##### 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 1934
 OR
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended March 31, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 OR
 o
    
    SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 Date of event requiring this shell company report
 Commission file number: 1-31416
 NIS GROUP Kabushiki Kaisha
  NIS GROUP CO., LTD.
  Japan
    
    Shinjuku L-Tower 25F
6-1, Nishi Shinjuku 1-chome
Shinjuku-ku, Tokyo 163-1525
Japan(Jurisdiction of incorporation or organization)
    
    (Address of principal executive offices)
  Title of each class
    
    Name of each exchange on which registeredCommon Stock*
    
    New York Stock Exchange
 None  None
 142,476,902 shares of our
common stock outstanding at March 31, 2007, including 60,239,900 shares represented by 6,023,990
American Depositary Shares, or ADSs, as adjusted for our 1-for-20 reverse stock split and concurrent
change in the ratio of shares of common stock represented by each ADS from one ADS representing 10
shares to two ADSs representing one share, effective as of August 31, 2007.
 o þ
 o þ
  þ o
  þ o o
 o þ
 o þ
   *
    
    Not for trading, but only in connection with the listing of American Depositary Shares, each
of two American Depositary Shares representing one share of our common stock.




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##### 



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
    
    
    20Item 4A. Unresolved Staff Comments
    
    
    45Item 5. Operating and Financial Review and Prospects
    
    
    46Item 6. Directors, Senior Management and Employees
    
    
    82Item 7. Major Shareholders and Related Party Transactions
    
    
    95Item 8. Financial Information
    
    
    99Item 9. The Offer and Listing
    
    
    101Item 10. Additional Information
    
    
    104Item 11. Quantitative and Qualitative Disclosures About Market Risk
    
    
    121Item 12. Description of Securities Other than Equity Securities
    
    
    124PART IIItem 13. Defaults, Dividend Arrearages and Delinquencies
    
    
    125Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    
    125Item 15. Controls and Procedures
    
    
    125Item 16A. Audit Committee Financial Expert
    
    
    126Item 16B. Code of Ethics
    
    
    126Item 16C. Principal Accountant Fees and Services
    
    
    126Item 16D. Exemptions from the Listing Standards for Audit Committees
    
    
    127Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
    
    
    128PART IIIItem 17. Financial Statements
    
    
    129Item 18. Financial Statements
    
    
    129Item 19. Exhibits
    
    
    129Index to 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-2.1 Specimen of Common Stock CertificatesEX-8.1 List of SubsidiariesEX-11.1 Code of EthicsEX-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 Executive Officer Required by 17 C.F.R.240. 13a-14(a)EX-12.3 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 Executive Officer Required by 18 U.S.C. Section 1350EX-13.3 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
       Special Note Regarding Forward-looking Statements
   
    
    increasing competition among Japans finance companies and other financial
institutions in the business owner and consumer loan industries;
    
    significant changes to the business environment for
moneylending companies in Japan, including as a result of recent
court decisions by the Supreme Court of Japan, and any future changes
to laws and regulations;
 -3-




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
    
    the effect of weak domestic economic conditions, including changes in corporate and
personal bankruptcy and unemployment rates in Japan;
    
    the growing variety of legal means with which debtors can seek protection from
creditors;
    
    changes to our portfolio of products and services and expansion into new business
areas that do not achieve intended results;
    
    the effect of fluctuations in the value of real estate held or securing loans, which
is highly dependent on the health of the Japanese economy and susceptible to regulatory
and legal changes;
    
    fluctuation in market environments regarding our investments;
    
    our ability to pursue and maintain profitable strategic alliances, joint ventures
and strategic investments;
    
    increasing competition in the loan servicing market in which Nissin Servicer Co.,
Ltd., a consolidated subsidiary, operates;
    
    risks associated with doing business in China, including extensive regulation and
legal and market uncertainty;
    
    any future inability to obtain funds from lenders or access the debt capital markets
on favorable terms;
    
    an increase in prevailing market interest rates;
    
    any failure to implement our business strategies successfully;
    
    the failure of our risk management systems to effectively evaluate and manage risks;
    
    our ability to adequately evaluate or control risks
associated with loans or guarantees we make or related collateral;
    
    any disruption, outages, delays or other difficulties experienced by our information
or technological systems and networks;
    
    misconduct by an employee or director and our exposure to negative publicity of the
consumer or business finance industries generally or us specifically;
    
    any failure to maintain the confidentiality of personal information of our
customers; and
    
    the influence of our chairman and his family over important decisions.
 -4-




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##### Table of Contents



PART I
 
 Item 1. Identity of Directors, Senior Management and Advisers
  
 Item 2. Offer Statistics and Expected Timetable
  
 Item 3. Key Information
 A. Selected Financial Data.
   -5-




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Selected Financial Information
 Year Ended/As of March 31,2003
    
    
    2004
    
    
    2005(2)
    
    
    2006
    
    
    2007
    
    
    2007(In millions of yen and thousands of U.S. dollars except number of shares and per share data)Interest income
    
    ¥
    38,591
    
    
    ¥
    38,171
    
    
    ¥
    29,488
    
    
    ¥
    29,826
    
    
    ¥
    33,706
    
    
    $
    285,523Provision for losses on excess interest repayments
    
    
    1,074
    
    
    
    1,411
    
    
    
    2,132
    
    
    
    3,331
    
    
    
    12,664
    
    
    
    107,276Net interest income
    
    
    37,517
    
    
    
    36,760
    
    
    
    27,356
    
    
    
    26,495
    
    
    
    21,042
    
    
    
    178,247Interest expense
    
    
    3,920
    
    
    
    3,605
    
    
    
    2,971
    
    
    
    2,602
    
    
    
    3,870
    
    
    
    32,783Net interest income before provision for loan losses
    
    
    33,597
    
    
    
    33,155
    
    
    
    24,385
    
    
    
    23,893
    
    
    
    17,172
    
    
    
    145,464Provision for loan losses
    
    
    11,543
    
    
    
    11,547
    
    
    
    5,817
    
    
    
    5,923
    
    
    
    10,853
    
    
    
    91,936Net interest income from lending activities
    
    
    22,054
    
    
    
    21,608
    
    
    
    18,568
    
    
    
    17,970
    
    
    
    6,319
    
    
    
    53,528Total other revenue
    
    
    818
    
    
    
    2,573
    
    
    
    5,003
    
    
    
    11,445
    
    
    
    17,585
    
    
    
    148,962Total operating expense
    
    
    13,365
    
    
    
    13,207
    
    
    
    15,438
    
    
    
    17,732
    
    
    
    22,583
    
    
    
    191,300Operating income
    
    
    9,507
    
    
    
    10,974
    
    
    
    8,133
    
    
    
    11,683
    
    
    
    1,321
    
    
    
    11,190Other income (losses)
    
    
    21
    
    
    
    219
    
    
    
    4,061
    
    
    
    3,604
    
    
    
    (881
    )
    
    
    (7,463
    )Other expense
    
    
    428
    
    
    
    534
    
    
    
    286
    
    
    
    618
    
    
    
    453
    
    
    
    3,837Income (losses) before income taxes
    
    
    9,100
    
    
    
    10,659
    
    
    
    11,908
    
    
    
    14,669
    
    
    
    (13
    )
    
    
    (110
    )Income taxes
    
    
    3,924
    
    
    
    4,582
    
    
    
    4,646
    
    
    
    6,214
    
    
    
    1,597
    
    
    
    13,528Net income (losses)
    
    ¥
    5,176
    
    
    ¥
    6,077
    
    
    ¥
    7,262
    
    
    ¥
    8,455
    
    
    ¥
    (1,610
    )
    
    $
    (13,638
    )Consolidated Balance Sheet Data:Cash and cash equivalents
    
    ¥
    23,612
    
    
    ¥
    20,243
    
    
    ¥
    25,709
    
    
    ¥
    22,860
    
    
    ¥
    28,344
    
    
    $
    240,102Loans receivable, net
    
    
    166,977
    
    
    
    166,890
    
    
    
    146,119
    
    
    
    225,947
    
    
    
    250,780
    
    
    
    2,124,354Purchased loans receivable, net
    
    
    2,946
    
    
    
    4,342
    
    
    
    13,581
    
    
    
    24,155
    
    
    
    28,910
    
    
    
    244,896Other
    
    
    13,039
    
    
    
    18,793
    
    
    
    42,992
    
    
    
    86,981
    
    
    
    146,043
    
    
    
    1,237,129Total assets
    
    ¥
    206,574
    
    
    ¥
    210,268
    
    
    ¥
    228,401
    
    
    ¥
    359,943
    
    
    ¥
    454,077
    
    
    $
    3,846,481Short-term borrowings
    
    ¥
    5,600
    
    
    ¥
    5,563
    
    
    ¥
    12,600
    
    
    ¥
    60,411
    
    
    ¥
    84,258
    
    
    $
    713,748Long-term borrowings
    
    
    148,595
    
    
    
    142,577
    
    
    
    136,844
    
    
    
    198,924
    
    
    
    260,817
    
    
    
    2,209,377Other
    
    
    6,782
    
    
    
    7,670
    
    
    
    10,840
    
    
    
    17,671
    
    
    
    22,247
    
    
    
    188,455Total liabilities
    
    
    160,977
    
    
    
    155,810
    
    
    
    160,284
    
    
    
    277,006
    
    
    
    367,322
    
    
    
    3,111,580Minority interests
    
    
    
    
    
    
    161
    
    
    
    1,146
    
    
    
    2,433
    
    
    
    4,192
    
    
    
    35,510Common stock
    
    
    6,611
    
    
    
    7,218
    
    
    
    7,779
    
    
    
    11,849
    
    
    
    16,289
    
    
    
    137,984Additional paid-in capital
    
    
    8,462
    
    
    
    9,092
    
    
    
    9,836
    
    
    
    14,808
    
    
    
    19,490
    
    
    
    165,100Other
    
    
    30,524
    
    
    
    37,987
    
    
    
    49,356
    
    
    
    53,847
    
    
    
    46,784
    
    
    
    396,307Total shareholders equity
    
    
    45,597
    
    
    
    54,297
    
    
    
    66,971
    
    
    
    80,504
    
    
    
    82,563
    
    
    
    699,391Total liabilities and shareholders equity
    
    ¥
    206,574
    
    
    ¥
    210,268
    
    
    ¥
    228,401
    
    
    ¥
    359,943
    
    
    ¥
    454,077
    
    
    $
    3,846,481Number of Shares(1):Issued at the end of fiscal year (in thousands)
    
    
    127,319
    
    
    
    129,337
    
    
    
    130,720
    
    
    
    140,647
    
    
    
    145,894
    
    
    
    145,894Per Share Data(1):Net incomeBasic
    
    ¥
    41.80
    
    
    ¥
    50.80
    
    
    ¥
    59.60
    
    
    ¥
    65.40
    
    
    ¥
    (11.42
    )
    
    $
    (0.097
    )Diluted
    
    
    38.80
    
    
    
    46.80
    
    
    
    54.00
    
    
    
    61.60
    
    
    
    (11.42
    )
    
    
    (0.097
    )Cash dividendsDeclared
    
    
    7.80
    
    
    
    9.00
    
    
    
    16.20
    
    
    
    21.00
    
    
    
    3.20
    
    
    
    0.027Paid during the fiscal year
    
    
    6.60
    
    
    
    8.40
    
    
    
    10.60
    
    
    
    20.40
    
    
    
    14.20
    
    
    
    0.120
 
 (1)
    
    The Company completed a 2-for-1 stock split on each of May 21, 2002, May 20, 2003, May
20, 2004, November 19, 2004, November 18, 2005, and April 1, 2006, respectively, a 1.2-for-1
stock split on May 20, 2005 and 1-for-20 reverse stock split on August 31, 2007. All share
information presented above has been retroactively adjusted to reflect such stock splits and
reverse stock split.(2)
    
    The Company sold ¥32,697 million of unguaranteed consumer loans receivable on June 1, 2004 to
NETCARD, Inc. (formerly known as Orient Credit Co., Ltd.) resulting in a gain of ¥3,327
million. -6-




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Exchange Rate Information
   Year Ended March 31,
    
    High
    
    
    Low
    
    

Average (1)
    
    
    Period-end2003
    
    
    ¥133.40
    
    
    
    ¥115.71
    
    
    
    ¥121.10
    
    
    
    ¥118.072004
    
    
    120.55
    
    
    
    104.18
    
    
    
    112.75
    
    
    
    104.182005
    
    
    114.30
    
    
    
    102.26
    
    
    
    107.28
    
    
    
    107.222006
    
    
    120.93
    
    
    
    104.41
    
    
    
    113.67
    
    
    
    117.482007
    
    
    121.81
    
    
    
    110.07
    
    
    
    116.55
    
    
    
    117.56Calendar MonthJanuary 2007
    
    
    121.81
    
    
    
    118.49
    
    
    
    120.45
    
    
    
    121.02February 2007
    
    
    121.77
    
    
    
    118.33
    
    
    
    120.50
    
    
    
    118.33March 2007
    
    
    118.15
    
    
    
    116.01
    
    
    
    117.26
    
    
    
    117.56April 2007
    
    
    119.84
    
    
    
    117.69
    
    
    
    118.93
    
    
    
    119.44May 2007
    
    
    121.79
    
    
    
    119.77
    
    
    
    120.77
    
    
    
    121.76June 2007
    
    
    124.09
    
    
    
    121.08
    
    
    
    122.69
    
    
    
    123.39July 2007
    
    
    123.34
    
    
    
    118.41
    
    
    
    121.41
    
    
    
    119.13August 2007
    
    
    119.76
    
    
    
    113.81
    
    
    
    116.73
    
    
    
    115.83
 
 (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.




B. Capitalization and Indebtedness.




C. Reasons for the Offer and Use of Proceeds.




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D. Risk Factors.
 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
  Significant
changes to the business environment for moneylending companies in Japan, including as a result of recent court decisions by the Supreme Court of Japan, may continue to adversely affect us, and any future changes to laws and regulations may also adversely affect us
   -8-




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Integrated Financial Services Segment
     
    
    abolish the concept of deemed valid payments under the Moneylending Business Law;
    
    reduce the maximum interest rate under the Contributions Law from 29.2% per year
to 20% per year;
    
    introduce administrative sanctions on charging interest in excess of the maximum
interest rate under the Interest Rate Restriction Law;
    
    obligate registered moneylenders to investigate customers ability to repay and
prohibit excessive lending in respect of loans to individual customers; and
    
    introduce further documentation requirements.
  -9-




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We may suffer larger loan losses if defaults on loans by our customers increase as a result of
weak economic conditions in Japan or otherwise
  An increasing number of our customers seeking protection from creditors under the Bankruptcy Law or
related laws could require us to increase our provision for loan losses and charge-offs
   -10-




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We may change our portfolio of products and services from time to time and expand the business
areas in which we operate but may fail to achieve the intended results
     Our real estate-related businesses are subject to numerous risks, including the health of the
Japanese economy, regulatory and legal changes, and our ability to adequately evaluate and manage
these risks
  -11-




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The fair value of our strategic investments could decline due to a deterioration of the economic
environment or other factors and adversely affect our financial condition
  The strategic alliances, joint ventures and strategic investments which we have entered into may not yield attractive returns and could produce losses
     -12-




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Increasing competition in the loan servicing market in which Nissin Servicer operates could reduce
our profitability
  Our business in China is subject to a number of risks associated with doing business overseas and,
in particular, is subject to extensive Chinese government regulation that changes frequently, and
these regulations could adversely affect our business and operating results
    -13-




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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
     -14-




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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
   Any failure to implement our business strategies successfully will negatively impact our ability to
achieve our financial targets and our managements expectations for business growth
  -15-




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Our risk management structure is based primarily upon observed historical trends in our business
and the experience of our employees and we may not be able to predict future risk exposure
  Any disruption, outages, delays or other difficulties experienced by our information or
technological systems and networks could adversely affect our business
  
    
    the ability of our automated funds 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 third-party wire transfer services which 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.
  Integrated Financial Services
Segment Technology
  -16-




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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
  Compliance with regulations on internal control could adversely affect our results of operations
  
    
    a statement of managements responsibility for establishing and maintaining adequate
internal control over financial reporting for the Group;
    
    a statement identifying the framework used by management to conduct the required
evaluation of the effectiveness of the Groups internal control over financial
reporting;
    
    managements assessment of the effectiveness of the Groups internal control over
financial reporting as of the end of the Groups most recent fiscal year, including a
statement as to whether or not the Groups internal control over financial reporting is
effective; and
    
    a statement that the registered public accounting firm that audited the financial
statements included in the annual report has issued an attestation report on
managements assessment of the registrants internal control over financial reporting.
  Misconduct by an employee or director could harm us and is difficult to detect and deter
  
    
    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.
  -17-




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Any failure to maintain the confidentiality of personal information of our customers could
adversely affect our results of operations
  Our chairman and his family may exercise influence over important business decisions in a way that
conflicts with other shareholders interests
  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
 Passive Foreign Investment Company Rules
 -18-




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Holders of ADSs have fewer rights than shareholders and have to act through the depositary to
exercise those rights
  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
 Japanese Unit
Share System
 -19-




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Item 4. Information on the Company
 A. History and Development of the Company.
               -20-




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B. Business Overview.
 Overview
  
    
    integrated financial services;
    
    servicing business;
    
    real estate business; and
    
    other businesses.For
the year ended March 31, 2007, our operating income was
¥1,321 million and our net losses were
¥1,610 million.
 Our Strategies
 Transform from a Mono-line Lending Business into an Integrated Financial Business
  Provide Integrated Financial Services to SMEs in Japan
  
    
    Broad Range of Services to SMEs. We provide a variety of financial services to
SMEs, depending on their growth stage, in an effort to be our customers primary source
for financial services. In addition to SME loans, we provide leasing and other
services, including secured loans.
    
    Services to SME Owners.For SME owners, we provide SME loans (described in Our
Operations below), as well as installment credit. We seek to customize our products
to the needs of SME owners. For example, we may extend loans to the owners business
directly, with a guarantee from the owner or a third-party, or secure such loans if
appropriate collateral is available.
  -21-




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Expand Real Estate-related Businesses
  
    
    Providing real estate secured loans to property companies for working capital.This
is currently our fastest growing business line, and we focus primarily on small to
medium-sized property companies, which develop small commercial and residential
properties or resell such properties that they purchase. In addition, we established
the Real Estate Structured Finance Department in September 2006, and started providing
non-recourse loans, which generally carried larger loan principal, mainly to special
purpose companies for real estate-related projects.
    
    Investing in real property with a view to resale.We
seek to purchase real estate,
particularly commercial as well as residential rental properties, that we believe can
be operated for profit or resold at a higher price following renovations of the
property or improvements in property management. We conduct this business primarily
through NIS Property.
    
    Acquisition of distressed real estate.Taking advantage of our network of financial
institutions selling distressed loans collateralized by real estate and our experience
in servicing such loans, we seek to acquire distressed real estate assets that we
believe can be restructured and resold at a higher price. We conduct this business
through Nissin Servicer.
  Develop Servicing Business
  Develop Overseas Business, Particularly in China
  Develop Investment Banking, Securities and Venture Capital Business
    -22-




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Our Markets
  Integrated Financial Services
 Japanese SME Finance Industry.
 Japanese Real Estate Finance Industry.
 Japanese Leasing Industry.
 Chinese Leasing and Other Industries.
 Japanese Consumer Finance Industry.
 Japanese Investment Banking and Securities Industries.
 Servicing Business
 Japanese Loan Servicing Industry.
 Real Estate Business
 Japanese Real Estate Industry.
 -23-




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Our Operations
  
    
    integrated financial services;
    
    servicing business;
    
    real estate business; and
    
    other businesses.
     Integrated Financial Services Segment
  -24-




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March 31,2003
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2007(In millions)Balance of loans outstanding by categorySecured loans (1)
    
    ¥
    1,587
    
    
    ¥
    10,003
    
    
    ¥
    18,812
    
    
    ¥
    91,610
    
    
    ¥
    139,691SME loans (2)
    
    
    71,218
    
    
    
    75,827
    
    
    
    79,823
    
    
    
    90,729
    
    
    
    81,688Consumer loans (3)
    
    
    104,931
    
    
    
    93,064
    
    
    
    50,431
    
    
    
    44,158
    
    
    
    34,959Other loans (4)
    
    
    36
    
    
    
    573
    
    
    
    6,296
    
    
    
    10,681
    
    
    
    14,605Total balance of loans outstanding
    
    ¥
    177,772
    
    
    ¥
    179,467
    
    
    ¥
    155,362
    
    
    ¥
    237,178
    
    
    ¥
    270,943
 Year Ended March 31,2003
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2007(In millions)Average balance of loans outstanding by categorySecured loans (1)
    
    ¥
    1,252
    
    
    ¥
    2,235
    
    
    ¥
    9,976
    
    
    ¥
    39,496
    
    
    ¥
    115,779SME loans (2)
    
    
    62,567
    
    
    
    73,556
    
    
    
    76,651
    
    
    
    86,976
    
    
    
    88,159Consumer loans (3)
    
    
    104,836
    
    
    
    100,192
    
    
    
    58,018
    
    
    
    47,250
    
    
    
    39,621Other loans (4)
    
    
    13
    
    
    
    261
    
    
    
    4,166
    
    
    
    10,243
    
    
    
    12,236Total average balance of loans outstanding
    
    ¥
    168,668
    
    
    ¥
    176,244
    
    
    ¥
    148,811
    
    
    ¥
    183,965
    
    
    ¥
    255,795
 
 (1)
    
    Secured loans comprise secured loans to property companies and secured loans to individuals
and SMEs.(2)
    
    SME loans comprise Business Assist loans (formerly Small Business Owner loans) and Business
Timely loans.(3)
    
    Consumer loans comprise Smart Assist loans (formerly Wide loans) and First Plan loans
(formerly consumer loans). In addition, we sold most of the outstanding balance of our
unguaranteed consumer loans to NETCARD, Inc. (formerly known as Orient Credit Co., Ltd.) for
¥32,697 million on June 1, 2004.(4)
    
    Other loans comprise investment in direct finance leases, installment loans, discount notes and
others.(5)
    
    Names of loan products were changed from October 1, 2006.  -25-




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##### Table of Contents



Secured Loans
  Secured Loans to Property Companies.
  As of March 31,2003
    
    2004
    
    2005
    
    2006
    
    2007(In millions except number of accounts)Number of secured loan accounts
    
    
    
    
    
    
    20
    
    
    
    99
    
    
    
    204
    
    
    
    339Balance of loans outstanding
    
    ¥
    
    
    
    ¥
    7,433
    
    
    ¥
    11,890
    
    
    ¥
    52,330
    
    
    ¥
    97,260Balance of loans outstanding per account
    
    
    
    
    
    
    372
    
    
    
    120
    
    
    
    257
    
    
    
    287
  Year Ended March 31,2003
    
    2004
    
    2005
    
    2006
    
    2007(In millions)Advances
    
    ¥
    
    
    
    ¥
    10,397
    
    
    ¥
    18,716
    
    
    ¥
    72,587
    
    
    ¥
    167,895
  Secured Loans to Individuals and SMEs.
 -26-




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##### Table of Contents



SME Loans
      -27-




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##### Table of Contents



As of March 31,2003
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2007Number of SME loan accountsBusiness Assist loans
    
    
    23,439
    
    
    
    24,739
    
    
    
    24,414
    
    
    
    25,797
    
    
    
    21,398Business Timely loans
    
    
    14,511
    
    
    
    16,163
    
    
    
    17,493
    
    
    
    17,228
    
    
    
    15,225Total
    
    
    37,950
    
    
    
    40,902
    
    
    
    41,907
    
    
    
    43,025
    
    
    
    36,623Balance of loans outstanding per account (in thousands)Business Assist loans
    
    
    ¥2,300
    
    
    
    ¥2,311
    
    
    
    ¥2,415
    
    
    
    ¥2,537
    
    
    
    ¥2,729Business Timely loans
    
    
    1,192
    
    
    
    1,154
    
    
    
    1,193
    
    
    
    1,467
    
    
    
    1,531
  Year Ended March 31,2003
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2007(In millions)AdvancesBusiness Assist loans
    
    ¥
    36,560
    
    
    ¥
    35,061
    
    
    ¥
    45,834
    
    
    ¥
    53,134
    
    
    ¥
    37,129Business Timely loans
    
    
    14,330
    
    
    
    13,936
    
    
    
    17,408
    
    
    
    22,249
    
    
    
    14,573Total
    
    ¥
    50,890
    
    
    ¥
    48,997
    
    
    ¥
    63,242
    
    
    ¥
    75,383
    
    
    ¥
    51,702
  Consumer Loans
   -28-




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##### Table of Contents



As of March 31,2003
    
    2004
    
    2005
    
    2006
    
    2007Number of Smart Assist loan accounts
    
    
    36,482
    
    
    
    35,126
    
    
    
    31,440
    
    
    
    27,701
    
    
    
    22,259Balance of loans outstanding per account (in thousands)
    
    ¥
    1,754
    
    
    ¥
    1,636
    
    
    ¥
    1,514
    
    
    ¥
    1,486
    
    
    ¥
    1,471
  Year Ended March 31,2003
    
    2004
    
    2005
    
    2006
    
    2007(In millions)Advances
    
    ¥
    34,294
    
    
    ¥
    20,709
    
    
    ¥
    15,897
    
    
    ¥
    14,977
    
    
    ¥
    10,494
   Other Loans
  Leasing
  -29-




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##### Table of Contents



Other Products and Services
 Credit Guarantee.
 Investment Banking, Securities and Venture Capital Business.
  Opening of Loan Accounts
    -30-




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##### Table of Contents



Collection
   
    
    In the case of a secured loan, Business Assist loan or Smart Assist loan, when
interest payments are delinquent for 44 days;
    
    In the case of a Business Timely loan, when contractual payments are past due for 7 days; and
    
    In the case of a consumer loan, when interest payments are delinquent for 67 days.
  -31-




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##### Table of Contents



Technology
 Branch and Office Network.
 Customer Information.
 Loan Disbursements.
 Servicing Business Segment
   March 31,2003
    
    2004
    
    2005
    
    2006
    
    2007(In millions)Purchased loans
    
    ¥
    3,078
    
    
    ¥
    5,059
    
    
    ¥
    14,863
    
    
    ¥
    25,947
    
    
    ¥
    31,565Real estate for
sale
    
    
    20
    
    
    
    
    
    
    
    668
    
    
    
    6,126
    
    
    
    19,439
 -32-




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##### Table of Contents



Purchased Loans
   Year Ended March 31,2003
    
    2004
    
    2005
    
    2006
    
    2007(In millions)Aggregate purchase price of distressed
loans
    
    ¥
    4,854
    
    
    ¥
    4,502
    
    
    ¥
    16,896
    
    
    ¥
    19,779
    
    
    ¥
    19,565Aggregate principal and interest
collection of distressed loans
    
    
    2,859
    
    
    
    4,538
    
    
    
    10,095
    
    
    
    11,923
    
    
    
    18,856
 Real Estate for Sale
  Real Estate Business Segment
    -33-




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##### Table of Contents





As of March 31, 2007Number of
    
    
    Asset BookProperties
    
    
    Value(In millions)Tokyo
    
    
    13
    
    
    ¥
    15,595Greater Tokyo metropolitan area
    
    
    4
    
    
    
    3,190Osaka
    
    
    5
    
    
    
    2,669Kyushu
    
    
    1
    
    
    
    142Hokkaido
    
    
    2
    
    
    
    863Other areas in Japan
    
    
    8
    
    
    
    4,140Total
    
    
    33
    
    
    ¥
    26,599
  As of March 31, 2007Number of
    
    
    Asset BookProperties
    
    
    Value(In millions)Commercial properties:Service and retail properties
    
    
    24
    
    
    ¥
    20,987Office properties
    
    
    3
    
    
    
    1,985Other properties
    
    
    4
    
    
    
    2,747Residential properties
    
    
    2
    
    
    
    880Total
    
    
    33
    
    
    ¥
    26,599
  Other Businesses Segment
  Business in China
  -34-




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##### Table of Contents



Channels for the Origination, Guarantee and Acquisition of Loans and Real Estate
   Integrated Financial Services
   Year Ended March 31,2005
    
    
    2006
    
    
    2007(In millions)Loan origination channels:Direct channels
    
    ¥
    59,363
    
    
    ¥
    109,524
    
    
    ¥
    192,762Affiliate channels
    
    
    18,822
    
    
    
    16,125
    
    
    
    10,228Total
    
    ¥
    78,185
    
    
    ¥
    125,649
    
    
    ¥
    202,990
 March 31,2005
    
    
    2006
    
    
    2007(In millions)Channels for loans that we guarantee:Direct channels
    
    ¥
    318
    
    
    ¥
    482
    
    
    ¥
    489Affiliate channels
    
    
    7,383
    
    
    
    12,368
    
    
    
    17,974Total
    
    ¥
    7,701
    
    
    ¥
    12,850
    
    
    ¥
    18,463
 -35-




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##### Table of Contents



Direct Channels
  
    
    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 repayments 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 eliminated a
substantial number of our general branches following the sale of most of the
outstanding balance of our consumer loans to NETCARD, Inc. (formerly known as Orient
Credit Co., Ltd.) in June 2004 and concentrated our resources in providing loans to SME
owners. The total number of loan offices, however, increased from March 31, 2005 to
March 31, 2006, because of the acquisition of APREK, which also originates loans to SME
owners. We have recently integrated a number of our loan offices, while at the same
time expanding loan offices, and shifted our managerial resources into major
metropolitan areas in Japan to promote real estate financing, investment banking and
venture capital businesses, as well as other businesses. We established the Real
Estate Finance Department in February 2004, the Tokyo Sales Department in July 2004,
the Osaka Sales Department in February 2005, the Kyushu Sales Department in June 2006,
and the Nagoya Sales Department in March 2007. As a net result of this expansion in
major metropolitan areas and integration of offices, our total loan offices decreased
to 44 offices as of March 31, 2007.The following table shows selected information regarding our loan offices:
 As of March 31,2003
    
    2004
    
    2005
    
    2006
    
    2007Total loan offices
    
    
    72
    
    
    
    70
    
    
    
    50
    
    
    
    60
    
    
    
    44Full-time employees
    
    
    832
    
    
    
    851
    
    
    
    818
    
    
    
    998
    
    
    
    1,166of which are dedicated to loan origination
    
    
    615
    
    
    
    571
    
    
    
    487
    
    
    
    571
    
    
    
    543
 The number of full-time employees at loan offices decreased from March 31, 2003 to
March 31, 2005, because we increased the number of seconded employees to affiliates and
alliance partners in connection with our alliance strategy. Also, the sale of our
unguaranteed consumer loans in June 2004 contributed to the decrease in the number of
employees at loan offices. Subsequently, as of March 31, 2006 the number of full-time
employees and employees dedicated to loan origination increased because of our
acquisition of APREK for the development of the SME financing market in Japans Kyushu
region. The number of employees dedicated to loan origination as of March 31, 2007
subsequently decreased as a result of our integration of loan offices in line with our
strategic shift of managerial resources as described above, despite a steady increase
in the number of full-time employees from March 31, 2005 mainly due to recruitment of
new and mid-career employees for our real estate financing operations and leasing
business in the Peoples Republic of China.
    
    Automated Telephone Service. We primarily serve our Business Timely and
unguaranteed 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.
 -36-




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##### Table of Contents



Alliances
  Year Ended March 31,
    
    March 31,Alliance
    
    
    
    
    
    2006
    
    2007
    
    2006
    
    2007Commencement
    
    Alliance Company
    
    Alliance Details
    
    Loans Originated
    
    Loans Guaranteed(In millions)June 2002
    
    Sanyo Electric Credit
Co., Ltd. and Sanyo
Club Co., Ltd.
    
    Provide funds to
users of Sanyo
Electric Credit
Co., Ltd.s leasing
finance, which we
partially
guarantee.
    
    ¥
    409
    
    
    ¥
    209
    
    
    ¥
    6,806
    
    
    ¥
    7,611April 2003
    
    Shinsei Bank, Ltd.
    
    Provide business
loans to SMEs
through a joint
venture with the
bank.
    
    
    866
    
    
    
    840
    
    
    
    3,178
    
    
    
    1,913November 2003
    
    USEN Corp.
USEN Partner Services
    
    Provide financial,
credit and
collection know-how
to USEN Corp. with
respect to USEN
service users
(mostly SMEs).
    
    
    3,445
    
    
    
    1,433
    
    
    
    
    
    
    December 2003
    
    Venture Link Co., Ltd.
    
    Provide finance
support, leasing
and credit tools to
Venture Link
franchise members.
Also, provide funds
to customers of
subsidiary of
Venture Link.
    
    
    57
    
    
    
    71
    
    
    
    
    
    
    November 2004
    
    Chuo Mitsui Trust &
Banking Co., Ltd.
    
    Provide flexible
financial services
according to
business owners
needs by using our
credit expertise
and Chuo Mitsui
Trust & Banking
Co., Ltd.s network
of real estate
agents and SMEs.
    
    
    570
    
    
    
    698
    
    
    
    591
    
    
    
    2,041December 2005
    
    ShinGinko Tokyo, Ltd.
    
    Guarantee start-up
loans provided by
ShinGinko Tokyo,
Ltd. which target
owners of start-up
companies with
business history of
less than two years
and provide
financial and other
services.
    
    
    
    
    
    
    
    
    
    
    205
    
    
    
    670June 2006
    
    USS Support Service
Co., Ltd.
    
    Guarantee credit
payment by users of
fund support
services provided
by USS Support
Service Co., Ltd.
in relation to the
purchase of used
cars.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    221September 2006
    
    The Bank of Fukuoka,
Ltd.
    
    Guarantee new loans
provided by the
Bank of Fukuoka,
Ltd. to mainly
start-up companies
with business
history of less
than two years.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    292November 2006
    
    The Hokkaido Bank,
Ltd.
    
    Guarantee new loans
provided by the
Hokkaido Bank, Ltd.
to mainly
companies, sole
proprietors and
potential
proprietors.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14December 2006
    
    Kumamoto Family Bank,
Ltd.
    
    Guarantee new loans
provided by
Kumamoto Family
Bank, Ltd. to
mainly companies,
sole proprietors
and potential
proprietors.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9
 -37-




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Servicing Business
  Real Estate Business
  -38-




---



##### Table of Contents



Competition
 Business Owner Finance Industry
    
    
    large Japanese non-bank finance and leasing companies that provide financing,
leasing and related services to SMEs, including Lopro Corporation, SFCG Co., Ltd., Orix
Corporation, Sumisho Lease Co., Ltd. and Mitsubishi UFJ Lease & Finance Co., Ltd.;
    
    Japanese banks and other financial institutions expanding out of their traditional
markets, particularly by forming joint ventures and alliances with finance companies,
to the extent that they provide loans or other financial services to SMEs and
individual business owners;
    
    foreign financial institutions, a number of which have been entering the Japanese
finance industry;
    
    credit card companies, particularly overseas companies such as MasterCard
Incorporated, which have formed distribution relationships with major Japanese consumer
finance companies; and
    
    non-financial institutions, including East Japan Railway Company, a railway company
that provides consumer credit services through in-house cards with electronic money
functions, and information technology companies including Yahoo Japan Corporation and
Rakuten, Inc., that provide consumer credit services through the Internet.   Loan Servicing Industry
  Chinese Leasing Industry
  Real Estate Industry
 Real Estate Business Segment
 -39-




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##### Table of Contents



Regulation
 The Moneylending Business Law, the Contributions Law and the Interest Rate Restriction Law
  
    
    The Law Concerning Regulations on Moneylending Business, etc., which will be renamed
the Moneylending Business Law by mid-December 2007 as explained in Recent
Developments below (the Moneylending Business Law);
    
    The Law Concerning the Regulation on Acceptance of Contributions, Money Deposits and
Interest (the Contributions Law); and
    
    The Law Concerning the Regulation of Interest Rates (the Interest Rate Restriction
Law).
  Registration Requirements
  
    
    any person who has had his/her registration revoked as a result of misconduct or
other reasons specified under the Moneylending Business Law within five years of the
application;
    
    any person who has been fined for violating the Moneylending Business Law or the
Contributions 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 thereof is a disqualified person;
    
    any person who is identified as 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.
  -40-




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##### Table of Contents



Government Supervision
 Recent Developments
  Restrictions on Usury
     
    
    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.
  
    
    delivery by the registered moneylender 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 by the registered moneylender to the borrower or guarantor, upon the
payment of the excess interest, of a written receipt for the payment.
 -41-




---



##### Table of Contents



-42-




---



##### Table of Contents



Recent Developments
  
    
    abolish the concept of deemed valid payments under the Moneylending Business Law;
    
    reduce the maximum interest rate under the Contributions Law from 29.2% per year to
20% per year;
    
    introduce administrative sanctions on charging interest in excess of the maximum
interest rate under the Interest Rate Restriction Law, even if the rate charged is
below the maximum interest under the Contributions Law;
    
    obligate a registered moneylender to investigate customers ability to repay and
prohibit excessive lending in respect of loans to individual customers, based on the
aggregate amount which a customer owes to moneylenders; and
    
    introduce further documentation requirements such as deliver of a prescribed written
instrument prior to entering into a loan agreement.
 Servicer Law
    
    
    loans receivable held by financial institutions (including banks, insurance
companies and finance companies licensed under the Moneylending Business Law and other
miscellaneous financial entities), money claims prescribed by the Law Concerning the
Securitization of Assets, and other claims provided for in cabinet orders; and
    
    loans receivable under bankruptcy or rehabilitation proceedings and loans receivable
which are securitized through special purpose vehicles.
  -43-




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##### Table of Contents



The Personal Information Protection Law
     
    
    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;
    
    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
    
    use must correspond 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.
  -44-




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##### Table of Contents



Properties




Legal Proceedings




C. Organizational Structure.




Shares and votingrights held by us,Name
    
    directly or indirectly
    
    Principal businessNissin Servicer Co., Ltd.
    
    73.8%
    
    Servicing businessNIS Lease Co., Ltd.(1)
    
    
    100.0
    
    
    Leasing businessNIS Property Co., Ltd.(1)
    
    
    100.0
    
    
    Real estate-related businessesNissin Leasing (China) Co., Ltd.(2)
    
    
    100.0
    
    
    Leasing businessNIS Securities Co., Ltd.(3)
    
    99.5
    
    Securities businessAPREK Co., Ltd.(4)
    
    69.3
    
    Loan 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 Credit
Guarantee Co., Ltd. transferred its credit guarantee business operations to NIS Lease Co.,
Ltd.
|   
|(2) |  | Established on July 9, 2004, obtained leasing license from Chinese government on September
14, 2005, and changed its name from Matsuyama Nissin Leasing (Shanghai) Co., Ltd. on March 13,
2006.                                                                                       
|   
|(3) |  | Acquired on December 3, 2004 and changed its name from Yamagen Securities Co., Ltd. on May 1,
2005.                                                                                                                                                                                   
|   
|(4) |  | Acquired on December 2, 2005 through a cash tender offer.                                                                                                                                                                                                                             

D. Property, Plants and Equipment.







Item 4A. Unresolved Staff Comments







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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 on Form 20-F and our audited U.S. GAAP
financial statements, including the notes to these statements, beginning on page F-1 of this annual
report on Form 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 on Form 20-F .
 We focused mainly on the moneylending business in the past. However, we recently have been
diversifying our financial businesses. In order to reflect the strategic business changes in our
consolidated financial condition and results of operations, we changed the format of our
consolidated financial statements of operations. Accordingly, the following discussion and
analysis of our financial condition and results of operations has been stated based on the current
presentation of the consolidated financial statements of operations as so reformatted.
 Overview
     Reserve and Provision for Losses on Excess Interest Repayments
 -46-




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##### Table of Contents




    
    integrated financial services;
    
    servicing business;
    
    real estate business; and
    
    other businesses.
 Integrated Financial Services
  
    
    Secured Loans. Secured loans are conventional loans secured by real property or
securities to SMEs or individuals. Recently, our secured loan portfolio has grown
significantly, reflecting our strategic shift toward promotion of financial services to
property companies, SMEs and their owners centering on real estate financing, through
active sales and marketing efforts by our Real Estate Finance Department, which was
established in February 2004. In order to strengthen these operations, we established
the Real Estate Group in June 2006, which supervises all real estate-related
businesses, and the Real Estate Structured Finance Department under the Real Estate
Group in September 2006, to provide real estate-related services particularly for
securitization, including non-recourse loans, loan arrangement, and other services. As
a result of these efforts, the percentage of interest income derived from secured loans
has been increasing.
    
    SME Loans. SME loans are primarily unsecured loans to SMEs and their owners
guaranteed by, in general, one or more guarantors. SME loans also include
unguaranteed, unsecured loans made under pre-approved revolving credit lines to more
creditworthy SME owners. As of March 31, 2007, the amount of total SME loans
outstanding and number of customer accounts decreased compared to the end of the
previous fiscal year, primarily as a result of our strategic shift in focus to real
estate financing. SME loans are generally originated through the direct telemarketing
efforts of our loan offices and our newly established sales departments in metropolitan
areas in Japan, such as Tokyo, Osaka, Kyushu and Nagoya. SME loans are also originated
through referrals from companies with whom we have strategic alliances. Interest
income derived from SME loans has contributed significantly to our total interest
income.
    
    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 SMEs and their owners, on June 1, 2004, we sold most of the
outstanding balance of our unguaranteed consumer loans to NETCARD, Inc. (formerly known
as Orient Credit Co., Ltd.) for ¥32,697 million. See Factors Affecting Our Financial
Results  Sale of Consumer Loans below for a further discussion.
    
    Other Loans.Other loans mainly consist of investment in direct financing leases
and installment loans to SMEs through our wholly-owned subsidiary, NIS Lease. Such
loans are generally designed to meet the capital needs of SMEs in Japan for expansion
of their businesses.
  -47-




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##### Table of Contents



Year Ended March 31,2005
    
    
    2006
    
    
    2007(In millions except percentages)Secured loans
    
    ¥
    9,976
    
    
    
    6.7
    %
    
    ¥
    39,496
    
    
    
    21.5
    %
    
    ¥
    115,779
    
    
    
    45.3
    %SME loans
    
    
    76,651
    
    
    
    51.5
    
    
    
    86,976
    
    
    
    47.3
    
    
    
    88,159
    
    
    
    34.5Consumer loans
    
    
    58,018
    
    
    
    39.0
    
    
    
    47,250
    
    
    
    25.7
    
    
    
    39,621
    
    
    
    15.5Other loans
    
    
    4,166
    
    
    
    2.8
    
    
    
    10,243
    
    
    
    5.5
    
    
    
    12,236
    
    
    
    4.7Total average balance of loans outstanding
    
    ¥
    148,811
    
    
    
    100.0
    %
    
    ¥
    183,965
    
    
    
    100.0
    %
    
    ¥
    255,795
    
    
    
    100.0
    %
  Year Ended March 31,2005
    
    
    2006
    
    
    2007(In millions except percentages)Secured loans
    
    ¥
    960
    
    
    
    3.5
    %
    
    ¥
    2,886
    
    
    
    10.9
    %
    
    ¥
    7,818
    
    
    
    37.2
    %SME loans
    
    
    16,113
    
    
    
    58.9
    
    
    
    16,951
    
    
    
    64.0
    
    
    
    16,566
    
    
    
    78.7Consumer loans
    
    
    12,453
    
    
    
    45.5
    
    
    
    9,325
    
    
    
    35.2
    
    
    
    7,525
    
    
    
    35.8Other
    
    
    502
    
    
    
    1.9
    
    
    
    1,095
    
    
    
    4.1
    
    
    
    1,517
    
    
    
    7.2Total interest revenue from loans receivable
    
    
    30,028
    
    
    
    109.8
    
    
    
    30,257
    
    
    
    114.2
    
    
    
    33,426
    
    
    
    158.9Less
amortization of loan origination
    
    
    (540
    )
    
    
    (2.0
    )
    
    
    (431
    )
    
    
    (1.6
    )
    
    
    280
    
    
    
    1.3Gross
interest income
    
    
    29,488
    
    
    
    107.8
    
    
    
    29,826
    
    
    
    112.6
    
    
    
    33,706
    
    
    
    160.2Provision
for losses on excess interest repayments
    
    
    2,132
    
    
    
    7.8
    
    
    
    3,331
    
    
    
    12.6
    
    
    
    12,664
    
    
    
    60.2Net interest income from loans receivable
    
    ¥
    27,356
    
    
    
    100.0
    %
    
    ¥
    26,495
    
    
    
    100.0
    %
    
    ¥
    21,042
    
    
    
    100.0
    %
 Servicing Business
  Year Ended March 31,2005
    
    
    2006
    
    
    2007(In millions)Aggregate purchase price of distressed loans
    
    
    ¥16,896
    
    
    
    ¥19,779
    
    
    
    ¥19,565Aggregate principal and interest collection of distressed loans
    
    
    10,095
    
    
    
    11,923
    
    
    
    18,856
  Year Ended March 31,2005
    
    
    2006
    
    
    2007(In millions)Aggregate purchase price of real estate for sale
    
    
    ¥1,642
    
    
    
    ¥8,069
    
    
    
    ¥20,503Revenue from sales of real estate in the servicing business
    
    
    1,404
    
    
    
    4,210
    
    
    
    10,678
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##### Table of Contents



Real Estate Business
   Year Ended March 31,2005
    
    
    2006
    
    
    2007(In millions)Rental revenue from the real estate business
    
    
    ¥  2
    
    
    
    ¥   119
    
    
    
    ¥1,575Revenue from sales of real estate in the real estate business
    
    
    
    
    
    
    2,832
    
    
    
    8,692
  Other Businesses
  -49-




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##### Table of Contents



Factors Affecting Our Financial Results
  Revenues from Our Core Businesses
 Gross Interest Income from Lending Activities
  Loan Portfolio Size Sale of Consumer Loans
 Interest Rates
 -50-




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##### Table of Contents



Interest Income from Purchased Loans
 Purchased Loans
Receivable and Revenue Recognition
 Revenues from Real Estate
  Gain on Sales of Real Estate.
 Rental Revenues from Real Estate.
 -51-




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##### Table of Contents



Provision for Losses on Excess Interest Repayments
   Reserve and Provision for Losses on Excess
Interest Repayments
 Provision for Loan Losses
 Sale of
Consumer Loans
 -52-




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##### Table of Contents



Interest Expense
  
    
    Market Interest Rates and Market Conditions. Interest
rates in Japan have been
extremely low for several years, reflecting the Bank of Japans monetary policy to
combat economic weakness, including the zero interest rate policy, which was in place
for most of the period from February 1999 until it was ended in July 2006. The
weighted period-end average interest rate of our long-term borrowings was 1.9%, 1.4%
and 1.9% at March 31, 2005, 2006 and 2007, respectively. The weighted period-end
average interest rate of our short-term borrowings was 1.2%, 1.0% and 1.9% as of March
31, 2005, 2006 and 2007, respectively. Our average borrowing rate gradually increased
primarily due to current market interest rates reflecting the Bank of Japan lifting its
quantitative easing policy, thereby ending its zero interest rate policy, as well as
the current adverse conditions for moneylenders in Japan. We expect that interest
rates on our borrowings will continue to rise.
    
    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 the debt capital markets have been available to us, we have benefited from
typically lower funding costs in the debt capital markets than we can achieve from bank
loans. The percentage of our debt issuances to our total borrowings was 22.6%, 31.1%
and 37.6% at March 31, 2005, 2006 and 2007, respectively, reflecting our issuance of
bonds and asset-backed securities, including asset-backed commercial paper. The
percentage of our debt issuance slightly decreased as of March 31, 2007, compared with
the end of the previous fiscal year, because we procured a significant amount of funds
by the issuance of new shares through a third-party allotment. The increasing trend in
capital needs for our real estate-related businesses continued for the year ended
March 31, 2007. In addition, while any downgrades of our credit ratings by rating
agencies could harm our ability to tap the debt markets, our current intention, subject
to market conditions and other uncertainties, is to balance our proportion of direct
and indirect financing.
    
    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 our loan portfolio. We expect
the amount of borrowings to increase in the near term, reflecting the expected growth
of our loan portfolio centering on real estate financing.
 -53-




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##### Table of Contents



Operating Expense
  Salaries and Employee Benefits.
 Occupancy, Furniture and Equipment.
 Other General and Administrative Expenses.
 Sale of Consumer Loans
  -54-




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##### Table of Contents



Results of Operations
 Consolidated Information
  Year Ended March 31,2005
    
    
    2006
    
    
    2007(In millions)Interest income
    
    ¥
    29,488
    
    
    ¥
    29,826
    
    
    ¥
    33,706Provision for losses on excess interest repayments
    
    
    2,132
    
    
    
    3,331
    
    
    
    12,664Net interest income
    
    
    27,356
    
    
    
    26,495
    
    
    
    21,042Interest expense
    
    
    2,971
    
    
    
    2,602
    
    
    
    3,870Net interest
income before provision for loan losses
    
    
    24,385
    
    
    
    23,893
    
    
    
    17,172Provision for loan losses
    
    
    5,817
    
    
    
    5,923
    
    
    
    10,853Net interest income from lending activities
    
    
    18,568
    
    
    
    17,970
    
    
    
    6,319Other revenue
    
    
    5,003
    
    
    
    11,445
    
    
    
    17,585Operating expense:Interest expense
    
    
    188
    
    
    
    503
    
    
    
    1,037Salaries and employee benefits
    
    
    6,521
    
    
    
    7,181
    
    
    
    8,534Occupancy, furniture and equipment
    
    
    2,395
    
    
    
    2,654
    
    
    
    3,196Advertising
    
    
    333
    
    
    
    629
    
    
    
    264Other general and administrative expenses
    
    
    6,001
    
    
    
    6,765
    
    
    
    9,552Total operating expense
    
    
    15,438
    
    
    
    17,732
    
    
    
    22,583Operating income
    
    
    8,133
    
    
    
    11,683
    
    
    
    1,321Other income (losses)
    
    
    4,061
    
    
    
    3,604
    
    
    
    (881
    )Other expense
    
    
    286
    
    
    
    618
    
    
    
    453Income (losses) before income taxes
    
    
    11,908
    
    
    
    14,669
    
    
    
    (13
    )Income taxes
    
    
    4,646
    
    
    
    6,214
    
    
    
    1,597Net income (losses)
    
    ¥
    7,262
    
    
    ¥
    8,455
    
    
    ¥
    (1,610
    )
 -55-




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##### Table of Contents



Segment Information
  Millions
of YenIntegrated
    
    Servicing
    
    Real Estate
    
    OtherFinancial Services
    
    Business
    
    Business
    
    Businesses
    
    Eliminations
    
    ConsolidatedYear Ended/As of March 31, 2005:Revenue:Net interest income
    
    ¥
    27,356
    
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    27,356Other revenue
    
    
    1,107
    
    
    
    3,893
    
    
    
    18
    
    
    
    210
    
    
    
    (225
    )
    
    
    5,003Operating expense:Interest expense
    
    
    3,012
    
    
    
    153
    
    
    
    90
    
    
    
    9
    
    
    
    (105
    )
    
    
    3,159Provision for loan losses
    
    
    5,817
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,817Other provision
    
    
    123
    
    
    
    821
    
    
    
    
    
    
    
    40
    
    
    
    
    
    
    
    984Other expense
    
    
    12,969
    
    
    
    1,181
    
    
    
    58
    
    
    
    180
    
    
    
    (122
    )
    
    
    14,266Operating income (losses)
    
    
    6,542
    
    
    
    1,738
    
    
    
    (130
    )
    
    
    (19
    )
    
    
    2
    
    
    
    8,133Total assets
    
    
    208,493
    
    
    
    21,818
    
    
    
    2,643
    
    
    
    572
    
    
    
    (5,125
    )
    
   
    228,401Millions of YenIntegrated
    
    Servicing
    
    Real Estate
    
    OtherFinancial Services
    
    Business
    
    Business
    
    Businesses
    
    Eliminations
    
    

ConsolidatedYear Ended/As of March 31, 2006:Revenue:Net interest income
    
    ¥
    26,495
    
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    26,495Other revenue
    
    
    3,251
    
    
    
    7,918
    
    
    
    901
    
    
    
    279
    
    
    
    (904
    )
    
    
    11,445Operating expense:Interest expense
    
    
    2,656
    
    
    
    408
    
    
    
    311
    
    
    
    11
    
    
    
    (281
    )
    
    
    3,105Provision for loan losses
    
    
    5,923
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,923Other provision
    
    
    122
    
    
    
    1,186
    
    
    
    
    
    
    
    26
    
    
    
    
    
    
    
    1,334Other expense
    
    
    13,619
    
    
    
    1,676
    
    
    
    340
    
    
    
    577
    
    
    
    (317
    )
    
    
    15,895Operating income (losses)
    
    
    7,426
    
    
    
    4,648
    
    
    
    250
    
    
    
    (335
    )
    
    
    (306
    )
    
    
    11,683Total assets
    
    
    313,127
    
    
    
    43,000
    
    
    
    25,074
    
    
    
    244
    
    
    
    (21,502
    )
    
    
    359,943Millions of YenIntegrated
    
    Servicing
    
    Real Estate
    
    OtherFinancial Services
    
    Business
    
    Business
    
    Businesses
    
    Eliminations
    
    ConsolidatedYear Ended/As of March 31, 2007:Revenue:Net interest income
    
    ¥
    21,215
    
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    (173
    )
    
    ¥
    21,042Other revenue
    
    
    5,610
    
    
    
    10,375
    
    
    
    5,307
    
    
    
    319
    
    
    
    (4,026
    )
    
    
    17,585Operating expense:Interest expense
    
    
    3,892
    
    
    
    933
    
    
    
    981
    
    
    
    116
    
    
    
    (1,015
    )
    
    
    4,907Provision for loan losses
    
    
    10,853
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,853Other provision
    
    
    530
    
    
    
    1,696
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    2,229Other expense
    
    
    15,658
    
    
    
    2,548
    
    
    
    824
    
    
    
    626
    
    
    
    (339
    )
    
    
    19,317Operating (losses) income
    
    
    (4,108
    )
    
    
    5,198
    
    
    
    3,499
    
    
    
    (423
    )
    
    
    (2,845
    )
    
    
    1,321Total assets
    
    
    370,481
    
    
    
    62,649
    
    
    
    56,466
    
    
    
    8,599
    
    
    
    (44,118
    )
    
    
    454,077
 
  -56-




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##### Table of Contents



Year Ended March 31, 2007, Compared to Year Ended March 31, 2006
 Interest Income
    Provision for Losses on Excess Interest Repayments
 Reserve and Provision for Losses on Excess Interest Repayment
  Net Interest Income
  Interest Expense
  Net Interest Income before Provision for Loan Losses
  -57-




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##### Table of Contents



Net Interest Income from Lending Activities
  Other Revenue
  Operating Expense
  Other Income
  Other Expense
  Income before Income Taxes
  Income Taxes
  Net Income
  -58-




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##### Table of Contents



Year Ended March 31, 2006, Compared to Year Ended March 31, 2005
 Interest Income
    Provision for Losses on Excess Interest Repayments
 Reserve and Provision for Losses on Excess Interest
Repayment
 Net Interest Income
  Interest Expense
  Net
Interest Income before Provision for Loan Losses
  -59-




---



##### Table of Contents



Net Interest Income from Lending Activities
  Other Revenue
  Operating Expense
  Other Income
  Other Expense
  Income before Income Taxes
  Income Taxes
  Net Income
  -60-




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##### Table of Contents



Financial Condition
  As of March 31,2006
    
    
    2007(In millions)Total assets
    
    ¥
    359,943
    
    
    ¥
    454,077Cash and cash equivalents
    
    
    22,860
    
    
    
    28,344Loans receivable, net
    
    
    225,947
    
    
    
    250,780Purchased loans receivable, net
    
    
    24,155
    
    
    
    28,910Real estate for sale
    
    
    20,792
    
    
    
    67,327Investment securities
    
    
    42,071
    
    
    
    38,384Property and equipment, net
    
    
    11,169
    
    
    
    8,448Deferred income taxes
    
    
    721
    
    
    
    6,488Other assets
    
    
    7,173
    
    
    
    11,115Total liabilities
    
    
    277,006
    
    
    
    367,322Short-term borrowings
    
    
    60,411
    
    
    
    84,258Long-term borrowings
    
    
    198,924
    
    
    
    260,817Deferred income taxes
    
    
    1,382
    
    
    
    256Other
liabilities
    
    
    7,514
    
    
    
    16,123Total shareholders equity
    
    ¥
    80,504
    
    
    ¥
    82,563
    -61-




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##### Table of Contents



Allowance for Loan Losses, Reserve for Losses on Excess Interest
Repayments, and Loan Charge-offs
  Integrated Financial Services
 Allowance for Loan Losses
 Reserve and Provision for Losses on Excess Interest Repayments
 Year Ended March 31,2005
    
    
    2006
    
    
    2007(In millions)Balance at beginning of year
    
    ¥
    13,528
    
    
    ¥
    10,034
    
    
    ¥
    11,003Provision for loans receivable sold
    
    
    (3,327
    )
    
    
    
    
    
    
    Provision for loan losses
    
    
    5,817
    
    
    
    5,923
    
    
    
    10,853Provision
for charge-offs by excess interest repayments
    
    
    1,942
    
    
    
    2,354
    
    
    
    6,528Charge-offs, net of recoveries
    
    
    (7,926
    )
    
    
    (7,308
    )
    
    
    (9,847
    )Balance at end of year
    
    ¥
    10,034
    
    
    ¥
    11,003
    
    
    ¥
    18,537
  As of March 31,2005
    
    
    2006
    
    
    2007(In millions)Amount related to loan losses
    
    ¥
    8,102
    
    
    ¥
    8,862
    
    
    ¥
    13,324Amount related to charge-offs by excess interest repayments
    
    
    1,932
    
    
    
    2,141
    
    
    
    5,213Total allowance for loan losses
    
    ¥
    10,034
    
    
    ¥
    11,003
    
    
    ¥
    18,537
   
    
    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.
    
    Unsecured Loans on Deeds. We generally charge-off or provide an allowance for loan
losses on Business Assist and Smart Assist loans in default at the end of the
semi-annual period in which the default occurs for which 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.
    
    Revolving Loans. We generally charge-off Business Timely and First Plan loans for
which interest payments have been delinquent for 67 days. We
charge-off revolving
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 these 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.
 -62-




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##### Table of Contents



Reserve for Losses on Excess Interest Repayments
 Reserve and Provision for Losses on Excess
Interest Repayments
 Year Ended March 31,2005
    
    
    2006
    
    
    2007(In millions)Balance at beginning of year
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    590Provision
for cash refunds of excess interest
    
    
    190
    
    
    
    977
    
    
    
    6,136Excess interest repayments in cash
    
    
    (190
    )
    
    
    (387
    )
    
    
    (1,774
    )Balance at end of year
    
    ¥
    
    
    
    ¥
    590
    
    
    ¥
    4,952
 Charge-off Ratios and Allowance Ratios
  Year Ended/As of March 31,2005
    
    
    2006
    
    
    2007(In millions except percentages)Secured loansLoans outstanding
    
    ¥
    18,812
    
    
    ¥
    91,610
    
    
    ¥
    139,691Allowance
for loan losses(1)
    
    
    761
    
    
    
    558
    
    
    
    624Ratio of allowance for loan losses to loans outstanding
    
    
    4.0
    %
    
    
    0.6
    %
    
    
    0.4
    %Average balance of loans outstanding
    
    
    9,976
    
    
    
    39,496
    
    
    
    115,779Loans charged-off
    
    
    22
    
    
    
    22
    
    
    
    20Ratio of loans charged-off to average balance of loans
outstanding
    
    
    0.2
    %
    
    
    0.1
    %
    
    
    
    %SME loansLoans outstanding
    
    ¥
    79,823
    
    
    ¥
    90,729
    
    
    ¥
    81,688Allowance
for loan losses(1)
    
    
    5,837
    
    
    
    7,405
    
    
    
    13,250Ratio of allowance for loan losses to loans outstanding
    
    
    7.3
    %
    
    
    8.2
    %
    
    
    16.2
    %Average balance of loans outstanding
    
    
    76,651
    
    
    
    86,976
    
    
    
    88,159Loans charged-off
    
    
    4,808
    
    
    
    5,302
    
    
    
    6,954Ratio of loans charged-off to average balance of loans
outstanding
    
    
    6.3
    %
    
    
    6.1
    %
    
    
    7.9
    %Consumer loansLoans outstanding
    
    ¥
    50,431
    
    
    ¥
    44,158
    
    
    ¥
    34,959Allowance
for loan losses(1)
    
    
    3,205
    
    
    
    2,585
    
    
    
    3,750Ratio of allowance for loan losses to loans outstanding
    
    
    6.4
    %
    
    
    5.9
    %
    
    
    10.7
    %Average balance of loans outstanding
    
    
    58,018
    
    
    
    47,250
    
    
    
    39,621Loans charged-off
    
    
    3,594
    
    
    
    2,687
    
    
    
    2,872Ratio of loans charged-off to average balance of loans
outstanding
    
    
    6.2
    %
    
    
    5.7
    %
    
    
    7.2
    %Other loansLoans outstanding
    
    ¥
    6,296
    
    
    ¥
    10,681
    
    
    ¥
    14,605Allowance
for loan losses(1)
    
    
    231
    
    
    
    455
    
    
    
    913Ratio of allowance for loan losses to loans outstanding
    
    
    3.7
    %
    
    
    4.3
    %
    
    
    6.3
    %Average balance of loans outstanding
    
    
    4,166
    
    
    
    10,243
    
    
    
    12,236Loans charged-off
    
    
    83
    
    
    
    108
    
    
    
    29Ratio of loans charged-off to average balance of loans
outstanding
    
    
    2.0
    %
    
    
    1.1
    %
    
    
    0.2
    %TotalLoans outstanding
    
    ¥
    155,362
    
    
    ¥
    237,178
    
    
    ¥
    270,943Allowance
for loan losses(1)
    
    
    10,034
    
    
    
    11,003
    
    
    
    18,537Ratio of allowance for loan losses to loans outstanding
    
    
    6.5
    %
    
    
    4.6
    %
    
    
    6.8
    %Average balance of loans outstanding
    
    
    148,811
    
    
    
    183,965
    
    
    
    255,795Loans charged-off
    
    
    8,507
    
    
    
    8,119
    
    
    
    9,875Ratio of loans charged-off to average balance of loans
outstanding
    
    
    5.7
    %
    
    
    4.4
    %
    
    
    3.9
    %
 
  -63-




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##### Table of Contents



Charge-off Ratios Reserve and Provision
for Losses on Excess Interest Repayments
 Allowance Ratios Reserve and Provision
for Losses on Excess Interest Repayments
 -64-




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##### Table of Contents



Delinquent Loans and Non-accrual Loans
 Delinquent Loans
 Non-accrual Loans
  
    
    Restructured Loans. Restructured loans are comprised of 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 uncollectible 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 uncollectible in our
allowance for loan losses. The decrease in impaired loans between March 31, 2005 and
2006 reflected the decrease in impaired consumer loans as we strategically have shifted
toward promotion of financial services to SMEs and their owners. However, the amount
of impaired loans increased between March 31, 2006 and 2007 due to an increase of loans
partially charged-off by excess interest repayments. (See Critical Accounting
Policies  Reserve and Provision for Losses on Excess Interest Repayments below.) In addition, the amount of
restructured secured loans increased significantly due to an increase in the average
balance of secured loans per account, despite the fact that the ratio of the number of
restructured secured loan accounts to the number of entire secured loan accounts
decreased from 4.9% as of March 31, 2006 to 3.6% as of March 31, 2007.
    
    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 secured loans, guaranteed SME and consumer loans,
and other loans.
  As of March 31,2005
    
    
    2006
    
    
    2007(In millions)Secured loansDelinquent loans still accruing interest
    
    ¥
    186
    
    
    ¥
    77
    
    
    ¥
    870Non-accrual loans(1)
    
    
    1,836
    
    
    
    963
    
    
    
    5,903Restructured loans
    
    
    71
    
    
    
    665
    
    
    
    5,108Impaired loans included in restructured loans
    
    
    
    
    
    
    
    
    
    
    Loans with specific allowance provided
    
    
    1,765
    
    
    
    298
    
    
    
    795SME loansDelinquent loans still accruing interest
    
    ¥
    1,070
    
    
    ¥
    1,537
    
    
    ¥
    2,606Non-accrual loans(1)
    
    
    9,631
    
    
    
    11,496
    
    
    
    15,583Restructured loans
    
    
    6,938
    
    
    
    7,696
    
    
    
    8,528Impaired loans included in restructured loans
    
    
    1,546
    
    
    
    1,438
    
    
    
    1,788Loans with specific allowance provided
    
    
    2,693
    
    
    
    3,800
    
    
    
    7,055Consumer loansDelinquent loans still accruing interest
    
    ¥
    594
    
    
    ¥
    817
    
    
    ¥
    997Non-accrual loans(1)
    
    
    8,762
    
    
    
    7,486
    
    
    
    7,211Restructured loans
    
    
    6,866
    
    
    
    6,037
    
    
    
    5,138Impaired loans included in restructured loans
    
    
    1,776
    
    
    
    1,432
    
    
    
    1,340Loans with specific allowance provided
    
    
    1,896
    
    
    
    1,449
    
    
    
    2,073Other loansDelinquent loans still accruing interest
    
    ¥
    
    
    
    ¥
    10
    
    
    ¥
    21Non-accrual loans(1)
    
    
    29
    
    
    
    68
    
    
    
    107Restructured loans
    
    
    
    
    
    
    12
    
    
    
    12Impaired loans included in restructured loans
    
    
    
    
    
    
    
    
    
    
    3Loans with specific allowance provided
    
    
    29
    
    
    
    56
    
    
    
    95TotalDelinquent loans still accruing interest
    
    ¥
    1,850
    
    
    ¥
    2,441
    
    
    ¥
    4,494Non-accrual loans(1)
    
    
    20,258
    
    
    
    20,013
    
    
    
    28,804Restructured loans
    
    
    13,875
    
    
    
    14,410
    
    
    
    18,786Impaired loans included in restructured loans
    
    
    3,322
    
    
    
    2,870
    
    
    
    3,131Loans with specific allowance provided
    
    
    6,383
    
    
    
    5,603
    
    
    
    10,018
 
 (1)
    
    The amounts of non-accrual loans represent the balance of non-accrual loans outstanding
before netting of allowances for loan losses. -65-




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##### Table of Contents



Servicing Business
   Year Ended March 31,2005
    
    
    2006
    
    
    2007(In millions)Balance at beginning of year
    
    ¥
    717
    
    
    ¥
    1,282
    
    
    ¥
    1,792Provision for loan losses
    
    
    817
    
    
    
    1,186
    
    
    
    1,696Charge-offs
    
    
    (252
    )
    
    
    (676
    )
    
    
    (833
    )Balance at end of year
    
    ¥
    1,282
    
    
    ¥
    1,792
    
    
    ¥
    2,655
 Purchased Loans Receivable and Revenue
Recognition
 -66-




---



##### Table of Contents



Critical Accounting Policies
   Interest Income from Loans Receivable
  Reserve and Provision for Losses on Excess Interest Repayments
  -67-




---



##### Table of Contents



Reserve
and Provision for Losses on Excess Interest Repayments
          -68-




---



##### Table of Contents



Loans Receivable and Allowance for Loan Losses
   
    
    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.
    
    Unsecured Loans on Deeds.Loan balances are charged-off when we believe the
likelihood of any future collection from the borrower as well as the guarantor is
minimal. Events triggering charge-offs include bankruptcy of both the borrower and
guarantor. Interest accrual is terminated at the earlier of the date when contractual
interest payments are 97 days delinquent or the date when all or a part of loan
principal is deemed uncollectible.
    
    Revolving Loans.Loan balances are charged-off and interest accrual is terminated
when a loans contractual interest payment becomes 67 days delinquent or upon the
occurrence of other events such as the bankruptcy of the borrower.
  Loan Origination Costs
  -69-




---



##### Table of Contents



Purchased Loans Receivable and Revenue Recognition
  Cost Recovery Method
  Level Yield Method
  Accounting Developments
    -70-




---



##### Table of Contents



B. Liquidity and Capital Resources.
 Cash Flows
   Year Ended March 31,2005
    
    2006
    
    2007(In millions)Net cash provided by operating activities
    
    ¥
    14,686
    
    
    ¥
    24,270
    
    
    ¥
    23,676Net cash used in investing activities
    
    
    (12,546
    )
    
    
    (135,976
    )
    
    
    (99,843
    )Net cash provided by financing activities
    
    
    3,335
    
    
    
    108,675
    
    
    
    81,438Effect of exchange rate changes on cash
    
    
    (9
    )
    
    
    182
    
    
    
    213Net increase (decrease) in cash
    
    
    5,466
    
    
    
    (2,849
    )
    
    
    5,484
 Cash Flows Activities during the Year Ended March 31, 2007
 Operating Activities
   Investing Activities
  Financing Activities
  -71-




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##### Table of Contents



Cash Flows Activities during the Year Ended March 31, 2006
 Operating Activities
  Investing Activities
  Financing Activities
  -72-




---



##### Table of Contents



Capital Requirements
  Funding Our Core Businesses
  Loan Origination.
 Distressed Loans.
 Real Estate.
 Payments of Interest and Principal on Borrowings
  -73-




---



##### Table of Contents



Selling, General and Administrative Expenses
  Capital Expenditures
  Year Ended March 31,2005
    
    2006
    
    2007(In millions)Capital expenditures
    
    ¥
    1,754
    
    
    ¥
    6,368
    
    
    ¥
    5,270
  Strategic Investments
  
    
    Affiliates. Some of these enterprises are our affiliates. Our total initial
investments in these affiliates amounted to ¥792 million as
of March 31, 2006 and ¥2,787 million
as of March 31, 2007. These affiliates had a book carrying value of
¥617 million as of March 31, 2006 and ¥2,826 million as of March 31, 2007.
 
    
    Non-affiliates. These are investments in enterprises that we view as potential
strategic alliance parties, rather than sources of potential capital gains. Our total
initial investments in these enterprises amounted to ¥19,490 million as of March 31,
2006 and ¥21,677 million as of March 31, 2007. These enterprises had a book carrying
value of ¥28,057 million as of March 31, 2006 and ¥20,542 million as of March 31, 2007.
 -74-




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##### Table of Contents



Dividends and Stock Repurchases
 Cash Dividends Cash Dividends
 Stock Repurchases Stock Repurchases
 -75-




---



##### Table of Contents



Capital Resources
    Borrowings
 Long-term Borrowings
    As of March 31,2006
    
    
    2007(In millions)1.90% unsecured bonds, due July 31, 2006
    
    ¥
    500
    
    
    ¥
    0.45% unsecured bonds, due September 27, 2006
    
    
    500
    
    
    
    0.64% unsecured bonds, due March 26, 2007
    
    
    500
    
    
    
    0.67% unsecured bonds, due September 27, 2007
    
    
    500
    
    
    
    5001.18% unsecured bonds, due February 25, 2008
    
    
    7,500
    
    
    
    7,5001.55% unsecured bonds, due September 19, 2008
    
    
    150
    
    
    
    901.17% unsecured bonds, due June 20, 2008
    
    
    7,500
    
    
    
    7,5001.08% unsecured bonds, due September 16, 2008
    
    
    10,000
    
    
    
    10,0001.21% unsecured bonds, due September 18, 2009
    
    
    
    
    
    
    4501.45% unsecured bonds, due March 27, 2009
    
    
    1,000
    
    
    
    7002.73% unsecured bonds, due February 26, 2010
    
    
    
    
    
    
    5,0002.29% unsecured bonds, due March 23, 2009
    
    
    
    
    
    
    10,0001.70% unsecured convertible bonds, due September 29, 2006
    
    
    822
    
    
    
    Total bonds
    
    ¥
    28,972
    
    
    ¥
    41,740
 -76-




---



##### Table of Contents



Year Ending March 31,
    
    
    (In millions)2008
    
    ¥
    108,4752009
    
    
    80,5522010
    
    
    34,1102011
    
    
    36,7772012 and thereafter
    
    
    903Total future payments for long-term borrowings
    
    ¥
    260,817
 Short-term Borrowings
   As of March 31,2006
    
    2007Bank loans (under fixed or variable rate contracts)Minimum interest rate
    
    
    1.0
    %
    
    
    1.1
    %Maximum interest rate
    
    
    5.0
    
    
    
    2.5Weighted-average contractual interest rates
    
    
    1.4
    
    
    
    2.0Commercial paperMinimum interest rate
    
    
    0.3
    
    
    
    1.3Maximum interest rate
    
    
    1.0
    
    
    
    2.2Weighted-average contractual interest rates
    
    
    0.7
    
    
    
    1.9Rediscounted notesMinimum interest rate
    
    
    2.4
    
    
    
    2.6Maximum interest rate
    
    
    2.4
    
    
    
    2.9Weighted-average contractual interest rates
    
    
    2.4
    
    
    
    2.7
  Commitment Facilities
  -77-




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##### Table of Contents



Debt Service
  Collateral for Borrowings
   Unfunded Credit Lines
  Operating and Capital Leases
  C. Research and Development, Patents and Licenses, etc.
  D. Trend Information.
  -78-




---



##### Table of Contents



E. Off-balance Sheet Arrangements.
  Sanyo Club
  Shinsei Business Finance
  
    
    3S Loans. We guarantee 100% of loans and corresponding interest receivable from
customers for 3S loans and receive a guarantee fee at the loan contract rate less 4%.
We are required to pay out on our guarantees on loans for which contractual payments
are overdue by 14 days or more as of the end of each month. 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 SMEs.
    
    Business Loans. We guarantee 10% of loans and corresponding interest receivable
from customers for Business loans and receive 10% of the interest received from these
loans. We are required to pay out on our guarantees on loans for which
contractual payments are overdue by 90 days or more as of the end of each month.
Business loans are unsecured loans designed for SMEs.
   Chuo Mitsui Finance
  
    
    Business Card loans. We guarantee 10% of loans and corresponding interest
receivable from customers for Business Card loans and receive 10% of the interest
received from these loans. We are required to pay out on our guarantees on loans
for which contractual payments are overdue by 90 days or more. Business Card loans are
unsecured loans designed for SMEs.
 
    
    Real Estate Finance loans. We guarantee 10% of loans and corresponding interest
receivable from customers for Real Estate Finance loans and receive 10% of the interest
received from these loans. We are required to pay out on our guarantees on loans
for which contractual payments are overdue by 30 days or more.
   -79-




---



##### Table of Contents



Other
     As of March 31,2006
    
    2007(In millions)Guaranteed borrowings
    
    ¥
    11,886
    
    
    ¥
    17,555Guaranteed accounts receivable
    
    
    964
    
    
    
    908Guarantees for borrowings of other companies:Chuo Mitsui
Finance Service Co., Ltd.
    
    
    1,920
    
    
    
    Reserve for guarantee losses
    
    
    629
    
    
    
    1,066
  Year Ended March 31,2005
    
    
    2006
    
    
    2007(In millions)Guarantee fees received from:Guaranteed loans and accounts receivable
    
    ¥
    845
    
    
    ¥
    1,386
    
    
    ¥
    1,880Guarantees for borrowings of other companies
    
    
    34
    
    
    
    20
    
    
    
    45Total guarantee fees received
    
    
    879
    
    
    
    1,406
    
    
    
    1,925Administrative expenses and other expenses paid
    
    
    (562
    )
    
    
    (898
    )
    
    
    (1,337
    )Guarantee fees received, net
    
    ¥
    317
    
    
    ¥
    508
    
    
    ¥
    588
  -80-




---



##### Table of Contents



F. Tabular Disclosure of Contractual Obligations.
  Payments Due by PeriodApril 1, 2007
    
    
    April 1, 2008
    
    
    April 1, 2010to March 31,
    
    
    to March 31,
    
    
    to March 31,
    
    
    AfterContractual obligations
    
    Total
    
    
    2008
    
    
    2010
    
    
    2012
    
    
    April 1, 2012(In millions)Long-term borrowings(1)
    
    ¥
    260,817
    
    
    ¥
    108,475
    
    
    ¥
    114,662
    
    
    ¥
    37,680
    
    
    ¥
    Capital (finance) lease obligations
    
    
    882
    
    
    
    468
    
    
    
    354
    
    
    
    60
    
    
    
    Operating lease obligations
    
    
    1,361
    
    
    
    961
    
    
    
    400
    
    
    
    
    
    
    
    Purchase commitments(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    ¥
    263,060
    
    
    ¥
    109,904
    
    
    ¥
    115,416
    
    
    ¥
    37,740
    
    
    ¥
    
 
 (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 a 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 purposes of Item 5.G.1 of this Item only, all information required by Item 5.E
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.
 -81-




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##### Table of Contents



Item 6. Directors, Senior Management and Employees
 A. Directors and Senior Management.
 Directors and Statutory Auditors
    Name
    
    Position(Date of Birth)
    

(Executive Officer Position)
    
    Business CareerKunihiko
Sakioka(1) (2)
    
    Chairman,
Representative
Director of the
Board andCo-CEO
    
    April 1986
    
    Joined the Company(January 10, 1962)
    
    
    September 1988
    
    Manager of Hiroshima Branch OfficeMarch 1989
    
    Director of the BoardDecember 1989
    
    Director of the Board and General Manager of
Finance DepartmentFebruary 1991
    
    Executive Director of the Board, Advice to
Finance and System InformationDecember 1992
    
    Senior Executive Director of the Board and Head
of Sales & Marketing ControlOctober 1996
    
    Representative Senior Executive Director of the
Board and Head of Tokyo Branch, Advice to Sales
DepartmentApril 1998
    
    Representative Senior Executive Director of the
Board and Head of Sales & Marketing ControlJune 2000
    
    President, Representative Director of the Board
and Head of Sales & Marketing ControlMarch 2004
    
    Representative Director of the Board of Shuho,
Ltd. (current position)July 2005
    
    President, Representative Director of the Board
and Executive OfficerJune 2006
    
    Chairman, Representative Director of the Board
and Co-CEO (current position)Shinsuke Amiya (2)
(October 3, 1957)
    
    President,
Representative 
Director of the
Board andCo-CEO
    
    June 1994
    
    Joined Merrill Lynch Securities Inc. (currently
Merrill Lynch Japan Securities Co., Ltd.)June 2003
    
    Director and Head of Investment Banking GroupMarch 2005
    
    Vice-Chairman and Head of Investment Banking GroupMay 2006
    
    Joined the CompanySpecial AdvisorJune 2006
    
    President, Representative Director of the Board
and Co-CEO (current position)
 -82-




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##### Table of Contents



Name
    
    Position(Date of Birth)
    

(Executive Officer Position)
    
    
    

Business
CareerHideo Sakioka(1) (4)
    
    Director of the
Board and Advisor
    
    August 1953
    
    Started moneylending business(May 14, 1928)
    
    
    May 1960
    
    Founded Nissin Shoji Co., Ltd. (currently NIS Group
Co., Ltd.) President and Representative Director of the BoardJanuary 1980
    
    Founded Nissin Building Co.,
Ltd.President and Representative Director of the BoardMarch 1989
    
    Representative Director of the Board of Shuho, Ltd.June 2000
    
    Chairman and Representative Director of the BoardMay 2001
    
    President and Representative Director of the Board
of Nissin Building Co., Ltd. (current position)January 2004
    
    Director of the Board of Nissin Servicer Co., Ltd.
(current position)June 2006
    
    Director of the Board and Advisor (current position)Toshioki Otani(2)
    
    Senior Executive
Director of the
Board and Executive
Officer
(Head of Investment
Banking, Sales &
Marketing, and
Investment Banking
Group Manager)
    
    April 1994
    
    Joined the Company(December 22, 1970)
    
    
    September 1995
    
    Manager of Kumamoto Branch OfficeJuly 2000
    
    General Manager of Finance DepartmentJanuary 2001
    
    General Manager of Finance Department and Strategic
Business Development DepartmentApril 2002
    
    General Manager of Eastern Japan Sales & Marketing
Control DepartmentJune 2002
    
    Director of the BoardApril 2003
    
    Director of the Board and General Manager of
Strategic Business Development DepartmentNovember 2003
    
    President and Representative Director of the Board
of NIS Lease Co., Ltd. (current position)July 2004
    
    Director of the Board, Deputy Head of Sales &
Marketing Control and General Manager of Strategic
Business Development DepartmentJuly 2005
    
    Executive Director of the Board, Executive Officer,
Head of Sales & Marketing Control and General
Manger of Sales DepartmentNovember 2005
    
    Concurrently Head of Osaka BranchJune 2006
    
    Executive Director of the Board, Executive Officer
and Head of Sales & MarketingJune 2007
    
    Senior Executive Director of the Board, Executive
Officer, Head of Investment Banking, Sales &
Marketing and Investment Banking Group Manager
(current position)Akihiro Nojiri
    
    Senior Executive
Director of the
Board and Executive
Officer
(Head of Strategy &
Operations Control)
    
    April 1991
    
    Joined Ministry of Finance(November 15, 1968)
    
    
    August 2003
    
    Joined the CompanyGeneral Manager, Assistant to PresidentJune 2004
    
    Director of the BoardJuly 2004
    
    Director of the Board and General Manager of
Finance DepartmentJuly 2005
    
    Executive Director of the Board, Executive Officer,
Head of Operations Control, and General Manager of
Finance DepartmentFebruary 2006
    
    Executive Director of the Board, Executive Officer
and Head of Operations ControlJune 2007
    
    Senior Executive Director of the Board, Executive
Officer and Head of Strategy & Operations Control
(current position)
 -83-




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##### Table of Contents



Name
    
    Position(Date of Birth)
    

(Executive Officer Position)
    
    
    

Business
CareerYunwei Chen
    
    Senior Executive
Director of the
Board and Executive
Officer
(Officer-in-Charge
East Asia Region)
    
    April 1998
    
    Joined the Company(January 16, 1969)
    
    
    April 2001
    
    Manager of Corporate Planning Department 2nd SectionSeptember 2002
    
    Concurrently Assistant General Manager of Corporate
Planning DepartmentApril 2003
    
    General Manager of Investor Relations DepartmentJune 2003
    
    Director of the BoardJuly 2004
    
    Chairman of Matsuyama Nissin Investment Consulting
(Shanghai) Co., Ltd. (currently Nissin Leasing
(China) Co., Ltd.) (current position)July 2005
    
    Executive Director of the Board, Executive Officer,
General Manager of Investor Relations Department
and Officer-in-Charge East Asia RegionJune 2007
    
    Executive Director of the Board, Executive Officer
and Officer-in-Charge East Asia Region (current
position)Katsutoshi Shimizu
(April 9, 1954)
    
    Executive Director
of the Board and
Executive Officer
(Deputy Head of
Investment Banking,
Sales & Marketing
and Real Estate
Group Manager)
    
    April 1999
    
    Joined RISA Partners, Inc. 
Director of the BoardOctober 2002
    
    Joined A-MAX Co., Ltd.
Director of the BoardJune 2003
    
    Joined Nissin Servicer Co., Ltd.January 2004
    
    Director of the Board and General Manager of Credit
Screening DepartmentMarch 2004
    
    Director of the Board and General Manager of Asset
Management DepartmentSeptember 2005
    
    Director of the Board, Advice to Asset Management
Department (current position)
Joined the Company
General Manager of Real Estate Business Control
DepartmentFebruary 2006
    
    Concurrently Executive OfficerJune 2006
    
    Director of the Board, Executive Officer, Deputy
Head of Sales & Marketing, Real Estate Group
Manager and General Manager of Real Estate Business
Control DepartmentJune 2007
    
    Executive Director of the Board, Executive Officer,
Deputy Head of Investment Banking, Sales &
Marketing and Real Estate Group Manager (current
position)Keishi Ishigaki
    
    Director of the
Board and Executive
Officer
(Deputy Head of
Investment Banking,
Sales & Marketing)
    
    April 1995
    
    Joined the Company(April 3, 1971)
    
    
    April 1996
    
    Manager of Koriyama Branch OfficeApril 2001
    
    General Manager of Finance DepartmentApril 2002
    
    Head of Osaka Branch and General Manager of Western
Japan Sales & Marketing Control DepartmentJune 2002
    
    Director of the BoardJuly 2004
    
    Director of the Board and General Manager,
Assistant to Head of Sales & Marketing ControlAugust 2004
    
    Director of the Board of Venture Link Co., Ltd.
(current position)July 2005
    
    Concurrently Executive OfficerJune 2006
    
    Director of the Board, Executive Officer, Deputy
Head of Sales & Marketing and Sales & Marketing
Group ManagerMarch 2007
    
    Director of the Board of Araigumi Co., Ltd.
(current position)April 2007
    
    Director of the Board, Executive Officer and Deputy
Head of Investment Banking, Sales & Marketing
(current position)
 -84-




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##### Table of Contents



Name
    
    Position(Date of Birth)
    

(Executive Officer Position)
    
    
    

Business
CareerAkira Imaki
(February 15, 1949)
    
    Director of the
Board and Executive
Officer
(Deputy Head of
Strategy &
Operations Control,
and General Manager
of Strategic
Planning
Department)
    
    April 1973
    
    Joined Long-term Credit Bank of Japan Co., Ltd.
(currently Shinsei Bank, Ltd.)September 2004
    
    Joined Mercer Human Resource Consulting LLC.
Director of the BoardNovember 2005
    
    Joined the Company
General Manager, Assistant to Head of Sales &
Marketing ControlApril 2006
    
    Concurrently Executive OfficerJune 2006
    
    Director of the Board, Executive Officer, Deputy Head
of Sales & Marketing and Strategic Business
Development Group ManagerMarch 2007
    
    Director of the Board of Araigumi Co., Ltd. (current
position)April 2007
    
    Director of the Board, Executive Officer, Deputy Head
of Strategy & Operations Control and General Manager
of Strategic Planning Development (current position)Hidetoshi Sawamura
(December 25, 1950)
    
    Director of the
Board and Executive
Officer
(Head of Risk
Management)
    
    April 1975
    
    Joined The Industrial Bank of Japan, Ltd. (currently
Mizuho Bank, Ltd.)September 2004
    
    Joined Koken Boring Machine Co., Ltd.
Executive Officer and Deputy Director of Groundwater
Usage DepartmentSeptember 2005
    
    Joined the Company
Assistant General Manager, Assistant to Head of
Operations ControlFebruary 2006
    
    General Manager, Assistant to Head of Operations
ControlFebruary 2006
    
    General Manager of Internal Control DepartmentJune 2006
    
    Concurrently Executive OfficerApril 2007
    
    Executive Officer and Head of Risk ManagementJune 2007
    
    Director of the Board (current position)Hidenori
Nakagawa(3)
(November 20, 1967)
    
    Director of the
Board
(Outside)
    
    April 1992
    
    Registered with Daiichi Tokyo Bar
Association,
Joined the Law Offices of Nagashima & Ohno (currently
the Law Offices of Nagashima Ohno & Tsunematsu)September 1999
    
    Joined Merrill Lynch Securities Inc. (currently
Merrill Lynch Japan Securities Co., Ltd.)June 2004
    
    Joined TMI Associates
Partner of TMI Associates (current position)June 2005
    
    Special Committee Member of Marusan Securities Co.,
Ltd. (current position)June 2006
    
    Director of the Board of the Company (current position)
 -85-




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Name
    
    Position(Date of Birth)
    

(Executive Officer Position)
    
    
    

Business
CareerHitoshi Higaki
    
    Standing Statutory
Auditor
    
    November 1983
    
    Joined the Company(December 14, 1959)
    
    
    March 1994
    
    General Manager of Accounting Department and
Finance DepartmentJune 1994
    
    Director of the Board and General Manager of
General AffairsMay 1995
    
    Director of the Board, General Manager of
Corporate Planning Department and Accounting
DepartmentJune 1996
    
    Director of the Board, Advice to Accounting
Department and General Manager of Corporate
Planning DepartmentJune 2000
    
    Executive Director of the Board and General
Manager of Corporate Planning DepartmentApril 2003
    
    Executive Director of the Board and Head of
Operations ControlJuly 2004
    
    Concurrently General Manager of Corporate Planning
DepartmentAugust 2004
    
    Statutory Auditor of Venture Link Co., Ltd.
(current position)July 2005
    
    Senior Executive Director of the Board and
Executive OfficerJune 2006
    
    Concurrently Head of Group StrategyApril 2007
    
    Senior Executive Director of the Board and
Executive OfficerJune 2007
    
    Retired from Director of the Board
Standing Statutory Auditor (current position)Akio Sakioka(4)
    
    Standing Statutory
Auditor
    
    April 1971
    
    Joined the Company(September 22,1950)
    
    
    January 1976
    
    Manager of Takamatsu Branch OfficeApril 1984
    
    Director of the BoardJuly 1994
    
    Executive Director of the Board and General
Manager of Tokyo OfficeOctober 1996
    
    Executive Director of the Board and General
Manager of Finance DepartmentOctober 2000
    
    Executive Director of the Board, Advice to
Business Audit DepartmentJune 2002
    
    Retired from Director of the Board
Standing Statutory Auditor (current position)Masaaki Uchino(5)
    
    Statutory Auditor
(Outside)
    
    April 1968
    
    Joined Ministry of Finance(April 1, 1945)
    
    
    July 1996
    
    Deputy Director of National Tax TribunalJuly 1997
    
    Senior Executive Director of Japan Finance
Corporation for Municipal EnterprisesJune 2001
    
    Chairman of Promise Co., Ltd.June 2007
    
    Statutory Auditor of the Company (current position)Katsuhiko Asada(5)(February 10, 1955)
    
    Statutory Auditor
(Outside)
    
    October 1979
    
    Joined Arthur Andersen Co., Tokyo Office
(currently KPMG AZSA & Co.)September 1985
    
    Opened Katsuhiko Asada Certified
Public Accountant FirmDecember 2001
    
    Opened Konishi Asada Certified
Public Accountant FirmJune 2004
    
    Statutory Auditor of the Company (current position)
 
 (1)
    
    Kunihiko Sakioka is the second son of Hideo Sakioka.(2)
    
    Pursuant to a resolution of the Board of Directors adopted on
September 25, 2007, effective October 1, 2007, Kunihiko
Sakioka will become Chairman, Representative Director of the Board,
President and CEO (Head of Investment Banking, Sales &
Marketing), Shinsuke Amiya will become Vice-Chairman of the Board
and Executive Officer and Toshioki Otani will become Senior Executive
Director of the Board and Executive Officer.(3)
    
    Hidenori Nakagawa is an outside director pursuant to Article 2-15 of the Corporate Law.(4)
    
    Akio Sakioka is the nephew of Hideo Sakioka.(5)
    
    Masaaki Uchino and Katsuhiko Asada are each an outside statutory auditor pursuant to
Article 2-16 of the Corporate Law. -86-




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##### Table of Contents



B.
    
    Compensation.
    C.
    
    Board Practices.
  Start of
    
    Expiration ofName
    
    Start of first term
    
    current term
    
    current termDirectors:Kunihiko Sakioka
    
    March 1989
    
    June 2007
    
    June 2008Shinsuke Amiya
    
    June 2006
    
    June 2007
    
    June 2008Hideo Sakioka
    
    May 1960
    
    June 2007
    
    June 2008Toshioki Otani
    
    June 2002
    
    June 2007
    
    June 2008Akihiro Nojiri
    
    June 2004
    
    June 2007
    
    June 2008Yunwei Chen
    
    June 2003
    
    June 2007
    
    June 2008Katsutoshi Shimizu
    
    June 2006
    
    June 2007
    
    June 2008Keishi Ishigaki
    
    June 2002
    
    June 2007
    
    June 2008Akira Imaki
    
    June 2006
    
    June 2007
    
    June 2008Hidetoshi Sawamura
    
    June 2007
    
    June 2007
    
    June 2008Hidenori Nakagawa(1)
    
    June 2006
    
    June 2007
    
    June 2008Statutory Auditors:Hitoshi Higaki
    
    June 2007
    
    June 2007
    
    June 2011Akio Sakioka
    
    June 2002
    
    June 2005
    
    June 2009Masaaki Uchino(2)
    
    June 2007
    
    June 2007
    
    June 2011Katsuhiko Asada(2)
    
    June 2004
    
    June 2004
    
    June 2008
 
 (1)
    
    Outside director pursuant to the Article 2-15 of the Corporate Law.(2)
    
    Outside statutory auditors pursuant to the Article 2-16 of the Corporate Law. -87-




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Board of Directors
   Board of Statutory Auditors
  Independent Registered Public Accounting Firm
  -88-




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Significant Differences Between Our Corporate Governance Practices and Those of New York Stock
Exchange-listed U.S. Companies
   Corporate Governance Practices Followedby NYSE-listed
U.S. Companies
    
    Corporate Governance Practices Followedby 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.
    
    Under the Corporate Law, Japanese joint stock
corporations are permitted to choose between the
traditional corporate governance system based on
a board of statutory auditors (the statutory
auditor system) and a corporate governance
system based on committees (the committee
system). The vast majority of Japanese
companies employ the statutory auditor system.
For Japanese companies with the statutory
auditor system, including us, the Corporate Law
of Japan has no independence requirement with
respect to directors. The statutory auditors,
who are separate from the companys management,
monitor performance of directors and oversee
accounting firms and have separate staff to
assist them in completing their tasks. Pursuant
to the Corporate Law, Japanese companies with a
board of statutory auditors, including us, are
required to have at least 50% of the statutory
auditors to be outside statutory auditors as
defined in the Corporate Law and who must meet
independence requirements under the Corporate
Law. Statutory auditors must not have served as
a director, accounting officer (kaikei-sanyo),
executive officer, manager or any other employee
of the company or any of its subsidiaries.
Currently, we have two outside Statutory
Auditors.
 A 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, our Board of
Statutory Auditors is a legally separate and
independent body from our Board of Directors.
The function of our 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. In particular,
their function is to monitor the performance of
our Directors, and review and express an opinion
on the method of auditing by our independent
public accounting firm and on such accounting
firms audit reports, for the protection of our
shareholders.
Japanese companies with a board of statutory
auditors, 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 of our Directors is one year.
Since 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 have relied on an exemption under
that rule available to foreign private issuers
with boards of auditors (or similar bodies), or statutory auditors meeting
certain criteria. We make disclosure regarding
such reliance in Item 16.D to our annual report
on Form 20-F.
 -89-




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Corporate Governance Practices Followedby NYSE-listed U.S. Companies
    
    Corporate Governance Practices Followedby 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. Under the Corporate Law,
before our Board of Directors submits a proposal
to a meeting of our shareholders to elect a
Statutory Auditor, the proposal must be approved
by a resolution of our Board of Statutory
Auditors. Our Board of Statutory Auditors is
empowered to adopt resolutions requesting that
our Directors submit a proposal for the election
of Statutory Auditors to a meeting of our
shareholders. Statutory Auditors have the right
to state their opinion concerning the election
or resignation of Statutory Auditors at meetings
of our shareholders.A NYSE-listed U.S.
company must have a
compensation committee
composed entirely of
independent directors.
    
    Under the statutory auditor system, 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 by, a
meeting of our shareholders. Our Articles of
Incorporation do not provide for any such total
amounts. Once the proposals for the total
amounts of compensation are approved at a
meeting of our shareholders, our Board of
Directors allocates the total amount for the
Directors among its members in its discretion
and our Statutory Auditors allocate the total
amount for the Statutory Auditors among
themselves in their discretion, unless there is
a resolution at the shareholders meeting or a
provision in the Articles of Incorporation
relating to the allocation of compensation.
 A NYSE-listed U.S.
company must generally
obtain shareholders
approval with respect
to any equity
compensation plan.
    
    Under the Corporate Law, our Board of Directors
is authorized to issue stock acquisition rights
unless the issuance is made under specially favorable conditions. The issuance of stock
acquisition rights to our Directors, Statutory
Auditors and employees as stock options would
not be deemed to be an issuance under
specially favorable conditions, even if the
stock options are issued at no charge, since we
would receive benefits corresponding to the
value of such stock options in the form of
services from the recipients. However, because
the Corporate Law provides that compensation for
our Directors and Statutory Auditors shall be
determined at a meeting of our shareholders
unless otherwise provided in our Articles of
Incorporation, we must obtain shareholders
approval for the issuance of stock options if
the options are to be issued as compensation for
our Directors and Statutory Auditors.A NYSE-listed U.S.
company must have an
internal audit
function, which must be
the sole responsibility
of the audit committee
and may not be
allocated to a
different committee.
    
    As discussed above, we employ the statutory
auditor system under which our Statutory
Auditors monitor the performance of our
Directors. In addition, in order to enhance our
internal audit function, we voluntarily
established a Group Audit Department, which
checks our internal audit function regularly.
Our Group Audit Department is different from our
Board of Statutory Auditors, and reports
directly to our president.
 -90-




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##### Table of Contents



D.
    
    Employees.
  As of March 31,2005

    
    2006
    
    2007Full-time:Integrated Financial Services
    
    
    726
    
    
    
    901
    
    
    
    1,042Servicing Business
    
    
    59
    
    
    
    74
    
    
    
    85Real Estate Business
    
    
    3
    
    
    
    13
    
    
    
    16Other Businesses
    
    
    30
    
    
    
    10
    
    
    
    23Sub-total
    
    
    818
    
    
    
    998
    
    
    
    1,166Part-time(1)
    
    
    89
    
    
    
    101
    
    
    
    90Temporary(2)
    
    
    181
    
    
    
    198
    
    
    
    186Total
    
    
    1,088
    
    
    
    1,297
    
    
    
    1,442
 
 (1)
    
    The average number of part-time employees was 85 for the year ended March 31, 2005, 100
for the year ended March 31, 2006 and 90 for the year ended March 31, 2007.(2)
    
    Temporary employees are employees dispatched from personnel agencies.   -91-




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##### Table of Contents



E.
    
    Share Ownership.
 Share Ownership by Directors and Statutory Auditors
  Number of Shares
    
    Percentage ofBeneficially
    
    Common StockOwned as of
    
    Outstanding as ofName
    
    Position
    
    Date of Birth
    

March 31, 2007 (1)
    

March
31, 2007 (2)Directors:Kunihiko Sakioka(3)
    
    Chairman, Representative
Directorof the Board and Co-CEO
    
    January 10, 1962
    
    
    37,631,210

(4)
    
    26.4

%(4)Shinsuke Amiya(3)
    
    President, Representative
Director of the Board and
Co-CEO
    
    October 3, 1957
    
    
    50,000
    
    
    *Hideo Sakioka
    
    Director of the Board and
Advisor
    
    May 14, 1928
    
    
    37,084,700

(5)
    
    26.0

(5)Toshioki Otani(3)
    
    Senior Executive Director of
the Board and Executive Officer
    
    December 22, 1970
    
    
    183,945
    
    
    *Akihiro Nojiri
    
    Senior Executive Director of
the Board and Executive Officer
    
    November 15, 1968
    
    
    34,936
    
    
    *Yunwei Chen
    
    Senior Executive Director of
the Board and Executive Officer
    
    January 16, 1969
    
    
    175,800
    
    
    *Katsutoshi Shimizu
    
    Executive Director of the Board
and Executive Officer
    
    April 9, 1954
    
    
    9,600
    
    
    *Keishi Ishigaki
    
    Director of the Board and
Executive Officer
    
    April 3, 1971
    
    
    150,988
    
    
    *Akira Imaki
    
    Director of the Board and
Executive Officer
    
    February 15, 1949
    
    
    4,000
    
    
    *Hidetoshi Sawamura
    
    Director of the Board and
Executive Officer
    
    December 25, 1950
    
    
    
    
    
    Hidenori Nakagawa
    
    Director of the Board (Outside)
    
    November 20, 1967
    
    
    
    
    
    Statutory Auditors:Hitoshi Higaki
    
    Statutory Auditor (Standing)
    
    December 14, 1959
    
    
    392,981
    
    
    *Akio Sakioka
    
    Statutory Auditor (Standing)
    
    September 22, 1950
    
    
    1,231,826
    
    
    *Masaaki Uchino
    
    Statutory Auditor (Outside)
    
    April 1, 1945
    
    
    
    
    
    Katsuhiko Asada
    
    Statutory Auditor (Outside)
    
    February 10, 1955
    
    
    7,200
    
    
    *
 
 (1)
    
    As adjusted for our August 2007 reverse stock split.(2)
    
    Asterisks indicate beneficial ownership of less than 1%.(3)
    
    Pursuant to a resolution of the Board of Directors adopted on
September 25, 2007, effective October 1, 2007, Kunihiko
Sakioka will become Chairman, Representative Director of the Board,
President and CEO (Head of Investment Banking, Sales &
Marketing), Shinsuke Amiya will become Vice-Chairman of the Board
and Executive Officer and Toshioki Otani will become Senior Executive
Director of the Board and Executive Officer.(4)
    
    Comprised of 4,481,347 shares over which Kunihiko Sakioka has sole voting and dispositive
power; 16,785,100 shares held by Nissin Building Co., Ltd. (Nissin Building) over which
Kunihiko Sakioka may be deemed to share voting or dispositive power with Hideo Sakioka,
Michimasa Sakioka and Midori Moriyama; and 16,364,763 shares held by Shuho, Ltd. (Shuho)
over which Kunihiko Sakioka may be deemed to share voting or dispositive power with Hideo
Sakioka. Excludes shareholdings of other Sakioka family members. Members of the Sakioka
family, including the ones listed above, directly and indirectly held an aggregate of
51,328,261 shares, or 36.0%, of our outstanding shares of common stock, as of March 31, 2007. -92-




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##### Table of Contents



(5)
    
    Comprised of 3,934,837 shares over which Hideo Sakioka has sole voting and dispositive power;
16,785,100 shares held by Nissin Building over which Hideo Sakioka may be deemed to share
voting or dispositive power with Kunihiko Sakioka, Michimasa Sakioka and Midori Moriyama; and
16,364,763 shares held by Shuho over which Hideo Sakioka may be deemed to share voting or
dispositive power with Kunihiko Sakioka. Excludes shareholding of other Sakioka family
members. Members of the Sakioka family, including the ones listed above, directly and
indirectly held an aggregate of 51,328,261 shares, or 36.0%, of our outstanding shares of
common stock, as of March 31, 2007.(6)
    
    During the period beginning April 1, 2007, through the date of this annual report on Form
20-F, the number of shares beneficially owned by certain of our Directors increased due to
exercises of stock acquisition rights or purchases either in the open market or through
negotiated transactions, as follows:Shinsuke Amiyas shareholding increased by 50,000 shares through an acquisition of shares from
Shuho. As a result, the number of shares beneficially owned by Kunihiko Sakioka and Hideo
Sakioka by virtue of their interests in Shuho decreased by 50,000 shares, respectively.
Akihiro Nojiris shareholding increased by 19,200 shares.
Katsutoshi Shimizus shareholding increased by 19,200 shares.
Akio Sakiokas shareholding increased (net of sales) by 5,000 shares.
Yunwei Chens shareholding increased by 17,500 shares.  Stock Option Plans
  
    
    March 2006 Stock Option Plan. We granted stock acquisition rights exercisable for a
total of 96,000 shares at a purchase price per share of ¥2,620 to 28 of our Directors
and employees and those of our subsidiaries and affiliates on March 23, 2006. These
are exercisable until March 31, 2009.
    
    July 2005 Stock Option Plan. We granted stock acquisition rights exercisable for a
total of 720,000 shares at a purchase price per share of ¥1,160 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 acquisition rights exercisable for a
total of 357,120 shares at a purchase price per share of ¥1,340 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 acquisition rights exercisable for
a total of 38,400 shares at a purchase price per share of ¥1,100 to 9 of our employees
on January 20, 2005. These are exercisable until January 31, 2008.
    
    July 2004 Stock Option Plan. We granted stock acquisition rights exercisable for a
total of 3,196,800 shares at a purchase price per share of ¥1,060 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.
  -93-




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##### Table of Contents



Number of sharesissuable upon exercise ofstock acquisition rightsName
    
    Position
    

as of March 31, 2007Directors:Kunihiko Sakioka(1)
    
    Chairman, Representative Director of the Board and
Co-CEO
    
    
    8,000Shinsuke Amiya(1)
    
    President, Representative Director of the Board and
Co-CEO
    
    
    Hideo Sakioka
    
    Director of the Board and Advisor
    
    
    Toshioki Otani(1)
    
    Senior Executive Director of the Board and Executive
Officer
    
    
    8,000Akihiro Nojiri
    
    Senior Executive Director of the Board and Executive
Officer
    
    
    27,200Yunwei Chen
    
    Senior Executive Director of the Board and Executive
Officer
    
    
    27,200Katsutoshi Shimizu
    
    Executive Director of the Board and Executive Officer
    
    
    21,200Keishi Ishigaki
    
    Director of the Board and Executive Officer
    
    
    Akira Imaki
    
    Director of the Board and Executive Officer
    
    
    6,000Hidetoshi Sawamura
    
    Director of the Board and Executive Officer
    
    
    Hidenori Nakagawa
    
    Director of the Board (Outside)
    
    
    Statutory Auditors:Hitoshi Higaki
    
    Statutory Auditor (Standing)
    
    
    Akio Sakioka
    
    Statutory Auditor (Standing)
    
    
    Masaaki Uchino
    
    Statutory Auditor (Outside)
    
    
    Katsuhiko Asada
    
    Statutory Auditor (Outside)
    
    
    22,400120,000
 
 (1)
    
    Pursuant to a resolution of the Board of Directors adopted on
September 25, 2007, effective October 1, 2007, Kunihiko
Sakioka will become Chairman, Representative Director of the Board,
President and CEO (Head of Investment Banking, Sales &
Marketing), Shinsuke Amiya will become Vice-Chairman of the Board
and Executive Officer and Toshioki Otani will become Senior Executive
Director of the Board and Executive Officer.(2)
    
    During the period beginning April 1, 2007 through the date of this annual report on Form 20-F,
stock acquisition rights exercised by Directors and Statutory
Auditors were as follows:

Akihiro Nojiri exercised stock acquisition rights to acquire 19,200 shares.
Katsutoshi Shimizu exercised stock acquisition rights to acquire 19,200 shares. Employee Stock Purchase Plan
  -94-




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Item 7. Major Shareholders and Related Party Transactions
 A. Major Shareholders.
 Report of
Substantial Shareholdings
 Number of Shares
    
    Percentage ofof Common Stock
    
    Common StockOwned as of
    
    Outstanding as ofShareholders
    
    March 31, 2007(5)
    
    March 31, 2007(5)Kunihiko Sakioka(1) (5) (6)
    
    
    37,631,210
    
    
    
    26.4
    %Hideo Sakioka(2) (5) (6)
    
    
    37,084,700
    
    
    
    26.0Midori Moriyama(3) (5)
    
    
    18,801,305
    
    
    
    13.2Michimasa Sakioka(4) (5)
    
    
    18,640,341
    
    
    
    13.1
 
 (1)
    
    Comprised of 4,481,347 shares over which Kunihiko Sakioka has sole voting and dispositive
power; 16,785,100 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 16,364,763 shares held by Shuho, over which Kunihiko Sakioka may be deemed to share voting
and dispositive power with Hideo Sakioka.(2)
    
    Comprised of 3,934,837 shares over which Hideo Sakioka has sole voting and dispositive power;
16,785,100 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
16,364,763 shares held by Shuho, over which Hideo Sakioka may be deemed to share voting and
dispositive power with Kunihiko Sakioka.(3)
    
    Comprised of 2,016,205 shares over which Midori Moriyama has sole voting and dispositive
power; and 16,785,100 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.(4)
    
    Comprised of 1,855,241 shares over which Michimasa Sakioka has sole voting and dispositive
power; and 16,785,100 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.(5)
    
    Excludes shareholding of other Sakioka family members. Members of the Sakioka family,
including the ones listed above, directly and indirectly held an aggregate of 51,328,261
shares, or 36.0%, of our outstanding shares of common stock, as of March 31, 2007.(6)
    
    In June 2007, Shinsuke Amiya, our President, Representative Director of the Board and
Co-CEO, acquired 50,000 shares from Shuho. As a result, the number of shares beneficially
owned by Kunihiko Sakioka and Hideo Sakioka by virtue of their interests in Shuho decreased
by 50,000 shares, respectively.   -95-




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##### Table of Contents



B. Related Party Transactions.
  
    
    any enterprise that directly or indirectly controls, is
controlled by, or is in common control with us or any of our
subsidiaries;
    
    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 subsidiaries 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 Our Directors, Corporate Officers, Statutory Auditors or Companies with Whom They
Have a Relationship
 Transactions with Shuho
  Year Ended March 31,2005
    
    2006
    
    2007(In millions)Rent income received
    
    ¥
    1
    
    
    ¥
    1
    
    
    ¥
    1
  Transactions with Nissin Building
  Year Ended March 31,2005
    
    2006
    
    2007(In millions)Rent income received
    
    ¥
    2
    
    
    ¥
    1
    
    
    ¥
    2
  -96-




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##### Table of Contents



Transactions with Our Principal Shareholders or Affiliates
 Transactions with Shinsei Business Finance
  Year Ended March 31,2005
    
    2006
    
    2007(In millions)Commissions on customer referrals paid
    
    ¥
    32
    
    
    ¥
    13
    
    
    ¥
    1Agency commissions received
    
    
    13
    
    
    
    4
    
    
    
    36Loan guarantee fees received
    
    
    316
    
    
    
    467
    
    
    
    Bank loan guarantee fees received
    
    
    34
    
    
    
    9
    
    
    
    
  Transactions with Webcashing.com
  Year Ended March 31,2005
    
    2006
    
    2007(In millions)Commissions on customer referrals paid
    
    ¥
    205
    
    
    ¥
    151
    
    
    ¥
    Advertising expenses and other fees paid
    
    
    175
    
    
    
    518
    
    
    
    1Proceeds from sale of equipment and software
    
    
    
    
    
    
    
    
    
    
    
  -97-




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##### Table of Contents



Transactions with Chuo Mitsui Finance
  Year Ended March 31,2005
    
    2006
    
    2007(In millions)Commissions on customer referrals paid
    
    ¥
    
    
    
    ¥
    9
    
    
    ¥
    11Loan guarantee fees received
    
    
    
    
    
    
    26
    
    
    
    89Bank loan guarantee fees received
    
    
    
    
    
    
    11
    
    
    
    41
  C. Interests of Experts and Counsel.
  -98-




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##### Table of Contents



Item 8. Financial Information
 A. Consolidated Statements and Other Financial Information.
 Financial Statements
  Legal or Arbitration Proceedings
  Dividend Policy
 Cash Dividends
 Rights with Respect to Distribution of
Surplus, Stock Repurchase and Stock Splits 
Dividends
  Dividends per
    
    Dividends pershare
    
    shareRecord Date
    
    (Actual)
    
    (As adjusted)September 30, 2002 (interim)
    
    ¥
    6.50
    
    
    ¥
    3.40March 31, 2003
    
    
    8.50
    
    
    
    4.40September 30, 2003 (interim)
    
    
    3.75
    
    
    
    4.00March 31, 2004
    
    
    4.75
    
    
    
    5.00September 30, 2004 (interim)
    
    
    1.375
    (1)
    
    
    5.80March 31, 2005
    
    
    2.50
    
    
    
    10.40September 30, 2005 (interim)
    
    
    1.00
    (2)
    
    
    10.00March 31, 2006
    
    
    1.10
    
    
    
    11.00September 30, 2006 (interim)
    
    
    0.16
    
    
    
    3.20March 31, 2007
    
    
    
    
    
    
    
 
 (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.(2)
    
    Adjusted to reflect the 2-for-1 stock split that took effect on November 18, 2005. The
actual interim dividend payment per share was ¥2.00.    -99-




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##### Table of Contents



Stock Repurchases
  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 millions)
    
    
    
    
    
    (In millions)
    
    
    
    
    
    (In millions)2003
    
    
    5,185,509
    
    
    
    ¥2,493
    
    
    
    38,400
    
    
    
    ¥     20
    
    
    
    5,147,109
    
    
    
    ¥ 2,4732004
    
    
    2,883,560
    
    
    
    1,209
    
    
    
    643,392
    
    
    
    338
    
    
    
    2,240,168
    
    
    
    8712005
    
    
    1,404
    
    
    
    1
    
    
    
    1,514,592
    
    
    
    909
    
    
    
    (1,513,188
    )
    
    
    (908
    )2006
    
    
    1,875
    
    
    
    2
    
    
    
    2,641,688
    
    
    
    2,209
    
    
    
    (2,639,813
    )
    
    
    (2,207
    )2007
    
    
    203
    
    
    
    
    
    
    
    587,864
    
    
    
    496
    
    
    
    (587,611
    )
    
    
    (496
    )2008 (through August 31,
2007) (1)
    
    
    3,000,054
    
    
    
    2,394
    
    
    
    163,536
    
    
    
    75
    
    
    
    2,836,518
    
    
    
    2,319
 
 (1)
    
    On June 23, 2007, the Board of Directors approved the repurchase of shares of the Companys
common stock up to 3,000,000 shares for an aggregate amount of up to ¥3 billion. We completed
all stock repurchases to be made under this stock repurchase program during the period from
June 25, 2007 to August 24, 2007.  B. Significant Changes.
  -100-




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##### Table of Contents



Item 9. The Offer and Listing
 A. Offer and Listing Details.
 Tokyo Stock Exchange
  Average DailyTradingPrice Per Share
    
    VolumeYear Ended/Ending March 31,
    
    High
    
    Low
    
    (In shares)2003
    
    ¥
    600
    
    
    ¥
    380
    
    
    
    241,9382004
    
    
    960
    
    
    
    400
    
    
    
    334,6082005
    
    
    1,380
    
    
    
    680
    
    
    
    474,4702006
    
    
    3,080
    
    
    
    1,000
    
    
    
    1,552,872First Quarter
    
    
    1,280
    
    
    
    1,000
    
    
    
    426,966Second Quarter
    
    
    1,660
    
    
    
    1,040
    
    
    
    766,150Third Quarter
    
    
    3,080
    
    
    
    1,400
    
    
    
    3,124,108Fourth Quarter
    
    
    2,900
    
    
    
    2,000
    
    
    
    1,920,0592007
    
    
    2,620
    
    
    
    960
    
    
    
    969,460First Quarter
    
    
    2,620
    
    
    
    1,540
    
    
    
    965,599Second Quarter
    
    
    1,820
    
    
    
    1,040
    
    
    
    1,300,966Third Quarter
    
    
    1,500
    
    
    
    960
    
    
    
    692,215Fourth Quarter
    
    
    1,460
    
    
    
    1,080
    
    
    
    910,8792008
    
    
    1,400
    
    
    
    960
    
    
    
    438,379First Quarter
    
    
    1,400
    
    
    
    960
    
    
    
    438,379
 Average DailyTradingPrice Per Share
    
    VolumeCalendar Month
    
    High
    
    Low
    
    (In shares)January 2007
    
    ¥
    1,420
    
    
    ¥
    1,080
    
    
    
    738,055February 2007
    
    
    1,460
    
    
    
    1,220
    
    
    
    1,396,778March 2007
    
    
    1,420
    
    
    
    1,240
    
    
    
    627,621April 2007
    
    
    1,400
    
    
    
    1,180
    
    
    
    334,308May 2007
    
    
    1,300
    
    
    
    1,060
    
    
    
    506,498June 2007
    
    
    1,100
    
    
    
    960
    
    
    
    469,375July 2007
    
    
    1,040
    
    
    
    660
    
    
    
    692,542August 2007
    
    
    960
    
    
    
    560
    
    
    
    1,048,961
 -101-




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##### Table of Contents



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
  Average DailyNew York Stock Exchange price
    
    TradingVolume ofper ADS
    
    ADSsYear Ended/Ending March 31,
    
    High
    
    Low2003 (since August 2, 2002)
    
    $
    1.89
    
    
    $
    1.56
    
    
    
    14,0892004
    
    
    4.76
    
    
    
    1.66
    
    
    
    6,2022005
    
    
    4.33
    
    
    
    3.03
    
    
    
    4,6292006
    
    
    14.69
    
    
    
    4.50
    
    
    
    10,345First Quarter
    
    
    5.74
    
    
    
    4.51
    
    
    
    2,555Second Quarter
    
    
    7.50
    
    
    
    4.50
    
    
    
    2,971Third Quarter
    
    
    14.69
    
    
    
    6.13
    
    
    
    15,596Fourth Quarter
    
    
    12.72
    
    
    
    8.69
    
    
    
    20,6612007
    
    
    11.00
    
    
    
    4.30
    
    
    
    23,205First Quarter
    
    
    11.00
    
    
    
    6.64
    
    
    
    5,679Second Quarter
    
    
    7.39
    
    
    
    4.88
    
    
    
    8,981Third Quarter
    
    
    6.29
    
    
    
    4.30
    
    
    
    14,411Fourth Quarter
    
    
    6.36
    
    
    
    4.60
    
    
    
    54,1192008
    
    
    6.02
    
    
    
    3.99
    
    
    
    32,823First Quarter
    
    
    6.02
    
    
    
    3.99
    
    
    
    32,823
 New York Stock Exchange price
    
    Average
DailyTradingVolume ofper ADS
    
    ADSsCalendar Month
    
    High
    
    LowJanuary 2007
    
    $
    5.73
    
    
    $
    4.60
    
    
    
    13,010February 2007
    
    
    5.83
    
    
    
    5.05
    
    
    
    107,184March 2007
    
    
    6.36
    
    
    
    5.48
    
    
    
    47,532April 2007
    
    
    6.02
    
    
    
    5.10
    
    
    
    33,025May 2007
    
    
    5.46
    
    
    
    4.43
    
    
    
    27,725June 2007
    
    
    4.61
    
    
    
    3.99
    
    
    
    37,971July 2007
    
    
    4.31
    
    
    
    3.00
    
    
    
    45,200August 2007
    
    
    4.50
    
    
    
    2.61
    
    
    
    59,622
  -102-




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##### Table of Contents



B. Plan of Distribution.
  C. Markets.
   D. Selling Shareholders.
  E. Dilution.
  F. Expenses of the Issue.
  -103-




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##### Table of Contents



Item 10. Additional Information
 A. Share Capital.
  B. Memorandum and Articles of Association.
 Purposes in Our Articles of Incorporation
  
    
    Consumer credit business, enterprise credit business, and financial mediation,
guarantee and agency of these;
    
    Credit management and collection business;
    
    The business of leasing, rental, buying and purchasing (including buying and
purchasing by installments), and managing all types of movable estates;
    
    The buying and selling, exchange, rental, mediation, appraisement, management,
possession and operation of real estate;
    
    Civil engineering, building work and contracting business;
    
    The buying and selling, mediation, commissioning or agency of securities;
    
    Non-life insurance agent business, business related to the offering of life
insurance, and insurance agent business based on the Automobile Liability Security Law;
    
    Investment and management consultancy business for enterprises;
    
    Business agency for rental contracts for corporate housing, offices and parking
space and sales contracts;
    
    The business of supplying temporary labor;
    
    Importing and exporting products and distribution business;
    
    Collection agency business;
    
    Computing work agency business;
    
    Contracting for advertising and publicity;
    
    Factoring business;
    
    Development and distribution of computer software;
    
    Distribution of computers and peripherals devices;
    
    Management and rental of sports facilities;
 -104-




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##### Table of Contents




    
    Office work agency business such as enterprise accounting or
labor services;
    
    Internet provider business;
    
    Internet advertising and publicity business;
    
    Mediation of money borrowing and lending using the Internet;
    
    Business related to the planning and development of Internet software and the
commissioning of its production, as well as consulting business related to these;
    
    Business related to agency and contract for sales of products and services;
    
    Business related to the planning, management and coordination of all types of events;
    
    Business related to all types of training and courses for the acquisition of all types of licenses;
    
    Planning and production of advertising and publicity, as well as advertising agency business;
    
    Business of offering automobile inspection services;
    
    Trust business;
    
    Other businesses that a trust company is permitted to conduct under law;
    
    Research, planning, intermediary and consulting services for M&A, alliances and
transfers of businesses, etc.;
    
    Type 1 financial instruments business defined under the Financial Instruments and
Exchange Law of Japan (the FIEL);
    
    Type 2 financial instruments business defined under the FIEL;
    
    Investment advisory and agency businesses defined under the FIEL;
    
    Investment management business defined under the FIEL;
    
    Financial instruments intermediation business defined under the FIEL; and
    
    All business that is ancillary to each of the preceding items.
 -105-




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##### Table of Contents



Provisions Regarding Our Directors
      Rights of Our Shareholders
 Rights with Respect to Distribution of Surplus, Stock Repurchases and Stock Splits
 Dividends
 Restriction on Distributions of Surplus Restriction on
Distributions of Surplus
 (a)
    
    the company employs an independent certified public accountant and a corporate
governance system based on a board of statutory auditor system or the committee system
under the Corporate Law, and the normal term of office of Directors is not longer than
one year; and(b)
    
    non-consolidated annual financial statements and certain documents for the last
fiscal year present fairly the companys assets and profit or
losses, as required by the
ordinances of the Ministry of Justice.
   -106-




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##### Table of Contents



Restriction on Distributions of Surplus
     A =
    
    the total amount of other additional paid-in capital (other than general
additional paid-in capital) and other retained earnings (other than legal reserve),
each such amount being that appearing on our non-consolidated balance sheet as of the
end of the last fiscal year;B =
    
    if we have disposed of our treasury stock after the end of the last fiscal
year, the amount of the consideration for such treasury stock received by us less the
book value thereof;C =
    
    if we have reduced our common stock (share capital) after the end of the
last fiscal year, the amount of such reduction less the portion thereof that has been
transferred to general additional paid-in capital or legal reserve (if any);D =
    
    if we have reduced our general additional paid-in capital or legal reserve
after the end of the last fiscal year, the amount of such reduction less the portion
thereof that has been transferred to common stock (share capital) (if any);E =
    
    if we have retired any of our treasury stock after the end of the last
fiscal year, the book value of such treasury stock;F =
    
    if we have distributed Surplus to our shareholders after the end of the
last fiscal year, the total book value of the Surplus so distributed;G =
    
    certain other amounts set forth in the ordinances of the Ministry of
Justice, including, if we have reduced Surplus and increased our common stock (share
capital), general additional paid-in capital or legal reserve after the end of the
last fiscal year, the amount of such reduction, and, if we have distributed Surplus to
our shareholders after the end of the last fiscal year, the amount set aside in our
general additional paid-in capital or legal reserve (if any), as required by
ordinances of the Ministry of Justice.
  (a)
    
    the book value of our treasury stock;(b)
    
    the amount of consideration for our treasury stock disposed of by us after
the end of the last fiscal year; and(c)
    
    certain other amounts set forth in ordinances of the Ministry of Justice,
including, if the sum of one-half of goodwill and the deferred assets exceeds the
total of common stock (share capital), general additional paid-in capital and legal
reserve (each such amount being that appearing on our non-consolidated balance sheet as of the end of the last fiscal year), all or a
certain part of such excess amount as calculated in accordance with the ordinances
of the Ministry of Justice.
 -107-




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##### Table of Contents



renketsu haito kisei
tekiyo kaisha
  Repurchase of Our Shares
  
    
    by way of purchase on any Japanese stock exchange on which our shares are listed or
by way of takeover bids (TOB);
    
    by soliciting all our shareholders to offer to sell our shares held by them (on a
pro-rata basis); or
    
    from any of our subsidiaries.
  Restriction on Distributions of Surplus
 -108-




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##### Table of Contents




    
    repurchasing those that constitute less than one unit upon the request of their holder;
    
    redeeming redeemable shares (shutoku jyo-kou-tsuki kabusiki) or shares with
redemption right (shutoku seikyu-ken-tsuki kabushiki); or
    
    a business transfer, merger or spin-off.
 Stock Splits
   Voting Rights
  -109-




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##### Table of Contents




    
    a reduction of the common stock (share capital);
    
    amendment of the Articles of Incorporation (except amendments that the Board of
Directors is authorized to make under the Corporate Law);
    
    the removal of a 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 spin-off 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;
    
    purchase of shares of common stock by us from a specific shareholder other than our
subsidiary;
    
    any issuance of new shares or transfer of existing shares as treasury stock to
persons other than the shareholders at a specially favorable price; and
    
    any issuance of stock acquisition rights (as defined in Stock Acquisition Rights
below, including those incorporated in bonds with stock acquisition rights) to persons
other than the shareholders under specially favorable conditions.
  Rights to be Allotted Shares
  Stock
Acquisition Rights
 -110-




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##### Table of Contents



Stock Acquisition Rights
 shinkabu yoyakuken shinkabu yoyakuken-tsuki shasai
 Liquidation Rights
  Liability to Further Calls or Assessments
  Shareholders Rights to Bring Actions Against Directors
  Limitations Affecting Security Holders
 Japanese Unit Share System
   -111-




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##### Table of Contents




    
    to receive distributions of Surplus;
    
    to receive cash or other assets in case of a consolidation or split of shares,
exchange or transfer of shares or corporate merger;
    
    to be allotted rights to subscribe for free for new shares and stock acquisition
rights when such rights are granted to shareholders; and
    
    to participate in any distribution of surplus assets upon liquidation.
  Right of a Holder of Shares Representing Less Than One Unit to Require Us to Purchase Its
Shares
  Voting Rights of a Holder of Shares Representing Less Than One Unit
 Voting Rights
 Rights of Foreign Investors
  Reporting Requirements of Shareholders
 Report of Substantial Shareholdings
  -112-




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##### Table of Contents



Acquisition or Disposition of Shares or ADSs
   
    
    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,
  Ordinary General Meeting of Shareholders
  Clearing System for Our Shares
  -113-




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##### Table of Contents



Settlement for Our Shares
   Share Registrar for Our Shares
  Record Dates for Our Shares
   C. Material Contracts.
  D. Exchange Controls.
  -114-




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##### Table of Contents



E. Taxation.
 United States Tax Considerations
  
    
    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.
   
    
    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.
  -115-




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##### Table of Contents



Passive Foreign Investment Company Rules
    Special PFIC Tax Rules
  
    
    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 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).
   
    
    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.
 -116-




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Mark-to-market Rules
   -117-




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##### Table of Contents



Foreign Tax Credit
    Japanese Tax Considerations
  
    
    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.
   
    
    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 general additional paid-in capital, and retained earnings
portion on a non-consolidated basis under Article 24 (1) (v) of the Japanese Corporation
Tax Law; and
    
    capital gains or losses computed as a difference between the basis of shares subject to
the tender offer at the shareholder level and the amount of the consideration for the
tender offer, deducting the amount corresponding to the deemed dividend computed as (i)
above under Article 61-2 (1) of the same law.
 -118-




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##### Table of Contents




    
    7% for dividends to be paid between January 1, 2004 and
March 31, 2009 (a one-year
extension is promulgated under the 2007 Japanese tax legislation) 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%.
    -119-




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F. Dividends and Paying Agents.
  G. Statement by Experts.
  H. Documents on Display.
  I. Subsidiary Information.
  -120-




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##### Table of Contents



Item 11. Quantitative and Qualitative Disclosures About Market Risk
  Asset-side Risk
 Integrated Financial Services
   As of March 31,2005
    
    2006
    
    2007(Years)Secured loans
    
    
    1.6
    
    
    
    1.5
    
    
    
    1.4SME loans(1)
    
    
    4.0
    
    
    
    3.9
    
    
    
    3.7Consumer loans (1)
    
    
    4.9
    
    
    
    4.9
    
    
    
    5.0Other loans
    
    
    3.5
    
    
    
    4.3
    
    
    
    4.1
 
 (1)
    
    The average maturity of revolving loans included in each of SME loans and consumer loans is
3.0 years based on the three-year term of the loan contract, which is automatically renewable.  Year Ended March 31,2005
    
    2006
    
    2007Secured loans
    
    
    9.6
    %
    
    
    7.3
    %
    
    
    6.8
    %SME loans
    
    
    21.0
    
    
    
    19.5
    
    
    
    18.8Consumer loans
    
    
    21.5
    (1)
    
    
    19.7
    
    
    
    19.0Other loans
    
    
    12.0
    
    
    
    10.7
    
    
    
    12.4
 
 (1)
    
    Reflecting the sale of most of the outstanding balance of our consumer loans to NETCARD, Inc.
(formerly known as Orient Credit Co., Ltd.) in June 2004.  Assumed average actual interest rate per year12.5%
    
    12.0%
    
    11.5%(In millions)Net losses as reported
    
    ¥
    (1,610
    )
    
    ¥
    (1,610
    )
    
    ¥
    (1,610
    )Net losses as adjusted for hypothetical decrease in interest rates
    
    
    (2,474
    )
    
    
    (3,235
    )
    
    
    (3,996
    )
  -121-




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##### Table of Contents



Servicing Business
  Liability-side Risk
 Interest Rate Risk
   As ofMarch 31,Year Ending March 31,
    
    
    
    
    
    20072008
    
    2009
    
    2010
    
    2011
    
    2012
    
    Thereafter
    
    Total
    
    Fair value(In millions except
percentages)Bonds
    
    ¥
    8,460
    
    
    ¥
    28,030
    
    
    ¥
    5,250
    
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    41,740
    
    
    ¥
    41,524Average interest rate
    
    
    1.60
    %
    
    
    1.42
    %
    
    
    2.63
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.59
    %Variable(1)
    
    
    53,336
    
    
    
    31,125
    
    
    
    6,826
    
    
    
    34,902
    
    
    
    521
    
    
    
    372
    
    
    
    127,082
    
    
    
    127,082Average interest rate
    
    
    1.64
    %
    
    
    1.71
    %
    
    
    1.71
    %
    
    
    0.97
    %
    
    
    0.17
    %
    
    
    
    
    
    
    1.62
    %Fixed
    
    
    46,679
    
    
    
    21,397
    
    
    
    22,034
    
    
    
    1,875
    
    
    
    10
    
    
    
    
    
    
    
    91,995
    
    
    
    89,090Average interest rate
    
    
    2.53
    %
    
    
    3.32
    %
    
    
    3.25
    %
    
    
    1.89
    %
    
    
    
    
    
    
    
    
    
    
    2.86
    %
 
 (1)
    
    Variable interest rate borrowings include asset-backed securities. -122-




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##### Table of Contents



Assumed weighted-average interest rate2%
    
    3%
    
    4%(In millions)Net losses as reported
    
    ¥
    (1,610
    )
    
    ¥
    (1,610
    )
    
    ¥
    (1,610
    )Net losses as adjusted for hypothetical increase in interest rates
    
    
    (1,688
    )
    
    
    (2,622
    )
    
    
    (3,556
    )
  -123-




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##### Table of Contents





Investment Price Risk






Item 12. Description of Securities Other than Equity Securities
  -124-




---



##### Table of Contents



PART II
 
 Item 13. Defaults, Dividend Arrearages and Delinquencies
  
 Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
  
 Item 15. Controls and Procedures
 Disclosure Controls and Procedures
    Managements Annual Report on Internal Control Over Financial Reporting
      Changes in Internal Control Over Financial Reporting
  -125-




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##### Table of Contents



Item 16A. Audit Committee Financial Expert
  
 Item 16B. Code of Ethics
  
 Item 16C. Principal Accountant Fees and Services
  Year Ended March 31,2005
    
    2006
    
    2007(In millions)Audit
Fees(1)
    
    ¥
    45
    
    
    ¥
    54
    
    
    ¥
    92Audit-Related Fees (2)
    
    
    17
    
    
    
    6
    
    
    
    3Tax Fees(3)
    
    
    
    
    
    
    
    
    
    
    All Other Fees(4)
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    These are the aggregate fees billed for each of the fiscal years 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 fiscal years.(2)
    
    These are the aggregate fees billed for each of the fiscal years 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 each of the fiscal years 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.  -126-




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##### Table of Contents



Item 16D. Exemptions from the Listing Standards for Audit Committees
  
    
    The board of statutory auditors must be established, and its members must be
selected, pursuant to Japanese law expressly requiring such a board for Japanese
companies that elect to have a corporate governance system with corporate auditors;
    
    Japanese law must and does require the board of statutory auditors to be separate
from the board of directors;
    
    None of the members of the board of statutory auditors may be elected by management,
and none of the listed companys executive officers may be a member of the board of
statutory auditors;
    
    Japanese law must and does set forth standards for the independence of the members
of the board of statutory auditors from the listed company or its management;
    
    The board of statutory auditors, in accordance with Japanese law or the registrants
governing documents, must be responsible, to the extent permitted by Japanese law, for
the appointment, retention and oversight of the work of any registered public
accounting firm engaged (including, to the extent permitted by Japanese law, the
resolution of disagreements between management and the auditor regarding financial
reporting) for the purpose of preparing or issuing an audit report or performing other
audit, review or attest services for the listed company, including its principal
accountant which audits its consolidated financial statements included in its annual
reports on Form 20-F; and
    
    To the extent permitted by Japanese law:
 
    
    the board of statutory auditors must establish procedures for (i) the
receipt, retention and treatment of complaints received by the listed company
regarding accounting, internal accounting controls, or auditing matters, and
(ii) the confidential, anonymous submission by the listed companys employees of concerns regarding questionable
accounting or auditing matters;
    
    the board of statutory auditors must have the authority to engage
independent counsel and other advisers, as it determines necessary to carry
out its duties; and
    
    the listed company must provide for appropriate funding, as determined by
its board of statutory auditors, for payment of (i) compensation to any
registered public accounting firm engaged for the purpose of preparing or
issuing an audit report or performing other audit, review or attest services
for the listed company, (ii) compensation to any advisers employed by the
board of statutory auditors, and (iii) ordinary administrative expenses of
the board of statutory auditors that are necessary or appropriate in carrying
out its duties.
  -127-




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##### Table of Contents



Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
  Total Number of
    
    
    Maximum NumberShares Purchased as
    
    
    of Shares that MayPart of Publicly
    
    
    Yet Be PurchasedTotal Number of
    
    
    Average Price Paid
    
    
    Announced Plans or
    
    
    Under the Plans orCalendar Month
    
    Shares Purchased
    
    
    per Share
    
    
    Program
    
    
    ProgramsApril 2006
    
    
    20
    
    
    
    ¥2,342
    
    
    
    N/A
    
    
    
    N/AMay 2006
    
    
    4
    
    
    
    2,468
    
    
    
    N/A
    
    
    
    N/AJune 2006
    
    
    10
    
    
    
    1,805
    
    
    
    N/A
    
    
    
    N/AJuly 2006
    
    
    10
    
    
    
    1,233
    
    
    
    N/A
    
    
    
    N/AAugust 2006
    
    
    18
    
    
    
    1,593
    
    
    
    N/A
    
    
    
    N/ASeptember 2006
    
    
    83
    
    
    
    1,558
    
    
    
    N/A
    
    
    
    N/AOctober 2006
    
    
    21
    
    
    
    1,491
    
    
    
    N/A
    
    
    
    N/ANovember 2006
    
    
    14
    
    
    
    1,202
    
    
    
    N/A
    
    
    
    N/ADecember 2006
    
    
    8
    
    
    
    1,419
    
    
    
    N/A
    
    
    
    N/AJanuary 2007
    
    
    9
    
    
    
    1,303
    
    
    
    N/A
    
    
    
    N/AFebruary 2007
    
    
    3
    
    
    
    1,400
    
    
    
    N/A
    
    
    
    N/AMarch 2007
    
    
    3
    
    
    
    1,293
    
    
    
    N/A
    
    
    
    N/ATotal
    
    
    203
    
    
    
    ¥1,598
    
    
    
    N/A
    
    
    
    N/A
 Rights with Respect to Distribution of Surplus, Stock
Repurchases and Stock Splits
 -128-




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##### Table of Contents



PART III
 
 Item 17. Financial Statements
  
 Item 18. Financial Statements
  
 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 of Common Stock Certificates (English Translation)2.2
    
    
     Form of Deposit Agreement Among NIS Group 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 Subsidiaries11.1
    
    
     Our Code of Ethics12.1
    
    
     Certification of the principal executive officer required by 17 C.F.R. 240. 13a-14(a)12.2
    
    
     Certification of the principal executive officer required by 17 C.F.R. 240. 13a-14(a)12.3
    
    
     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 executive officer required by 18 U.S.C. Section 135013.3
    
    
     Certification of the chief financial officer required by 18 U.S.C. Section 1350
  -129-




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##### Table of Contents



SIGNATURES
  NIS GROUP CO., LTD.By
    /s/ Shinsuke AmiyaName:
    Shinsuke AmiyaTitle:
    President,
Representative Director of the Board andCo-Chief Executive Officer  S-1




---



##### Table of Contents



NIS GROUP CO., LTD.
 
 INDEX TO FINANCIAL STATEMENTS
 PageAnnual Financial StatementsReport of Independent Registered Public Accounting Firm
    
    F-2Report of
Independent Registered Public Accounting Firm on Internal Control
over Financial Reporting
    
    F-3Consolidated Balance Sheets
    
    F-4Consolidated Statements of Operations
    
    F-5Consolidated Statements of Shareholders Equity
            F-6Consolidated Statements of Cash Flows
    
    F-8Notes to the Consolidated Financial Statements
    
    F-10
 F-1




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     Share-Based Payment.
  
 F-2




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
        
 F-3




---



##### Table of Contents



CONSOLIDATED BALANCE SHEETS  NIS GROUP CO., LTD. AND ITS SUBSIDIARIES  March 31, 2006 and 2007
 Thousands ofMillions of Yen
    
    
    U.S. Dollars (Note 1)2006
    
    
    2007
    
    
    2007AssetsCash and cash equivalents
    
    ¥
    22,860
    
    
    ¥
    28,344
    
    
    
    $   240,102Restricted cash
    
    
    3,417
    
    
    
    10,331
    
    
    
    87,514Loans receivable, net
    
    
    225,947
    
    
    
    250,780
    
    
    
    2,124,354Purchased loans receivable, net
    
    
    24,155
    
    
    
    28,910
    
    
    
    244,896Interest receivable
    
    
    1,021
    
    
    
    1,117
    
    
    
    9,462Investment securities
    
    
    42,071
    
    
    
    38,384
    
    
    
    325,150Real estate for sale
    
    
    20,792
    
    
    
    67,327
    
    
    
    570,326Property and equipment, net
    
    
    11,169
    
    
    
    8,448
    
    
    
    71,563Investment in affiliates
    
    
    617
    
    
    
    2,833
    
    
    
    23,998Deferred income taxes
    
    
    721
    
    
    
    6,488
    
    
    
    54,960Other assets
    
    
    7,173
    
    
    
    11,115
    
    
    
    94,156Total assets
    
    ¥
    359,943
    
    
    ¥
    454,077
    
    
    
    $3,846,481Liabilities and Shareholders EquityShort-term borrowings
    
    ¥
    60,411
    
    
    ¥
    84,258
    
    
    
    $   713,748Accrued income taxes
    
    
    6,089
    
    
    
    3,714
    
    
    
    31,461Accrued expenses
    
    
    702
    
    
    
    915
    
    
    
    7,751Long-term borrowings
    
    
    198,924
    
    
    
    260,817
    
    
    
    2,209,377Capital lease obligations
    
    
    1,337
    
    
    
    859
    
    
    
    7,277Accrued retirement benefits
    
    
    647
    
    
    
    380
    
    
    
    3,219Deferred income taxes
    
    
    1,382
    
    
    
    256
    
    
    
    2,169Other liabilities
    
    
    7,514
    
    
    
    16,123
    
    
    
    136,578Total liabilities
    
    
    277,006
    
    
    
    367,322
    
    
    
    3,111,580Minority interests
    
    
    2,433
    
    
    
    4,192
    
    
    
    35,510Commitments and contingencies (Notes 12, 13 and 16)Shareholders equity (Note 17):Common stock  designated valueAuthorized  384,000,000 shares as of   
                    March 31, 2006 and 2007Issued          140,647,064 and 145,894,350 shares as of 
                      March 31, 2006 and 2007, respectively
    
    
    11,849
    
    
    
    16,289
    
    
    
    137,984Additional paid-in capital
    
    
    14,808
    
    
    
    19,490
    
    
    
    165,100Retained earnings
    
    
    50,197
    
    
    
    46,629
    
    
    
    394,994Cumulative other comprehensive income
    
    
    5,485
    
    
    
    1,721
    
    
    
    14,579Less treasury stock, at cost:4,005,104 shares and 3,417,449 shares at March 31, 2006
and 2007, respectively
    
    
    (1,835
    )
    
    
    (1,566
    )
    
    
    (13,266
    )Total shareholders equity
    
    
    80,504
    
    
    
    82,563
    
    
    
    699,391Total liabilities and shareholders equity
    
    ¥
    359,943
    
    
    ¥
    454,077
    
    
    
    $3,846,481
  F-4




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##### Table of Contents



CONSOLIDATED STATEMENTS OF OPERATIONS  NIS GROUP CO., LTD. AND ITS SUBSIDIARIES  For the Years Ended March 31, 2005, 2006 and 2007
 Thousands ofMillions of Yen
    
    
    U.S. Dollars (Note 1)2005
    
    
    2006
    
    
    2007
    
    
    2007Interest income
    
    
    ¥29,488
    
    
    
    ¥29,826
    
    
    
    ¥33,706
    
    
    $
    285,523Provision for losses on excess interest repayments
    
    
    2,132
    
    
    
    3,331
    
    
    
    12,664
    
    
    
    107,276Net interest income
    
    
    27,356
    
    
    
    26,495
    
    
    
    21,042
    
    
    
    178,247Interest expense
    
    
    2,971
    
    
    
    2,602
    
    
    
    3,870
    
    
    
    32,783Net interest income before provision for loan losses
    
    
    24,385
    
    
    
    23,893
    
    
    
    17,172
    
    
    
    145,464Provision for loan losses
    
    
    5,817
    
    
    
    5,923
    
    
    
    10,853
    
    
    
    91,936Net interest income from lending activities
    
    
    18,568
    
    
    
    17,970
    
    
    
    6,319
    
    
    
    53,528Other revenue:Interest income from purchased loans
    
    
    3,255
    
    
    
    4,960
    
    
    
    5,989
    
    
    
    50,733Gain on sales of real estate, net
    
    
    477
    
    
    
    1,584
    
    
    
    5,379
    
    
    
    45,565Guarantee fees received, net
    
    
    317
    
    
    
    508
    
    
    
    588
    
    
    
    4,981Rents, dividends and other
    
    
    954
    
    
    
    4,393
    
    
    
    5,629
    
    
    
    47,683Total other revenue
    
    
    5,003
    
    
    
    11,445
    
    
    
    17,585
    
    
    
    148,962Operating expense:Interest expense
    
    
    188
    
    
    
    503
    
    
    
    1,037
    
    
    
    8,784Salaries and employee benefits
    
    
    6,521
    
    
    
    7,181
    
    
    
    8,534
    
    
    
    72,291Occupancy, furniture and equipment
    
    
    2,395
    
    
    
    2,654
    
    
    
    3,196
    
    
    
    27,073Advertising
    
    
    333
    
    
    
    629
    
    
    
    264
    
    
    
    2,236Other general and administrative expenses
    
    
    6,001
    
    
    
    6,765
    
    
    
    9,552
    
    
    
    80,916Total operating expense
    
    
    15,438
    
    
    
    17,732
    
    
    
    22,583
    
    
    
    191,300Operating income
    
    
    8,133
    
    
    
    11,683
    
    
    
    1,321
    
    
    
    11,190Other income:Gains on sale of loans receivable
    
    
    3,327
    
    
    
    
    
    
    
    
    
    
    
    (Losses) gains on sales and impairment of investment
securities, net
    
    
    (513
    )
    
    
    3,708
    
    
    
    (1,168
    )
    
    
    (9,894
    )Gains (losses) on sales of subsidiaries and affiliates, net
    
    
    1,339
    
    
    
    (43
    )
    
    
    295
    
    
    
    2,499Equity losses in affiliates, net
    
    
    (92
    )
    
    
    (61
    )
    
    
    (8
    )
    
    
    (68
    )Total other income (losses)
    
    
    4,061
    
    
    
    3,604
    
    
    
    (881
    )
    
    
    (7,463
    )Other expense:Losses on sale, disposal and impairment of long-lived
assets, net
    
    
    94
    
    
    
    16
    
    
    
    189
    
    
    
    1,601Minority interests
    
    
    192
    
    
    
    602
    
    
    
    264
    
    
    
    2,236Total other expense
    
    
    286
    
    
    
    618
    
    
    
    453
    
    
    
    3,837Income (losses) before income taxes
    
    
    11,908
    
    
    
    14,669
    
    
    
    (13
    )
    
    
    (110
    )Income taxes
    
    
    4,646
    
    
    
    6,214
    
    
    
    1,597
    
    
    
    13,528Net income (losses)
    
    
    ¥  7,262
    
    
    
    ¥  8,455
    
    
    
    ¥(1,610
    )
    
    
    $ (13,638
    )U.S. DollarsPer share data
    
    Yen
    
    
    (Note 1)Net income (losses)  basic
    
    
    ¥59.60
    
    
    
    ¥65.40
    
    
    
    ¥(11.42
    )
    
    
    $(0.097
    ) diluted
    
    
    54.00
    
    
    
    61.60
    
    
    
    (11.42
    )
    
    
    (0.097
    )Weighted-average
shares outstanding
    
    Thousands of SharesBasic
    
    
    122,083
    
    
    
    129,247
    
    
    
    140,924Diluted
    
    
    135,193
    
    
    
    137,942
    
    
    
    140,924
  F-5




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##### Table of Contents



CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
NIS GROUP CO., LTD. AND ITS SUBSIDIARIES
For the Years Ended March 31, 2005, 2006 and 2007
 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, 2004
    
    
    129,337
    
    
    ¥
    7,218
    
    
    ¥
    9,092
    
    
    ¥
    38,351
    
    
    ¥
    3,371
    
    
    ¥
    (3,735
    )
    
    ¥
    54,297Exercise of stock warrants and
convertible bonds
    
    
    1,383
    
    
    
    561
    
    
    
    551
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,112Stock issuance costs
    
    
    
    
    
    
    
    
    
    
    (23
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23
    )Comprehensive 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
    
    
    130,720
    
    
    
    7,779
    
    
    
    9,836
    
    
    
    44,313
    
    
    
    8,086
    
    
    
    (3,043
    )
    
    
    66,971Conversion of convertible bonds
    
    
    9,927
    
    
    
    4,070
    
    
    
    4,050
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,120Stock issuance costs
    
    
    
    
    
    
    
    
    
    
    (77
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (77
    )Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,455
    
    
    
    
    
    
    
    
    
    
    
    8,455Other comprehensive income,
net of taxChange in net unrealized
gains on investment
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,765
    )
    
    
    
    
    
    
    (2,765
    )Change in net unrealized
losses on derivative
instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    4Change in foreign
currency adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    160
    
    
    
    
    
    
    
    160Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,854Cash dividends paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,571
    )
    
    
    
    
    
    
    
    
    
    
    (2,571
    )Purchases of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    (2
    )Sales of treasury stock
    
    
    
    
    
    
    
    
    
    
    999
    
    
    
    
    
    
    
    
    
    
    
    1,210
    
    
    
    2,209Balance as of March 31, 2006
    
    
    140,647
    
    
    ¥
    11,849
    
    
    ¥
    14,808
    
    
    ¥
    50,197
    
    
    ¥
    5,485
    
    
    ¥
    (1,835
    )
    
    ¥
    80,504
 (Continued)
 F-6




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##### Table of Contents



CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
NIS GROUP CO., LTD. AND ITS SUBSIDIARIES
For the Years Ended March 31, 2005, 2006 and 2007
 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, 2006
    
    
    140,647
    
    
    
    11,849
    
    
    
    14,808
    
    
    
    50,197
    
    
    
    5,485
    
    
    
    (1,835
    )
    
    
    80,504Conversion of convertible bonds
    
    
    946
    
    
    
    397
    
    
    
    377
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    774Sale of new
shares to a third-party
    
    
    4,301
    
    
    
    4,043
    
    
    
    3,957
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,000Stock compensation costs
    
    
    
    
    
    
    
    
    
    
    220
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    220Stock issuance costs
    
    
    
    
    
    
    
    
    
    
    (99
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (99
    )Comprehensive income:Net income
(losses)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,610
    )
    
    
    
    
    
    
    
    
    
    
    (1,610
    )Other
comprehensive income,net
of taxChange in net unrealized
gains on investment
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,974
    )
    
    
    
    
    
    
    (3,974
    )Change in
foreign currency
adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    210
    
    
    
    
    
    
    
    210Total
comprehensive income (losses)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,374
    )Cash dividends paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,958
    )
    
    
    
    
    
    
    
    
    
    
    (1,958
    )Purchases of treasury stockSales of treasury stock
    
    
    
    
    
    
    
    
    
    
    227
    
    
    
    
    
    
    
    
    
    
    
    269
    
    
    
    496Balance as of March 31, 2007
    
    
    145,894
    
    
    
    ¥16,289
    
    
    
    ¥19,490
    
    
    
    ¥46,629
    
    
    
    ¥1,721
    
    
    
    ¥(1,566
    )
    
    
    ¥82,563
 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, 2006
    
    
    140,647
    
    
    
    $100,373
    
    
    
    $125,438
    
    
    
    $425,218
    
    
    
    $  46,463
    
    
    
    $(15,544
    )
    
    
    $681,948Conversion of convertible bonds
    
    
    946
    
    
    
    3,363
    
    
    
    3,194
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,557Sale of new
shares to a third-party
    
    
    4,301
    
    
    
    34,248
    
    
    
    33,520
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    67,768Stock compensation costs
    
    
    
    
    
    
    
    
    
    
    1,864
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,864Stock issuance costs
    
    
    
    
    
    
    
    
    
    
    (839
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (839
    )Comprehensive income:Net income (losses)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,638
    )
    
    
    
    
    
    
    
    
    
    
    (13,638
    )Other
comprehensive income,net
of taxChange in net unrealized
gains on investment
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (33,664
    )
    
    
    
    
    
    
    (33,664
    )Change in
foreign currencyadjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,780
    
    
    
    
    
    
    
    1,780Total
comprehensive income (losses)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (45,522
    )Cash dividends paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,586
    )
    
    
    
    
    
    
    
    
    
    
    (16,586
    )Purchases of treasury stockSales of treasury stock
    
    
    
    
    
    
    
    
    
    
    1,923
    
    
    
    
    
    
    
    
    
    
    
    2,278
    
    
    
    4,201Balance as of March 31, 2007
    
    
    145,894
    
    
    
    $137,984
    
    
    
    $165,100
    
    
    
    $394,994
    
    
    
    $  14,579
    
    
    
    $(13,266
    )
    
    
    $699,391
  F-7




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##### Table of Contents



CONSOLIDATED STATEMENTS OF CASH FLOWS
NIS GROUP CO., LTD. AND SUBSIDIARIES
For the Years Ended March 31, 2005, 2006 and 2007
 Thousands ofMillions of Yen
    
    
    U.S. Dollars (Note 1)2005
    
    
    2006
    
    
    2007
    
    
    2007Operating ActivitiesNet income (losses)
    
    ¥
    7,262
    
    
    ¥
    8,455
    
    
    ¥
    (1,610
    )
    
    $
    (13,638
    )Adjustments
to reconcile net income (losses) to net cash provided by
operating activities:Provision for losses on excess interest repayments
    
    
    2,132
    
    
    
    3,331
    
    
    
    12,664
    
    
    
    107,276Provision for loan losses
    
    
    5,817
    
    
    
    5,923
    
    
    
    10,853
    
    
    
    91,936Depreciation and amortization
    
    
    1,175
    
    
    
    1,333
    
    
    
    1,678
    
    
    
    14,214Amortization of debt issuance costs
    
    
    239
    
    
    
    184
    
    
    
    193
    
    
    
    1,635Amortization of loan origination costs (income)
    
    
    540
    
    
    
    431
    
    
    
    (280
    )
    
    
    (2,372
    )Stock compensation costs
    
    
    
    
    
    
    
    
    
    
    383
    
    
    
    3,244Gain on sale of loans receivable
    
    
    (3,327
    )
    
    
    
    
    
    
    
    
    
    
    Losses (gains) on sale and impairment of investment
securities, net
    
    
    513
    
    
    
    (3,708
    )
    
    
    1,168
    
    
    
    9,894Losses on sale, disposal and impairment of long-lived
assets, net
    
    
    94
    
    
    
    16
    
    
    
    189
    
    
    
    1,601(Gains) losses on sale of subsidiaries and affiliates, net
    
    
    (1,339
    )
    
    
    43
    
    
    
    (295
    )
    
    
    (2,499
    )Equity losses in affiliates, net
    
    
    92
    
    
    
    61
    
    
    
    8
    
    
    
    68Deferred income taxes
    
    
    1,427
    
    
    
    (1,460
    )
    
    
    (4,180
    )
    
    
    (35,409
    )Minority interests
    
    
    192
    
    
    
    602
    
    
    
    264
    
    
    
    2,236Changes in assets and liabilities:Interest receivable
    
    
    229
    
    
    
    (166
    )
    
    
    (95
    )
    
    
    (805
    )Accrued income taxes and expenses
    
    
    (2,181
    )
    
    
    5,521
    
    
    
    (2,161
    )
    
    
    (18,306
    )Other liabilities
    
    
    1,821
    
    
    
    3,704
    
    
    
    4,897
    
    
    
    41,484Net cash provided by operating activities
    
    
    14,686
    
    
    
    24,270
    
    
    
    23,676
    
    
    
    200,559Investing ActivitiesProceeds from sales of loans receivable
    
    
    32,697
    
    
    
    
    
    
    
    
    
    
    
    Loans receivable, net of principal collections
    
    
    (17,615
    )
    
    
    (82,347
    )
    
    
    (40,581
    )
    
    
    (343,761
    )Purchases of distressed loans
    
    
    (16,896
    )
    
    
    (19,779
    )
    
    
    (19,579
    )
    
    
    (165,853
    )Proceeds from principal collections of distressed loans
    
    
    6,840
    
    
    
    6,956
    
    
    
    12,872
    
    
    
    109,039Proceeds from sales of distressed loans
    
    
    
    
    
    
    711
    
    
    
    
    
    
    
    Purchases of investment securities
    
    
    (16,508
    )
    
    
    (26,794
    )
    
    
    (12,207
    )
    
    
    (103,405
    )Proceeds from sales of investment securities
    
    
    5,125
    
    
    
    12,707
    
    
    
    10,323
    
    
    
    87,446Purchases of real estate for sale
    
    
    (1,958
    )
    
    
    (24,699
    )
    
    
    (55,209
    )
    
    
    (467,675
    )Proceeds from sales of real estate
    
    
    974
    
    
    
    5,395
    
    
    
    13,411
    
    
    
    113,604Purchases of property and equipment
    
    
    (1,754
    )
    
    
    (6,368
    )
    
    
    (5,270
    )
    
    
    (44,642
    )Proceeds from sales of property and equipment
    
    
    16
    
    
    
    3
    
    
    
    13
    
    
    
    110Investment in affiliates
    
    
    (160
    )
    
    
    (46
    )
    
    
    (3,732
    )
    
    
    (31,614
    )Acquisition of a new subsidiary, net of cash acquired
    
    
    (764
    )
    
    
    (554
    )
    
    
    
    
    
    
    Other changes in other assets
    
    
    (2,543
    )
    
    
    (1,161
    )
    
    
    116
    
    
    
    983Net cash used in investing activities
    
    
    (12,546
    )
    
    
    (135,976
    )
    
    
    (99,843
    )
    
    
    (845,768
    )(Continued)
 F-8




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##### Table of Contents



CONSOLIDATED STATEMENTS OF CASH FLOWS
NIS GROUP CO., LTD. AND SUBSIDIARIES
For the Years Ended March 31, 2005, 2006 and 2007
 Thousands ofMillions of Yen
    
    
    U.S. Dollars (Note 1)2005
    
    
    2006
    
    
    2007
    
    
    2007(Continued)Financing ActivitiesDeposit of restricted cash
    
    
    (411
    )
    
    
    (2,571
    )
    
    
    (6,914
    )
    
    
    (58,568
    )Issuance of commercial paper
    
    
    15,100
    
    
    
    65,900
    
    
    
    123,600
    
    
    
    1,047,014Repayments of commercial paper
    
    
    (14,800
    )
    
    
    (39,400
    )
    
    
    (126,500
    )
    
    
    (1,071,580
    )Proceeds from short-term borrowings
    
    
    20,851
    
    
    
    107,472
    
    
    
    278,600
    
    
    
    2,360,017Repayments of short-term borrowings
    
    
    (13,483
    )
    
    
    (87,144
    )
    
    
    (251,860
    )
    
    
    (2,133,503
    )Proceeds from long-term borrowings
    
    
    83,685
    
    
    
    141,918
    
    
    
    130,888
    
    
    
    1,108,751Repayments of long-term borrowings
    
    
    (88,555
    )
    
    
    (76,425
    )
    
    
    (73,508
    )
    
    
    (622,685
    )Payments of capital lease obligations
    
    
    (823
    )
    
    
    (614
    )
    
    
    (641
    )
    
    
    (5,430
    )Proceeds from sale of stock
    
    
    54
    
    
    
    
    
    
    
    8,000
    
    
    
    67,768Stock issuance costs
    
    
    (23
    )
    
    
    (77
    )
    
    
    (99
    )
    
    
    (839
    )Purchases of treasury stock
    
    
    (1
    )
    
    
    (2
    )
    
    
    
    
    
    
    Proceeds from sales of treasury stock
    
    
    909
    
    
    
    2,209
    
    
    
    496
    
    
    
    4,201Dividends paid
    
    
    (1,300
    )
    
    
    (2,571
    )
    
    
    (1,958
    )
    
    
    (16,586
    )Dividends paid to minority interests
    
    
    
    
    
    
    (99
    )
    
    
    (214
    )
    
    
    (1,813
    )Proceeds from issuance of new shares by subsidiaries
    
    
    2,132
    
    
    
    79
    
    
    
    1,548
    
    
    
    13,113Net cash provided by financing activities
    
    
    3,335
    
    
    
    108,675
    
    
    
    81,438
    
    
    
    689,860Effect of exchange rate changes on cash and cash
equivalents
    
    
    (9
    )
    
    
    182
    
    
    
    213
    
    
    
    1,804Net increase (decrease) in cash and cash equivalents
    
    
    5,466
    
    
    
    (2,849
    )
    
    
    5,484
    
    
    
    46,455Cash and cash equivalents at beginning of year
    
    
    20,243
    
    
    
    25,709
    
    
    
    22,860
    
    
    
    193,647Cash and cash equivalents at end of year
    
    ¥
    25,709
    
    
    ¥
    22,860
    
    
    ¥
    28,344
    
    
    $
    240,102
  F-9




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 1. Business Organization and Basis of Presentation
 (a) Description of Business
   Secured loans
 SME loans
 Consumer loans
 Other loans
     F-10




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (b) Basis of Presentation
  (c) Principles of Consolidation
  (d) Use of Estimates
  (e) Reclassification
   (f) Financial Statement Presentation in U.S. Dollars
  F-11




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 2. Summary of Significant Accounting Policies
 (a) Cash and Cash Equivalents
  (b) Foreign Currencies Translation
   (c) Interest Income from Loans Receivable
  Reserve and Provision for Losses on Excess Interest
Repayments
  F-12




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (d) Reserve and Provision for Losses on Excess Interest Repayments
      F-13




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
      Thousands ofMillions of Yen
    
    
    U.S. Dollars2005
    
    
    2006
    
    
    2007
    
    
    2007Balance at beginning of year
    
    ¥
    1,254
    
    
    ¥
    1,932
    
    
    ¥
    2,731
    
    
    
    $  23,134Provision
for losses on excess interest repayments:Amount related to charge-offs
    
    
    1,942
    
    
    
    2,354
    
    
    
    6,528
    
    
    
    55,299Amount related to cash refunds
    
    
    190
    
    
    
    977
    
    
    
    6,136
    
    
    
    51,978Charge-offs against loan principal
    
    
    (1,264
    )
    
    
    (2,145
    )
    
    
    (3,456
    )
    
    
    (29,276
    )Cash refunds
    
    
    (190
    )
    
    
    (387
    )
    
    
    (1,774
    )
    
    
    (15,028
    )Balance at end of year
    
    ¥
    1,932
    
    
    ¥
    2,731
    
    
    ¥
    10,165
    
    
    
    $  86,107
 F-14




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (e) Loans Receivable and Allowance for Loan Losses
    Secured
loans:
 Unsecured
Loans on Deeds:
 Revolving
Loans:
  (f) Loan Origination Costs
  (g) Investment in Leases and Revenue Recognition
   F-15




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (h) Purchased Loans Receivable and Revenue Recognition
   (i) Investment Securities
       F-16




---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (j) Real Estate for Sale
  Thousands ofMillion of Yen
    
    
    U.S. Dollars2006
    
    
    2007
    
    
    2007Balance at beginning of year
    
    ¥
    1,136
    
    
    
    ¥ 20,792
    
    
    
    $ 176,129Purchases and foreclosures
    
    
    24,771
    
    
    
    55,347
    
    
    
    468,844Sales
    
    
    (5,458
    )
    
    
    (13,308
    )
    
    
    (112,732
    )Impairments and other, net
    
    343
    
    
    
    4,496
    
    
    
    38,085Balance at end of year
    
    ¥
    20,792
    
    
    
    ¥ 67,327
    
    
    
    $ 570,326
    
 (k) Long-lived Assets
    F-17




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##### Table of Contents





NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


(l) Investments in Affiliates




(m) Goodwill and Other Intangible Assets






(n) Derivative Financial Instruments








(o) Guarantees








F-18




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (p) Treasury Stock
  (q) Advertising Costs
  (r) Income Taxes
  (s) Net Income Per Share (EPS)
   (t) Stock-based Compensation
   F-19




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Thousands ofMillions of Yen
    
    
    U.S. Dollars2005
    
    
    2006
    
    
    2007
    
    
    2007Net income (losses), as reported
    
    ¥
    7,262
    
    
    ¥
    8,455
    
    
    ¥
    (1,610
    )
    
    $
    (13,638
    )Add 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
    
    
    129
    
    
    
    346
    
    
    
    
    
    
    
    Pro forma net income
    
    ¥
    7,133
    
    
    ¥
    8,109
    
    
    ¥
    
    
    
    $
    Yen
    
    U.S. Dollars2005
    
    2006
    
    2007
    
    2007Net income (losses) per common share:As reported  basic
    
    ¥
    59.60
    
    
    ¥
    65.40
    
    
    ¥
    (11.42
    )
    
    $
    (0.097
    )As reported  diluted
    
    
    54.00
    
    
    
    61.60
    
    
    
    (11.42
    )
    
    
    (0.097
    )Yen
    
    U.S. Dollars2005
    
    2006
    
    2007
    
    2007Net income per common share:Pro forma  basic
    
    ¥
    58.40
    
    
    ¥
    62.80
    
    
    ¥
    
    
    
    $
    Pro forma  diluted
    
    
    52.80
    
    
    
    58.80
    
    
    
    
    
    
    
    
  (p) Treasury Stock
  (q) Advertising Costs
  (r) Income Taxes
  (u) Issuance of Stock by Subsidiaries or Affiliates
  (v) Comprehensive Income
  F-20




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 3. Recently Issued Accounting Pronouncements
    F-21




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 4. Loans Receivable and Allowance for Loan Losses
  Thousands ofMillions of Yen
    
    
    U.S. Dollars2006
    
    
    2007
    
    
    2007Secured loans
    
    ¥
    91,610
    
    
    ¥
    139,691
    
    
    $
    1,183,321SME loans
    
    
    90,729
    
    
    
    81,688
    
    
    
    691,978Consumer loans
    
    
    44,158
    
    
    
    34,959
    
    
    
    296,137Other loans
    
    
    10,681
    
    
    
    14,605
    
    
    
    123,719Total loans outstanding
    
    
    237,178
    
    
    
    270,943
    
    
    
    2,295,155Allowance for loan losses
    
    
    (11,003
    )
    
    
    (18,537
    )
    
    
    (157,027
    )Deferred origination costs (fee income)
    
    
    (228
    )
    
    
    (1,626
    )
    
    
    (13,774
    )Loans receivable, net
    
    ¥
    225,947
    
    
    ¥
    250,780
    
    
    $
    2,124,354
  Thousands ofMillions of Yen
    
    
    U.S. Dollars2005
    
    
    2006
    
    
    2007
    
    
    2007Balance at beginning of year
    
    ¥
    13,528
    
    
    ¥
    10,034
    
    
    ¥
    11,003
    
    
    $
    93,206Provision for loans
receivable on sold loans
    
    
    (3,327
    )
    
    
    
    
    
    
    
    
    
    
    Provision for loan losses
    
    
    5,817
    
    
    
    5,923
    
    
    
    10,853
    
    
    
    91,936Provision
for charge-offs by excess interest repayments
    
    
    1,942
    
    
    
    2,354
    
    
    
    6,528
    
    
    
    55,298Charge-offs, net of recoveries
    
    
    (7,926
    )
    
    
    (7,308
    )
    
    
    (9,847
    )
    
    
    (83,413
    )Balance at end of year
    
    ¥
    10,034
    
    
    ¥
    11,003
    
    
    ¥
    18,537
    
    
    $
    157,027
  Thousands ofMillions of Yen
    
    
    U.S. Dollars2005
    
    
    2006
    
    
    2007
    
    
    2007Amount related to loan losses
    
    ¥
    8,102
    
    
    ¥
    8,862
    
    
    ¥
    13,324
    
    
    
    $112,868Amount related to charge-offs by excess interest repayments
    
    
    1,932
    
    
    
    2,141
    
    
    
    5,213
    
    
    
    44,159Total allowance for loan losses
    
    ¥
    10,034
    
    
    ¥
    11,003
    
    
    ¥
    18,537
    
    
    
    $157,027
 F-22




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Millions of Yen2006Secured Loans
    
    
    SME Loans
    
    
    Consumer Loans
    
    
    Other Loans
    
    
    TotalHistorical Loss Components- CurrentCurrent
    
    
    ¥90,905
    
    
    
    ¥80,107
    
    
    
    ¥37,151
    
    
    
    ¥10,375
    
    
    
    ¥218,538Restructured
    
    
    665
    
    
    
    7,696
    
    
    
    6,037
    
    
    
    12
    
    
    
    14,410Loans outstanding
    
    
    91,570
    
    
    
    87,803
    
    
    
    43,188
    
    
    
    10,387
    
    
    
    232,948Allowance
    
    
    532
    
    
    
    4,743
    
    
    
    1,694
    
    
    
    197
    
    
    
    7,166- 67 to 96 daysLoans outstanding
    
    
    2
    
    
    
    339
    
    
    
    83
    
    
    
    87
    
    
    
    511Allowance
    
    
    2
    
    
    
    238
    
    
    
    58
    
    
    
    61
    
    
    
    359- 97 to 120 daysLoans outstanding
    
    
    
    
    
    
    73
    
    
    
    32
    
    
    
    141
    
    
    
    246Allowance
    
    
    
    
    
    
    73
    
    
    
    32
    
    
    
    141
    
    
    
    246- Over 120 daysLoans outstanding
    
    
    15
    
    
    
    1,452
    
    
    
    499
    
    
    
    16
    
    
    
    1,982Allowance
    
    
    15
    
    
    
    1,452
    
    
    
    499
    
    
    
    16
    
    
    
    1,982Loans outstanding
    
    
    91,587
    
    
    
    89,667
    
    
    
    43,802
    
    
    
    10,631
    
    
    
    235,687Allowance
    
    
    549
    
    
    
    6,506
    
    
    
    2,283
    
    
    
    415
    
    
    
    9,753Other Components:- Bankrupt loansLoans outstanding
    
    
    19
    
    
    
    833
    
    
    
    264
    
    
    
    40
    
    
    
    1,156Allowance
    
    
    7
    
    
    
    785
    
    
    
    256
    
    
    
    36
    
    
    
    1,084- Loans under legal processLoans outstanding
    
    
    4
    
    
    
    229
    
    
    
    92
    
    
    
    10
    
    
    
    335Allowance
    
    
    2
    
    
    
    114
    
    
    
    46
    
    
    
    4
    
    
    
    166Loans outstanding
    
    
    23
    
    
    
    1,062
    
    
    
    356
    
    
    
    50
    
    
    
    1,491Allowance
    
    
    9
    
    
    
    899
    
    
    
    302
    
    
    
    40
    
    
    
    1,250Total loans outstanding
    
    
    ¥91,610
    
    
    
    ¥90,729
    
    
    
    ¥44,158
    
    
    
    ¥10,681
    
    
    
    ¥237,178Total allowance
    
    
    558
    
    
    
    7,405
    
    
    
    2,585
    
    
    
    455
    
    
    
    11,003
 F-23




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Millions of Yen2007Secured Loans
    
    
    SME Loans
    
    

Consumer Loans
    
    
    Other Loans
    
    
    TotalHistorical Loss Components- CurrentCurrent
    
    
    ¥133,939
    
    
    
    ¥67,556
    
    
    
    ¥28,533
    
    
    
    ¥13,958
    
    
    
    ¥243,986Restructured
    
    
    5,108
    
    
    
    8,528
    
    
    
    5,138
    
    
    
    12
    
    
    
    18,786Loans outstanding
    
    
    139,047
    
    
    
    76,084
    
    
    
    33,671
    
    
    
    13,970
    
    
    
    262,772Allowance
    
    
    78
    
    
    
    8,072
    
    
    
    2,558
    
    
    
    326
    
    
    
    11,034- 67 to 96 daysLoans outstanding
    
    
    
    
    
    
    447
    
    
    
    114
    
    
    
    44
    
    
    
    605Allowance
    
    
    
    
    
    
    313
    
    
    
    80
    
    
    
    26
    
    
    
    419- 97 to 120 daysLoans outstanding
    
    
    
    
    
    
    164
    
    
    
    84
    
    
    
    474
    
    
    
    722Allowance
    
    
    
    
    
    
    164
    
    
    
    84
    
    
    
    474
    
    
    
    722- Over 120 daysLoans outstanding
    
    
    541
    
    
    
    2,578
    
    
    
    686
    
    
    
    7
    
    
    
    3,812Allowance
    
    
    518
    
    
    
    2,568
    
    
    
    686
    
    
    
    5
    
    
    
    3,777Loans outstanding
    
    
    139,588
    
    
    
    79,273
    
    
    
    34,555
    
    
    
    14,495
    
    
    
    267,911Allowance
    
    
    596
    
    
    
    11,117
    
    
    
    3,408
    
    
    
    831
    
    
    
    15,952Other Components:- Bankrupt loansLoans outstanding
    
    
    7
    
    
    
    1,824
    
    
    
    293
    
    
    
    51
    
    
    
    2,175Allowance
    
    
    7
    
    
    
    1,783
    
    
    
    287
    
    
    
    50
    
    
    
    2,127- Loans under legal processLoans outstanding
    
    
    96
    
    
    
    591
    
    
    
    111
    
    
    
    59
    
    
    
    857Allowance
    
    
    21
    
    
    
    350
    
    
    
    55
    
    
    
    32
    
    
    
    458Loans outstanding
    
    
    103
    
    
    
    2,415
    
    
    
    404
    
    
    
    110
    
    
    
    3,032Allowance
    
    
    28
    
    
    
    2,133
    
    
    
    342
    
    
    
    82
    
    
    
    2,585Total loans outstanding
    
    
    ¥139,691
    
    
    
    ¥81,688
    
    
    
    ¥34,959
    
    
    
    ¥14,605
    
    
    
    ¥270,943Total allowance
    
    
    624
    
    
    
    13,250
    
    
    
    3,750
    
    
    
    913
    
    
    
    18,537
 F-24




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Thousands of U.S. Dollars2007Secured Loans
    
    
    SME Loans
    
    
    Consumer Loans
    
    
    Other Loans
    
    
    TotalHistorical Loss Components:- CurrentCurrent
    
    
    $1,134,595
    
    
    
    $572,266
    
    
    
    $241,703
    
    
    
    $118,238
    
    
    
    $2,066,802Restructured
    
    
    43,270
    
    
    
    72,241
    
    
    
    43,524
    
    
    
    102
    
    
    
    159,137Loans outstanding
    
    
    1,177,865
    
    
    
    644,507
    
    
    
    285,227
    
    
    
    118,340
    
    
    
    2,225,939Allowance
    
    
    661
    
    
    
    68,378
    
    
    
    21,668
    
    
    
    2,762
    
    
    
    93,469- 67 to 96 daysLoans outstanding
    
    
    
    
    
    
    3,787
    
    
    
    965
    
    
    
    373
    
    
    
    5,125Allowance
    
    
    
    
    
    
    2,651
    
    
    
    678
    
    
    
    220
    
    
    
    3,549- 97 to 120 daysLoans outstanding
    
    
    
    
    
    
    1,389
    
    
    
    712
    
    
    
    4,015
    
    
    
    6,116Allowance
    
    
    
    
    
    
    1,389
    
    
    
    712
    
    
    
    4,015
    
    
    
    6,116- Over 120 daysLoans outstanding
    
    
    4,583
    
    
    
    21,838
    
    
    
    5,811
    
    
    
    59
    
    
    
    32,291Allowance
    
    
    4,388
    
    
    
    21,754
    
    
    
    5,811
    
    
    
    42
    
    
    
    31,995Loans outstanding
    
    
    1,182,448
    
    
    
    671,521
    
    
    
    292,715
    
    
    
    122,787
    
    
    
    2,269,471Allowance
    
    
    5,049
    
    
    
    94,172
    
    
    
    28,869
    
    
    
    7,039
    
    
    
    135,129Other Components:- Bankrupt loansLoans outstanding
    
    
    59
    
    
    
    15,451
    
    
    
    2,482
    
    
    
    432
    
    
    
    18,424Allowance
    
    
    59
    
    
    
    15,104
    
    
    
    2,431
    
    
    
    424
    
    
    
    18,018- Loans under legal processLoans outstanding
    
    
    814
    
    
    
    5,006
    
    
    
    940
    
    
    
    500
    
    
    
    7,260Allowance
    
    
    178
    
    
    
    2,965
    
    
    
    466
    
    
    
    271
    
    
    
    3,880Loans outstanding
    
    
    873
    
    
    
    20,457
    
    
    
    3,422
    
    
    
    932
    
    
    
    25,684Allowance
    
    
    237
    
    
    
    18,069
    
    
    
    2,897
    
    
    
    695
    
    
    
    21,898Total loans outstanding
    
    
    $1,183,321
    
    
    
    $691,978
    
    
    
    $296,137
    
    
    
    $123,719
    
    
    
    $2,295,155Total allowance
    
    
    5,286
    
    
    
    112,241
    
    
    
    31,766
    
    
    
    7,734
    
    
    
    157,027
  (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.
  F-25




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Thousands ofMillions of Yen
    
    
    U.S. DollarsYear ending March 31,2008
    
    ¥
    176,181
    
    
    $
    1,492,4272009
    
    
    39,223
    
    
    
    332,2582010
    
    
    33,502
    
    
    
    283,7952011
    
    
    13,688
    
    
    
    115,9512012 and thereafter
    
    
    8,349
    
    
    
    70,724Total loans outstanding
    
    ¥
    270,943
    
    
    $
    2,295,155
  Thousands ofMillions of Yen
    
    
    U.S. Dollars2006
    
    
    2007
    
    
    2007Aggregate lease payments receivable
    
    ¥
    4,002
    
    
    ¥
    4,700
    
    
    $
    39,814Initial direct costs
    
    
    
    
    
    
    
    
    
    
    Unearned lease income
    
    
    (901
    )
    
    
    (945
    )
    
    
    (8,005
    )Investment in direct financing leases
    
    
    3,101
    
    
    
    3,755
    
    
    
    31,809Allowance for loan and lease losses
    
    
    (122
    )
    
    
    (257
    )
    
    
    (2,177
    )Investment in direct financing leases, net
    
    ¥
    2,979
    
    
    ¥
    3,498
    
    
    $
    29,632
   Thousands ofMillions of Yen
    
    
    U.S. DollarsYear ending March 31,2008
    
    ¥
    1,490
    
    
    $
    12,6222009
    
    
    1,417
    
    
    
    12,0032010
    
    
    1,053
    
    
    
    8,9202011
    
    
    562
    
    
    
    4,7612012
    
    
    178
    
    
    
    1,508Aggregate lease payments receivable
    
    ¥
    4,700
    
    
    $
    39,814
 F-26




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 5. Purchased Loans Receivable
   Thousands ofMillions of Yen
    
    
    U.S. Dollars2006
    
    
    2007
    
    
    2007Purchased loans outstanding
    
    
    
    
    
    
    ¥25,947
    
    
    
    ¥31,565
    
    
    
    $267,386Allowance for loan losses
    
    
    
    
    
    
    (1,792
    )
    
    
    (2,655
    )
    
    
    (22,490
    )Purchased loans receivable, net
    
    
    
    
    
    
    ¥24,155
    
    
    
    ¥28,910
    
    
    
    $244,896
  Thousands ofMillions of Yen
    
    
    U.S. Dollars2005
    
    
    2006
    
    
    2007
    
    
    2007Purchased loans receivable:Balance at beginning of year
    
    
    ¥  5,059
    
    
    
    ¥14,863
    
    
    
    ¥25,947
    
    
    
    $  219,797Purchases
    
    
    16,896
    
    
    
    19,779
    
    
    
    19,565
    
    
    
    165,735Principal collections(A)
    
    
    (6,840
    )
    
    
    (7,308
    )
    
    
    (13,087
    )
    
    
    (110,860
    )Sales(B)
    
    
    
    
    
    
    (711
    )
    
    
    
    
    
    
    Charge-offs
    
    
    (252
    )
    
    
    (676
    )
    
    
    (833
    )
    
    
    (7,057
    )Other
    
    
    
    
    
    
    
    
    
    
    (27
    )
    
    
    (229
    )Balance at end of year
    
    
    14,863
    
    
    
    25,947
    
    
    
    31,565
    
    
    
    267,386Allowance for loan losses:Balance at beginning of year
    
    
    717
    
    
    
    1,282
    
    
    
    1,792
    
    
    
    15,180Provision for loan losses
    
    
    817
    
    
    
    1,186
    
    
    
    1,696
    
    
    
    14,367Charge-offs
    
    
    (252
    )
    
    
    (676
    )
    
    
    (833
    )
    
    
    (7,057
    )Balance at end of year
    
    
    1,282
    
    
    
    1,792
    
    
    
    2,655
    
    
    
    22,490Purchased loans receivable, net
    
    
    ¥13,581
    
    
    
    ¥24,155
    
    
    
    ¥28,910
    
    
    
    $244,896
 
 (A)
    
    Including non-cash payments such as foreclosed property of
¥352 million and ¥218 million ($1,847 thousand) for
the year ended March 31, 2006 and 2007, respectively.(B)
    
    Sold to an affiliate accounted for under equity method at cost which approximated fair value.
The Group did not recognize any gains or losses from this transaction.(C)
    
    Since ¥12,745 million, ¥23,228 million
and ¥27,626 million ($234,019 thousand) of the net purchased loans were accounted for under the cost
recovery method as of March 31, 2005, 2006 and 2007,
respectively, the amounts of accretable yield were not
considered significant.  F-27




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 6. Investment Securities
  Thousands ofMillions of Yen
    
    
    U.S. Dollars2006
    
    
    2007
    
    
    2007Marketable securities:Marketable equity securities
    
    ¥
    23,396
    
    
    ¥
    16,938
    
    
    $
    143,482Debt securities
    
    
    114
    
    
    
    1,035
    
    
    
    8,767Other investments
    
    
    18,561
    
    
    
    20,411
    
    
    
    172,901Total investment securities
    
    ¥
    42,071
    
    
    ¥
    38,384
    
    
    $
    325,150
  2006:
 Millions of YenGross
    
    
    GrossUnrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueMarketable equity
securities
    
    ¥
    14,424
    
    
    ¥
    9,121
    
    
    ¥
    149
    
    
    ¥
    23,3962007:Millions of Yen
    
    
    Thousands of U.S. DollarsGross
    
    
    Gross
    
    
    
    
    
    
    
    
    
    
    Gross
    
    
    GrossUnrealized
    
    
    Unrealized
    
    
    Fair
    
    
    
    
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value
    
    
    Cost
    
    
    Gains
    
    
    Losses
    
    

ValueMarketable equity
securities
    
    ¥
    14,650
    
    
    ¥
    2,457
    
    
    ¥
    169
    
    
    ¥
    16,938
    
    
    $
    124,100
    
    
    $
    20,814
    
    
    $
    1,432
    
    
    $
    143,482
    Thousands ofMillions of Yen
    
    
    U.S. Dollars2006
    
    
    2007
    
    
    2007Non-marketable equity securities
    
    ¥
    4,594
    
    
    ¥
    7,981
    
    
    $
    67,607Investment funds
    
    
    13,734
    
    
    
    12,339
    
    
    
    104,523Other
    
    
    233
    
    
    
    91
    
    
    
    771Total other investments
    
    ¥
    18,561
    
    
    ¥
    20,411
    
    
    $
    172,901
   F-28




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 7. Property and Equipment
  Thousands ofMillions of Yen
    
    
    U.S. Dollars2006
    
    
    2007
    
    
    2007Land
    
    
    ¥  4,070
    
    
    
    ¥  1,920
    
    
    $
    16,264Buildings and structures
    
    
    4,043
    
    
    
    4,023
    
    
    
    34,079Equipment and software
    
    
    6,587
    
    
    
    7,576
    
    
    
    64,176Sub-total
    
    
    14,700
    
    
    
    13,519
    
    
    
    114,519Less accumulated depreciation and amortization
    
    
    (3,531
    )
    
    
    (5,071
    )
    
    
    (42,956
    )Property and equipment, net
    
    
    ¥ 11,169
    
    
    
    ¥  8,448
    
    
    $
    71,563
   8. Acquisitions
   F-29




---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Millions of YenFair value of assets acquired:Current assets
    
    ¥
    3,133Other tangible assets
    
    
    9Amortizable intangible assets
    
    
    4Unamortizable assets
    
    
    181Brokerage license
    
    
    600Total assets acquired
    
    
    3,927Less: liabilities assumed
    
    
    (116
    )Total purchase price
    
    ¥
    3,811
    Millions of YenFair value of assets acquired:Current assets
    
    ¥
    7,896Other tangible assets
    
    
    619Amortizable intangible assets
    
    
    16Unamortizable assets
    
    
    196Total assets acquired
    
    
    8,727Less: liabilities assumed
    
    
    (6,624
    )Less: minority interests
    
    
    (657
    )Total purchase price
    
    ¥
    1,446
  F-30




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 9. Variable Interest Entities
    (a) Securitization conduits of the Groups loan receivables
   (b) Special purpose entities for acquisition or development of real estate for customers
    F-31




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (c) Special purpose entities for acquisition of real estate for the Groups real estate business
    (d) Special purpose entities for acquisition of distressed loans
   (e) Special purpose entities for investments in securities
   10. Investment in Affiliates
  2006:
  2007:
  F-32




---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 11. Goodwill and Other Intangible Assets
  Thousands ofMillions of Yen
    
    
    U.S. Dollars2006
    
    
    2007
    
    
    2007Goodwill
    
    
    
    
    
    
    ¥201
    
    
    
    ¥  
    
    
    
    $     License
    
    
    
    
    
    
    600
    
    
    
    600
    
    
    
    5,083Total goodwill and other intangible assets
    
    
    
    
    
    
    ¥801
    
    
    
    ¥600
    
    
    
    $5,083
   Thousands ofMillions of Yen
    
    
    U.S. Dollars2005
    
    
    2006
    
    
    2007
    
    
    2007Balance at beginning of year
    
    
    ¥201
    
    
    
    ¥801
    
    
    
    ¥ 801
    
    
    
    $ 6,785Acquired during the year
    
    
    600
    
    
    
    
    
    
    
    
    
    
    
    Sold during the year
    
    
    
    
    
    
    
    
    
    
    (201
    )
    
    
    (1,702
    )Balance at end of year
    
    
    ¥801
    
    
    
    ¥801
    
    
    
    ¥ 600
    
    
    
    $ 5,083
 12. Short-Term and Long-Term Borrowings
  Thousands ofMillions of Yen
    
    
    U.S. Dollars2006
    
    
    2007
    
    
    2007Bank loans
    
    
    ¥30,283
    
    
    
    ¥57,037
    
    
    
    $483,159Commercial paper
    
    
    30,000
    
    
    
    27,100
    
    
    
    229,564Rediscounted notes
    
    
    128
    
    
    
    121
    
    
    
    1,025Total short-term borrowings
    
    
    ¥60,411
    
    
    
    ¥84,258
    
    
    
    $713,748
  F-33




---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Thousands ofMillions of Yen
    
    
    U.S. Dollars2006
    
    
    2007
    
    
    20071.90% unsecured bonds, due July 31, 2006
    
    ¥
    500
    
    
    ¥
    
    
    
    $
    0.45% unsecured bonds, due September 27, 2006
    
    
    500
    
    
    
    
    
    
    
    0.64% unsecured bonds, due March 26, 2007
    
    
    500
    
    
    
    
    
    
    
    0.67% unsecured bonds, due September 27, 2007
    
    
    500
    
    
    
    500
    
    
    
    4,2351.18% unsecured bonds, due February 25, 2008
    
    
    7,500
    
    
    
    7,500
    
    
    
    63,5321.55% unsecured bonds, due September 19, 2008
    
    
    150
    
    
    
    90
    
    
    
    7621.17% unsecured bonds, due June 20, 2008
    
    
    7,500
    
    
    
    7,500
    
    
    
    63,5321.08% unsecured bonds, due September 16, 2008
    
    
    10,000
    
    
    
    10,000
    
    
    
    84,7101.21% unsecured bonds, due September 18, 2009
    
    
    
    
    
    
    450
    
    
    
    3,8121.45% unsecured bonds, due March 27, 2009
    
    
    1,000
    
    
    
    700
    
    
    
    5,9302.73% unsecured bonds, due February 26, 2010
    
    
    
    
    
    
    5,000
    
    
    
    42,3552.29% unsecured bonds, due March 23, 2009
    
    
    
    
    
    
    10,000
    
    
    
    84,7101.70%
unsecured convertible bonds, due September 29, 2006
(A)
    
    
    822
    
    
    
    
    
    
    
    Total bonds
    
    
    28,972
    
    
    
    41,740
    
    
    
    353,578Loans from banks and other financial institutionsSecured:Due 2006 to 2010 with fixed interest rates ranging from
1.300% to 5.100% per annum, weighted-average
actual rate is 1.994%
    
    
    14,352
    
    
    
    
    
    
    
    Due 2007 to 2010 with fixed interest rates ranging from
1.300 to 5.000% per annum, weighted-average
actual rate is 4.081%
    
    
    
    
    
    
    25,630
    
    
    
    217,112Due 2006 to 2009 with variable interest rates principally
based on LTPR plus -1.239% to 0.775% per annum,
weighted-average actual rate is 0.922% (B)
    
    
    39,382
    
    
    
    
    
    
    
    Due 2007 to 2012 with variable interest rates principally
based on LTPR plus -1.126% to 0.300% per annum,
weighted-average actual rate is 1.601% (B)
    
    
    
    
    
    
    70,597
    
    
    
    598,026Unsecured:Due 2006 to 2011 with fixed interest rates ranging from
1.050 to 2.585% per annum, weighted-average
actual rate is 1.540%
    
    
    70,806
    
    
    
    
    
    
    
    Due 2007 to 2011 with fixed interest rates ranging from
1.150 to 2.620% per annum, weighted-average
actual rate is 1.552%
    
    
    
    
    
    
    66,365
    
    
    
    562,177Due 2006 to 2011 with variable interest rates based on
LTPR plus -1.114% to 1.472% per annum,
weighted-average actual rate is 1.644%
    
    
    45,412
    
    
    
    
    
    
    
    Due 2007 to 2011 with variable interest rates based on
LTPR plus -1.150% to 1.100% per annum,
weighted-average actual rate is 1.993%
    
    
    
    
    
    
    56,485
    
    
    
    478,484Total loans from banks and other financial institutions
    
    
    169,952
    
    
    
    219,077
    
    
    
    1,855,799Total long-term borrowings
    
    ¥
    198,924
    
    
    ¥
    260,817
    
    
    $
    2,209,377
 
  (A)
    
    On September 13, 2001, the Company issued ¥10 billion of 1.7% unsecured convertible bonds
issued at par and redeemable on September 29, 2006. The conversion price was ¥818.00 ($6.93)
per share of common stock which was the market value plus 30% premium at the time of issuance.
For the years ended March 31, 2006 and 2007, convertible bonds totaling ¥8,120 million and
¥774 million ($6,557 thousand) were converted to 9,927 thousand shares of common stock and 946
thousand shares of common stock, respectively.(B)
    
    The Company entrusted certain loans outstanding to a trust bank. In order to raise
funds, the Company 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 the
Company reserves an option to repurchase the senior beneficiary interest, the Company does not
recognize the extinguishment of the aforementioned interest in the financial statements
herein, and the funds are recognized as a long-term liability. As of March 31, 2006 and 2007,
entrusted loans outstanding included in loans receivable were ¥30,907 million and ¥36,778
million ($311,546 thousand), respectively. The related long-term liability recorded in loans
from banks and other financial institutions were ¥21,670 million and ¥26,957 million ($228,352
thousand), respectively. In addition, the Company is required to deposit certain amounts with
banks as restricted cash for the purpose of settlement of account. As of March 31, 2006 and
2007, deposits of restricted cash in banks related to the above borrowings were ¥491 million
and ¥493 million ($4,176 thousand), respectively. F-34




---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    Thousands ofMillions of Yen
    
    
    U.S. DollarsYear ending March 31,2008
    
    
    ¥108,475
    
    
    $
    918,8902009
    
    
    80,552
    
    
    
    682,3552010
    
    
    34,110
    
    
    
    288,9452011
    
    
    36,777
    
    
    
    311,5382012 and thereafter
    
    
    903
    
    
    
    7,649Total long-term borrowings
    
    
    ¥260,817
    
    
    $
    2,209,377
 
 Thousands ofMillions of Yen
    
    
    U.S. DollarsRestricted cash
    
    
    ¥     361
    
    
    
    $    3,058Loans receivable
    
    
    50,717
    
    
    
    429,623Purchased loans receivable
    
    
    8,779
    
    
    
    74,367Real estate for sale
    
    
    2,913
    
    
    
    24,676Investment securities
    
    
    2,123
    
    
    
    17,984Total assets pledged as collateral
    
    
    ¥64,893
    
    
    
    $549,708
    F-35




---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 13. Lease Obligations
   Thousands ofMillions of Yen
    
    
    U.S. DollarsYear ending March 31,2008
    
    ¥
    961
    
    
    $
    8,1412009
    
    
    379
    
    
    
    3,2102010
    
    
    21
    
    
    
    178Total minimum future rentals
    
    ¥
    1,361
    
    
    $
    11,529
   Thousands ofMillions of Yen
    
    
    U.S. Dollars2006
    
    
    2007
    
    
    2007Acquisition costs
    
    ¥
    2,875
    
    
    ¥
    2,954
    
    
    $
    25,023Accumulated amortization
    
    
    (1,563
    )
    
    
    (2,121
    )
    
    
    (17,967
    )Net leased property
    
    ¥
    1,312
    
    
    ¥
    833
    
    
    $
    7,056
  Thousands ofMillions of Yen
    
    
    U.S. DollarsYear ending March 31,2008
    
    ¥
    468
    
    
    $
    3,9642009
    
    
    250
    
    
    
    2,1182010
    
    
    104
    
    
    
    8812011
    
    
    49
    
    
    
    4152012 and thereafter
    
    
    11
    
    
    
    93Total minimum lease payments
    
    
    882
    
    
    
    7,471Less: Amount representing interest
    
    
    (23
    )
    
    
    (194
    )Present value of minimum lease payments
    
    
    859
    
    
    
    7,277Less: Current portion
    
    
    (455
    )
    
    
    (3,855
    )Long-term capital lease obligations
    
    ¥
    404
    
    
    $
    3,422
 
 F-36




---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 14. Retirement Plans  Employee, Director and Statutory Auditor
  Directors and Statutory Auditors:
   Employees:
   Thousands ofMillions of Yen
    
    
    U.S. DollarsChange in benefit obligation
    
    2006
    
    
    2007
    
    
    2007Benefit obligation at beginning of year
    
    
    ¥330
    
    
    
    ¥  647
    
    
    
    $  5,481Increase in obligation due to
acquisition of a subsidiary
    
    
    310
    
    
    
    
    
    
    
    Service cost
    
    
    6
    
    
    
    4
    
    
    
    34Interest cost
    
    
    1
    
    
    
    1
    
    
    
    8Benefit paid
    
    
    
    
    
    
    (272
    )
    
    
    (2,304
    )Benefit obligation as of the end of year
    
    
    ¥647
    
    
    
    ¥  380
    
    
    
    $  3,219
 Thousands ofMillions of Yen
    
    
    U.S. DollarsTotal recognized liabilities in the balance sheets
    
    2006
    
    
    2007
    
    
    2007Employees
    
    
    ¥265
    
    
    
    ¥  
    
    
    
    $     Directors and statutory auditors
    
    
    382
    
    
    
    380
    
    
    
    3,219Obligations in excess of plan assets
    
    
    ¥647
    
    
    
    ¥380
    
    
    
    $3,219
  F-37




---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 15. Derivative Financial Instruments and Risk Management
   Interest rate swap:
 2006:
 Millions of Yen
    
    
    
    
    
    Millions of YenNumber of
    
    Notional
    
    Interest Rate
    
    Ultimate
    
    FairAgreements
    
    Principal
    
    Pay
    
    Receive
    
    Maturity
    
    Value1
    
    ¥97
    
    Fixed at 2.190%
    
    TIBOR+1.250%
    
    August 2006
    
    ¥()
 2007:
 Millions of Yen
    
    
    
    
    
    Millions of YenNumber of
    
    Notional
    
    Interest Rate
    
    Ultimate
    
    FairAgreements
    
    Principal
    
    Pay
    
    Receive
    
    Maturity
    
    Value1
    
    ¥263
    
    Fixed at 2.200%
    
    TIBOR+0.950%
    
    December 2008
    
    ¥(1)
 Thousands of
    
    
    
    
    
    
    
    Thousands ofU.S. Dollars
    
    
    
    
    
    U.S. DollarsNumber of
    
    Notional
    
    Interest Rate
    
    Ultimate
    
    FairAgreements
    
    Principal
    
    Pay
    
    Receive
    
    Maturity
    
    Value1
    
    $2,228
    
    Fixed at 2.200%
    
    TIBOR+0.950%
    
    December 2008
    
    $(8)
 Applicable interest rate as of March 31, 2006 is as follows:¥TIBOR (TIBOR Yen Rate for Three Months)
    0.128
    %
 Applicable interest rate as of March 31, 2007 is as follows:¥TIBOR
(TIBOR Yen Rate for Three Months)
    0.664
    %
  F-38




---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 16. Commitments and Contingencies
    Thousands ofMillions of Yen
    
    
    U.S. Dollars2006
    
    
    2007
    
    
    2007Unfunded credit lines with loans outstanding
    
    
    ¥  9,642
    
    
    
    ¥  7,398
    
    
    $
    62,668Unfunded credit lines without loans outstanding
    
    
    48,037
    
    
    
    46,110
    
    
    
    390,598Total unfunded credit lines
    
    
    ¥57,679
    
    
    
    ¥53,508
    
    
    $
    453,266
    3S loans 
 Business loans 
 F-39




---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Business Card loans 
 Real Estate Finance loans 
      Thousands ofMillions of Yen
    
    U.S. Dollars2006
    
    2007
    
    2007Guaranteed borrowings
    
    ¥
    11,886
    
    
    ¥
    17,555
    
    
    $
    148,708Guaranteed accounts receivable
    
    
    964
    
    
    
    908
    
    
    
    7,692Guarantees for borrowings of other companies:Chuo Mitsui
Finance Service Co., Ltd.
    
    
    1,920
    
    
    
    
    
    
    
    Reserve for guarantee losses
    
    
    629
    
    
    
    1,066
    
    
    
    9,030
 F-40




---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Thousands ofMillions of Yen
    
    
    U.S. Dollars2005
    
    
    2006
    
    
    2007
    
    
    2007Guarantee fees received from:Guaranteed loans and accounts receivable
    
    ¥
    845
    
    
    ¥
    1,386
    
    
    ¥
    1,880
    
    
    
    $ 15,926Guarantees for borrowings of other companies
    
    
    34
    
    
    
    20
    
    
    
    45
    
    
    
    381Total guarantee fees received
    
    
    879
    
    
    
    1,406
    
    
    
    1,925
    
    
    
    16,307Administrative expenses and other expenses paid
    
    
    (562
    )
    
    
    (898
    )
    
    
    (1,337
    )
    
    
    (11,326
    )Guarantee fees received, net
    
    ¥
    317
    
    
    ¥
    508
    
    
    ¥
    588
    
    
    
    $   4,981
     F-41




---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 17. Shareholders Equity
       F-42




---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 18. Issuance of Stock by Subsidiaries
   19. Related Party Transactions
    Thousands ofMillions of Yen
    
    U.S. Dollars2005
    
    2006
    
    2007
    
    2007Commissions paid
    
    ¥
    32
    
    
    ¥
    13
    
    
    ¥
    1
    
    
    $
    8Commissions received
    
    
    13
    
    
    
    4
    
    
    
    36
    
    
    
    305Loan guarantee fees received
    
    
    316
    
    
    
    467
    
    
    
    
    
    
    
    Bank loan guarantee fees received
    
    
    34
    
    
    
    9
    
    
    
    
    
    
    
    
  F-43




---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Thousands ofMillions of Yen
    
    U.S. Dollars2005
    
    2006
    
    2007
    
    2007Commissions paid
    
    ¥
    205
    
    
    ¥
    151
    
    
    ¥
    
    
    
    $
    Advertising expenses and other fees paid
    
    
    175
    
    
    
    518
    
    
    
    1
    
    
    
    8
   Thousands ofMillions of Yen
    
    U.S. Dollars2005
    
    2006
    
    2007
    
    2007Commissions paid
    
    ¥
    
    
    
    ¥
    9
    
    
    ¥
    11
    
    
    $
    93Loan guarantee fees received
    
    
    
    
    
    
    26
    
    
    
    89
    
    
    
    754Bank loan guarantee fees received
    
    
    
    
    
    
    11
    
    
    
    41
    
    
    
    347
  20. Income Taxes
  Thousands ofMillions of Yen
    
    
    U.S. Dollars2005
    
    
    2006
    
    
    2007
    
    
    2007Current:National
    
    
    ¥2,132
    
    
    
    ¥  5,211
    
    
    
    ¥  3,867
    
    
    
    $  32,757Local
    
    
    1,087
    
    
    
    2,463
    
    
    
    1,910
    
    
    
    16,1803,219
    
    
    
    7,674
    
    
    
    5,777
    
    
    
    48,937Deferred:National
    
    
    945
    
    
    
    (991
    )
    
    
    (2,798
    )
    
    
    (23,702
    )Local
    
    
    482
    
    
    
    (469
    )
    
    
    (1,382
    )
    
    
    (11,707
    )1,427
    
    
    
    (1,460
    )
    
    
    (4,180
    )
    
    
    (35,409
    )Income taxes
    
    
    ¥4,646
    
    
    
    ¥  6,214
    
    
    
    ¥  1,597
    
    
    
    $  13,528
 F-44




---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Thousands ofMillions of Yen
    
    
    U.S. Dollars2006
    
    
    2007
    
    
    2007Deferred tax assets:Loans receivable charge-offs
    
    ¥
    25
    
    
    ¥
    37
    
    
    $
    313Allowance for loan losses
    
    
    793
    
    
    
    2,908
    
    
    
    24,634Reserve for guarantee losses
    
    
    241
    
    
    
    441
    
    
    
    3,736Reserve for losses on interest repayments
    
    
    239
    
    
    
    2,005
    
    
    
    16,984Accrued local taxes
    
    
    444
    
    
    
    472
    
    
    
    3,998Accrued retirement benefits
    
    
    262
    
    
    
    154
    
    
    
    1,305Accrued salary expenses
    
    
    460
    
    
    
    408
    
    
    
    3,456Impairment of long-lived assets
    
    
    239
    
    
    
    325
    
    
    
    2,753Loan origination costs
    
    
    92
    
    
    
    658
    
    
    
    5,574Other
    
    
    214
    
    
    
    710
    
    
    
    6,014Subtotal
    
    
    3,009
    
    
    
    8,118
    
    
    
    68,767Valuation allowance
    
    
    
    
    
    
    (1,355
    )
    
    
    (11,478
    )Total deferred tax assets
    
    
    3,009
    
    
    
    6,763
    
    
    
    57,289Deferred tax liabilities:Investment securities  difference in basis
    
    
    3,418
    
    
    
    80
    
    
    
    678Bond issuance costs
    
    
    114
    
    
    
    266
    
    
    
    2,253Accumulated depreciation
    
    
    85
    
    
    
    146
    
    
    
    1,237Other
    
    
    53
    
    
    
    39
    
    
    
    330Total deferred tax liabilities
    
    
    3,670
    
    
    
    531
    
    
    
    4,498Deferred tax (liabilities) assets, net
    
    ¥
    (661
    )
    
    ¥
    6,232
    
    
    $
    52,791Net deferred tax assets and liabilities as of March 31, 2006 and 2007 are reflected on the
accompanying consolidated balance sheets under the following captions:Thousands ofMillions of Yen
    
    
    U.S. Dollars2006
    
    
    2007
    
    
    2007Assets: Deferred income taxes
    
    ¥
    721
    
    
    ¥
    6,488
    
    
    $
    54,960Liabilities: Deferred income taxes
    
    
    1,382
    
    
    
    256
    
    
    
    2,169Deferred income taxes, net
    
    ¥
    (661
    )
    
    ¥
    6,232
    
    
    $
    52,791
  F-45




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  2005
    
    
    2006
    
    
    2007Statutory tax rate
    
    
    40.5
    %
    
    
    40.5
    %
    
    
    40.5
    %Increase (reduction) in taxes resulting from:Expenses not deductible for tax purpose
    
    
    0.3
    
    
    
    0.3
    
    
    
    37.6Per capita levy
    
    
    0.4
    
    
    
    0.3
    
    
    
    22.7Special tax credit upon application of
IT Investment Promotion Tax Incentive
    
    
    (1.9
    )
    
    
    (0.1
    )
    
    
    Valuation allowance
    
    
    
    
    
    
    
    
    
    
    502.0Difference in statutory tax rates of
subsidiaries
    
    
    
    
    
    
    
    
    
    
    31.2Other
    
    
    (0.9
    )
    
    
    (0.3
    )
    
    
    3.1Effective income tax rate
    
    
    38.4
    %
    
    
    40.7
    %
    
    
    637.1
    %
  21. Reconciliation of the Differences Between Basic and Diluted Net Income Per Share
  Thousands ofMillions of Yen
    
    
    U.S. Dollars2005
    
    
    2006
    
    
    2007
    
    
    2007Net income (losses)
    
    
    ¥7,262
    
    
    
    ¥8,455
    
    
    
    ¥(1,610
    )
    
    
    $(13,638
    )After-tax
equivalent of
interest expense on
1.7% convertible
bond
    
    
    100
    
    
    
    57
    
    
    
    
    
    
    
    Loss on change of
equity interest as
a result of
exercise of stock
acquisition rights
of a subsidiary
    
    
    (53
    )
    
    
    (28
    )
    
    
    (6
    )
    
    
    (51
    )Income for purpose
of computing
diluted net income
per share
    
    
    ¥7,309
    
    
    
    ¥8,484
    
    
    
    ¥(1,616
    )
    
    
    $(13,689
    )
 Thousands of Shares2005
    
    
    2006
    
    
    2007Weighted-average shares outstanding  basic
    
    
    122,083
    
    
    
    129,247
    
    
    
    140,924Effect of dilutive securities:Warrants and options
    
    
    997
    
    
    
    1,794
    
    
    
    Convertible bond
    
    
    12,113
    
    
    
    6,901
    
    
    
    Weighted-average shares outstanding for
diluted EPS computation
    
    
    135,193
    
    
    
    137,942
    
    
    
    140,924
 Yen
    
    
    U.S. Dollars2005
    
    
    2006
    
    
    2007
    
    
    2007Basic EPS
    
    ¥
    59.60
    
    
    ¥
    65.40
    
    
    ¥
    (11.42
    )
    
    
    $(0.097
    )Diluted EPS
    
    
    54.00
    
    
    
    61.60
    
    
    
    (11.42
    )
    
    
    (0.097
    )
  F-46




---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 22. Stock-based Compensation
  Warrant Plan:
  Stock Option Plan:
     F-47




---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
      Number of Shares
    
    
    
    Number of SharesExercise Prices
    
    
    
    Granted
    
    
    
    OutstandingYen
    
    U.S. Dollars
    
    Date Granted
    
    (Thousands)
    
    Exercise Period
    
    (Thousands)¥1,060.00
    
    $
    8.98
    
    
    July 15, 2004
    
    
    3,197
    
    
    From August 1, 2004 to July 31, 2007
    
    
    1,120¥1,100.00
    
    $
    9.32
    
    
    January 20, 2005
    
    
    38
    
    
    From February 1, 2005 to January
31, 2008
    
    
    23¥1,340.00
    
    $
    11.35
    
    
    April 21, 2005
    
    
    357
    
    
    From May 1, 2005 to April 30, 2008
    
    
    173¥1,160.00
    
    $
    9.83
    
    
    July 15, 2005
    
    
    720
    
    
    From August 1, 2005 to July 31, 2008
    
    
    413¥2,620.00
    
    $
    22.19
    
    
    March 23, 2006
    
    
    96
    
    
    From April 1, 2006 to March 31, 2009
    
    
    79
  Number of
    
    
    Weighted-average
    
    
    
    Weighted-average Exercise
    
    
    Aggregate Intrinsic ValueShares
    
    
    Remaining Life
    
    
    Price Per Share
    
    
    
    
    
    
    Thousands of(Thousands)
    
    
    (Years)
    
    
    Yen
    
    
    U.S. Dollars
    
    
    Millions of Yen
    
    
    U.S. DollarsOutstanding at beginning
of year
    
    
    2,483
    
    
    
    
    
    
    
    ¥1,108
    
    
    
    $  9.39Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    588
    
    
    
    
    
    
    
    845
    
    
    
    7.16Expired or forfeited
    
    
    87
    
    
    
    
    
    
    
    1,412
    
    
    
    11.96Outstanding at end of year
    
    
    1,808
    
    
    
    0.72
    
    
    
    1,179
    
    
    
    9.99
    
    
    
    ¥497
    
    
    
    $4,210Exercisable at end of year
    
    
    1,808
    
    
    
    0.72
    
    
    
    ¥1,179
    
    
    
    9.99
    
    
    
    ¥497
    
    
    
    $4,210
  F-48




---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    2005
    
    2006
    
    2007(A)Weighted-average assumptions:Risk-free interest rate
    
    
    0.3
    %
    
    
    1.5
    %
    
    
    
    %Expected lives
    
    
    3.0
    years
    
    
    3.0
    years
    
    
    
    yearsExpected volatility
    
    
    33.3
    %
    
    
    28.9
    %
    
    
    
    %Dividend yield
    
    
    1.1
    %
    
    
    1.4
    %
    
    
    
    %Weighted-average fair value of grant per share
    
    
    ¥124.2
    
    
    
    ¥130.0
    
    
    
    ¥
 
        F-49




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    Number of Shares
    
    
    
    Number of SharesExercise Prices
    
    
    
    Granted
    
    
    
    OutstandingYen
    
    U.S. Dollars
    
    Date Granted
    
    (Shares)
    
    Exercise Period
    
    (Shares)¥     625.00
    
    $
    5.29
    
    
    September 26, 2002
    
    
    80,000
    
    
    From October 1, 2004 to September
30, 2007
    
    
    1,600¥  6,250.00
    
    $
    52.94
    
    
    March 30, 2004
    
    
    14,960
    
    
    From April 1, 2006 to March 31, 2009
    
    
    2,000¥51,549.00
    
    $
    436.67
    
    
    August 9, 2005
    
    
    2,620
    
    
    From July 1, 2007 to June 30, 2010
    
    
    2,340¥67,362.00
    
    $
    570.62
    
    
    August 23, 2006
    
    
    1,400
    
    
    From September 1, 2006 to August 6,
2011
    
    
    1,400¥58,380.00
    
    $
    494.54
    
    
    August 23, 2006
    
    
    4,530
    
    
    From September 1, 2006 to August 6,
2011
    
    
    4,250
  Number of
    
    
    Weighted-average
    
    
    Weighted-average Exercise
    
    
    Aggregate Intrinsic ValueShares
    
    
    Remaining Life
    
    
    Price Per Share
    
    
    
    
    
    
    Thousands of(Shares)
    
    
    (Years)
    
    
    Yen
    
    
    U.S. Dollars
    
    
    Millions of Yen
    
    
    U.S. DollarsOutstanding at beginning
of year
    
    
    17,620
    
    
    
    
    
    
    ¥
    11,961
    
    
    
    $101.32Granted
    
    
    5,930
    
    
    
    
    
    
    
    60,501
    
    
    
    512.50Exercised
    
    
    11,520
    
    
    
    
    
    
    
    6,250
    
    
    
    52.94Expired or forfeited
    
    
    440
    
    
    
    
    
    
    
    47,660
    
    
    
    403.73Outstanding at end of year
    
    
    11,590
    
    
    
    3.20
    
    
    
    41,118
    
    
    
    348.31
    
    
    
    ¥135
    
    
    
    $1,144Exercisable at end of year
    
    
    9,250
    
    
    
    3.18
    
    
    ¥
    38,479
    
    
    
    $325.96
    
    
    
    ¥135
    
    
    
    $1,144
    2005(A)
    
    2006
    
    2007Weighted-average assumptions:Risk-free interest rate
    
    
    
    %
    
    
    1.6
    %
    
    
    0.8
    %Expected lives
    
    
    
    years
    
    
    4.9
    years
    
    
    2.5
    yearsExpected volatility
    
    
    
    %
    
    
    57.5
    %
    
    
    74.3
    %Dividend yield
    
    
    
    %
    
    
    0.8
    %
    
    
    1.0
    %Weighted-average fair value of grant per share
    
    
    ¥
    
    
    
    ¥11,522
    
    
    
    ¥20,258
 
  F-50




---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
     Number of Shares
    
    
    
    Number of SharesExercise Prices
    
    
    
    Granted
    
    
    
    OutstandingYen
    
    U.S. Dollars
    
    Date Granted
    
    (Shares)
    
    Exercise Period
    
    (Shares)¥740.00
    
    $
    6.27
    
    
    April 28, 2006
    
    
    175,000
    
    
    From May 1, 2006 to April 30, 2009
    
    
    166,000
  Number of
    
    
    Weighted-average
    
    
    Weighted-average Exercise
    
    
    Aggregate Intrinsic ValueShares
    
    
    Remaining Life
    
    
    Price Per Share
    
    
    
    
    
    
    Thousands of(Shares)
    
    
    (Years)
    
    
    Yen
    
    
    U.S. Dollars
    
    
    Millions of Yen
    
    
    U.S. DollarsOutstanding at beginning
of year
    
    
    
    
    
    
    
    
    
    
    ¥   
    
    
    
    $   Granted
    
    
    175,000
    
    
    
    
    
    
    
    740
    
    
    
    6.27Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expired or forfeited
    
    
    9,000
    
    
    
    
    
    
    
    740
    
    
    
    6.27Outstanding at end of year
    
    
    166,000
    
    
    
    2.00
    
    
    
    740
    
    
    
    6.27
    
    
    
    ¥
    
    
    
    $Exercisable at end of year
    
    
    166,000
    
    
    
    2.00
    
    
    
    ¥740
    
    
    
    $6.27
    
    
    
    ¥
    
    
    
    $
  2005(A)
    
    2006(A)
    
    2007Weighted-average assumptions:Risk-free interest rate
    
    
    
    %
    
    
    
    %
    
    
    2.5
    %Expected lives
    
    
    
    years
    
    
    
    years
    
    
    3.0
    yearsExpected volatility
    
    
    
    %
    
    
    
    %
    
    
    47.2
    %Dividend yield
    
    
    
    %
    
    
    
    %
    
    
    0.7
    %Weighted-average fair value of grant per share
    
    
    ¥
    
    
    
    ¥
    
    
    
    ¥196.0
 
 (A)
    
    No share was granted for the years ended March 31, 2005 and 2006.
  F-51




---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 23. Cumulative Other Comprehensive Income
  Millions of YenOther
    
    
    
    
    
    
    CumulativeComprehensive
    
    
    
    
    
    OtherIncome
    
    
    Tax (Expense)
    
    
    ComprehensiveBefore Tax
    
    
    or Benefit
    
    
    IncomeMarch 31, 2004
    
    
    ¥ 5,657
    
    
    
    ¥ (2,286
    )
    
    
    ¥ 3,371Unrealized gains on investment securities:Unrealized changes in fair value 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 changes in fair value during the period
    
    
    (2
    )
    
    
    1
    
    
    
    (1
    )Reclassification adjustment for realized (gains) losses
included in net income
    
    
    
    
    
    
    
    
    
    
    Foreign currency translation adjustments:Unrealized losses arising during the period
    
    
    (9
    )
    
    
    
    
    
    
    (9
    )Reclassification adjustment for realized (gains) losses
included in net income
    
    
    
    
    
    
    
    
    
    
    March 31, 2005
    
    
    13,587
    
    
    
    (5,501
    )
    
    
    8,086Unrealized gains on investment securities:Unrealized changes in fair value during the period
    
    
    (864
    )
    
    
    336
    
    
    
    (528
    )Reclassification adjustment for realized (gains) losses
included in net income
    
    
    (3,760
    )
    
    
    1,523
    
    
    
    (2,237
    )Net unrealized holding (gains) losses during the period
    
    
    (4,624
    )
    
    
    1,859
    
    
    
    (2,765
    )Unrealized losses on derivative instruments:Unrealized changes in fair value during the period
    
    
    7
    
    
    
    (3
    )
    
    
    4Reclassification adjustment for realized (gains) losses
included in net income
    
    
    
    
    
    
    
    
    
    
    Foreign currency translation adjustments:Unrealized gains arising during the period
    
    
    160
    
    
    
    
    
    
    
    160Reclassification adjustment for realized (gains) losses
included in net income
    
    
    
    
    
    
    
    
    
    
    March 31, 2006
    
    
    9,130
    
    
    
    (3,645
    )
    
    
    5,485Unrealized gains on investment securities:Unrealized changes in fair value during the period
    
    
    (6,701
    )
    
    
    2,713
    
    
    
    (3,988
    )Reclassification adjustment for realized gains (losses)
included in net losses
    
    
    23
    
    
    
    (9
    )
    
    
    14Net unrealized holding (gains) losses during the period
    
    
    (6,678
    )
    
    
    2,704
    
    
    
    (3,974
    )Unrealized losses on derivative instruments:Unrealized changes in fair value during the period
    
    
    (1
    )
    
    
    1
    
    
    
    Reclassification adjustment for realized (gains) losses
included in net losses
    
    
    
    
    
    
    
    
    
    
    Foreign currency translation adjustments:Unrealized gains arising during the period
    
    
    210
    
    
    
    
    
    
    
    210Reclassification adjustment for realized (gains) losses
included in net losses
    
    
    
    
    
    
    
    
    
    
    March 31, 2007
    
    
    ¥ 2,661
    
    
    
    ¥      (940
    )
    
    
    ¥ 1,721
 F-52




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Thousands of U.S. DollarsOther
    
    
    
    
    
    
    CumulativeComprehensive
    
    
    
    
    
    
    OtherIncome
    
    
    Tax (Expense)
    
    
    ComprehensiveBefore Tax
    
    
    or Benefit
    
    
    IncomeMarch 31, 2006
    
    
    $ 77,340
    
    
    
    $(30,877
    )
    
    
    $ 46,463Unrealized gains on investment securities:Unrealized changes in fair value during the period
    
    
    (56,765
    )
    
    
    22,982
    
    
    
    (33,783
    )Reclassification adjustment for realized gains (losses)
included in net losses
    
    
    195
    
    
    
    (76
    )
    
    
    119Net unrealized holding (gains) losses during the period
    
    
    (56,570
    )
    
    
    22,906
    
    
    
    (33,664
    )Unrealized losses on derivative instruments:Unrealized changes in fair value during the period
    
    
    (8
    )
    
    
    8
    
    
    
    Reclassification adjustment for realized (gains) losses
included in net losses
    
    
    
    
    
    
    
    
    
    
    Foreign currency translation adjustments:Unrealized gains arising during the period
    
    
    1,780
    
    
    
    
    
    
    
    1,780Reclassification adjustment for realized (gains) losses
included in net losses
    
    
    
    
    
    
    
    
    
    
    March 31, 2007
    
    
    $ 22,542
    
    
    
    $  (7,963
    )
    
    
    $ 14,579
 24. Cash Flow Information
  Thousands ofMillions of Yen
    
    
    U.S. Dollars2005
    
    
    2006
    
    
    2007
    
    
    2007Interest
    
    ¥
    2,999
    
    
    ¥
    2,779
    
    
    ¥
    4,206
    
    
    $
    35,629Income taxes
    
    
    5,266
    
    
    
    2,302
    
    
    
    8,119
    
    
    
    68,776
  Thousands ofMillions of Yen
    
    
    U.S. Dollars2005
    
    
    2006
    
    
    2007
    
    
    2007Property and
equipment obtained
under capital
leases
    
    ¥
    792
    
    
    ¥
    278
    
    
    ¥
    163
    
    
    $
    1,381Conversion of
convertible bonds
to common stock
    
    
    1,058
    
    
    
    8,120
    
    
    
    774
    
    
    
    6,557
  F-53




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 25. Disclosures About Fair Value of Financial Instruments
   Millions of Yen
    
    
    Thousands of U.S. Dollars2006
    
    
    2007
    
    
    2007Carrying
    
    
    
    
    
    
    Carrying
    
    
    
    
    
    
    CarryingAmount
    
    
    Fair Value
    
    
    Amount
    
    
    Fair Value
    
    
    Amount
    
    
    Fair ValueFinancial assets:Cash and cash equivalents
    
    ¥
    22,860
    
    
    ¥
    22,860
    
    
    ¥
    28,344
    
    
    ¥
    28,344
    
    
    $
    240,102
    
    
    $
    240,102Loans receivable, net
    
    
    225,947
    
    
    
    220,502
    
    
    
    250,780
    
    
    
    249,700
    
    
    
    2,124,354
    
    
    
    2,115,205Purchased loans receivable, net
    
    
    24,155
    
    
    
    24,155
    
    
    
    28,910
    
    
    
    28,910
    
    
    
    244,896
    
    
    
    244,896Investment securities
    
    
    42,071
    
    
    
    42,071
    
    
    
    38,384
    
    
    
    38,384
    
    
    
    325,150
    
    
    
    325,150Financial liabilities:Short-term borrowings
    
    
    60,411
    
    
    
    60,411
    
    
    
    84,258
    
    
    
    84,258
    
    
    
    713,748
    
    
    
    713,748Long-term borrowings
    
    
    198,924
    
    
    
    200,487
    
    
    
    260,817
    
    
    
    257,696
    
    
    
    2,209,377
    
    
    
    2,182,939Interest rate swaps
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1
    
    
    
    8
    
    
    
    8Guarantee of loans
    
    
    629
    
    
    
    629
    
    
    
    1,066
    
    
    
    1,066
    
    
    
    9,030
    
    
    
    9,030
  a)
    
    Cash and Cash Equivalents:Cash and cash equivalents are carried at an amount that
approximates fair value.b)
    
    Loans Receivable:The Group maintains an allowance for loan losses at a level that is
adequate in managements judgment to provide for estimated probable uncollectible loan losses
from known and inherent risks in the Groups loan portfolios. In addition, the Group provides
a reserve for losses on excess interest repayments derived from current loans receivable and
loans previously paid-off or charged-off. (See Note 2 for a summary of significant accounting
policies.) Accordingly, the Group believes the carrying value of its loans receivable, net of
reserve for losses on excess interest repayments derived from the current loans, 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 Group
believes the carrying value of its purchased loans receivable approximates fair value.d)
    
    Investment Securities:The fair value of marketable equity securities is based on quoted
market prices. The Group also holds ¥18,675 million and ¥20,446 million ($173,198 thousand)
in debt securities and other investments, including non-marketable equity securities as of
March 31, 2006 and 2007, respectively. The fair value of these investments 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 are currently available to the Group offered by financial institutions
for debt with similar terms and remaining average maturities are used as the discount rates.
The fair value of syndicated bonds is estimated using a discounted cash-flow calculation that
applies interests rates at an assumed marginal market-funding rate.g)
    
    Interest Rate Swaps:The fair value of interest rate swaps (used for hedging purpose)
reflects the estimated amounts that the Group 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 Groups derivatives.h)
    
    Guarantee of Loans:The fair value of the Groups guarantees generally reflects the probable
and estimable amounts that the Group would pay for the delinquent payments of borrowings under
guarantees.
 F-54




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 26. Segment Information
    Millions of YenIntegrated
    
    Servicing
    
    Real Estate
    
    OtherFinancial Services
    
    Business
    
    Business
    
    Businesses
    
    Eliminations
    
    ConsolidatedYear Ended / As of March 31,
2005:Revenue:Net interest income
    
    ¥
    27,356
    
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    27,356Other revenue
    
    
    1,107
    
    
    
    3,893
    
    
    
    18
    
    
    
    210
    
    
    
    (225
    )
    
    
    5,003Expense:Interest expense
    
    
    3,012
    
    
    
    153
    
    
    
    90
    
    
    
    9
    
    
    
    (105
    )
    
    
    3,159Provision for loan losses
    
    
    5,817
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,817Other provision
    
    
    123
    
    
    
    821
    
    
    
    
    
    
    
    40
    
    
    
    
    
    
    
    984Other expense
    
    
    12,969
    
    
    
    1,181
    
    
    
    58
    
    
    
    180
    
    
    
    (122
    )
    
    
    14,266Operating income (losses)
    
    
    6,542
    
    
    
    1,738
    
    
    
    (130
    )
    
    
    (19
    )
    
    
    2
    
    
    
    8,133Total assets
    
    
    208,493
    
    
    
    21,818
    
    
    
    2,643
    
    
    
    572
    
    
    
    (5,125
    )
    
    
    228,401Millions of YenIntegrated
    
    Servicing
    
    Real Estate
    
    OtherFinancial Services
    
    Business
    
    Business
    
    Businesses
    
    Eliminations
    
    ConsolidatedYear Ended / As of March 31,
2006:Revenue:Net interest
income
    
    ¥
    26,495
    
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    26,495Other revenue
    
    
    3,251
    
    
    
    7,918
    
    
    
    901
    
    
    
    279
    
    
    
    (904
    )
    
    
    11,445Expense:Interest expense
    
    
    2,656
    
    
    
    408
    
    
    
    311
    
    
    
    11
    
    
    
    (281
    )
    
    
    3,105Provision for loan losses
    
    
    5,923
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,923Other provision
    
    
    122
    
    
    
    1,186
    
    
    
    
    
    
    
    26
    
    
    
    
    
    
    
    1,334Other expense
    
    
    13,619
    
    
    
    1,676
    
    
    
    340
    
    
    
    577
    
    
    
    (317
    )
    
    
    15,895Operating income (losses)
    
    
    7,426
    
    
    
    4,648
    
    
    
    250
    
    
    
    (335
    )
    
    
    (306
    )
    
    
    11,683Total assets
    
    
    313,127
    
    
    
    43,000
    
    
    
    25,074
    
    
    
    244
    
    
    
    (21,502
    )
    
    
    359,943
 F-55




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Millions of YenIntegrated
    
    Servicing
    
    Real Estate
    
    OtherFinancial Services
    
    Business
    
    Business
    
    Businesses
    
    Eliminations
    
    ConsolidatedYear Ended / As of March 31,
2007:Revenue:Net interest
income
    
    ¥
    21,215
    
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    (173
    )
    
    ¥
    21,042Other revenue
    
    
    5,610
    
    
    
    10,375
    
    
    
    5,307
    
    
    
    319
    
    
    
    (4,026
    )
    
    
    17,585Expense:Interest expense
    
    
    3,892
    
    
    
    933
    
    
    
    981
    
    
    
    116
    
    
    
    (1,015
    )
    
    
    4,907Provision for loan losses
    
    
    10,853
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,853Other provision
    
    
    530
    
    
    
    1,696
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    2,229Other expense
    
    
    15,658
    
    
    
    2,548
    
    
    
    824
    
    
    
    626
    
    
    
    (339
    )
    
    
    19,317Operating (losses) income
    
    
    (4,108
    )
    
    
    5,198
    
    
    
    3,499
    
    
    
    (423
    )
    
    
    (2,845
    )
    
    
    1,321Total assets
    
    
    370,481
    
    
    
    62,649
    
    
    
    56,466
    
    
    
    8,599
    
    
    
    (44,118
    )
    
    
    454,077Thousands of U.S. DollarsIntegrated
    
    Servicing
    
    Real Estate
    
    OtherFinancial Services
    
    Business
    
    Business
    
    Businesses
    
    Eliminations
    
    ConsolidatedYear Ended / As of March 31,
2007:Revenue:Net interest income
    
    $
    179,713
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (1,466
    )
    
    $
    178,247Other revenue
    
    
    47,522
    
    
    
    87,886
    
    
    
    44,955
    
    
    
    2,703
    
    
    
    (34,104
    )
    
    
    148,962Expense:Interest expense
    
    
    32,969
    
    
    
    7,903
    
    
    
    8,310
    
    
    
    983
    
    
    
    (8,598
    )
    
    
    41,567Provision for loan losses
    
    
    91,936
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    91,936Other provision
    
    
    4,490
    
    
    
    14,367
    
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    18,882Other expense
    
    
    132,639
    
    
    
    21,584
    
    
    
    6,980
    
    
    
    5,303
    
    
    
    (2,872
    )
    
    
    163,634Operating (losses) income
    
    
    (34,799
    )
    
    
    44,032
    
    
    
    29,640
    
    
    
    (3,583
    )
    
    
    (24,100
    )
    
    
    11,190Total assets
    
    
    3,138,340
    
    
    
    530,699
    
    
    
    478,323
    
    
    
    72,842
    
    
    
    (373,723
    )
    
    
    3,846,481
 
  F-56




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 27. Subsequent Events
 1)
    
    On June 23, 2007, the shareholders of the Company authorized the following at the Annual
Shareholders Meeting:
 (1)
    
    Implementation of a 1-for-20 reverse stock split effective on August 31, 2007. The
effect of this reverse stock split has been retroactively reflected in these consolidated
financial statements.(2)
    
    Changes of the annual upper limit on the total number of
stock acquisition rights issuable to the Companys directors as
stock-based compensation and shares allotted to these rights from 300,000
units and 1,500,000 shares to 500,000 units and 2,500,000 shares, respectively.(3)
    
    Partial amendments of the Articles of Incorporation
 
    
    Reduction of the total number of authorized shares from 7,680 million shares to 384
million shares. This shall go into effect on the effective date of the reverse stock
split approved at the Annual Shareholders Meeting.
 2)
    
    On June 23, 2007, the Board of Directors approved the repurchase of shares of the
Companys common stock of up to 3,000,000 shares for an aggregate amount of up to ¥3 billion.
The company completed all stock repurchases to be made under this stock repurchase program
during the period from June 25, 2007 to August 24, 2007.3)
    
    On July 18, 2007, the Board of Directors approved that the number of shares of the
Companys common stock represented by each American Depositary Share (ADS) be changed from
the current ratio of one ADS for 10 shares of common stock to two
ADSs for one share of common
stock. This change became effective on August 31, 2007, in accordance with the 1-for-20
reverse stock split approved at the Annual Shareholders Meeting.
 F-57




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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 of Common Stock Certificates (English Translation)2.2
    
    
     Form of Deposit Agreement Among NIS Group 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 Subsidiaries11.1
    
    
     Our Code of Ethics12.1
    
    
     Certification of the principal executive officer required by 17 C.F.R. 240. 13a-14(a)12.2
    
    
     Certification of the principal executive officer required by 17 C.F.R. 240. 13a-14(a)12.3
    
    
     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 executive officer required by 18 U.S.C. Section 135013.3
    
    
     Certification of the chief financial officer required by 18 U.S.C. Section 1350