¥7 million as of
March 31, 2003, all of which were debt securities, and ¥524 million as of March
31, 2004, ¥500 million of which were investment funds. We are exposed to changes in the market value of our investments. We have
realized gains and losses from both the sale of investments, as well as from
impairment as a result of other than temporary declines in market value. With
respect to our sales of investments, our gross realized gains were ¥33 million
for the year ended March 31, 2002, ¥114 million for the year ended March 31,
2003 and ¥645 million for the year ended March 31, 2004, and our gross realized
losses were ¥40 million for the year ended March 31, 2002, ¥82 million for the
year ended March 31, 2003 and ¥46 million for the year ended March 31, 2004.
We experienced realized losses of ¥599 million on impairment of investment
securities, for the year ended March 31, 2002, ¥1,005 million for the year
ended March 31, 2003 and ¥867 million for the year ended March 31, 2004. 
 Item 12. Description of Securities Other Than Equity Securities. Not required. 
 PART II 
 Item 13. Defaults, Dividend Arrearages and Delinquencies. None. 
 Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds. None. -99-




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Item 15. Controls and Procedures. Disclosure Controls and Procedures As of the end of the year ended March 31, 2004, our management, with the
participation of Kunihiko Sakioka, our president, representative director and
principal executive officer, and Hitoshi Higaki, our managing director and
principal financial officer, performed an evaluation of our disclosure controls
and procedures. Under Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934, disclosure controls and procedures means our controls and other
procedures that are designed to ensure that information required to be
disclosed by us in the reports that we file or submit under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported, within
the time periods specified in the Securities and Exchange Commissions rules
and forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be
disclosed by us in the reports that we file or submit under the Securities
Exchange Act of 1934 is accumulated and communicated to our management,
including our principal executive officer and principal financial officer, as
appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our principal executive officer and principal
financial officer concluded that our disclosure controls and procedures were
effective as of the date of the evaluation. Changes in Internal Control Over Financial Reporting With the participation of our principal executive officer and principal
financial officer, we also evaluated any change in our internal control over
financial reporting that occurred during the year ended March 31, 2004. Under Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of
1934, internal control over financial reporting means a process designed by, or
under the supervision of, our principal executive officer and principal
financial officer and effected by our board of directors, management and other
personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles and
includes those policies and procedures that:  
    
    pertain to the maintenance of records that in reasonable
detail accurately and fairly reflect the transactions and
dispositions of our assets;
    
    provide reasonable assurance that transactions are recorded
as necessary to permit preparation of our financial statements in
accordance with generally accepted accounting principles, and that
our receipts and expenditures are being made only in accordance with
authorizations of our management and directors; and
    
    provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of our
assets that could have a material effect on our financial
statements. Based on that evaluation, our principal executive officer and principal
financial officer concluded that no changes were made in our internal control
over financial reporting that occurred during the year ended March 31, 2004 that has materially affected, or is reasonably likely
to -100-




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materially affect, our internal control over financial reporting. 
 Item 16A. Audit Committee Financial Expert. Our board of statutory auditors has determined that we do not have an
audit committee financial expert as defined in Item 16A of Form 20-F serving
on the board of statutory auditors. We believe that the combined knowledge,
skills and experience of our statutory auditors enable them, as a group, to act
effectively in the fulfillment of their tasks and responsibilities, including
those under the Sarbanes-Oxley Act of 2002, as amended. In addition, our
statutory auditors have the power and authority to engage outside experts as
they deem appropriate to provide them with advice on matters related to their
responsibilities. We are currently not seeking such an audit committee
financial expert to serve on our board of statutory auditors. 
 Item 16B. Code of Ethics. We currently do not have a code of ethics that meets the requirements of
this Item 16.B, because we believe that the combination of our various internal
regulations and guidelines are effective in guiding our directors, statutory
auditors and employees toward good business conduct. However, we are currently
considering whether or not to establish a code of ethics that meets the
requirements of the Item 16.B. 
 Item 16C. Principal Accountant Fees and Services. The following table shows information about fees paid by us to BDO Sanyu &
Co., our principal accountants. All services performed by BDO Sanyu & Co were
approved by our board of statutory auditors: Year ended March 31,2003
    
    2004Fees paid by us
    
    Fees paid by us(millions)Audit fees (1)
    
    
    ¥72
    
    
    
    ¥47Audit-related fees (2)
    
    
    12
    
    
    
    6Tax fees
    
    
    
    
    
    
    All other fees
    
    
    
    
    
    
    
   (1)
    
    These are the aggregate fees billed for the fiscal year for professional
services rendered by our principal accounts for the audit of our annual
financial statements and services that are normally provided in connection
with statutory and regulatory filings or engagements for those years.(2)
    
    These are the aggregate fees billed for the fiscal year for assurance and
related services by our principal accountants that are reasonably related
to the performance of the audit of our financial statements other than
those reported under Audit Fees above. These services include due
diligence and preparation of comfort letters in connection with bond
offerings. Our board of statutory auditors currently approves every engagement by us
of BDO & Sanyu & Co. or any of its affiliates for audit or non-audit services
prior to the provision of these services. We are considering whether or not to
establish pre-approval policies and procedures to facilitate the responsibility
of our board of statutory auditors to monitor the independence of BDO & Sanyu
&Co. 
 Item 16D. Exemptions from the Listing Standards for Audit Committees. Not applicable. -101-




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##### Table of Contents



Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers. Not applicable. 
 PART III 
 Item 17. Financial Statements. Not applicable. 
 Item 18. Financial Statements. The information required by this item begins on page F-1 of this annual report on Form 20-F. 
 Item 19. Exhibits. ExhibitNumber
    
    Description1.1
    
    
    
    
    Our Articles of Incorporation (English Translation)1.2
    
    
    
    
    Our Share Handling Regulations (English Translation)1.3
    
    
    
    
    Our Regulations of the Board of Directors (English Translation)1.4
    
    
    
    
    Our Regulations of the Board of Statutory Auditors (English Translation)2.1
    
    
    
    
    Our Specimen Common Stock Certificate (English Translation)
(incorporated by reference to the corresponding exhibit to our
Registration Statement Form F-1 (File No. 333-97229) declared effective
on August 1, 2002)2.2
    
    
    
    
    Form of Deposit Agreement Among Nissin Co., Ltd., The Bank of New York
as Depositary and All Owners and Holders from Time to Time of American
Depositary Receipts, Including the Form of American Depositary Receipt
(incorporated by reference to the Registration Statement on Form F-6
(File No. 333-97133) filed on July 24, 2002)8.1
    
    
    
    
    List of Our Subsidiaries12.1
    
    
    
    
    Rule 13a-14(a) Certifications13.1
    
    
    
    
    Section 1350 Certifications
 We have not included as exhibits certain instruments with respect to our
long-term debt, the amount of debt authorized under each of which does not
exceed 10% of our total assets, and we agree to furnish a copy of any such
instrument to the Commission upon request. -102-




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NISSIN CO., LTD. 
 INDEX TO FINANCIAL STATEMENTS PageAnnual Financial StatementsReport of Independent Certified Public Accountants
    
    
    F-2Consolidated Balance Sheets
    
    
    F-3Consolidated Statements of Income
    
    
    F-5Consolidated Statements of Shareholders Equity
    
    
    F-7Consolidated Statements of Cash Flows
    
    
    F-9Notes to the Consolidated Financial Statements
    
    
    F-11
 F-1




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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of
NISSIN CO., LTD.: We have audited the accompanying consolidated balance sheets of NISSIN CO.,
LTD. and its subsidiaries as of March 31, 2003 and 2004, and the related
consolidated statements of income, shareholders equity and cash flows for each
of the three years in the period ended March 31, 2004. These financial
statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. In our opinion, the accompanying consolidated financial statements referred to
above present fairly, in all material respects, the financial position of the
Company as of March 31, 2003 and 2004, and the results of its operations and
its cash flows for each of the three years in the period ended March 31, 2004,
in conformity with accounting principles generally accepted in the United
States of America. Also, in our opinion, the U.S. dollar amounts in the accompanying consolidated
financial statements have been translated from Japanese yen on the basis set
forth in Note 1 to the consolidated financial statements. BDO Sanyu & Co.
Osaka, Japan
June 22, 2004 F-2




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##### Table of Contents



CONSOLIDATED BALANCE SHEETS
NISSIN CO., LTD. AND SUBSIDIARIES
March 31, 2003 and 2004 Thousands ofMillions of Yen
    
    U.S. Dollars (Note 1)2003
    
    2004
    
    2004ASSETSCash and cash equivalents
    
    ¥
    23,612
    
    
    ¥
    20,243
    
    
    
    $   191,532Deposit of restricted cash in bank
    
    
    223
    
    
    
    435
    
    
    
    4,116Loans receivable, net
    
    
    166,977
    
    
    
    166,890
    
    
    
    1,579,052Purchased loans receivable, net
    
    
    2,946
    
    
    
    4,342
    
    
    
    41,082Interest receivable
    
    
    1,177
    
    
    
    1,060
    
    
    
    10,029Property and equipment:Land
    
    
    947
    
    
    
    356
    
    
    
    3,368Buildings and structures
    
    
    1,074
    
    
    
    1,094
    
    
    
    10,351Equipment and software
    
    
    4,318
    
    
    
    5,253
    
    
    
    49,7026,339
    
    
    
    6,703
    
    
    
    63,421Accumulated depreciation and amortization
    
    
    (2,223
    )
    
    
    (2,363
    )
    
    
    (22,358
    )4,116
    
    
    
    4,340
    
    
    
    41,063Investment securities
    
    
    2,234
    
    
    
    9,174
    
    
    
    86,801Investment in affiliates
    
    
    742
    
    
    
    496
    
    
    
    4,693Deferred income taxes
    
    
    2,184
    
    
    
    579
    
    
    
    5,478Other assets
    
    
    2,363
    
    
    
    2,709
    
    
    
    25,633Total assets
    
    ¥
    206,574
    
    
    ¥
    210,268
    
    
    
    $1,989,479
 See accompanying summary of significant accounting polices and other notes to
consolidated financial statements. F-3




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##### Table of Contents



CONSOLIDATED BALANCE SHEETS (CONTINUED)
NISSIN CO., LTD. AND SUBSIDIARIES
March 31, 2003 and 2004 Thousands ofMillions of Yen
    
    U.S. Dollars (Note 1)2003
    
    2004
    
    2004LIABILITIES AND SHAREHOLDERS EQUITYShort-term borrowings
    
    ¥
    5,600
    
    
    ¥
    5,563
    
    
    
    $     52,635Accrued income taxes
    
    
    2,925
    
    
    
    2,758
    
    
    
    26,095Accrued expenses
    
    
    521
    
    
    
    623
    
    
    
    5,895Long-term borrowings
    
    
    148,595
    
    
    
    142,577
    
    
    
    1,349,011Capital lease obligations
    
    
    1,914
    
    
    
    2,058
    
    
    
    19,472Accrued retirement benefits
    
    
    336
    
    
    
    334
    
    
    
    3,160Other liabilities
    
    
    1,086
    
    
    
    1,897
    
    
    
    17,949Total liabilities
    
    
    160,977
    
    
    
    155,810
    
    
    
    1,474,217Minority interests
    
    
    
    
    
    
    161
    
    
    
    1,523Commitments and contingencies (Notes 9, 10 and 13)Shareholders equity:Common stock  designated value (Note 14)Authorized  240,000,000 and 480,000,000 shares at March 31, 2003 and 2004, respectivelyIssued          265,248,112 and 269,452,384 shares at
March 31, 2003 and 2004, respectively
    
    
    6,611
    
    
    
    7,218
    
    
    
    68,294Additional paid-in capital
    
    
    8,462
    
    
    
    9,092
    
    
    
    86,025Retained earnings
    
    
    33,275
    
    
    
    38,351
    
    
    
    362,864Cumulative other comprehensive income
    
    
    70
    
    
    
    3,371
    
    
    
    31,895Less treasury stock, at cost:12,329,032 shares and 16,996,050 shares at March 31, 2003
and 2004, respectively
    
    
    (2,821
    )
    
    
    (3,735
    )
    
    
    (35,339
    )Total shareholders equity
    
    
    45,597
    
    
    
    54,297
    
    
    
    513,739Total liabilities and shareholders equity
    
    ¥
    206,574
    
    
    ¥
    210,268
    
    
    
    $1,989,479
 See accompanying summary of significant accounting policies and other notes to
consolidated financial statements. F-4




---



##### Table of Contents



CONSOLIDATED STATEMENTS OF INCOME
NISSIN CO., LTD. AND SUBSIDIARIES
For the Years Ended March 31, 2002, 2003 and 2004 Thousands ofMillions of Yen
    
    U.S. Dollars (Note 1)2002
    
    2003
    
    2004
    
    2004Interest income:Loans
    
    ¥
    33,931
    
    
    ¥
    38,519
    
    
    ¥
    38,036
    
    
    
    $359,883Other
    
    
    45
    
    
    
    715
    
    
    
    2,071
    
    
    
    19,595Total interest income
    
    
    33,976
    
    
    
    39,234
    
    
    
    40,107
    
    
    
    379,478Interest expense:Borrowings
    
    
    3,818
    
    
    
    3,920
    
    
    
    3,611
    
    
    
    34,166Other
    
    
    66
    
    
    
    64
    
    
    
    113
    
    
    
    1,069Total interest expense
    
    
    3,884
    
    
    
    3,984
    
    
    
    3,724
    
    
    
    35,235Net interest income
    
    
    30,092
    
    
    
    35,250
    
    
    
    36,383
    
    
    
    344,243Provision for loan losses
    
    
    7,433
    
    
    
    12,688
    
    
    
    13,461
    
    
    
    127,363Net interest income after provision for loan
losses
    
    
    22,659
    
    
    
    22,562
    
    
    
    22,922
    
    
    
    216,880Non-interest (loss) income:Losses on sale and impairment of investment
securities, net
    
    
    (606
    )
    
    
    (973
    )
    
    
    (268
    )
    
    
    (2,536
    )Gain on sale of subsidiaries and affiliates, net
    
    
    
    
    
    
    324
    
    
    
    670
    
    
    
    6,340Commission income
    
    
    
    
    
    
    1,267
    
    
    
    
    
    
    
    Guarantee fees received, net
    
    
    
    
    
    
    35
    
    
    
    221
    
    
    
    2,091Equity losses in affiliates
    
    
    (61
    )
    
    
    (17
    )
    
    
    (183
    )
    
    
    (1,731
    )Rents, dividends and other
    
    
    239
    
    
    
    210
    
    
    
    398
    
    
    
    3,765Total non-interest (loss) income
    
    
    (428
    )
    
    
    846
    
    
    
    838
    
    
    
    7,929Non-interest expense:Salaries and employee benefits
    
    
    5,067
    
    
    
    6,233
    
    
    
    6,735
    
    
    
    63,724Occupancy, furniture and equipment
    
    
    2,201
    
    
    
    2,190
    
    
    
    2,060
    
    
    
    19,491Advertising
    
    
    1,838
    
    
    
    449
    
    
    
    218
    
    
    
    2,063Other general and administrative expenses
    
    
    4,253
    
    
    
    4,389
    
    
    
    3,457
    
    
    
    32,709Losses on sale and impairment of long-lived assets, net
    
    
    145
    
    
    
    225
    
    
    
    530
    
    
    
    5,015Impairment of investment in affiliates
    
    
    
    
    
    
    683
    
    
    
    
    
    
    
    Other
    
    
    124
    
    
    
    124
    
    
    
    97
    
    
    
    918Minority interests
    
    
    1
    
    
    
    15
    
    
    
    4
    
    
    
    38Total non-interest expense
    
    
    13,629
    
    
    
    14,308
    
    
    
    13,101
    
    
    
    123,958Income before income taxes
    
    
    8,602
    
    
    
    9,100
    
    
    
    10,659
    
    
    
    100,851Income taxes
    
    
    3,801
    
    
    
    3,924
    
    
    
    4,582
    
    
    
    43,353Net income
    
    ¥
    4,801
    
    
    ¥
    5,176
    
    
    ¥
    6,077
    
    
    
    $  57,498
 F-5




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##### Table of Contents



CONSOLIDATED STATEMENTS OF INCOME
NISSIN CO., LTD. AND SUBSIDIARIES
For the Years Ended March 31, 2002, 2003 and 2004 U.S. DollarsYen
    
    (Note 1)Per share data:
    
    2002
    
    2003
    
    2004
    
    2004Net income  basic
    
    
    ¥18.21
    
    
    
    ¥20.08
    
    
    
    ¥24.37
    
    
    
    $0.23 diluted
    
    
    17.43
    
    
    
    18.62
    
    
    
    22.46
    
    
    
    0.21Cash dividends paid
    
    
    3.02
    
    
    
    3.19
    
    
    
    4.00
    
    
    
    0.04
 Weighted average shares outstanding: Thousands of Shares
    
    Thousands
of SharesWeighted average shares outstanding:
    
    2002
    
    2003
    
    2004
    
    2004Basic
    
    
    263,736
    
    
    
    257,840
    
    
    
    249,360
    
    
    
    249,360Diluted
    
    
    278,872
    
    
    
    283,316
    
    
    
    275,082
    
    
    
    275,082
 See accompanying summary of significant accounting policies and other notes to
consolidated financial statements. F-6




---



##### Table of Contents



CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
NISSIN CO., LTD. AND SUBSIDIARIES
For the Years Ended March 31, 2002, 2003 and 2004 Millions of YenNumber of Sharesof Common Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cumulative Other
    
    
    
    
    
    TotalIssued
    
    Common
    
    Additional
    
    Retained
    
    Comprehensive
    
    Treasury Stock,
    
    Shareholders(Thousand)
    
    Stock
    
    Paid-in Capital
    
    Earnings
    
    Income
    
    at Cost
    
    EquityBalance as of March 31, 2001
    
    
    261,824
    
    
    
    ¥6,167
    
    
    
    ¥7,909
    
    
    
    ¥24,926
    
    
    
    ¥296
    
    
    
    ¥(
    )
    
    
    ¥39,298Exercise of stock options
    
    
    3,424
    
    
    
    444
    
    
    
    434
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    878Common stock warrants
issued to directors,
statutory auditors and
certain employees
    
    
    
    
    
    
    
    
    
    
    124
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    124Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,801
    
    
    
    
    
    
    
    
    
    
    
    4,801Other comprehensive
loss, net of taxChange in net
unrealized gain on
investment
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (137
    )
    
    
    
    
    
    
    (137
    )Change in net
unrealized losses
on derivative
instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (46
    )
    
    
    
    
    
    
    (46
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,618Cash dividends paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (795
    )
    
    
    
    
    
    
    
    
    
    
    (795
    )Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    (
    )
    
    
    
    
    
    
    
    
    
    
    (348
    )
    
    
    (348
    )Balance as of March 31, 2002
    
    
    265,248
    
    
    
    6,611
    
    
    
    8,467
    
    
    
    28,932
    
    
    
    113
    
    
    
    (348
    )
    
    
    43,775Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,176
    
    
    
    
    
    
    
    
    
    
    
    5,176Other comprehensive
loss, net of taxChange in net
unrealized gain on
investment
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (88
    )
    
    
    
    
    
    
    (88
    )Change in net
unrealized losses
on derivative
instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    45
    
    
    
    
    
    
    
    45Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,133Cash dividends paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (833
    )
    
    
    
    
    
    
    
    
    
    
    (833
    )Repurchase of warrants
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5
    )Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,493
    )
    
    
    (2,493
    )Sale of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20
    
    
    
    20
 F-7




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##### Table of Contents



CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
NISSIN CO., LTD. AND SUBSIDIARIES
For the Years Ended March 31, 2002, 2003 and 2004 Millions of YenNumber of Sharesof Common Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cumulative Other
    
    
    
    
    
    TotalIssued
    
    Common
    
    Additional
    
    Retained
    
    Comprehensive
    
    Treasury Stock,
    
    Shareholders(Thousand)
    
    Stock
    
    Paid-in Capital
    
    Earnings
    
    Income
    
    at Cost
    
    EquityBalance as of March 31, 2003
    
    
    265,248
    
    
    
    6,611
    
    
    
    8,462
    
    
    
    33,275
    
    
    
    70
    
    
    
    (2,821
    )
    
    
    45,597Exercise of stock warrants
    
    
    4,204
    
    
    
    607
    
    
    
    594
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,201Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,077
    
    
    
    
    
    
    
    
    
    
    
    6,077Other comprehensive
income, net of taxChange in net
unrealized gain on
investment
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,304
    
    
    
    
    
    
    
    3,304Change in net
unrealized losses
on derivative
instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,378Cash dividends paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,001
    )
    
    
    
    
    
    
    
    
    
    
    (1,001
    )Repurchase of warrants
    
    
    
    
    
    
    
    
    
    
    (7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7
    )Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,209
    )
    
    
    (1,209
    )Sale of treasury stock
    
    
    
    
    
    
    
    
    
    
    43
    
    
    
    
    
    
    
    
    
    
    
    295
    
    
    
    338Balance as of March 31, 2004
    
    
    269,452
    
    
    
    ¥7,218
    
    
    
    ¥9,092
    
    
    
    ¥38,351
    
    
    
    ¥3,371
    
    
    
    ¥(3,735
    )
    
    
    ¥54,297
 See accompanying summary of significant accounting policies and other
notes to consolidated financial statements. Thousands of U.S. Dollars (Note 1)Number of Sharesof Common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cumulative Other
    
    
    
    
    
    TotalIssued
    
    Common
    
    Additional
    
    Retained
    
    Comprehensive
    
    Treasury Stock,
    
    Shareholders(Thousand)
    
    Stock
    
    Paid-in Capital
    
    Earnings
    
    Income
    
    at Cost
    
    EquityBalance as of March 31, 2003
    
    
    265,248
    
    
    $
    62,551
    
    
    $
    80,064
    
    
    $
    314,836
    
    
    $
    662
    
    
    $
    (26,691
    )
    
    $
    431,422Exercise of stock warrants
    
    
    4,204
    
    
    
    5,743
    
    
    
    5,620
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,363Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57,498
    
    
    
    
    
    
    
    
    
    
    
    57,498Other comprehensive
income, net of taxChange in net
unrealized gain on
investment
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31,261
    
    
    
    
    
    
    
    31,261Change in net
unrealized losses
on derivative
instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (28
    )
    
    
    
    
    
    
    (28
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    88,731Cash dividends paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,470
    )
    
    
    
    
    
    
    
    
    
    
    (9,470
    )Repurchase of warrants
    
    
    
    
    
    
    
    
    
    
    (66
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (66
    )Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,439
    )
    
    
    (11,439
    )Sale of treasury stock
    
    
    
    
    
    
    
    
    
    
    407
    
    
    
    
    
    
    
    
    
    
    
    2,791
    
    
    
    3,198Balance as of March 31, 2004
    
    
    269,452
    
    
    $
    68,294
    
    
    $
    86,025
    
    
    $
    362,864
    
    
    $
    31,895
    
    
    $
    (35,339
    )
    
    $
    513,739
 See accompanying summary of significant accounting policies and other notes to
consolidated financial statements. F-8




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##### Table of Contents



CONSOLIDATED STATEMENTS OF CASH FLOWS
NISSIN CO., LTD. AND SUBSIDIARIES
For the Years Ended March 31, 2002, 2003 and 2004 Thousands ofMillions of Yen
    
    U.S. Dollars (Note 1)2002
    
    2003
    
    2004
    
    2004Operating ActivitiesNet income
    
    
    ¥4,801
    
    
    
    ¥5,176
    
    
    
    ¥6,077
    
    
    $
    57,498Adjustments to reconcile net income to net cash
provided by operating activities:Provision for loan losses
    
    
    7,433
    
    
    
    12,688
    
    
    
    13,461
    
    
    
    127,363Depreciation and amortization
    
    
    946
    
    
    
    1,027
    
    
    
    884
    
    
    
    8,364Amortization of debt issuance costs
    
    
    227
    
    
    
    265
    
    
    
    221
    
    
    
    2,091Amortization of loan origination costs
    
    
    633
    
    
    
    747
    
    
    
    751
    
    
    
    7,106Amortization of cap option premium
    
    
    133
    
    
    
    51
    
    
    
    
    
    
    
    Losses on sale and impairment of investment
securities, net
    
    
    606
    
    
    
    973
    
    
    
    268
    
    
    
    2,536Gain on sales of subsidiaries and affiliates, net
    
    
    
    
    
    
    (324
    )
    
    
    (670
    )
    
    
    (6,340
    )Equity losses in affiliates
    
    
    61
    
    
    
    17
    
    
    
    183
    
    
    
    1,731Losses on sale and impairment of long-lived assets, net
    
    
    145
    
    
    
    225
    
    
    
    530
    
    
    
    5,015Impairment of investment in affiliates
    
    
    
    
    
    
    683
    
    
    
    
    
    
    
    Minority interests
    
    
    1
    
    
    
    15
    
    
    
    4
    
    
    
    38Deferred income taxes
    
    
    (230
    )
    
    
    (1,166
    )
    
    
    (633
    )
    
    
    (5,989
    )Changes in assets and liabilities:Interest receivable
    
    
    (237
    )
    
    
    (44
    )
    
    
    117
    
    
    
    1,107Accrued expenses and income taxes
    
    
    178
    
    
    
    688
    
    
    
    (58
    )
    
    
    (549
    )Other liabilities
    
    
    89
    
    
    
    294
    
    
    
    807
    
    
    
    7,636Net cash provided by operating activities
    
    
    14,786
    
    
    
    21,315
    
    
    
    21,942
    
    
    
    207,607Investing ActivitiesCash used for loan originations, net of principal
collections
    
    
    (33,779
    )
    
    
    (32,033
    )
    
    
    (13,764
    )
    
    
    (130,230
    )Purchases of distressed loans
    
    
    (403
    )
    
    
    (4,854
    )
    
    
    (4,502
    )
    
    
    (42,596
    )Proceeds from principal collections of distressed loans
    
    
    23
    
    
    
    2,145
    
    
    
    2,469
    
    
    
    23,361Purchases of property and equipment
    
    
    (127
    )
    
    
    (983
    )
    
    
    (880
    )
    
    
    (8,326
    )Proceeds from sales of property and equipment
    
    
    719
    
    
    
    43
    
    
    
    382
    
    
    
    3,614Purchases of investment securities
    
    
    (1,029
    )
    
    
    (588
    )
    
    
    (3,605
    )
    
    
    (34,109
    )Proceeds from sales of investment securities
    
    
    752
    
    
    
    1,057
    
    
    
    2,173
    
    
    
    20,560Investment in affiliates
    
    
    (20
    )
    
    
    (535
    )
    
    
    (450
    )
    
    
    (4,258
    )Proceeds from sales of affiliates
    
    
    
    
    
    
    
    
    
    
    504
    
    
    
    4,769Cash (decrease) increase upon sales of previously
consolidated subsidiary
    
    
    
    
    
    
    (144
    )
    
    
    78
    
    
    
    738Cash obtained upon acquisition of a consolidated
subsidiary, net
    
    
    67
    
    
    
    
    
    
    
    
    
    
    
    Changes in other assets
    
    
    (74
    )
    
    
    (766
    )
    
    
    (706
    )
    
    
    (6,680
    )Net cash used in investing activities
    
    
    (33,871
    )
    
    
    (36,658
    )
    
    
    (18,301
    )
    
    
    (173,157
    )
 (continued) F-9




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##### Table of Contents



CONSOLIDATED STATEMENTS OF CASH FLOWS
NISSIN CO., LTD. AND SUBSIDIARIES
For the Years Ended March 31, 2002, 2003 and 2004 (continued) Financing ActivitiesRestricted deposits
    
    
    
    
    
    
    1,277
    
    
    
    (212
    )
    
    
    (2,006
    )Deferred debt issuance costs
    
    
    (283
    )
    
    
    188
    
    
    
    (104
    )
    
    
    (984
    )Issuance of commercial paper
    
    
    
    
    
    
    8,600
    
    
    
    13,000
    
    
    
    123,001Repayment of commercial paper
    
    
    
    
    
    
    (6,200
    )
    
    
    (12,200
    )
    
    
    (115,432
    )Proceeds from short-term borrowings
    
    
    1,500
    
    
    
    8,095
    
    
    
    3,539
    
    
    
    33,485Repayment of short-term borrowings
    
    
    (1,840
    )
    
    
    (6,270
    )
    
    
    (4,100
    )
    
    
    (38,793
    )Proceeds from long-term borrowings
    
    
    53,814
    
    
    
    82,436
    
    
    
    56,668
    
    
    
    536,172Repayment of long-term borrowings
    
    
    (41,675
    )
    
    
    (62,131
    )
    
    
    (62,686
    )
    
    
    (593,112
    )Payment of capital lease obligations
    
    
    (891
    )
    
    
    (845
    )
    
    
    (762
    )
    
    
    (7,210
    )Proceeds (repurchases) of warrants, net
    
    
    878
    
    
    
    (5
    )
    
    
    1,194
    
    
    
    11,297Proceeds from sale of treasury stock
    
    
    
    
    
    
    20
    
    
    
    338
    
    
    
    3,198Purchases of treasury stock
    
    
    (348
    )
    
    
    (2,493
    )
    
    
    (1,209
    )
    
    
    (11,439
    )Dividends paid
    
    
    (795
    )
    
    
    (833
    )
    
    
    (1,001
    )
    
    
    (9,470
    )Proceeds from issuance of new shares by subsidiaries
    
    
    
    
    
    
    
    
    
    
    525
    
    
    
    4,967Net cash provided by (used in) financing activities
    
    
    10,360
    
    
    
    21,839
    
    
    
    (7,010
    )
    
    
    (66,326
    )Net (decrease) increase in cash and cash equivalents
    
    
    (8,725
    )
    
    
    6,496
    
    
    
    (3,369
    )
    
    
    (31,876
    )Cash and cash equivalents at beginning of year
    
    
    25,841
    
    
    
    17,116
    
    
    
    23,612
    
    
    
    223,408Cash and cash equivalents at end of year
    
    
    ¥17,116
    
    
    
    ¥23,612
    
    
    
    ¥20,243
    
    
    $
    191,532
 See accompanying summary of significant accounting policies and other notes to
consolidated financial statements. F-10




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. Business Organization and Basis of Presentation NISSIN CO., LTD. (NISSIN) was incorporated in 1960 in Ehime Prefecture,
western Japan, and has expanded nationwide. NISSIN and its subsidiaries
operate only in Japan. NISSIN currently maintains head offices in Tokyo and in
the City of Matsuyama, Ehime Prefecture, Japan. Because of its concentration
in lending and funding in Japan, NISSIN is exposed to negative changes in the
Japanese economy and stability of its borrowing base in Japan. NISSIN is a non-bank financial institution specializing in providing loan
products to individuals, including small business owners, sole proprietors and
consumers. NISSIN distributes the following products by using a variety of
channels:  Small business owner loans: Designed for small business owners. The small
business owner loan is an unsecured loan that, in NISSINs case, requires
one or more guarantees from third-party individuals with an income source
separate from the customer. It can be used without any restrictions to
repay existing loans or to obtain working capital. These loans are
payable monthly in arrears at fixed interest rates.Wide loans: Debt-consolidation loans for consumers who already have a
high level of outstanding debt with several consumer finance lenders. The
borrower must supply one or more guarantors with a separate income source.
These loans are payable monthly in arrears at fixed interest rates.Business Timely loans: Unsecured revolving loans designed for small
business owners. Business Timely loans are marketed to more creditworthy
owners of businesses and sole proprietors and do not require a guarantor.
These loans are payable monthly in arrears at fixed interest rates.Consumer loans: Unsecured revolving loans to consumers at fixed interest
rates, payable monthly in arrears. On July 11, 2001, NISSIN invested ¥500 million to establish Nissin Servicer
Co., Ltd., mainly to acquire and service distressed loans from banks or other
financial institution in Japan. On November 25, 2003 and February 9, 2004,
Nissin Servicer Co., Ltd. completed sales of additional shares to third
parties, diluting its interest from 100% to the current 89.8%. On April 25, 2003, NISSIN invested ¥10 million ($95 thousand) to establish
Nissin Insurance Co., Ltd., a wholly-owned subsidiary, to operate as an agent
for major life or non-life insurance companies in Japan. On September 8, 2003, NISSIN invested ¥29 million ($274 thousand) to establish
NIS Real Estate Co., Ltd., a 95% owned subsidiary, to provide real estate
related services. On November 10, 2003, NISSIN invested ¥50 million ($473 thousand) to establish
NIS Lease Co., Ltd., a wholly-owned subsidiary, to acquire equipment and
related assets for lease. On March 27, 2004, NISSIN additionally invested ¥450
million ($4,258 thousand). NIS Lease Co., Ltd. commenced leasing operations in
Japan on February 2004. The consolidated financial statements include the accounts of NISSIN and its
majority-owned subsidiaries (collectively, the Company). All significant
intercompany accounts, transactions and profits and losses have been eliminated
in consolidation. In addition, the change in the Companys proportionate interest in a subsidiary
or an affiliate resulting from issuance of stock by the subsidiary or affiliate
is recognized as earnings. The Company maintains its records in accordance with accounting principles
generally accepted in Japan (Japanese GAAP). Certain F-11




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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS adjustments and reclassifications have been made in the accompanying consolidated financial
statements to conform with accounting principles generally accepted in the
United States of America (U.S. GAAP). These adjustments were not recorded in
the statutory Japanese GAAP books of account. The preparation of the consolidated financial statements in conformity with
U.S. GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Significant
estimates are made regarding the Companys allowance for loan losses and
collections for purchased loans. Actual results could differ from those
estimates, resulting in material charges to income. The consolidated financial statements are stated in Japanese yen. The
translations of the Japanese yen amounts into U.S. dollars are included solely
for the convenience of the readers, using the prevailing exchange rate on March
31, 2004, which was ¥105.69 to $1.00. The convenience translations should not
be construed as representations that the Japanese yen amounts have been, could
have been, or could in the future be, converted into U.S. dollars at this or
any other rate of exchange. 2. Summary of Significant Accounting Policies (a) Cash and Cash Equivalents The Company considers all highly liquid investments with an original maturity
of three months or less at the time of purchase to be cash equivalents. These
investments, which consist of time deposits and money management funds invested
in bonds, are recorded at cost, which approximates market value. (b) Interest Income from Loans Receivable and Loan Origination Costs Interest income from loans except for purchased loans is recognized on an
accrual basis based on the principal amount outstanding. In Japan, the maximum
interest rates are set by law at two general levels: an absolute maximum rate
(legal limit) and a lower interest rate based on the principal amount of the
loan (restricted rate). The Company may charge interest rates in excess of the
restricted rate as long as it meets specified requirements. The Companys
contractual loan interest rates do not exceed the legal limit. However, the
Companys contractual loan interest rates, as is customary in the consumer
finance industry in Japan, normally exceed the restricted rate. Borrowers have
a right to refuse to pay interest in excess of the restricted rate, and the
Company cannot legally require borrowers to pay the excess interest. However,
once a borrower has paid interest in excess of the restricted rate, and
provided the Company has complied with specified legal documentation and
notification procedures, the Company has no legal or contractual obligation to
refund or otherwise reimburse the excess interest payments. The Company recognizes accrued interest income on loans receivable outstanding
as of the balance sheet date at the lower of the restricted rate or the
contractual interest rate. Contractual interest in excess of the restricted
rate is recognized as interest income when collected, provided there are no
remaining legal obligations to refund this excess portion. Accrual of interest
income is suspended when loan principal is charged off or is wholly or
partially reserved. The accrued interest portion of a charged-off loan balance
is deducted from the current period interest income and the principal amount is
charged off against the allowance for loan losses. The Company capitalizes direct origination costs and defers fees on successful
loan originations. Loan origination costs, net of loan
origination fees, are deferred and amortized over the contractual life of
loans, which averages approximately forty-four months. F-12




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (c) Loans Receivable and Allowance for Loan Losses Loans receivable are reported at the principal amount less an allowance for
loan losses. The allowance for loan losses is maintained at a level that, in
managements judgment, is adequate to provide for estimated probable
uncollectible loan losses from known and inherent risks in the Companys loan
portfolios. Increases to the allowance are made by charges to the provision
for loan losses. Recoveries of previously charged-off amounts are deducted
from the provision for loan losses. Allowances are reviewed both on an
individual loan and portfolio basis. In evaluating the adequacy of the
allowance, management considers various factors, including current economic
conditions, such as unemployment rates, bankruptcy cases, and historical loss
experience. Restructured loans include any loans which are restructured for
interest, principal or term. Allowances for restructured loans are based on
collection history or legal classification of the borrowers.  The Companys policy is generally to charge off loan balances and cease
accrual of interest as follows:Small business owner loans and Wide loans:Loan balances are charged off
when the Company believes the likelihood of any future collection is minimal.
Events triggering charge-offs include bankruptcy of both the borrower and
guarantor. In the case that loans are restructured, the Company charges off
the amount of the recorded loan balance less the restructured loan balance.
Interest accrual is terminated at the earlier of the date when contractual
payments are 97 days delinquent or the date when all or a part of loan
principal is deemed uncollectible.Business Timely loans and Consumer loans:Loan balances are charged off and
interest accrual is terminated when a loans contractual payment becomes 67
days delinquent or upon other events such as bankruptcy of the borrower.Secured loans:Loan balances are charged off when the Company believes the
likelihood of any future collection is minimal. The Company considers the
availability and value of collateral in determining the level of charge-off.
Interest accrual is terminated at the earlier of the date when contractual
payments are 97 days delinquent or the date when all or a part of loan
principal is deemed uncollectible. (d) Purchased Loans Receivable and Revenue Recognition Purchased loans represent loans purchased from third party originators and are
reported at purchased cost less an allowance for estimated loan losses. Due to
the non-performing status of these loans when initially purchased and lack of
history with the borrowers, the Company initially recognizes revenue from these
loans using the cost recovery method. Under this method, payments from a
borrower are first applied to loan principal. Once the purchased cost is fully
recovered, subsequent receipts are recognized as interest income. If the
Company determines that it cannot recover its cost, an allowance for the
expected uncollectible portion is established. The loan is written off once
the Company deems the loan uncollectible. However, for those purchased loans for which the Company can reasonably
estimate the expected timing and amount of cash flows, the Company uses those
expected future cash flows to record the loans receivable and amortize the
implied interest into revenue using the level yield method. If the carrying
amounts of those loans are greater than the present value of expected future
cash flows from those loans, the difference is recorded as an allowance for the
uncollectible portion. As of March 31, 2002, the Company used the cost method
on all purchased distressed loans. As of March 31, 2003 and 2004,
approximately ¥257 million and ¥846 million ($8,005 thousand) in book value of
loans was accounted for under the level yield method, respectively. F-13




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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (e) Long-lived Assets Property and equipment are stated at cost and, except for land, are depreciated
on a straight-line basis over their estimated useful lives, approximately 22 to
50 years (weighted average life of 49 years) for buildings, 3 to 18 years
(weighted average life of 15 years) for building improvements, 3 to 30 years
(weighted average life of 14 years) for structures and 2 to 20 years (weighted
average life of 5 years) for equipment. Software is amortized straight-line
over approximately 5 years. Leased property and equipment under capital leases as lessee including software
is amortized over the period of the lease or the life of the property and
equipment, whichever is shorter. Repairs and maintenance are charged to
expense when incurred. Real property acquired upon foreclosure is carried at the lower of cost or fair
value less estimated costs to sell. Amounts owned at March 31, 2003 were ¥252
million and are included in other assets on the balance sheets. There was no
real property acquired upon foreclosure at March 31, 2004. The Company reviews its long-lived assets for impairment when changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Long-lived assets under certain circumstances are reported at the
lower of carrying amount or fair value. Assets to be disposed of and assets
not expected to provide any future service potential to the Company are
recorded at the lower of carrying amount or fair value less costs to sell.
During the years ended March 31, 2002, 2003 and 2004, the Company wrote down
investments in rental real property to its fair value, recording approximately
¥4 million, ¥169 million and ¥591 million ($5,592 thousand) in losses for each
of the years, respectively. These losses are included in Losses on sale and
impairment of long-lived assets, net in the consolidated statements of income. (f) Investment Securities The Companys investment securities are classified as available-for-sale in
accordance with SFAS No. 115 Accounting for Certain Investments in Debt and
Equity Securities, and consist of marketable and non-marketable securities. Marketable equity securities are carried at fair value with unrealized gains
and losses, net of tax, reported as a separate component of shareholders
equity. In accordance with SFAS No. 115, an other than temporary decline in
fair value below the amortized cost basis is recorded as a loss in the
statement of income in the period the decline was determined to be other than
temporary. The Company reviews investment securities that have declined in
market value by approximately 10% or more from their cost bases each period to
determine whether an impairment has occurred. For these securities, an other
than temporary decline in market value is presumed to have occurred unless
there is sufficient evidence indicating that the decline is temporary. Such
evidence is considered only when there has been a subsequent recovery in market
value and the evidence includes a recent improvement in financial condition, a
positive prevailing business and industry outlook, and other factors that are
deemed to be relevant indicators. Non-marketable equity securities, which consist of investments in which the
Company has a less than 20% interest and for which the Company does not have
the ability to exercise significant influence, are accounted for on a cost
basis, and adjusted only for other-than-temporary declines in fair value
resulting from company-specific events, industry developments, general economic
condition, or other reasons. Non-marketable debt securities are accounted for on an amortized cost basis,
and adjusted only for other-than-temporary declines in fair value resulting
from company-specific events, industry developments, general economic
condition, or other reasons. Realized gains and losses are determined using the weighted average cost method
based on the trade date of the transaction. F-14




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (g) Investments in Affiliates Investments in affiliates are investments in which the Company has a 20 percent
to 50 percent interest or otherwise exercises significant influence but not
control. These investments are accounted for under the equity method. (h) Derivative Financial Instruments The Company accounts for derivatives instruments in accordance with SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities, SFAS No.
138, Accounting for Certain Derivative Instruments and Certain Hedging
Activities  an amendment of FASB Statement No. 133 and SFAS No. 149,
Amendment of Statement 133 on Derivative Instruments and Hedging Activities
which requires that all derivative instruments be recorded on the balance sheet
at fair value. Changes in the fair value of derivatives are recorded each
period either in current results of operations or other comprehensive income
(loss). For a derivative designated as part of a hedge transaction, where it
is recorded is dependent on whether it is a fair value hedge or a cash flow
hedge. For a derivative designated as a fair value hedge, the gain or loss of
the derivative in the period of change and the offsetting loss or gain of the
hedged item attributed to the hedged risk are recognized in results of
operations. For a derivative designated as a cash flow hedge, the effective
portion of the derivatives gain or loss is initially reported as a component
of other comprehensive income (loss) and subsequently reclassified into results
of operations when the hedged exposure affects results of operations. The
ineffective portion of the gain or loss of a cash flow hedge is recognized
currently in results of operations. For a derivative not designated as a
hedging instrument, the gain or loss is recognized currently in results of
operations. The Company uses both variable and fixed rate debts to finance its operations.
The variable rate debt obligations expose the Company to variability in
interest payments due to changes in interest rates. The Company continuously
monitors changes in interest rate exposures and evaluates hedging
opportunities. The Companys objective is to limit the impact of interest rate changes on
earnings and cash flows. The Company achieves this by entering into interest
rate swap agreements to convert a portion of its debt from variable to fixed
rates, and interest rate cap agreements, which limit the impact of increases in
interest rates. Under the interest rate swap contracts, the Company agrees to
pay an amount equal to a specified fixed-rate of interest times a notional
principal amount, and to receive in return an amount equal to a specified
variable-rate of interest times a notional amount. The notional amounts are
not exchanged. No other cash payments are made unless the contract is
terminated prior to maturity, in which case the amount paid or received in
settlement is established by agreement at the time of the termination and
usually represents the net present value, at current rates of interest, of the
remaining obligations to exchange payments under the term of the contract. The
Company accounts for its interest rate swap and cap agreements as cash flow
hedges. Interest rate swap and cap agreements are entered into with major
international financial institutions with favorable credit ratings. The
Company is exposed to credit losses in the event of counter-party
non-performance to these interest rate swap agreements. The Company believes
counter-party credit risk is minimal. The Company does not issue or hold
derivative contracts for speculative purposes. The Company formally documents all relationships between hedging instruments
and hedged items, as well as its risk-management objective and strategy for
undertaking various hedge transactions. This process includes linking all
derivatives that are designated as cash flow hedges to  (1)
    
    specific assets and liabilities on the balance sheet, or(2)
    
    specific firm commitments or forecasted transactions. The Company also formally assesses (both at the hedges inception and on an
ongoing basis) whether the derivatives that are used in hedging transactions
have been highly effective in offsetting changes in the cash flows of hedged
items and whether those derivatives may be expected to remain highly effective
in the future periods. When it is determined that a derivative is not (or has
ceased to be) highly effective as a hedge, F-15




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS the Company discontinues hedge accounting prospectively,
as discussed below. The underlying debt instruments being hedged bear interest based on the
Long-term Prime Rate in Japan (LTPR), while the hedge instruments are based
on the Tokyo Inter-bank Offer Rate (TIBOR). When the hedge instrument is
based on TIBOR, ineffectiveness results from differences in the movements of
these interest rates. The Company records the ineffective portion as a
component of interest expense in current earnings. The Company discontinues hedge accounting prospectively when  (1)
    
    it determines that the derivative is no longer effective in offsetting
changes in the cash flows of a hedged item;(2)
    
    the derivative expires or is sold, terminated, or exercised;(3)
    
    it is no longer probable that the forecasted transaction will occur; or(4)
    
    management determines that designating the derivative as a hedging
instrument is no longer appropriate. In the event hedge accounting is discontinued and the derivative remains
outstanding, the Company will carry the derivative at its fair value on the
balance sheet, recognizing changes in the fair value in current-period
earnings. For purposes of the cash flow statement, cash flows from derivative instruments
are classified with the cash flows from the hedged item. (i) Guarantees In November 2002, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation (FIN) No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others, which clarifies the requirements of Statement of Financial Accounting
Standards (SFAS) No. 5, Accounting for Contingencies, relating to a
guarantors accounting for and disclosure of certain guarantees issued. FIN
No. 45 requires enhanced disclosures for certain guarantees. It also requires
certain guarantees that are issued or modified after December 31, 2002,
including certain third-party guarantees, to be initially recorded on the
balance sheet at fair value. The Company recognized reserves for guarantee
losses of ¥9 million and ¥108 million ($1,022 thousand) at March 31, 2003 and
2004, respectively. Additionally, in the normal course of business, the Company may guarantee or
indemnify directors and service providers against litigation or claims. These
claims are expected to be fully covered by company insurance policies. The
adoption of FIN No. 45 did not have a material impact on the result of
operations of financial position of the Company (see also Note 13). (j) Treasury Stock Treasury stock is recorded at the Companys cost basis. Pursuant to the
Commercial Code of Japan (the Code), a company may purchase treasury stock
with the appropriate shareholder approval, and can retire treasury stock by
reducing retained earnings or paid-in capital. (k) Advertising Costs Advertising costs are expensed as incurred, except for costs for advertising
requiring upfront payment for a series of advertisements, which are deferred
and expensed as the individual communications occur. Advertising expenses
recognized for the years ended March 31, 2002, 2003 and 2004 were ¥1,838
million, ¥449 million and ¥218 million ($2,063 thousand), respectively. F-16




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (l) Income Taxes The Company uses the asset and liability method to account for income taxes.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities from a
change in tax rates is recognized in income in the period the change is
enacted. A valuation allowance is established when it is determined that
deferred tax assets are no longer more likely than not to be realized. (m) Net Income Per Share (EPS) Basic EPS is computed based on the average number of shares of common stock
outstanding during each period and diluted EPS assumes the dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock. NISSIN completed a two-for-one stock split on May 21, 2002, May 20, 2003 and
May 20, 2004, respectively. All share information disclosed has been
retrospectively adjusted to reflect such stock splits. (n) Stock-based Compensation As permitted by SFAS No. 123 Accounting for Stock-based Compensation, the
Company has reflected to account for its stock-based compensation arrangements
in accordance with Accounting Principles Board Opinion (APB) No. 25,
Accounting for Stock Issued to Employees. Under this method, the excess, if
any, of the quoted market price of the stock at the grant date of the award or
other measurement date over the stated exercise price of the award is
recognized as deferred stock-based compensation cost which is amortized over
the period in which the employee performs the service. The following table reflects stock-based employee compensation cost for the
years ended March 31, 2002, 2003 and 2004. In addition, the following table
also reflects on a pro forma basis the Companys net income and net income per
common share with and without dilution, as if compensation costs for stock
options had been recorded based on the fair value at the date of grant under
the Companys stock-based compensation plans, consistent with the provisions of
SFAS No. 123. The pro forma compensation expense reflects compensation expense
over the vesting period of the grant, which is generally two or three years.
The stock-based compensation plan disclosure requirements required by SFAS No.
123 are provided in Note 20 to the Consolidated Financial Statements. Thousands of U.S.Million of Yen
    
    Dollars2002
    
    2003
    
    2004
    
    2004Net income, as reported
    
    
    ¥4,801
    
    
    
    ¥5,176
    
    
    
    ¥6,077
    
    
    
    $57,498Stock amortization included in net income, as reported
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deduct: Pro
forma stock-based compensation expense
determined under fair value method
    
    
    445
    
    
    
    122
    
    
    
    121
    
    
    
    1,145Pro forma net income
    
    
    ¥4,356
    
    
    
    ¥5,054
    
    
    
    ¥5,956
    
    
    
    $56,353
 F-17




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Yen
    
    U.S. Dollars2002
    
    2003
    
    2004
    
    2004Net income per common share:As reported
 basic
    
    
    ¥18.21
    
    
    
    ¥20.08
    
    
    
    ¥24.37
    
    
    
    $0.23As reported
 assuming dilution
    
    
    17.43
    
    
    
    18.62
    
    
    
    22.46
    
    
    
    0.21
 Yen
    
    U.S. Dollars2002
    
    2003
    
    2004
    
    2004Net income per common share:Pro forma
 basic
    
    
    ¥16.52
    
    
    
    ¥19.60
    
    
    
    ¥23.89
    
    
    
    $0.23Pro forma
 assuming dilution
    
    
    15.83
    
    
    
    18.19
    
    
    
    22.02
    
    
    
    0.21
 The fair value of stock options and warrants granted is estimated using the
Black-Scholes option-pricing model with the following weighted-average
assumptions: Weighted-average assumptions
    
    2002
    
    2003
    
    2004Risk-free interest rate
    
    
    0.5
    %
    
    
    0.5
    %
    
    
    0.3
    %Expected lives
    
    2 years
    
    3 years
    
    3 yearsExpected volatility
    
    
    50
    %
    
    
    40
    %
    
    
    38
    %Dividend yield
    
    
    1.5
    %
    
    
    1.5
    %
    
    
    1.7
    %Weighted-average fair value of grant per share
    
    
    ¥85.70
    
    
    
    ¥33.34
    
    
    
    ¥31.69
 (o) Comprehensive Income The Company accounts for comprehensive income in accordance with SFAS No. 130
Reporting Comprehensive Income. SFAS No. 130 establishes standards for the
reporting and presentation of comprehensive income and its components
(revenues, expenses, gains, and losses) in the financial statements. The
Company presents comprehensive income in its consolidated statements of
shareholders equity, net of related income taxes. 3. Recently Issued Accounting Pronouncements In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. SFAS No. 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under SFAS
No. 133. In particular, SFAS No. 149 clarifies under what circumstances a
contract within an initial net investment meets the characteristic of a
derivative and when a derivative contains a financing component that warrants
special reporting in the statement of cash flows. SFAS No. 149 is generally
effective for contracts entered into or modified after June 30, 2003, and did
not to have a material impact on the Companys consolidated financial
statements. In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150
establishes standards for how certain financial instruments with
characteristics of both liabilities and equity shall be classified and
measured. SFAS No. 150 requires that an issuer classify a financial instrument
that is within its scope as a liability (or an asset in some circumstances).
Many of those instruments were previously classified as equity. This statement
is effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. For certain financial instruments, the
classification and measurement provisions of SFAS No. 150 have
been deferred indefinitely. F-18




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The adoption of SFAS No. 150 did not have a material impact on
the Companys consolidated financial statements. In January 2003, the FASB issued FIN No. 46, Consolidation of Variable
Interest Entities  an Interpretation of ARB No.51, which clarifies the
application of Accounting Research Bulletin No. 51, Consolidated Financial
Statements. More specifically, FIN No. 46 explains how to identify variable
interest entities (VIE) and how to determine whether or not those entities
should be consolidated. FIN No. 46 requires the primary beneficiaries of VIEs
to consolidate the VIEs if they are subject to a majority of the risk of loss
or are entitled to receive a majority of the residual returns. FIN No. 46 also
requires that both the primary beneficiary and all other enterprises with a
significant variable interest in a VIE make certain disclosures. In December
2003, the FASB issued a revision of FIN No. 46, which superseded the original
guidance and revised various aspects of the original guidance, including
effective dates. Under the revised guidance, FIN No. 46 remains effective upon
its issuance for interests in VIEs acquired after January 31, 2003. For
interests in VIEs acquired before February 1, 2003, the revised FIN No. 46
effective date was delayed to March 31, 2004, with the exception of
special-purpose entities, for which the effective date was December 31, 2003.
The provisions of FIN No. 46 are not expected to have a material impact on the
Companys consolidated financial statements. In December 2003, the Accounting Standards Executive Committee issued Statement
of Position (SOP) 03-3, Accounting for Certain Loans or Debt Securities
Acquired in a Transfer. SOP 03-3 addresses accounting for differences between
contractual cash flows and cash flows expected to be collected from an
investors initial investment in loans or debt securities acquired in a
transfer. SOP 03-3 is effective for loan acquired in fiscal years beginning
after December 15, 2004. The Company is currently assessing the impact of this
statement on the Companys results of operations and financial position but
does not expect the adoption of this statement to have a significant impact. At its November 2003 meeting, the Emerging Issues Task Force (EITF) reached a
consensus on disclosure guidance previously discussed under EITF 03-01, The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments. The consensus provided for certain disclosure requirements that
were effective for fiscal years ending after December 15, 2003. The Company
adopted the disclosure requirements during the fiscal year ended March 31,
2004. At its March 2004 meeting, the EITF reached a consensus on recognition and
measurement guidance previously discussed under EITF 03-01. The consensus
clarifies the meaning of other-than-temporary impairment and its application to
investments classified as either available-for-sale or held-to-maturity under
FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity
Securities, and investments accounted for under the cost method or the equity
method. The recognition and measurement guidance for which the consensus was
reached in the March 2004 meeting is to be applied to other-than-temporary
impairment evaluations in reporting periods beginning after June 15, 2004. The
adoption of EITF 03-01 is not expected to have a material effect on the
Companys results of operations or financial position. F-19




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 4. Loans Receivable and Allowance for Loan Losses The following is a summary of loans outstanding as of March 31, 2003 and 2004: Thousands ofMillions of Yen
    
    U.S. Dollars2003
    
    2004
    
    2004Small business owner loans
    
    ¥
    53,915
    
    
    ¥
    57,168
    
    
    
    $   540,903Wide loans
    
    
    63,993
    
    
    
    57,460
    
    
    
    543,665Business Timely loans
    
    
    17,303
    
    
    
    18,659
    
    
    
    176,545Consumer loans
    
    
    40,938
    
    
    
    35,604
    
    
    
    336,872Secured and other loans
    
    
    1,623
    
    
    
    10,576
    
    
    
    100,066Total loans outstanding
    
    
    177,772
    
    
    
    179,467
    
    
    
    1,698,051Allowance for loan losses
    
    
    (11,827
    )
    
    
    (13,528
    )
    
    
    (127,997
    )Deferred origination costs
    
    
    1,032
    
    
    
    951
    
    
    
    8,998Balance at end of year
    
    ¥
    166,977
    
    
    ¥
    166,890
    
    
    
    $1,579,052
 A summary of changes in the allowance for loan losses is as follows: Thousands ofMillions of Yen
    
    U.S. Dollars2002
    
    2003
    
    2004
    
    2004Balance at beginning of year
    
    
    ¥7,482
    
    
    
    ¥  8,831
    
    
    
    ¥11,827
    
    
    
    $  111,903Provision for loan losses
    
    
    7,433
    
    
    
    12,545
    
    
    
    12,824
    
    
    
    121,336Charge-offs, net of recoveries
    
    
    (6,084
    )
    
    
    (9,549
    )
    
    
    (11,123
    )
    
    
    (105,242
    )Balance at end of year
    
    
    ¥8,831
    
    
    
    ¥11,827
    
    
    
    ¥13,528
    
    
    
    $  127,997
 F-20




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The components of the allowance for loan losses as of March 31, 2003 and 2004
are as follows: Millions of Yen2003Small Business
    
    
    
    
    
    Business
    
    Consumer
    
    Secured andOwner Loans
    
    Wide Loans
    
    Timely Loans
    
    Loans
    
    Other Loans
    
    TotalHistorical Loss Components- CurrentCurrent
    
    
    ¥48,691
    
    
    
    ¥57,771
    
    
    
    ¥16,959
    
    
    
    ¥39,883
    
    
    
    ¥1,403
    
    
    
    ¥164,707Restructured
    
    
    4,204
    
    
    
    5,231
    
    
    
    344
    
    
    
    1,055
    
    
    
    96
    
    
    
    10,930Loans outstanding
    
    
    52,895
    
    
    
    63,002
    
    
    
    17,303
    
    
    
    40,938
    
    
    
    1,499
    
    
    
    175,637Allowance
    
    
    1,751
    
    
    
    2,142
    
    
    
    1,703
    
    
    
    4,315
    
    
    
    52
    
    
    
    9,963- 67 to 96 daysLoans outstanding
    
    
    182
    
    
    
    153
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    335Allowance
    
    
    127
    
    
    
    107
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    234- 97 to 120 daysLoans outstanding
    
    
    109
    
    
    
    63
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    172Allowance
    
    
    109
    
    
    
    63
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    172- Over 120 daysLoans outstanding
    
    
    374
    
    
    
    268
    
    
    
    
    
    
    
    
    
    
    
    64
    
    
    
    706Allowance
    
    
    374
    
    
    
    268
    
    
    
    
    
    
    
    
    
    
    
    64
    
    
    
    706Loans outstanding
    
    
    53,560
    
    
    
    63,486
    
    
    
    17,303
    
    
    
    40,938
    
    
    
    1,563
    
    
    
    176,850Allowance
    
    
    2,361
    
    
    
    2,580
    
    
    
    1,703
    
    
    
    4,315
    
    
    
    116
    
    
    
    11,075Other Components:- Bankrupt loansLoans outstanding
    
    
    228
    
    
    
    378
    
    
    
    
    
    
    
    
    
    
    
    13
    
    
    
    619Allowance
    
    
    223
    
    
    
    365
    
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    600- Loans under legal processLoans outstanding
    
    
    127
    
    
    
    129
    
    
    
    
    
    
    
    
    
    
    
    47
    
    
    
    303Allowance
    
    
    64
    
    
    
    64
    
    
    
    
    
    
    
    
    
    
    
    24
    
    
    
    152Loans outstanding
    
    
    355
    
    
    
    507
    
    
    
    
    
    
    
    
    
    
    
    60
    
    
    
    922Allowance
    
    
    287
    
    
    
    429
    
    
    
    
    
    
    
    
    
    
    
    36
    
    
    
    752Total loans outstanding
    
    
    ¥53,915
    
    
    
    ¥63,993
    
    
    
    ¥17,303
    
    
    
    ¥40,938
    
    
    
    ¥1,623
    
    
    
    ¥177,772Total allowance
    
    
    2,648
    
    
    
    3,009
    
    
    
    1,703
    
    
    
    4,315
    
    
    
    152
    
    
    
    11,827
 F-21




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Millions of Yen2004Small Business
    
    
    
    
    
    Business
    
    Consumer
    
    Secured andOwner Loans
    
    Wide Loans
    
    Timely Loans
    
    Loans
    
    Other Loans
    
    TotalHistorical Loss Components- CurrentCurrent
    
    
    ¥49,602
    
    
    
    ¥49,082
    
    
    
    ¥18,143
    
    
    
    ¥34,422
    
    
    
    ¥10,365
    
    
    
    ¥161,614Restructured
    
    
    5,768
    
    
    
    6,852
    
    
    
    516
    
    
    
    1,182
    
    
    
    101
    
    
    
    14,419Loans outstanding
    
    
    55,370
    
    
    
    55,934
    
    
    
    18,659
    
    
    
    35,604
    
    
    
    10,466
    
    
    
    176,033Allowance
    
    
    2,087
    
    
    
    2,325
    
    
    
    1,962
    
    
    
    3,868
    
    
    
    257
    
    
    
    10,499- 67 to 96 daysLoans outstanding
    
    
    210
    
    
    
    137
    
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    357Allowance
    
    
    147
    
    
    
    96
    
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    250- 97 to 120 daysLoans outstanding
    
    
    134
    
    
    
    87
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    221Allowance
    
    
    134
    
    
    
    87
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    221- Over 120 daysLoans outstanding
    
    
    736
    
    
    
    523
    
    
    
    
    
    
    
    
    
    
    
    79
    
    
    
    1,338Allowance
    
    
    736
    
    
    
    523
    
    
    
    
    
    
    
    
    
    
    
    79
    
    
    
    1,338Loans outstanding
    
    
    56,450
    
    
    
    56,681
    
    
    
    18,659
    
    
    
    35,604
    
    
    
    10,555
    
    
    
    177,949Allowance
    
    
    3,104
    
    
    
    3,031
    
    
    
    1,962
    
    
    
    3,868
    
    
    
    343
    
    
    
    12,308Other Components:- Bankrupt loansLoans outstanding
    
    
    464
    
    
    
    519
    
    
    
    
    
    
    
    
    
    
    
    18
    
    
    
    1,001Allowance
    
    
    446
    
    
    
    501
    
    
    
    
    
    
    
    
    
    
    
    16
    
    
    
    963- Loans under legal processLoans outstanding
    
    
    254
    
    
    
    260
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    517Allowance
    
    
    127
    
    
    
    129
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    257Loans outstanding
    
    
    718
    
    
    
    779
    
    
    
    
    
    
    
    
    
    
    
    21
    
    
    
    1,518Allowance
    
    
    573
    
    
    
    630
    
    
    
    
    
    
    
    
    
    
    
    17
    
    
    
    1,220Total loans outstanding
    
    
    ¥57,168
    
    
    
    ¥57,460
    
    
    
    ¥18,659
    
    
    
    ¥35,604
    
    
    
    ¥10,576
    
    
    
    ¥179,467Total allowance
    
    
    3,677
    
    
    
    3,661
    
    
    
    1,962
    
    
    
    3,868
    
    
    
    360
    
    
    
    13,528
 F-22




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Thousands of U.S. Dollars2004Small Business
    
    
    
    
    
    Business
    
    Consumer
    
    Secured andOwner Loans
    
    Wide Loans
    
    Timely Loans
    
    Loans
    
    Other Loans
    
    TotalHistorical Loss Components:- CurrentCurrent
    
    $
    469,316
    
    
    $
    464,396
    
    
    $
    171,662
    
    
    $
    325,688
    
    
    $
    98,070
    
    
    $
    1,529,132Restructured
    
    
    54,575
    
    
    
    64,831
    
    
    
    4,883
    
    
    
    11,184
    
    
    
    956
    
    
    
    136,429Loans outstanding
    
    
    523,891
    
    
    
    529,227
    
    
    
    176,545
    
    
    
    336,872
    
    
    
    99,026
    
    
    
    1,665,561Allowance
    
    
    19,746
    
    
    
    21,998
    
    
    
    18,564
    
    
    
    36,598
    
    
    
    2,432
    
    
    
    99,338- 67 to 96 daysLoans outstanding
    
    
    1,987
    
    
    
    1,296
    
    
    
    
    
    
    
    
    
    
    
    95
    
    
    
    3,378Allowance
    
    
    1,391
    
    
    
    908
    
    
    
    
    
    
    
    
    
    
    
    66
    
    
    
    2,365- 97 to 120 daysLoans outstanding
    
    
    1,268
    
    
    
    823
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,091Allowance
    
    
    1,268
    
    
    
    823
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,091- Over 120 daysLoans outstanding
    
    
    6,964
    
    
    
    4,948
    
    
    
    
    
    
    
    
    
    
    
    747
    
    
    
    12,659Allowance
    
    
    6,964
    
    
    
    4,948
    
    
    
    
    
    
    
    
    
    
    
    747
    
    
    
    12,659Loans outstanding
    
    
    534,110
    
    
    
    536,294
    
    
    
    176,545
    
    
    
    336,872
    
    
    
    99,868
    
    
    
    1,683,689Allowance
    
    
    29,369
    
    
    
    28,677
    
    
    
    18,564
    
    
    
    36,598
    
    
    
    3,245
    
    
    
    116,453Other Components:- Bankrupt loansLoans outstanding
    
    
    4,390
    
    
    
    4,911
    
    
    
    
    
    
    
    
    
    
    
    170
    
    
    
    9,471Allowance
    
    
    4,220
    
    
    
    4,740
    
    
    
    
    
    
    
    
    
    
    
    151
    
    
    
    9,111- Loans under legal processLoans outstanding
    
    
    2,403
    
    
    
    2,460
    
    
    
    
    
    
    
    
    
    
    
    28
    
    
    
    4,891Allowance
    
    
    1,202
    
    
    
    1,221
    
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    2,433Loans outstanding
    
    
    6,793
    
    
    
    7,371
    
    
    
    
    
    
    
    
    
    
    
    198
    
    
    
    14,362Allowance
    
    
    5,422
    
    
    
    5,961
    
    
    
    
    
    
    
    
    
    
    
    161
    
    
    
    11,544Total loans outstanding
    
    $
    540,903
    
    
    $
    543,665
    
    
    $
    176,545
    
    
    $
    336,872
    
    
    $
    100,066
    
    
    $
    1,698,051Total allowance
    
    
    34,791
    
    
    
    34,638
    
    
    
    18,564
    
    
    
    36,598
    
    
    
    3,406
    
    
    
    127,997
 The Companys allowance for loan losses is the sum of specific reserves under
SFAS No.114, Accounting by Creditors for Impairment of a Loan, and a general
reserve of groups of loans with similar risk characteristics under SFAS No. 5,
Accounting for Contingencies. The components used in determining the
allowance level include:  (1)
    
    a component estimated based on historical loss by payment status,(2)
    
    components based on legal status including bankruptcy or death, and(3)
    
    other components based on loan attributes. Historical loss experience is adjusted for observable data on bankruptcies and
unemployment. F-23




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  5.
    Purchased Loans Receivable Nissin Servicer Co., Ltd. was incorporated on July 11, 2001, and started its
business on October 25, 2001. Nissin Servicer mainly purchases distressed
loans from financial institutions and services these loans. Nissin Servicers
intention is to renegotiate the terms of the loan with the borrower, carry and
service the loan through maturity. These loans are normally collateralized or
carry personal guarantees. A summary of change in purchased loans receivable
during the years ended March 31, 2002, 2003 and 2004 is as follows: 2002: Millions of YenCollectionsContract
    
    Purchased
    
    
    
    
    
    
    
    
    
    
    
    
    
    Increase in
    
    CarryingAmount
    
    Amount
    
    Principal
    
    Interest
    
    Charge-offs
    
    Allowance
    
    ValuePurchased loans
    
    
    ¥84,079
    
    
    
    ¥403
    
    
    
    ¥23
    
    
    
    ¥10
    
    
    
    ¥
    
    
    
    ¥
    
    
    
    ¥380
 2003: Millions of YenCollectionsContract
    
    Purchased
    
    
    
    
    
    
    
    
    
    
    
    
    
    Increase in
    
    CarryingAmount
    
    Amount
    
    Principal
    
    Interest
    
    Charge-offs
    
    Allowance
    
    ValuePurchased loans
    
    
    ¥411,966
    
    
    
    ¥5,234
    
    
    
    ¥2,145
    
    
    
    ¥712
    
    
    
    ¥12
    
    
    
    ¥131
    
    
    
    ¥2,946
 2004: Millions of YenCollectionsContract
    
    Purchased
    
    
    
    
    
    
    
    
    
    
    
    
    
    Increase in
    
    CarryingAmount
    
    Amount
    
    Principal
    
    Interest
    
    Charge-offs
    
    Allowance
    
    ValuePurchased loans
    
    
    ¥856,939
    
    
    
    ¥7,448
    
    
    
    ¥2,469
    
    
    
    ¥2,069
    
    
    
    ¥51
    
    
    
    ¥586
    
    
    
    ¥4,342
 Thousands of U.S. DollarsCollectionsContract
    
    Purchased
    
    
    
    
    
    
    
    
    
    
    
    
    
    Increase in
    
    CarryingAmount
    
    Amount
    
    Principal
    
    Interest
    
    Charge-offs
    
    Allowance
    
    ValuePurchased loans
    
    $
    8,108,042
    
    
    $
    70,471
    
    
    $
    23,361
    
    
    $
    19,576
    
    
    
    $483
    
    
    $
    5,545
    
    
    $
    41,082
  6.
    Investment Securities The Companys investment securities as of March 31, 2003 and 2004 are
classified as available-for-sale in accordance with SFAS No.115, and consist
of marketable and non-marketable securities. During the years ended March 31,
2002, 2003 and 2004, the proceeds from sales of available-for-sale securities
were ¥760 million, ¥1,057 million and ¥2,173 million ($20,560 thousand),
respectively. On those sales, gross realized gains computed on the average
cost basis were ¥33 million, ¥114 million and ¥645 million ($6,103 thousand)
and gross realized losses were ¥40 million, ¥82 million and ¥46 million ($436
thousand), respectively. The aggregate cost and fair value of marketable securities as of March 31, 2003
and 2004 is as follows: F-24




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2003: Millions of YenGross
    
    GrossUnrealized
    
    UnrealizedCost
    
    Gains
    
    Losses
    
    Fair ValueEquity securities
    
    
    ¥1,388
    
    
    
    ¥133
    
    
    
    ¥14
    
    
    
    ¥1,5072004:Millions of Yen
    
    Thousands of U.S. DollarsGross
    
    Gross
    
    
    
    
    
    
    
    
    
    Gross
    
    GrossUnrealized
    
    Unrealized
    
    
    
    
    
    
    
    
    
    Unrealized
    
    UnrealizedCost
    
    Gains
    
    Losses
    
    Fair Value
    
    Cost
    
    Gains
    
    Losses
    
    Fair ValueEquity securities
    
    
    ¥2,621
    
    
    
    ¥5,662
    
    
    
    ¥
    
    
    
    ¥8,283
    
    
    $
    24,799
    
    
    $
    53,572
    
    
    
    $
    
    
    $
    78,371
 As of March 31, 2004, amount of gross unrealized losses from equity securities
that were in a sustained unrealized loss position for 12 months or more was
¥200 thousand ($2 thousand). The aggregate cost of non-marketable securities which approximates fair value
as of March 31, 2003 and 2004 is as follows: Thousands ofMillions of Yen
    
    U.S. Dollars2003
    
    2004
    
    2004Equity securities
    
    
    ¥720
    
    
    
    ¥367
    
    
    
    $3,472Investment funds
    
    
    
    
    
    
    500
    
    
    
    4,731Debt securities
    
    
    7
    
    
    
    24
    
    
    
    227Total non-marketable securities
    
    
    ¥727
    
    
    
    ¥891
    
    
    
    $8,430
 Included above, as of March 31, 2004, the Company held three non-marketable
debt securities with maturity ranging from October 2005 to December 2006. Management believes that there was a permanent impairment in value of the
marketable securities and non-marketable securities on March 31, 2002, 2003 and
2004 of approximately ¥599 million, ¥1,005 million and ¥867 million ($8,203
thousand), respectively.  7.
    Investment in Affiliates As of March 31, 2003 and 2004, the aggregate net assets of affiliates owned by
NISSIN are approximately ¥742 million and ¥496 million ($4,693 thousand),
respectively. The significant changes in investment in affiliates for the
years ended March 31, 2003 and 2004 are as follows: 2003: On May 27, 2002, NISSIN made an additional investment of ¥410 million to BB Net
Corp. and owned 20.6% interest with total investment of ¥513 million. BB Net
Corp., a Japanese corporation listed on Hercules Market (a market focused on
high-growth and emerging stocks) of the Osaka Securities Exchange, provides raw
materials and other support services for small business owners. F-25




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS On October 18, 2002, NISSIN invested ¥125 million for a 25% interest or 250,000
shares of Shinsei Business Finance Co., Ltd., a private Japanese corporation
launched on November 1, 2002 for the purpose of providing loans to small
corporations. On July 22, 2002, NISSIN entered into an equity exchange agreement with i-cf,
Inc. under which Webcashing.com Co., Ltd., a wholly-owned subsidiary of NISSIN,
was sold to i-cf, Inc. in exchange for a 17.7% interest or 2,476 shares of
i-cf, Inc. The sale was completed on November 1, 2002. Webcashing.com Co.,
Ltd. is a Japanese corporation providing Internet-related financial
advertisement services. i-cf, Inc. is a Japanese corporation providing
Internet-related services and is listed on the Mothers Market (a market focused
on high-growth and emerging stocks) of the Tokyo Stock Exchange. Since
Webcashing.com Co., Ltd., which became a significant subsidiary wholly-owned by
i-cf, Inc., had significant revenue from NISSIN, NISSIN believes that it had an
ability to exercise significant influence over i-cf, Inc resulting in i-cf,
Inc. becoming an affiliate. 2004: On July 15, 2003, BB Net Corp. sold additional shares to third parties. As a
result, NISSINs equity interest in BB Net Corp. fell below 20%, and since
NISSIN believes that it no longer had the ability to exercise significant
influence over BB Net Corp., NISSIN accounts for its investment under the cost
method. On December 15, 2003, i-cf, Inc. entered into an equity exchange agreement with
livedoor Co., Ltd. whereby Webcashing.com Co., Ltd. was sold to livedoor Co.,
Ltd. Subsequently, on March 12, 2004, NISSIN sold its entire equity interest
in i-cf, Inc. to unrelated third parties. On March 31, 2004, NISSIN reacquired 2,280 shares or 38% of Webcashing.com Co.,
Ltd., which was a wholly-owned subsidiary of livedoor Co., Ltd., for ¥323
million ($3,056 thousand). As a result, NISSIN accounts for its investment in
Webcashing.com Co., Ltd. under the equity method.  8.
    Valuation of Goodwill During the year ended March 31, 2003, the Company determined that goodwill
associated with Ascot Co., Ltd., a 25% owned equity-method investment, BB Net
Corp., a 20.6% owned equity-method investment, and Swan Credit Co., Ltd., a 20%
owned equity-method investment, was impaired based on recent operating results
and activity of those companies. Accordingly, the Company wrote off the
balance of ¥179 million, ¥282 million and ¥4 million, respectively. In addition, the Company determined that goodwill associated with i-cf, Inc., a
17.7% owned equity-method investment, was impaired based on the significant
stock price decrease and expected reduction of future operating activity of
i-cf, Inc. Accordingly, the Company wrote off the balance of goodwill totaling
¥218 million. As of March 31, 2003, the Company had no remaining goodwill. As of March 31, 2004, goodwill totaled ¥201 million ($1,902 thousand) and was
the result of the Companys investment in Webcashing.com Co., Ltd., which is a
38% owned equity-method investment. F-26




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  9.
    Short-Term and Long-Term Borrowings Short-term borrowing as of March 31, 2003 and 2004 comprise the following: Thousands ofMillions of Yen
    
    U.S. Dollars2003
    
    2004
    
    2004Bank loans
    
    
    ¥3,200
    
    
    
    ¥2,100
    
    
    $
    19,869Commercial paper
    
    
    2,400
    
    
    
    3,200
    
    
    
    30,277Rediscounted notes
    
    
    
    
    
    
    263
    
    
    
    2,489Total short-term borrowings
    
    
    ¥5,600
    
    
    
    ¥5,563
    
    
    $
    52,635
 Interest rates on bank loans as of March 31, 2003 and 2004 are fixed under
contract ranging from 1.998% to 2.500% and from 1.971% to 2.250%, with weighted
average interest rate of these bank loans being 2.039% and 1.985%,
respectively. Interest rates on commercial paper as of March 31, 2003 and 2004
range from 1.100% to 1.330% and from 0.300% to 1.000%, with weighted average
interest rates of these commercial paper being 1.227% and 0.784%, respectively.
Interest rates on all rediscounted notes as of March 31, 2004 are 2.370%. All
short-term borrowings have terms ranging from 2 months to 12 months and are
usually renewed at maturity subject to renegotiation of interest rates and
other factors. F-27




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Long-term borrowing as of March 31, 2003 and 2004 comprise the following: Thousands ofMillions of Yen
    
    U.S. Dollars2003
    
    2004
    
    20043.00% unsecured bonds, due April 20, 2004
    
    ¥
    10,000
    
    
    ¥
    10,000
    
    
    $
    94,6163.32% unsecured bonds, due April 11, 2003
    
    
    5,000
    
    
    
    
    
    
    
    2.45% unsecured bonds, due March 28, 2005
    
    
    10,000
    
    
    
    10,000
    
    
    
    94,6162.30% unsecured bonds with warrants, due April 20, 2004 (A)
    
    
    1,500
    
    
    
    1,500
    
    
    
    14,1922.35% unsecured bonds, due November 1, 2005
    
    
    5,000
    
    
    
    5,000
    
    
    
    47,3081.90% unsecured bonds, due July 31, 2006
    
    
    
    
    
    
    500
    
    
    
    4,7310.75% unsecured bonds, due September 19, 2008
    
    
    
    
    
    
    270
    
    
    
    2,5560.64% unsecured bonds, due March 26, 2007
    
    
    
    
    
    
    500
    
    
    
    4,7311.70% unsecured convertible bonds, due September 29, 2006 (B)
    
    
    10,000
    
    
    
    10,000
    
    
    
    94,616Total bonds
    
    
    41,500
    
    
    
    37,770
    
    
    
    357,366Loans from banks and other financial institutionsSecured:Due 2003 to 2009 with fixed interest rates ranging from
1.800% to 5.200% per annum, weighted average actual rate is
2.459%
    
    
    20,743
    
    
    
    
    
    
    
    Due 2004 to 2009 with fixed interest rates ranging from
1.700% to 5.200% per annum, weighted average actual rate is
2.291%
    
    
    
    
    
    
    18,761
    
    
    
    177,510Due 2003 to 2007 with floating interest rates principally
based on Long-term Prime Rate (LTPR) plus 0.000% to 2.750%
per annum, weighted average actual rate is 2.328%
    
    
    30,920
    
    
    
    
    
    
    
    Due 2004 to 2008 with floating interest rates principally
based on LTPR plus 0.200% to 1.725% per annum, weighted
average actual rate is 1.892%
    
    
    
    
    
    
    21,166
    
    
    
    200,265Unsecured:Due 2003 to 2006 with fixed interest rates ranging from
1.650% to 2.850% per annum, weighted average actual rate is
2.527%
    
    
    22,053
    
    
    
    
    
    
    
    Due 2004 to 2007 with fixed interest rates ranging from
2.050% to 2.850% per annum, weighted average actual rate is
2.357%
    
    
    
    
    
    
    31,985
    
    
    
    302,630Due 2004 to 2006 with floating interest rates based on LTPR
plus 0.500% to 1.575% per annum, weighted average actual
rate is 2.395%
    
    
    33,379
    
    
    
    
    
    
    
    Due 2004 to 2007 with floating interest rates based on LTPR
plus 0.400% to 1.500% per annum, weighted average actual
rate is 2.365%
    
    
    
    
    
    
    32,895
    
    
    
    311,240Total loans from banks and other financial institutions
    
    
    107,095
    
    
    
    104,807
    
    
    
    991,645Total long-term borrowings
    
    ¥
    148,595
    
    
    ¥
    142,577
    
    
    $
    1,349,011
  (A)
    
    Under NISSINs incentive warrant plan and as a part of NISSINs normal
funding activity, on April 20, 2001, NISSIN issued ¥1.5 billion of 2.3%
unsecured bonds with detachable warrants to purchase 5,194 thousand shares
of common stock at an exercise price of ¥288.80 ($2.73) per share. These
warrants were immediately repurchased at their deemed fair value in order
to be granted as compensation to directors and selected employees of
NISSIN. The issuance price of the bond was ¥1,088,000 per ¥1,000,000, of
which F-28




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  ¥88,000 was attributable to the fair value of warrants. The
exercise period of the warrant was from July 2, 2001 through April 19, 2004.
The bond matured on April 20, 2004.(B)
    
    On September 13, 2001, NISSIN issued ¥10 billion of 1.7% unsecured
convertible bonds issued at par and redeemable on September 29, 2006. The
conversion price is ¥392.50 ($3.71) per share of common stock. As of March 31, 2003 and 2004, the weighted average rates of loans from banks
and other financial institutions were 2.415% and 2.254%, respectively. During the years ended March 31, 2003 and 2004, NISSIN entrusted certain loans
outstanding to a trust bank. In order to raise funds, NISSIN sold its senior
beneficiary interest in these loans outstanding in trust to a third party.
These transactions constitute a legal sale under Japanese law. Since NISSIN
reserves an option to repurchase the senior beneficiary interest, NISSIN does
not recognize the extinguishment of the aforementioned interest in the
financial statements herein, and the funds are recognized as long-term
liability related interest. As of March 31, 2003 and 2004, entrusted loans
outstanding included in loans receivable are ¥4,573 million and ¥9,594 million
($90,775 thousand), respectively. The related long-term liability recorded in
loans from banks and other financial institutions are ¥3,574 million and ¥6,466
million ($61,179 thousand), respectively. In addition, NISSIN is required to deposit certain amounts with banks as
restricted cash for the purpose of settlement of account. As of March 31, 2003
and 2004, deposits of restricted cash in banks related to above borrowings are
¥223 million and ¥426 million ($4,031 thousand), respectively. The aggregate future annual maturities of bonds, long-term loans from banks and
other financial institutions as of March 31, 2004 are as follows: Thousands ofMillions of Yen
    
    U.S. DollarsYear ending March 31:2005
    
    ¥
    75,273
    
    
    $
    712,2062006
    
    
    43,732
    
    
    
    413,7762007
    
    
    20,516
    
    
    
    194,1152008
    
    
    2,932
    
    
    
    27,7422009 and thereafter
    
    
    124
    
    
    
    1,172Total long-term borrowings:
    
    ¥
    142,577
    
    
    $
    1,349,011
 Under some of its borrowing arrangements, the Company has pledged certain
assets as collateral. The bank may obtain this collateral in the event of
financial default. Financial default includes missed or delinquent payments as
provided for in the loan agreements.
The following assets were pledged for short and long-term borrowings as
collateral, as of March 31, 2004. Thousands ofMillions of Yen
    
    U.S. DollarsDeposits of restricted cash in bank
    
    ¥
    9
    
    
    $
    85Loans receivable
    
    
    28,295
    
    
    
    267,717Purchased loans
    
    
    679
    
    
    
    6,424Long-lived assets
    
    
    703
    
    
    
    6,652Insurance policies
    
    
    10
    
    
    
    95Total assets pledged as collateral
    
    ¥
    29,696
    
    
    $
    280,973
 F-29




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  10.
    Lease Obligations The Company leases office space under operating lease agreements. These
agreements are all cancelable by the Company with six months advance notice.
Total rent under operating lease agreements was approximately ¥878 million,
¥881 million and ¥896 million ($8,478 thousand) for the years ended March 31,
2002, 2003 and 2004, respectively. The minimum rental assuming no cancellation on operating lease payments that
have initial lease terms in excess of one year as of March 31, 2004 are as
follows: Thousands ofMillions of Yen
    
    U.S. DollarsYear ending March 31:2005
    
    ¥
    829
    
    
    $
    7,8442006
    
    
    404
    
    
    
    3,8232007
    
    
    9
    
    
    
    852008
    
    
    9
    
    
    
    85Total minimum future rentals
    
    ¥
    1,251
    
    
    $
    11,837
 The Company leases certain equipment, software and vehicles under capital
leases. Acquisition costs and accumulated amortization of leased assets as of March 31,
2003 and 2004 are as follows: Thousand ofMillions of Yen
    
    U.S. Dollars2003
    
    2004
    
    2004Acquisition costs
    
    
    ¥3,374
    
    
    
    ¥3,640
    
    
    $
    34,440Accumulated amortization
    
    
    (1,487
    )
    
    
    (1,608
    )
    
    
    (15,214
    )Net leased property
    
    
    ¥1,887
    
    
    
    ¥2,032
    
    
    $
    19,226
 Future minimum lease payments for the above assets under capital leases as of
March 31, 2004 are as follows: Thousands ofMillions of Yen
    
    U.S. DollarsYear ending March 31:2005
    
    
    ¥   727
    
    
    $
    6,8792006
    
    
    613
    
    
    
    5,8002007
    
    
    497
    
    
    
    4,7022008
    
    
    199
    
    
    
    1,8832009 and thereafter
    
    
    90
    
    
    
    851Total minimum lease payments
    
    
    2,126
    
    
    
    20,115Less: Amount representing interest
    
    
    (68
    )
    
    
    (643
    )Present value of minimum lease payments
    
    
    2,058
    
    
    
    19,472Less: Current portion
    
    
    (694
    )
    
    
    (6,566
    )Long-term capital lease obligations
    
    
    ¥1,364
    
    
    $
    12,906
 F-30




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  11.
    Retirement Plans  Employee, Director and Statutory Auditor The employee severance plan, and director and statutory auditor retirement plan
were terminated as follows: Directors and Statutory Auditors:This retirement plan was terminated
effective April 1, 1999 and the retirement liability as of March 31, 1999 will
be paid at the time of retirement from the Company. Accrued retirement
benefits are unpaid retirement benefits for directors and statutory auditors
only at March 31, 2003 and 2004. Employees:The Company announced the termination in November 2001 and was
effective March 31, 2002. All liabilities were paid on April 25, 2002. The status of benefit obligations and plan assets as of March 31, 2003 and 2004
are as follows: Change in benefit obligation Thousands ofMillions of Yen
    
    U.S. Dollars2003
    
    2004
    
    2004Benefit obligation at beginning of year
    
    
    ¥582
    
    
    
    ¥336
    
    
    $
    3,179Service cost
    
    
    
    
    
    
    
    
    
    
    Interest cost
    
    
    
    
    
    
    
    
    
    
    Actuarial loss
    
    
    
    
    
    
    
    
    
    
    Benefit paid
    
    
    (246
    )
    
    
    (2
    )
    
    
    (19
    )Benefit obligation at end of year
    
    
    ¥336
    
    
    
    ¥334
    
    
    $
    3,160
 Total recognized liabilities in the balance sheets Thousands ofMillions of Yen
    
    U.S. Dollars2003
    
    2004
    
    2004Employees
    
    ¥
    
    
    
    ¥
    
    
    
    $
    Directors and statutory auditors
    
    
    336
    
    
    
    334
    
    
    
    3,160Obligations in excess of plan assets
    
    ¥
    336
    
    
    ¥
    334
    
    
    $
    3,160
 In addition, the Company participates in the mandatory fully-funded
contributory funded plan under the Japanese Welfare Pension Insurance Law.
Under this plan, contributions are made by both the Company and its employees.
Amounts paid by the Company under this plan totaled ¥308 million, ¥331 million
and ¥310 million ($2,933 thousand) for the years ended March 31, 2002, 2003 and
2004, respectively. F-31




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  12.
    Derivative Financial Instruments and Risk Management In order to reduce its exposure to fluctuations in interest rates on variable
rate borrowings, the Company utilizes derivative financial instruments such as
interest rate swap and interest rate cap contracts. The counter-parties to
these instruments are major international financial institutions with favorable
credit ratings, thereby reducing credit risk exposure for non-performance. As of March 31, 2003, the Company does not have any outstanding derivative
contracts. Derivative financial instruments outstanding as of March 31, 2004 are as
follows: Interest rate swap: Millions of Yen
    
    Interest Rate
    
    
    
    
    
    Millions of YenNumber of
    
    Notional
    
    
    
    
    
    
    
    
    
    Ultimate
    
    Fair
    
    DeferredAgreements
    
    Principal
    
    Pay
    
    Receive
    
    Maturity
    
    Value
    
    Amount1
    
    
    ¥483
    
    
    Fixed at 2.190%
    
    TIBOR+1.250%
    
    August 2006
    
    
    ¥(5
    )
    
    
    ¥(5
    )Thousands ofU.S. Dollars
    
    Interest Rate
    
    
    
    
    
    Thousands of U.S. DollarsNumber of
    
    Notional
    
    
    
    
    
    
    
    
    
    Ultimate
    
    Fair
    
    DeferredAgreements
    
    Principal
    
    Pay
    
    Receive
    
    Maturity
    
    Value
    
    Amount1
    
    
    $4,570
    
    
    Fixed at 2.190%
    
    TIBOR+1.250%
    
    August 2006
    
    
    $(47
    )
    
    
    $(47
    )
 Applicable interest rate as of March 31, 2004 is as follow:¥TIBOR (TIBOR Yen Rate for 3 Months)
    
    
    0.080
    %
 The notional amounts above are the underlying principal amounts used in
determining the interest swapped over the period of the swap agreements and,
therefore, are not measures of the Companys exposure to loss through its use
of derivatives. The fair value is estimated based on quotes from market makers
of these instruments and represents the estimated amounts that the Company
would expect to receive and pay if the Company terminated the agreements as of
March 31, 2004.  13.
    Commitment and Contingencies Under the terms and conditions of the Companys credit line agreements, the
Company may, but is not committed to, lend funds to Business Timely loan,
consumer loan and other loan customers. The Company reviews credit lines and
related funding needs based on account usage and customer creditworthiness. F-32




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The Companys unfunded credit lines at March 31, 2003 and 2004 are as follows: Thousands ofMillions of Yen
    
    U.S. Dollars2003
    
    2004
    
    2004Business Timely loans:Unfunded credit lines with loans outstanding
    
    ¥
    2,967
    
    
    ¥
    3,204
    
    
    $
    30,315Unfunded credit lines without loans
outstanding
    
    
    14,066
    
    
    
    19,073
    
    
    
    180,462Consumer loans:Unfunded credit lines with loans outstanding
    
    
    4,254
    
    
    
    3,738
    
    
    
    35,368Unfunded credit lines without loans
outstanding
    
    
    14,640
    
    
    
    15,169
    
    
    
    143,524Other:Unfunded credit lines with loans outstanding
    
    
    
    
    
    
    35
    
    
    
    330Unfunded credit lines without loans
outstanding
    
    
    
    
    
    
    382
    
    
    
    3,614Total unfunded credit lines
    
    ¥
    35,927
    
    
    ¥
    41,601
    
    
    $
    393,613
 The Company is involved in legal proceedings and claims in the ordinary course
of its business. In the opinion of management, none of these proceedings and
claims is expected to materially impact the Companys financial position or
results of operations. As discussed in the summary of significant accounting policies, the Company, as
is customary in the consumer finance industry in Japan, normally charges
interest rates in excess of the restricted rate. In most cases, where the
contractual interest rate exceeds the restricted rate, borrowers have a right
to refuse to pay the excess interest. Accordingly, the Company does not accrue
unpaid excess interest. Once a borrower has paid the excess interest, the
borrower does not have legal rights to obtain a refund of the amounts paid,
provided the appropriate documentation and notification requirements have been
met. Borrowers, however, still do occasionally dispute payments of excess
interest. The Company has negotiated refunds of previously paid excess
interest in certain situations primarily involving threatened customer
bankruptcy or threatened litigation. During the years ended March 31, 2002,
2003 and 2004, approximately ¥28 million, ¥72 million and ¥134 million ($1,268
thousand) of interest income were refunded to borrowers, respectively. Pursuant to an agreement with Sanyo Club Co., Ltd., in exchange for
guaranteeing 40% of the outstanding balance of specified borrowings, NISSIN
receives 40% of the interest income from the total borrowings and pays 40% of
the related administration expenses and other incurred by Sanyo Club Co., Ltd.
NISSIN is required to pay out on its guarantees for 40% of the outstanding loan
balance of specified borrowings for which payments are 120 days or more
delinquent. Under the loan agreement, borrowers are not required to have a
guarantor or to provide collateral. NISSIN guarantees borrowings by customers of Shinsei Business Finance Co., Ltd.
(SBF), an affiliate 25% owned by NISSIN, and receives guarantee fees. NISSIN
receives guarantee fees from the following loan products that SBF sells:  3S loans:NISSIN guarantees 100% of borrowings by customers for 3S loans and
receives a guarantee fee at the borrowing contract rate less 4%. NISSIN is
required to perform as a guarantor for the loans for which payments are 14
days or more delinquent. 3S loans are unsecured loans that require one or
more guarantees from third party individuals with an income source separate
from the customer, and is designed for small or middle size corporations.Business loans:NISSIN guarantees 10% of borrowings by customers for Business
loans and receives 10% of the interest received from the total borrowings.
NISSIN is required to perform as a guarantor for the loans for which payments
are 90 days or more delinquent. Business loans are unsecured loans designed
for small or middle size corporations. F-33




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The Company maintains reserves for all estimated guarantee losses in its other
liabilities. As of March 31, 2003 and 2004, NISSIN guaranteed borrowings and reserve for
guarantee losses are as follows: Thousands ofMillions of Yen
    
    U.S. Dollars2003
    
    2004
    
    2004Guaranteed borrowings
    
    
    ¥1,504
    
    
    
    ¥3,616
    
    
    $
    34,213Reserve for guarantee losses
    
    
    9
    
    
    
    108
    
    
    
    1,022
 During the years ended March 31, 2003 and 2004, NISSIN paid the related
administration expenses and other, as discussed above, and received guarantee
fees as follows: Thousands ofMillions of Yen
    
    U.S. Dollars2003
    
    2004
    
    2004Guarantee fees received
    
    
    ¥93
    
    
    
    ¥368
    
    
    $
    3,482Administration expenses and other paid
    
    
    (58
    )
    
    
    (147
    )
    
    
    (1,391
    )Net guarantee fees received
    
    
    ¥35
    
    
    
    ¥221
    
    
    $
    2,091
 During the years ended March 31, 2003 and 2004, as a result of contractual
commitments, NISSIN paid ¥3 million and ¥89 million ($842 thousand) as a
guarantor for the borrowings. In addition, NIS Lease Co., Ltd., a consolidated subsidiary, guarantees
accounts receivable of certain borrowers for a fee. As of March 31, 2004, NIS
Lease Co., Ltd. was liable as a guarantor for accounts receivable of ¥3 million
($28 thousand). Other than the above, as of March 31, 2004, NISSIN was liable as a guarantor
for bank loans of ¥1,200 million ($11,354 thousand) borrowed by Shinsei
Business Finance Co., Ltd. and, during the year ended March 31, 2004, NISSIN
received guarantee fees of ¥6 million ($57 thousand) from Shinsei Business
Finance Co., Ltd., which is equivalent to an annual interest rate of 1.5% and
was included in rents, dividends and other.  14.
    Shareholders Equity Under the Code, at least one-half of the issue price of a new share is required
to be designated as common stock, and proceeds in excess of the amount
designated as common stock are to be credited to additional paid-in capital.
The portion to be designated as common stock is determined by resolution of the
Board of Directors in advance of the issue. Additional paid-in capital is not
available for dividends but may be used to reduce a deficit or transferred to
common stock or retire treasury stock by resolution of the Board of Directors. The amended Code also provides that an amount equal to at least 10% of certain
cash disbursements with respect to each fiscal year be appropriated to a legal
reserve until the sum of the legal reserve and additional paid-in capital
equals 25% of paid-in capital. The legal reserve may be used to reduce a
deficit or transferred to stated capital or retire treasury stock through
suitable shareholder and director action but is not available for dividend
payment. As of March 31, 2003 and 2004, legal reserves included in retained
earnings were ¥401 million ($3,794 thousand). F-34




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The maximum amount that the Company can distribute as dividends is calculated
based on the unconsolidated retained earnings excluding legal reserves of the
Company in accordance with the Code. On June 24, 2003, at the Annual Shareholders Meeting, the shareholders
authorized an increase in authorized shares from 240 million shares to 480
million shares. On February 5, 2004, the Board of the Directors approved a two-for-one split of
the common stock for shareholders of record as of March 31, 2004. The stock
split was effective May 20, 2004. As a result of the split, the number of
outstanding shares of common stock increased by 134,726,192. All share and per
share amounts in these financial statements have been retrospectively adjusted
to reflect post-split amounts.  15.
    Issuance of Stock by Subsidiaries On November 25, 2003 and February 9, 2004, Nissin Servicer Co., Ltd., a
previously wholly-owned subsidiary of NISSIN, completed a sale of additional
shares to third parties. The number of stock newly issued was 100 shares and
1,030 shares, and the price per share was ¥90 thousand ($851.55) and ¥500
thousand ($4,730.82), respectively. As a result, Nissin Servicer Co., Ltd.
became an 89.8% subsidiary of NISSIN. Gain on change of interest in a
subsidiary of ¥368 million ($3,482 thousand) was included in gain on sales of
subsidiaries and affiliates.  16.
    Sale of Subsidiaries As discussed in Note 7, NISSIN sold its interest in Webcashing.com Co., Ltd.
through an equity exchange agreement with i-cf, Inc. The sale was completed on
November 1, 2002 resulting in the receipt of stock valued at ¥545 million and a
gain of ¥334 million. On March 11, 2003, NISSIN sold a portion of its shares of Future Create Inc., a
previously 51.2% owned subsidiary of NISSIN, for ¥105 million and recognized a
loss of ¥10 million. As a result, NISSIN owns only 17.1% of Future Create Inc.
and since NISSIN believes that it no longer has the ability to exercise
significant influence over Future Create Inc., NISSIN accounts for its
investment under the cost method. On March 18, 2004, NISSIN sold a portion of its shares of Big Apple Co., Ltd.,
a previously wholly-owned subsidiary of NISSIN, for ¥117 million ($1,107
thousand) and recognized a gain of ¥82 million ($776 thousand). As a result,
NISSIN owns only 10% of Big Apple Co., Ltd. and accounts for its investment
under the cost method. F-35




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  17.
    Related Party Transactions The Company receives insurance agency services from an entity 100% owned by
NISSINs chairman and his relatives. Further the Company leases office space
to the same entity. These transactions for the years ended March 31, 2002, 2003 and 2004 are
summarized as follows: Thousands ofMillions of Yen
    
    U.S. Dollars2002
    
    2003
    
    2004
    
    2004Insurance paid to related party
    
    
    ¥13
    
    
    
    ¥45
    
    
    
    ¥1
    
    
    
    $9Rent income from related party
    
    
    2
    
    
    
    1
    
    
    
    1
    
    
    
    9
 Additionally, since Nissin Insurance Co, Ltd., a wholly owned subsidiary, was
established on April 20, 2003, the Company has ceased all insurance
transactions with the entity above, and the Company will does not intend to
engage in any insurance transaction with the above entity in the future. The Company leases office and parking space to another entity 93.3% owned by
NISSINs president and his relatives. Total rent received was ¥6 million, ¥4
million and ¥2 million ($19 thousand) for the years ended March 31, 2002, 2003
and 2004, respectively. On March 31, 2003, the Company received an advance of ¥9 million from a
relative of NISSINs chairman and president in connection with his purchase of
real estate property from the Company which was executed on April 28, 2003 for
¥86 million ($814 thousand). On March 18, 2004, the Company received ¥117 million ($1,107 thousand) from a
relative of NISSINs chairman and president in connection with this relatives
purchase of a 90% equity interest in Big Apple Co., Ltd., a subsidiary of the
Company. During the years ended March 31, 2002, 2003 and 2004, the Company paid
commissions on business introductions of ¥21 million, ¥33 million and ¥35
million ($331 thousand), respectively, to Ascot Co., Ltd., a 25% owned
affiliate. During the years ended March 31, 2003 and 2004, the Companys transactions with
Shinsei Business Finance Co., Ltd., a 25% owned affiliate, are as follows: Thousands ofMillions of Yen
    
    U.S. Dollars2003
    
    2004
    
    2004Commissions paid
    
    
    ¥1
    
    
    
    ¥11
    
    
    
    $104Commissions received
    
    
    
    
    
    
    16
    
    
    
    151Loan guarantee fees received
    
    
    4
    
    
    
    90
    
    
    
    852Bank loan guarantee fees received
    
    
    
    
    
    
    6
    
    
    
    57
 F-36




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As discussed in Note 7 and 16, Webcashing.com Co., Ltd. was a significant
wholly-owned subsidiary of i-cf, Inc., a 17.7% owned affiliate as of March 31,
2003, and is a 38% owned affiliate as of March 31, 2004. During the years
ended March 31, 2003 and 2004, the transactions with Webcashing.com Co., Ltd.
are as follows: Thousands ofMillions of Yen
    
    U.S. Dollars2003
    
    2004
    
    2004Commissions paid
    
    
    ¥379
    
    
    
    ¥291
    
    
    
    $2,753Other fees paid
    
    
    45
    
    
    
    10
    
    
    
    95Proceeds from sale of equipment and software
    
    
    
    
    
    
    22
    
    
    
    208
  18.
    Income Taxes The components of income tax expense for the years ended March 31, 2002, 2003
and 2004 are as follows: Thousands ofMillions of Yen
    
    U.S. Dollars2002
    
    2003
    
    2004
    
    2004Current:National
    
    
    ¥2,595
    
    
    
    ¥3,286
    
    
    
    ¥3,353
    
    
    
    $31,725Local
    
    
    1,436
    
    
    
    1,804
    
    
    
    1,862
    
    
    
    17,6174,031
    
    
    
    5,090
    
    
    
    5,215
    
    
    
    49,342Deferred:National
    
    
    (148
    )
    
    
    (753
    )
    
    
    (407
    )
    
    
    (3,851
    )Local
    
    
    (82
    )
    
    
    (413
    )
    
    
    (226
    )
    
    
    (2,138
    )(230
    )
    
    
    (1,166
    )
    
    
    (633
    )
    
    
    (5,989
    )Income taxes
    
    
    ¥3,801
    
    
    
    ¥3,924
    
    
    
    ¥4,582
    
    
    
    $43,353
 F-37




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The significant components of deferred tax assets as of March 31, 2003 and 2004
are as follows: Thousands of U.S.Millions of Yen
    
    Dollars2003
    
    2004
    
    2004Deferred tax assets:Loans receivable charge-offs
    
    ¥
    70
    
    
    ¥
    44
    
    
    $
    416Allowance for loan losses
    
    
    1,728
    
    
    
    2,024
    
    
    
    19,150Accrued local taxes
    
    
    261
    
    
    
    238
    
    
    
    2,252Accrued retirement benefits
    
    
    135
    
    
    
    134
    
    
    
    1,268Accrued salary expenses
    
    
    148
    
    
    
    391
    
    
    
    3,699Impairment of long-lived assets
    
    
    164
    
    
    
    241
    
    
    
    2,280Investment securities  difference in basis
    
    
    206
    
    
    
    
    
    
    
    Other
    
    
    117
    
    
    
    149
    
    
    
    1,411Total deferred tax assets
    
    
    2,829
    
    
    
    3,221
    
    
    
    30,476Deferred tax liabilities:Investment securities  difference in basis
    
    
    
    
    
    
    2,104
    
    
    
    19,907Bond issuance costs
    
    
    169
    
    
    
    121
    
    
    
    1,145Loan origination costs
    
    
    417
    
    
    
    384
    
    
    
    3,634Accumulated depreciation
    
    
    59
    
    
    
    33
    
    
    
    312Total deferred tax liabilities
    
    
    645
    
    
    
    2,642
    
    
    
    24,998Deferred tax assets, net
    
    ¥
    2,184
    
    
    ¥
    579
    
    
    $
    5,478
 The Company believes that it will fully realize its total deferred tax assets
as of March 31, 2004 based on the Companys history of taxable income. The Company is subject to national and local income taxes, which in the
aggregate result in a statutory tax rate of 41.8% for the years ended 2002,
2003 and 2004. Due to the change in Japanese tax regulations enacted on March
24, 2003, the statutory tax rate was reduced from 41.8% to 40.4% effective from
the fiscal year beginning on April 1, 2004. The respective newly enacted rate
was used in calculating the future expected tax effects of temporary
differences as of March 31, 2003 and 2004. The effect of the change in the tax
rate on deferred income tax assets and liabilities as of March 31, 2003 was
insignificant. Reconciliation of the differences between the statutory tax rate and the
effective income tax rate for the years ended March 31, 2002, 2003 and 2004 are
as follows: 2002
    
    2003
    
    2004Statutory tax rate
    
    
    41.8
    %
    
    
    41.8
    %
    
    
    41.8
    %Increase (reduction) in taxes resulting from:Expenses not deductible for tax purpose
    
    
    0.9
    
    
    
    0.6
    
    
    
    0.4Per capita levy
    
    
    0.8
    
    
    
    0.7
    
    
    
    0.6Effect of tax rate change
    
    
    
    
    
    
    (0.2
    )
    
    
    Other
    
    
    0.7
    
    
    
    0.2
    
    
    
    0.2Effective income tax rate
    
    
    44.2
    %
    
    
    43.1
    %
    
    
    43.0
    %
 F-38




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  19.
    Reconciliation of the Differences Between Basic and Diluted Net Income Per Share Basic and diluted EPS as well as the number of shares in the following table
have been adjusted to reflect the two-for-one stock splits that were completed
on May 20, 2003 and May 20, 2004. Reconciliation of the differences between
basic and diluted EPS for the years ended March 31, 2002, 2003 and 2004 is as
follows: Thousands ofMillions of Yen
    
    U.S. Dollars2002
    
    2003
    
    2004
    
    2004Net income
    
    
    ¥4,801
    
    
    
    ¥5,176
    
    
    
    ¥6,077
    
    
    $
    57,498After-tax equivalent of interest expense on 1.7%
convertible bond
    
    
    58
    
    
    
    99
    
    
    
    101
    
    
    
    956Income for purpose of computing diluted net income
per share
    
    
    ¥4,859
    
    
    
    ¥5,275
    
    
    
    ¥6,178
    
    
    $
    58,454
 Thousands of Shares2002
    
    2003
    
    2004Weighted-average shares  basic
    
    
    263,736
    
    
    
    257,840
    
    
    
    249,360Effect of dilutive securities:Warrants and options
    
    
    276
    
    
    
    
    
    
    
    244Convertible bond
    
    
    14,860
    
    
    
    25,476
    
    
    
    25,478Weighted-average shares for diluted EPS computation
    
    
    278,872
    
    
    
    283,316
    
    
    
    275,082
 Yen
    
    U.S. Dollars2002
    
    2003
    
    2004
    
    2004Basic EPS
    
    
    ¥18.21
    
    
    
    ¥20.08
    
    
    
    ¥24.37
    
    
    
    $0.23Diluted EPS
    
    
    17.43
    
    
    
    18.62
    
    
    
    22.46
    
    
    
    0.21
  20.
    Stock-based Compensation NISSIN has two types of stock-based compensation plans as incentive plans for
directors and selected employees. Warrant Plan: Under NISSINs incentive warrant plans, on April 23, 1999, NISSIN issued
unsecured bonds with detachable warrants. These warrants were immediately
repurchased at their fair market value and granted as compensation to directors
and selected employees in NISSIN. The warrants were convertible into
approximately 5,936 thousand shares of common stock at an exercise price of
¥165.00 per share. The exercise period of the warrants was from June 1, 1999
through April 20, 2001. The warrants were immediately exercisable at the time
of grant, but expire at the time of termination of employment with NISSIN. Under NISSINs incentive warrant plans, on April 20, 2001, NISSIN issued
unsecured bonds with detachable warrants. These warrants were immediately
repurchased at their fair market value and granted as compensation to directors
and selected employees in NISSIN. The warrants were convertible into
approximately 5,194 thousand shares of common stock at an exercise price of
¥288.80 ($2.73) per share. The exercise period of the warrant was from July 2,
2001 through April 19, 2004. The warrants were immediately exercisable at the
time of grant, but expire at the time of termination of employment with NISSIN. F-39




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Stock Option Plan: Following approval of the shareholders at NISSINs annual meeting on June 27,
2000, NISSIN granted share subscription rights to directors and selected
employees on July 11, 2000. Under this stock option plan, options to purchase
common stock of 4,140 thousand shares were granted at the exercise price of
¥259.00 per share, which was priced at 110% of the closing price of the day
before the approval of grant, and were exercisable from November 1, 2000 and
expire on the earlier of October 31, 2002 or termination of employment with
NISSIN. Following approval of the shareholders at NISSINs annual meeting on June 22,
2002, NISSIN granted share subscription rights to directors, statutory
auditors, employees, corporate advisors and temporary staff with tenure of over
one year on September 10, 2002. Under this stock option plan, options to
purchase common stock of 5,980 thousand shares were granted at the exercise
price of ¥249.00 ($2.36) per share, which was priced at 110% of the closing
price of the day before the approval of grant, are exercisable from October 1,
2002 and expire on the September 30, 2005 or termination of employment with
NISSIN. Following approval of the shareholders at NISSINs annual meeting on June 24,
2003, NISSIN granted share subscription rights to directors, statutory
auditors, corporate advisors and employees, including employees dispatched to
other companies, and wholly-owned subsidiarys directors, statutory auditors
and employees on July 16, 2003. Under this stock option plan, options to
purchase common stock of 2,700 thousand shares were granted at the exercise
price of ¥266.00 ($2.52) per share, which was priced at 110% of the average
daily closing price of the month immediately before the month of the issuance
date of such subscription rights, are exercisable from August 1, 2003 and
expire on the July 31, 2006 or termination of employment with NISSIN. Under APB 25, NISSIN recognized no compensation expense related to these grants
as no options were granted at a price below the market price on the day of
grant. The options automatically vest upon exercise. A summary of NISSINs options and warrants as of March 31, 2002, 2003 and 2004,
changes during the years is as follows: Weighted-average ExerciseNumber of Shares
    
    Weighted-averageRemaining Life
    
    Price Per Shares(Thousands)
    
    (Years)
    
    Yen
    
    U.S. DollarsOutstanding at March 31, 2001
    
    
    3,992
    
    
    
    1.6
    
    
    
    ¥258
    
    
    
    $2.44Granted
    
    
    5,196
    
    
    
    2.1
    
    
    
    289
    
    
    
    2.73Exercised
    
    
    (3,424
    )
    
    
    
    
    
    
    259
    
    
    
    2.45Expired or forfeited
    
    
    (512
    )
    
    
    
    
    
    
    264
    
    
    
    2.50Outstanding at March 31, 2002
    
    
    5,252
    
    
    
    2.0
    
    
    
    287
    
    
    
    2.72Granted
    
    
    5,980
    
    
    
    3.1
    
    
    
    249
    
    
    
    2.36Exercised
    
    
    (80
    )
    
    
    
    
    
    
    249
    
    
    
    2.36Expired or forfeited
    
    
    (1,046
    )
    
    
    
    
    
    
    261
    
    
    
    2.47Outstanding at March 31, 2003
    
    
    10,106
    
    
    
    1.8
    
    
    
    268
    
    
    
    2.54Granted
    
    
    2,700
    
    
    
    3.1
    
    
    
    266
    
    
    
    2.52Exercised
    
    
    (5,545
    )
    
    
    
    
    
    
    280
    
    
    
    2.65Expired or forfeited
    
    
    (1,133
    )
    
    
    
    
    
    
    260
    
    
    
    2.46Outstanding at March 31, 2004
    
    
    6,128
    
    
    
    1.8
    
    
    
    ¥257
    
    
    
    $2.43
 F-40




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  21.
    
    Cumulative Other Comprehensive Income Cumulative other comprehensive income and related tax effects for the years
ended March 31, 2002, 2003 and 2004, is as follows: Millions of YenOther Comprehensive
    
    Income Tax
    
    Cumulative OtherIncome before
    
    Expense
    
    ComprehensiveIncome Tax
    
    (Benefit)
    
    IncomeMarch 31, 2001
    
    
    ¥   508
    
    
    
    ¥   (212
    )
    
    
    ¥   296Unrealized gains on investment securities:Unrealized holding gain or losses during the period
    
    
    (842
    )
    
    
    352
    
    
    
    (490
    )Reclassification adjustment for realized gain or losses included in
net income
    
    
    606
    
    
    
    (253
    )
    
    
    353Unrealized losses on derivative instruments:Unrealized holding losses arising during the period
    
    
    (97
    )
    
    
    40
    
    
    
    (57
    )Reclassification adjustment for realized losses included in net income
    
    
    19
    
    
    
    (8
    )
    
    
    11March 31, 2002
    
    
    194
    
    
    
    (81
    )
    
    
    113Unrealized gains on investment securities:Unrealized holding gain or losses during the period
    
    
    (1,127
    )
    
    
    459
    
    
    
    (668
    )Reclassification adjustment for realized gain or losses included in
net income
    
    
    973
    
    
    
    (393
    )
    
    
    580Unrealized losses on derivative instruments:Unrealized holding losses arising during the period
    
    
    
    
    
    
    
    
    
    
    Reclassification adjustment for realized losses included in net income
    
    
    78
    
    
    
    (33
    )
    
    
    45March 31, 2003
    
    
    118
    
    
    
    (48
    )
    
    
    70Unrealized gains on investment securities:Unrealized holding gain or losses during the period
    
    
    5,276
    
    
    
    (2,132
    )
    
    
    3,144Reclassification adjustment for realized gain or losses included in
net income
    
    
    268
    
    
    
    (108
    )
    
    
    160Unrealized losses on derivative instruments:Unrealized holding losses arising during the period
    
    
    (5
    )
    
    
    2
    
    
    
    (3
    )Reclassification adjustment for realized losses included in net income
    
    
    
    
    
    
    
    
    
    
    March 31, 2004
    
    
    ¥5,657
    
    
    
    ¥(2,286
    )
    
    
    ¥3,371
 F-41




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Thousands of U.S. DollarsOther Comprehensive
    
    Income Tax
    
    Cumulative OtherIncome before
    
    Expense
    
    ComprehensiveIncome Tax
    
    (Benefit)
    
    IncomeMarch 31, 2003
    
    $
    1,116
    
    
    $
    (454
    )
    
    $
    662Unrealized gains on investment securities:Unrealized holding gain or losses during the period
    
    
    49,919
    
    
    
    (20,172
    )
    
    
    29,747Reclassification adjustment for realized gain or losses included in
net income
    
    
    2,536
    
    
    
    (1,022
    )
    
    
    1,514Unrealized losses on derivative instruments:Unrealized holding losses arising during the period
    
    
    (47
    )
    
    
    19
    
    
    
    (28
    )Reclassification adjustment for realized losses included in net income
    
    
    
    
    
    
    
    
    
    
    March 31, 2004
    
    $
    53,524
    
    
    $
    (21,629
    )
    
    $
    31,895
  22.
    Cash Flow Information Cash payments for interest and income taxes during the years ended March 31,
2002, 2003 and 2004 are as follows: Thousands ofMillions of Yen
    
    U.S. Dollars2002
    
    2003
    
    2004
    
    2004Interest
    
    
    ¥3,524
    
    
    
    ¥3,795
    
    
    
    ¥3,591
    
    
    $
    33,977Income taxes
    
    
    3,989
    
    
    
    4,169
    
    
    
    5,378
    
    
    
    50,885
 Non-cash investing and financing activities during the years ended March 31,
2002, 2003 and 2004 are as follows: Thousands ofMillions of Yen
    
    U.S. Dollars2002
    
    2003
    
    2004
    
    2004Property and equipment
obtained under capital
leases
    
    
    ¥745
    
    
    
    ¥1,198
    
    
    
    ¥922
    
    
    
    $8,724
  23.
    Disclosures About Fair Value of Financial Instruments SFAS No. 107, Disclosures about Fair Value of Financial Instruments requires
disclosures of the fair value of financial instruments, both assets and
liabilities recognized and not recognized in the Companys balance sheet. The
estimated fair value amounts have been determined by the Company using
available market information and appropriate valuation methodologies. The use
of different market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts. Considerable judgment is
required in estimating fair values and the estimates presented are not
necessarily indicative of the amounts the Company could realize in a current
market exchange. F-42




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The estimated fair values of the Companys financial instruments as of March
31, 2003 and 2004 are as follows: Millions of Yen
    
    Thousands of U.S. Dollars2003
    
    2004
    
    2004Carrying
    
    
    
    
    
    Carrying
    
    
    
    
    
    CarryingAmount
    
    Fair Value
    
    Amount
    
    Fair Value
    
    Amount
    
    Fair ValueFinancial assets:Cash and cash equivalents
    
    ¥
    23,612
    
    
    ¥
    23,612
    
    
    ¥
    20,243
    
    
    ¥
    20,243
    
    
    $
    191,532
    
    
    $
    191,532Loans receivable, net
    
    
    166,977
    
    
    
    166,977
    
    
    
    166,890
    
    
    
    166,890
    
    
    
    1,579,052
    
    
    
    1,579,052Purchased loans receivable, net
    
    
    2,946
    
    
    
    2,946
    
    
    
    4,342
    
    
    
    4,342
    
    
    
    41,082
    
    
    
    41,082Investment securities
    
    
    2,234
    
    
    
    2,234
    
    
    
    9,174
    
    
    
    9,174
    
    
    
    86,801
    
    
    
    86,801Financial liabilities:Short-term borrowings
    
    
    5,600
    
    
    
    5,600
    
    
    
    5,563
    
    
    
    5,563
    
    
    
    52,635
    
    
    
    52,635Long-term borrowings
    
    
    148,595
    
    
    
    148,112
    
    
    
    142,577
    
    
    
    142,942
    
    
    
    1,349,011
    
    
    
    1,352,465Off-balance-sheet financial instruments:Interest rate swaps
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    (47
    )Borrowings with guarantees
    
    
    
    
    
    
    (9
    )
    
    
    
    
    
    
    (108
    )
    
    
    
    
    
    
    (1,022
    )
 The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
that value:  a)
    
    Cash and Cash Equivalents:Cash and cash equivalents are carried at an
amount that approximates fair value.b)
    
    Loans Receivable:The market rate of interest for the Companys loan
products has not changed significantly during the lapsed term of the
Companys loans receivable. Accordingly, the Company believes the
carrying value of its loans receivable approximates fair value.c)
    
    Purchased Loans Receivable:The carrying value of purchased loans
receivable is estimated based on either the market value or the discounted
amounts of future cash flows. The Company believes the carrying value of
its purchased loans receivable approximates fair value.d)
    
    Investment Securities:The fair value of marketable securities is based
on quoted market prices. The company also holds approximately ¥727
million and ¥891 million ($8,430 thousand) in non-marketable securities as
of March 31, 2003 and 2004, respectively. The fair value of
non-marketable securities is assumed to estimate cost until such time as
new equity or financing or significant changes operations demonstrate a
new fair value.e)
    
    Short-term Borrowings:Short-term borrowings are carried at an amount
that approximates fair value.f)
    
    Long-term Borrowings:Long-term borrowings, including current portion,
are estimated based on either the market value or the discounted amounts
of future cash flows. The borrowing interest rates which were currently
available to the Company offered by financial institutions for debt with
similar terms and remaining average maturities are used as the discount
rates. The fair value of syndicated bonds is estimated using a discounted
cash-flow calculation that applies interests rates at an assumed marginal
market-funding rate.g)
    
    Interest Rate Swaps:The fair value of interest rate swaps (used for
hedging purpose) reflects the estimated amounts that the Company F-43




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  would receive or pay to terminate the contracts at the reporting date,
thereby taking into account the current unrealized gains or losses of open
contracts. Discounted amounts of future cash flows using the current
interest rate and dealer quotes are available for most of the Companys
derivatives.h)
    
    Borrowings with Guarantees:The fair value of guaranteed borrowings
generally reflects the probable and estimable amounts that the Company
would pay for the delinquent payments of borrowing under guarantee.  24.
    Segment Information The Company has historically operated as a single segment for financial
reporting purposes, consisting of small business owner and other related
ordinary loans to individuals. This segment as integrated financial services
includes small business owner, Wide, Business Timely, consumer, secured and
other loans. On July 11, 2001, the Company established Nissin Servicer Co.,
Ltd. mainly to acquire and service non-performing debts from banks and the
financial institutions in Japan. Nissin Servicer is being operated as separate
segment and is now being reported as a separate segment for financial reporting
purposes. Other segments are insignificant and are included in the integrated
financial services segment for financial reporting purposes. All operating
activities are currently conducted exclusively in Japan. Selected information
for our segments is as follows: Millions of YenIntegrated
Financial
    
    LoanServices
    
    Servicing
    
    Total2002Interest income
    
    ¥
    33,966
    
    
    ¥
    10
    
    
    ¥
    33,976Interest expense
    
    
    3,884
    
    
    
    
    
    
    
    3,884Provision for loan losses
    
    
    7,433
    
    
    
    
    
    
    
    7,433Net income
    
    
    4,791
    
    
    
    10
    
    
    
    4,801Total assets
    
    
    179,495
    
    
    
    802
    
    
    
    180,2972003Interest income
    
    ¥
    38,520
    
    
    ¥
    714
    
    
    ¥
    39,234Interest expense
    
    
    3,951
    
    
    
    33
    
    
    
    3,984Provision for loan losses
    
    
    12,545
    
    
    
    143
    
    
    
    12,688Net income
    
    
    4,968
    
    
    
    208
    
    
    
    5,176Total assets
    
    
    203,236
    
    
    
    3,338
    
    
    
    206,5742004Interest income
    
    ¥
    38,038
    
    
    ¥
    2,069
    
    
    ¥
    40,107Interest expense
    
    
    3,603
    
    
    
    121
    
    
    
    3,724Provision for loan losses
    
    
    12,824
    
    
    
    637
    
    
    
    13,461Net income
    
    
    5,671
    
    
    
    406
    
    
    
    6,077Total assets
    
    
    203,527
    
    
    
    6,741
    
    
    
    210,268
 F-44




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Thousands of U.S. DollarsIntegrated
Financial
    
    LoanServices
    
    Servicing
    
    Total2004Interest income
    
    $
    359,902
    
    
    $
    19,576
    
    
    $
    379,478Interest expense
    
    
    34,090
    
    
    
    1,145
    
    
    
    35,235Provision for loan losses
    
    
    121,336
    
    
    
    6,027
    
    
    
    127,363Net income
    
    
    53,657
    
    
    
    3,841
    
    
    
    57,498Total assets
    
    
    1,925,698
    
    
    
    63,781
    
    
    
    1,989,479
  25.
    Subsequent Events  1)
    
    On May 6, 2004, NISSIN and Orient Credit Co., Ltd. signed an agreement to
sell its consumer loans receivable to Orient Credit Co., Ltd., which was
executed on June 1, 2004. This decision has been made pursuant to the
Companys basic strategy of concentrating on the markets for both small
business owner loans and Wide loans. The sale amount is based on the
balance of consumer loans as of May 31, 2004. The total sales price of
the consumer loans receivable and corresponding interest receivable, which
was ¥32,943 million ($311,695 thousand), was equivalent to the balance of
these consumer loans as of May 31, 2004.2)
    
    On June 22, 2004, the shareholders of NISSIN authorized the following at
the Annual Shareholders Meeting:  (1)
    
    Payment of a year-end cash dividend of ¥2.38 ($0.02) per share to
shareholders of record as of March 31, 2004 or a total of ¥600 million
($5,677 thousand)(2)
    
    Payment of bonuses to directors and statutory auditors of ¥61
million ($577 thousand)(3)
    
    The issuance of 8 million shares stock options to directors,
statutory auditors and other employees. The exercise price per stock
option will be based on a formula and be exercisable over a three year
term.(4)
    
    Partial amendments of the Article of Incorporation  
    
    Permission of treasury stock acquisition by Board of Directors approval
    
    An increase in authorized shares from 480,000,000 shares to 960,000,000 shares F-45




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##### Table of Contents



SIGNATURES The registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this annual report on its behalf. NISSIN CO., LTD.By:
    /s/  Kunihiko SakiokaName:
    Kunihiko SakiokaTitle:
    President and Representative Director July 20, 2004 S-1




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##### Table of Contents



INDEX OF EXHIBITS ExhibitNumber
    
    Description1.1
    
    
    
    - Our Articles of Incorporation (English Translation)1.2
    
    
    
    - Our Share Handling Regulations (English Translation)1.3
    
    
    
    - Our Regulations of the Board of Directors (English Translation)1.4
    
    
    
    - Our Regulations of the Board of Statutory Auditors (English Translation)2.1
    
    
    
    - Our Specimen Common Stock Certificate (English Translation)
(incorporated by reference to the corresponding exhibit to our
  Registration Statement Form F-1 (File No. 333-97229) declared effective
on August 1, 2002)2.2
    
    
    

- Form of Deposit Agreement Among Nissin Co., Ltd., The Bank of New York
as Depositary and All Owners and Holders from  Time to Time of American
Depositary Receipts, Including the Form of American Depositary Receipt
(incorporated by  reference to the Registration Statement on Form F-6
(File No. 333-97133) filed on July 24, 2002)8.1
    
    
    
    - List of Our Subsidiaries12.1
    
    
    
    - Rule 13a-14(a) Certifications13.1
    
    
    
    - Section 1350 Certifications