##### Table of Contents



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 1934ORx
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year
ended March 31, 2005
ORo
    
    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  NISSIN CO., LTD.  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 registeredCommon 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. 620,377,534 shares of our
common stock outstanding at March 31, 2005, including 865,200 shares represented by 432,600
American Depositary Shares, as adjusted for our 1.2-for-1 stock split
in May 2005. 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 T No £ Indicate by check mark which financial statement item the registrant has elected to follow. Item 17 £ Item 18 T   *
    
    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 Advisers.
    
    
    5Item 2.
    
    Offer Statistics and Expected Timetable.
    
    
    5Item 3.
    
    Key Information.
    
    
    5Item 4.
    
    Information on the Company.
    
    
    18Item 5.
    
    Operating and Financial Review and Prospects.
    
    
    40Item 6.
    
    Directors, Senior Management and Employees.
    
    
    70Item 7.
    
    Major Shareholders and Related Party Transactions.
    
    
    82Item 8.
    
    Financial Information.
    
    
    86Item 9.
    
    The Offer and Listing.
    
    
    88Item 10.
    
    Additional Information.
    
    
    90Item 11.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    106Item 12.
    
    Description of Securities Other than Equity Securities.
    
    
    109PART IIItem 13.
    
    Defaults, Dividend Arrearages and Delinquencies.
    
    
    109Item 14.
    
    Material Modifications to the Rights of Security Holders and Use of Proceeds.
    
    
    110Item 15.
    
    Controls and Procedures.
    
    
    110Item 16A.
    
    Audit Committee Financial Expert.
    
    
    111Item 16B.
    
    Code of Ethics.
    
    
    111Item 16C.
    
    Principal Accountant Fees and Services.
    
    
    111Item 16D.
    
    Exemptions from the Listing Standards for Audit Committees.
    
    
    112Item 16E.
    
    Purchases of Equity Securities by the Issuer and Affiliated Purchasers.
    
    
    112PART IIIItem 17.
    
    Financial Statements.
    
    
    112Item 18.
    
    Financial Statements.
    
    
    112Item 19.
    
    Exhibits.
    
    
    113Index 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 the Board of Statutory AuditorsEX-8.1 List of SubsidiariesEX-12.1 Certification of the principal executive officer required by 17 C.F.R. 240. 13a-14(a)EX-12.2 Certification of the principal financial officer required by 17 C.F.R. 240. 13a-14(a)EX-13.1 Certification of the chief executive officer required by 18 U.S.C. Section 1350EX-13.2 Certification of the chief financial officer required by 18 U.S.C. Section 1350
  -2-




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Certain Defined Terms, Conventions and Presentation of Financial Information As used in this annual report on Form 20-F, unless the context otherwise requires, NISSIN
refer to Nissin Co., Ltd. and the Company, we, us, our and similar terms refer to Nissin
Co., Ltd. and its subsidiaries. In this annual report on Form 20-F, subsidiary and subsidiaries refer to consolidated
subsidiaries of NISSIN, companies in which NISSIN owns more than 50%, and affiliate and
affiliates refer to all of our affiliates accounted for by the equity method, companies in which
NISSIN owns 20-50% and has the ability to exercise significant influence over their operations. The consolidated financial statements of NISSIN have been prepared in accordance with
accounting principles generally accepted in the United States of America, or US GAAP. Unless
otherwise stated or the context otherwise requires, all amounts in such financial statements are
expressed in yen. In this annual report on Form 20-F, yen or ¥ means the lawful currency of Japan, and
dollar or $ means the lawful currency of the United States of America. Certain monetary amounts and percentage data included in this annual report have been subject
to rounding adjustments for the convenience of the reader. Accordingly, figures shown as totals in
certain tables may not be equal to the arithmetic sum of the figures which precede them. The Companys fiscal year ends on March 31. The fiscal year ended March 31, 2005 is referred
to throughout this annual report on Form 20-F as this fiscal year, and other fiscal years are
referred to in a corresponding manner. References to years not specified as being fiscal years are
to calendar years. 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 finance companies and other financial institutions in the
consumer or business finance industries; -3-




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
    
    misconduct by an employee or director and our exposure to negative publicity of the
consumer or business finance industries generally or us specifically;
    
    the effect of potential changes to legislation and accompanying enforcement, and
restrictions and regulations associated with Japan or U.S. law, including restrictions
on interest rates, to regulations for the moneylending business;
    
    the growing variety of legal means with which debtors can seek protection from
creditors;
    
    uncertain liquidity of Japans capital markets and availability of funding from
lenders on favorable terms and potential changes to government policy, including
Japans monetary policy;
    
    the reliability of our information or technological systems and networks.
    
    the influence of our president and his family over important decisions;
    
    the failure to generate the results we desire by change in the mix of our assets portfolio;
    
    our ability to pursue and maintain profitable joint ventures and strategic alliances; and
    
    increasing competition in the loan servicing market in which Nissin Servicer Co.,
Ltd., a consolidated subsidiary, operates. -4-




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PART I 
 Item 1.   Identity of Directors, Senior Management and Advisers. 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, 2001, 2002, 2003, 2004
and 2005 and the consolidated balance sheet data as of March 31, 2001, 2002, 2003, 2004 and 2005
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
registered public accounting firm. We have included in this annual report on Form 20-F our
consolidated financial statements for the years ended March 31, 2003, 2004 and 2005. -5-




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Selected Financial Information Year ended/As of March 31,2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005
    
    
    2005(in millions of yen and thousands of U.S. dollars except number of shares and per share data)Consolidated Income Statement Data:Total interest income
    
    ¥
    29,886
    
    
    ¥
    33,976
    
    
    ¥
    39,234
    
    
    ¥
    40,107
    
    
    ¥
    32,555
    
    
    $
    303,147Total interest expense
    
    
    4,166
    
    
    
    3,884
    
    
    
    3,984
    
    
    
    3,724
    
    
    
    3,159
    
    
    
    29,416Net interest income
    
    
    25,720
    
    
    
    30,092
    
    
    
    35,250
    
    
    
    36,383
    
    
    
    29,396
    
    
    
    273,731Provision for loan losses, net
    
    
    4,566
    
    
    
    7,433
    
    
    
    12,688
    
    
    
    13,461
    
    
    
    8,576
    
    
    
    79,858Net interest income after provision for
loan losses
    
    
    21,154
    
    
    
    22,659
    
    
    
    22,562
    
    
    
    22,922
    
    
    
    20,820
    
    
    
    193,873Total non-interest (loss) income
    
    
    (409
    )
    
    
    (428
    )
    
    
    837
    
    
    
    730
    
    
    
    5,984
    
    
    
    55,722Total non-interest expense
    
    
    12,030
    
    
    
    13,629
    
    
    
    14,299
    
    
    
    12,993
    
    
    
    14,896
    
    
    
    138,709Income before income taxes
    
    
    8,715
    
    
    
    8,602
    
    
    
    9,100
    
    
    
    10,659
    
    
    
    11,908
    
    
    
    110,886Income taxes
    
    
    3,763
    
    
    
    3,801
    
    
    
    3,924
    
    
    
    4,582
    
    
    
    4,646
    
    
    
    43,263Net income
    
    ¥
    4,952
    
    
    ¥
    4,801
    
    
    ¥
    5,176
    
    
    ¥
    6,077
    
    
    ¥
    7,262
    
    
    $
    67,623Consolidated Balance Sheet Data:Cash and cash equivalents
    
    ¥
    25,841
    
    
    ¥
    17,116
    
    
    ¥
    23,612
    
    
    ¥
    20,243
    
    
    ¥
    25,709
    
    
    $
    239,398Loans receivable, net
    
    
    122,522
    
    
    
    148,235
    
    
    
    166,977
    
    
    
    166,890
    
    
    
    146,119
    
    
    
    1,360,639Other
    
    
    15,359
    
    
    
    14,946
    
    
    
    15,985
    
    
    
    23,135
    
    
    
    56,573
    
    
    
    526,800Total assets
    
    ¥
    163,722
    
    
    ¥
    180,297
    
    
    ¥
    206,574
    
    
    ¥
    210,268
    
    
    ¥
    228,401
    
    
    $
    2,126,837Short-term borrowings
    
    ¥
    1,740
    
    
    ¥
    1,400
    
    
    ¥
    5,600
    
    
    ¥
    5,563
    
    
    ¥
    12,600
    
    
    $
    117,329Long-term borrowings
    
    
    116,520
    
    
    
    128,659
    
    
    
    148,595
    
    
    
    142,577
    
    
    
    136,844
    
    
    
    1,274,271Other
    
    
    6,155
    
    
    
    6,315
    
    
    
    6,782
    
    
    
    7,670
    
    
    
    10,840
    
    
    
    100,941Total liabilities
    
    
    124,415
    
    
    
    136,374
    
    
    
    160,977
    
    
    
    155,810
    
    
    
    160,284
    
    
    
    1,492,541Minority interests
    
    
    9
    
    
    
    148
    
    
    
    
    
    
    
    161
    
    
    
    1,146
    
    
    
    10,672Common stock
    
    
    6,167
    
    
    
    6,611
    
    
    
    6,611
    
    
    
    7,218
    
    
    
    7,779
    
    
    
    72,437Additional paid-in capital
    
    
    7,909
    
    
    
    8,467
    
    
    
    8,462
    
    
    
    9,092
    
    
    
    9,836
    
    
    
    91,591Other
    
    
    25,222
    
    
    
    28,697
    
    
    
    30,524
    
    
    
    37,987
    
    
    
    49,356
    
    
    
    459,596Total shareholders equity
    
    
    39,298
    
    
    
    43,775
    
    
    
    45,597
    
    
    
    54,297
    
    
    
    66,971
    
    
    
    623,624Total liabilities and shareholders equity
    
    ¥
    163,722
    
    
    ¥
    180,297
    
    
    ¥
    206,574
    
    
    ¥
    210,268
    
    
    ¥
    228,401
    
    
    $
    2,126,837Number of Shares (1):Issued at the end of fiscal year (in thousands)
    
    
    628,378
    
    
    
    636,595
    
    
    
    636,595
    
    
    
    646,686
    
    
    
    653,602
    
    
    
    653,602Per Share Data (1):Net incomeBasic
    
    ¥
    7.97
    
    
    ¥
    7.59
    
    
    ¥
    8.37
    
    
    ¥
    10.15
    
    
    ¥
    11.90
    
    
    $
    0.11Diluted
    
    
    7.95
    
    
    
    7.26
    
    
    
    7.76
    
    
    
    9.36
    
    
    
    10.81
    
    
    
    0.10Cash dividendsDeclared
    
    
    1.22
    
    
    
    1.30
    
    
    
    1.57
    
    
    
    1.78
    
    
    
    3.23
    
    
    
    0.03Paid during the fiscal year
    
    
    1.22
    
    
    
    1.26
    
    
    
    1.33
    
    
    
    1.67
    
    
    
    2.13
    
    
    
    0.02
 
 (1)
    
    Nissin Co., Ltd. completed a 3-for-1 stock split on May 21, 2001, a 2-for-1 stock split on
each of May 21, 2002, May 20, 2003, May 20, 2004 and November 19, 2004, respectively, and a
1.2-for-1 stock split on May 20, 2005. All share information presented above has been
retroactively adjusted to reflect such stock splits. -6-




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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 ¥107.39 = $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, 2005, the date of our most recent balance sheet included in this annual report on
Form 20-F. 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-end2001
    
    
    ¥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
    
    
    
    112.75
    
    
    
    104.182005
    
    
    114.30
    
    
    
    102.26
    
    
    
    107.28
    
    
    
    107.22Calendar monthJanuary 2005
    
    
    104.93
    
    
    
    102.26
    
    
    
    103.34
    
    
    
    103.55February 2005
    
    
    105.84
    
    
    
    103.70
    
    
    
    104.94
    
    
    
    104.25March 2005
    
    
    107.49
    
    
    
    103.87
    
    
    
    105.25
    
    
    
    107.22April 2005
    
    
    108.67
    
    
    
    104.64
    
    
    
    107.19
    
    
    
    104.64May 2005
    
    
    108.17
    
    
    
    104.41
    
    
    
    106.60
    
    
    
    107.97June 2005
    
    
    110.91
    
    
    
    106.64
    
    
    
    108.75
    
    
    
    110.91
 
 (1)
    
    The average yen exchange rates for the fiscal year represent the average noon buying rates on
the last business day of each month during the respective period. The
noon buying rate for yen on July 22, 2005 was ¥110.98 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 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. The current economic environment in
Japan is showing signs of recovery with regard to corporate profits and business conditions in the
manufacturing and various other sectors. The trends in employment and personal consumption have
also been positive. However, the Japanese economy still faces several uncertainties which create
concern for its future economic prospects. Overall, the capital procurement environment appears to have improved,
however, small and medium-sized companies with low creditworthiness continue to remain in a
difficult situation. Statistically, according to Tokyo Shoko Research, a specialist in credit
reporting and provider of an information database on Japanese businesses, the number of business
bankruptcy cases with total debts of ¥10 million or more was approximately 13,700 cases for
calendar year 2004, a decrease of 15.8% compared to the previous year. According to the Supreme
Court of Japan, the number of voluntary bankruptcy petitions, including individuals and
corporations, was approximately 219,000 during calendar year 2004, a decrease of 12.6% compared to
the previous year. The seasonally adjusted unemployment rate in Japan gradually increased from
1992 to 2002 before decreasing since 2003, and it ranged between 4.5% and 5.0% during 2004.
Although these indicators have started to improve, due to the continued high levels of unemployment
and poor levels of personal consumption resulting from stagnation in worker wages, trends in the
number of bankruptcy cases remain unpredictable. 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. -7-




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Increasing competition among Japans 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 and business owner finance industries in Japans financial sector are becoming
increasingly competitive. Competition for customer acquisition may continue to intensify due to
the movement toward entry into this industry which has led to capital investments by major
financial institutions, establishment of joint venture corporations, and acquisition of companies
by corporations including IT companies and foreign-affiliated financial institutions. 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. Under these competitive pressures, we have focused our efforts on acquisition of prime
customers with low credit risk responding to diversification of small and medium-sized businesses
and consumers needs by promoting alliance businesses with various companies, thereby
differentiating ourselves from competitors. We have promoted the alliance strategy known as the
financial version of an OEM strategy, and offer new financial services not available from
conventional loan business which match the growth stage of the customers. In June 2004, we sold
most of the outstanding balance of our consumer loans to Orient Credit Co., Ltd., or Orient Credit,
and shifted our loan portfolio toward provision of loans to small and medium-sized business owners.
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, from 25.3% at March 31,
2003, 24.0% at March 31, 2004 and 22.1% at 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 we cannot sufficiently acquire prime customers, or we lose these prime
customers to our competitors, and our financial condition or results of operations could be
adversely affected. -8-




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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 other
thing:  
    
    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 or leakage of personal
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 though we have not in the past
suffered materially from misconduct by an employee or director. 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 industry. This could lead to introduction of additional
regulations or laws favoring borrowers that might erode our profitability, and therefore could
affect our financial position and results of operations. 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 2003, corresponding to the growing
criticism of unregistered moneylenders loan businesses, an amendment of the Moneylending Business
Control and Regulation Law, or the Moneylending Business Restriction Law, and the Law Concerning
the Regulations of Receiving of Capital Subscription, Deposits and Interest on Deposits, or the
Contributions Law, was promulgated and became effective on January 1, 2004. These amendments
primarily set forth stricter requirements for business registration, set guidelines for loan
operating supervisors, who are individuals required to be designated by all moneylenders,
constrained unregistered moneylenders ability to engage in harmful marketing and loan collection
practices, invalidated loan agreements with higher than 109.5% annual interest and increased
penalties on violations of the statutory maximum interest rate, all of which affect the industry as
a whole. The amendments also require the Japanese government, which last reduced the statutory
maximum interest rate in June 2000, to review the statutory maximum interest rate again in January
2007. 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. Potential changes to legislation and accompanying enforcement, and restrictions and regulations
associated with Japan or U.S. law could affect our business The main laws and regulations, with which we must comply in order to operate our business,
among other things, are as follows: See Regulation in Item 4.B of this annual report on Form
20-F. -9-




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
    
    Regulations on interest rate (Contributions Law and Interest Rate Restriction Law);
    
    Regulations on loan operations (Moneylending Business Restriction Law
and Administrative Guidelines issued by the Financial Services Agency);
    
    Other related regulations (Law on Protection of Personal Information, Law on
Customer Identification and Illegal Use of Bank Deposits, etc., on Transactions by
Financial Institutions, Revised Civil Code, Law on Debt Servicing Business by Servicing
Companies, Installment Sales Law, Securities and Exchange Law); and
    
    Regulations under U.S. Laws (The U.S. Investment Company Act of 1940 and
Sarbanes-Oxley Act). Although our practices fully comply with these laws and regulations, any amendments to these
laws and regulations, or any implementation of new laws and regulations that we must comply,
depending on the contents, could affect our business and results of operations. 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
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 April 2005, the Law on Protection of Personal Information became effective. As a result,
failure to maintain the confidentiality of personal information could subject us to penalty under
this new law. In order to comply with the requirements of the Law on Protection of Personal
Information and other related statutes, we established a working committee, which examines the
countermeasures, develops the control system and continuously inspects the control system. We
could incur additional expenses associated with changing our security systems, either voluntarily
or in response to administrative 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, therefore could adversely affect our financial condition or results
of operations. -10-




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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. Failure to comply with the Section 302 of the Sarbanes-Oxley Act could tarnish our credibility and
adversely affect our stock price and business activities On July 30, 2002, Congress passed the Sarbanes-Oxley Act, designed to restore shareholder
confidence in publicly traded securities following a series of highly publicized corporate scandals
by providing greater transparency in corporate accounting and reporting. All issuers, including
foreign issuers, of securities which are registered under Securities Exchange Act of 1934 are
subject to the Act, which emphasizes the responsibility of the issuers management and board of
directors over financial reporting, and establishment and maintenance of effective internal
controls, as well as improvement of disclosure levels. Furthermore, violation by any person or
corporation of the Securities Exchange Act of 1934 shall be subject to severe penalties. Pursuant
to Section 302 of the Sarbanes-Oxley Act, the chief executive officer and chief financial officer
are requested to certify in each annual report that the report does not contain any untrue
statement of a material fact or omit to state a material fact necessary in order to make the
statements made, the financial statements and other financial information included in the report
fairly present in all material respect the financial condition and results of operations of the
company as of and for the periods presented in the report, and the signing officers are responsible
for establishing and maintaining internal control. Compliance is required by March 31, 2007. We are in the midst of strengthening our corporate governance structure in order to comply
with the Sarbanes-Oxley Act while obtaining a wide range of advisory opinions from inside and
outside experts regarding the approaches to corporate governance and risk management, and examined
them from different perspectives. We will continue to do our best to enhance our internal control
structure in order to:  
    
    ensure reliability of our financial statements;
    
    urge our managements and corporate business activities, compliance with related
regulations; and
    
    improve the effectiveness and efficiency of our management and corporate business
activities. However, intentional or unintentional failure of our officers to comply with Section 302 of
the Sarbanes-Oxley Act, with respect to certifications regarding our financial reporting, could
subject the certifying officers to severe legal sanctions, therefore tarnish our credibility and adversely
affect our stock price and our business activities. -11-




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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 enforced in February 2000, a borrower in
financial difficulty may, under the supervision of a conciliation 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 his or her 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 less requirements needed compared to under the former
civil conciliation procedures.
    
    Civil Rehabilitation Law. Amendments to the Civil
Rehabilitation Law enacted in April 2001 provide several relatively
convenient 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. Amendments to the Bankruptcy Law became effective in January 2005
aiming to achieve prompt, efficient, effective and fair procedures, and intend 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 larger scope of assets to be retained by insolvent debtors.
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 and
judicial scriveners who advise retail borrowers in financial difficulties has increased
due to various deregulatory measures, including enforcement of regulations permitting
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. The growing variety of legal means and deregulatory measures, as well as high levels of
unemployment and stagnation in worker wages, has caused an increase in the number of customers
seeking protection from creditors by taking advantage of these legal means. For the year ended
March 31, 2005, 1,043 customers applied for procedures under the Special Conciliation Law and Civil
Rehabilitation Law with respect to which we charged off ¥1,499 million of loans outstanding,
compared to 836 customers with respect to which we charged off ¥472 million of loans outstanding
for the previous fiscal year. 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 or related laws 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 almost nothing under personal bankruptcy proceedings. -12-




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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 difference 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, 2005, our weighted period-end
average contractual interest rate on outstanding loans in our loan portfolio was 22.1%, while our
weighted period-end average contractual interest rate was 1.2% for our short-term borrowings and
1.9% for our long-term borrowings. We raise funds through loans from financial institutions and
the capital markets by issuing debt securities. As of March 31, 2005, the aggregate amount of our
borrowings was ¥149,444 million, which represented approximately 87.8% of our total loans
outstanding and purchased loans as of the same date. As of March 31, 2005, 91.6% of our borrowings, or ¥136,844 million, are long-term borrowings,
75.4% of our borrowings, or ¥112,619 million, came from loans from banks, non-banks, insurance
companies and other financial institutions, and 24.6% of our borrowings, or ¥36,825 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 which typically bear
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 companies in our industry, including us. Moreover, although contractual borrowing interest rates are subjected to fluctuation due to
market environment and other factors, the contractual lending interest rate in our loan business is
restricted to 29.2% as stipulated by the Contributions Law. Therefore, in order to minimize our
interest fluctuation risk, we are promoting financing with a fixed interest rate for borrowings
from financial institutions and issuance of corporate bonds. As of March 31, 2005, our fixed rate
borrowings, including hedge from derivative transactions, comprised 64.3%, and our variable rate
borrowings comprised 35.7% of our total borrowings. We believe that we do not have any difficulties in our access to funds required at present.
However, as a result of the ongoing restructuring of the Japanese financial sector, and of 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. Any impact from these factors
that worsen our capital procurement environment significantly beyond our expectations could
increase our interest expenses and 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 and results of operations. -13-




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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: 1.7% as of March 31, 2003, 1.3% as of March 31, 2004 and 1.2% as of March 31,
2005 for our short-term borrowings and 2.4% as of March 31, 2003, 2.3% as of March 31, 2004 and
1.9% as of March 31, 2005 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 January 2007. See Regulation
 The Money Lending Business Restriction Law, Contributions 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. Any disruption, outages, delays or other difficulties experienced by our information or
technological systems and networks could adversely affect our business We increasingly 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 fund transfer system to handle high volumes of phone
calls and to provide customers with a convenient system which offers reliable privacy
protection;
    
    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 transfer their payments to us. In addition, we outsource the following hardware and software in order to manage our operating
transaction and accounting data, confidential customer information and other back-office
operations:  
    
    our main computer housed in an NEC affiliates data center, to which all data are
backed each business day;  
    
    dedicated lines that connect our main computer and outsourcing center to our
application servers and e-mail servers, and -14-




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
    
    maintenance and support work for our main computer. Our systems are vulnerable to damage or interruption from human error, natural disasters,
power loss, computer hackers, computer viruses and similar events or the loss of support services
from third parties such as our systems solution providers including NEC and its affiliates, telephone carriers and Internet backbone providers. Any disruption, outages, or delays or other
difficulties experienced by any of these technological and information systems and networks could
affect our financial position and results of operations. 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 41.2% of our outstanding shares as of
March 31, 2005, 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, 2005, our chairman, our president, members of their immediate family and
corporations controlled by them together owned 41.2% 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 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 respond to the diversified needs of small and medium-sized businesses and consumers, as
well as to maximize our corporate value, in June 2004, we sold most of the outstanding balance of
our unguaranteed consumer loans to Orient Credit, a consumer finance company, in order to
concentrate our resources on providing loans with guarantors, such as small business owner loans
and otherwise serving small and medium-sized business owners. With respect to the financial services for small and medium-sized business owners, in addition
to provision of small business owner loans and Business Timely loans, we also concentrate on the
provision of leases and installment loans, and real estate finance. With respect to the quality of
operating assets, we aimed at the accumulation of prime assets with lower credit risks through
acquisition of prime customers through the promotion of our alliance strategy. Changes in our portfolio of products or services, including those described above, may fail to
generate the results we desire, and adversely affect our results of operations or financial
condition. For example, deterioration of the quality of our operating assets due to deterioration
in the financial condition of small and medium-sized businesses caused by rapid changes in the
economic environment and other various factors could adversely affect our financial position and
results of operations. -15-




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Our strategic alliances, joint ventures and strategic investments to acquire new customers may not
yield attractive returns and could produce losses We are changing our marketing focus from the Nissin brand to the NIS group brand in order
to maintain continuous growth amidst extremely keen competition, by improving the synergy of our
group, while cultivating investments and alliances partners as well as our tie-up strategy, known
as the Financial Version of an OEM strategy. We aim to establish a customer base by promoting
strategic alliances and joint ventures and fully utilizing our sales and marketing expertise and
credit management know-how and expertise cultivated by the Company. Through this strategy, 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 companies 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, ¥1,876 million as of March 31, 2004 and ¥20,890 million as of March 31, 2005. We expect to continue seeking these strategic alliances, joint ventures and strategic
investments to build our customer base and establish a solid profit base for our group, but may not
be able to successfully grow or maintain 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. The fair value of our strategic investments could decline due to a deterioration of the economic
environment and adversely affect our financial position We are conducting capital tie-ups with various companies which have synergistic effects in
integrated financial services, for the purpose of network expansion with these companies. As of
March 31, 2005, the cost of our investment securities was ¥14,830 million and, due to listings on
stock exchanges and rises in stock prices, the fair value of these investments was ¥28,443 million,
or 12.5% of our consolidated total assets. However, in the future, if the stock prices decline
significantly, or the financial condition of our investments worsen due to deterioration of the
economic environment, we could suffer impairment losses on these securities, or our shareholders
equity ratio could decline due to fluctuation in unrealized profits in investment securities, which
could therefore adversely affect our financial position and results of operations. Increasing competition in the loan servicing market in which Nissin Servicer operates could reduce
our profitability In July 2001, we established Nissin Servicer Co., Ltd., 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 became a separate operating segment beginning in
the year ended March 31, 2004. Nissin Servicer mainly purchases specific money claims from financial institutions by invited
tender. The increase in the number of companies entering this market, together with the
contraction in the liquidity market for bad debts due to the trend towards economic recovery, has
lead to increasingly severe competition. In response to these factors, we have revised pricing
standards through classification of specific money claims into categories, and by improving the
accuracy of due diligence, we have maintained our competitiveness in the purchase of specific money
claims. This, together with the development of new areas of business such as liquidation of
assets, securitization, and corporate revitalization, has allowed us to respond to the current
business environment. However, if we are unable to maintain competitiveness in the purchase of
specific money claims, or if there is a sudden increase in purchase prices or a fall in commission
fees, we may be unable to purchase these loans at favorable prices or at all, and our loan
servicing business may have decreased profitability, which could significantly affect our business
strategies and results of operations. -16-




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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 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. -17-




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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 under the laws of Japan 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 under the Moneylending
Business Restriction Law 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, 2005, we had 50 loan
offices throughout Japan. In recent years, we have also expanded our customer base through
strategic alliances with banks, 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, Ehime Prefecture. 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 September 2004, Nissin
Servicer listed its stock on the Mothers market of the Tokyo Stock Exchange and became Japans
first loan servicing company to go public. In November 2003, we established NIS Lease Co., Ltd., or NIS Lease, to commence capital and
operating lease operations in Japan. In June 2004, we sold most of the outstanding balance of our unguaranteed consumer loans to
Orient Credit for ¥32,697 million. See Our Products  Integrated Financial Services  Consumer
Loans in Item 4.B of this annual report on Form 20-F. -18-




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In July 2004, we established Matsuyama Nissin Investment & Consulting (Shanghai) Co., Ltd., or
Matsuyama Nissin, in Shanghai to commence arrangement of investments and various business projects,
as well as operating a real estate agency and a subleasing business in China. In December 2004, we acquired 100% of the issued shares of Yamagen Securities Co., Ltd.,
currently NIS Securities Co., Ltd., or NIS Securities, to commence securities business operations
in Japan. 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 http://www.nisgroup.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 small business owners and consumers. We also service distressed loans purchased from
third parties. For the year ended March 31, 2005, our net interest income after provision for loan
losses was ¥20,820 million and our net income was ¥7,262 million. Our Markets  Japanese Small Business Finance Industry We compete primarily in the Japanese small business finance industry, which provides loans to
small business entities, rather than individuals, which is distinct from the consumer finance
industry. In our case, our loans are extended principally to individuals on the basis of
individual creditworthiness, rather than to entities based upon business creditworthiness, which is
the focus of 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 Consumer Finance Industry We also 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.  Japanese Loan Servicing Industry We also 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 Japanese government measures
to combat nonperforming loans. Although we compete with a variety of companies for loan servicing
opportunities, we consider affiliated companies of the major consumer finance or small business owner loan
companies to be our primary competitors. According to the Ministry of Justice, as of March 31,
2005, 91 companies were registered as licensed servicing companies, of which eight were affiliated
with major consumer finance or small business owner loan companies. -19-




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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 small
business owners and consumers. Our core products in this segment are small business owner loans,
Wide loans, Business Timely loans, consumer loans and secured loans. We also provide other loans
such as installment loans, as well as leasing, securities and credit guarantee services. As part
of our loan servicing segment, we mainly service distressed loans purchased from financial
institutions for our own portfolio.  Integrated Financial Services Our net interest income after provision for loan losses from our integrated financial services
segment was ¥22,024 million, or 97.6% of our consolidated net interest income after provision for
loan losses for the year ended March 31, 2003, ¥21,611 million, or 94.3% of our consolidated net
interest income after provision for loan losses for the year ended March 31, 2004, and ¥18,534
million, or 89.0% of our consolidated net interest income after provision for loan losses for the
year ended March 31, 2005. Our net income from our integrated financial services segment was
¥4,968 million, or 96.0% of our consolidated net income for the year ended March 31, 2003, ¥5,671
million, or 93.3% of our consolidated net income for the year ended March 31, 2004, and ¥6,244
million, or 86.0% of our consolidated net income for the year ended March 31, 2005. 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 31,2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005(in millions)Small business owner loans
    
    ¥
    27,293
    
    
    ¥
    32,195
    
    
    ¥
    45,311
    
    
    ¥
    55,647
    
    
    ¥
    56,964Wide loans
    
    
    46,543
    
    
    
    50,940
    
    
    
    59,743
    
    
    
    61,592
    
    
    
    52,722Business Timely loans
    
    
    3,250
    
    
    
    12,238
    
    
    
    17,256
    
    
    
    17,909
    
    
    
    19,687Consumer loans (1)
    
    
    43,016
    
    
    
    45,784
    
    
    
    45,093
    
    
    
    38,600
    
    
    
    5,296Secured loans
    
    
    1,913
    
    
    
    1,589
    
    
    
    1,252
    
    
    
    2,235
    
    
    
    9,976Other loans
    
    
    56
    
    
    
    24
    
    
    
    13
    
    
    
    261
    
    
    
    4,166Total average loans outstanding
    
    ¥
    122,071
    
    
    ¥
    142,770
    
    
    ¥
    168,668
    
    
    ¥
    176,244
    
    
    ¥
    148,811
 
 (1)
    
    Pursuant to an agreement between us and Orient Credit, on June 1, 2004, we sold most of the
outstanding balance of our consumer loans to Orient Credit for ¥32,697 million. Small Business Owner Loans Our small business owner loans comprised 38.3% of our total average loans outstanding for the
year ended March 31, 2005. These small business owner loans are guaranteed, unsecured loans of up
to ¥10 million that require one or more guarantors from individuals with an income 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 no greater than
5% for each loan at the time of cash disbursement. These loans have initial repayment terms of up to
seven years and two months. The average maturity of small business owner loans at March 31, 2005
was 4.3 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. As a result, any small
business owner loan customer seeking a new small business owner loan must pay off his or her
existing loan and be subject to the same loan approval process as any new customer. -20-




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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, 2005, approximately 68.5% of the borrowers were male, and
48.2% were self-employed individuals in small-scale distribution and restaurant businesses, while
the remaining borrowers were primarily self-employed individuals in industries such as
manufacturing, construction, transportation, communication, agriculture, fishery and other
services. The loan process often begins when staff at our general branches or small business owner
loan offices calls a prospective client to determine the loan amount to be applied for, followed by
a credit check. Our staff then holds 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 31,2001
    
    2002
    
    2003
    
    2004
    
    2005Number of small business owner loan accounts
    
    
    13,995
    
    
    
    17,472
    
    
    
    23,439
    
    
    
    24,739
    
    
    
    24,414Balance of loans per account (in thousands)
    
    
    ¥  2,049
    
    
    
    ¥  2,140
    
    
    
    ¥  2,300
    
    
    
    ¥  2,311
    
    
    
    ¥  2,415
 The following table shows advances, recognized on the date of disbursement, to our
customers of small business owner loans: Year ended March 31,2001
    
    2002
    
    2003
    
    2004
    
    2005(in millions)Advances
    
    
    ¥14,706
    
    
    
    ¥22,328
    
    
    
    ¥36,560
    
    
    
    ¥35,061
    
    
    
    ¥45,834
 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 comprised
35.4% of our total average loans outstanding for the year ended March 31, 2005. We extend Wide loans of up to ¥10 million at a fixed contractual interest rate of no greater
than 24.09% per year. In addition, we charge an up-front origination fee of no greater than 3% at
the time of disbursement. The loans are repaid in equal monthly payments, comprising both interest
and principal, over a period of up to ten years and two months. The average maturity of Wide loans at March
31, 2005 was 5.0 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. -21-




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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 belong 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, 2005, 54.2% of the borrowers were male, and 48.8%
earned less than ¥3 million a year. In addition, a substantial number of our Wide loan customers
were former customers for our consumer loans. 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 only on one of small
business loans or consumer loans. 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 31,2001
    
    2002
    
    2003
    
    2004
    
    2005Number of Wide loan accounts
    
    
    28,607
    
    
    
    32,075
    
    
    
    36,482
    
    
    
    35,126
    
    
    
    31,440Balance of loans per account (in thousands)
    
    
    ¥  1,670
    
    
    
    ¥  1,716
    
    
    
    ¥  1,754
    
    
    
    ¥  1,636
    
    
    
    ¥  1,514
 The following table provides information on advances, recognized on the disbursement
date, to our customers of Wide loans: Year ended March 31,2001
    
    2002
    
    2003
    
    2004
    
    2005(in millions)Advances
    
    
    ¥22,106
    
    
    
    ¥28,321
    
    
    
    ¥34,294
    
    
    
    ¥20,709
    
    
    
    ¥15,897
 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 ¥5 million. These loans
accounted for 13.2% of our total average loans outstanding for the year ended March 31, 2005. -22-




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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 other 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, 2005,
approximately 36.5% of the borrowers earned more than ¥7 million annually, and 66.5% 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, 40.0% had outstanding balances as of March 31, 2005. 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 31,2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005Total number of Business Timely loan accounts
    
    
    10,673
    
    
    
    22,867
    
    
    
    25,580
    
    
    
    41,723
    
    
    
    43,717Number of Business Timely loan accounts with
outstanding balances
    
    
    6,479
    
    
    
    13,239
    
    
    
    14,511
    
    
    
    16,163
    
    
    
    17,493Balance of loans per account (in thousands)
    
    
    ¥  1,183
    
    
    
    ¥  1,211
    
    
    
    ¥  1,192
    
    
    
    ¥  1,154
    
    
    
    ¥  1,193
 The following table provides information on advances, recognized on the disbursement
date, to our customers of Business Timely loans: Year ended March 31,2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005(in millions)Advances to existing
customers (including
repeat customers)
    
    
    ¥  5,819
    
    
    
    ¥  9,686
    
    
    
    ¥10,030
    
    
    
    ¥  9,613
    
    
    
    ¥12,455Advances to new customers
    
    
    5,384
    
    
    
    6,847
    
    
    
    4,300
    
    
    
    4,323
    
    
    
    4,953Total
    
    
    ¥11,203
    
    
    
    ¥16,533
    
    
    
    ¥14,330
    
    
    
    ¥13,936
    
    
    
    ¥17,408
 Consumer Loans Consumer loans comprised 3.6% of our total average loans outstanding for the year ended March
31, 2005. 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 ¥1 million. We
do not restrict use of proceeds from the loan. -23-




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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,
2005, approximately 38.9% were female, while 77.2% earned ¥5 million or less 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 March 31, 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 to Orient Credit for
¥32,697 million. Following the sale, we 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 on 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 31,2001
    
    2002
    
    2003
    
    2004
    
    2005Number of consumer loan accounts
    
    
    123,200
    
    
    
    125,393
    
    
    
    106,731
    
    
    
    88,809
    
    
    
    9,017Balance of loans per account (in thousands)
    
    ¥
    351
    
    
    ¥
    368
    
    
    ¥
    384
    
    
    ¥
    401
    
    
    ¥
    314
 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 of the
date of disbursement): Year ended March 31,2001
    
    2002
    
    2003
    
    2004
    
    2005(in millions)Advances to existing
customers (including
repeat customers)
    
    
    ¥16,733
    
    
    
    ¥18,410
    
    
    
    ¥15,581
    
    
    
    ¥13,376
    
    
    
    ¥2,808Advances to new customers
    
    
    11,477
    
    
    
    13,834
    
    
    
    7,010
    
    
    
    4,162
    
    
    
    1,493Total
    
    
    ¥28,210
    
    
    
    ¥32,244
    
    
    
    ¥22,591
    
    
    
    ¥17,538
    
    
    
    ¥4,301
 -24-




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Secured Loans Secured loans comprised 6.7% of our total average loans outstanding for the year ended March
31, 2005. These loans are primarily loans to individuals secured by real property or securities.
Recently, through the establishment of Real Estate Financial Department in February 2004, loans
secured by real property designed for property developers have grown significantly. Proceeds from
these loans are primarily used as working capital. We determine the interest rates for these loans
on an individual basis, currently ranging between 5.6% and 15.0% per year. We also charge a
handling fee of 2% on each of these loans. These loans have a high degree of liquidity and
typically mature in a period ranging from one month to two years. The average maturity of secured
loans at March 31, 2005 was 1.6 years. Other Loans Other loans comprised 2.8% of our total average loans outstanding for the year ended March 31,
2005. These loans primarily include installment loans and collateralized lease financing to small
and medium-sized businesses through our wholly-owned subsidiary, NIS Lease. The average maturity
of other loans at March 31, 2005 was 3.5 years. Other Businesses We also guarantee loans to customers of third party lenders based on which we generate
guarantee fees. We provide credit-guarantee services, including for third party loan transactions,
to customers of our affiliates, Shinsei Business Finance Co. Ltd., or Shinsei Business Finance, and
Chuo Mitsui Finance Service Co., Ltd., or Chuo Mitsui Finance Service, as well as customers of
several third parties. In addition, in December 2004, we started securities business through our
wholly-owned subsidiary, NIS Securities.  Loan Servicing Our net interest income after provision for loan losses from our loan servicing segment was
¥538 million, or 2.4% of our consolidated net interest income after provision for loan losses for
the year ended March 31, 2003, ¥1,311 million, or 5.7% of our consolidated net interest income
after provision for loan losses for the year ended March 31, 2004, and ¥2,286 million, or 11.0% of
our consolidated net interest income after provision for loan losses for the year ended March 31,
2005. Our net income from our loan servicing segment was ¥208 million, or 4.0% of our consolidated
net income for the year ended March 31, 2003, ¥406 million, or 6.7% of our consolidated net income
for the year ended March 31, 2004, and ¥1,018 million, or 14.0% of our consolidated net income for
the year ended March 31, 2005. Mainly through our subsidiary, Nissin Servicer, which commenced its operations in October
2001, we 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
    
    2005(in millions)Aggregate purchase price of distressed loans
    
    
    ¥18,410
    
    
    
    ¥4,854
    
    
    
    ¥4,502
    
    
    
    ¥16,896Aggregate collection amount of distressed
loans
    
    
    13,834
    
    
    
    2,859
    
    
    
    4,538
    
    
    
    10,095
 
 (1)
    
    Commenced operations in October 2001. -25-




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##### Table of Contents



As part of our plans to further develop our loan servicing segment, in September 2004,
Nissin Servicer listed its shares on the Mothers market of the Tokyo Stock Exchange and became
Japans first loan servicing company to go public. Channels for the Origination, Guarantee and Acquisition of Loans We have various loan acquisition channels for the origination and guarantees of loans for our
integrated financial service segment and for the acquisition of loans for our loan servicing
segment.  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 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 seek new ways to develop our loan business while avoiding deterioration in
the credit levels of our customers. To further diversify our business, we also 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 originated through the
channels below for our loan business and guarantees of loans provided through the channels below
for our loan guarantee business: Year ended March 31,2003
    
    
    2004
    
    
    2005(in millions)Loan origination channels:Direct channels
    
    ¥
    55,707
    
    
    ¥
    53,068
    
    
    ¥
    59,363Channels of our affiliates (1) (2)
    
    
    4,682
    
    
    
    5,825
    
    
    
    4,829Channels of third parties (1) (2)
    
    
    8,876
    
    
    
    9,075
    
    
    
    13,993¥
    69,265
    
    
    ¥
    67,968
    
    
    ¥
    78,185Channels for loans that we guarantee (3):Direct channels
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    Channels of our affiliates
    
    
    177
    
    
    
    1,318
    
    
    
    3,080Channels of third parties
    
    
    1,327
    
    
    
    2,301
    
    
    
    4,621¥
    1,504
    
    
    ¥
    3,619
    
    
    ¥
    7,701
 
 (1)
    
    We acquired through Swan Credit Co., Ltd., or Swan Credit, loans in the amount of ¥306
million for the year ended March 31, 2003, ¥252 million for the year ended March 31, 2004 and
¥173 million for the year ended March 31, 2005. Because Swan Credit was our affiliate for the
year ended March 31, 2003, but not for the years ended March 31, 2004 and 2005, we have
included the amount of ¥306 million under Channels of our affiliates for the year ended
March 31, 2003 and the amount of ¥252 million and ¥173 million under Channels of third
parties for the years ended March 31, 2004 and 2005, respectively.(2)
    
    We acquired through Ascot Co., Ltd., or Ascot, loans in the amount of ¥731 million for the
year ended March 31, 2003, ¥920 million for the year ended March 31, 2004 and ¥467 million for
the year ended March 31, 2005. Because Ascot was our affiliate for the years ended March 31,
2003 and 2004, but not for the year ended March 31, 2005, we have included the amount of ¥731
million and ¥920 million under Channels of our affiliates for the years ended March 31, 2003
and 2004, respectively, and the amount of ¥467 million under Channels of third parties for
the year ended March 31, 2005.(3)
    
    As of March 31 of each of the respective period. -26-




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##### Table of Contents



Channels for Loan Origination 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 business:  
    
    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. The total number of loan offices as of March 31, 2005
decreased significantly compared to that as of March 31, 2004, because we have
eliminated a substantial number of our general branches following the sale of most of
the outstanding balance of our consumer loans to Orient Credit in June 2004 and
concentrated our resources in providing loans to small business owners. The following
table shows selected information regarding our loan offices: As of March 31,2001
    
    2002
    
    2003
    
    2004
    
    2005Total loan offices
    
    
    67
    
    
    
    72
    
    
    
    72
    
    
    
    70
    
    
    
    50Loan offices dedicated to
small business owner loans
and Business Timely loans
    
    
    20
    
    
    
    22
    
    
    
    22
    
    
    
    21
    
    
    
    17Full-time employees
    
    
    695
    
    
    
    859
    
    
    
    832
    
    
    
    851
    
    
    
    818Full-time employees at loan
offices dedicated to small
business owner loans and
Business Timely loans
    
    
    158
    
    
    
    193
    
    
    
    202
    
    
    
    187
    
    
    
    151
  A number of our loan offices 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.
However, the number of full-time employees at these offices has decreased since March
31, 2003, because we have increased the number of our employees seconded to affiliates
and alliance partners. In addition, we established the Real Estate Financial Department
in February 2004 to provide loans secured by real property to property developers, and
the Central Office Sales Department in July 2004 and the Osaka Sales Department in
February 2005 to further enhance our provision of loans to small and medium-sized
business owners. We have been increasing the number of employees in these departments.
    
    Automated Telephone Service. We primarily serve our Business Timely and consumer
loan 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 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
consumer finance company. They also greatly reduce the need and costs of personal
service from our staff. Channels of Our Affiliates. The following are the principal channels of our affiliates we use
for our loan business:  
    
    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. -27-




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##### Table of Contents



The amount of loans provided through Shinsei Business Finance was ¥117
million for the year ended March 31, 2003, ¥841 million for the year ended March 31,
2004 and ¥2,339 million for the year ended March 31, 2005.
    
    Chuo Mitsui Finance Service. In November 2004, we established Chuo Mitsui Finance
Service Co., Ltd., or Chuo Mitsui Finance Service, as a joint venture with The Chuo
Mitsui Trust and Banking Co., Ltd., to expand our provision of loans to small business
owners. We own a 30% interest in the joint venture. The amount of loans provided
through Chuo Mitsui Finance Service was ¥35 million for the year ended March 31, 2005.
    
    Webcashing.com. We accept applications for all loan products 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 six other finance companies. The amount of loans
provided through Webcashing.com was ¥3,528 million for the year ended March 31, 2003,
¥4,064 million for the year ended March 31, 2004 and ¥2,455 million for the year ended
March 31, 2005. 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 our affiliates and a third party to provide
loan guarantees. Channels of Our Affiliates. The following are the channels of our affiliates we use for our
loan guarantee business:  
    
    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, ¥1,318 million as of March
31, 2004 and ¥3,051 million as of March 31, 2005.
    
    Chuo Mitsui Finance Service. In addition to acquiring loans through Chuo Mitsui
Finance Service, we use our credit assessment and credit management expertise to
provide guarantees to the loan customers of Chuo Mitsui Finance Service. Our
outstanding guarantees amounted to ¥29 million as of March 31, 2005. -28-




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Channels of Third Parties. Our main third-party channel in providing 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, ¥2,280 million as of March 31, 2004 and
¥4,178 million as of March 31, 2005.  Loan Servicing We acquire most of the distressed loans for our loan servicing segment from banks that provide
various banking services to us in the ordinary course of 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.  Small Business Owner Loans, Wide Loans, Business Timely Loans, 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. -29-




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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 came under widespread social criticism in 1999. 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. 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
center 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. -30-




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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 deceased or become
bankrupt or a legal proceeding has begun to recover the loan or in the following cases:  
    
    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 yet 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. -31-




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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 amounted to ¥735 million as of March 31, 2005. The
remainder of these enterprises is small enterprises that we view as potential strategic partners,
rather than sources of potential capital gains, and our total initial investments in these
enterprises amounted to ¥9,019 million as of March 31, 2005. Among these enterprises,
Riskmonster.com and Xinhua Finance Limited went public during the year ended March 31, 2005. 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 in March 2000, 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, we entered into an agency agreement with Shinsei Business Finance pursuant
to which our branch offices market the joint ventures products. In addition, we also seconded our
employees to Shinsei Business Finance, as well as Chuo Mitsui Finance Service, to handle marketing
to new customers and guarantee loans extended by these companies, and refer to us unsuccessful
customers which are potential customers for our loan products, such as small business owner loans
or Business Timely loans. Technology  Branch and Office Network The application and e-mail servers in our branches and offices are connected through dedicated
lines. 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. -32-




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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 and Business Owner Finance Industry Japans consumer and business owner 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
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;
    
    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 DC Cash One and an
alliance and shareholding agreement with Acom, and The Sumitomo Trust and Banking
through Businext;
    
    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, and IT companies
including Rakuten and livedoor, that provide consumer credit services through Rakuten
Credit and livedoor Credit, respectively. -33-




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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. However, the competition is also
intensifying as the number of entrants into the industry increased, resulting in increased prices
of distressed loans. According to the Ministry of Justice, as of March 31, 2005, 91 companies were
registered as licensed servicing companies, of which we believe eight are affiliated with consumer
finance or small business owner loan 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, Contributions 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. The Financial Services Agency of Japan, or the FSA, has also released administrative
guidelines, or FSA Guidelines, to clarify the administrative application, business practices and
supervision procedures 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, -34-




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
    
    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. 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
January 2007, in consideration of funding circumstances, economic and financial conditions and
business practices of moneylenders. -35-




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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 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 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, 2005, we agreed to
return the excess interest payments totaling approximately ¥190 million with respect to 443 borrowers,
compared with return the excess interest payments totaling approximately ¥134 million with respect
to 425 borrowers for the year ended March 31, 2004 and return of excess interest payments totaling
approximately ¥72 million with respect to 244 borrowers for the year ended March 31, 2003. The
effect of the returned payments has been immaterial to our results of operations. -36-




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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 on 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), money claims under the Securitization
Law, and other claims as set out by cabinet orders; and
    
    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, 2005, there were 91 licensed servicing companies in Japan.  The Law on Protection of Personal Information The sections relevant to private business enterprises of the Law on Protection of Personal
Information (the Personal Information Protection Law) came into effect on April 1, 2005. The new
sections of the Law clarify 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. -37-




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The Guidelines issued by several governmental authorities have supplemented the Personal
Information Protection Law. The Guidelines concerning Protection of Personal Information in
Financial Area issued by the FSA govern money-lending business. Industry associations have
established guidelines for their member organizations, detailing how such organizations must comply
with the Personal Information Protection Law. 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 collectors, 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 information 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;
    
    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 purpose of use of all personal data and the procedures of amendment,
suspensions, etc., of the use or deletion of personal data must be made available to
the individual to whom the personal information relates; and
    
    corresponding to a persons requests to control his or her personal information,
including amendment, suspension of the use or deletion of his or her personal data. Data collectors must deal adequately and promptly with complaints regarding their use of
personal information. For example, a data collector is expected to 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. -38-




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Properties Our head office in Tokyo, Japan occupies 2,031.38 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 50 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 provides information about our principal subsidiaries, all of which were
incorporated under the laws of Japan, except for Matsuyama Nissin Investment & Consulting, which
was incorporated under the laws of China: Shares and votingrights held by us,directly orName
    
    indirectly
    
    Principal businessNissin Servicer Co., Ltd.
    
    
    75.9
    %
    
    Loan servicing businessNIS Lease Co., Ltd. (1)
    
    
    100.0
    
    
    Leasing businessNIS Property Co., Ltd. (1)
    
    
    100.0
    
    
    Real estate-related businessMatsuyama Nissin Investment &
Consulting (Shanghai) Co.,
Ltd. (2)
    
    
    100.0
    
    
    Consulting businessNIS Securities Co., Ltd. (3)
    
    
    100.0
    
    
    Securities business
 
 (1)
    
    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.(2)
    
    Established on July 9, 2004.(3)
    
    Acquired on December 3, 2004, and changed its name from Yamagen Securities Co., Ltd. on May
1, 2005. D. Property, Plants and Equipment. The information required by this item is provided in Item 4.B of this annual report on Form
20-F. -39-




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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 small business owners and consumers. Most of our income comes from interest
income on loans receivable from this business, which comprises our integrated financial services
segment. We also acquire non-performing debts from banks and other financial institutions in Japan
and service such non-performing debts as part of our loan servicing segment. Our net interest income after provision for loan losses was ¥22,562 million for the year ended
March 31, 2003, ¥22,922 million for the year ended March 31, 2004 and ¥20,820 million for the year
ended March 31, 2005. Over the last three years, we have been strategically shifting away from
consumer loans and concentrating our resources on providing financial services to small and
medium-sized business owners. Although the growth of our loan servicing business, full-scale
operations of the leasing business and decline of our interest expense counterbalanced the slowdown
in the growth of our loan portfolio, the sale of most of the outstanding balance of our consumer
loans in June 2004 has contributed to a significant decrease in our interest income from loans
receivable, as a result of which our net interest income after provision for loan losses has
decreased. Our net income was ¥5,176 million for the year ended March 31, 2003, ¥6,077 million for the
year ended March 31, 2004 and ¥7,262 million for the year ended March 31, 2005. Our net income has
increased steadily, despite the recent declining trend in our net interest income after provision
for loan losses. Increased net income reflected the change in the mix of our operating assets
portfolio, as well as 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 five 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, despite a slight decrease in the number of customer accounts between March 31,
2004 and March 31, 2005, the amount of total small business owner loans outstanding has
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, and newly established Central Office Sales Department and
Osaka Sales Department, as well as through referrals from our strategic alliance
partners. Interest income derived from small business owner loans has contributed
significantly to our total interest income.
    
    Wide Loans. Wide loans are unsecured loans for which the proceeds are used to
consolidate individual debts which are guaranteed by one or more guarantors. In recent
years, the amount of total Wide loans outstanding, the number of customer accounts, as
well as interest income from Wide loans has decreased, primarily as a result of a
strategic shift over the last several years toward promotion of financial services to
small and medium-sized business owners.
    
    Business Timely Loans. Business Timely loans are unguaranteed, unsecured loans to
individual small business owners pursuant to revolving lines of credit. In recent
years, the amount of total Business Timely loans outstanding, the number of customer
accounts, as well as interest income from Business Timely loans has increased,
primarily as a result of our active promotion of these loans through the direct
telemarketing efforts of our offices -40-




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##### Table of Contents



specializing in small business owner loans and Business Timely loans, and newly
established Central Office Sales Department and Osaka Sales Department.
    
    Consumer Loans. Consumer loans are unguaranteed, unsecured loans to individuals.
In line with a strategic shift over the last several years toward promotion of
financial services to small and medium-sized business owners, pursuant to an agreement
between us and Orient Credit, on June 1, 2004, we sold most of the outstanding balance
of our consumer loans to Orient Credit for ¥32,697 million. See  Factors Affecting
Our Financial Results  Sales of Consumer Loans below for a further discussion.
    
    Secured Loans. Secured loans are conventionally loans secured by real property or
securities to individuals. Recently, secured loans portfolio have grown significantly,
reflecting our active promotion of loans secured by real property through the sales and
marketing efforts of our Real Estate Financial Department, which was established in
February 2004. Proceeds from these loans are primarily used as working capital
designed for property developers. In addition, NIS Lease, a subsidiary, commenced full-scale leasing operations in February
2004. As a result, we expect our lease receivables and installment loans outstanding to grow, and
to continue growing in the short to medium term. Further, we continue to develop our credit enhancement program through providing loan
guarantees to affiliates and third parties. 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 31,2003
    
    2004
    
    2005(in millions except percentages)Small business owner loans
    
    ¥
    45,311
    
    
    
    26.9
    %
    
    ¥
    55,647
    
    
    
    31.6
    %
    
    ¥
    56,964
    
    
    
    38.3
    %Wide loans
    
    
    59,743
    
    
    
    35.4
    
    
    
    61,592
    
    
    
    34.9
    
    
    
    52,722
    
    
    
    35.4Business Timely loans
    
    
    17,256
    
    
    
    10.2
    
    
    
    17,909
    
    
    
    10.2
    
    
    
    19,687
    
    
    
    13.2Consumer loans
    
    
    45,093
    
    
    
    26.7
    
    
    
    38,600
    
    
    
    21.9
    
    
    
    5,296
    
    
    
    3.6Secured loans
    
    
    1,252
    
    
    
    0.8
    
    
    
    2,235
    
    
    
    1.3
    
    
    
    9,976
    
    
    
    6.7Other loans
    
    
    13
    
    
    
    0.0
    
    
    
    261
    
    
    
    0.1
    
    
    
    4,166
    
    
    
    2.8Total average balance of loans outstanding
    
    ¥
    168,668
    
    
    
    100.0
    %
    
    ¥
    176,244
    
    
    
    100.0
    %
    
    ¥
    148,811
    
    
    
    100.0
    %
 
 (1)
    
    Pursuant to an agreement between us and Orient Credit, on June 1, 2004, we sold most of the
outstanding balance of our consumer loans to Orient Credit for ¥32,697 million. 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,
2003, 2004 and 2005: -41-




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##### Table of Contents



Year ended March 31,2003
    
    2004
    
    2005(in millions except percentages)Small business owner loans
    
    ¥
    9,719
    
    
    
    25.2
    %
    
    ¥
    11,378
    
    
    
    29.9
    %
    
    ¥
    11,125
    
    
    
    38.0
    %Wide loans
    
    
    13,150
    
    
    
    34.2
    
    
    
    12,829
    
    
    
    33.7
    
    
    
    10,363
    
    
    
    35.4Business Timely loans
    
    
    4,515
    
    
    
    11.7
    
    
    
    4,590
    
    
    
    12.1
    
    
    
    4,924
    
    
    
    16.8Consumer loans
    
    
    11,677
    
    
    
    30.3
    
    
    
    9,750
    
    
    
    25.7
    
    
    
    1,965
    
    
    
    6.7Secured loans
    
    
    201
    
    
    
    0.5
    
    
    
    205
    
    
    
    0.5
    
    
    
    960
    
    
    
    3.3Other loans
    
    
    4
    
    
    
    0.0
    
    
    
    35
    
    
    
    0.1
    
    
    
    501
    
    
    
    1.7Total interest revenue from loans receivable
    
    
    39,266
    
    
    
    101.9
    
    
    
    38,787
    
    
    
    102.0
    
    
    
    29,838
    
    
    
    101.9Less amortization of loan origination costs
    
    
    (747
    )
    
    
    (1.9
    )
    
    
    (751
    )
    
    
    (2.0
    )
    
    
    (540
    )
    
    
    (1.9
    )Interest income from loans receivable
    
    ¥
    38,519
    
    
    
    100.0
    %
    
    ¥
    38,036
    
    
    
    100.0
    %
    
    ¥
    29,298
    
    
    
    100.0
    %
  Loan Servicing Through our subsidiary, Nissin Servicer, we mainly service distressed loans that we purchased
from third-party financial institutions for our own portfolio. The table below shows the aggregate
purchase price and aggregate collection amount of distressed loans for the years ended March 31,
2003, 2004 and 2005: Year ended March 31,2003
    
    2004
    
    2005(in millions)Aggregate purchase price of distressed loans
    
    
    ¥4,854
    
    
    
    ¥4,502
    
    
    
    ¥16,896Aggregate collection amount of distressed loans
    
    
    2,859
    
    
    
    4,538
    
    
    
    10,095
 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 June 2004, at
which time we sold most of the outstanding balance of our consumer loans to a third party. See
 Factors Affecting Our Financial Results  Sales of Consumer Loans below. Recently, despite the
growth in the amount of loans outstanding for our small business owner loans, Business Timely loans and
secured loans, the decline in the amount of loans outstanding for our Wide loans and, as a result
of the sale, consumer loans, has contributed to a significant decline in our loan portfolio. Over
the recent years, balances per account for our small business owner loans and secured loans have
generally increased and balances per account for our Business Timely loans have remained steady,
although balances per account for our Wide loans and consumer loans have decreased. 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, Business Timely loans and secured loans will increase as a result of
expanded customer acquisition channels for our loans, including our newly established Central
Office Sales Department, Osaka Sales Department and Real Estate Financial Department, our referral
arrangements with other financial service providers and the overall demand for small and
medium-sized business owner financing in Japan. While the total loan portfolio size decreased for
the year ended March 31, 2005 as a result of the sale of most of the outstanding balance of our
consumer loans, 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, Business Timely
loans and secured loans. -42-




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##### Table of Contents



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, Contributions 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 25.3% at March 31, 2003,
to 24.0% at March 31, 2004 and to 22.1% at March 31, 2005. 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. We last lowered the
contractual interest rate on each of our major loan products by 0.73% during the year ended March
31, 2002, but did not reduce the rate further during the years ended March 31, 2003, 2004 and 2005.
However, 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 secured loans, which
carry lower interest rates than our consumer loans. In addition to the above factors, the sale of
most of the outstanding balance of our consumer loans in June 2004 contributed to a further
decrease in the weighted period-end average contractual interest rate on our outstanding loans as
of March 31, 2005. 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 2.4% at March 31, 2003, 2.3% at March 31, 2004 and
1.9% at March 31, 2005. The weighted period-end average rate of short-term borrowings
was 1.7% at March 31, 2003, 1.3% at March 31, 2004 and 1.2% at March 31, 2005.
    
    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 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, 32.0% at March 31, 2004 and 22.6% at March 31,
2005. The percentages as of March 31, 2003, 2004 and 2005 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 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%. In addition, the decline
in the amount of debt issuances as a percentage of our total borrowings between March
31, 2004 and 2005 is principally attributable to a net decrease in bonds as our capital
requirement decreased as a result of the sale of most of the outstanding balance of our
consumer loans. -43-




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##### Table of Contents




    
    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 increase in the near term, reflecting the expected growth of
our loan portfolio. 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 in our loan servicing segment 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 until the year ended March 31, 2005, during which we
sold most of the outstanding balance of our consumer loans to a third party. See  Sales of Consumer Loans below. The increases in our provision for loan losses
before the sale generally reflected the growth in the amount of our total loans 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
depended 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 our provision for loan losses increase, 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. -44-




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##### Table of Contents



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 full-time employees increased from 832 at March 31, 2003 to 851 at March
31, 2004, but decreased to 818 at March 31, 2005. Also, beginning 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.
Our salaries and employee benefits decreased slightly during the year ended March 31,
2005, reflecting a significant reduction in the scale of our consumer loan business due
to the sale of most of the outstanding balance of our consumer loans to a third-party.
However, 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.
    
    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,
2003, decreased to 70 at March 31, 2004 and to 50 at March 31, 2005. However, we
expect our office rents to remain stable as we have no plan to significantly expand the
number of offices in the short term.
    
    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, recruiting expenses and commission fees. Although we continue
to make efforts to reduce operational inefficiencies, we expect our other general and
administrative expenses as a percentage of our non-interest expenses to increase in
short term reflecting the increase in our recruiting expenses and commission fees, and
the growth in the activities of our subsidiaries. Non-interest expense also includes advertising expenses, net 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 years ended March 31,
2004 and 2005. Our advertising expenses remained at low levels for each of the past three fiscal
years in line with the increasing importance of referrals. However, we expect our advertising
expenses to increase in short to medium term reflecting the increases in internet-related
advertisements. -45-




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Sales of Consumer Loans In June 2004, we sold most of the outstanding balance of our unguaranteed consumer loans to
Orient Credit for ¥32,697 million. The effect of this sale was a decrease in our interest income
and net interest income after provision for loan losses for the year ended March 31, 2005, as
compared to what our results would have been without the sale. However, our net income increased
slightly for the year ended March 31, 2005, as compared to what our net income would have been
without the sale because the reduction of expenses associated with our consumer loan business, such
as loan loss-related expenses and non-interest expenses offset the decline in our interest income.
In addition, for the year ended March 31, 2005, we recognized a non-interest gain as a result of
the sale. Following the sale, we 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, 2003, 2004 and 2005: Year ended March 31,2003
    
    2004
    
    2005(in millions except percentages)Total interest income
    
    ¥
    39,234
    
    
    
    100.0
    %
    
    ¥
    40,107
    
    
    
    100.0
    %
    
    ¥
    32,555
    
    
    
    100.0
    %Total interest expense
    
    
    3,984
    
    
    
    10.2
    
    
    
    3,724
    
    
    
    9.3
    
    
    
    3,159
    
    
    
    9.7Net interest income
    
    
    35,250
    
    
    
    89.8
    
    
    
    36,383
    
    
    
    90.7
    
    
    
    29,396
    
    
    
    90.3Provision for loan losses, net
    
    
    12,688
    
    
    
    32.3
    
    
    
    13,461
    
    
    
    33.6
    
    
    
    8,576
    
    
    
    26.3Net interest income after provision for
loan losses
    
    
    22,562
    
    
    
    57.5
    
    
    
    22,922
    
    
    
    57.1
    
    
    
    20,820
    
    
    
    64.0Total non-interest income
    
    
    837
    
    
    
    2.1
    
    
    
    730
    
    
    
    1.8
    
    
    
    5,984
    
    
    
    18.4Non-interest expense:Salaries and employee benefits
    
    
    6,233
    
    
    
    15.9
    
    
    
    6,735
    
    
    
    16.8
    
    
    
    6,521
    
    
    
    20.0Occupancy, furniture and equipment
    
    
    2,190
    
    
    
    5.6
    
    
    
    2,060
    
    
    
    5.1
    
    
    
    2,395
    
    
    
    7.4Advertising
    
    
    449
    
    
    
    1.1
    
    
    
    218
    
    
    
    0.6
    
    
    
    332
    
    
    
    1.0Other general and administrative
expenses
    
    
    4,380
    
    
    
    11.1
    
    
    
    3,349
    
    
    
    8.3
    
    
    
    4,869
    
    
    
    15.0Losses on sale and impairment of
long-lived assets, net
    
    
    225
    
    
    
    0.6
    
    
    
    530
    
    
    
    1.3
    
    
    
    94
    
    
    
    0.3Impairment of investment in affiliates
    
    
    683
    
    
    
    1.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    124
    
    
    
    0.3
    
    
    
    97
    
    
    
    0.2
    
    
    
    493
    
    
    
    1.5Minority interests
    
    
    15
    
    
    
    0.1
    
    
    
    4
    
    
    
    0.0
    
    
    
    192
    
    
    
    0.6Total non-interest expense
    
    
    14,299
    
    
    
    36.4
    
    
    
    12,993
    
    
    
    32.3
    
    
    
    14,896
    
    
    
    45.8Income before income taxes
    
    
    9,100
    
    
    
    23.2
    
    
    
    10,659
    
    
    
    26.6
    
    
    
    11,908
    
    
    
    36.6Income taxes
    
    
    3,924
    
    
    
    10.0
    
    
    
    4,582
    
    
    
    11.4
    
    
    
    4,646
    
    
    
    14.3Net income
    
    ¥
    5,176
    
    
    
    13.2
    %
    
    ¥
    6,077
    
    
    
    15.2
    %
    
    ¥
    7,262
    
    
    
    22.3
    %
  Segment Information For financial reporting purposes, we operate under the integrated financial services segment
and the loan servicing segment. The integrated financial services segment includes small business
owner, Wide, Business Timely, consumer, secured and other loans. In the loan servicing segment,
Nissin Servicer mainly acquires and services non-performing debts from banks and financial
institutions in Japan. -46-




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##### Table of Contents



The loan servicing segment is operated as a separate segment for financial reporting
purposes. The integrated financial services segment also includes our leasing and securities
businesses as these are currently insignificant and do not give rise to separate reporting for
financial statements purposes. We currently conduct our operating activities mainly in Japan. We
have recently begun activities in China, but these are currently insignificant. The following
tables show selected segment information for the years ended March 31, 2003, 2004 and 2005: Year ended March 31,2003Integrated
    
    Loanfinancial services
    
    servicing
    
    Total(in millions)Total interest income
    
    
    ¥38,520
    
    
    
    ¥714
    
    
    
    ¥39,234Total interest expense
    
    
    3,951
    
    
    
    33
    
    
    
    3,984Provision for loan losses, net
    
    
    12,545
    
    
    
    143
    
    
    
    12,688Net income
    
    
    4,968
    
    
    
    208
    
    
    
    5,176
 Year ended March 31,2004Integrated
    
    Loanfinancial services
    
    servicing
    
    Total(in millions)Total interest income
    
    
    ¥38,038
    
    
    
    ¥2,069
    
    
    
    ¥40,107Total interest expense
    
    
    3,603
    
    
    
    121
    
    
    
    3,724Provision for loan losses, net
    
    
    12,824
    
    
    
    637
    
    
    
    13,461Net income
    
    
    5,671
    
    
    
    406
    
    
    
    6,077
 Year ended March 31,2005Integrated
    
    Loanfinancial services
    
    servicing
    
    Total(in millions)Total interest income
    
    
    ¥29,299
    
    
    
    ¥3,256
    
    
    
    ¥32,555Total interest expense
    
    
    3,006
    
    
    
    153
    
    
    
    3,159Provision for loan losses, net
    
    
    7,759
    
    
    
    817
    
    
    
    8,576Net income
    
    
    6,244
    
    
    
    1,018
    
    
    
    7,262
  Year Ended March 31, 2005, Compared to Year Ended March 31, 2004 Total Interest Income Total interest income for the year ended March 31, 2005 was ¥32,555 million, a decrease of
¥7,552 million, or 18.8%, from ¥40,107 million for the previous fiscal year. Integrated Financial Services. Interest income from loans receivable was ¥29,298 million, a
decrease of ¥8,738 million, or 23.0%, as compared to ¥38,036 million for the previous year. This
was primarily due to a decrease in the average balance of our loans outstanding which amounted to
¥148,811 million for the year ended March 31, 2005 as compared to ¥176,244 million for the previous
fiscal year. This decrease reflected the sale of most of the outstanding balance of our consumer
loans in June 2004, and a decrease in the weighted period-end average contractual interest rate on
our loans outstanding from 24.0% at March 31, 2004 to 22.1% at March 31, 2005. The decrease in this rate reflected the
growing share of small business owner loans and secured loans in our loan portfolio, which carry
lower interest rates than consumer loans. -47-




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The decrease in the average balance of our loans outstanding was led by a decrease in our
average balance of consumer loans of ¥33,304 million, or 86.3%, to ¥5,296 million for the year
ended March 31, 2005 compared to ¥38,600 million for the previous fiscal year, and a decrease in
our average balance of Wide loans of ¥8,870 million, or 14.4%, to ¥52,722 million for the year
ended March 31, 2005 compared to ¥61,592 million for the previous fiscal year. This decrease is
despite an increase in our average balance of small business owner loans of ¥1,317 million, or
2.4%, to ¥56,964 million for the year ended March 31, 2005 compared to ¥55,647 million for the
previous fiscal year, an increase in our average balance of Business Timely loans of ¥1,778
million, or 9.9%, to ¥19,687 million for the year ended March 31, 2005 compared to ¥17,909 million
for the previous fiscal year, and an increase in our average balance of secured loans of ¥7,741
million, or 346.4%, to ¥9,976 million for the year ended March 31, 2005 compared to ¥2,235 million
for the previous fiscal year. Despite increased customer acquisition efforts and customer acquisition channels mainly
through referral relationships with financial service providers and significant growth in our
secured loans, the average balance of our loans outstanding has decreased primarily as a result of
the sale of most of the outstanding balance of our consumer loans in June 2004. The balance of
loans outstanding derived from referral relationships, including with our affiliates, as of March
31, 2005 was ¥32,290 million, or 20.8% 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 ¥3,255 million for the year
ended March 31, 2005, an increase of ¥1,186 million, or 57.3%, as compared to ¥2,069 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 the year ended March 31, 2005 decreased by ¥565 million, or 15.2%,
to ¥3,159 million from ¥3,724 million for the previous fiscal year. The decrease in total interest
expense reflected our efforts in negotiating improved borrowing terms, particularly from banks,
which reduced our weighted period-end average rate of long-term borrowings from 2.3% as of March
31, 2004 to 1.9% as of March 31, 2005. Further, this decrease was also contributed by the decrease
in our average balance of borrowings for the year ended March 31, 2005 of ¥13,495 million, or 9.2%,
to ¥132,961 million from ¥146,456 million for the previous fiscal year, reflecting our reduced
capital requirement for loan originations following the decrease in our average balance of loans
outstanding. Net Interest Income As a result of the decrease in our total interest income and the decrease in our total
interest expense, net interest income for the year ended March 31, 2005 decreased by ¥6,987
million, or 19.2%, to ¥29,396 million from ¥36,383 million for the previous fiscal year. Net Interest Income After Provision for Loan Losses Net interest income after provision for loan losses for the year ended March 31, 2005
decreased by ¥2,102 million, or 9.2%, to ¥20,820 million from ¥22,922 million for the previous
fiscal year. Net provision for loan losses decreased by ¥4,885 million, or 36.3%, to ¥8,576 million for the
year ended March 31, 2005, compared to ¥13,461 million for the previous fiscal year. Provision for
loan losses as a percentage of total interest income decreased from 33.6% for the previous fiscal
year to 26.3% for the year ended March 31, 2005. The decrease in our provision for loan losses
reflects the sale of most of the outstanding balance of our consumer loans in June 2004, despite an
increase in loan defaults which reflects the difficult economic environment in Japan. The
allowance for loan losses as a percentage of total loans outstanding declined from 7.54% at March
31, 2004 to 6.46% at March 31, 2005 resulting from the sale. This reduction was partially offset
by increased allowance for loan losses caused by concerns over the Japanese economy. We expect the
number of loan defaults to continue to increase, given the current economic conditions in Japan. -48-




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Total Non-interest Income Total non-interest income increased by ¥5,254 million, or 719.7%, to ¥5,984 million for the
year ended March 31, 2005 from ¥730 million for the previous fiscal year. The increase resulted
primarily from a gain on sale of our consumer loans of ¥3,327 million. Further, net gain on sales
of subsidiaries and affiliates increased by ¥669 million, or 99.9%, to ¥1,339 million for the year
ended March 31, 2005 from ¥670 million for the previous fiscal year, which reflected a gain on
equity interest in Nissin Servicer in conjunction with its listing on the Mothers market of the
Tokyo Stock Exchange. Net guarantee fees received increased by ¥204 million, or 180.5%, to ¥317
million for the year ended March 31, 2005 from ¥113 million for the previous fiscal year, which
reflected the developments in our guarantee business. Revenue from property for sale of ¥477
million and operation support fees received in connection with the sale of loans receivable of ¥392
million, which were included in rents, dividends and other, also contributed to this increase.
These contributing factors were partially offset by an increase in net losses on sale and
impairment of investment securities of ¥245 million, or 91.4%, to ¥513 million for the year ended
March 31, 2005 from ¥268 million for the previous fiscal year. Total Non-interest Expense Total non-interest expense increased by ¥1,903 million, or 14.6%, to ¥14,896 million for the
year ended March 31, 2005 from ¥12,993 million for the previous fiscal year. The increase resulted
primarily from increases in the operations of our subsidiaries, which contributed to increases in
our selling, general and administrative expenses of ¥1,755 million, or 14.2%, to ¥14,117 million
for the year ended March 31, 2005 from ¥12,362 million for the previous fiscal year, which
reflected increases in expenses such as occupancy, furniture and equipment, advertising costs,
costs of operating leases, and taxes and duties. Further, income transferred to minority interests
increased by ¥188 million, to ¥192 million for the year ended March 31, 2005 from ¥4 million for
the previous fiscal year, which reflected increases in net income of Nissin Servicer. These
contributing factors were partially offset by a decrease in losses on sale and impairment of
long-lived assets of ¥436 million, or 82.3%, to ¥94 million for the year ended March 31, 2005 from
¥530 million for the previous fiscal year. Income Before Income Taxes Income before income taxes increased by ¥1,249 million, or 11.7%, to ¥11,908 million for the
year ended March 31, 2005 from ¥10,659 million for the previous fiscal year. Although our net
interest income after provision for loan losses decreased compared to the previous fiscal year, the
increase in our income before income taxes resulted primarily from an increase in our total
non-interest income reflecting the gain on sale of our consumer loans. -49-




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Income Taxes Income taxes increased slightly by ¥64 million, or 1.4%, to ¥4,646 million for the year ended
March 31, 2005 from ¥4,582 million for the previous fiscal year. The effective tax rate applicable
to us decreased from 43.0% for the previous fiscal year to 38.4% for the year ended March 31, 2005
due to a non-taxable gain on change of equity interest in Nissin Servicer, which listed its shares
on the Mothers market of the Tokyo Stock Exchange. Net Income As a result of these factors, net income increased by ¥1,185 million, or 19.5%, to ¥7,262
million for the year ended March 31, 2005 from ¥6,077 million for the previous fiscal year. 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 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. -50-




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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. 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 ¥113 million. As a result, total non-interest income amounted to
¥730 million for the year ended March 31, 2004, a decrease of ¥107 million, or 12.8%, as compared
to ¥837 million for the previous fiscal year. Total Non-interest Expense Total non-interest expense decreased by ¥1,306 million, or 9.1%, to ¥12,993 million for the
year ended March 31, 2004 from ¥14,299 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. -51-




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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. Financial Condition The following table provides selected balance sheet data as of March 31, 2004 and 2005: As of March 31,2004
    
    
    2005(in millions)Total assets
    
    ¥
    210,268
    
    
    ¥
    228,401Cash and cash equivalents
    
    
    20,243
    
    
    
    25,709Loans receivable, net
    
    
    166,890
    
    
    
    146,119Purchased loans receivable, net
    
    
    4,342
    
    
    
    13,581Property and equipment
    
    
    4,340
    
    
    
    5,285Investment securities
    
    
    9,174
    
    
    
    28,443Deferred income taxes
    
    
    579
    
    
    
    333Total liabilities
    
    
    155,810
    
    
    
    160,284Short-term borrowings
    
    
    5,563
    
    
    
    12,600Long-term borrowings
    
    
    142,577
    
    
    
    136,844Deferred income taxes
    
    
    
    
    
    
    4,439Total shareholders equity
    
    
    54,297
    
    
    
    66,971
 Total assets increased by ¥18,133 million to ¥228,401 million at March 31, 2005, as
compared to ¥210,268 million at the end of the previous fiscal year. The increase was primarily
due to an increase in our cash and cash equivalents, an increase in our net purchased loans
receivable due to growth in our loan servicing business, an increase in property and equipment due
to the acquisition of software for a new network system, and a significant increase in investment
securities due to market valuation of our marketable securities. However, the increase was
partially offset by a significant decrease in our net loans receivable as a result of the sale of
most of the outstanding balance of our consumer loans to Orient Credit in June 2004. Total liabilities increased by ¥4,474 million to ¥160,284 million at March 31, 2005, as
compared to ¥155,810 million at the end of the previous fiscal year. The increase was primarily
due to a slight increase in our total borrowings, which reflected increased purchases of distressed
loans. Also, our deferred income tax liabilities increased significantly due to unrealized gains
on market valuation of investment securities. -52-




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As a result of the above, as well as increases in our common stock and additional paid-in
capital primarily due to conversion of convertible bonds, increases in our net income and increases
in our cumulative other comprehensive income primarily due to unrealized gains on investment
securities, total shareholders equity increased by ¥12,674 million to ¥66,971 million at March 31,
2005, as compared to ¥54,297 million at the end of the previous fiscal year. In addition,
shareholders equity as a percentage of total assets increased by 3.5% to 29.3% at March 31, 2005,
as compared to 25.8% at the end of the previous fiscal year. Allowance for Loan Losses, Loan Charge-offs and Provisions for Loan Losses We maintain our allowances for loan losses at a level that we believe is adequate to provide
for estimated probable uncollectible 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 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 in 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 for the years ended March 31, 2003, 2004 and 2005: Year ended March 31,2003
    
    
    2004
    
    
    2005(in millions)Balance at beginning of period
    
    ¥
    8,831
    
    
    ¥
    11,827
    
    
    ¥
    13,528Provision for loans receivable sold
    
    
    
    
    
    
    
    
    
    
    (3,327
    )Provision for loan losses
    
    
    12,545
    
    
    
    12,824
    
    
    
    7759Charge-offs, net of recoveries
    
    
    (9,549
    )
    
    
    (11,123
    )
    
    
    (7,926
    )Balance at end of period
    
    ¥
    11,827
    
    
    ¥
    13,528
    
    
    ¥
    10,034
 The decrease in our provision for loan losses between the years ended March 31, 2004 and
2005 reflecting the sale of most of the outstanding balance of our consumer loans in June 2004,
despite an increase in loan defaults which reflects the difficult economic environment in Japan
along with growth in our small business owner loans, Business Timely loans and secured loans
outstanding. Upon closing each reporting period, we charge off our loans in the following manner:  
    
    Guaranteed Loans. We generally charge off or provide an allowance for loan losses
on small business owner loans and Wide loans in default at the end of the semi-annual
period in which the default occurs and we believe the likelihood of any future
collection from the borrower as well as the guarantor is minimal. 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. -53-




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
    
    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 rapid
charge-off, 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.
    
    Secured Loans. We generally charge off or provide an allowance for loan losses on
secured loans in default at the end of the semi-annual period in which the default
occurs after considering the availability and value of collateral. 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 of
loans outstanding: Year ended/as of March 31,2003
    
    2004
    
    2005(in millions except percentages)Small business owner loansLoans outstanding
    
    ¥
    53,915
    
    
    ¥
    57,168
    
    
    ¥
    58,961Allowance for loan losses
    
    
    2,648
    
    
    
    3,677
    
    
    
    3,606Ratio of allowance for loan losses to loans outstanding
    
    
    4.9
    %
    
    
    6.4
    %
    
    
    6.1
    %Average balance of loans outstanding
    
    
    45,311
    
    
    
    55,647
    
    
    
    56,964Loans charged-off
    
    
    1,641
    
    
    
    2,468
    
    
    
    2,809Ratio of loans charged-off to average balance of loans
outstanding
    
    
    3.6
    %
    
    
    4.4
    %
    
    
    4.9
    %Wide loansLoans outstanding
    
    ¥
    63,993
    
    
    ¥
    57,460
    
    
    ¥
    47,604Allowance for loan losses
    
    
    3,009
    
    
    
    3,661
    
    
    
    2,897Ratio of allowance for loan losses to loans outstanding
    
    
    4.7
    %
    
    
    6.4
    %
    
    
    6.1
    %Average balance of loans outstanding
    
    
    59,743
    
    
    
    61,592
    
    
    
    52,722Loans charged-off
    
    
    2,226
    
    
    
    2,978
    
    
    
    2,815Ratio of loans charged-off to average balance of loans
outstanding
    
    
    3.7
    %
    
    
    4.8
    %
    
    
    5.3
    %Business Timely loansLoans outstanding
    
    ¥
    17,303
    
    
    ¥
    18,659
    
    
    ¥
    20,862Allowance for loan losses
    
    
    1,703
    
    
    
    1,962
    
    
    
    2,231Ratio of allowance for loan losses to loans outstanding
    
    
    9.8
    %
    
    
    10.5
    %
    
    
    10.7
    %Average balance of loans outstanding
    
    
    17,256
    
    
    
    17,909
    
    
    
    19,687Loans charged-off
    
    
    1,579
    
    
    
    1,787
    
    
    
    1,999Ratio of loans charged-off to average balance of loans
outstanding
    
    
    9.2
    %
    
    
    10.0
    %
    
    
    10.2
    %Consumer loansLoans outstanding
    
    ¥
    40,938
    
    
    ¥
    35,604
    
    
    ¥
    2,827Allowance for loan losses
    
    
    4,315
    
    
    
    3,868
    
    
    
    308Ratio of allowance for loan losses to loans outstanding
    
    
    10.5
    %
    
    
    10.9
    %
    
    
    10.9
    %Average balance of loans outstanding
    
    
    45,093
    
    
    
    38,600
    
    
    
    5,296Loans charged-off
    
    
    4,868
    
    
    
    4,426
    
    
    
    779Ratio of loans charged-off to average balance of loans
outstanding
    
    
    10.8
    %
    
    
    11.5
    %
    
    
    14.7
    %
 -54-




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Year ended/as of March 31,2003
    
    2004
    
    2005(in millions except percentages)Secured loansLoans outstanding
    
    ¥
    1,587
    
    
    ¥
    10,003
    
    
    ¥
    18,812Allowance for loan losses
    
    
    148
    
    
    
    274
    
    
    
    761Ratio of allowance for loan losses to loans outstanding
    
    
    9.3
    %
    
    
    2.7
    %
    
    
    4.0
    %Average balance of loans outstanding
    
    
    1,252
    
    
    
    2,235
    
    
    
    9,976Loans charged-off
    
    
    24
    
    
    
    100
    
    
    
    22Ratio of loans charged-off to average balance of loans
outstanding
    
    
    1.9
    %
    
    
    4.5
    %
    
    
    0.2
    %Other loansLoans outstanding
    
    ¥
    36
    
    
    ¥
    573
    
    
    ¥
    6,296Allowance for loan losses
    
    
    4
    
    
    
    86
    
    
    
    231Ratio of allowance for loan losses to loans outstanding
    
    
    11.1
    %
    
    
    15.0
    %
    
    
    3.7
    %Average balance of loans outstanding
    
    
    13
    
    
    
    261
    
    
    
    4,166Loans charged-off
    
    
    
    
    
    
    2
    
    
    
    83Ratio of loans charged-off to average balance of loans
outstanding
    
    
    
    %
    
    
    0.8
    %
    
    
    2.0
    %TotalLoans outstanding
    
    ¥
    177,772
    
    
    ¥
    179,467
    
    
    ¥
    155,362Allowance for loan losses
    
    
    11,827
    
    
    
    13,528
    
    
    
    10,034Ratio of allowance for loan losses to loans outstanding
    
    
    6.7
    %
    
    
    7.5
    %
    
    
    6.5
    %Average balance of loans outstanding
    
    
    168,668
    
    
    
    176,244
    
    
    
    148,811Loans charged-off
    
    
    10,338
    
    
    
    11,761
    
    
    
    8,507Ratio of loans charged-off to average balance of loans
outstanding
    
    
    6.1
    %
    
    
    6.7
    %
    
    
    5.7
    %
 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
6.1% for the year ended March 31, 2003, to 6.7% for the year ended March 31, 2004. However, our
overall charge-off ratio decreased to 5.7% for the year ended March 31, 2005 due to the sale of
most of the outstanding balance of our consumer loans which had a charge-off ratio of over 10% in
the past three years. Allowance Ratios. The overall ratio of allowances for loan losses to total loans outstanding
decreased from 7.5% as of March 31, 2004 to 6.5% as of March 31, 2005. This decrease was
attributable to the change in our loan mix resulting from the sale of most of the outstanding
balance of our consumer loans. Although the Japanese economy shows signs of recovery as corporate
profits and business conditions improve, it still faces uncertainties, which create concern for its
future economic prospects. High unemployment rates and stagnation in worker wages have led to
increases in personal bankruptcies and individuals using the Civil Rehabilitation Law to seek
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. -55-




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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 a 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 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 increase in impaired loans between March 31, 2003 and
March 31, 2004 reflected increases in the number of defaults as a result of difficult
economic conditions in Japan. However, the decrease in impaired loans between March
31, 2004 and March 31, 2005 reflected the decrease in impaired consumer loans as a
result of the sale of most of the outstanding balance of our consumer loans in June
2004.
    
    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, Wide loans, secured
loans and other loans. The following table provides information on our delinquent loans still accruing interest and
our non-accrual loans, which comprise restructured loans, including impaired loans, and loans with
specific allowances provided: As of March 31,2003
    
    
    2004
    
    
    2005(in millions)Small business owner loansDelinquent loans still accruing interest
    
    ¥
    1,724
    
    
    ¥
    936
    
    
    ¥
    719Non-accrual loans (1)
    
    
    5,969
    
    
    
    8,412
    
    
    
    9,064Restructured loans
    
    
    4,204
    
    
    
    5,768
    
    
    
    6,371Impaired loans included in restructured loans
    
    
    894
    
    
    
    1,183
    
    
    
    1,388Loans with specific allowance provided
    
    
    1,765
    
    
    
    2,644
    
    
    
    2,693Wide loanDelinquent loans still accruing interest
    
    ¥
    1,524
    
    
    ¥
    903
    
    
    ¥
    500Non-accrual loans (1)
    
    
    7,039
    
    
    
    9,227
    
    
    
    8,654Restructured loans
    
    
    5,231
    
    
    
    6,852
    
    
    
    6,758Impaired loans included in restructured loans
    
    
    1,364
    
    
    
    1,688
    
    
    
    1,757Loans with specific allowance provided
    
    
    1,808
    
    
    
    2,375
    
    
    
    1,896Business Timely loansDelinquent loans still accruing interest
    
    ¥
    367
    
    
    ¥
    430
    
    
    ¥
    351Non-accrual loans (1)
    
    
    344
    
    
    
    516
    
    
    
    567Restructured loans
    
    
    344
    
    
    
    516
    
    
    
    567Impaired loans included in restructured loans
    
    
    81
    
    
    
    120
    
    
    
    158Loans with specific allowance provided
    
    
    
    
    
    
    
    
    
    
    
 -56-




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##### Table of Contents



As of March 31,2003
    
    
    2004
    
    
    2005(in millions)Consumer loansDelinquent loans still accruing interest
    
    ¥
    1,535
    
    
    ¥
    1,148
    
    
    ¥
    94Non-accrual loans (1)
    
    
    1,055
    
    
    
    1,182
    
    
    
    108Restructured loans
    
    
    1,055
    
    
    
    1,182
    
    
    
    108Impaired loans included in restructured loans
    
    
    449
    
    
    
    528
    
    
    
    19Loans with specific allowance provided
    
    
    
    
    
    
    
    
    
    
    Secured loansDelinquent loans still accruing interest
    
    ¥
    149
    
    
    ¥
    93
    
    
    ¥
    186Non-accrual loans (1)
    
    
    241
    
    
    
    156
    
    
    
    1,836Restructured loans
    
    
    96
    
    
    
    87
    
    
    
    71Impaired loans included in restructured loans
    
    
    3
    
    
    
    
    
    
    
    Loans with specific allowance provided
    
    
    145
    
    
    
    69
    
    
    
    1,765Other loansDelinquent loans still accruing interest
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    Non-accrual loans (1)
    
    
    
    
    
    
    87
    
    
    
    29Restructured loans
    
    
    
    
    
    
    14
    
    
    
    Impaired loans included in restructured loans
    
    
    
    
    
    
    
    
    
    
    Loans with specific allowance provided
    
    
    
    
    
    
    73
    
    
    
    29TotalDelinquent loans still accruing interest
    
    ¥
    5,299
    
    
    ¥
    3,510
    
    
    ¥
    1,850Non-accrual loans (1)
    
    
    14,648
    
    
    
    19,580
    
    
    
    20,258Restructured loans
    
    
    10,930
    
    
    
    14,419
    
    
    
    13,875Impaired loans included in restructured loans
    
    
    2,791
    
    
    
    3,519
    
    
    
    3,322Loans with specific allowance provided
    
    
    3,718
    
    
    
    5,161
    
    
    
    6,383
 
 (1)
    
    The amounts of non-accrual loans represent the balance of non-accrual loans outstanding
before allowances for loan losses.  Loan Servicing We record purchased loans at cost. We then establish an allowance for estimated loan losses,
and employ one of two methods to determine if further allowances are appropriate. Under the cost
recovery 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 31,2003
    
    2004
    
    2005(in millions)Balance at beginning of period
    
    ¥
    
    
    
    ¥
    132
    
    
    ¥
    717Provision for loan losses
    
    
    143
    
    
    
    637
    
    
    
    817Charge-offs
    
    
    (11
    )
    
    
    (52
    )
    
    
    (252
    )Balance at end of period
    
    ¥
    132
    
    
    ¥
    717
    
    
    ¥
    1,282
 See also Critical Accounting Policies  Purchased Loans Receivable and Revenue
Recognition below. -57-




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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 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 fifty months as of March 31, 2005.  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 for which interest, principal or
term is restructured. Allowances for restructured loans are based on collection history or legal
classification of the borrowers. -58-




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##### Table of Contents



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 the occurrence of 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. Purchased Loans Receivable and Revenue Recognition Cost Recovery Method Purchased loans represent loans purchased from third party originators and are reported at
purchased cost. We then establish an allowance for estimated loan losses on reduced credit quality
subsequent to acquisition. Due to the non-performing status of these loans when initially
purchased and lack of history with the borrowers, subsequent to acquisition, 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 ¥3,496 million, or 80.5% of our net purchased loans
receivable as of March 31, 2004 and ¥12,745 million, or 93.8% of our net purchased loans receivable
as of March 31, 2005. 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
¥846 million, or 19.5% of our net purchased loans receivable as of March 31, 2004 and ¥836 million,
or 6.2% of our net purchased loans receivable as of March 31, 2005. -59-




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Accounting Developments 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 both the primary beneficiary and all other
enterprises with a significant variable interest in a VIE to 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 adoption of FIN No. 46 did not have any impact on our
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 loans acquired in fiscal years beginning after December 15, 2004. The
adoption of SOP 03-3 beginning April 1, 2005 is not expected to have any 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 beginning from the 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 did not have any impact on our
consolidated financial statements. In December 2004, the FASB issued SFAS No. 123-R (revised 2004) Share-Based Payment, a
revision of SFAS No. 123 Accounting for Stock-Based Compensation. SFAS No. 123-R requires a
public entity to measure the cost of employee services received in exchange for an award of equity
instruments based on the grant-date fair value of the award. In April 2005, the Securities and
Exchange Commission (SEC) delayed the effective date of FASB Statement No. 123-R to the fiscal
year beginning after June 15, 2005. We are currently assessing the impact of this statement
on our consolidated financial statements but do not expect the adoption of this statement to have a
significant impact. -60-




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##### Table of Contents



B. Liquidity and Capital Resources. Capital Requirements In our business operations, 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 Origination and Loan Servicing We require capital to provide new loans and to purchase distressed loans from banks and other
financial institutions. Loan Origination.As we are principally in the business of providing loans to individuals,
our most critical capital requirement is loan origination. As of March 31, 2005, our total loans
outstanding were in the amount of ¥155,362 million, a decrease of ¥24,105 million, or 13.4%, as
compared to ¥179,467 million as of the end of the previous year as a result of the sale of most of
the outstanding balance of our consumer loans in June 2004. Although our capital requirement for
loan origination has been easier to meet in recent years, as we expect our loan portfolio to grow
due to increasing demand for small and medium-sized business owner financing, our capital
requirement to fund loan origination may become more demanding. 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 ¥4,502 million for the year ended March 31, 2004 and ¥16,896 million for the year ended March
31, 2005. 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, etc. 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 ¥12,362 million, or
30.8% of our total interest income, for the year ended March 31, 2004. However, as our total
interest income decreased due to the sale of most of the outstanding balance of our consumer loans,
our general and administrative expenses of ¥14,117 million increased as a percentage of our total
interest income to 43.4%, for the year ended March 31, 2005. -61-




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##### Table of Contents



Capital Expenditures The following table provides our capital expenditures calculated on a cash basis: For the year ended March 31,2003
    
    2004
    
    2005(in millions)Capital expenditures
    
    
    ¥983
    
    
    
    ¥880
    
    
    
    ¥1,754
 Our capital expenditures for the above stated periods were mainly used to acquire
property and equipment in connection with the establishment and relocation of our loan and other
offices and branches throughout Japan, establishment of head offices for our subsidiaries, as well
as acquisition of intangible assets with the implementation of our new operating system. We have
budgeted capital expenditures in the amount of approximately ¥163 million for the year
ending March 31, 2006, primarily for the refurbishment and renovation of our head office, and
renovation and relocation of our branches and loan offices. 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 amounted to ¥748 million as of March 31, 2004 and ¥735
million as of March 31, 2005. These affiliates had a book carrying value of ¥496
million as of March 31, 2004 and ¥514 million as of March 31, 2005.
    
    Non-affiliates. These are investments in enterprises that we view as potential
strategic partners, rather than sources of potential capital gains. Our total initial
investments in these enterprises amounted to ¥1,169 million as of March 31, 2004 and
¥9,019 million as of March 31, 2005. These enterprises had a book carrying value of
¥1,380 million as of March 31, 2004 and ¥20,376 million as of March 31, 2005. Among
these enterprises, Riskmonster.com and Xinhua Finance Limited went public during the
year ended March 31, 2005. 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. Starting from the year ended March 31, 2005, in
order to reflect consolidated results as an indicator for our business performance, we changed our
dividend policy and planned to maintain a dividend payout ratio of 30% on the consolidated net
income basis. The declaration and payment of dividends, however, depends 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,
¥1,001 million for the year ended March 31, 2004 and ¥1,300 million for the year ended March 31,
2005. 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 14,417,803 shares for an aggregate price of ¥1,209 million
during the year ended March 31, 2004 and 7,024 shares for an aggregate price of ¥1 million during
the year ended March 31, 2005. We sold 3,216,960 shares for an aggregate price of ¥338 million
during the year ended March 31, 2004 and 7,572,960 shares for an aggregate price of ¥909 million
during the year ended March 31, 2005 as a result of exercises of stock options. We also purchased
an additional 4,308 shares between April 1, 2005 and June 30, 2005 for an aggregate price of ¥1
million and sold an additional 999,840 shares between April 1, 2005 and June 30, 2005 for an
aggregate price of ¥145 million as a result of exercise of stock options. For a further discussion
of stock repurchases, see Dividend Policy  Stock Repurchases under Item 8.A of this annual
report on Form 20-F. -62-




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##### Table of Contents



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. 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, 2006. 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, 2006. 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, 2005, we had long-term borrowings, including a convertible
bond and asset backed commercial paper, totaling ¥136,844 million. Of our total long-term borrowings at March 31, 2005, ¥113,192 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 variable rate basis. At March 31, 2005, the weighted average contractual rate
at period end of our long-term loans from banks and other financial institutions was 1.9%. As is
customary in Japan, bank loans are made under general agreements which provided 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. -63-




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##### Table of Contents



In addition, ¥23,652 million of our total long-term borrowings at March 31, 2005 were from the
issuance of long-term bonds, including convertible 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, 2004 and 2005 comprised the following: As of March 31,2004
    
    
    2005(in millions)3.00% unsecured bonds, due April 20, 2004
    
    ¥
    10,000
    
    
    ¥
    2.45% unsecured bonds, due March 28, 2005
    
    
    10,000
    
    
    
    2.30% unsecured bonds with warrants, due April 20, 2004
    
    
    1,500
    
    
    
    2.35% unsecured bonds, due November 1, 2005
    
    
    5,000
    
    
    
    5,0001.18% unsecured bonds, due February 25, 2008
    
    
    
    
    
    
    7,5001.90% unsecured bonds, due July 31, 2006
    
    
    500
    
    
    
    5000.75% unsecured bonds, due September 19, 2008
    
    
    270
    
    
    
    2100.64% unsecured bonds, due March 26, 2007
    
    
    500
    
    
    
    5000.45% unsecured bonds, due September 27, 2006
    
    
    
    
    
    
    5000.67% unsecured bonds, due September 27, 2007
    
    
    
    
    
    
    5001.70% unsecured convertible bonds, due September 29, 2006
    
    
    10,000
    
    
    
    8,942Total bonds
    
    ¥
    37,770
    
    
    ¥
    23,652
 The aggregate future annual principal and interest commitments of bonds, long-term loans
from banks and other financial institutions as of March 31, 2005 are as follows: Year ending March 31,
    
    (in millions)2006
    
    
    ¥
    66,2642007
    
    
    
    46,2662008
    
    
    
    26,7002009
    
    
    
    5012010 and thereafter
    
    
    
    165Total future payments for long-term borrowings
    
    
    ¥
    139,896
 Short-term Borrowings Our short-term borrowings are comprised of bank loans and commercial paper. Our short-term
borrowings were ¥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, and ¥12,600 million
as of March 31, 2005, of which ¥ 9,017 million were bank loans, ¥3,500 million were commercial
paper and the remainder were rediscounted notes. -64-




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##### Table of Contents



Information regarding interest rates of short-term borrowings as of March 31, 2004 and 2005
are as follows: As of March 31,2004
    
    2005Bank loans (under fixed or variable rate contracts)Minimum interest rate
    
    
    2.0
    %
    
    
    1.0
    %Maximum interest rate
    
    
    2.3
    
    
    
    2.2Weighted average contractual rates
    
    
    2.0
    
    
    
    1.6Commercial paperMinimum interest rate
    
    
    0.3
    
    
    
    0.3Maximum interest rate
    
    
    1.0
    
    
    
    0.5Weighted average contractual rates
    
    
    0.8
    
    
    
    0.4Rediscounted notes
    
    
    2.4
    
    
    
    2.4
 All short-term borrowings have terms ranging from approximately one month 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. Debt Service At March 31, 2005, we had contractual commitments to repay ¥63,115 million in long-term
borrowings through the year ending March 31, 2006. We expect to repay this amount through a
combination of new or existing loan credits from banks, bond offerings and new cash from
operations. Collateral for Borrowings As of March 31, 2005, we had pledged as collateral for short-term and long-term borrowings
with banks and other financial institutions the following assets: ¥418 million in restricted cash
in banks, ¥18,587 million in loans receivable, and ¥456 million in purchased loans receivable. 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 credit line agreements, we may, but are not committed
to, lend funds to our Business Timely loan, consumer loan and other loan customers. We review
credit lines and our related funding needs based on account usage and customer creditworthiness.
We had unfunded credit lines of ¥46,990 million as of March 31, 2005, of which ¥6,185 million were
unfunded credit lines with loans outstanding and ¥40,805 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 ¥911 million under our office
lease agreements for the year ended March 31, 2005. In addition, we lease certain equipment,
software and vehicles under capital lease obligations. We have paid approximately ¥823 million
under our capital lease agreements for the year ended March 31, 2005. Consequently, total lease
payments under these operating lease and capital lease agreements were ¥1,734 million for the year
ended March 31, 2005. 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. -65-




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We are not a party to any material legal proceedings. Cash Flows We had cash and cash equivalents totaling ¥25,709 million at March 31, 2005, an increase of
¥5,466 million, or 27.0%, from ¥20,243 million at March 31, 2004. 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. The following table shows information about our cash flows during the years ended March 31,
2003, 2004 and 2005: Year ended March 31,2003
    
    
    2004
    
    
    2005(in millions)Net cash provided by operating activities
    
    ¥
    21,315
    
    
    ¥
    21,942
    
    
    ¥
    14,686Net cash used in investing activities
    
    
    (36,658
    )
    
    
    (18,301
    )
    
    
    (12,546
    )Net cash provided by (used in) financing activities
    
    
    21,839
    
    
    
    (7,010
    )
    
    
    3,335Effect of exchange rate changes on cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    (9
    )Net increase (decrease) in cash and cash equivalents
    
    
    6,496
    
    
    
    (3,369
    )
    
    
    5,466
  Year Ended March 31, 2005, Compared to Year Ended March 31, 2004 Operating Activities Net cash provided by operating activities for the year ended March 31, 2005 was ¥14,686
million, a decrease of ¥7,256 million, or 33.1%, compared to ¥21,942 million for the previous
fiscal year. This change was primarily attributable to a decrease of ¥6,987 million, or 19.2%,
in our net interest income, a decrease of ¥4,885 million, or 36.3%, in our net provision for loan
losses and a gain on sale of loans receivable of ¥3,327 million, which reflected the sale of most
of the outstanding balance of our consumer loans to Orient Credit as discussed in further detail in
Results of Operations  Year Ended March 31, 2005, Compared to Year Ended March 31, 2004.
Further, gain on equity interest in Nissin Servicer of ¥1,339 million in conjunction with its
listing on the Mothers market of the Tokyo Stock Exchange and a decrease of ¥2,123 million in net
changes in accrued income taxes and expenses also contributed to this change. These contributing
factors were offset by an increase of ¥2,060 million in deferred income tax expenses. Investing Activities Net cash used in investing activities for the year ended March 31, 2005 was ¥12,546 million, a
decrease of ¥5,755 million, or 31.4%, compared to ¥18,301 million for the previous fiscal year.
This change was primarily attributable to proceeds of ¥32,697 million from the sale of most of the
outstanding balance of our consumer loans offset by an increase of ¥3,851 million in our net
origination of loans receivable, an increase of ¥8,023 million in our net purchases of distressed
loans, which reflected the developments in our loan servicing business, an increase of ¥12,903
million in our purchases of investment securities and an increase of ¥874 million in our purchases
of property and equipment in connection with acquisition of software for the development of our new
operating system infrastructures. -66-




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##### Table of Contents



Financing Activities Net cash provided by financing activities was ¥3,335 million for the year ended March 31,
2005, compared to net cash used in financing activities in the amount of ¥7,010 million for the
previous fiscal year. This change was primarily attributable to an increase of ¥7,429 million in
our net proceeds from short-term borrowings and a decrease of ¥1,252 million in our net repayment
of long-term borrowings, which reflected the increased capital requirement for our loan servicing
business. Furthermore, an increase of ¥1,607 million in our proceeds from issuance of new shares
by subsidiaries, which reflected Nissin Servicers listing on the Mothers market of the Tokyo Stock
Exchange, as well as a decrease of ¥1,208 million in our purchases of treasury stock also
contributed to this change. These contributing factors were partially offset by a decrease of
¥1,170 million in our proceeds from exercise of stock warrants and an increase of ¥299 million in
dividend payments.  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 origination 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 origination of loans, also
contributed to this change. These contributing factors were offset by an increase in proceeds from
exercises of warrants. 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 during the period beginning April 1, 2002 through
the date of this annual report on Form 20-F. -67-




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##### Table of Contents



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 and bank loans borrowed by our equity-method affiliates, 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:  
    
    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 are also liable as a guarantor for bank loans borrowed by Shinsei Business Finance, and
received guarantee fees equivalent to an annual interest rate of 1.5%. We maintain reserves for estimated guarantee losses in our other liabilities on our balance
sheet.  Chuo Mitsui Finance Service In return for a fee, we guarantee borrowings by customers of Chuo Mitsui Finance Service, an
affiliate in which we own a 30% interest, with respect to the following loan products:  
    
    Business Card loans. We guarantee 10% of loans outstanding by borrowers of Business
Card 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 Card loans are not required to have a guarantor or to provide
collateral. -68-




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##### Table of Contents




    
    Real Estate Finance. We guarantee 10% of loans outstanding by borrowers of Real
Estate Finance 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 30 days or more delinquent. We are also liable as a guarantor for bank loans borrowed by Chuo Mitsui Finance Service, and
received guarantee fees equivalent to an annual interest rate of 1.0%. We maintain reserves for estimated guarantee losses in our other liabilities on our balance
sheet.  Other Our consolidated subsidiary NIS Lease guarantees accounts receivable of certain borrowers for
a fee determined based on borrowers creditworthiness and contract duration. At March 31, 2004,
the fee rate was 3.0%. At March 31, 2005, the fee rate ranged from 0.5% to 5.0%, with an average
fee rate of 1.95%. We maintain reserves for estimated guarantee losses in our other liabilities on our balance
sheet. The following table shows information about our guaranteed borrowings, guaranteed accounts
receivable, guarantees for borrowing of other companies and reserves for guarantee losses as of
March 31, 2004 and 2005: As of March 31,2004
    
    2005(in millions)Guaranteed borrowings
    
    
    ¥3,616
    
    
    
    ¥7,343Guaranteed accounts receivable
    
    
    3
    
    
    
    358Guarantees for borrowings of other companies:Shinsei Business Finance
    
    
    1,200
    
    
    
    3,645Chuo Mitsui Finance Service
    
    
    
    
    
    
    150Reserves for guarantee losses
    
    
    108
    
    
    
    371
 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, 2004 and 2005: Year ended March 31,2003
    
    2004
    
    2005(in millions)Guarantee fees received from:Guaranteed borrowings and accounts receivable
    
    
    ¥ 93
    
    
    
    ¥ 362
    
    
    
    ¥ 845Guarantees
for borrowings of other companies
    
    
    
    
    
    
    6
    
    
    
    34Total guarantee fees received
    
    
    93
    
    
    
    368
    
    
    
    879Administrative and other expenses paid
    
    
    (67
    )
    
    
    (255
    )
    
    
    (562
    )Net guarantee fees received
    
    
    ¥ 26
    
    
    
    ¥ 113
    
    
    
    ¥ 317
 As a result of our guarantee commitments, we paid ¥3 million for the year ended March 31,
2003, ¥89 million for the year ended March 31, 2004 and ¥270 million for the year ended March 31,
2005. -69-




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##### Table of Contents



F.
    
    Tabular Disclosure of Contractual Obligations. The following table shows our contractual payment obligations under our agreements as of March
31, 2005: Payments Due by PeriodApril 1,
    
    
    April 1,
    
    
    April 1,2005 to
    
    
    2006 to
    
    
    2008 to
    
    AfterMarch 31,
    
    
    March 31,
    
    
    March 31,
    
    April 1,Contractual obligations
    
    Total
    
    
    2006
    
    
    2008
    
    
    2010
    
    2010(in millions)Long-term borrowings (1)
    
    ¥
    136,844
    
    
    ¥
    64,315
    
    
    ¥
    71,868
    
    
    
    ¥661
    
    
    
    ¥Capital (finance) lease obligations
    
    
    1,735
    
    
    
    613
    
    
    
    948
    
    
    
    174
    
    
    
    Operating lease obligations
    
    
    860
    
    
    
    689
    
    
    
    171
    
    
    
    
    
    
    
    Purchase commitments (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    ¥
    139,439
    
    
    ¥
    65,617
    
    
    ¥
    72,987
    
    
    
    ¥835
    
    
    
    ¥
 
 (1)
    
    Includes only principal payment obligations.(2)
    
    These are obligations pursuant to agreements to purchase goods or services that are
enforceable and legally binding on us and that specify all significant terms. 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: -70-




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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
    
    2005 (1)
    
    2005 (2)Directors:Hideo Sakioka
    
    Chairman and
Representative
Director
    
    May 14, 1928
    
    
    185,728,511
    (3)
    
    
    29.9
    %(3)Kunihiko Sakioka
    
    President,
Representative
Director and
Executive Officer
    
    January 10, 1962
    
    
    188,204,783
    (4)(5)
    
    
    30.3
    (4)(5)Hitoshi Higaki
    
    Senior Managing
Director and
Executive Officer
    
    December 14, 1959
    
    
    1,630,732
    (5)
    
    
    *Toshioki Otani
    
    Managing Director
and Executive
Officer
    
    December 22, 1970
    
    
    623,577
    
    
    
    *Akihiro Nojiri
    
    Managing Director
and Executive
Officer
    
    November 15, 1968
    
    
    127,680
    
    
    
    *Yunwei Chen
    
    Managing Director
and Executive
Officer
    
    January 16, 1969
    
    
    478,329
    (5)
    
    
    *Hiroshi Akuta
    
    Director and
Executive Officer
    
    January 3, 1962
    
    
    566,160
    (5)
    
    
    *Hidenobu Sasaki
    
    Director and
Executive Officer
    
    June 29, 1972
    
    
    243,244
    (5)
    
    
    *Keishi Ishigaki
    
    Director and
Executive Officer
    
    April 3, 1971
    
    
    418,790
    
    
    
    *Statutory Auditors:Yoshiki Kishimura
    
    Statutory Auditor
    
    August 25, 1944
    
    
    303,316
    
    
    
    *Akio Sakioka
    
    Statutory Auditor
    
    September 22, 1950
    
    
    6,110,908
    
    
    
    *Isao Narimatsu
    
    Statutory Auditor
    
    July 6, 1949
    
    
    96,000
    
    
    
    *Katsuhiko Asada
    
    Statutory Auditor
    
    February 10, 1955
    
    
    12,000
    (5)
    
    
    *
 
 (1)
    
    As adjusted for our May 2005 stock split.(2)
    
    Asterisks indicate beneficial ownership of less than 1%.(3)
    
    Comprised of 19,634,188 shares over which Hideo Sakioka has sole voting and dispositive
power; 83,925,504 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 82,168,819 shares held by Shuho Ltd., or Shuho,
over which Hideo Sakioka may be deemed to share voting or dispositive power with Kunihiko
Sakioka. Exclude shareholdings of other Sakioka family members. Members of the Sakioka
family, including the ones listed above, directly and indirectly held an aggregate of
255,796,442 shares, or 41.2% of our outstanding shares of common stock, as of March 31, 2005.(4)
    
    Comprised of 22,110,460 shares over which Kunihiko Sakioka has sole voting and dispositive
power; 83,925,504 shares held by Nissin Building, over which Kunihiko Sakioka may be deemed to
share beneficial ownership with Hideo Sakioka, Michimasa Sakioka and Midori Moriyama;
82,168,819 shares held by Shuho, over which Kunihiko Sakioka may be deemed to share voting or
dispositive power with Hideo Sakioka. Exclude shareholding of other Sakioka family members.
Members of the Sakioka family, including the ones listed above, directly and indirectly held
an aggregate of 255,796,442 shares, or 41.2% of our outstanding shares of common stock, as of
March 31, 2005.(5)
    
    During the period beginning April 1, 2005
through the date of this annual report on Form 20-F, the number
of shares beneficially owned by the following directors and statutory
auditors has increased due to exercises of stock options or purchases
in the open market:Kunihiko Sakioka increased by 288,000 shares,
Hitoshi Higaki increased by 286,000 shares, Yunwei Chen increased by
210,000 shares, Hiroshi Akuta increased
by 192,000 shares, Hidenobu Sasaki increased by 192,000 shares and Katsuhiko Asada
increased by 24,000 shares. As of March 31, 2005, our directors and statutory auditors, as a group, owned
218,449,707 shares of common stock, if the shares of Nissin Buildings and Shuho are included,
representing 35.2% 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. -71-




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##### Table of Contents



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. No director or member of senior management was selected
pursuant to any arrangement or understanding with major shareholders, customers, suppliers or
others. Except as described below with respect to Hideo Sakioka, Kunihiko Sakioka and Akio Sakioka,
none of our directors are related to one another. The following table provides detailed information about our directors and statutory auditors. PositionName
    
    (Executive Officer(Date of Birth)
    
    Position)
    
    Business CareerHideo
Sakioka (1)(2)
    
    Chairman and
Representative
    
    Aug. 1953
    
    Started money lending business(May 14, 1928)
    
    Director
    
    May 1960
    
    Founded Nissin Shoji Co., Ltd. (currently NISSIN),
President and Representative DirectorJan. 1980
    
    Founded Nissin Building Co., Ltd.,
President and Representative DirectorMar. 1989
    
    Representative Director of Shuho Ltd.Jun. 2000
    
    Chairman and Representative Director (current position)May 2001
    
    President and Representative Director of Nissin
Building Co., Ltd. (current position)Jan. 2004
    
    Director of Nissin Servicer Co., Ltd. (current position)Kunihiko Sakioka (1)
    
    President,
Representative
    
    Apr. 1986
    
    Joined NISSIN(Jan. 10, 1962)
    
    Director and
Executive Officer
    
    Sep. 1988
    
    Manager of Hiroshima BranchMar. 1989
    
    DirectorDec. 1989
    
    Director, General Manager of Finance DepartmentFeb. 1991
    
    Managing Director, Advice to Finance and System
InformationDec. 1992
    
    Senior Managing Director, General Manager of Sales &
Marketing Control DivisionOct. 1996
    
    Representative Senior Managing Director, General
Manager of Tokyo Branch Office, Advice to Sales &
Marketing Control DivisionApr. 1998
    
    Representative Senior Managing Director, General
Manager of Sales & Marketing Control DivisionJun. 2000
    
    President and Representative Director, General Manager
of Sales & Marketing Control DivisionMar. 2004
    
    Representative Director of Shuho Ltd. (current position)Feb. 2005
    
    Concurrently General Manager of Sales DepartmentJul. 2005
    
    President, Representative Director and Executive
Officer (current position)
 -72-




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##### Table of Contents



PositionName
    
    (Executive Officer(Date of Birth)
    
    Position)
    
    Business CareerHitoshi Higaki
    
    Senior Managing
Director and
    
    Nov. 1983
    
    Joined NISSIN(Dec. 14, 1959)
    
    Executive Officer
(General Manager of
Inter-
    
    Mar. 1994
    
    General Manager of Accounting Department and General
Manager of Finance DepartmentCompany
Department)
    
    Jun. 1994
    
    Director, General Manager of General Affairs DepartmentMay 1995
    
    Director, General Manager of Corporate Planning
Department and General Manager of Accounting DepartmentJun. 1996
    
    Director, General Manager of Corporate Planning
Department, Advice to Accounting DepartmentJun. 2000
    
    Managing Director, General Manager of Corporate
Planning DepartmentApr. 2003
    
    Managing Director, General Manager of Operations
Control DivisionJul. 2004
    
    Concurrently General Manager of Corporate Planning
DepartmentAug. 2004
    
    Statutory Auditor of Venture Link Co., Ltd. (current
position)Jul. 2005
    
    Senior Managing Director and Executive Officer,General Manager of Inter-Company Department (current
position)Toshioki Otani
    
    Managing Director
and Executive
    
    Apr. 1994
    
    Joined NISSIN(Dec. 22, 1970)
    
    Officer
    
    Sep. 1995
    
    Manager of Kumamoto Branch(General Manager of
Sales &
    
    Jul. 2000
    
    General Manager of Finance DepartmentMarketing
Control Division
and Sales
Department)
    
    Jan. 2001
    
    General Manager of Finance Department and Business
Development DepartmentApr. 2002
    
    General Manager of Eastern Japan Sales DepartmentJun. 2002
    
    DirectorApr. 2003
    
    Director, General Manager of Business Development
DepartmentNov. 2003
    
    President and Representative Director of NIS Lease Co.,
Ltd. (current position)Jul. 2004
    
    Director, Deputy General Manager of Sales & Marketing
Control Division and General Manager of Business
Development DepartmentJul. 2005
    
    Managing Director and Executive Officer,General Manager of Sales & Marketing Control Division
and Sales Department (current position)Akihiro Nojiri
    
    Managing Director
and Executive
    
    Apr. 1991
    
    Joined Ministry of Finance(Nov. 15, 1968)
    
    Officer
    
    Aug. 2003
    
    Joined NISSIN(General Manager of
Operations
    
    Aug. 2003
    
    General Manager, Assistant to PresidentControl
Division and
Finance
    
    Jun. 2004
    
    DirectorDepartment)
    
    Jul. 2004
    
    Director, General Manager of Finance DepartmentJul. 2005
    
    Managing Director and Executive Officer,General Manager of Operations Control Division and
Finance Department (current position)Yunwei Chen
    
    Managing Director
and Executive
    
    Apr. 1998
    
    Joined NISSIN(Jan. 16, 1969)
    
    Officer
    
    Apr. 2001
    
    Manager of Corporate Planning Department 2nd Section(General Manager of
Investor
    
    Sep. 2002
    
    Assistant General Manager of Corporate Planning
DepartmentRelations
Department,
Officer-in-
    
    Apr. 2003
    
    General Manager of Investor Relations Department
(current position)Charge
of East Asia
Region)
    
    Jun. 2003
    
    DirectorJul. 2004
    
    Chairman of Matsuyama Nissin Investment & Consulting
(Shanghai) Co., Ltd. (current position)Jul. 2005
    
    Managing Director and Executive Officer,General Manager of Investor Relations Department,
Officer-in-Charge of East Asia Region (current
position)
 -73-




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##### Table of Contents



PositionName
    
    (Executive Officer(Date of Birth)
    
    Position)
    
    Business CareerHiroshi Akuta
    
    Director and
Executive Officer
    
    Oct. 1992
    
    Joined NISSIN(Jan. 3, 1962)
    
    (General Manager of
Credit
    
    Oct. 1995
    
    Manager of Fukuoka BranchScreening
Department,
Officer-
    
    Jun. 1996
    
    Director, General Manager of Business Audit Departmentin-Charge
of Eastern Japan
    
    Oct. 1996
    
    Director, General Manager of Customer Service DepartmentInvestigation
Department and
    
    Apr. 1998
    
    Director, General Manager of Western Japan Sales
DepartmentWestern Japan
Investigation
    
    Apr. 2001
    
    Director, General Manager of Investigation DepartmentDepartment)
    
    Apr. 2002
    
    Director, General Manager and Advice to Corporate
Planning DepartmentApr. 2003
    
    Director, General Manager of Credit Screening DepartmentJul. 2003
    
    Concurrently in charge of Eastern Japan Investigation
Department and Western Japan Investigation DepartmentJul. 2005
    
    Director and Executive Officer,
General Manager of Credit Screening Department,
Officer-in-Charge of Eastern Japan Investigation
Department and Western Japan Investigation Department
(current position)Hidenobu Sasaki
    
    Director and
Executive Officer
    
    Apr. 1993
    
    Joined NISSIN(Jun. 29, 1972)
    
    (Deputy General
Manager of
    
    Feb. 1996
    
    Manager of Mito BranchSales &
Marketing Control
    
    Apr. 2001
    
    General Manager of Sales DepartmentDivision and
General Manager of
    
    Apr. 2002
    
    General Manager of Finance DepartmentTie-up Loan
Department and
    
    Jun. 2002
    
    DirectorOsaka Branch
Office)
    
    Apr. 2003
    
    Director, General Manager of Western Japan Sales
Department and Osaka Branch OfficeJul. 2003
    
    Director, General Manager of Osaka Branch Office and
Deputy General Manager of Sales & Marketing Control
DivisionAug. 2004
    
    Concurrently General Manager of Sales DepartmentFeb. 2005
    
    Director, General Manager of Osaka Branch Office and
Deputy General Manager of Sales & Marketing Control
Division and General Manager of Tie-up Loan DepartmentJul. 2005
    
    Director and Executive Officer,
Deputy General Manager of Sales & Marketing Control
Division and General Manager of Tie-up Loan Department
and Osaka Branch Office (current position)Keishi Ishigaki
    
    Director and
Executive Officer
    
    Apr. 1995
    
    Joined NISSIN(Apr. 3, 1971)
    
    (General Manager,
Advice to
    
    Apr. 1996
    
    Manager of Koriyama BranchSales &
Marketing Control
    
    Apr. 2001
    
    General Manager of Finance DepartmentDivision)
    
    Apr. 2002
    
    General Manager of Western Japan Sales Department and
General Manager of Osaka Branch OfficeJun. 2002
    
    DirectorApr. 2003
    
    Director, General Manager of Finance DepartmentJul. 2004
    
    Director, General Manager and Advice to Sales &
Marketing Control DivisionAug. 2004
    
    Director of Venture Link Co., Ltd. (current position)Jul. 2005
    
    Director and Executive Officer,
General Manager and Advice to Sales & Marketing Control
Division (current position)Yoshiki Kishimura
    
    Statutory Auditor
    
    May 1980
    
    Joined Sanyo Shinpan Finance Co., Ltd.(Aug. 25, 1944)
    
    (Standing)
    
    Feb. 2001
    
    Joined NISSINFeb. 2001
    
    Corporate Adviser of Finance DepartmentJun. 2003
    
    Statutory Auditor (current position)Aug. 2004
    
    Statutory Auditor of Venture Link Co., Ltd. (current
position)
 -74-




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PositionName
    
    (Executive Officer(Date of Birth)
    
    Position)
    
    Business CareerAkio Sakioka (2)
    
    Statutory Auditor
    
    Mar. 1971
    
    Joined NISSIN(Sep. 22, 1950)
    
    (Standing)
    
    Jan. 1976
    
    Manager of Takamatsu BranchApr. 1984
    
    DirectorJul. 1994
    
    Managing Director, General Manager of Tokyo OfficeOct. 1996
    
    Managing Director, General Manager of Finance DepartmentOct. 2000
    
    Managing Director, Advice to Business Audit DepartmentJun. 2002
    
    Retired from Board of DirectorsJun. 2002
    
    Statutory Auditor (current position)Isao Narimatsu (3)
    
    Statutory Auditor
    
    Apr. 1979
    
    Joined Miyata Certified Public Tax Accountant Office(Jul. 6, 1949)
    
    
    
    Jul. 1981
    
    Opened Isao Narimatsu Certified Public Tax Accountant
OfficeJun. 2001
    
    Statutory Auditor (current position)Katsuhiko Asada (3)
    
    Statutory Auditor
    
    Oct. 1979
    
    Joined Arthur Andersen Tokyo Office (now KPMG AZSA &
Co.)(Feb. 10, 1955)
    
    
    
    Sep. 1985
    
    Opened Katsuhiko Asada Certified Public Accountant FirmDec. 2001
    
    Opened Konishi Asada Certified Public Accountant FirmJun. 2004
    
    Statutory Auditor (current position)
 
 (1)
    
    Kunihiko Sakioka is the second son of Hideo Sakioka.(2)
    
    Akio Sakioka is the nephew of Hideo Sakioka.(3)
    
    Outside statutory auditors pursuant to the Law for Special Exceptions to the Commercial Code
Concerning Audit, etc. of Joint Stock Corporations. B. Compensation. The aggregate compensation to our directors and statutory auditors as a group for the year
ended March 31, 2005 was ¥448 million, which included ¥279 million for their services as directors
and statutory auditors, ¥85 million as compensation to the directors as our employees and ¥84
million in bonuses. Previously, in accordance with customary Japanese business practices, a retiring director or
statutory auditor would receive a lump-sum retirement payment, which amount was reserved, subject
to the approval of the general meeting of shareholders. However, 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. During the year ended March 31, 2005, we made retirement payments in
the aggregate amount of ¥4 million, which consists of ¥3 million to a retiring director and ¥1
million to a retiring statutory auditor. As of March 31, 2005, the balance of our retirement
liability for our directors and statutory auditors was ¥330 million. During the year ended March 31, 2005, we issued stock options exercisable for a total of
1,344,000 shares to directors and statutory auditors in connection with our July 2004 stock option
plan. During the same year, our directors and statutory auditors exercised, as a group, stock
options for a total of 480,000 shares at a total price of ¥71 million. For a description of our
stock option plans, see Item 6.E of this annual report on Form 20-F. -75-




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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 2005
    
    June 2006Kunihiko Sakioka
    
    March 1989
    
    June 2005
    
    June 2006Hitoshi Higaki
    
    June 1994
    
    June 2005
    
    June 2006Toshioki Otani
    
    June 2002
    
    June 2005
    
    June 2006Akihiro Nojiri
    
    June 2004
    
    June 2005
    
    June 2006Yunwei Chen
    
    June 2003
    
    June 2005
    
    June 2006Hiroshi Akuta
    
    June 1996
    
    June 2005
    
    June 2006Hidenobu Sasaki
    
    June 2002
    
    June 2005
    
    June 2006Keishi Ishigaki
    
    June 2002
    
    June 2005
    
    June 2006Statutory Auditors:Yoshiki Kishimura
    
    June 2003
    
    June 2003
    
    June 2007Akio Sakioka
    
    June 2002
    
    June 2005
    
    June 2009Isao 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 for large companies, including us.
Effective as of May 1, 2005, statutory auditors, of whom at least 50% 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,
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. -76-




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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 Public Accountants and a
PCAOB registered public accounting firm, 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. Pursuant to the amendment to the Law Related to
Special Exceptions to the Commercial
Code Concerning Audits, etc. of
Joint Stock Corporations which came
into effect as of May 1, 2005, large
Japanese companies, including us,
are required to have at least 50% of
our statutory auditors to be outside
statutory auditors who must meet
independence requirements under
Japans company law. Also, since the same
date, the independence requirement
with respect to outside statutory
auditor has been enhanced, and he or
she must have not served as a
director, manager or any other
employee of the company or any of
its subsidiaries. Currently, we
have two outside statutory auditors.
 -77-




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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 our
independent public 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. The term of each
statutory auditor is four years. In
contrast, the term of each director
of us is one year.Starting from 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 Item 16D to our annual reports on
Form 20-F for the fiscal year ending
March 31, 2006 and thereafter.
 -78-




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Corporate Governance Practices Followed
    
    Corporate Governance Practices Followedby NYSE-listed U.S. Companies
    
    by UsA 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.Statutory auditors are also elected
at a meeting of shareholders. In
the case of large companies,
including us, a proposal to a
meeting of shareholders 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 of a large company 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 and
resignation 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 respectively
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 if the options are
to be issued with specifically favorable conditions, such as when
options are to be issued for free.
 -79-




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Corporate Governance Practices Followed
    
    Corporate Governance Practices Followedby NYSE-listed U.S. Companies
    
    by UsA 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, our internal audit
function is maintained by the
Internal Audit Department. The
Internal Audit Department is
different from the board of
statutory auditors, and reports
directly to our president.
 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 31,2003
    
    2004
    
    2005Full-time:Integrated financial services (1)
    
    
    818
    
    
    
    811
    
    
    
    759Loan servicing
    
    
    14
    
    
    
    40
    
    
    
    59832
    
    
    
    851
    
    
    
    818Part-time (2)
    
    
    78
    
    
    
    87
    
    
    
    89Temporary (3)
    
    
    255
    
    
    
    181
    
    
    
    181Total
    
    
    1,165
    
    
    
    1,119
    
    
    
    1,088
 
 (1)
    
    Includes the number of full-time employees engaged in other businesses, which was 5 at March
31, 2003, 2 at March 31, 2004 and 33 at March 31, 2005.(2)
    
    The average number of part-time employees was 82 for the year ended March 31, 2003, 94 for
the year ended March 31, 2004 and 85 for the year ended March 31, 2005.(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. -80-




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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 employees a specified number of shares:  
    
    July 2005 Stock Option Plan. We granted stock options exercisable for a total of
3,600,000 shares at a purchase price per share of ¥231 to 251 of our directors and
employees and those of our subsidiaries and affiliates on July 15, 2005. These are
exercisable until July 31, 2008.
    
    April 2005 Stock Option Plan. We granted stock options exercisable for a total of
1,785,600 shares at a purchase price per share of ¥268 to 120 of our employees and
those of our subsidiaries and affiliates on April 21, 2005. These are exercisable
until April 30, 2008.
    
    January 2005 Stock Option Plan. We granted stock options exercisable for a total of
192,000 shares at a purchase price per share of ¥217 to 9 of our employees on January
20, 2005. These are exercisable until January 31, 2008.
    
    July 2004 Stock Option Plan. We granted stock options exercisable for a total of
15,984,000 shares at a purchase price per share of ¥209 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
6,480,000 shares at a purchase price per share of ¥111 to 183 of our directors and
employees and those of our subsidiaries and affiliates on July 16, 2003. These are
exercisable until July 31, 2006.
    
    September 2002 Stock Option Plan. We granted stock options exercisable for a total
of 14,352,000 shares at a purchase price per share of ¥105.00 to 1,086 of our directors
and employees and those of our subsidiaries and affiliates on September 10, 2002.
These are exercisable until September 30, 2005. In addition, the resolution adopted at our annual shareholders meeting on June 22, 2005
allowed us to issue stock options for a maximum total of 5,000,000 shares to our directors and
employees or those of our subsidiaries and affiliates during the period through the next annual
shareholders meeting. Subsequent to the annual shareholders meeting, as we have issued the
abovementioned July 2005 Stock Option Plan, we are allowed to issue stock options for an additional
1,400,000 shares to our directors and employees or those of our subsidiaries and affiliates during
the period through the next annual shareholders meeting. -81-




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The following table shows the stock options that our directors and statutory auditors owned as
of March 31, 2005: Number of sharesissuable upon exerciseof stock options as ofName
    
    Position
    
    March 31, 2005Directors:Hideo Sakioka
    
    Chairman and Representative Director
    
    
    Kunihiko Sakioka
    
    President, Representative Director and Executive Officer
    
    
    288,000
    (1)Hitoshi Higaki
    
    Senior Managing Director and Executive Officer
    
    
    96,000
    (1)Toshioki Otani
    
    Managing Director and Executive Officer
    
    
    288,000Akihiro Nojiri
    
    Managing Director and Executive Officer
    
    
    96,000Yunwei Chen
    
    Managing Director and Executive Officer
    
    
    220,800Hiroshi Akuta
    
    Director and Executive Officer
    
    
    288,000
    (1)Hidenobu Sasaki
    
    Director and Executive Officer
    
    
    288,000
    (1)Keishi Ishigaki
    
    Director and Executive Officer
    
    
    288,000Statutory Auditors:Yoshiki Kishimura
    
    Statutory Auditor
    
    
    288,000Akio Sakioka
    
    Statutory Auditor
    
    
    Isao Narimatsu
    
    Statutory Auditor
    
    
    96,000Katsuhiko Asada
    
    Statutory Auditor
    
    
    96,000
    (1)2,332,800
 
 (1)
    
    During the period beginning April 1, 2005
through the date of this annual report on Form 20-F, stock
options exercised by directors and statutory auditors were as follows:Kunihiko Sakioka exercised stock options subject
to 288,000 shares, Hitoshi Higaki exercised stock options subject
to 96,000 shares, Hiroshi Akuta exercised stock options subject
to 192,000 shares, Hidenobu Sasaki exercised stock options
subject to 192,000 shares and Katsuhiko Asada exercised stock
options subject to 24,000 shares.(2)
    
    In connection with the July 2005 Stock Option Plan, the number of shares issuable upon
exercise of stock options by above-mentioned directors and statutory auditors increased by a
total of 520,000 shares, which comprised of an increase of 40,000 shares for each directors
and statutory auditors. 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, 2005, the association owned 6,977,203 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, 2005. 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: -82-




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Number of Shares of
    
    Percentage ofCommon Stock Owned
    
    Common StockShareholders
    

as of March 31, 2005
    
    OutstandingKunihiko
Sakioka (1)(2)(6)
    
    
    188,204,783
    
    
    
    30.3
    %Hideo Sakioka (2)(3)
    
    
    185,728,511
    
    
    
    29.9Midori Moriyama (2)(4)
    
    
    93,869,030
    
    
    
    15.1Michimasa Sakioka (2)(5)
    
    
    92,989,209
    
    
    
    15.0The Master Trust Bank of Japan, Ltd.
    
    
    41,773,800
    
    
    
    6.7Japan Trustee Services Bank, Ltd.
    
    
    37,019,520
    
    
    
    6.0
 
 (1)
    
    Comprised of 22,110,460 shares over which Kunihiko Sakioka has sole voting and dispositive
power; 83,925,504 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 82,168,819 shares held by Shuho, over which Kunihiko Sakioka may be deemed to
share voting and dispositive power with Hideo Sakioka.(2)
    
    Exclude shareholding of other Sakioka family members. Members of the Sakioka family,
including the ones listed above, directly and indirectly held an aggregate of 255,796,442
shares, or 41.2% of our outstanding shares of common stock, as of March 31, 2005.(3)
    
    Comprised of 19,634,188 shares over which Hideo Sakioka has sole voting and dispositive
power; 83,925,504 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 82,168,819 shares held by Shuho, over which Hideo Sakioka may be deemed to share
voting and dispositive power with Kunihiko Sakioka.(4)
    
    Comprised of 9,943,526 shares over which Midori Moriyama has sole voting and dispositive
power; and 83,925,504 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)
    
    Comprised of 9,063,705 shares over which Michimasa Sakioka has sole voting and dispositive
power; and 83,925,504 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.(6)
    
    The number of shares beneficially owned by
Kunihiko Sakioka increased by 288,000 shares in July 2005
following exercises of stock options. According to our register of shareholders, as of March 31, 2005, 31 shareholders of
record with addresses in the United States held 5.74% 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.
There were no major changes in our major shareholders between March 31, 2003 and March 31, 2005. B. Related Party Transactions. Except as described below, during the period beginning April 1, 2002 through the date of this
annual report on Form 20-F, there has been no material transaction with or loan between us or any
of our subsidiary and:  
    
    any enterprise that directly or indirectly controls, is controlled
by, or is in common control with us or any of our subsidiary; -83-




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
    
    any director, officer, statutory auditor or family member of any
of the preceding or any enterprise over which such person directly
or indirectly is able to exercise significant influence;
    
    any individual shareholder directly or indirectly having
significant influence over us or any of our subsidiary or a family
member of such individual or any enterprise over which such person
directly or indirectly is able to exercise significant influence,
or their respective family members or enterprises over which they
exercise significant influence, or
    
    any unconsolidated enterprise in which we have a significant
influence or which has a significant influence over us. 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, 2005, members of the Sakioka family owned 100% of Shuho. We received
insurance agency services from this entity prior to the year ended March 31, 2005. We also lease
office space to this entity. The following table shows transactions with this entity for the years
ended March 31, 2003, 2004 and 2005. Year ended March 31,2003
    
    2004
    
    2005(in millions)Insurance paid
    
    
    ¥45
    
    
    
    ¥1
    
    
    
    ¥Rent income received
    
    
    1
    
    
    
    1
    
    
    
    1
 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, and do not intend to engage in any insurance transaction with
Shuho in the future.  Transactions with Nissin Building As of March 31, 2005, members of the Sakioka family owned 93.3% of Nissin Building. We lease
office space and parking lots to this entity. The following table shows transactions with this
entity for the years ended March 31, 2003, 2004 and 2005. Year ended March 31,2003
    
    2004
    
    2005(in millions)Rent income received
    
    
    ¥4
    
    
    
    ¥2
    
    
    
    ¥2
 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. -84-




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Transactions with Michimasa Sakioka Michimasa Sakioka is our major shareholder, as discussed in Item 7A, and the elder brother of
Kunihiko Sakioka, our president, representative director and executive officer. 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. Transactions with Any of Our Principal Shareholders or Affiliates  Transactions with Ascot We paid commissions on customer referrals of ¥33 million and ¥35 million to Ascot during the
year ended March 31, 2003 and 2004, respectively. We formerly held 25% of Ascot, previously an
affiliate. 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, 2005, we owned 25% of Shinsei Business Finance. The following table shows
transactions with this entity for the years ended March 31, 2003, 2004 and 2005. Year ended March 31,2003
    
    2004
    
    2005(in millions)Commissions on customers referral paid
    
    ¥
    1
    
    
    ¥
    11
    
    
    ¥
    32Agency commissions received
    
    
    
    
    
    
    16
    
    
    
    13Loan guarantee fees received
    
    
    4
    
    
    
    90
    
    
    
    316Bank loan guarantee fees received
    
    
    
    
    
    
    6
    
    
    
    34
 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, 2005, we owned 38% of Webcashing.com. The following table shows transactions
with this entity for the years ended March 31, 2003, 2004 and 2005. -85-




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##### Table of Contents



Year ended March 31,2003
    
    2004
    
    2005(in millions)Commissions on customers referral paid
    
    ¥
    379
    
    
    ¥
    291
    
    
    ¥
    205Advertising expenses and other fees paid
    
    
    45
    
    
    
    10
    
    
    
    175Proceeds from sale of equipment and software
    
    
    
    
    
    
    22
    
    
    
    
 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 Chuo Mitsui Finance Service As of March 31, 2005, we owned 30% of Chuo Mitsui Finance Service. During the year ended
March 31, 2005, we paid commissions on customer referrals of ¥6 thousand, and received loan
guarantee fees of ¥6 thousand and bank loan guarantee fees of ¥29 thousand from Chuo Mitsui Finance
Service. 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 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. -86-




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##### Table of Contents



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 3-for-1 stock split that took effect on May 21, 2001, the 2-for-1 stock split that
took effect on May 21, 2002, the 2-for-1 stock split that took effect on May 20, 2003, the 2-for-1
stock split that took effect on May 20, 2004, the 2-for-1 stock split that took effect on November
19, 2004, and the 1.2-for-1 stock split that took effect on May 20, 2005: Dividends per
    
    Dividends pershare
    
    shareRecord Date
    
    (Actual)
    
    (As adjusted)September 30, 2000 (interim)
    
    ¥
    35.00
    
    
    ¥
    0.61March 31, 2001
    
    
    35.00
    
    
    
    0.61September 30, 2001 (interim)
    
    
    12.50
    
    
    
    0.65March 31, 2002
    
    
    12.50
    
    
    
    0.65September 30, 2002 (interim)
    
    
    6.50
    
    
    
    0.68March 31, 2003
    
    
    8.50
    
    
    
    0.89September 30, 2003 (interim)
    
    
    3.75
    
    
    
    0.78March 31, 2004
    
    
    4.75
    
    
    
    0.99September 30, 2004 (interim)
    
    
    1.375
    (1)
    
    
    1.15March 31, 2005
    
    
    2.50
    
    
    
    2.08
 
 (1)
    
    Adjusted to reflect the 2-for-1 stock split that took effect on November 19, 2004. The actual
interim dividend payment per share was ¥2.75. 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. Starting from the year ended March 31,
2005, in order to reflect consolidated results as an indicator for our business performance, we
changed our dividend policy and planned to maintain a dividend payout ratio of 30% on the
consolidated net income basis. 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. -87-




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##### Table of Contents



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: Number of
    
    Aggregate
    
    
    
    
    
    
    
    
    
    Number of
    
    Net aggregaterepurchased
    
    repurchase
    
    Number of
    
    Aggregate
    
    repurchased
    
    purchaseYear ended/ending March 31,
    
    shares
    
    price
    
    shares sold
    
    sale price
    
    shares, net
    
    price(in million)
    
    
    
    
    
    (in million)
    
    
    
    
    
    (in million)2002
    
    
    3,852,326
    
    
    ¥
    347
    
    
    
    
    
    
    ¥
    
    
    
    
    3,852,326
    
    
    ¥
    3472003
    
    
    25,927,545
    
    
    
    2,493
    
    
    
    192,000
    
    
    
    20
    
    
    
    25,735,545
    
    
    
    2,4732004
    
    
    14,417,803
    
    
    
    1,209
    
    
    
    3,216,960
    
    
    
    338
    
    
    
    11,200,843
    
    
    
    8712005
    
    
    7,024
    
    
    
    1
    
    
    
    7,572,960
    
    
    
    909
    
    
    
    (7,565,936
    )
    
    
    (908
    )2006 (through June 30, 2005)
    
    
    4,308
    
    
    
    1
    
    
    
    999,840
    
    
    
    145
    
    
    
    (995,532
    )
    
    
    (144
    )
 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 since March 31, 2005, 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 trading prices and the average daily
trading volume of our common stock on the Tokyo Stock Exchange as adjusted to reflect the 3-for-1
stock split that took effect on May 21, 2001, the 2-for-1 stock split that took effect on May 21,
2002, the 2-for-1 stock split that took effect on May 20, 2003, the 2-for-1 stock split that took
effect on May 20, 2004, the 2-for-1 stock split that took effect on November 19, 2004, and the
1.2-for-1 stock split that took effect on May 20, 2005: Average DailyPrice Per Share
    
    Trading VolumeYear ended/ending March 31,
    
    High
    
    Low
    
    (in shares)2001
    
    ¥
    113
    
    
    ¥
    53
    
    
    
    767,1942002
    
    
    151
    
    
    
    74
    
    
    
    1,263,4992003
    
    
    119
    
    
    
    75
    
    
    
    1,209,6912004
    
    
    193
    
    
    
    79
    
    
    
    1,673,040First Quarter
    
    
    114
    
    
    
    94
    
    
    
    763,742Second Quarter
    
    
    109
    
    
    
    79
    
    
    
    2,129,693Third Quarter
    
    
    102
    
    
    
    84
    
    
    
    1,109,798Fourth Quarter
    
    
    193
    
    
    
    95
    
    
    
    2,703,7732005
    
    
    274
    
    
    
    137
    
    
    
    2,372,350First Quarter
    
    
    187
    
    
    
    137
    
    
    
    2,665,019Second Quarter
    
    
    212
    
    
    
    181
    
    
    
    2,375,261Third Quarter
    
    
    216
    
    
    
    175
    
    
    
    1,831,521Fourth Quarter
    
    
    274
    
    
    
    205
    
    
    
    2,621,5892006
    
    
    254
    
    
    
    200
    
    
    
    2,134,834First Quarter
    
    
    254
    
    
    
    200
    
    
    
    2,134,834
 -88-




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Average DailyPrice Per Share
    
    Trading VolumeCalendar month
    
    High
    
    Low
    
    (in shares)January 2005
    
    ¥
    226
    
    
    ¥
    206
    
    
    
    2,403,733February 2005
    
    
    228
    
    
    
    205
    
    
    
    2,264,356March 2005
    
    
    274
    
    
    
    213
    
    
    
    3,118,256April 2005
    
    
    254
    
    
    
    212
    
    
    
    2,272,675May 2005
    
    
    241
    
    
    
    200
    
    
    
    1,699,579June 2005
    
    
    218
    
    
    
    200
    
    
    
    2,385,427
 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 29, 2005, the closing price of our shares on the Tokyo
Stock Exchange was ¥238 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: New York Stock
    
    Average DailyExchange price per ADS
    
    Trading Volume ofYear ended/ending March 31,
    
    High
    
    Low
    
    ADSs2003(since August 2, 2002)
    
    $
    1.51
    
    
    $
    1.25
    
    
    
    17,6112004
    
    
    3.81
    
    
    
    1.33
    
    
    
    7,752First Quarter
    
    
    1.89
    
    
    
    1.63
    
    
    
    5,474Second Quarter
    
    
    1.79
    
    
    
    1.33
    
    
    
    4,310Third Quarter
    
    
    1.88
    
    
    
    1.55
    
    
    
    4,123Fourth Quarter
    
    
    3.81
    
    
    
    1.77
    
    
    
    17,3642005
    
    
    3.46
    
    
    
    2.42
    
    
    
    5,786First Quarter
    
    
    3.46
    
    
    
    2.42
    
    
    
    10,630Second Quarter
    
    
    3.85
    
    
    
    3.31
    
    
    
    3,600Third Quarter
    
    
    4.33
    
    
    
    3.27
    
    
    
    4,438Fourth Quarter
    
    
    5.03
    
    
    
    3.88
    
    
    
    6,4592006
    
    
    4.59
    
    
    
    3.61
    
    
    
    3,194First Quarter
    
    
    4.59
    
    
    
    3.61
    
    
    
    3,194
 -89-




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New York Stock Exchange
    
    Average Dailyprice per ADS
    
    Trading VolumeCalendar Month
    
    High
    
    Low
    
    of ADSsJanuary 2005
    
    $
    4.50
    
    
    $
    4.02
    
    
    
    6,420February 2005
    
    
    4.50
    
    
    
    3.88
    
    
    
    4,598March 2005
    
    
    5.03
    
    
    
    4.08
    
    
    
    8,103April 2005
    
    
    4.59
    
    
    
    3.89
    
    
    
    2,114May 2005
    
    
    4.55
    
    
    
    3.63
    
    
    
    4,476June 2005
    
    
    4.05
    
    
    
    3.61
    
    
    
    3,000
 The table above has been adjusted to reflect the 2-for-1 stock split that took effect on
May 20, 2004, the 2-for-1 stock split that took effect on November 19, 2004, and the 1.2-for-1
stock split that took effect on May 20, 2005. 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. F. Expenses of the Issue. Not applicable. 
 Item 10.   Additional Information. A. Share Capital. Not required. -90-




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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 brokerage of real estate;
    
    Sale and purchase of securities;
    
    Non-life insurance agency business, and activities relating to the offering of life
insurance policies and insurance agency business pursuant to the Automobile Liability
Indemnity Law of Japan;
    
    Investment and management 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;
    
    Management and lease of sport facilities;
    
    Corporate accounting and labor management surrogate business;
    
    Internet service provider business;
    
    Internet-related advertising and general publicity business;
    
    Intermediation of money loans by utilizing the Internet;
    
    Business concerning acceptance of planning, development and production of software
relating to the Internet, and related consulting services;
    
    Business relating to general bridal services;
    
    Business of planning, managing and coordinating various kind of events; -91-




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##### Table of Contents




    
    Business relating to the provision of various kind of culture classes and classes
for acquiring various kind 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 such 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 The Commercial Code allows a change in the number of authorized shares in correspond to the
ratio of a stock split upon approval by the Board of Directors. Pursuant to the Code, on November
19, 2004, in accordance with a partial amendment of our articles of incorporation upon approval by
the Board of Directors on August 17, 2004, the number of authorized shares was increased from 960
million shares to 1,920 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 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. -92-




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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;
    
    the payments for new shares reported in the
shareholders equity; and
    
    the excess, if any, of the aggregate market value of assets, if stated on book 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;
    
    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;
and
    
    other items as provided under the Commercial Code and the relevant ordinances. We may not pay any interim dividends where the amount of our net assets is not likely 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. 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. -93-




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Repurchase of Our Shares Following the amendments to the Commercial Code effective as of September 1, 2003, pursuant to
an amendment to our articles of incorporation at an ordinary general shareholders meeting held on
June 22, 2004, we may, upon approval by the Board of Directors, flexibly acquire shares of treasury
stock during a fiscal year and may determine the amount and timing of the purchase of our shares
without having pre-approval at a shareholders meeting of the total number of shares or aggregate
price of shares to be acquired. In such case, however, the acquisition method is limited to market
trading or take over bids (TOB). However, under the law, any acquisition of shares pursuant to articles of incorporation must
satisfy the requirement that the total purchase price not exceed the aggregate of the retained
earnings available for interim dividend payment. Further, share repurchases are not permitted if there is a likelihood of a deficit at the end
of the fiscal year, and in the event such purchases cause a deficit, the Board of Directors shall
be liable to provide compensation. In addition, subsequent to the acquisition of these shares, the company is required to report
on the results of the acquisition at the next ordinary general shareholders meeting and also to
provide certain disclosure pursuant to the Securities and Exchange Law and the relevant Stock
Exchange regulations. 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. -94-




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##### Table of Contents



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. -95-




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##### Table of Contents



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 sixty
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 sixty day waiting period, when a wait of
sixty 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 an
amendment of the articles of incorporation by a special resolution at
the 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. -96-




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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. -97-




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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 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. 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 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 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 via the Bank of Japan within 15 days from and including the date
of acquisition. In exceptional cases, a prior notification is required in respect of the
acquisition. 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. -98-




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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 Chuo Mitsui Trust and Banking Co., Ltd. replace The Mitsubishi Trust and Banking
Corporation as the transfer agent for our shares from June 23, 2005. Its office is located at
33-1, Shiba 3-chome, Minato-ku, Tokyo 168-0063, Japan. The Chuo Mitsui Trust and Banking Co., Ltd.
maintains our register of shareholders and records transfers of record ownership upon presentation
of share certificates. 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. -99-




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C. Material Contracts. We are not a party to any material contract, other than contracts entered into in the ordinary
course of business, entered into during the period beginning April 1, 2003 through the date of this
annual report on Form 20-F. 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. 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. -100-




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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. 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). -101-




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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 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. -102-




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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. 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. -103-




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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 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, 2007 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. -104-




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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 do not have a permanent establishment in Japan and the
shares with respect to which such dividends are paid are not related in-fact to such permanent
establishment, and if they are qualified U.S. residents eligible to enjoy treaty benefits. Note
that, under the new tax treaty between US and Japan, withholding tax on dividends declared after
July 1, 2004 is exempt from Japanese taxation by way of withholding or otherwise for pension funds
which are qualified US residents eligible to enjoy treaty benefits unless such dividends are
derived from the carrying on of a business, directly or indirectly, by such pension funds. 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. 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. -105-




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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 required. 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.nisgroup.jp/english. 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 variable 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. The following table shows the repayment schedule for our outstanding bonds and other long-term
borrowings and the average interest rates on these borrowings. -106-




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As ofMarch 31,Year ending March 31,
    
    
    
    
    
    20052006
    
    2007
    
    2008
    
    2009
    
    2010
    
    Thereafter
    
    Total
    
    Fair value(in millions except percentage)Bonds
    
    ¥
    5,060
    
    
    ¥
    10,502
    
    
    ¥
    8,060
    
    
    ¥
    30
    
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    23,652
    
    
    ¥
    27,828Average interest rate
    
    
    1.76
    %
    
    
    1.40
    %
    
    
    1.19
    %
    
    
    2.44
    %
    
    
    
    
    
    
    
    
    
    
    1.61
    %Variable (1)
    
    
    30,920
    
    
    
    19,499
    
    
    
    8,031
    
    
    
    320
    
    
    
    112
    
    
    
    
    
    
    
    58,882
    
    
    
    58,882Average interest rate
    
    
    1.96
    %
    
    
    1.82
    %
    
    
    1.68
    %
    
    
    2.00
    %
    
    
    2.20
    %
    
    
    
    
    
    
    1.89
    %Fixed
    
    
    28,335
    
    
    
    15,402
    
    
    
    10,374
    
    
    
    146
    
    
    
    53
    
    
    
    
    
    
    
    54,310
    
    
    
    54,042Average interest rate
    
    
    2.00
    %
    
    
    1.97
    %
    
    
    1.75
    %
    
    
    2.38
    %
    
    
    1.95
    %
    
    
    
    
    
    
    2.01
    %
 
 (1)
    
    Variable interest rate borrowings include asset-backed commercial paper. Our debt obligations mature at various times through January 2010 and carry interest
rates of change between 0.3% and 3.1%. Our borrowings bear either a fixed rate or a variable rate
indexed to the Tokyo Inter-Bank Offered Rate (TIBOR), or the London Inter-Bank Offered Rate
(LIBOR), or the short-term or long-term prime rates in Japan. In order to reduce our exposure to
fluctuations in interest rates on variable rate borrowings, we utilize derivative instruments such
as interest rate swap contracts. As of March 31, 2005, we had two outstanding interest rate swap
agreements in an aggregate amount of ¥2,483 million, which matures in March and August 2006. Under
these agreements, we receive payments at TIBOR plus 1.25% and make payments at an interest rate of
2.19% and 1.61%. The
weighted average interest rate on our short-term borrowings was 1.7% at March 31, 2003 1.3%
at March 31, 2004, and 1.2% at March 31, 2005, and our weighted average long-term borrowing rate on
variable-rate borrowings was 2.4% at March 31, 2003, 2.2% at March 31, 2004 and 1.9% at March 31,
2005. The following table illustrates the after tax impact of a hypothetical increase in our average
borrowing rates on our short-term borrowings and variable-rate long-term borrowings: Assumed weighted average interest rate2%
    
    3%
    
    4%(in millions)Net income as reported
    
    
    ¥7,262
    
    
    
    ¥7,262
    
    
    
    ¥7,262Net income as adjusted for hypothetical increase in interest rates
    
    
    7,215
    
    
    
    6,898
    
    
    
    6,581
 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 and enter into
new contracts with us are subject to any downward pressure caused by competitive, regulatory or
other reasons. -107-




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##### Table of Contents



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 31,2004
    
    2005(years)Small business owner loans
    
    
    4.8
    
    
    
    4.3Wide loans
    
    
    4.9
    
    
    
    5.0Business Timely loans
    
    
    3.0
    (1)
    
    
    3.0
    (1)Consumer loans
    
    
    3.0
    (1)
    
    
    3.0
    (1)Secured loans
    
    
    5.9
    
    
    
    1.6Other loans
    
    
    
    (2)
    
    
    3.5
 
 (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.(2)
    
    The average maturity for other loans as of March 31, 2004 was inapplicable. 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 31,2004
    
    2005Small business owner loans
    
    
    20.4
    %
    
    
    19.5
    %Wide loans
    
    
    20.8
    
    
    
    19.7Business Timely loans
    
    
    25.6
    
    
    
    25.0Consumer loans
    
    
    25.3
    
    
    
    37.1
    (1)Secured loans
    
    
    9.2
    
    
    
    9.6Other loans
    
    
    13.4
    
    
    
    12.0
 
 (1)
    
    Reflecting the sale of most of the outstanding balance of our consumer loans to Orient Credit
in June 2004. Our weighted average lending rate per year on loans receivable was 23.3% for the year
ended March 31, 2003, 22.0% for the year ended March 31, 2004 and 20.1% for the year ended March
31, 2005. 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 year19.5%
    
    19.0%
    
    18.5%(in millions)Net income as reported
    
    ¥
    7,262
    
    
    ¥
    7,262
    
    
    ¥
    7,262Net income as adjusted for hypothetical decrease in interest rates
    
    
    6,785
    
    
    
    6,352
    
    
    
    5,919
 Based on the weighted average lending rate of 20.1% per year for the year ended March 31,
2005 and rate of change in our weighted average lending rate on loans receivable in the past few
years, we believe the above range of 19.5% to 18.5% per year reasonably captures the likely changes
in the weighted average lending rate on loans receivable during the fiscal year ending March 31,
2006. 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 consumer loans
to Orient Credit. This sale has caused our lending rates on loans receivable to decrease as our
consumer loans have a typically higher average lending rate than our small business owner loans,
Wide loans and secured loans. However, our consumer loans also have a higher charge-off ratio than
all of our other loan products, particularly our small business owner loans, Wide loans and secured
loans. As a result, our profit margin has improved as the decreased net provision for loan losses
mitigated the negative impact from our reduced weighted average lending rate. Our net interest
income after provision for loan losses as a percentage of our total interest income rose to 64.0%
for the year ended March 31, 2005 compared to 57.2% for the previous fiscal year. Also, the
reduction of expenses associates with our consumer loan business, such as through closing of
offices, 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 to our non-consumer loan
businesses will have a positive effect on net income growth. -108-




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##### Table of Contents



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 ¥8,650 million as of March 31,
2004, of which ¥367 million were non-marketable, and ¥21,444 million as of March 31, 2005, of which
¥2,800 million were non-marketable. We also have non-equity investments, all of which are
non-marketable. These non-equity investments amounted to ¥524 million as of March 31, 2004, of
which ¥500 million were investment funds and ¥24 million were debt securities, and ¥6,999 million
as of March 31, 2005, of which ¥6,812 million were investment funds, ¥155 million were debt
securities and ¥32 million were other investments. 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, ¥114 million for the year ended March 31, 2003, ¥645 million for the year ended March
31, 2004 and ¥939 million for the year ended March 31, 2005, and our gross realized losses were,
¥82 million for the year ended March 31 2003, ¥46 million for the year ended March 31, 2004 and ¥5
million for the year ended March 31, 2005. We experienced realized losses of ¥1,005 million on
impairment of investment securities, for the year ended March 31, 2003, ¥867 million for the year
ended March 31, 2004 and ¥1,447 million for the year ended March 31, 2005. 
 Item 12.   Description of Securities Other than Equity Securities. Not required. 
 PART II 
 Item 13.   Defaults, Dividend Arrearages and Delinquencies. None. -109-




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##### Table of Contents



Item 14.   Material Modifications to the Rights of Security Holders and Use of Proceeds. None. 
 Item 15.   Controls and Procedures. Disclosure Controls and Procedures As of the end of the year ended March 31, 2005, our management, with the participation of
Kunihiko Sakioka, our president, representative director and principal executive officer, and
Hitoshi Higaki, our senior 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 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, 2005. 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. -110-




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##### Table of Contents



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, 2005 that has materially affected, or is reasonably likely to
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. 
 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
    
    2004
    
    2005(millions)Audit fees (1)
    
    ¥
    72
    
    
    ¥
    47
    
    
    ¥
    45Audit-related fees (2)
    
    
    12
    
    
    
    6
    
    
    
    17Tax fees (3)
    
    
    
    
    
    
    
    
    
    
    All other fees (4)
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    These are the aggregate fees billed for the fiscal year for professional services rendered by
our principal accountants 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.(3)
    
    These are the aggregate fees billed for the fiscal year for professional services rendered
by our principle accountants for tax compliance, tax advice and tax planning.(4)
    
    These are the aggregate fees billed for the fiscal year for products and services provided
by our principle accountants other than those included above. 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. -111-




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##### Table of Contents



Item 16D.   Exemptions from the Listing Standards for Audit Committees. Not applicable. 
 Item 16E.   Purchases of Equity Securities by the Issuer and Affiliated Purchasers. The following table shows the purchases made by us of our shares during the year ended March
31, 2005: Total Number of
    
    Maximum Number ofShares Purchased as
    
    Shares that May YetPart of Publicly
    
    Be purchased UnderTotal Number of
    
    Average Price Paid
    
    Announced Plans or
    
    the Plans orPeriod
    
    Shares Purchased
    
    per Share
    
    Program
    
    ProgramsApril 2005
    
    
    4,015
    
    
    ¥
    188
    
    
    
    N/A
    
    
    
    N/AMay 2005
    
    
    137
    
    
    
    171
    
    
    
    N/A
    
    
    
    N/AJune 2005
    
    
    804
    
    
    
    179
    
    
    
    N/A
    
    
    
    N/AJuly 2005
    
    
    533
    
    
    
    201
    
    
    
    N/A
    
    
    
    N/AAugust 2005
    
    
    163
    
    
    
    196
    
    
    
    N/A
    
    
    
    N/ASeptember 2005
    
    
    96
    
    
    
    209
    
    
    
    N/A
    
    
    
    N/AOctober 2005
    
    
    
    
    
    
    
    
    
    
    N/A
    
    
    
    N/ANovember 2005
    
    
    72
    
    
    
    203
    
    
    
    N/A
    
    
    
    N/ADecember 2005
    
    
    187
    
    
    
    208
    
    
    
    N/A
    
    
    
    N/AJanuary 2005
    
    
    166
    
    
    
    205
    
    
    
    N/A
    
    
    
    N/AFebruary 2005
    
    
    96
    
    
    
    212
    
    
    
    N/A
    
    
    
    N/AMarch 2005
    
    
    755
    
    
    
    241
    
    
    
    N/A
    
    
    
    N/ATotal
    
    
    7,024
    
    
    ¥
    195
    
    
    
    N/A
    
    
    
    N/A
 Under the Commercial Code of Japan, a holder of shares constituting less than one full
unit may require us to purchase such shares at their market value
(See Item 10BRights of Our
ShareholdersRights with Respect to Dividends, Stock Repurchases and Stock Splits). During the
year ended March 31, 2005, we purchased 7,024 shares for a total purchase price of ¥1 million upon
such requests from holders of shares constituting less than one full unit. 
 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. -112-




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##### Table of Contents



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
    
    
    
    
    Certification of the principal executive officer required by 17 C.F.R. 240. 13a-14(a)12.2
    
    
    
    
    Certification of the principal financial officer required by 17 C.F.R. 240. 13a-14(a)13.1
    
    
    
    
    Certification of the chief executive officer required by 18 U.S.C. Section 135013.2
    
    
    
    

Certification
of the chief financial officer required by 18 U.S.C.
Section 1350
 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. -113-




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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,
Representative Director and
Executive Officer July 29, 2005 S-1




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##### Table of Contents



NISSIN CO., LTD. 
 INDEX TO FINANCIAL STATEMENTS PageAnnual Financial StatementsReport of Independent Registered Public Accounting Firm
    
    
    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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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 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, 2004 and 2005, and the related consolidated statements of income,
shareholders equity, and cash flows for each of the three years in the period ended March 31,
2005. 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). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Companys internal control
over financial reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, 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, 2004 and
2005, and the results of its operations and its cash flows for each of the three years in the
period ended March 31, 2005, 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, 2005 F-2




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##### Table of Contents



CONSOLIDATED BALANCE SHEETS
NISSIN CO., LTD. AND SUBSIDIARIES
March 31, 2004 and 2005 Thousands ofMillions of Yen
    
    U.S. Dollars (Note 1)2004
    
    2005
    
    2005ASSETSCash and cash equivalents
    
    ¥
    20,243
    
    
    ¥
    25,709
    
    
    
    
    $   239,398Restricted cash in banks
    
    
    435
    
    
    
    846
    
    
    
    
    7,878Loans receivable, net
    
    
    166,890
    
    
    
    146,119
    
    
    
    
    1,360,639Purchased loans receivable, net
    
    
    4,342
    
    
    
    13,581
    
    
    
    
    126,464Interest receivable
    
    
    1,060
    
    
    
    831
    
    
    
    
    7,738Investment securities
    
    
    9,174
    
    
    
    28,443
    
    
    
    
    264,857Property and equipment:Land
    
    
    356
    
    
    
    356
    
    
    
    
    3,315Buildings and structures
    
    
    1,094
    
    
    
    1,264
    
    
    
    
    11,770Equipment and software
    
    
    5,253
    
    
    
    5,756
    
    
    
    
    53,5996,703
    
    
    
    7,376
    
    
    
    
    68,684Accumulated depreciation and amortization
    
    
    (2,363
    )
    
    
    (2,091
    )
    
    
    
    (19,471
    )4,340
    
    
    
    5,285
    
    
    
    
    49,213Investment in affiliates
    
    
    496
    
    
    
    514
    
    
    
    
    4,786Deferred income taxes
    
    
    579
    
    
    
    333
    
    
    
    
    3,101Other assets
    
    
    2,709
    
    
    
    6,740
    
    
    
    
    62,763Total assets
    
    ¥
    210,268
    
    
    ¥
    228,401
    
    
    
    
    $2,126,837
 See accompanying summary of significant accounting policies 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, 2004 and 2005 Thousands ofMillions of Yen
    
    U.S. Dollars (Note 1)2004
    
    2005
    
    2005LIABILITIES AND SHAREHOLDERS EQUITYShort-term
borrowings
    
    ¥
    5,563
    
    
    ¥
    12,600
    
    
    
    $   117,329Accrued income taxes
    
    
    2,758
    
    
    
    716
    
    
    
    6,667Accrued expenses
    
    
    623
    
    
    
    497
    
    
    
    4,628Long-term borrowings
    
    
    142,577
    
    
    
    136,844
    
    
    
    1,274,271Capital lease obligations
    
    
    2,058
    
    
    
    1,683
    
    
    
    15,672Accrued retirement benefits
    
    
    334
    
    
    
    330
    
    
    
    3,073Deferred income taxes
    
    
    
    
    
    
    4,439
    
    
    
    41,335Other liabilities
    
    
    1,897
    
    
    
    3,175
    
    
    
    29,566Total liabilities
    
    
    155,810
    
    
    
    160,284
    
    
    
    1,492,541Minority interests
    
    
    161
    
    
    
    1,146
    
    
    
    10,672Commitments and contingencies (Notes 9, 10 and 13)Shareholders equity:Common stock  designated value (Note 14)Authorized  960,000,000 and 1,920,000,000 shares at March 31, 2004 and 2005, respectivelyIssued         
646,685,721 and 653,602,117 shares at March 31, 2004 and 2005,
respectively
    
    
    7,218
    
    
    
    7,779
    
    
    
    72,437Additional paid-in capital
    
    
    9,092
    
    
    
    9,836
    
    
    
    91,591Retained earnings
    
    
    38,351
    
    
    
    44,313
    
    
    
    412,636Cumulative other comprehensive income
    
    
    3,371
    
    
    
    8,086
    
    
    
    75,296Less treasury stock, at cost:40,790,520 shares and 33,224,583 shares at March 31,
2004 and 2005, respectively
    
    
    (3,735
    )
    
    
    (3,043
    )
    
    
    (28,336
    )Total shareholders equity
    
    
    54,297
    
    
    
    66,971
    
    
    
    623,624Total
liabilities and shareholders equity
    
    ¥
    210,268
    
    
    ¥
    228,401
    
    
    
    $2,126,837
 See accompanying summary of significant accounting policies and other notes to consolidated financial statements. F-4




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##### Table of Contents



CONSOLIDATED STATEMENTS OF INCOME
NISSIN CO., LTD. AND SUBSIDIARIES
For the Years Ended March 31, 2003, 2004 and 2005 Thousands ofMillions of Yen
    
    
    U.S. Dollars (Note 1)2003
    
    
    2004
    
    
    2005
    
    
    2005Interest income:Loans
    
    ¥
    38,519
    
    
    ¥
    38,036
    
    
    ¥
    29,298
    
    
    
    $272,819Other
    
    
    715
    
    
    
    2,071
    
    
    
    3,257
    
    
    
    30,328Total interest income
    
    
    39,234
    
    
    
    40,107
    
    
    
    32,555
    
    
    
    303,147Interest expense:Borrowings
    
    
    3,920
    
    
    
    3,611
    
    
    
    2,972
    
    
    
    27,675Other
    
    
    64
    
    
    
    113
    
    
    
    187
    
    
    
    1,741Total interest expense
    
    
    3,984
    
    
    
    3,724
    
    
    
    3,159
    
    
    
    29,416Net interest income
    
    
    35,250
    
    
    
    36,383
    
    
    
    29,396
    
    
    
    273,731Provision for loan losses, net
    
    
    12,688
    
    
    
    13,461
    
    
    
    8,576
    
    
    
    79,858Net interest income after provision for loan
losses
    
    
    22,562
    
    
    
    22,922
    
    
    
    20,820
    
    
    
    193,873Non-interest income:Gain on sale of loans receivable
    
    
    
    
    
    
    
    
    
    
    3,327
    
    
    
    30,981Losses on sale and impairment of investment
securities, net
    
    
    (973
    )
    
    
    (268
    )
    
    
    (513
    )
    
    
    (4,777
    )Gain on sale of subsidiaries and affiliates, net
    
    
    324
    
    
    
    670
    
    
    
    1,339
    
    
    
    12,469Commission income
    
    
    1,267
    
    
    
    
    
    
    
    
    
    
    
    Guarantee fees received, net
    
    
    26
    
    
    
    113
    
    
    
    317
    
    
    
    2,952Equity losses in affiliates, net
    
    
    (17
    )
    
    
    (183
    )
    
    
    (92
    )
    
    
    (857
    )Rents, dividends and other
    
    
    210
    
    
    
    398
    
    
    
    1,606
    
    
    
    14,954Total non-interest income
    
    
    837
    
    
    
    730
    
    
    
    5,984
    
    
    
    55,722Non-interest expense:Salaries and employee benefits
    
    
    6,233
    
    
    
    6,735
    
    
    
    6,521
    
    
    
    60,723Occupancy, furniture and equipment
    
    
    2,190
    
    
    
    2,060
    
    
    
    2,395
    
    
    
    22,302Advertising
    
    
    449
    
    
    
    218
    
    
    
    332
    
    
    
    3,092Other general and administrative expenses
    
    
    4,380
    
    
    
    3,349
    
    
    
    4,869
    
    
    
    45,339Losses on sale and impairment of long-lived assets, net
    
    
    225
    
    
    
    530
    
    
    
    94
    
    
    
    875Impairment of investment in affiliates
    
    
    683
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    124
    
    
    
    97
    
    
    
    493
    
    
    
    4,590Minority interests
    
    
    15
    
    
    
    4
    
    
    
    192
    
    
    
    1,788Total non-interest expense
    
    
    14,299
    
    
    
    12,993
    
    
    
    14,896
    
    
    
    138,709Income before income taxes
    
    
    9,100
    
    
    
    10,659
    
    
    
    11,908
    
    
    
    110,886Income taxes
    
    
    3,924
    
    
    
    4,582
    
    
    
    4,646
    
    
    
    43,263Net income
    
    ¥
    5,176
    
    
    ¥
    6,077
    
    
    ¥
    7,262
    
    
    
    $  67,623
 F-5




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##### Table of Contents



CONSOLIDATED STATEMENTS OF INCOME
NISSIN CO., LTD. AND SUBSIDIARIES
For the Years Ended March 31, 2003, 2004 and 2005 U.S. DollarsYen
    
    (Note 1)Per share data:
    
    2003
    
    2004
    
    2005
    
    2005Net
income   basic
    
    
    ¥8.37
    
    
    
    ¥10.15
    
    
    
    ¥11.90
    
    
    
    $0.11 diluted
    
    
    7.76
    
    
    
    9.36
    
    
    
    10.81
    
    
    
    0.10Cash dividends paid
    
    
    1.33
    
    
    
    1.67
    
    
    
    2.13
    
    
    
    0.02
 Thousands of Shares
    
    Thousands of SharesWeighted average shares outstanding:
    
    2003
    
    2004
    
    2005
    
    2005Basic
    
    
    618,816
    
    
    
    598,464
    
    
    
    610,414
    
    
    
    610,414Diluted
    
    
    679,958
    
    
    
    660,197
    
    
    
    675,967
    
    
    
    675,967
 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, 2003, 2004 and 2005 Number of Shares
    
    
    Millions of Yenof Common Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cumulative Other
    
    
    
    
    
    TotalIssued
    
    
    Common
    
    Additional
    
    Retained
    
    Comprehensive
    
    Treasury Stock,
    
    Shareholders(Thousands)
    
    
    Stock
    
    Paid-in Capital
    
    Earnings
    
    Income
    
    at Cost
    
    EquityBalance as of March 31, 2002
    
    
    636,595
    
    
    
    
    ¥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 gains on
investment securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (88
    )
    
    
    
    
    
    
    (88
    )Change in net unrealized losses on
derivative instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    45
    
    
    
    
    
    
    
    45Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,133Cash dividends paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (833
    )
    
    
    
    
    
    
    
    
    
    
    (833
    )Repurchases of warrants
    
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5
    )Purchases of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,493
    )
    
    
    (2,493
    )Sales of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20
    
    
    
    20Balance as of March 31, 2003
    
    
    636,595
    
    
    
    
    6,611
    
    
    
    8,462
    
    
    
    33,275
    
    
    
    70
    
    
    
    (2,821
    )
    
    
    45,597Exercise of stock warrants
    
    
    10,091
    
    
    
    
    607
    
    
    
    594
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,201Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,077
    
    
    
    
    
    
    
    
    
    
    
    6,077Other comprehensive income, net of
taxChange in net unrealized gains 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
    )Repurchases of warrants
    
    
    
    
    
    
    
    
    
    
    
    (7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7
    )Purchases of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,209
    )
    
    
    (1,209
    )Sales of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    43
    
    
    
    
    
    
    
    
    
    
    
    295
    
    
    
    338Balance as of March 31, 2004
    
    
    646,686
    
    
    
    
    7,218
    
    
    
    9,092
    
    
    
    38,351
    
    
    
    3,371
    
    
    
    (3,735
    )
    
    
    54,297
 (Continued) 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, 2003, 2004 and 2005 Number of Shares
    
    Millions of Yenof Common Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cumulative Other
    
    
    
    
    
    TotalIssued
    
    Common
    
    Additional
    
    Retained
    
    Comprehensive
    
    Treasury Stock,
    
    Shareholders(Thousands)
    
    Stock
    
    Paid-in Capital
    
    Earnings
    
    Income
    
    at Cost
    
    Equity(Continued)Balance as of March 31, 2004
    
    
    646,686
    
    
    
    7,218
    
    
    
    9,092
    
    
    
    38,351
    
    
    
    3,371
    
    
    
    (3,735
    )
    
    
    54,297Exercise of stock warrants and
convertible bond
    
    
    6,916
    
    
    
    561
    
    
    
    528
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,089Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,262
    
    
    
    
    
    
    
    
    
    
    
    7,262Other comprehensive income, net of
taxChange in net unrealized gains on
investment securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,725
    
    
    
    
    
    
    
    4,725Change in net unrealized losses on
derivative instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )Change in foreign currency
adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9
    )
    
    
    
    
    
    
    (9
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,977Cash dividends paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,300
    )
    
    
    
    
    
    
    
    
    
    
    (1,300
    )Purchases of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    (1
    )Sales of treasury stock
    
    
    
    
    
    
    
    
    
    
    216
    
    
    
    
    
    
    
    
    
    
    
    693
    
    
    
    909Balance as of March 31, 2005
    
    
    653,602
    
    
    
    ¥7,779
    
    
    
    ¥9,836
    
    
    
    ¥44,313
    
    
    
    ¥8,086
    
    
    
    ¥(3,043
    )
    
    
    ¥66,971
 Number of Shares
    
    Thousands of U.S. Dollars (Note 1)of Common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cumulative Other
    
    
    
    
    
    TotalIssued
    
    Common
    
    Additional
    
    Retained
    
    Comprehensive
    
    Treasury Stock,
    
    Shareholders(Thousands)
    
    Stock
    
    Paid-in Capital
    
    Earnings
    
    Income
    
    at Cost
    
    EquityBalance as of March 31, 2004
    
    
    646,686
    
    
    
    $67,213
    
    
    
    $84,663
    
    
    
    $357,118
    
    
    
    $31,390
    
    
    
    $(34,780
    )
    
    
    $505,604Exercise of stock warrants
and convertible bond
    
    
    6,916
    
    
    
    5,224
    
    
    
    4,917
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,141Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    67,623
    
    
    
    
    
    
    
    
    
    
    
    67,623Other comprehensive
income, net of taxChange in net unrealized
gains on investment
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43,999
    
    
    
    
    
    
    
    43,999Change in net unrealized
losses on derivative
instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9
    )
    
    
    
    
    
    
    (9
    )Change in foreign
currency adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (84
    )
    
    
    
    
    
    
    (84
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    111,529Cash dividends paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,105
    )
    
    
    
    
    
    
    
    
    
    
    (12,105
    )Purchases of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9
    )
    
    
    (9
    )Sales of treasury stock
    
    
    
    
    
    
    
    
    
    
    2,011
    
    
    
    
    
    
    
    
    
    
    
    6,453
    
    
    
    8,464Balance as of March 31, 2005
    
    
    653,602
    
    
    
    $72,437
    
    
    
    $91,591
    
    
    
    $412,636
    
    
    
    $75,296
    
    
    
    $(28,336
    )
    
    
    $623,624
 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, 2003, 2004 and 2005 Thousands ofMillions of Yen
    
    
    U.S. Dollars (Note 1)2003
    
    
    2004
    
    
    2005
    
    
    2005Operating ActivitiesNet income
    
    ¥
    5,176
    
    
    ¥
    6,077
    
    
    ¥
    7,262
    
    
    
    $   67,623Adjustments to reconcile net income to net cash
provided by operating activities:Provision for loan losses, net
    
    
    12,688
    
    
    
    13,461
    
    
    
    8,576
    
    
    
    79,858Gain on sale of loans receivable
    
    
    
    
    
    
    
    
    
    
    (3,327
    )
    
    
    (30,981
    )Depreciation and amortization
    
    
    1,027
    
    
    
    884
    
    
    
    1,175
    
    
    
    10,941Amortization of debt issuance costs
    
    
    265
    
    
    
    221
    
    
    
    239
    
    
    
    2,226Amortization of loan origination costs
    
    
    747
    
    
    
    751
    
    
    
    540
    
    
    
    5,028Amortization of cap option premium
    
    
    51
    
    
    
    
    
    
    
    
    
    
    
    Losses on sale and impairment of investment
securities, net
    
    
    973
    
    
    
    268
    
    
    
    513
    
    
    
    4,777Losses on sale and impairment of long-lived assets, net
    
    
    225
    
    
    
    530
    
    
    
    94
    
    
    
    875Gain on sales of subsidiaries and affiliates, net
    
    
    (324
    )
    
    
    (670
    )
    
    
    (1,339
    )
    
    
    (12,469
    )Equity losses in affiliates, net
    
    
    17
    
    
    
    183
    
    
    
    92
    
    
    
    857Impairment of investment in affiliates
    
    
    683
    
    
    
    
    
    
    
    
    
    
    
    Deferred income taxes
    
    
    (1,166
    )
    
    
    (633
    )
    
    
    1,427
    
    
    
    13,288Minority interests
    
    
    15
    
    
    
    4
    
    
    
    192
    
    
    
    1,788Changes in assets and liabilities:Interest receivable
    
    
    (44
    )
    
    
    117
    
    
    
    229
    
    
    
    2,132Accrued income taxes and expenses
    
    
    688
    
    
    
    (58
    )
    
    
    (2,181
    )
    
    
    (20,309
    )Other liabilities
    
    
    294
    
    
    
    807
    
    
    
    1,194
    
    
    
    11,120Net cash provided by operating activities
    
    
    21,315
    
    
    
    21,942
    
    
    
    14,686
    
    
    
    136,754Investing ActivitiesProceeds from sale of loans receivable
    
    
    
    
    
    
    
    
    
    
    32,697
    
    
    
    304,470Loans receivable, net of principal collections
    
    
    (32,033
    )
    
    
    (13,764
    )
    
    
    (17,615
    )
    
    
    (164,028
    )Purchases of distressed loans
    
    
    (4,854
    )
    
    
    (4,502
    )
    
    
    (16,896
    )
    
    
    (157,333
    )Proceeds from principal collections of distressed loans
    
    
    2,145
    
    
    
    2,469
    
    
    
    6,840
    
    
    
    63,693Purchases of investment securities
    
    
    (588
    )
    
    
    (3,605
    )
    
    
    (16,508
    )
    
    
    (153,720
    )Proceeds from sales of investment securities
    
    
    1,057
    
    
    
    2,173
    
    
    
    5,125
    
    
    
    47,723Purchases of property and equipment
    
    
    (983
    )
    
    
    (880
    )
    
    
    (1,754
    )
    
    
    (16,333
    )Proceeds from sales of property and equipment
    
    
    43
    
    
    
    382
    
    
    
    16
    
    
    
    149Increases in investment in affiliates
    
    
    (535
    )
    
    
    (450
    )
    
    
    (160
    )
    
    
    (1,490
    )Proceeds from sales of affiliates
    
    
    
    
    
    
    504
    
    
    
    
    
    
    
    Acquisition of a new subsidiary, net of cash acquired
    
    
    
    
    
    
    
    
    
    
    (764
    )
    
    
    (7,114
    )Proceeds from sales of subsidiaries, net of cash
decreased
    
    
    (144
    )
    
    
    78
    
    
    
    
    
    
    
    Other changes in other assets
    
    
    (766
    )
    
    
    (706
    )
    
    
    (3,527
    )
    
    
    (32,844
    )Net cash used in investing activities
    
    
    (36,658
    )
    
    
    (18,301
    )
    
    
    (12,546
    )
    
    
    (116,827
    )
 (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, 2003, 2004 and 2005 Millions of Yen
    
    
Thousands ofU.S. Dollars (Note 1)2003
    
    2004
    
    2005
    
    2005(Continued)Financing ActivitiesDeposit of restricted cash in banks
    
    
    1,277
    
    
    
    (212
    )
    
    
    (411
    )
    
    
    (3,827
    )Issuance of commercial paper
    
    
    8,600
    
    
    
    13,000
    
    
    
    15,100
    
    
    
    140,609Repayments of commercial paper
    
    
    (6,200
    )
    
    
    (12,200
    )
    
    
    (14,800
    )
    
    
    (137,815
    )Proceeds from short-term borrowings
    
    
    8,095
    
    
    
    3,539
    
    
    
    20,851
    
    
    
    194,161Repayments of short-term borrowings
    
    
    (6,270
    )
    
    
    (4,100
    )
    
    
    (13,483
    )
    
    
    (125,552
    )Proceeds from long-term borrowings
    
    
    82,624
    
    
    
    56,564
    
    
    
    83,685
    
    
    
    779,262Repayments of long-term borrowings
    
    
    (62,131
    )
    
    
    (62,686
    )
    
    
    (88,555
    )
    
    
    (824,611
    )Payments of capital lease obligations
    
    
    (845
    )
    
    
    (762
    )
    
    
    (823
    )
    
    
    (7,664
    )Repurchases of stock warrants
    
    
    (5
    )
    
    
    (7
    )
    
    
    
    
    
    
    Proceeds from exercise of stock warrants
    
    
    
    
    
    
    1,201
    
    
    
    31
    
    
    
    289Purchases of treasury stock
    
    
    (2,493
    )
    
    
    (1,209
    )
    
    
    (1
    )
    
    
    (9
    )Proceeds from sales of treasury stock
    
    
    20
    
    
    
    338
    
    
    
    909
    
    
    
    8,464Dividends paid
    
    
    (833
    )
    
    
    (1,001
    )
    
    
    (1,300
    )
    
    
    (12,105
    )Proceeds from issuance of new shares by subsidiaries
    
    
    
    
    
    
    525
    
    
    
    2,132
    
    
    
    19,853Net cash provided by (used in) financing activities
    
    
    21,839
    
    
    
    (7,010
    )
    
    
    3,335
    
    
    
    31,055Effect of exchange rate changes on cash and cash
equivalents
    
    
    
    
    
    
    
    
    
    
    (9
    )
    
    
    (84
    )Net increase (decrease) in cash and cash equivalents
    
    
    6,496
    
    
    
    (3,369
    )
    
    
    5,466
    
    
    
    50,898Cash and cash equivalents at beginning of year
    
    
    17,116
    
    
    
    23,612
    
    
    
    20,243
    
    
    
    188,500Cash and cash equivalents at end of year
    
    ¥
    23,612
    
    
    ¥
    20,243
    
    
    ¥
    25,709
    
    
    
    $239,398
 See accompanying summary of significant accounting policies and other notes to consolidated financial statements. F-10




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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  1.

Business Organization and Basis of Presentation NISSIN CO., LTD. (NISSIN) was incorporated in 1960 in Ehime Prefecture in western Japan, and has
expanded nationwide. NISSIN and its subsidiaries operate mainly 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 in the stability of its borrowing base in Japan. NISSIN is a non-bank financial institution providing integrated financial services as its main
business, specializing in providing loan products to individuals, including small business owners,
sole proprietors and consumers. NISSIN and its subsidiaries provide 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.Secured loans: Primarily loans secured by real property designed for property developers.
The interest rates for these loans are determined on an individual basis. These loans turn
to cash quickly as they typically mature in one month to two years.Other: Provides collateralized lease financing, credit enhancements through guarantees, and
other lending services. On May 6, 2004, NISSIN signed an agreement to sell most of its consumer loans receivable to Orient
Credit Co., Ltd. The sale was closed on June 1, 2004. The decision to make this sale was made
pursuant to the basic strategy of concentrating on the markets for owners of small and medium-sized
businesses. Consequently, the balance of consumer loans as of May 31, 2004 was sold for ¥32,697
million ($304,470 thousand). Subsequent to the sale, NISSIN provided operation support services to
Orient Credit Co., Ltd., and during the year ended March 31, 2005, the Company received ¥392
million ($3,650 thousand) for these services, which was included in Rents, dividends and other in
the accompanying consolidated statements of income. 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 the consolidated financial statements. Significant
changes to subsidiaries in the past two years include: On November 10, 2003, NISSIN invested ¥50 million to establish NIS Lease Co., Ltd., a wholly-owned
subsidiary, to commence capital and operating lease operations in Japan. Subsequently, on each of
March 27, 2004 and March 4, 2005, NISSIN additionally invested ¥450 million and ¥400 million
($3,725 thousand), respectively. F-11




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS On July 9, 2004, NISSIN invested $500 thousand to establish Matsuyama Nissin Investment &
Consulting (Shanghai) Co., Ltd., a wholly-owned subsidiary, in Shanghai, China to expand the
Companys businesses into the Chinese market. Subsequently, Matsuyama Nissin Investment &
Consulting (Shanghai) Co., Ltd. increased its capital to $10 million through additional investments
by NISSIN on December 27, 2004 and February 17, 2005. The functional currency of Matsuyama Nissin
Investment & Consulting (Shanghai) Co., Ltd. is Chinese Yuan Renminbi (CNY). On September 16, 2004, Nissin Servicer Co., Ltd. (SVC), a consolidated subsidiary, listed its
stock on the Mothers market of the Tokyo Stock Exchange and became Japans first loan servicing
company to go public. Consequently, NISSINs interest in SVC has been diluted from 89.8% to the
current 75.9%. The Company recognized a net gain on change of interest of ¥1,339 million ($12,469
thousand), which was recorded in Gain on sales of subsidiaries and affiliates, net in the
accompanying consolidated statements of income. The Company continues to recognize gains or losses
from dilution of its interest in SVC. On December 3, 2004, NISSIN invested ¥3,811 million ($35,487 thousand) in cash to acquire 100% of
the issued shares of Yamagen Securities Co., Ltd., a wholly-owned subsidiary of Japan Asia Holdings
(Japan) Limited. This acquisition was made for the purpose of commencing securities business
operations in Japan to enable the Company to provide a full line of financial services from
procurement to investment, as well as direct and indirect financing, to all clients and businesses
related with the Company. The Company began consolidating the results of operations of Yamagen
Securities Co., Ltd. from December 3, 2004. The Company accounted for the acquisition as a
purchase using the accounting standards established in Statement of Financial Accounting Standards
(SFAS) No. 141 Business Combination, and SFAS No. 142 Goodwill and Other Intangible Assets.
The amount of consideration paid in excess of the estimated fair value of the net assets acquired
was ¥600 million ($5,587 thousand) for a brokerage license and was recorded in Other assets in
the accompanying consolidated balance sheets. This license is determined to have an indefinite
useful life. On May 1, 2005, Yamagen Securities Co., Ltd. changed its name to NIS Securities Co.,
Ltd. A reconciliation of the purchase price of Yamagen Securities Co., Ltd. is as follows: Thousands ofMillions of Yen
    
    U.S. DollarsFair value of assets acquired:Current assets
    
    
    ¥3,133
    
    
    
    $29,174Other tangible assets
    
    
    9
    
    
    
    84Amortizable intangible assets
    
    
    4
    
    
    
    37Unamortizable assets
    
    
    181
    
    
    
    1,685Brokerage license
    
    
    600
    
    
    
    5,587Total assets acquired
    
    
    3,927
    
    
    
    36,567Less: liabilities assumed
    
    
    (116
    )
    
    
    (1,080
    )Total purchase price
    
    
    ¥3,811
    
    
    
    $35,487
 As Yamagen Securities Co., Ltd. was not operating as a business due to the transfer of its
operating assets prior to the acquisition, had the Company purchased Yamagen Securities Co., Ltd.
at the beginning of the Companys fiscal year, there would be no significant difference in revenues
or net income of the Company. F-12




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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 and its domestic subsidiaries maintain their books and records in accordance with
accounting principles generally accepted in Japan (Japanese GAAP), and its foreign subsidiaries
in conformity with those of the country of their domicile. Certain 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, 2005, which was ¥107.39 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. Certain reclassifications have been made to conform to the current fiscal year presentation. These
reclassifications have no effects on previously reported net income and shareholders equity.  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. F-13




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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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 fifty months as of March 31, 2005.  (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 for which interest, principal or term is restructured.
Allowances for restructured loans are based on the 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 the occurrence of
other events such as the 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)

Investment in Leases and Revenue Recognition Investment in direct financing leases consists of leases for various equipment types, including
office equipment, industrial machinery and transportation equipment (aircraft, vessels and
automobiles). The net investment in the leases, included in Loans receivable, net on the
consolidated balance sheets, is the gross investment in the leases plus any unamortized initial
direct costs less unearned lease income. Gross investment in the leases is the sum of lease
payments and estimated unguaranteed residual values. The estimated residual values represent
estimated proceeds from the disposition of equipment at the time the lease is terminated. Initial
direct costs are certain direct lease origination costs, which being deferred and amortized over
the lease term as a yield adjustment. Unearned lease income is the difference
between gross investment in the leases and cost or carrying amount of the leased equipment. These
are being deferred and taken into income over the lease term. Amortization of unearned lease
income is computed using the interest method. For the year ended March 31, 2004, the amount of
initial direct costs is insignificant. As of March 31, 2005, the Company recorded ¥2,168 million
($20,188 thousand) in book value for its investment in direct financing leases, which are recorded
in Loans receivable, net in the accompanying consolidated balance sheets. F-14




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Investment in operating leases represent the underlying tangible and intangible assets and are
carried at cost and depreciated over their estimated useful lives on a straight-line basis.
Revenues from operating leases are recognized over the lease term as it becomes receivable
according to the provisions of the lease. Revenues from re-leases are recognized when received.
As of March 31, 2005, the Company had ¥287 million ($2,673 thousand) in its investment in operating
leases, which are recorded in Property and equipment in the accompanying consolidated balance
sheets.  (e)

Purchased Loans Receivable and Revenue Recognition Purchased loans represent loans purchased from third party originators and are reported at
purchased cost. The Company then establish an allowance for estimated loan losses on reduced
credit quality subsequent to acquisition. Due to the non-performing status of these loans when
initially purchased and lack of history with the borrowers, subsequent to acquisition, 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. As of March 31, 2004 and
2005, ¥3,496 million and ¥12,745 million ($118,679 thousand) in carrying value of loans was
accounted for under the cost recovery method, respectively. 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. The
Company will adjust future yield rate for expected changes in interest rates or collections.
However, if the carrying amounts of those loans are greater than the present value of expected
future cash flows from those loans due to delinquency in payment or use of legal means by the
borrower, the difference is recorded as an allowance for the uncollectible portion. As of March
31, 2004 and 2005, ¥846 million and ¥836 million ($7,785 thousand) in carrying value of loans was
accounted for under the level yield method, respectively.  (f)

Investment Securities The Companys investment securities are classified as available-for-sale in accordance with
Statement of Financial Accounting Standards (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 cumulative other comprehensive income in the 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. F-15




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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 conditions 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 conditions or other reasons. Costs of securities sold are determined using the weighted average cost method.  (g)

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 15 years) for structures and 2 to 20 years (weighted
average life of 4 years) for equipments. Software is amortized on a straight-line basis over 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 for sale, including real property acquired upon foreclosure, is carried at the lower
of cost or fair value less estimated costs to sell. Amounts owned and held for sale at March 31,
2005 were ¥1,137 million ($10,588 thousand) and are included in Other assets in the accompanying
consolidated balance sheets. There was no real property for sale 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, 2003
and 2004, the Company wrote down investments in rental real property to its fair value, recording
¥169 million and ¥591 million 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 accompanying
consolidated statements of income. The Company did not recognize any impairment of long-lived
assets during the year ended March 31, 2005.  (h)

Investments in Affiliates Investments in 20% to 50% owned affiliates in which NISSIN has the ability to exercise significant
influence over operating and financial policies are accounted for under the equity method.  (i)

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 gains or losses of the derivative in the period of change and the offsetting losses or gains 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 gains or
losses 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 gains or losses of a cash flow hedge is recognized currently in
results of operations. For a derivative not designated as a hedging instrument, the gains or
losses is recognized currently in results of operations. F-16




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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, 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 F-17




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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.  (j)

Guarantees The Company accounts for guarantees in accordance with the Financial Accounting Standards Board
(FASB) FASB Interpretation (FIN) No. 45, Guarantors Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others. The Company provides
guarantees to several affiliated and non-affiliated companies for a fee, which is recognized on an
accrual basis. The Company recognized reserves for guarantee losses of ¥108 million and ¥371
million ($3,455 thousand) at March 31, 2004 and 2005, respectively, which is included in Other
liabilities in the accompanying consolidated balance sheets. Moreover, in the event of borrowers delinquency, the Company is required to pay out on its
guarantees for the outstanding balance of the specified borrowings. Upon payment of any
guarantees, the Company will record a corresponding receivable from the counterparty company,
offset by an allowance for deemed uncollectible amounts. The Company protects against risk for
guarantees through its underwriting and monthly evaluation process. The Company is able to agree
to take or decline the guarantee at the time of the loan underwriting process. Payments on
guarantees are approximately 2.5% and 3.5% of total contractual guarantees for the years ended
March 31, 2004 and 2005, respectively. Additionally, in the normal course of its 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.  (k)

Treasury Stock Treasury stock is recorded at the Companys cost basis. Pursuant to its Articles of Incorporation,
the Company may purchase treasury stock with the board of directors approval and can retire
treasury stock by reducing retained earnings or additional paid-in capital.  (l)

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, 2003, 2004 and
2005 were ¥449 million, ¥218 million and ¥332 million ($3,092 thousand), respectively.  (m)

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.  (n)

Net Income Per Share (EPS) Basic EPS is computed based on the average number of shares of common stock outstanding during each
period. Diluted EPS further includes 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. F-18




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NISSIN completed a 2-for-1 stock split on each of May 21, 2002, May 20, 2003, May 20, 2004 and
November 19, 2004, respectively. NISSIN also completed a 1.2-for-1 stock split on May 20, 2005.
All share information disclosed has been retroactively adjusted to reflect such stock splits.  (o)

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, 2003, 2004 and 2005. 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 ofMillion of Yen
    
    
    U.S. Dollars2003
    
    
    2004
    
    
    2005
    
    
    2005Net income, as reported
    
    ¥
    5,176
    
    
    ¥
    6,077
    
    
    ¥
    7,262
    
    
    
    $67,623Add back: Stock-based
compensation expense
determined under intrinsic
value method, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deduct: Pro forma
stock-based compensation
expense determined under
fair value method, net of
tax
    
    
    122
    
    
    
    121
    
    
    
    129
    
    
    
    1,201Pro forma net income
    
    ¥
    5,054
    
    
    ¥
    5,956
    
    
    ¥
    7,133
    
    
    
    $66,422Yen
    
    
    U.S. Dollars2003
    
    
    2004
    
    
    2005
    
    
    2005Net income per common share:As reported  basic
    
    
    ¥8.37
    
    
    ¥
    10.15
    
    
    ¥
    11.90
    
    
    
    $0.11As reported  diluted
    
    
    7.76
    
    
    
    9.36
    
    
    
    10.81
    
    
    
    0.10Yen
    
    
    U.S. Dollars2003
    
    
    2004
    
    
    2005
    
    
    2005Net income per common share:Pro forma  basic
    
    
    ¥8.17
    
    
    
    ¥9.95
    
    
    ¥
    11.69
    
    
    
    $0.11Pro forma  diluted
    
    
    7.58
    
    
    
    9.18
    
    
    
    10.55
    
    
    
    0.10
 F-19




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The fair value of stock options and warrants granted is estimated using the Black-Scholes
option-pricing model with the following weighted-average assumptions: 2003
    
    2004
    
    2005Weighted-average assumptions:Risk-free interest rate
    
    
    0.5
    %
    
    
    0.3
    %
    
    
    0.3
    %Expected lives
    
    3 years
    
    3 years
    
    3 yearsExpected volatility
    
    
    40
    %
    
    
    38
    %
    
    
    33
    %Dividend yield
    
    
    1.5
    %
    
    
    1.7
    %
    
    
    1.1
    %Weighted-average fair value of grant per share
    
    ¥
    13.89
    
    
    ¥
    13.20
    
    
    ¥
    25.87
  (p)

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 statement of
shareholders equity, net of related income taxes.  3.

Recently Issued Accounting Pronouncements 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 loans acquired in fiscal years beginning after December 15, 2004. The adoption of
SOP 03-3 beginning April 1, 2005 is not expected to have any impact on the Companys consolidated
financial statements. In December 2004, the FASB issued SFAS No. 123-R (revised 2004) Share-Based Payment, a revision
of SFAS No. 123 Accounting for Stock-Based Compensation. SFAS No. 123-R requires a public entity
to measure the cost of employee services received in exchange for an award of equity instruments
based on the grant-date fair value of the award. In April 2005, the Securities and Exchange
Commission (SEC) delayed the effective date of FASB Statement No. 123-R to the next fiscal year
beginning after June 15, 2005. The Company is currently assessing the impact of this statement on
the Companys consolidated financial statements but does not expect the adoption of this statement
to have a significant impact. F-20




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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, 2004 and 2005: Thousands ofMillions of Yen
    
    
    U.S. Dollars2004
    
    
    2005
    
    
    2005Small business owner loans
    
    ¥
    57,168
    
    
    ¥
    58,961
    
    
    
    $  549,036Wide loans
    
    
    57,460
    
    
    
    47,604
    
    
    
    443,281Business Timely loans
    
    
    18,659
    
    
    
    20,862
    
    
    
    194,264Consumer loans
    
    
    35,604
    
    
    
    2,827
    
    
    
    26,325Secured loans
    
    
    10,003
    
    
    
    18,812
    
    
    
    175,175Other loans
    
    
    573
    
    
    
    6,296
    
    
    
    58,627Total loans outstanding
    
    
    179,467
    
    
    
    155,362
    
    
    
    1,446,708Allowance for loan losses
    
    
    (13,528
    )
    
    
    (10,034
    )
    
    
    (93,435
    )Deferred origination costs
    
    
    951
    
    
    
    791
    
    
    
    7,366Balance at end of year
    
    ¥
    166,890
    
    
    ¥
    146,119
    
    
    
    $1,360,639
 The following is a summary of changes in the allowance for loan losses for the years ended
March 31, 2003, 2004 and 2005: Thousands ofMillions of Yen
    
    
    U.S. Dollars2003
    
    
    2004
    
    
    2005
    
    
    2005Balance at beginning of year
    
    ¥
    8,831
    
    
    ¥
    11,827
    
    
    ¥
    13,528
    
    
    
    $125,971Provision for loans receivable sold
    
    
    
    
    
    
    
    
    
    
    (3,327
    )
    
    
    (30,981
    )Provision for loan losses
    
    
    12,545
    
    
    
    12,824
    
    
    
    7,759
    
    
    
    72,250Charge-offs, net of recoveries
    
    
    (9,549
    )
    
    
    (11,123
    )
    
    
    (7,926
    )
    
    
    (73,805
    )Balance at end of year
    
    ¥
    11,827
    
    
    ¥
    13,528
    
    
    ¥
    10,034
    
    
    
    $  93,435
 F-21




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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, 2004 and 2005 are as follows: Millions of Yen2004Small Business
    
    
    
    
    
    Business
    
    Consumer
    
    SecuredOwner Loans
    
    Wide Loans
    
    Timely Loans
    
    Loans
    
    Loans
    
    Other Loans
    
    TotalHistorical Loss Components- CurrentCurrent
    
    
    ¥49,602
    
    
    
    ¥49,082
    
    
    
    ¥18,143
    
    
    
    ¥34,422
    
    
    
    ¥  9,880
    
    
    
    ¥485
    
    
    
    ¥161,614Restructured
    
    
    5,768
    
    
    
    6,852
    
    
    
    516
    
    
    
    1,182
    
    
    
    86
    
    
    
    15
    
    
    
    14,419Loans outstanding
    
    
    55,370
    
    
    
    55,934
    
    
    
    18,659
    
    
    
    35,604
    
    
    
    9,966
    
    
    
    500
    
    
    
    176,033Allowance
    
    
    2,087
    
    
    
    2,325
    
    
    
    1,962
    
    
    
    3,868
    
    
    
    244
    
    
    
    13
    
    
    
    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
    
    
    
    
    
    
    
    
    
    
    
    9
    
    
    
    70
    
    
    
    1,338Allowance
    
    
    736
    
    
    
    523
    
    
    
    
    
    
    
    
    
    
    
    9
    
    
    
    70
    
    
    
    1,338Loans outstanding
    
    
    56,450
    
    
    
    56,681
    
    
    
    18,659
    
    
    
    35,604
    
    
    
    9,985
    
    
    
    570
    
    
    
    177,949Allowance
    
    
    3,104
    
    
    
    3,031
    
    
    
    1,962
    
    
    
    3,868
    
    
    
    260
    
    
    
    83
    
    
    
    12,308Other Components:- Bankrupt loansLoans outstanding
    
    
    464
    
    
    
    519
    
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    3
    
    
    
    1,001Allowance
    
    
    446
    
    
    
    501
    
    
    
    
    
    
    
    
    
    
    
    13
    
    
    
    3
    
    
    
    963- Loans under legal processLoans outstanding
    
    
    254
    
    
    
    260
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    517Allowance
    
    
    127
    
    
    
    129
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    257Loans outstanding
    
    
    718
    
    
    
    779
    
    
    
    
    
    
    
    
    
    
    
    18
    
    
    
    3
    
    
    
    1,518Allowance
    
    
    573
    
    
    
    630
    
    
    
    
    
    
    
    
    
    
    
    14
    
    
    
    3
    
    
    
    1,220Total loans outstanding
    
    
    ¥57,168
    
    
    
    ¥57,460
    
    
    
    ¥18,659
    
    
    
    ¥35,604
    
    
    
    ¥10,003
    
    
    
    ¥573
    
    
    
    ¥179,467Total allowance
    
    
    3,677
    
    
    
    3,661
    
    
    
    1,962
    
    
    
    3,868
    
    
    
    274
    
    
    
    86
    
    
    
    13,528
 F-22




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Millions of Yen2005Small Business
    
    
    
    
    
    Business
    
    Consumer
    
    SecuredOwner Loans
    
    Wide Loans
    
    Timely Loans
    
    Loans
    
    Loans
    
    Other Loans
    
    TotalHistorical Loss Components- CurrentCurrent
    
    
    ¥50,825
    
    
    
    ¥39,542
    
    
    
    ¥20,295
    
    
    
    ¥2,719
    
    
    
    ¥18,405
    
    
    
    ¥6,149
    
    
    
    ¥137,935Restructured
    
    
    6,371
    
    
    
    6,758
    
    
    
    567
    
    
    
    108
    
    
    
    71
    
    
    
    
    
    
    
    13,875Loans outstanding
    
    
    57,196
    
    
    
    46,300
    
    
    
    20,862
    
    
    
    2,827
    
    
    
    18,476
    
    
    
    6,149
    
    
    
    151,810Allowance
    
    
    1,993
    
    
    
    1,698
    
    
    
    2,231
    
    
    
    308
    
    
    
    582
    
    
    
    120
    
    
    
    6,932- 67 to 96 daysLoans outstanding
    
    
    206
    
    
    
    103
    
    
    
    
    
    
    
    
    
    
    
    14
    
    
    
    97
    
    
    
    420Allowance
    
    
    144
    
    
    
    72
    
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    61
    
    
    
    287- 97 to 120 daysLoans outstanding
    
    
    113
    
    
    
    82
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    20
    
    
    
    220Allowance
    
    
    113
    
    
    
    82
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    20
    
    
    
    220- Over 120 daysLoans outstanding
    
    
    841
    
    
    
    585
    
    
    
    
    
    
    
    
    
    
    
    9
    
    
    
    18
    
    
    
    1,453Allowance
    
    
    841
    
    
    
    585
    
    
    
    
    
    
    
    
    
    
    
    9
    
    
    
    18
    
    
    
    1,453Loans outstanding
    
    
    58,356
    
    
    
    47,070
    
    
    
    20,862
    
    
    
    2,827
    
    
    
    18,504
    
    
    
    6,284
    
    
    
    153,903Allowance
    
    
    3,091
    
    
    
    2,437
    
    
    
    2,231
    
    
    
    308
    
    
    
    606
    
    
    
    219
    
    
    
    8,892Other Components:- Bankrupt loansLoans outstanding
    
    
    441
    
    
    
    404
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    12
    
    
    
    861Allowance
    
    
    431
    
    
    
    394
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    12
    
    
    
    840- Loans under legal processLoans outstanding
    
    
    164
    
    
    
    130
    
    
    
    
    
    
    
    
    
    
    
    304
    
    
    
    
    
    
    
    598Allowance
    
    
    84
    
    
    
    66
    
    
    
    
    
    
    
    
    
    
    
    152
    
    
    
    
    
    
    
    302Loans outstanding
    
    
    605
    
    
    
    534
    
    
    
    
    
    
    
    
    
    
    
    308
    
    
    
    12
    
    
    
    1,459Allowance
    
    
    515
    
    
    
    460
    
    
    
    
    
    
    
    
    
    
    
    155
    
    
    
    12
    
    
    
    1,142Total loans outstanding
    
    
    ¥58,961
    
    
    
    ¥47,604
    
    
    
    ¥20,862
    
    
    
    ¥2,827
    
    
    
    ¥18,812
    
    
    
    ¥6,296
    
    
    
    ¥155,362Total allowance
    
    
    3,606
    
    
    
    2,897
    
    
    
    2,231
    
    
    
    308
    
    
    
    761
    
    
    
    231
    
    
    
    10,034
 F-23




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Thousands of U.S. Dollars2005Small Business
    
    
    
    
    
    Business
    
    Consumer
    
    SecuredOwner Loans
    
    Wide Loans
    
    Timely Loans
    
    Loans
    
    Loans
    
    Other Loans
    
    TotalHistorical Loss Components:- CurrentCurrent
    
    
    $473,275
    
    
    
    $368,209
    
    
    
    $188,984
    
    
    
    $25,319
    
    
    
    $171,385
    
    
    
    $57,259
    
    
    
    $1,284,431Restructured
    
    
    59,326
    
    
    
    62,930
    
    
    
    5,280
    
    
    
    1,006
    
    
    
    661
    
    
    
    
    
    
    
    129,203Loans outstanding
    
    
    532,601
    
    
    
    431,139
    
    
    
    194,264
    
    
    
    26,325
    
    
    
    172,046
    
    
    
    57,259
    
    
    
    1,413,634Allowance
    
    
    18,559
    
    
    
    15,812
    
    
    
    20,775
    
    
    
    2,868
    
    
    
    5,419
    
    
    
    1,117
    
    
    
    64,550- 67 to 96 daysLoans outstanding
    
    
    1,918
    
    
    
    959
    
    
    
    
    
    
    
    
    
    
    
    130
    
    
    
    902
    
    
    
    3,909Allowance
    
    
    1,341
    
    
    
    670
    
    
    
    
    
    
    
    
    
    
    
    93
    
    
    
    568
    
    
    
    2,672- 97 to 120 daysLoans outstanding
    
    
    1,052
    
    
    
    764
    
    
    
    
    
    
    
    
    
    
    
    47
    
    
    
    186
    
    
    
    2,049Allowance
    
    
    1,052
    
    
    
    764
    
    
    
    
    
    
    
    
    
    
    
    47
    
    
    
    186
    
    
    
    2,049- Over 120 daysLoans outstanding
    
    
    7,831
    
    
    
    5,447
    
    
    
    
    
    
    
    
    
    
    
    84
    
    
    
    168
    
    
    
    13,530Allowance
    
    
    7,831
    
    
    
    5,447
    
    
    
    
    
    
    
    
    
    
    
    84
    
    
    
    168
    
    
    
    13,530Loans outstanding
    
    
    543,402
    
    
    
    438,309
    
    
    
    194,264
    
    
    
    26,325
    
    
    
    172,307
    
    
    
    58,515
    
    
    
    1,433,122Allowance
    
    
    28,783
    
    
    
    22,693
    
    
    
    20,775
    
    
    
    2,868
    
    
    
    5,643
    
    
    
    2,039
    
    
    
    82,801Other Components:- Bankrupt loansLoans outstanding
    
    
    4,107
    
    
    
    3,762
    
    
    
    
    
    
    
    
    
    
    
    37
    
    
    
    112
    
    
    
    8,018Allowance
    
    
    4,013
    
    
    
    3,669
    
    
    
    
    
    
    
    
    
    
    
    28
    
    
    
    112
    
    
    
    7,822- Loans under legal processLoans outstanding
    
    
    1,527
    
    
    
    1,210
    
    
    
    
    
    
    
    
    
    
    
    2,831
    
    
    
    
    
    
    
    5,568Allowance
    
    
    782
    
    
    
    614
    
    
    
    
    
    
    
    
    
    
    
    1,416
    
    
    
    
    
    
    
    2,812Loans outstanding
    
    
    5,634
    
    
    
    4,972
    
    
    
    
    
    
    
    
    
    
    
    2,868
    
    
    
    112
    
    
    
    13,586Allowance
    
    
    4,795
    
    
    
    4,283
    
    
    
    
    
    
    
    
    
    
    
    1,444
    
    
    
    112
    
    
    
    10,634Total loans outstanding
    
    
    $549,036
    
    
    
    $443,281
    
    
    
    $194,264
    
    
    
    $26,325
    
    
    
    $175,175
    
    
    
    $58,627
    
    
    
    $1,446,708Total allowance
    
    
    33,578
    
    
    
    26,976
    
    
    
    20,775
    
    
    
    2,868
    
    
    
    7,087
    
    
    
    2,151
    
    
    
    93,435
 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-24




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The aggregate loans outstanding due in each of the next five years and thereafter are as follows: Thousands ofMillions of Yen
    
    U.S. DollarsYear ending March 31,2006
    
    
    ¥  78,262
    
    
    
    $   728,7642007
    
    
    31,416
    
    
    
    292,5412008
    
    
    23,553
    
    
    
    219,3222009
    
    
    14,356
    
    
    
    133,6812010 and thereafter
    
    
    7,775
    
    
    
    72,400Total loans outstanding
    
    
    ¥155,362
    
    
    
    $1,446,708In addition, NIS Lease Co., Ltd., a 100% owned subsidiary, was incorporated on November 10,
2003, and started its business on February 1, 2004. NIS Lease acquires equipment and related
assets for lease and commences leasing operations in Japan, including direct financing leases.
Investment in direct financing leases, included in Loans receivable, net, at March 31, 2004 and
2005 is as follows:Thousands ofMillions of Yen
    
    U.S. Dollars2004
    
    2005
    
    2005Aggregate lease payments receivable
    
    
    ¥ 87
    
    
    
    ¥3,000
    
    
    
    $27,936Initial direct costs
    
    
    
    
    
    
    
    
    
    
    Unearned lease income
    
    
    (24
    )
    
    
    (751
    )
    
    
    (6,994
    )Investment in direct financing leases
    
    
    63
    
    
    
    2,249
    
    
    
    20,942Allowance for loan losses
    
    
    
    
    
    
    (81
    )
    
    
    (754
    )Investment in direct financing leases, net
    
    
    ¥ 63
    
    
    
    ¥2,168
    
    
    
    $20,188The presentation of initial direct costs associated with investment in direct financing leases
for the year ended March 31, 2004 and 2005 are omitted as their respective figures are
insignificant.Aggregate lease payments receivable are due in periodic installments through January 2011. At
March 31, 2005, the amounts due in each of the next five years and thereafter are as follows:Thousands ofMillions of Yen
    
    U.S. DollarsYear ending March 31,2006
    
    
    ¥         757
    
    
    
    $       7,0492007
    
    
    675
    
    
    
    6,2862008
    
    
    661
    
    
    
    6,1552009
    
    
    609
    
    
    
    5,6712010 and thereafter
    
    
    298
    
    
    
    2,775Aggregate lease payments receivable
    
    
    ¥      3,000
    
    
    
    $     27,936
 Gains and losses from the disposition of direct financing lease assets are insignificant for
the year ended March 31, 2005. In addition, there was no disposition of direct financing lease
assets during the year ended March 31, 2004. F-25




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  5.

Purchased Loans Receivable SVC was incorporated on July 11, 2001, and started its business on October 25, 2001. SVC mainly
purchases distressed loans from financial institutions and services these loans. SVC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. The total
contracted amounts outstanding for these distressed loans were ¥856,939 million and ¥1,097,289
million ($10,217,795 thousand) as of March 31, 2004 and 2005, respectively. The following is a summary of the carrying amount of purchased loans receivable as of March 31,
2004 and 2005: Thousands ofMillions of Yen
    
    
    U.S. Dollars2004
    
    
    2005
    
    
    2005Purchased loans outstanding
    
    
    ¥5,059
    
    
    
    ¥14,863
    
    
    
    $138,402Allowance for loan losses
    
    
    (717
    )
    
    
    (1,282
    )
    
    
    (11,938
    )Purchased loans receivable, net
    
    
    ¥4,342
    
    
    
    ¥13,581
    
    
    
    $126,464
 The following is a summary of information with respect to purchased loans receivable during
the years ended March 31, 2003, 2004 and 2005: Thousands ofMillions of Yen
    
    U.S. Dollars2003
    
    2004
    
    2005
    
    2005Purchased loans receivable:Balance at beginning of year
    
    
    ¥    380
    
    
    
    ¥ 3,078
    
    
    
    ¥  5,059
    
    
    
    $  47,109Purchased during the year
    
    
    4,854
    
    
    
    4,502
    
    
    
    16,896
    
    
    
    157,333Principal collections
    
    
    (2,145
    )
    
    
    (2,469
    )
    
    
    (6,840
    )
    
    
    (63,693
    )Charge-offs
    
    
    (11
    )
    
    
    (52
    )
    
    
    (252
    )
    
    
    (2,347
    )Balance at end of year
    
    
    3,078
    
    
    
    5,059
    
    
    
    14,863
    
    
    
    138,402Allowance for loan losses:Balance at beginning of year
    
    
    
    
    
    
    132
    
    
    
    717
    
    
    
    6,677Provision for loan losses
    
    
    143
    
    
    
    637
    
    
    
    817
    
    
    
    7,608Charge-offs
    
    
    (11
    )
    
    
    (52
    )
    
    
    (252
    )
    
    
    (2,347
    )Balance at end of year
    
    
    132
    
    
    
    717
    
    
    
    1,282
    
    
    
    11,938Purchased loans receivable, net
    
    
    ¥ 2,946
    
    
    
    ¥ 4,342
    
    
    
    ¥13,581
    
    
    
    $126,464
 In addition, interest income from purchased loans receivable for the years ended March 31,
2003, 2004 and 2005 were ¥712 million, ¥2,069 million and ¥3,255 million ($30,310 thousand),
respectively, and is recognized as Interest income  Other in the accompanying consolidated
statements of income. F-26




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  6.

Investment Securities The Companys investment securities as of March 31, 2004 and 2005 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, 2003, 2004 and 2005, the proceeds from sales of
available-for-sale securities were ¥1,057 million, ¥2,173 million and ¥5,125 million ($47,723
thousand), respectively. On those sales, gross realized gains computed on the average cost basis
were ¥114 million, ¥645 million and ¥939 million ($8,744 thousand) and gross realized losses were
¥82 million, ¥46 million and ¥5 million ($47 thousand), respectively. The aggregate cost and fair value of marketable securities as of March 31, 2004 and 2005 is as
follows: 2004: Millions of YenGross
    
    
    GrossUnrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueEquity securities
    
    
    ¥2,621
    
    
    
    ¥5,662
    
    
    
    ¥
    
    
    
    ¥8,283
 2005: Millions of Yen
    
    
    Thousands of U.S. DollarsGross
    
    
    Gross
    
    
    
    
    
    
    
    
    
    
    Gross
    
    
    GrossUnrealized
    
    
    Unrealized
    
    
    
    
    
    
    
    
    
    
    Unrealized
    
    
    UnrealizedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair Value
    
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueEquity securities
    

    ¥5,031
    
    

    ¥13,613
    
    

    ¥
    
    

    ¥18,644
    
    

    $46,848
    
    

    $126,762
    
    

    $
    
    

    $173,610
 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. As of March 31, 2005,
there were no equity securities which sustained unrealized loss position for 12 months or more. The aggregate cost of non-marketable securities which approximates fair value as of March 31, 2004
and 2005 is as follows: Thousands ofMillions of Yen
    
    
    U.S. Dollars2004
    
    
    2005
    
    
    2005Equity securities
    
    
    ¥332
    
    
    
    ¥2,716
    
    
    
    $25,291Investment funds
    
    
    500
    
    
    
    6,812
    
    
    
    63,432Debt securities
    
    
    24
    
    
    
    155
    
    
    
    1,443Other
    
    
    35
    
    
    
    116
    
    
    
    1,081Total non-marketable securities
    
    
    ¥891
    
    
    
    ¥9,799
    
    
    
    $91,247
 Included above, as of March 31, 2004 and 2005, the Company held three and six non-marketable
debt securities, respectively, with maturity ranging from October 2005 to December 2006 and October
2005 to July 2009, respectively. Management believes that there was a permanent impairment in value of the marketable securities and
non-marketable securities during the years ended March 31, 2003, 2004 and 2005 of approximately
¥1,005 million, ¥867 million and ¥1,447 million ($13,474 thousand), respectively. These amounts
are netted with the gains noted above in the accompanying consolidated statements of income. F-27




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  7.

Investment in Affiliates As of March 31, 2004 and 2005, the aggregate net assets of affiliates owned by the Company are ¥496
million and ¥514 million ($4,786 thousand), respectively. The significant changes in investment in
affiliates for the years ended March 31, 2004 and 2005 are as follows: 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. As a result, NISSIN accounts for
its investment in Webcashing.com Co., Ltd. under the equity method. 2005: On November 9, 2004, NISSIN invested ¥150 million ($1,397 thousand) for a 30% interest in Chuo
Mitsui Finance Service Co., Ltd., a private Japanese corporation established as a joint venture
with The Chuo Mitsui Trust and Banking Co., Ltd. for the purpose of providing loans to small and
medium corporations in connection with real estate financing and unsecured card loans.  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, the Company recorded goodwill of ¥201 million as a result of the Companys
investment in Webcashing.com Co., Ltd., which is a 38% owned equity-method investment. As discussed in Note 1, on December 3, 2004, NISSIN acquired 100% of the issued shares of Yamagen
Securities Co., Ltd., a wholly-owned subsidiary of Japan Asia Holdings (Japan) Limited. The amount
of consideration paid in excess of the estimated fair value of the net assets acquired was ¥600
million ($5,587 thousand) for a brokerage license and was recorded in Other assets in the accompanying consolidated balance sheets. This license is determined to have an indefinite useful
life. F-28




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of March 31, 2005, the Company determined the recoverability of goodwill and intangible assets,
and concluded that there were no impairments in the carrying value of goodwill and intangible
assets.  9.

Short-Term and Long-Term Borrowings Short-term borrowings as of March 31, 2004 and 2005 comprised the following: Thousands ofMillions of Yen
    
    U.S. Dollars2004
    
    2005
    
    2005Bank loans
    
    
    ¥2,100
    
    
    
    ¥  9,017
    
    
    
    $  83,965Commercial paper
    
    
    3,200
    
    
    
    3,500
    
    
    
    32,591Rediscounted notes
    
    
    263
    
    
    
    83
    
    
    
    773Total short-term borrowings
    
    
    ¥5,563
    
    
    
    ¥12,600
    
    
    
    $117,329
 Interest rates on bank loans as of March 31, 2004 and 2005 under fixed or variable contracts
ranged from 1.971% to 2.250% and from 0.964% to 2.200%, with the weighted average interest rates of
these bank loans being 1.985% and 1.567%, respectively. Interest rates on commercial paper as of
March 31, 2004 and 2005 ranged from 0.300% to 1.000% and from 0.295% to 0.450%. The weighted
average interest rates of the commercial paper as of March 31, 2004 and 2005 were 0.784% and
0.384%. Interest rates on all rediscounted notes as of March 31, 2004 and 2005 were 2.370%. All
short-term borrowings have terms ranging from approximately 1 month to 12 months and are usually
renewed at maturity subject to renegotiation of interest rates and other factors. F-29




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Long-term borrowings as of March 31, 2004 and 2005 comprised the following: Thousands ofMillions of Yen
    
    
    U.S. Dollars2004
    
    
    2005
    
    
    20053.00% unsecured bonds, due April 20, 2004
    
    
    ¥  10,000
    
    
    
    ¥        
    
    
    

$            2.45% unsecured bonds, due March 28, 2005
    
    
    10,000
    
    
    
    
    
    
    
    2.30% unsecured bonds with warrants, due April 20, 2004 (A)
    
    
    1,500
    
    
    
    
    
    
    
    2.35% unsecured bonds, due November 1, 2005
    
    
    5,000
    
    
    
    5,000
    
    
    
    46,5591.18% unsecured bonds, due February 25, 2008
    
    
    
    
    
    
    7,500
    
    
    
    69,8391.90% unsecured bonds, due July 31, 2006
    
    
    500
    
    
    
    500
    
    
    
    4,6560.75% unsecured bonds, due September 19, 2008
    
    
    270
    
    
    
    210
    
    
    
    1,9550.64% unsecured bonds, due March 26, 2007
    
    
    500
    
    
    
    500
    
    
    
    4,6560.45% unsecured bonds, due September 27, 2006
    
    
    
    
    
    
    500
    
    
    
    4,6560.67% unsecured bonds, due September 27, 2007
    
    
    
    
    
    
    500
    
    
    
    4,6561.70% unsecured convertible bonds, due September 29, 2006 (B)
    
    
    10,000
    
    
    
    8,942
    
    
    
    83,267Total bonds
    
    
    37,770
    
    
    
    23,652
    
    
    
    220,244Loans from banks and other financial institutionsSecured: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
    
    
    
    
    
    
    
    Due 2005 to 2009 with fixed interest rates ranging from
1.595% to 2.900% per annum, weighted average actual rate is
2.134%
    
    
    
    
    
    
    11,086
    
    
    
    103,231Due 2004 to 2008 with variable interest rates principally
based on Long-term Prime Rate (LTPR) plus 0.200% to 1.725%
per annum, weighted average actual rate is 1.892% (C)
    
    
    21,166
    
    
    
    
    
    
    
    Due 2005 to 2008 with variable interest rates principally
based on LTPR plus -0.306% to 1.475% per annum, weighted
average actual rate is 1.346% (C)
    
    
    
    
    
    
    14,822
    
    
    
    138,020Unsecured: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
    
    
    
    
    
    
    
    Due 2005 to 2010 with fixed interest rates ranging from
1.275% to 2.750% per annum, weighted average actual rate is
1.975%
    
    
    
    
    
    
    43,224
    
    
    
    402,496Due 2004 to 2007 with variable interest rates based on LTPR
plus 0.400% to 1.500% per annum, weighted average actual
rate is 2.365%
    
    
    32,895
    
    
    
    
    
    
    
    Due 2005 to 2009 with variable interest rates based on LTPR
plus -0.100% to 1.425% per annum, weighted average actual
rate is 2.080%
    
    
    
    
    
    
    44,060
    
    
    
    410,280Total loans from banks and other financial institutions
    
    
    104,807
    
    
    
    113,192
    
    
    
    1,054,027Total long-term borrowings
    
    
    ¥142,577
    
    
    
    ¥136,844
    
    
    
    $1,274,271
 (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 approximately 12,466 thousand shares of
common stock at an exercise price of ¥120.40 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 ¥88,000 was attributable to the fair value of warrants. The exercise period of the
warrant was through April 19, 2004. The bond matured on April 20, 2004. F-30




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (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 ¥163.60 ($1.52) per
share of common stock. During the year ended March 31, 2005, convertible bonds totaling ¥1,058
million ($9,852 thousand) were converted to 6,467,646 shares of common stock.(C)
    
    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, 2004 and 2005,
entrusted loans outstanding included in loans receivable are ¥9,594 million and ¥9,216 million
($85,818 thousand), respectively. The related long-term liability recorded in loans from
banks and other financial institutions are ¥6,466 million and ¥6,673 million ($62,138
thousand), respectively As of March 31, 2004 and 2005, the weighted average rates of loans from banks and other
financial institutions were 2.254% and 1.949%, 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, 2004 and 2005, deposits of restricted cash in
banks related to above borrowings are ¥426 million and ¥382 million ($3,557 thousand),
respectively. The aggregate future annual maturities of bonds, long-term loans from banks and other financial
institutions as of March 31, 2005 are as follows: Thousands ofMillions of Yen
    
    U.S. DollarsYear ending March 31,2006
    
    
    ¥  64,315
    
    
    
    $   598,8922007
    
    
    45,403
    
    
    
    422,7862008
    
    
    26,465
    
    
    
    246,4382009
    
    
    496
    
    
    
    4,6192010 and thereafter
    
    
    165
    
    
    
    1,536Total long-term borrowings:
    
    
    ¥136,844
    
    
    
    $1,274,271
 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.
As of March 31, 2005, the following assets were pledged for short and long-term borrowings as
collateral. Thousands ofMillions of Yen
    
    U.S. DollarsRestricted cash in banks
    
    
    ¥      418
    
    
    
    $    3,892Loans receivable
    
    
    18,587
    
    
    
    173,079Purchased loans receivable
    
    
    456
    
    
    
    4,247Total assets pledged as collateral
    
    
    ¥19,461
    
    
    
    $181,218
 F-31




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS In addition, the Company is subject to financial covenants which require the Company to meet
various operating and liquidity measures. The Company is in compliance with these covenants as of
March 31, 2005.  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 ¥881 million, ¥896 million and ¥911 million ($8,483 thousand) for the
years ended March 31, 2003, 2004 and 2005, 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, 2005 are as follows: Thousands ofMillions of Yen
    
    U.S. DollarsYear ending March 31,2006
    
    
    ¥689
    
    
    
    $6,4152007
    
    
    162
    
    
    
    1,5092008
    
    
    9
    
    
    
    84Total minimum future rentals
    
    
    ¥860
    
    
    
    $8,008
 The Company leases certain equipment, software and vehicles under capital leases. Acquisition costs and accumulated amortization of leased assets as of March 31, 2004 and 2005 are
as follows: Thousand ofMillions of Yen
    
    U.S. Dollars2004
    
    2005
    
    2005Acquisition costs
    
    
    ¥ 3,640
    
    
    
    ¥ 2,762
    
    
    
    ¥ 25,719Accumulated amortization
    
    
    (1,608
    )
    
    
    (1,101
    )
    
    
    (10,252
    )Net leased property
    
    
    ¥ 2,032
    
    
    
    ¥ 1,661
    
    
    
    $ 15,467
 F-32




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Future minimum lease payments for the above assets under capital leases as of March 31, 2005
are as follows: Thousands ofMillions of Yen
    
    U.S. DollarsYear ending March 31,2006
    
    
    ¥    613
    
    
    
    $  5,7082007
    
    
    582
    
    
    
    5,4192008
    
    
    366
    
    
    
    3,4082009
    
    
    147
    
    
    
    1,3692010 and thereafter
    
    
    27
    
    
    
    252Total minimum lease payments
    
    
    1,735
    
    
    
    16,156Less: Amount representing interest
    
    
    (52
    )
    
    
    (484
    )Present value of minimum lease payments
    
    
    1,683
    
    
    
    15,672Less: Current portion
    
    
    (586
    )
    
    
    (5,457
    )Long-term capital lease obligations
    
    
    ¥1,097
    
    
    
    $10,215
  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, 2004 and 2005. 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, 2004 and 2005 are as follows: Change in benefit obligation Thousands ofMillions of Yen
    
    U.S. Dollars2004
    
    2005
    
    2005Benefit obligation at beginning of year
    
    
    ¥336
    
    
    
    ¥334
    
    
    
    $3,110Service cost
    
    
    
    
    
    
    
    
    
    
    Interest cost
    
    
    
    
    
    
    
    
    
    
    Actuarial loss
    
    
    
    
    
    
    
    
    
    
    Benefit paid
    
    
    (2
    )
    
    
    (4
    )
    
    
    (37
    )Benefit obligation at end of year
    
    
    ¥334
    
    
    
    ¥330
    
    
    
    $3,073
 F-33




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Total recognized liabilities in the balance sheets Thousands ofMillions of Yen
    
    U.S. Dollars2004
    
    2005
    
    2005Employees
    
    
    ¥  
    
    
    
    ¥  
    
    
    
    $     Directors and statutory auditors
    
    
    334
    
    
    
    330
    
    
    
    3,073Obligations in excess of plan assets
    
    
    ¥334
    
    
    
    ¥330
    
    
    
    $3,073
 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 ¥331 million,
¥310 million and ¥358 million ($3,334 thousand) for the years ended March 31, 2003, 2004 and 2005,
respectively.  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 contracts. The
counter-parties to these instruments are major international financial institutions with favorable
credit ratings, thereby reducing credit risk exposure for non-performance. Derivative financial instruments outstanding as of March 31, 2004 and 2005 are summarized as
follows: Interest rate swap: 2004: Millions of Yen
    
    
    
    
    
    
    
    Millions of YenNumber of
    
    Notional
    
    Interest Rate
    
    Ultimate
    
    Fair
    
    DeferredAgreements
    
    Principal
    
    Pay
    
    Receive
    
    Maturity
    
    Value
    
    Amount1
    
    
    ¥483
    
    
    Fixed at 2.190%
    
    TIBOR+1.250%
    
    August 2006
    
    
    ¥(5
    )
    
    
    ¥(5
    )
 2005: Millions of Yen
    
    
    
    
    
    
    
    Millions of YenNumber of
    
    Notional
    
    Interest Rate
    
    Ultimate
    
    Fair
    
    DeferredAgreements
    
    Principal
    
    Pay
    
    Receive
    
    Maturity
    
    Value
    
    Amount1
    
    
    ¥   483
    
    
    Fixed at 2.190%
    
    TIBOR+1.250%
    
    August 2006
    
    
    ¥(2
    )
    
    
    ¥(2
    )1
    
    
    2,000
    
    
    Fixed at 1.610%
    
    TIBOR+1.250%
    
    March 2006
    
    
    (5
    )
    
    
    (5
    )2
    
    
    ¥2,483
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    ¥(7
    )
    
    
    ¥(7
    )Thousands ofU.S. Dollars
    
    
    
    
    
    
    
    
    
    
    
    
    
    Thousands of U.S. DollarsNumber of
    
    Notional
    
    Interest
Rate
    
    Ultimate
    
    Fair
    
    DeferredAgreements
    
    Principal
    
    Pay
    
    Receive
    
    Maturity
    
    Value
    
    Amount1
    
    
    $  4,497
    
    
    Fixed at 2.190%
    
    TIBOR+1.250%
    
    August 2006
    
    
    $(18
    )
    
    
    $(18
    )1
    
    
    18,624
    
    
    Fixed at 1.610%
    
    TIBOR+1.250%
    
    March 2006
    
    
    (47
    )
    
    
    (47
    )2
    
    
    $23,121
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $(65
    )
    
    
    $(65
    )
 F-34




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Applicable interest rate as of
March 31, 2004 is as follows:  ¥TIBOR (TIBOR Yen Rate for 3 Months)
    
    
    0.080
    %
 Applicable interest rate as of
March 31, 2005 is as follows:  ¥TIBOR (TIBOR Yen Rate for 3 Months)
    
    
    0.093
    %
 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 and 2005.  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. The Companys unfunded credit lines at March 31, 2004 and 2005 are as follows: Thousands ofMillions of Yen
    
    
    U.S. Dollars2004
    
    
    2005
    
    
    2005Business Timely loans:Unfunded credit lines with loans outstanding
    
    
    ¥  3,204
    
    
    
    ¥  5,645
    
    
    
    $  52,565Unfunded credit lines without loans
outstanding
    
    
    19,073
    
    
    
    35,075
    
    
    
    326,613Consumer loans:Unfunded credit lines with loans outstanding
    
    
    3,738
    
    
    
    420
    
    
    
    3,911Unfunded credit lines without loans
outstanding
    
    
    15,169
    
    
    
    5,345
    
    
    
    49,772Other:Unfunded credit lines with loans outstanding
    
    
    35
    
    
    
    120
    
    
    
    1,117Unfunded credit lines without loans
outstanding
    
    
    382
    
    
    
    385
    
    
    
    3,586Total unfunded credit lines
    
    
    ¥41,601
    
    
    
    ¥46,990
    
    
    
    $437,564
 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
small business owner and 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, 2003, 2004 and 2005, ¥72 million, ¥134 million and ¥190 million ($1,769 thousand) in interest
income was refunded to borrowers, respectively. F-35




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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 neither required to have a guarantor nor 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 pay out on its guarantees 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 are designed for small or medium 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 pay out on its
guarantees for the loans for which payments are 90 days or more delinquent. Business loans are
unsecured loans designed for small or medium size corporations. NISSIN guarantees borrowings by customers of Chuo Mitsui Finance Service Co., Ltd. (CMFS), an
affiliate 30% owned by NISSIN, and receives guarantee fees. NISSIN receives guarantee fees from
the following loan products that CMFS sells:  Business Card loans: NISSIN guarantees 10% of borrowings by customers for Business Card loans and
receives 10% of the interest received from the total borrowings. NISSIN is required to pay out on
its guarantees for the loans for which payments are 90 days or more delinquent. Business Card
loans are unsecured loans designed for small or medium size corporations.Real Estate Finance: NISSIN guarantees 10% of borrowings by customers for Real Estate Finance and
receives 10% of the interest received from the total borrowings. NISSIN is required to pay out on
its guarantees for the loans for which payments are 30 days or more delinquent. In addition, NIS Lease Co., Ltd., a consolidated subsidiary, guarantees accounts receivable of
certain borrowers for a fee determined based on borrowers creditworthiness and contract duration.
At March 31, 2004, the fee rate was 3.0%. At March 31, 2005, the fee rate ranged from 0.5% to
5.0%, with an average fee rate of 1.95%. The Company maintains reserves for all estimated guarantee losses in Other liabilities in the
accompanying consolidated balance sheets. Upon payment of any guarantees, the Company records a corresponding receivable from the
counterparty company, offset by an allowance for deemed uncollectible amounts. As of March 31,
2004 and 2005, receivables from execution of guarantees of ¥70 million and ¥235 million ($2,188
thousand), which was offset by allowances of ¥70 million and ¥208 million ($1,937 thousand), are
recorded in Other assets in the accompanying consolidated balance sheets, respectively. Also, NISSIN was liable as a guarantor for bank loans borrowed by SBF and CMFS, and received
guarantee fees equivalent to an annual interest rate of 1.5% and 1.0%, respectively. F-36




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of March 31, 2004 and
2005, the Companys guaranteed borrowings, guaranteed accounts receivable,
guarantees for borrowing of other companies and reserve for guarantee losses are as follows: Thousands ofMillions of Yen
    
    
    U.S. Dollars2004
    
    
    2005
    
    
    2005Guaranteed borrowings
    
    
    ¥3,616
    
    
    
    ¥7,343
    
    
    
    $68,377Guaranteed
accounts receivable
    
    
    3
    
    
    
    358
    
    
    
    3,334Guarantees for borrowings of other companies:Shinsei Business Finance Co., Ltd.
    
    
    1,200
    
    
    
    3,645
    
    
    
    33,942Chuo Mitsui Finance Service Co., Ltd.
    
    
    
    
    
    
    150
    
    
    
    1,397Reserve for guarantee losses
    
    
    108
    
    
    
    371
    
    
    
    3,455
 During the years ended March 31, 2003, 2004 and 2005, the Company paid the related
administrative and other expenses, as discussed above, and received guarantee fees as follows: Thousands ofMillions of Yen
    
    
    U.S. Dollars2003
    
    
    2004
    
    
    2005
    
    
    2005Guarantee fees received from:Guaranteed borrowings and accounts receivable
    
    
    ¥ 93
    
    
    
    ¥ 362
    
    
    
    ¥ 845
    
    
    
    $ 7,868Guarantees
for borrowings of other companies
    
    
    
    
    
    
    6
    
    
    
    34
    
    
    
    317Total guarantee fees received
    
    
    93
    
    
    
    368
    
    
    
    879
    
    
    
    8,185Administrative expenses and other paid
    
    
    (67
    )
    
    
    (255
    )
    
    
    (562
    )
    
    
    (5,233
    )Net guarantee fees received
    
    
    ¥ 26
    
    
    
    ¥ 113
    
    
    
    ¥ 317
    
    
    
    $ 2,952
 During the years ended March 31, 2003, 2004 and 2005, as a result of contractual commitments,
the Company paid ¥3 million, ¥89 million and ¥270 million ($2,514 thousand) as a guarantor for the
borrowings.  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, 2004
and 2005, legal reserves included in NISSINs retained earnings were ¥401 million ($3,734
thousand). Also, as of March 31, 2005, legal reserves included in SVCs retained earnings were ¥2
million ($19 thousand). F-37




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The maximum amount that NISSIN and each of its subsidiaries can distribute as dividends is
calculated based on each companys
unconsolidated retained earnings excluding legal reserves of each company in accordance with the
Code. On June 22, 2004, at the Annual Shareholders Meeting, the shareholders authorized an increase in
authorized shares from 480 million shares to 960 million shares. In addition, on August 17, 2004,
the Board of Directors approved an increase in authorized shares from 960 million shares to 1,920
million shares. On February 15, 2005, the Board of the Directors approved a 1.2-for-1 split of the common stock for
shareholders of record as of March 31, 2005. The stock split was effective on May 20, 2005. As a
result of the split, the number of outstanding shares of common stock increased by 108,933,686.
All share and per share amounts in these financial statements have been retroactively adjusted to
reflect post-split amounts.  15.

Issuance of Stock by Subsidiaries On November 25, 2003 and February 9, 2004, SVC, a previously wholly-owned subsidiary of NISSIN,
completed a sale of additional shares to third parties. The number of stock newly issued was 2,000
shares and 20,600 shares, and the price per share was ¥4,500 and ¥25,000, respectively. As a
result, SVC became an 89.8% subsidiary of NISSIN. Gain on change of interest of ¥368 million was
included in Gain on sales of subsidiaries and affiliates, net in the accompanying consolidated
statements of income. As discussed in Note 1, SVC listed its stock on the Mothers market of the Tokyo Stock Exchange on
September 16, 2004. The number of stock newly issued due to the initial public offering was 25,000
shares, and the price per share was ¥90,000 ($838.07). SVC also issued 15,800 shares to directors
and employees in connection with employee exercises under its stock option plan during the year
ended March 31, 2005, with an average price per share of ¥2,500 ($23.28). As a result, NISSINs
interest in SVC has been diluted from 89.8% to the current 75.9%. Net gain on change of interest
of ¥1,339 million ($12,469 thousand) was recorded in Gain on sales of subsidiaries and affiliates,
net in the accompanying consolidated statements of income. The Company continues to recognize
gains or losses from dilution of its interest in SVC.  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., currently Tenpo
Ryutsuu Net, 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 and recognized a gain of ¥82 million. As a
result, NISSIN owns only 10% of Big Apple Co., Ltd. and accounts for its investment under the cost
method. F-38




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  17.

Related Party Transactions The Company received insurance agency services from an entity 100% owned by NISSINs chairman and
his relatives prior to the year ended March 31, 2005. Further the Company leases office space to
the same entity. 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
does not intend to engage in any insurance transaction with the above entity in the future. These transactions for the years ended March 31, 2003, 2004 and 2005 are summarized as follows: Thousands ofMillions of Yen
    
    
    U.S. Dollars2003
    
    2004
    
    2005
    
    2005Insurance paid to related party
    
    
    ¥45
    
    
    
    ¥1
    
    
    
    ¥
    
    
    
    $Rent income from related party
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    9
 The Company leases office and parking space to another entity 93.3% owned by NISSINs
president and his relatives. Total rent received was ¥4 million, ¥2 million and ¥2 million ($19
thousand) for the years ended March 31, 2003, 2004 and 2005, 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. On March 18, 2004, the Company received ¥117 million 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, 2003 and 2004, the Company paid commissions on business
introductions of ¥33 million and ¥35 million, respectively, to Ascot Co., Ltd., a former
equity-method affiliate. During the years ended March 31, 2003, 2004 and 2005, 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
    
    2005
    
    2005Commissions paid
    
    
    ¥  1
    
    
    
    ¥11
    
    
    
    ¥ 32
    
    
    
    $  298Commissions received
    
    
    
    
    
    
    16
    
    
    
    13
    
    
    
    121Loan guarantee fees received
    
    
    4
    
    
    
    90
    
    
    
    316
    
    
    
    2,943Bank loan guarantee fees received
    
    
    
    
    
    
    6
    
    
    
    34
    
    
    
    317
 F-39




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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 and 2005.
During the years ended March 31, 2003, 2004 and 2005, the transactions with Webcashing.com Co.,
Ltd. are as follows: Thousands ofMillions of Yen
    
    
    U.S. Dollars2003
    
    
    2004
    
    
    2005
    
    
    2005Commissions paid
    
    
    ¥379
    
    
    
    ¥291
    
    
    
    ¥205
    
    
    
    $1,909Advertising expenses and other fees paid
    
    
    45
    
    
    
    10
    
    
    
    175
    
    
    
    1,630Proceeds from sale of equipment and software
    
    
    
    
    
    
    22
    
    
    
    
    
    
    
    
 As discussed in Note 7, on November 9, 2004, Chuo Mitsui Finance Service Co., Ltd. became a
30% owned affiliate. During the year ended March 31, 2005, the Company paid commission fees of ¥6
thousand ($56), and received loan guarantee fees of ¥6 thousand ($56) and bank loan guarantee fees
of ¥29 thousand ($270) from Chuo Mitsui Finance Service Co., Ltd.  18.

Income Taxes The components of income tax expense for the years ended March 31, 2003, 2004 and 2005 are as
follows: Thousands ofMillions of Yen
    
    
    U.S. Dollars2003
    
    
    2004
    
    
    2005
    
    
    2005Current:National
    
    
    ¥ 3,286
    
    
    
    ¥3,353
    
    
    
    ¥2,132
    
    
    
    $19,853Local
    
    
    1,804
    
    
    
    1,862
    
    
    
    1,087
    
    
    
    10,1225,090
    
    
    
    5,215
    
    
    
    3,219
    
    
    
    29,975Deferred:National
    
    
    (753
    )
    
    
    (407
    )
    
    
    945
    
    
    
    8,800Local
    
    
    (413
    )
    
    
    (226
    )
    
    
    482
    
    
    
    4,488(1,166
    )
    
    
    (633
    )
    
    
    1,427
    
    
    
    13,288Income taxes
    
    
    ¥ 3,924
    
    
    
    ¥4,582
    
    
    
    ¥4,646
    
    
    
    $43,263
 F-40




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The significant components of deferred tax assets and liabilities as of March 31, 2004 and
2005 are as follows: Thousands ofMillions of Yen
    
    
    U.S. Dollars2004
    
    
    2005
    
    
    2005Deferred tax assets:Loans receivable charge-offs
    
    
    ¥     44
    
    
    
    ¥      16
    
    
    
    $      149Allowance for loan losses
    
    
    2,024
    
    
    
    649
    
    
    
    6,043Accrued local taxes
    
    
    238
    
    
    
    22
    
    
    
    205Accrued retirement benefits
    
    
    134
    
    
    
    134
    
    
    
    1,248Accrued salary expenses
    
    
    391
    
    
    
    407
    
    
    
    3,790Impairment of long-lived assets
    
    
    241
    
    
    
    239
    
    
    
    2,226Other
    
    
    149
    
    
    
    314
    
    
    
    2,924Total deferred tax assets
    
    
    3,221
    
    
    
    1,781
    
    
    
    16,585Deferred tax liabilities:Investment securities  difference in basis
    
    
    2,104
    
    
    
    5,371
    
    
    
    50,014Bond issuance costs
    
    
    121
    
    
    
    104
    
    
    
    968Loan origination costs
    
    
    384
    
    
    
    320
    
    
    
    2,980Accumulated depreciation
    
    
    33
    
    
    
    57
    
    
    
    531Other
    
    
    
    
    
    
    35
    
    
    
    326Total deferred tax liabilities
    
    
    2,642
    
    
    
    5,887
    
    
    
    54,819Deferred tax assets (liabilities), net
    
    
    ¥   579
    
    
    
    ¥(4,106
    )
    
    
    $(38,234
    )
 The Company believes that it will fully realize its total deferred tax assets as of March 31,
2005 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 March 31, 2003 and 2004 and 40.5% for the year
ended March 31, 2005. This change is due to the change in Japanese tax regulations enacted on
March 24, 2003, which reduced the statutory tax rate from 41.8% to 40.5% effective from the fiscal
year beginning on April 1, 2004. Reconciliation of the differences between the statutory tax rate and the effective income tax rate
for the years ended March 31, 2003, 2004 and 2005 are as follows: 2003
    
    2004
    
    2005Statutory tax rate
    
    
    41.8
    %
    
    
    41.8
    %
    
    
    40.5
    %Increase (reduction) in taxes resulting from:Expenses not deductible for tax purpose
    
    
    0.6
    
    
    
    0.4
    
    
    
    0.3Per capita levy
    
    
    0.7
    
    
    
    0.6
    
    
    
    0.4Special tax credit upon application of
IT Investment Promotion Tax Incentive
    
    
    
    
    
    
    (0.1
    )
    
    
    (1.9
    )Effect of tax rate change
    
    
    (0.2
    )
    
    
    
    
    
    
    Other
    
    
    0.2
    
    
    
    0.3
    
    
    
    (0.9
    )Effective income tax rate
    
    
    43.1
    %
    
    
    43.0
    %
    
    
    38.4
    %
 F-41




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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
retroactively adjusted to reflect the 2-for-1 stock splits that were completed on May 20, 2004 and
November 19, 2004, and the 1.2-for-1 stock split that were completed on May 20, 2005.
Reconciliation of the differences between basic and diluted EPS for the years ended March 31, 2003,
2004 and 2005 is as follows: Thousands ofMillions of Yen
    
    
    U.S. Dollars2003
    
    
    2004
    
    
    2005
    
    
    2005Net income
    
    
    ¥5,176
    
    
    
    ¥6,077
    
    
    
    ¥7,262
    
    
    
    $67,623After-tax
equivalent of
interest expense on
1.7% convertible
bond
    
    
    99
    
    
    
    101
    
    
    
    100
    
    
    
    931Loss on change of
equity interest as
a result of
exercise of stock
options of a
subsidiary
    
    
    
    
    
    
    
    
    
    
    (53
    )
    
    
    (494
    )Income for purpose
of computing
diluted net income
per share
    
    
    ¥5,275
    
    
    
    ¥6,178
    
    
    
    ¥7,309
    
    
    
    $68,060
 Thousands of Shares2003
    
    
    2004
    
    
    2005Weighted-average
shares outstanding  basic
    
    
    618,816
    
    
    
    598,464
    
    
    
    610,414Effect of dilutive securities:Warrants and options
    
    
    
    
    
    
    586
    
    
    
    4,987Convertible bond
    
    
    61,142
    
    
    
    61,147
    
    
    
    60,566Weighted-average shares outstanding for
diluted EPS computation
    
    
    679,958
    
    
    
    660,197
    
    
    
    675,967
 Yen
    
    
    U.S. Dollars2003
    
    
    2004
    
    
    2005
    
    
    2005Basic EPS
    
    
    ¥8.37
    
    
    
    ¥10.15
    
    
    
    ¥11.90
    
    
    
    $0.11Diluted EPS
    
    
    7.76
    
    
    
    9.36
    
    
    
    10.81
    
    
    
    0.10
 F-42




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  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 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
exercisable into approximately 12,466 thousand shares of common stock at an exercise price of
¥120.40 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 the Company. All warrants matured by March 31, 2005. 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 9,936 thousand shares were granted at the exercise
price of ¥108.00 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 the Company. 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 employees with tenure of over one year on September 10, 2002. Under this stock option
plan, options to purchase common stock of 14,352 thousand shares were granted at the exercise price
of ¥105.00 ($0.98) 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 earlier of September 30,
2005 or termination of employment with the Company. 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 loaned 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 6,480 thousand shares were granted at the exercise price of ¥111.00 ($1.03) 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 earlier of July 31, 2006 or termination of employment with the Company. Following approval of the shareholders at NISSINs annual meeting on June 22, 2004, NISSIN granted
share subscription rights to the Companys directors, statutory auditors, corporate advisors and
employees, including employees loaned to other companies and employee of other companies loaned to
the Company, and temporary employees with tenure of over one year on July 15, 2004. Under this
stock option plan, options to purchase common stock of 15,984 thousand shares were granted at the
exercise price of ¥209.00 ($1.95) 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, 2004 and expire on the earlier of July 31, 2007 or termination of
employment with the Company. Following approval of the shareholders at NISSINs annual meeting on June 22, 2004, NISSIN granted
share subscription rights to employees on January 20, 2005. Under this stock option plan, options
to purchase common stock of 192 thousand shares were granted at the exercise price of ¥217.00
($2.02) 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
February 1, 2005 and expire on the earlier of January 31, 2008 or termination of employment with
the Company. F-43




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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. Additionally, options are immediately exercisable upon granted. A summary of changes in NISSINs stock options and warrants during the years ended March 31, 2003,
2004 and 2005 is as follows: Weighted-average ExerciseNumber of Shares
    
    Price Per Shares(Thousands)
    
    Yen
    
    U.S. DollarsOutstanding at March 31, 2002
    
    
    12,604
    
    
    
    ¥120
    
    
    
    $1.12Granted
    
    
    14,352
    
    
    
    104
    
    
    
    0.97Exercised
    
    
    (192
    )
    
    
    104
    
    
    
    0.97Expired or forfeited
    
    
    (2,510
    )
    
    
    109
    
    
    
    1.01Outstanding at March 31, 2003
    
    
    24,254
    
    
    
    112
    
    
    
    1.04Granted
    
    
    6,480
    
    
    
    111
    
    
    
    1.03Exercised
    
    
    (13,308
    )
    
    
    117
    
    
    
    1.09Expired or forfeited
    
    
    (2,720
    )
    
    
    108
    
    
    
    1.01Outstanding at March 31, 2004
    
    
    14,706
    
    
    
    109
    
    
    
    1.01Granted
    
    
    16,176
    
    
    
    209
    
    
    
    1.95Exercised
    
    
    (8,005
    )
    
    
    121
    
    
    
    1.13Expired or forfeited
    
    
    (1,860
    )
    
    
    184
    
    
    
    1.71Outstanding at March 31, 2005
    
    
    21,017
    
    
    
    ¥174
    
    
    
    $1.62
 A summary of NISSINs stock options outstanding as of March 31, 2005 is as follows: Number ofShares
    
    Weighted-average Exercise
    
    Weighted-averageOutstanding
    
    Price Per Shares
    
    Remaining LifeExercise Prices (Yen)
    
    (Thousands)
    
    Yen
    
    U.S. Dollars
    
    (Years)¥105 ~ ¥111
    
    
    7,301
    
    
    
    ¥108
    
    
    
    $1.01
    
    
    
    1.0¥209 ~ ¥217
    
    
    13,716
    
    
    
    209
    
    
    
    1.95
    
    
    
    2.421,017
    
    
    
    ¥174
    
    
    
    $1.62
    
    
    
    1.9
 SVC, a 75.9% owned subsidiary of NISSIN, also has subsidiary stock-based compensation plans as
incentive plans for its directors and selected employees. Following approval of SVCs shareholders meeting on September 9, 2002, SVC granted share
subscription rights to its directors, statutory auditors and employees on September 26, 2002.
Under this stock option plan, options to purchase common stock of 20,000 shares were granted at the
exercise price of ¥2,500 ($23.28) per share, which was priced at the initial cost of SVCs common
stock, are exercisable from October 1, 2004 and expire on the earlier of September 30, 2007 or
termination of employment with SVC. Following approval of SVCs shareholders meeting on June 23, 2003, SVC granted share subscription
rights to its directors and employees F-44




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS on July 29, 2003. Under this stock option plan, options to
purchase common stock of 5,900 shares were granted at the exercise price of ¥4,500 ($41.90) per
share, which was priced at estimated average net assets of SVC for the six months ended September
30, 2003, are
exercisable from July 1, 2005 and expire on the earlier of June 30, 2008 or termination of
employment with SVC. Following approval of SVCs shareholders meeting on March 30, 2004, SVC granted share subscription
rights to its directors, statutory auditors and employees on March 30, 2004. Under this stock
option plan, options to purchase common stock of 3,740 shares were granted at the exercise price of
¥25,000 ($232.80) per share, which was priced at the fair value of SVC as of September 30, 2003
calculated using the discounted cash flow method, are exercisable from April 1, 2006 and expire on
the earlier of March 31, 2009 or termination of employment with SVC. Under APB 25, SVC recognized no compensation expense related to these grants as the options were
granted at SVCs fair value on the day of grant. The options vest upon approximately two years of
services from the day of grant, given SVCs common stock is publicly traded. A summary of changes in SVCs stock options during the years ended March 31, 2003, 2004 and 2005 is
as follows: Weighted-average
    
    Weighted-average ExerciseNumber of Shares
    
    Remaining Life
    
    Price Per Shares(Shares)
    
    (Years)
    
    Yen
    
    U.S. DollarsOutstanding at March 31, 2002
    
    
    
    
    
    
    
    
    
    
    ¥      
    
    
    
    $      Granted
    
    
    20,000
    
    
    
    5.0
    
    
    
    2,500
    
    
    
    23.28Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expired or forfeited
    
    
    (900
    )
    
    
    
    
    
    
    2,500
    
    
    
    23.28Outstanding at March 31, 2003
    
    
    19,100
    
    
    
    4.5
    
    
    
    2,500
    
    
    
    23.28Granted
    
    
    9,640
    
    
    
    5.0
    
    
    
    12,453
    
    
    
    115.96Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expired or forfeited
    
    
    (3,700
    )
    
    
    
    
    
    
    3,257
    
    
    
    30.33Outstanding at March 31, 2004
    
    
    25,040
    
    
    
    3.9
    
    
    
    6,220
    
    
    
    57.92Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (15,800
    )
    
    
    
    
    
    
    2,500
    
    
    
    23.28Expired or forfeited
    
    
    (540
    )
    
    
    
    
    
    
    13,611
    
    
    
    126.74Outstanding at March 31, 2005
    
    
    8,700
    
    
    
    3.5
    
    
    
    ¥12,517
    
    
    
    $116.56
 A summary of SVCs stock options outstanding as of March 31, 2005 is as follows: Number of Shares
    
    Weighted-averageOutstanding
    
    Remaining LifeExercise Prices (Yen)
    
    (Thousands)
    
    (Years)¥2,500
    
    
    1,000
    
    
    
    2.5¥4,500
    
    
    4,200
    
    
    
    3.3¥25,000
    
    
    3,500
    
    
    
    4.08,700
    
    
    
    3.5
 F-45




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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, 2003,
2004 and 2005, are as follows: Millions of YenCumulative OtherOther Comprehensive
    
    Tax (Expense)
    
    ComprehensiveIncome Before Tax
    
    or Benefit
    
    IncomeMarch 31, 2002
    
    
    ¥     194
    
    
    
    ¥     (81
    )
    
    
    ¥   113Unrealized gains on investment securities:Unrealized holding gains (losses) during the period
    
    
    (1,127
    )
    
    
    459
    
    
    
    (668
    )Reclassification adjustment for realized (gains) losses
included in net income
    
    
    973
    
    
    
    (393
    )
    
    
    580Net unrealized holding gains (losses) during the period
    
    
    (154
    )
    
    
    66
    
    
    
    (88
    )Unrealized losses on derivative instruments:Unrealized holding gains (losses) during the period
    
    
    
    
    
    
    
    
    
    
    Reclassification adjustment for realized (gains) losses
included in net income
    
    
    78
    
    
    
    (33
    )
    
    
    45March 31, 2003
    
    
    118
    
    
    
    (48
    )
    
    
    70Unrealized gains on investment securities:Unrealized holding gains (losses) during the period
    
    
    5,276
    
    
    
    (2,132
    )
    
    
    3,144Reclassification adjustment for realized (gains) losses
included in net income
    
    
    268
    
    
    
    (108
    )
    
    
    160Net unrealized holding gains (losses) during the period
    
    
    5,544
    
    
    
    (2,240
    )
    
    
    3,304Unrealized losses on derivative instruments:Unrealized holding gains (losses) during the period
    
    
    (5
    )
    
    
    2
    
    
    
    (3
    )Reclassification adjustment for realized (gains) losses
included in net income
    
    
    
    
    
    
    
    
    
    
    March 31, 2004
    
    
    5,657
    
    
    
    (2,286
    )
    
    
    3,371Unrealized gains on investment securities:Unrealized holding gains (losses) during the period
    
    
    7,428
    
    
    
    (3,008
    )
    
    
    4,420Reclassification adjustment for realized (gains) losses
included in net income
    
    
    513
    
    
    
    (208
    )
    
    
    305Net unrealized holding gains (losses) during the period
    
    
    7,941
    
    
    
    (3,216
    )
    
    
    4,725Unrealized losses on derivative instruments:Unrealized holding gains (losses) during the period
    
    
    (2
    )
    
    
    1
    
    
    
    (1
    )Reclassification adjustment for realized (gains) losses
included in net income
    
    
    
    
    
    
    
    
    
    
    Foreign currency translation adjustments:Unrealized gains (losses) arising during the period
    
    
    (9
    )
    
    
    
    
    
    
    (9
    )Reclassification adjustment for realized (gains) losses
included in net income
    
    
    
    
    
    
    
    
    
    
    March 31, 2005
    
    
    ¥13,587
    
    
    
    ¥(5,501
    )
    
    
    ¥8,086
 F-46




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Thousands of U.S. DollarsCumulative OtherOther Comprehensive
    
    Tax (Expense)
    
    ComprehensiveIncome Before Tax
    
    or Benefit
    
    IncomeMarch 31, 2004
    
    
    $ 52,677
    
    
    
    $(21,287
    )
    
    
    $31,390Unrealized gains on investment securities:Unrealized holding gains (losses) during the period
    
    
    69,168
    
    
    
    (28,010
    )
    
    
    41,158Reclassification adjustment for realized (gains) losses
included in net income
    
    
    4,777
    
    
    
    (1,936
    )
    
    
    2,841Net unrealized holding gains (losses) during the period
    
    
    73,945
    
    
    
    (29,946
    )
    
    
    43,999Unrealized losses on derivative instruments:Unrealized holding gains (losses) during the period
    
    
    (18
    )
    
    
    9
    
    
    
    (9
    )Reclassification adjustment for realized (gains) losses
included in net income
    
    
    
    
    
    
    
    
    
    
    Foreign currency translation adjustments:Unrealized gains (losses) arising during the period
    
    
    (84
    )
    
    
    
    
    
    
    (84
    )Reclassification adjustment for realized (gains) losses
included in net income
    
    
    
    
    
    
    
    
    
    
    March 31, 2005
    
    
    $126,520
    
    
    
    $(51,224
    )
    
    
    $75,296
  22.

Cash Flow Information Cash payments for interest and income taxes during the years ended March 31, 2003, 2004 and 2005
are as follows: Thousands ofMillions of Yen
    
    
    U.S. Dollars2003
    
    
    2004
    
    
    2005
    
    
    2005Interest
    
    
    ¥3,795
    
    
    
    ¥3,591
    
    
    
    ¥2,999
    
    
    
    $27,926Income taxes
    
    
    4,169
    
    
    
    5,378
    
    
    
    5,266
    
    
    
    49,036
 Non-cash investing and financing activities during the years ended March 31, 2003, 2004 and
2005 are as follows: Thousands ofMillions of Yen
    
    
    U.S. Dollars2003
    
    
    2004
    
    
    2005
    
    
    2005Property and equipment
obtained under capital leases
    
    
    ¥1,198
    
    
    
    ¥922
    
    
    
    ¥  792
    
    
    
    $7,375Conversion of convertible bond
    
    
    
    
    
    
    
    
    
    
    1,058
    
    
    
    9,852
  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-47




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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, 2004 and 2005 are
as follows: Millions of Yen
    
    
    Thousands of U.S. Dollars2004
    
    
    2005
    
    
    2005Carrying
    
    
    
    
    
    
    Carrying
    
    
    
    
    
    
    CarryingAmount
    
    
    Fair Value
    
    
    Amount
    
    
    Fair Value
    
    
    Amount
    
    
    Fair ValueFinancial assets:Cash and cash equivalents
    
    
    ¥  20,243
    
    
    
    ¥  20,243
    
    
    
    ¥  25,709
    
    
    
    ¥  25,709
    
    
    
    $   239,398
    
    
    
    $   239,398Loans receivable, net
    
    
    166,890
    
    
    
    166,890
    
    
    
    146,119
    
    
    
    146,119
    
    
    
    1,360,639
    
    
    
    1,360,639Purchased loans receivable, net
    
    
    4,342
    
    
    
    4,342
    
    
    
    13,581
    
    
    
    13,581
    
    
    
    126,464
    
    
    
    126,464Investment securities
    
    
    9,174
    
    
    
    9,174
    
    
    
    28,443
    
    
    
    28,443
    
    
    
    264,857
    
    
    
    264,857Financial liabilities:Short-term borrowings
    
    
    5,563
    
    
    
    5,563
    
    
    
    12,600
    
    
    
    12,600
    
    
    
    117,329
    
    
    
    117,329Long-term borrowings
    
    
    142,577
    
    
    
    142,942
    
    
    
    136,844
    
    
    
    140,752
    
    
    
    1,274,271
    
    
    
    1,310,662Off-balance-sheet financial
instruments:Interest rate swaps
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    (7
    )
    
    
    
    
    
    
    (65
    )Borrowings with guarantees
    
    
    
    
    
    
    (108
    )
    
    
    
    
    
    
    (371
    )
    
    
    
    
    
    
    (3,455
    )
 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 ¥891 million and ¥9,799 million ($91,247 thousand) in
non-marketable securities as of March 31, 2004 and 2005, 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. F-48




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  g)

Interest Rate Swaps:The fair value of interest rate swaps (used for hedging purpose)
reflects the estimated amounts that the Company 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 For financial reporting purposes, the Company operates under the integrated financial services
segment, the loan servicing segment and other segments. The integrated financial services segment
includes small business owner, Wide, Business Timely, consumer, secured and other loans. In the
loan servicing segment, SVC mainly acquires and services non-performing debts from banks and
financial institutions in Japan. The loan servicing segment is operated as a separate segment for
financial reporting purposes. The integrated financial services segment also includes the leasing
and securities businesses as these are currently insignificant and do not give rise to separate
reporting for financial statements purposes. The Company currently conducts its operating
activities mainly in Japan. The Company has recently begun activities in China, but these are
currently insignificant. Selected information for the Companys business segments for the years
ended March 31, 2003, 2004 and 2005 is as follows: Millions of YenIntegratedFinancial
    
    LoanServices
    
    Servicing
    
    Total2003:Total interest income
    
    
    ¥  38,520
    
    
    
    ¥    714
    
    
    
    ¥   39,234Total interest expense
    
    
    3,951
    
    
    
    33
    
    
    
    3,984Provision for loan losses, net
    
    
    12,545
    
    
    
    143
    
    
    
    12,688Net income
    
    
    4,968
    
    
    
    208
    
    
    
    5,176Total assets
    
    
    203,236
    
    
    
    3,338
    
    
    
    206,5742004:Total interest income
    
    
    ¥  38,038
    
    
    
    ¥  2,069
    
    
    
    ¥   40,107Total interest expense
    
    
    3,603
    
    
    
    121
    
    
    
    3,724Provision for loan losses, net
    
    
    12,824
    
    
    
    637
    
    
    
    13,461Net income
    
    
    5,671
    
    
    
    406
    
    
    
    6,077Total assets
    
    
    203,527
    
    
    
    6,741
    
    
    
    210,2682005:Total interest income
    
    
    ¥  29,299
    
    
    
    ¥  3,256
    
    
    
    ¥  32,555Total interest expense
    
    
    3,006
    
    
    
    153
    
    
    
    3,159Provision for loan losses, net
    
    
    7,759
    
    
    
    817
    
    
    
    8,576Net income
    
    
    6,244
    
    
    
    1,018
    
    
    
    7,262Total assets
    
    
    206,692
    
    
    
    21,709
    
    
    
    228,401
 F-49




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Thousands of U.S. DollarsIntegratedFinancial
    
    LoanServices
    
    Servicing
    
    Total2005:Total interest income
    
    
    $   272,828
    
    
    
    $  30,319
    
    
    
    $   303,147Total interest expense
    
    
    27,991
    
    
    
    1,425
    
    
    
    29,416Provision for loan losses, net
    
    
    72,250
    
    
    
    7,608
    
    
    
    79,858Net income
    
    
    58,144
    
    
    
    9,479
    
    
    
    67,623Total assets
    
    
    1,924,686
    
    
    
    202,151
    
    
    
    2,126,837
 F-50




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  25.

Subsequent Events  1)

On February 15, 2005, the Board of Directors approved a 1.2-for-1 stock split to be effective
on May 20, 2005 to shareholders of record on March 31, 2005. This stock split has been
reflected in these consolidated financial statements.2)

On April 12, 2005, the Board of Directors approved a resolution on issuance of stock options
to directors and employees on April 21, 2005. Under this stock option plan, options to
purchase common stock of 1,785,600 shares were granted at the exercise price of ¥268 ($2.50)
per share, which was priced at 110% of the monthly averaged closing price of March 2005, and
are exercisable from May 1, 2005 through April 30, 2008 or upon termination of employment with
the Company. On April 21, 2005, the closing price of NISSINs stock on the Tokyo Stock
Exchange was ¥213 ($1.98) per share.3)

On May 17, 2005, the Board of Directors approved the issuance of ¥7.5 billion ($69,839
thousand) aggregate principal amount of unsecured bonds at par with an interest rate of 1.17%
and maturing in three years. Such bond was issued on June 20, 2005, and proceeds from the
bonds will be used for operating activities and repayment of borrowings.4)

On June 22, 2005, the shareholders of NISSIN authorized the following at the Annual
Shareholders Meeting:  (1)

Payment of a year-end cash dividend of ¥2.08 ($0.02) per share to shareholders of
record as of March 31, 2005 or a total of ¥1,292 million ($12,031 thousand)(2)

Payment of bonuses to directors and statutory auditors of ¥71 million ($661 thousand)(3)

The issuance of up to 5 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  

Adoption of public notification by electronic means, instead through an
advertisement in the Nihon Keizai Shimbun  5)

On June 21, 2005, the shareholders of SVC authorized payment of bonuses to its directors and
statutory auditors of ¥13 million ($121 thousand) at its Annual Shareholders Meeting. F-51




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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
    
    
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    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
    
    
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    List of Our Subsidiaries12.1
    
    
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    Certification of the principal executive officer required by 17 C.F.R. 240. 13a-14(a)12.2
    
    
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    Certification of the principal financial officer required by 17 C.F.R. 240. 13a-14(a)13.1
    
    
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    Certification of the chief executive officer required by 18 U.S.C. Section 135013.2
    
    
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Certification
of the chief financial officer required by 18 U.S.C.
Section 1350