##### 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, 2006
 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
 Kabushiki Kaisha Nissin
  NISSIN CO., LTD.
  Japan
    
    Shinjuku L-Tower 15F
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
 2,732,839,214 shares of
our common stock outstanding at March 31, 2006, including 4,799,200 shares represented by 479,920
American Depositary Shares, as adjusted for our 2-for-1 stock split in April 2006.
 þ o
 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
representing ten shares 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
    
    
    17Item 4A. Unresolved Staff Comments
    
    
    43Item 5. Operating and Financial Review and Prospects
    
    
    43Item 6. Directors, Senior Management and Employees
    
    
    76Item 7. Major Shareholders and Related Party Transactions
    
    
    89Item 8. Financial Information
    
    
    92Item 9. The Offer and Listing
    
    
    94Item 10. Additional Information
    
    
    97Item 11. Quantitative and Qualitative Disclosures About Market Risk
    
    
    115Item 12. Description of Securities Other than Equity Securities
    
    
    117PART IIItem 13. Defaults, Dividend Arrearages and Delinquencies
    
    
    118Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    
    118Item 15. Controls and Procedures
    
    
    118Item 16A. Audit Committee Financial Expert
    
    
    119Item 16B. Code of Ethics
    
    
    119Item 16C. Principal Accountant Fees and Services
    
    
    120Item 16D. Exemptions from the Listing Standards for Audit Committees
    
    
    120Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
    
    
    121PART IIIItem 17.Financial Statements
    
    
    122Item 18.Financial Statements
    
    
    122Item 19.Exhibits
    
    
    122Index to Consolidated Financial Statements
    
    
    F-1EX-1.1 Articles of IncorporationEX-1.2 Share Handling RegulationsEX-1.3 Regulations of the Board of DirectorsEX-1.4 Regulations of Board of Statutory AuditorsEX-8.1 List of SubsidiariesEX-12.1 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
   
    
    the effect of weak domestic economic conditions, including changes in corporate and
personal bankruptcy and unemployment rates in Japan;
 -3-




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##### Table of Contents




    
    competition by entry of major financial institutions and IT companies in the
business owners and consumer loan industries;
    
    misconduct by an employee or director and our exposure to negative publicity of the
consumer or business finance industries generally or us specifically;
    
    the effect of potential changes to legislation and accompanying enforcement, and
restrictions and regulations associated with Japan or U.S. law, including restrictions
on interest rates, to regulations for the moneylending business;
    
    the growing variety of legal means with which debtors can seek protection from
creditors;
    
    uncertain liquidity of Japans capital markets and availability of funding from
lenders on favorable terms and potential changes to government policy, including
Japans monetary policy;
    
    the reliability of our information or technological systems and networks.
    
    the influence of our chairman and his family over important decisions;
    
    the failure to generate the results we desire by changes in the mix of our assets portfolio;
    
    fluctuation in market environments regarding our investments;
    
    our ability to pursue and maintain profitable joint ventures and strategic alliances;
    
    the effect of fluctuations in the value of real estate held and potential changes to
tax legislation and amendments to regulations concerning real estate-related
businesses; and
    
    increasing competition in the loan servicing market in which Nissin Servicer Co.,
Ltd., a consolidated subsidiary, operates.
 
 -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 31,2002
    
    
    2003
    
    
    2004
    
    
    2005(2)
    
    
    2006
    

    2006(in millions of yen and thousands of U.S. dollars except number of shares and per share data)Consolidated Income Statement Data:Total interest income
    
    ¥
    33,976
    
    
    ¥
    39,234
    
    
    ¥
    40,107
    
    
    ¥
    32,555
    
    
    ¥
    33,901
    
    
    $
    288,593Total interest expense
    
    
    3,884
    
    
    
    3,984
    
    
    
    3,724
    
    
    
    3,159
    
    
    
    3,105
    
    
    
    26,432Net interest income
    
    
    30,092
    
    
    
    35,250
    
    
    
    36,383
    
    
    
    29,396
    
    
    
    30,796
    
    
    
    262,161Provision for loan losses, net
    
    
    7,433
    
    
    
    12,688
    
    
    
    13,461
    
    
    
    8,576
    
    
    
    9,463
    
    
    
    80,557Net interest income after provision for
loan losses
    
    
    22,659
    
    
    
    22,562
    
    
    
    22,922
    
    
    
    20,820
    
    
    
    21,333
    
    
    
    181,604Total non-interest (loss) income
    
    
    (428
    )
    
    
    837
    
    
    
    730
    
    
    
    5,984
    
    
    
    9,934
    
    
    
    84,567Total non-interest expense
    
    
    13,629
    
    
    
    14,299
    
    
    
    12,993
    
    
    
    14,896
    
    
    
    16,598
    
    
    
    141,296Income before income taxes
    
    
    8,602
    
    
    
    9,100
    
    
    
    10,659
    
    
    
    11,908
    
    
    
    14,669
    
    
    
    124,875Income taxes
    
    
    3,801
    
    
    
    3,924
    
    
    
    4,582
    
    
    
    4,646
    
    
    
    6,214
    
    
    
    52,899Net income
    
    ¥
    4,801
    
    
    ¥
    5,176
    
    
    ¥
    6,077
    
    
    ¥
    7,262
    
    
    ¥
    8,455
    
    
    $
    71,976Consolidated Balance Sheet Data:Cash and cash equivalents
    
    ¥
    17,116
    
    
    ¥
    23,612
    
    
    ¥
    20,243
    
    
    ¥
    25,709
    
    
    ¥
    22,860
    
    
    $
    194,603Loans receivable, net
    
    
    148,235
    
    
    
    166,977
    
    
    
    166,890
    
    
    
    146,119
    
    
    
    225,947
    
    
    
    1,923,444Purchased loans receivable, net
    
    
    380
    
    
    
    2,946
    
    
    
    4,342
    
    
    
    13,581
    
    
    
    24,155
    
    
    
    205,627Other
    
    
    14,566
    
    
    
    13,039
    
    
    
    18,793
    
    
    
    42,992
    
    
    
    86,981
    
    
    
    740,453Total assets
    
    ¥
    180,297
    
    
    ¥
    206,574
    
    
    ¥
    210,268
    
    
    ¥
    228,401
    
    
    ¥
    359,943
    
    
    $
    3,064,127Short-term borrowings
    
    ¥
    1,400
    
    
    ¥
    5,600
    
    
    ¥
    5,563
    
    
    ¥
    12,600
    
    
    ¥
    60,411
    
    
    $
    514,267Long-term borrowings
    
    
    128,659
    
    
    
    148,595
    
    
    
    142,577
    
    
    
    136,844
    
    
    
    198,924
    
    
    
    1,693,403Other
    
    
    6,315
    
    
    
    6,782
    
    
    
    7,670
    
    
    
    10,840
    
    
    
    17,671
    
    
    
    150,430Total liabilities
    
    
    136,374
    
    
    
    160,977
    
    
    
    155,810
    
    
    
    160,284
    
    
    
    277,006
    
    
    
    2,358,100Minority interests
    
    
    148
    
    
    
    
    
    
    
    161
    
    
    
    1,146
    
    
    
    2,433
    
    
    
    20,712Common stock
    
    
    6,611
    
    
    
    6,611
    
    
    
    7,218
    
    
    
    7,779
    
    
    
    11,849
    
    
    
    100,868Additional paid-in capital
    
    
    8,467
    
    
    
    8,462
    
    
    
    9,092
    
    
    
    9,836
    
    
    
    14,808
    
    
    
    126,058Other
    
    
    28,697
    
    
    
    30,524
    
    
    
    37,987
    
    
    
    49,356
    
    
    
    53,847
    
    
    
    458,389Total shareholders equity
    
    
    43,775
    
    
    
    45,597
    
    
    
    54,297
    
    
    
    66,971
    
    
    
    80,504
    
    
    
    685,315Total liabilities and shareholders equity
    
    ¥
    180,297
    
    
    ¥
    206,574
    
    
    ¥
    210,268
    
    
    ¥
    228,401
    
    
    ¥
    359,943
    
    
    $
    3,064,127Number of Shares(1):Issued at the end of fiscal year (in thousands)
    
    
    2,546,380
    
    
    
    2,546,380
    
    
    
    2,586,744
    
    
    
    2,614,408
    
    
    
    2,812,941
    
    
    
    2,812,941Per Share Data(1):Net incomeBasic
    
    ¥
    1.90
    
    
    ¥
    2.09
    
    
    ¥
    2.54
    
    
    ¥
    2.98
    
    
    ¥
    3.27
    
    
    $
    0.028Diluted
    
    
    1.82
    
    
    
    1.94
    
    
    
    2.34
    
    
    
    2.70
    
    
    
    3.08
    
    
    
    0.026Cash dividendsDeclared
    
    
    0.33
    
    
    
    0.39
    
    
    
    0.45
    
    
    
    0.81
    
    
    
    1.05
    
    
    
    0.009Paid during the fiscal year
    
    
    0.32
    
    
    
    0.33
    
    
    
    0.42
    
    
    
    0.53
    
    
    
    1.02
    
    
    
    0.009
 
 (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, and a 1.2-for-1 stock
split on May 20, 2005. All share information presented above has been retroactively adjusted
to reflect such stock splits.(2)
    
    The Company sold ¥32,697 million in consumer loans on June 1, 2004 to 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-end2002
    
    ¥
    134.77
    
    
    ¥
    115.89
    
    
    ¥
    125.64
    
    
    ¥
    132.702003
    
    
    133.40
    
    
    
    115.71
    
    
    
    121.10
    
    
    
    118.072004
    
    
    120.55
    
    
    
    104.18
    
    
    
    112.75
    
    
    
    104.182005
    
    
    114.30
    
    
    
    102.26
    
    
    
    107.28
    
    
    
    107.222006
    
    
    120.93
    
    
    
    104.41
    
    
    
    113.67
    
    
    
    117.48Calendar monthJanuary 2006
    
    
    117.55
    
    
    
    113.96
    
    
    
    115.48
    
    
    
    116.88February 2006
    
    
    118.95
    
    
    
    115.82
    
    
    
    117.86
    
    
    
    115.82March 2006
    
    
    119.07
    
    
    
    115.89
    
    
    
    117.28
    
    
    
    117.48April 2006
    
    
    118.66
    
    
    
    113.79
    
    
    
    117.07
    
    
    
    113.79May 2006
    
    
    113.46
    
    
    
    110.07
    
    
    
    111.73
    
    
    
    112.26June 2006
    
    
    116.42
    
    
    
    111.66
    
    
    
    114.63
    
    
    
    114.51July 2006
    
    
    117.44
    
    
    
    113.97
    
    
    
    115.77
    
    
    
    114.44August 2006
    
    
    117.35
    
    
    
    114.21
    
    
    
    115.92
    
    
    
    117.35
 
 (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.
  -7-




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D. Risk Factors.
 We may suffer larger loan losses if defaults on loans by our customers increase as a result of weak
economic conditions in Japan
  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
   -8-




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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.
  Legislative or regulatory changes to the Interest Rate Restriction Law or other laws, as a result
of court decisions or other factors, could adversely affect our business
    -9-




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Any failure to maintain the confidentiality of personal information of our customers could
adversely affect our results of operations
  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 Section 404 of the Sarbanes-Oxley Act 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 audit 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.
 -10-




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An increasing number of our customers seeking protection from creditors under the Bankruptcy Law or
related laws could require us to increase our provisions for loan losses and charge-offs
   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
   -11-




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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
   -12-




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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 fund transfer system to handle high volumes of phone
calls and to provide customers with a convenient system which offers reliable privacy
protection;
    
    the reliability and security of third-party databases from which we obtain credit
information about our customers;
    
    the reliability of Sanyo Electric Credits wire transfer service 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.
  
    
    our main computer housed in an NEC affiliates data center, to which all data are
backed up each business day;
    
    dedicated lines that connect our main computer and outsourcing center to our
application servers and e-mail servers; and
    
    maintenance and support work for our main computer.
  Our chairman and his family may exercise influence over important business decisions in a way that
conflicts with your interest
  -13-




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A sale of our shares held by our major shareholders, including our chairman or members of their
family, may adversely affect our share price
  We may change our portfolio of products and services from time to time but fail to achieve the
intended results
    The fair value of our strategic investments could decline due to a deterioration of the economic
environment and adversely affect our financial position
  -14-




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The strategic alliances, joint ventures and strategic investments which weve entered into in order
to acquire new customers may not yield attractive returns and could produce losses
   The success of our real estate-related businesses are highly dependant on the health of the
Japanese economy and are susceptible to regulatory and legal changes.
       Increasing competition in the loan servicing market in which Nissin Servicer operates could reduce
our profitability.
  -15-




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Our business in China is subject to extensive Chinese government regulation that changes
frequently, and these regulations could adversely affect our business and operating results.
   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
  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
  -16-




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Item 4. Information on the Company.
 A. History and Development of the Company.
          -17-




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B. Business Overview.
 Overview
  Our Strategies
 Provide Integrated Financial Services to Small and Medium-Sized Enterprises in Japan
  
    
    Broad Range of Services to Small and Medium-Sized Enterprises.We provide a
variety of financial services to small and medium-sized enterprises, depending on
their growth stage, in an effort to be our customers primary source for financial
services. In addition to business loans, we provide leasing and other services,
including secured loans and investment banking services.
    
    Services to Business Owners.For small businesses owners, we provide small
business loans and Business Timely loans, described below, as well as installment
credit. We seek to customize our products to the needs of small business owners.
For example, we may loan 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.
  -18-




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Expand Real Estate-related Businesses
  
    
    Providing real estate secured loans to property developers for working capital.
This is currently our fastest growing business line, and we focus primarily on
small to medium-sized property developers that develop small commercial and
residential properties.
    
    Investing in real property with a view to resale. We seek to purchase real
estate, particularly commercial and residential rental properties, that we believe
can be resold at a higher price following renovations of the property or
improvements in property management. We conduct this business primarily through
our subsidiary, 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 servicing such loans, our subsidiary, Nissin Servicer, seeks to
acquire distressed real estate assets which it restructures and resells.
 Develop Overseas Business, Particularly in China
  Develop Investment Banking, Securities and Venture Capital Businesses
   -19-




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Our Markets
 Japanese Small Business Finance Industry
  Japanese Real Estate Finance and Other Real Estate Industries
  Japanese Loan Servicing Industry
  Japanese Leasing Industry
  -20-




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Chinese Leasing and other Industries
  Japanese Consumer Finance Industry
  Our Products
    Integrated Financial Services
  -21-




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##### Table of Contents







Year ended March 31,2002
    
    
    2003
    
    
    2004
    
    
    2005
    
    
    2006(in millions)Small business owner loans
    
    ¥
    32,195
    
    
    ¥
    45,311
    
    
    ¥
    55,647
    
    
    ¥
    56,964
    
    
    ¥
    63,320Business Timely loans
    
    
    12,238
    
    
    
    17,256
    
    
    
    17,909
    
    
    
    19,687
    
    
    
    23,656Secured loans
    
    
    1,589
    
    
    
    1,252
    
    
    
    2,235
    
    
    
    9,976
    
    
    
    39,496Wide loans
    
    
    50,940
    
    
    
    59,743
    
    
    
    61,592
    
    
    
    52,722
    
    
    
    44,240Consumer loans(1)
    
    
    45,784
    
    
    
    45,093
    
    
    
    38,600
    
    
    
    5,296
    
    
    
    3,010Other loans
    
    
    24
    
    
    
    13
    
    
    
    261
    
    
    
    4,166
    
    
    
    10,243Total average balance of loans outstanding
    
    ¥
    142,770
    
    
    ¥
    168,668
    
    
    ¥
    176,244
    
    
    ¥
    148,811
    
    
    ¥
    183,965





|    |  |                                                                                                                                                                            
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) |  | Pursuant to an agreement between us and Orient Credit, on June 1, 2004, we sold most of the
outstanding balance of our consumer loans to Orient Credit for ¥32,697 million.



As of March 31,2002
    
    
    2003
    
    
    2004
    
    
    2005
    
    
    2006(in millions)Small business owner loans
    
    ¥
    37,386
    
    
    ¥
    53,915
    
    
    ¥
    57,168
    
    
    ¥
    58,961
    
    
    ¥
    65,447Business Timely loans
    
    
    16,035
    
    
    
    17,303
    
    
    
    18,659
    
    
    
    20,862
    
    
    
    25,282Secured loans
    
    
    1,427
    
    
    
    1,587
    
    
    
    10,003
    
    
    
    18,812
    
    
    
    91,610Wide loans
    
    
    55,033
    
    
    
    63,993
    
    
    
    57,460
    
    
    
    47,604
    
    
    
    41,163Consumer loans(1)
    
    
    46,180
    
    
    
    40,938
    
    
    
    35,604
    
    
    
    2,827
    
    
    
    2,995Other loans
    
    
    17
    
    
    
    36
    
    
    
    573
    
    
    
    6,296
    
    
    
    10,681Total balance of loans outstanding
    
    ¥
    156,078
    
    
    ¥
    177,772
    
    
    ¥
    179,467
    
    
    ¥
    155,362
    
    
    ¥
    237,178





|    |  |                                                                                                                                                                            
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) |  | Pursuant to an agreement between us and Orient Credit, on June 1, 2004, we sold most of the
outstanding balance of our consumer loans to Orient Credit for ¥32,697 million.

Small Business Owner Loans






-22-



---



##### Table of Contents



As of March 31,2002
    
    2003
    
    2004
    
    2005
    
    2006Number of small business owner loan accounts
    
    
    17,472
    
    
    
    23,439
    
    
    
    24,739
    
    
    
    24,414
    
    
    
    25,797Average balance of loans per account (in
thousands)
    
    ¥
    2,140
    
    
    ¥
    2,300
    
    
    ¥
    2,311
    
    
    ¥
    2,415
    
    
    ¥
    2,537
  Year ended March 31,2002
    
    2003
    
    2004
    
    2005
    
    2006(in millions)Advances
    
    ¥
    22,328
    
    
    ¥
    36,560
    
    
    ¥
    35,061
    
    
    ¥
    45,834
    
    
    ¥
    53,134
  -23-




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##### Table of Contents



Business Timely Loans
     As of and for the year ended March 31,2002
    
    2003
    
    2004
    
    2005
    
    2006Total number of Business Timely loan accounts
    
    
    22,559
    
    
    
    24,594
    
    
    
    29,950
    
    
    
    34,059
    
    
    
    34,617Number of Business Timely loan accounts with
outstanding balances
    
    
    13,239
    
    
    
    14,511
    
    
    
    16,163
    
    
    
    17,493
    
    
    
    17,228Average balance of loans per account (in
thousands)
    
    ¥
    1,211
    
    
    ¥
    1,192
    
    
    ¥
    1,154
    
    
    ¥
    1,193
    
    
    ¥
    1,467
  Year ended March 31,2002
    
    
    2003
    
    
    2004
    
    
    2005
    
    
    2006(in millions)Advances to existing
customers (including repeat customers)
    
    ¥
    9,686
    
    
    ¥
    10,030
    
    
    ¥
    9,613
    
    
    ¥
    12,455
    
    
    ¥
    18,266Advances to new customers
    
    
    6,847
    
    
    
    4,300
    
    
    
    4,323
    
    
    
    4,953
    
    
    
    3,983Total
    
    ¥
    16,533
    
    
    ¥
    14,330
    
    
    ¥
    13,936
    
    
    ¥
    17,408
    
    
    ¥
    22,249
 -24-




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##### Table of Contents



Secured Loans
 Secured Loans to Property Developers.
  As of March 31,2002
    
    2003
    
    2004
    
    2005
    
    2006(in millions except number of accounts)Number of secured loan accounts
    
    
    
    
    
    
    
    
    
    
    20
    
    
    
    99
    
    
    
    204Balance of loans outstanding
    
    
    
    
    
    
    
    
    
    
    7,433
    
    
    
    11,890
    
    
    
    52,330Average balance of loans per account
    
    
    
    
    
    
    
    
    
    
    372
    
    
    
    120
    
    
    
    257
  Year ended March 31,2002
    
    2003
    
    2004
    
    2005
    
    2006(in millions)Advances
    
    
    
    
    
    
    
    
    
    
    10,397
    
    
    
    18,716
    
    
    
    72,587
  Secured Loans to Individuals and Small and Medium-Sized Enterprises.
 -25-




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##### Table of Contents



Wide Loans  Debt Consolidation Loans
   As of March 31,2002
    
    2003
    
    2004
    
    2005
    
    2006Number of Wide loan accounts
    
    
    32,075
    
    
    
    36,482
    
    
    
    35,126
    
    
    
    31,440
    
    
    
    27,701Balance of loans per account (in thousands)
    
    ¥
    1,716
    
    
    ¥
    1,754
    
    
    ¥
    1,636
    
    
    ¥
    1,514
    
    
    ¥
    1,486
  Year ended March 31,2002
    
    2003
    
    2004
    
    2005
    
    2006(in millions)Advances
    
    ¥
    28,321
    
    
    ¥
    34,294
    
    
    ¥
    20,709
    
    
    ¥
    15,897
    
    
    ¥
    14,977
  -26-




---



##### Table of Contents



Consumer Loans
   Other Loans/Leasing
   Other Products and Services
 Credit Guarantee
 Real Estate Investment.
  -27-




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##### Table of Contents



Investment Banking, Securities and Venture Capital Business.
   Loan Servicing
    Year ended March 31,2002
 (1)
    
    2003
    
    2004
    
    2005
    
    2006(in millions)Aggregate purchase price of distressed loans
    
    ¥
    403
    
    
    ¥
    4,854
    
    
    ¥
    4,502
    
    
    ¥
    16,896
    
    
    ¥
    19,779Aggregate principal and interest collection
of distressed loans
    
    
    33
    
    
    
    2,859
    
    
    
    4,538
    
    
    
    10,095
    
    
    
    11,923
 
 (1)
    
    Commenced operations in October 2001.  -28-




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##### Table of Contents



Channels for the Origination, Guarantee and Acquisition of Loans
  Integrated Financial Services
  Year ended March 31,2004
    
    
    2005
    
    
    2006(in millions)Loan origination channels:Direct channels
    
    ¥
    53,068
    
    
    ¥
    59,363
    
    
    ¥
    109,524Channels of our affiliates(1)
    
    
    5,825
    
    
    
    4,829
    
    
    
    4,573Channels of third parties(1)
    
    
    9,075
    
    
    
    13,993
    
    
    
    11,552Total
    
    ¥
    67,968
    
    
    ¥
    78,185
    
    
    ¥
    125,649Channels
for loans that we
guarantee(2):Direct channels
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    Channels of our affiliates
    
    
    1,318
    
    
    
    3,080
    
    
    
    3,769Channels of third parties
    
    
    2,301
    
    
    
    4,621
    
    
    
    9,081Total
    
    ¥
    3,619
    
    
    ¥
    7,701
    
    
    ¥
    12,850
 
 (1)
    
    We acquired through Ascot Co., Ltd., or Ascot, loans in the amount of ¥920 million for the
year ended March 31, 2004, ¥467 million for the year ended March 31, 2005 and ¥203 million for
the year ended March 31, 2006. Because Ascot was our affiliate for the year ended March 31,
2004, but not for the years ended March 31, 2005 and 2006, we have included the amount of ¥920
million under Channels of our affiliates for the year ended March 31, 2004 and the amount of
¥467 million and \203 million under Channels of third parties for the years ended March 31,
2005 and 2006, respectively.(2)
    
    As of March 31 of each of the respective period. -29-




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##### Table of Contents



Channels for Loan Origination
 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 have
eliminated a substantial number of our general branches following the sale of most of
the outstanding balance of our consumer loans to Orient Credit in June 2004 and
concentrated our resources in providing loans to small business owners. The total
number of loan offices, however, increased as of March 31, 2006 because of the
acquisition of Aprek, which also originates loans to small business owners. The
following table shows selected information regarding our loan offices:
 As of March 31,2002
    
    2003
    
    2004
    
    2005
    
    2006Total loan offices
    
    
    72
    
    
    
    72
    
    
    
    70
    
    
    
    50
    
    
    
    60Full-time employees
    
    
    859
    
    
    
    832
    
    
    
    851
    
    
    
    818
    
    
    
    998of which are dedicated to loan origination
    
    
    641
    
    
    
    615
    
    
    
    571
    
    
    
    487
    
    
    
    571
 Regarding our loan offices, most of them specialize in small business owner loans
and Business Timely loans in order to target small to medium-sized business financing
market. However, the number of full-time employees at loan offices decreased since
March 31, 2003 as we have increased the number of seconded employees to affiliates and
alliance partners in connection with our alliance strategy. Then again, as of March 31,
2006, the number of employees dedicated to loan origination increased because of the
acquisition of Aprek for development of the small to medium-sized business financing
market in Japans Kyushu region.In addition, we established the Real Estate Finance Department in February 2004 to
provide secured loans backed by real estate to property developers in order to take
advantage of recent brisk real estate market conditions. Also, we established the Tokyo
Sales Department in July 2004 and the Osaka Sales Department in February 2005 to further
enhance our provision of loans to owners of small to medium-sized enterprises.
    
    Automated Telephone Service. We primarily serve our Business Timely and consumer
loan customers through our automated telephone service, which we call the telephone
cashing system. Loan applications through the telephone currently comprise a majority
of all applications and all loans extended. After opening an account, customers place a
toll-free call and follow pre-recorded instructions on our computer system to receive
computerized services such as for balance inquiries and withdrawal of funds up to their
authorized limit. These services enhance convenience for our customers by eliminating
the need, and for some customers, embarrassment of visiting a loan office or ATM of a
consumer finance company. They also greatly reduce the need and costs of personal
service from our staff.
 -30-




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##### Table of Contents



Channels of Our Affiliates
 
    
    Shinsei Business Finance: In November 2002, we established Shinsei Business Finance
as a joint venture with Shinsei Bank, to expand our provision of loans to small
business owners. We owned a 25% interest in the joint venture; however, our interest
in Shinsei Business Finance became less than 20% in April 2006. Shinsei Business
Finance will no longer be categorized as an affiliate in the fiscal year ending March
31, 2007. The amount of loans provided through Shinsei Business Finance was ¥841
million for the year ended March 31, 2004, ¥2,339 million for the year ended March 31,
2005 and ¥866 million for the year ended March 31, 2006.
    
    Chuo Mitsui Finance Service: In November 2004, we established Chuo Mitsui Finance
Service as a joint venture with The Chuo Mitsui Trust and Banking Co., Ltd., to expand
our provision of loans to small business owners. We own a 30% interest in the joint
venture. The amount of loans provided through Chuo Mitsui Finance Service was ¥35
million for the year ended March 31, 2005 and ¥570 million for the year ended March 31,
2006.
    
    Webcashing.com: We accepted applications, until January 2006, for all loan products
through our affiliate Webcashing.com Co., Ltd., or Webcashing.com, a former
wholly-owned subsidiary and a current 60% online loan marketing subsidiary of livedoor
MARKETING Co., Ltd. The amount of
loans provided through Webcashing.com was ¥4,064 million for the year ended March 31,
2004, ¥2,455 million for the year ended March 31, 2005 and ¥3,137 million for the year
ended March 31, 2006.
 Channels of Third Parties:
 
    
    USEN Corp./USEN Partner Service Corp.We commenced a relationship with USEN Corp.
in November 2005 and its wholly owned subsidiary, USEN Partner Service Corp., which
commenced operations in January 2005, through which we market our products to customers
of USEN, focusing on owners of small and medium-sized enterprises. We have 25 sales
personnel seconded from us to USEN. Primary products sold through this channel are
unsecured, unguaranteed USEN Business Timely loans and SME Loans, which are typically
unsecured loans guaranteed by third parties.
    
    Gulliver International Co., Ltd.We began our relationship with Gulliver
International Co., Ltd. in October 2003 and target Gullivers dues paying members,
particularly used car dealers. Our NIS Asset Finance product, which is a loan to used
car dealers secured by vehicles in stock, is a primary product sold through this
channel. NIS Lease also provides installment credit services to Gullivers customers
for an annual membership fee.
 -31-




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##### Table of Contents



Channels for Loans That We Guarantee
  Channels of Our Affiliates
 
    
    Shinsei Business Finance: In addition to acquiring loans through Shinsei Business
Finance, which ceased to be an affiliate in April 2006, we use our credit assessment
and credit management expertise to provide guarantees to the loan customers of Shinsei
Business Finance. Our outstanding guarantees amounted to ¥1,318 million as of March
31, 2004, ¥3,051 million as of March 31, 2005 and ¥3,178 million as of March 31, 2006.
    
    Chuo Mitsui Finance Service: In addition to acquiring loans through Chuo Mitsui
Finance Service, we use our credit assessment and credit management expertise to
provide guarantees to the loan customers of Chuo Mitsui Finance Service. Our
outstanding guarantees amounted to ¥29 million as of March 31, 2005 and ¥591 million as
of March 31, 2006.
 Channels of Third Parties
  
    
    Sanyo Club.Our main third-party channel in providing loan guarantees is through
Sanyo Club. Our outstanding guarantees of loans to customers of Sanyo Club amounted to
¥2,280 million as of March 31, 2004, ¥4,178 million as of March 31, 2005 and ¥6,806
million as of March 31, 2006.
    
    ShinGinko Tokyo, Ltd.In January 2006 we commenced our relationship with ShinGinko
Tokyo, Ltd., a recently formed bank operated by the city of Tokyo, targeting start-up
small and medium-sized enterprise customers of ShinGinko Tokyo. We use our credit
assessment and credit management expertise to provide guarantees to the loan customers
of ShinGinko Tokyo, Ltd. Our outstanding guarantees amounted to ¥205 million as of
March 31, 2006.
 Loan Servicing
  Strategic Investments
  -32-




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##### Table of Contents



Loan Disbursements
  Opening of Loan Accounts
  Small Business Owner Loans, Business Timely Loans and Wide Loans
     -33-




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Secured Loans
  Consumer Loans
  -34-




---



##### Table of Contents



Collection
   
    
    In the case of a small business owner loan or Wide loan, when interest payments are
delinquent for 44 days;
 
    
    In the case of a Business Timely loan, when contractual payments are past due for 7
days;
    
    In the case of a secured loan, when interest payments are delinquent for 44 days,
and there is a decline in the availability or value of the collateral; and
    
    In the case of a consumer loan, when interest payments are delinquent for 67 days.
   Technology
 Branch and Office Network
  Customer Information
  Loan Disbursements
  -35-




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##### Table of Contents



Competition
 Business Owner and Consumer Finance Industries
   
    
    Large Japanese non-bank finance and leasing companies that provide financing,
leasing and related services to small and medium-sized enterprises, including Lopro,
SFCG, Orix, Sumisho Lease and Diamond Lease;
    
    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 small and
medium-sized enterprises and individual business owners;
    
    Large Japanese consumer finance companies and credit sales companies, including
Takefuji, Acom, Promise, and Aiful, which continue to seek greater market shares of the
consumer finance market through extensive marketing, to the extent that they provide
loans to individuals;
    
    Foreign financial institutions, a number of which have been entering the Japanese
finance industry;
    
    Credit card companies, particularly overseas companies such as MasterCard, 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 and Rakuten, that
provide consumer credit services through the Internet.
  Loan Servicing Industry
  -36-




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##### Table of Contents



Investment Banking, Securities and Venture Capital Industries
  Regulation
 The Moneylending Business Restriction Law, Contributions Law and Interest Rate Restriction Law
  
    
    the Law Concerning the Regulation, Etc. of the Money Lending Business, together with
a cabinet order and a ministerial ordinance, collectively referred to as the
Moneylending Business Restriction Law;
    
    the Law for Control of Acceptance of Contributions, Money Deposits and Interest,
Etc., more commonly known as the Contributions Law; and
    
    the Interest Rate Restriction Law.
  Registration Requirements
  
    
    any person who has had its registration revoked because of specified misconduct or
other reasons under the Moneylending Business Restriction Law within five years prior
to the application,
    
    any person who was fined for violating the Moneylending Business Restriction Law or
other specified statues and five years have not passed since the person completed the
payment of the fine (or became excused from paying it),
    
    any person who was sentenced to imprisonment for any reason and five years have not
yet passed since person completed the term of imprisonment (or became excused from
serving it),
 -37-




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##### Table of Contents




    
    any person in respect of which any of the directors, statutory auditors or specified
senior employees is a disqualified person,
    
    any person who is a member of a crime syndicate, and
    
    any person who does not meet the minimum net asset requirement of ¥3 million, in the
case of an individual, or ¥5 million, in the case of a corporation.
  Government Supervision
  Restrictions on Usury
     
    
    20% per year for loans of less than ¥100,000,
 -38-




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##### Table of Contents




    
    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 to the borrower or the guarantor, as the case may be, upon execution of the
relevant loan or guarantee agreement, of a prescribed written instrument setting forth
the principal terms of the loan or the guarantee, and
    
    delivery to the borrower or guarantor, upon the payment of the excess interest, of a
written receipt for the payment, unless the payment is transferred to the bank account
of the moneylender, in which case a written receipt is required upon the borrowers
request.
    -39-




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##### Table of Contents



Servicer Law
    
    
    loan receivables held by financial institutions (including banks, insurance
companies and finance companies licensed under the Moneylending Business Restriction
Law and other miscellaneous financial entities), money claims under the Securitization
Law, and other claims as set out by cabinet orders; and
    
    loan receivables under bankruptcy or rehabilitation proceedings and loan receivables
which are securitized through special purpose vehicles.
  The Law on Protection of Personal Information
  -40-




---



##### Table of Contents




    
    the purpose of the use of information must be specified as much as possible;
    
    personal information may not be obtained through fraud or by other illegal means;
    
    upon acquiring the personal information, the use of information must be notified to
the relevant individual or published;
    
    personal information collected should be relevant to the purposes for which it is to
be used and, to the extent necessary for those purposes, should be accurate and kept up
to date;
    
    to prevent loss, unauthorized access, destruction, use, modification or disclosure
of personal information, security safeguards must be implemented;
    
    personal data may not be disclosed or made available to third parties without the
prior consent of the individual to whom the personal information relates; and
    
    the purpose of use of all personal data and the procedures of amendment,
suspensions, etc., of the use or deletion of personal data must be made available to
the individual to whom the personal information relates; and
    
    corresponding to a persons requests to control his or her personal information,
including amendment, suspension of the use or deletion of his or her personal data.
  -41-




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##### Table of Contents



Properties
  Legal Proceedings
  C. Organizational Structure.
  Shares and votingrights held by us,directly orName
    
    indirectly
    
    Principal businessNissin Servicer Co., Ltd.
    
    74.6%
    
    Loan servicing businessNIS Lease Co., Ltd.(1)
    
    100.0
    
    Leasing businessNIS Property Co., Ltd.(1)
    
    100.0
    
    Real estate-related businessNissin Leasing (China) Co., Ltd.(2)
    
    100.0
    
    Leasing businessNIS Securities Co., Ltd.(3)
    
    100.0
    
    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
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.
  -42-




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##### Table of Contents



Item 4A.
Unresolved Staff Comments.
  
 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, appearing 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 .
 Overview
    -43-




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##### Table of Contents



Integrated Financial Services
  
    
    Small Business Owner Loans: Small business owner loans are primarily unsecured
loans to self-employed individuals guaranteed by one or more guarantors. In recent
years, the amount of total small business owner loans outstanding and number of
customer accounts has increased, primarily as a result of our active promotion of these
loans through the direct telemarketing efforts of our loan offices specializing in
loans to small to medium-sized business owners, and newly established Tokyo and Osaka
Sales Departments, as well as through referrals from our strategic alliance partners.
Interest
income derived from small business owner loans has contributed significantly to our
total interest income.
    
    Business Timely Loans: Business Timely loans are unguaranteed, unsecured loans to
individual small business owners pursuant to revolving lines of credit. In recent
years, despite a slight decrease in the number of customer accounts between March 31,
2005 and 2006, the amount of total Business Timely loans outstanding, as well as
interest income from Business Timely loans has increased, primarily as a result of our
active promotion of these loans through the direct telemarketing efforts of our loan
offices specializing in loans to small to medium-sized business owners, and newly
established Tokyo Sales Department and Osaka Sales Department.
    
    Secured Loans: Secured loans are conventional loans secured by real property or
securities to individuals and small and medium-sized enterprises in
Japan. Recently, our secured loans portfolio has grown
significantly, reflecting our strategic shift toward promotion of
secured loans to property developers, focusing on small and
medium-sized enterprises and their owners, through the
active sales and marketing efforts of our Real Estate Finance Department established in February 2004. These loans are targeted primarily to be used as working
capital for property developers. As a result, the percentage of interest income
derived from secured loans has been increasing.
    
    Wide Loans: Wide loans are unsecured loans for which the proceeds are used to
consolidate individual debts which are guaranteed by one or more guarantors. In recent
years, the amount of total Wide loans outstanding and the number of customer accounts, as
well as interest income from Wide loans has decreased, primarily as a result of a
strategic shift over the last several years toward promotion of financial services to
small and medium-sized business owners.
    
    Consumer Loans: Consumer loans are unguaranteed, unsecured loans to individuals.
In line with a strategic shift over the last several years toward promotion of
financial services to small and medium-sized business owners, on June 1, 2004, we sold
most of the outstanding balance of our consumer loans to Orient Credit for ¥32,697
million. See  Factors Affecting Our Financial Results  Sale of Consumer Loans
below for a further discussion.
   -44-




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##### Table of Contents



Year ended March 31,2004
    
    
    2005
    
    
    2006(in millions except percentages)Small business owner loans
    
    ¥
    55,647
    
    
    
    31.6
    %
    
    ¥
    56,964
    
    
    
    38.3
    %
    
    ¥
    63,320
    
    
    
    34.4
    %Business Timely loans
    
    
    17,909
    
    
    
    10.2
    
    
    
    19,687
    
    
    
    13.2
    
    
    
    23,656
    
    
    
    12.9Secured loans
    
    
    2,235
    
    
    
    1.3
    
    
    
    9,976
    
    
    
    6.7
    
    
    
    39,496
    
    
    
    21.5Wide loans
    
    
    61,592
    
    
    
    34.9
    
    
    
    52,722
    
    
    
    35.4
    
    
    
    44,240
    
    
    
    24.0Consumer loans(1)
    
    
    38,600
    
    
    
    21.9
    
    
    
    5,296
    
    
    
    3.6
    
    
    
    3,010
    
    
    
    1.6Other loans
    
    
    261
    
    
    
    0.1
    
    
    
    4,166
    
    
    
    2.8
    
    
    
    10,243
    
    
    
    5.6Total average balance of loans outstanding
    
    ¥
    176,244
    
    
    
    100.0
    %
    
    ¥
    148,811
    
    
    
    100.0
    %
    
    ¥
    183,965
    
    
    
    100.0
    %
 
 (1)
    
    Pursuant to an agreement between us and Orient Credit, on June 1, 2004, we sold most of the
outstanding balance of our consumer loans to Orient Credit for ¥32,697 million.  Year ended March 31,2004
    
    
    2005
    
    
    2006(in millions except percentages)Small business owner loans
    
    ¥
    11,411
    
    
    
    30.0
    %
    
    ¥
    11,189
    
    
    
    38.2
    %
    
    ¥
    11,233
    
    
    
    38.9
    %Business Timely loans
    
    
    4,590
    
    
    
    12.1
    
    
    
    4,924
    
    
    
    16.8
    
    
    
    5,718
    
    
    
    19.8Secured loans
    
    
    205
    
    
    
    0.5
    
    
    
    960
    
    
    
    3.3
    
    
    
    2,886
    
    
    
    10.0Wide loans
    
    
    12,873
    
    
    
    33.8
    
    
    
    10,450
    
    
    
    35.7
    
    
    
    8,581
    
    
    
    29.8Consumer loans
    
    
    9,807
    
    
    
    25.8
    
    
    
    2,003
    
    
    
    6.8
    
    
    
    744
    
    
    
    2.6Other loans
    
    
    35
    
    
    
    0.1
    
    
    
    502
    
    
    
    1.7
    
    
    
    1,095
    
    
    
    3.8Total interest revenue from loans receivable
    
    
    38,921
    
    
    
    102.3
    
    
    
    30,028
    
    
    
    102.5
    
    
    
    30,257
    
    
    
    104.9Less amortization of loan origination costs
    
    
    (751
    )
    
    
    (2.0
    )
    
    
    (540
    )
    
    
    (1.9
    )
    
    
    (431
    )
    
    
    (1.5
    )Less excess interest repayment costs(1)
    
    
    (134
    )
    
    
    (0.3
    )
    
    
    (190
    )
    
    
    (0.6
    )
    
    
    (977
    )
    
    
    (3.4
    )Interest income from loans receivable
    
    ¥
    38,036
    
    
    
    100.0
    %
    
    ¥
    29,298
    
    
    
    100.0
    %
    
    ¥
    28,849
    
    
    
    100.0
    %
 
 (1)
    
    Including provision for losses on excess interest repayments of ¥590 million for the year
ended March 31, 2006. Loan Servicing
  Year ended March 31,2004
    
    
    2005
    
    
    2006(in millions)Aggregate purchase price of distressed loans
    
    ¥
    4,502
    
    
    ¥
    16,896
    
    
    ¥
    19,779Aggregate principal and interest collection
of distressed loans
    
    
    4,538
    
    
    
    10,095
    
    
    
    11,923
  -45-




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##### Table of Contents



Factors Affecting Our Financial Results
  Net Interest Income
 Integrated Financial Services
  Loan Portfolio Size
 Interest Rates
 -46-




---



##### Table of Contents



Interest Expense
 
    
    Market Interest Rates and Market Conditions: In recent periods, we have benefited
from the extremely low interest rate environment in Japan created by government
policies intended to combat ongoing economic weakness. The weighted period-end average
rate of long-term borrowings was 2.3% at March 31, 2004, 1.9% at March 31, 2005 and
1.3% at March 31, 2006. The weighted period-end average rate of short-term borrowings
was 1.3% at March 31, 2004, 1.2% at March 31, 2005 and 1.0% at March 31, 2006. We
expect market interest rates to rise, as the Bank o Japan has begun raising interest
rates tightening the money supply in response to improved economic conditions and
possible emerging inflation in Japan.
    
    Mix of Our Funding Sources and Credit Ratings: Beginning in the year ended March
31, 2000, when legal restrictions on debt issuances to fund our lending business were
eliminated, we have increased our borrowings through debt issuances relative to bank
loans, which had previously accounted for substantially all of our borrowings. To the
extent that debt issuances have been available to us, we have benefited from their
typically lower funding costs than those of bank loans. The percentage of our debt
issuances to our total borrowings was 32.0% at March 31, 2004, 22.6% at March 31, 2005
and 31.1% at March 31, 2006. The percentages as of March 31, 2004, 2005 and 2006
reflect our asset backed securities, including asset backed commercial paper, which we
began issuing in October 2002. The significant decline in the amount of debt issued as
a percentage of our total borrowings between March 31, 2004 and 2005 is principally
attributable to a net decrease in bonds as our capital requirements decreased as a
result of the sale of most of the outstanding balance of our consumer loans in June
2004. Nonetheless, the effect of the smaller percentages of our debt issuances as
compared to that of March 31, 2004 has been partly offset by a gradual decline in the
interest rates that banks charge us in recent years. On the other hand, the amount of
debt issuances as a percentage of our total borrowings between March 31, 2005 and 2006
increased significantly, reflecting an increase in our issuance of commercial paper and
asset-backed securities as our capital requirements increased in connection with the
expansion of real estate-related financing. 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 increase
our proportion of direct financing to around 40%.
 -47-




---



##### Table of Contents




    
    Amount of Our Borrowings: To the extent that the size of our loan portfolio grows,
we rely primarily on borrowings to finance the growth of the portfolio. We expect the
amount of borrowings to increase in the near term, reflecting the expected growth of
our loan portfolio.
 Loan Servicing
  Provisions for Loan Losses
  -48-




---



##### Table of Contents



Non-interest Expense
  
    
    Salaries and Employee Benefits: Our salaries and employee benefits depend on the
number of our employees and the compensation and benefits we provide to each employee.
The number of full-time employees decreased from 851 at March 31, 2004 to 818 at March
31,
2005, but increased to 998 at March 31, 2006. Our salaries and employee benefits
decreased slightly during the year ended March 31, 2005 compared to the year ended
March 31, 2004, reflecting a significant reduction in the scale of our consumer loan
business due to the sale of most of the outstanding balance of our consumer loans to a
third-party. However, to the
extent that our operational scale increases over the medium to long term, we expect our
salaries and employee benefits to continue to increase in the medium to long term.
Salaries and employee benefits for the year ended March 31, 2006 increased as the number
of full-time employees increased, reflecting development in the business activities of
our subsidiaries.
    
    Occupancy, Furniture and Equipment: Our expense in connection with our occupancy,
furniture and equipment depends largely on the number of our loan offices and branches,
and the associated rents. The number of loan offices was 70 at March 31, 2004,
decreased to 50 at March 31, 2005 (following the sale of most of the outstanding
balance of our consumer loans and related closure of branches) and increased to 60 at
March 31, 2006, due to the acquisition of Aprek. We expect office rents to remain
stable at the current level since we have no plan to significantly expand the number of
offices in the short term.
    
    Other General and Administrative Expenses: The major items in our other general and
administrative expense include communication expenses, taxes and duties, travel and
transportation expenses, recruiting expenses and commission fees. Although we continue
to make efforts to reduce operational inefficiencies, we expect our other general and
administrative expenses as a percentage of our non-interest expenses to increase in the
short term, reflecting the increase in our recruiting expenses and commission fees, and
the growth in activities of our subsidiaries.
  Sale of Consumer Loans
  -49-




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##### Table of Contents



Results of Operations
 Consolidated Information
  Year ended March 31,2004
    
    
    2005
    
    
    2006(in millions except percentages)Total interest income
    
    ¥
    40,107
    
    
    
    100.0
    %
    
    ¥
    32,555
    
    
    
    100.0
    %
    
    ¥
    33,901
    
    
    
    100.0
    %Total interest expense
    
    
    3,724
    
    
    
    9.3
    
    
    
    3,159
    
    
    
    9.7
    
    
    
    3,105
    
    
    
    9.2Net interest income
    
    
    36,383
    
    
    
    90.7
    
    
    
    29,396
    
    
    
    90.3
    
    
    
    30,796
    
    
    
    90.8Provision for loan losses, net
    
    
    13,461
    
    
    
    33.6
    
    
    
    8,576
    
    
    
    26.3
    
    
    
    9,463
    
    
    
    27.9Net interest income after provision
for loan losses
    
    
    22,922
    
    
    
    57.1
    
    
    
    20,820
    
    
    
    64.0
    
    
    
    21,333
    
    
    
    62.9Total non-interest income
    
    
    730
    
    
    
    1.8
    
    
    
    5,984
    
    
    
    18.4
    
    
    
    9,934
    
    
    
    29.3Non-interest expense:Salaries and employee benefits
    
    
    6,735
    
    
    
    16.8
    
    
    
    6,521
    
    
    
    20.0
    
    
    
    7,181
    
    
    
    21.2Occupancy, furniture and equipment
    
    
    2,060
    
    
    
    5.1
    
    
    
    2,395
    
    
    
    7.4
    
    
    
    2,654
    
    
    
    7.8Advertising
    
    
    218
    
    
    
    0.6
    
    
    
    332
    
    
    
    1.0
    
    
    
    629
    
    
    
    1.9Other general and administrative
expenses
    
    
    3,349
    
    
    
    8.3
    
    
    
    4,869
    
    
    
    15.0
    
    
    
    5,060
    
    
    
    14.9Losses on
sale, disposal and
impairment of long-lived assets,
net
    
    
    530
    
    
    
    1.3
    
    
    
    94
    
    
    
    0.3
    
    
    
    16
    
    
    
    0.1Other
    
    
    97
    
    
    
    0.2
    
    
    
    493
    
    
    
    1.5
    
    
    
    456
    
    
    
    1.3Minority interests
    
    
    4
    
    
    
    0.0
    
    
    
    192
    
    
    
    0.6
    
    
    
    602
    
    
    
    1.8Total non-interest expense
    
    
    12,993
    
    
    
    32.3
    
    
    
    14,896
    
    
    
    45.8
    
    
    
    16,598
    
    
    
    49.0Income before income taxes
    
    
    10,659
    
    
    
    26.6
    
    
    
    11,908
    
    
    
    36.6
    
    
    
    14,669
    
    
    
    43.2Income taxes
    
    
    4,582
    
    
    
    11.4
    
    
    
    4,646
    
    
    
    14.3
    
    
    
    6,214
    
    
    
    18.3Net income
    
    ¥
    6,077
    
    
    
    15.2
    %
    
    ¥
    7,262
    
    
    
    22.3
    %
    
    ¥
    8,455
    
    
    
    24.9
    %
 -50-




---



##### Table of Contents



Segment Information
  Year ended March 31,2004IntegratedFinancial Services
    
    Loan Servicing
    
    Total(in millions)Total interest income
    
    
    ¥38,038
    
    
    
    ¥2,069
    
    
    
    ¥40,107Total interest expense
    
    
    3,603
    
    
    
    121
    
    
    
    3,724Provision for loan losses, net
    
    
    12,824
    
    
    
    637
    
    
    
    13,461Net income
    
    
    5,671
    
    
    
    406
    
    
    
    6,077
 Year ended March 31,2005IntegratedFinancial Services
    
    Loan Servicing
    
    Total(in millions)Total interest income
    
    
    ¥29,299
    
    
    
    ¥3,256
    
    
    
    ¥32,555Total interest expense
    
    
    3,006
    
    
    
    153
    
    
    
    3,159Provision for loan losses, net
    
    
    7,759
    
    
    
    817
    
    
    
    8,576Net income
    
    
    6,244
    
    
    
    1,018
    
    
    
    7,262
 Year ended March 31,2006IntegratedFinancial Services
    
    Loan Servicing
    
    Total(in millions)Total interest income
    
    
    ¥28,938
    
    
    
    ¥4,963
    
    
    
    ¥33,901Total interest expense
    
    
    2,697
    
    
    
    408
    
    
    
    3,105Provision for loan losses, net
    
    
    8,277
    
    
    
    1,186
    
    
    
    9,463Net income
    
    
    6,117
    
    
    
    2,338
    
    
    
    8,455
 -51-




---



##### Table of Contents



Year Ended March 31, 2006, Compared to Year Ended March 31, 2005
 Total Interest Income
  Integrated Financial Services
    Loan Servicing
 Total Interest Expense
  -52-




---



##### Table of Contents



Net Interest Income
  Net Interest Income After Provision for Loan Losses
  Total Non-interest Income
  Total Non-interest Expense
  -53-




---



##### Table of Contents



Income Before Income Taxes
  Income Taxes
  Net Income
  Year Ended March 31, 2005, Compared to Year Ended March 31, 2004
 Total Interest Income
  Integrated
Financial Services
  -54-




---



##### Table of Contents



Loan
Servicing
 Total Interest Expense
  Net Interest Income
  Net Interest Income After Provision for Loan Losses
  -55-




---



##### Table of Contents



Total Non-interest Income
  Total Non-interest Expense
  Income Before Income Taxes
  Income Taxes
  Net Income
  -56-




---



##### Table of Contents



Financial Condition
  As of March 31,2005
    
    
    2006(in millions)Total assets
    
    ¥
    228,401
    
    
    ¥
    359,943Cash and cash equivalents
    
    
    25,709
    
    
    
    22,860Loans receivable, net
    
    
    146,119
    
    
    
    225,947Purchased loans receivable, net
    
    
    13,581
    
    
    
    24,155Real estate for sale
    
    
    1,136
    
    
    
    20,792Investment securities
    
    
    28,443
    
    
    
    42,071Property and equipment, net
    
    
    5,285
    
    
    
    11,169Deferred income taxes
    
    
    333
    
    
    
    721Total liabilities
    
    
    160,284
    
    
    
    277,006Short-term borrowings
    
    
    12,600
    
    
    
    60,411Long-term borrowings
    
    
    136,844
    
    
    
    198,924Deferred income taxes
    
    
    4,439
    
    
    
    1,382Total shareholders equity
    
    
    66,971
    
    
    
    80,504
    -57-




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##### Table of Contents



Allowance for Loan Losses, Loan Charge-offs and Provisions for Loan Losses
  Integrated Financial Services
  Year ended March 31,2004
    
    
    2005
    
    
    2006(in millions)Balance at beginning of period
    
    ¥
    11,827
    
    
    ¥
    13,528
    
    
    ¥
    10,034Provision for loans receivable sold
    
    
    
    
    
    
    (3,327
    )
    
    
    Provision for loan losses
    
    
    12,824
    
    
    
    7,759
    
    
    
    8,277Charge-offs, net of recoveries, and other
    
    
    (11,123
    )
    
    
    (7,926
    )
    
    
    (7,308
    )Balance at end of period
    
    ¥
    13,528
    
    
    ¥
    10,034
    
    
    ¥
    11,003
   
    
    Guaranteed Loans. We generally charge off or provide an allowance for loan losses
on small business owner loans and Wide loans in default at the end of the semi-annual
period in which the default occurs and we believe the likelihood of any future
collection from the borrower as well as the guarantor is minimal. We charge off
guaranteed loans to customers who have declared bankruptcy at the end of the
semi-annual period in which we become aware of the bankruptcy filing.
    
    Unguaranteed Loans. We generally charge off Business Timely loans and consumer
loans for which interest payments have been delinquent for 67 days. We charge off
Business Timely loans and consumer loans to customers who have declared bankruptcy
immediately after we become aware of the bankruptcy filing. Because of our rapid
charge-off, we do not place Business Timely loans or consumer loans that have become
delinquent loans, which we define as loans on which interest payments are delinquent,
on non-accrual status before they are charged off.
    
    Secured Loans. We generally charge off or provide an allowance for loan losses on
secured loans in default at the end of the semi-annual period in which the default
occurs after considering the availability and value of collateral.
 -58-




---



##### Table of Contents



Charge-off Ratios and Allowance Ratios
  Year ended/as of March 31,2004
    
    
    2005
    
    
    2006(in millions except percentages)Small business owner loansLoans outstanding
    
    ¥
    57,168
    
    
    ¥
    58,961
    
    
    ¥
    65,447Allowance for loan losses
    
    
    3,677
    
    
    
    3,606
    
    
    
    4,711Ratio of allowance for loan losses to loans outstanding
    
    
    6.4
    %
    
    
    6.1
    %
    
    
    7.2
    %Average balance of loans outstanding
    
    
    55,647
    
    
    
    56,964
    
    
    
    63,320Loans charged-off
    
    
    2,468
    
    
    
    2,809
    
    
    
    3,128Ratio of loans charged-off to average balance of loans
outstanding
    
    
    4.4
    %
    
    
    4.9
    %
    
    
    4.9
    %Business Timely loansLoans outstanding
    
    ¥
    18,659
    
    
    ¥
    20,862
    
    
    ¥
    25,282Allowance for loan losses
    
    
    1,962
    
    
    
    2,231
    
    
    
    2,694Ratio of allowance for loan losses to loans outstanding
    
    
    10.5
    %
    
    
    10.7
    %
    
    
    10.7
    %Average balance of loans outstanding
    
    
    17,909
    
    
    
    19,687
    
    
    
    23,656Loans charged-off
    
    
    1,787
    
    
    
    1,999
    
    
    
    2,174Ratio of loans charged-off to average balance of loans
outstanding
    
    
    10.0
    %
    
    
    10.2
    %
    
    
    9.2
    %Secured loansLoans outstanding
    
    ¥
    10,003
    
    
    ¥
    18,812
    
    
    ¥
    91,610Allowance for loan losses
    
    
    274
    
    
    
    761
    
    
    
    558Ratio of allowance for loan losses to loans outstanding
    
    
    2.7
    %
    
    
    4.0
    %
    
    
    0.6
    %Average balance of loans outstanding
    
    
    2,235
    
    
    
    9,976
    
    
    
    39,496Loans charged-off
    
    
    100
    
    
    
    22
    
    
    
    22Ratio of loans charged-off to average balance of loans
outstanding
    
    
    4.5
    %
    
    
    0.2
    %
    
    
    0.1
    %Wide loansLoans outstanding
    
    ¥
    57,460
    
    
    ¥
    47,604
    
    
    ¥
    41,163Allowance for loan losses
    
    
    3,661
    
    
    
    2,897
    
    
    
    2,372Ratio of allowance for loan losses to loans outstanding
    
    
    6.4
    %
    
    
    6.1
    %
    
    
    5.8
    %Average balance of loans outstanding
    
    
    61,592
    
    
    
    52,722
    
    
    
    44,240Loans charged-off
    
    
    2,978
    
    
    
    2,815
    
    
    
    2,275Ratio of loans charged-off to average balance of loans
outstanding
    
    
    4.8
    %
    
    
    5.3
    %
    
    
    5.1
    %Consumer loansLoans outstanding
    
    ¥
    35,604
    
    
    ¥
    2,827
    
    
    ¥
    2,995Allowance for loan losses
    
    
    3,868
    
    
    
    308
    
    
    
    213Ratio of allowance for loan losses to loans outstanding
    
    
    10.9
    %
    
    
    10.9
    %
    
    
    7.1
    %Average balance of loans outstanding
    
    
    38,600
    
    
    
    5,296
    
    
    
    3,010Loans charged-off
    
    
    4,426
    
    
    
    779
    
    
    
    412Ratio of loans charged-off to average balance of loans
outstanding
    
    
    11.5
    %
    
    
    14.7
    %
    
    
    13.7
    %
 -59-




---



##### Table of Contents



Year ended/as of March 31,2004
    
    2005
    
    2006(in millions except percentages)Other loansLoans outstanding
    
    ¥
    573
    
    
    ¥
    6,296
    
    
    ¥
    10,681Allowance for loan losses
    
    
    86
    
    
    
    231
    
    
    
    455Ratio of allowance for loan losses to loans outstanding
    
    
    15.0
    %
    
    
    3.7
    %
    
    
    4.3
    %Average balance of loans outstanding
    
    
    261
    
    
    
    4,166
    
    
    
    10,243Loans charged-off
    
    
    2
    
    
    
    83
    
    
    
    108Ratio of loans charged-off to average balance of loans
outstanding
    
    
    0.8
    %
    
    
    2.0
    %
    
    
    1.1
    %TotalLoans outstanding
    
    ¥
    179,467
    
    
    ¥
    155,362
    
    
    ¥
    237,178Allowance for loan losses
    
    
    13,528
    
    
    
    10,034
    
    
    
    11,003Ratio of allowance for loan losses to loans outstanding
    
    
    7.5
    %
    
    
    6.5
    %
    
    
    4.6
    %Average balance of loans outstanding
    
    
    176,244
    
    
    
    148,811
    
    
    
    183,965Loans charged-off
    
    
    11,761
    
    
    
    8,507
    
    
    
    8,119Ratio of loans charged-off to average balance of loans
outstanding
    
    
    6.7
    %
    
    
    5.7
    %
    
    
    4.4
    %
 Charge-off Ratios
 Allowance Ratios
 Delinquent Loans and Non-accrual Loans
 Delinquent Loans
 -60-




---



##### Table of Contents



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 uncollectable due to the bankruptcy
of the borrower, lack of collateral or other various reasons. We reserve for the
amounts of impaired loans and related accrued interest deemed uncollectable in our
allowance for loan losses. The decrease in impaired loans between March 31, 2004 and
March 31, 2005 reflected the decrease in impaired consumer loans as a result of the
sale of most of the outstanding balance of our consumer loans in June 2004. The
decrease in impaired loans between March 31, 2005 and March 31, 2006 reflected the
decrease in impaired Wide loans as we strategically have shifted toward promotion of
financial services to business owners.
    
    Loans with Specific Allowances Provided. Loans with specific allowances provided
are delinquent loans for which we increase allowances beyond the general allowance. We
provide specific allowances only for small business owner loans, Wide loans, secured
loans and other loans.
  As of March 31,2004
    
    2005
    
    2006(in millions)Small business owner loansDelinquent loans still accruing interest
    
    ¥
    936
    
    
    ¥
    719
    
    
    ¥
    1,022Non-accrual loans(1)
    
    
    8,412
    
    
    
    9,064
    
    
    
    10,717Restructured loans
    
    
    5,768
    
    
    
    6,371
    
    
    
    6,917Impaired loans included in restructured loans
    
    
    1,183
    
    
    
    1,388
    
    
    
    1,250Loans with specific allowance provided
    
    
    2,644
    
    
    
    2,693
    
    
    
    3,800Business Timely loansDelinquent loans still accruing interest
    
    ¥
    430
    
    
    ¥
    351
    
    
    ¥
    515Non-accrual loans(1)
    
    
    516
    
    
    
    567
    
    
    
    779Restructured loans
    
    
    516
    
    
    
    567
    
    
    
    779Impaired loans included in restructured loans
    
    
    120
    
    
    
    158
    
    
    
    188Loans with specific allowance provided
    
    
    
    
    
    
    
    
    
    
    Secured loansDelinquent loans still accruing interest
    
    ¥
    93
    
    
    ¥
    186
    
    
    ¥
    77Non-accrual loans(1)
    
    
    156
    
    
    
    1,836
    
    
    
    963Restructured loans
    
    
    87
    
    
    
    71
    
    
    
    665Impaired loans included in restructured loans
    
    
    
    
    
    
    
    
    
    
    Loans with specific allowance provided
    
    
    69
    
    
    
    1,765
    
    
    
    298
 -61-




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##### Table of Contents



As of March 31,2004
    
    2005
    
    2006(in millions)Wide loanDelinquent loans still accruing interest
    
    ¥
    903
    
    
    ¥
    500
    
    
    ¥
    693Non-accrual loans(1)
    
    
    9,227
    
    
    
    8,654
    
    
    
    7,383Restructured loans
    
    
    6,852
    
    
    
    6,758
    
    
    
    5,934Impaired loans included in restructured loans
    
    
    1,688
    
    
    
    1,757
    
    
    
    1,398Loans with specific allowance provided
    
    
    2,375
    
    
    
    1,896
    
    
    
    1,449Consumer loansDelinquent loans still accruing interest
    
    ¥
    1,148
    
    
    ¥
    94
    
    
    ¥
    124Non-accrual loans(1)
    
    
    1,182
    
    
    
    108
    
    
    
    103Restructured loans
    
    
    1,182
    
    
    
    108
    
    
    
    103Impaired loans included in restructured loans
    
    
    528
    
    
    
    19
    
    
    
    34Loans with specific allowance provided
    
    
    
    
    
    
    
    
    
    
    Other loansDelinquent loans still accruing interest
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    10Non-accrual loans(1)
    
    
    87
    
    
    
    29
    
    
    
    68Restructured loans
    
    
    14
    
    
    
    
    
    
    
    12Impaired loans included in restructured loans
    
    
    
    
    
    
    
    
    
    
    Loans with specific allowance provided
    
    
    73
    
    
    
    29
    
    
    
    56TotalDelinquent loans still accruing interest
    
    ¥
    3,510
    
    
    ¥
    1,850
    
    
    ¥
    2,441Non-accrual loans(1)
    
    
    19,580
    
    
    
    20,258
    
    
    
    20,013Restructured loans
    
    
    14,419
    
    
    
    13,875
    
    
    
    14,410Impaired loans included in restructured loans
    
    
    3,519
    
    
    
    3,322
    
    
    
    2,870Loans with specific allowance provided
    
    
    5,161
    
    
    
    6,383
    
    
    
    5,603
 
 (1)
    
    The amounts of non-accrual loans represent the balance of non-accrual loans outstanding
before allowances for loan losses. Loan Servicing
   Year ended March 31,2004
    
    
    2005
    
    
    2006(in millions)Balance at beginning of period
    
    ¥
    132
    
    
    ¥
    717
    
    
    ¥
    1,282Provision for loan losses
    
    
    637
    
    
    
    817
    
    
    
    1,186Charge-offs
    
    
    (52
    )
    
    
    (252
    )
    
    
    (676
    )Balance at end of period
    
    ¥
    717
    
    
    ¥
    1,282
    
    
    ¥
    1,792
  -62-




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##### Table of Contents



Critical Accounting Policies
   Interest Income from Loans Receivable and Loan Origination Costs
     -63-




---



##### Table of Contents



Loans Receivable and Allowance for Loan Losses
   
    
    Guaranteed Small Business Owner Loans and Wide Loans: Loan balances are charged off
when we believe the likelihood of any future collection is minimal. Events triggering
charge-offs include bankruptcy of both the borrower and guarantor. In the case that
loans are restructured, we charge off the amount of the recorded loan balance less the
restructured loan balance. Interest accrual is terminated at the earlier of the date
when contractual payments are 97 days delinquent or the date when all or a part of loan
principal is deemed uncollectible.
    
    Unguaranteed Business Timely Loans and Consumer Loans: Loan balances are charged
off and interest accrual is terminated when a loans contractual payment becomes 67
days delinquent or upon the occurrence of other events such as bankruptcy of the
borrower.
    
    Secured Loans: Loan balances are charged off when we believe the likelihood of any
future collection is minimal. We consider the availability and value of collateral in
determining the level of charge-off. Interest accrual is terminated at the earlier of
the date when contractual payments are 97 days delinquent or the date when all or a
part of loan principal is deemed uncollectible.
 Purchased Loans Receivable and Revenue Recognition
  Cost Recovery Method
  -64-




---



##### Table of Contents



Level Yield Method
  Accounting Developments
  B. Liquidity and Capital Resources.
 Cash Flows
  -65-




---



##### Table of Contents



Year ended March 31,2004
    
    2005
    
    2006(in millions)Net cash provided by operating activities
    
    ¥
    21,942
    
    
    ¥
    14,686
    
    
    ¥
    24,270Net cash used in investing activities
    
    
    (18,301
    )
    
    
    (12,546
    )
    
    
    (135,976
    )Net cash (used in) provided by financing activities
    
    
    (7,010
    )
    
    
    3,335
    
    
    
    108,675Effect of exchange rate changes on cash
    
    
    
    
    
    
    (9
    )
    
    
    182Net (decrease) increase in cash
    
    
    (3,369
    )
    
    
    5,466
    
    
    
    (2,849
    )
 Cash Flows during the Year Ended March 31, 2006
 Operating Activities
  Investing Activities
  Financing Activities
  -66-




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##### Table of Contents



Cash Flows during the Year Ended March 31, 2005
 Operating Activities
  Investing Activities
  Financing Activities
  Capital Requirements
  -67-




---



##### Table of Contents



Funding Loan Origination and Loan Servicing
  Loan
Origination
 Loan
Servicing
 Payments of Interest and Principal Borrowings
  General and Administrative Expenses
  Capital Expenditures
  For the year ended March 31,2004
    
    2005
    
    2006(in millions)Capital expenditures
    
    ¥
    880
    
    
    ¥
    1,754
    
    
    ¥
    6,368
  -68-




---



##### Table of Contents



Strategic Investments
  
    
    Affiliates. Some of these enterprises are our affiliates. Our total initial
investments in these affiliates amounted to ¥735 million as of March 31, 2005 and ¥792
million as of March 31, 2006. These affiliates had a book carrying value of ¥514
million as of March 31, 2005 and ¥617 million as of March 31, 2006.
    
    Non-affiliates. These are investments in enterprises that we view as potential
strategic partners, rather than sources of potential capital gains. Our total initial
investments in these enterprises amounted to ¥9,019 million as of March 31, 2005 and
¥19,490 million as of March 31, 2006. These enterprises had a book carrying value of
¥20,376 million as of March 31, 2005 and ¥28,057 million as of March 31, 2006.
 Dividends and Stock Repurchases
 Cash Dividends
 Stock Repurchases
 Capital Resources
  -69-




---



##### Table of Contents



Commitments
  Borrowings
 Long-Term Borrowings
   -70-




---



##### Table of Contents



As of March 31,2005
    
    
    2006(in millions)2.35% unsecured bonds, due November 1, 2005
    
    ¥
    5,000
    
    
    ¥
    1.18% unsecured bonds, due February 25, 2008
    
    
    7,500
    
    
    
    7,5001.90% unsecured bonds, due July 31, 2006
    
    
    500
    
    
    
    5000.75% unsecured bonds, due September 19, 2008
    
    
    210
    
    
    
    1500.64% unsecured bonds, due March 26, 2007
    
    
    500
    
    
    
    5000.45% unsecured bonds, due September 27, 2006
    
    
    500
    
    
    
    5000.67% unsecured bonds, due September 27, 2007
    
    
    500
    
    
    
    5001.17% unsecured bonds, due June 20, 2008
    
    
    
    
    
    
    7,5001.08% unsecured bonds, due September 16, 2008
    
    
    
    
    
    
    10,0000.90% unsecured bonds, due March 27, 2009
    
    
    
    
    
    
    1,0001.70% unsecured convertible bonds, due September 29, 2006
    
    
    8,942
    
    
    
    822Total bonds
    
    ¥
    23,652
    
    
    ¥
    28,972
  Year ending March 31,
    
    (in millions)2007
    
    ¥
    76,2722008
    
    
    71,1552009
    
    
    43,4712010
    
    
    4,5132011 and thereafter
    
    
    8,125Total future payments for long-term borrowings
    
    ¥
    203,536
 Short-Term Borrowings
   As of March 31,2005
    
    2006Bank loans
(under fixed or variable rate contracts):Minimum interest rate
    
    
    1.0
    %
    
    
    1.0
    %Maximum interest rate
    
    
    2.2
    
    
    
    5.0Weighted average contractual rates
    
    
    1.6
    
    
    
    1.4Commercial
paper:Minimum interest rate
    
    
    0.3
    
    
    
    0.3Maximum interest rate
    
    
    0.5
    
    
    
    1.0Weighted average contractual rates
    
    
    0.4
    
    
    
    0.7Rediscounted notes
    
    
    2.4
    
    
    
    2.4
  -71-




---



##### Table of Contents



Commitment Facilities
  Debt Service
  Collateral for Borrowings
   Unfunded Credit Lines
  Operating and Capital Leases
  Contingencies
   -72-




---



##### Table of Contents



C. Research and Development, Patents and Licenses, etc.
  D. Trend Information.
  E.
Off-Balance Sheet Arrangements.
  Sanyo Club
  Shinsei Business Finance
  
    
    3S Loans: 3S Loans are unsecured loans that require
one or more guarantees from third party individuals with an income
source separate from the customer, and are designed for small or
medium-sized corporations.
For a guarantee fee of the contractual interest rate minus 4%, we
guarantee 100% of loans outstanding and corresponding interest receivable from
borrowers of 3S loans. We are required to pay out on our guarantees of loans for which
contractual payments are overdue by 14 days or more. Borrowers of 3S loans are
required to have one or more guarantors, but not collateral.
    
    Business Loans: Business Loans are unsecured loans
designed for small or medium-sized corporations. We guarantee 10% of loans outstanding and corresponding interest
receivable from borrowers of Business Loans and earn 10% of the interest received from
these loans. We are required to pay out on our guarantees of loans for which
contractual payment are overdue by 90 days or more. Borrowers of Business Loans are
neither required to have a guarantor nor to provide collateral.
   -73-




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##### Table of Contents



Chuo Mitsui Finance Service
  
    
    Business Card Loans: Business Card Loans are unsecured
loans designed for small or medium-sized corporations.

We guarantee 10% of loans outstanding and corresponding
interest receivable from borrowers of Business Card Loans and earn 10% of the interest
received from these loans. We are required to pay out on our guarantees of loans for
which contractual payment are overdue by 90 days or more. Borrowers of Business Card
Loans are neither required to have a guarantor nor to provide collateral.
    
    Real Estate Finance: Real Estate Finance is a secured
loan designed for small or medium-sized corporations.

We guarantee 10% of loans outstanding and corresponding
interest receivable from borrowers of Real Estate Finance and earn 10% of the interest
received from these loans. We are required to pay out on our guarantees of loans for
which contractual payment are overdue by 30 days or more.
   Other
    -74-




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##### Table of Contents



As of March 31,2005
    
    2006(in millions)Guaranteed borrowings
    
    ¥
    7,343
    
    
    ¥
    11,886Guaranteed accounts receivable
    
    
    358
    
    
    
    964Guarantees for borrowings of other companies:Shinsei Business Finance
    
    
    3,645
    
    
    
    Chuo Mitsui Finance Service
    
    
    150
    
    
    
    1,920Reserves for guarantee losses
    
    
    371
    
    
    
    629
  Year ended March 31,2004
    
    
    2005
    
    
    2006(in millions)Guarantee fees received from:Guaranteed borrowings and accounts receivable
    
    ¥
    362
    
    
    ¥
    845
    
    
    ¥
    1,386Guarantees for borrowings of other companies
    
    
    6
    
    
    
    34
    
    
    
    20Total guarantee fees received
    
    
    368
    
    
    
    879
    
    
    
    1,406Administrative expenses and other expenses paid
    
    
    (255
    )
    
    
    (562
    )
    
    
    (898
    )Guarantee fees received, net
    
    ¥
    113
    
    
    ¥
    317
    
    
    ¥
    508
  F. Tabular Disclosure of Contractual Obligations.
  Payments Due by PeriodApril 1,
    
    
    April 1,
    
    
    April 1,2006 to
    
    
    2007 to
    
    
    2009 to
    
    
    AfterMarch 31,
    
    
    March 31,
    
    
    March 31,
    
    
    April 1,Contractual obligations
    
    Total
    
    
    2007
    
    
    2009
    
    
    2011
    
    
    2011(in millions)Long-term borrowings(1)
    
    ¥
    198,924
    
    
    ¥
    73,875
    
    
    ¥
    112,704
    
    
    ¥
    12,345
    
    
    ¥
    Capital (finance) lease obligations
    
    
    1,372
    
    
    
    641
    
    
    
    639
    
    
    
    92
    
    
    
    Operating lease obligations
    
    
    1,497
    
    
    
    971
    
    
    
    526
    
    
    
    
    
    
    
    Purchase commitments(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    ¥
    201,793
    
    
    ¥
    75,487
    
    
    ¥
    113,869
    
    
    ¥
    12,437
    
    
    ¥
    
 
 (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. -75-




---



##### Table of Contents



G. Safe Harbor.
 1.
    
    The safe harbor provided in Section 27A of the Securities Act and Section 21E of
the Exchange Act (statutory safe harbors) shall apply to forward-looking information
provided pursuant to Item 5.E and F of this annual report on Form 20-F, provided that the
disclosure is made by: an issuer; a person acting on behalf of the issuer; an outside
reviewer retained by the issuer making statement on behalf of the issuer; or an
underwriter, with respect to information provided by the issuer or information derived
from information provided by the issuer.2.
    
    For purpose of Item 5.G.1 of this Item only, all information required by Item 5.E
of this Item is deemed to be a forward looking statement as that term is defined in the
statutory safe harbors, except for historical facts.3.
    
    With respect to Item 5.E of this annual report on Form 20-F, the meaningful
cautionary statements element of the statutory safe harbors will be satisfied if a
company satisfies all requirements of that same Item 5.E of this annual report on Form
20-F.
 
 Item 6. Directors, Senior Management and Employees.
 A. Directors and Senior Management.
 Directors and Statutory Auditors
    PositionName
    
    (Executive Officer(Date of Birth)
    
    Position)
    
    Business CareerKunihiko Sakioka(1)
(January 10, 1962)
    
    Chairman,
Representative
Director and Co-CEO
    
    April 1986
    
    Joined Nissin Co., Ltd.September 1988
    
    Manager of Hiroshima BranchMarch 1989
    
    DirectorDecember 1989
    
    Director and General Manager of Finance DepartmentFebruary 1991
    
    Executive Director, Advice to Finance and System
InformationDecember 1992
    
    Senior Executive Director and Head of Sales & Marketing
ControlOctober 1996
    
    Representative Senior Executive Director and General
Manager of Tokyo Branch Office, Advice to Sales &
Marketing ControlApril, 1998
    
    Representative Senior Executive Director and Head of
Sales & Marketing ControlJune 2000
    
    President and Representative Director, and Head of
Sales & Marketing ControlMarch 2004
    
    Representative Director of Shuho Ltd. (current position)July 2005
    
    President and Representative Director and Executive
OfficerJune 2006
    
    Chairman and Representative Director and Co-CEO
(current position)
 -76-




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##### Table of Contents



PositionName
    
    (Executive Officer(Date of Birth)
    
    Position)
    
    Business CareerShinsuke Amiya
(October 3, 1957)
    
    President,
Representative
Director and Co-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 Nissin Co., Ltd.Special AdvisorJune 2006
    
    President and Representative Director and Co-CEO
(current position)Hideo Sakioka(1) (2)
(May 14, 1928)
    
    Director and Advisor
    
    August 1953
May 1960
    
    Started money lending business
Founded Nissin Shoji Co., Ltd. (currently Nissin Co., Ltd.)
President and Representative DirectorJanuary 1980
    
    Founded Nissin Building Co., Ltd.
President and Representative DirectorMarch 1989
    
    Representative Director of Shuho Ltd.June 2000
    
    Chairman and Representative DirectorMay 2001
    
    President and Representative Director of Nissin
Building Co., Ltd. (current position)January 2004
    
    Director of Nissin Servicer Co., Ltd. (current position)June 2006
    
    Director and Advisor (current position)Hitoshi Higaki
(December 14, 1959)
    
    Senior Executive
Director and
Executive Officer
(Head of Group
Strategy)
    
    November 1983
March 1994
    
    Joined Nissin Co., Ltd.
General Manager of Accounting Department and Finance
DepartmentJune 1994
    
    Director and General Manager of General Affairs
DepartmentMay 1995
    
    Director, General Manager of Corporate Planning
Department and Accounting DepartmentJune 1996
    
    Director and General Manager of Corporate Planning
Department, Advice to Accounting DepartmentJune 2000
    
    Executive Director and General Manager of Corporate
Planning DepartmentApril 2003
    
    Executive Director 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 and Executive OfficerJune 2006
    
    Senior Executive Director, Executive Officer and Head
of Group Strategy (current position)Toshioki Otani
(December 22, 1970)
    
    Executive Director
and Executive
Officer
(Head of Sales &
Marketing)
    
    April 1994
September 1995
July 2000
    
    Joined Nissin Co., Ltd.
Manager of Kumamoto Branch
General Manager of Finance DepartmentJanuary 2001
    
    General Manager of Finance Department and Business
Development DepartmentApril 2002
    
    General Manager of Eastern Japan Sales DepartmentJune 2002
    
    DirectorApril 2003
    
    Director and General Manager of Business Development
DepartmentNovember 2003
    
    President and Representative Director of NIS Lease Co.,
Ltd. (current position)July 2004
    
    Director and Deputy Head of Sales & Marketing and
General Manager of Business Development DepartmentJuly 2005
    
    Executive Director, Executive Officer and Head of Sales
& Marketing and General Manger of Sales DepartmentNovember 2005
    
    Concurrently General Manager of Osaka Branch OfficeJune 2006
    
    Executive Director, Executive Officer and Head of Sales
& Marketing (current position)
 -77-




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##### Table of Contents



PositionName
    
    (Executive Officer(Date of Birth)
    
    Position)
    
    Business CareerAkihiro Nojiri
(November 15, 1968)
    
    Executive Director
and Executive
Officer
(Head of Operations
Control)
    
    April 1991
August 2003
    
    Joined Ministry of Finance
Joined Nissin Co., Ltd.General Manager, Assistant to PresidentJune 2004
    
    DirectorJuly 2004
    
    Director and General Manager of Finance DepartmentJuly 2005
    
    Executive Director, Executive Officer and General
Manager of Finance DepartmentFebruary 2006
    
    Executive Director, Executive Officer and Head of
Operations Control (current position)Yunwei Chen
(January 16, 1969)
    
    Executive Director
and Executive
Officer
(General Manager of
Investor Relations
Department and
Officer-in-Charge
East Asia Region)
    
    April 1998
April 2001
September 2002


April 2003
    
    Joined Nissin Co., Ltd.
Manager of Corporate Planning Department 2nd Section
Concurrently Assistant General Manager of Corporate
Planning Department
General Manager of Investor Relations DepartmentJune 2003
    
    DirectorJuly 2004
    
    Chairman of Matsuyama Nissin Investment & Consulting
(Shanghai) Co., Ltd. (currently renamed to Nissin
Leasing (China) Co., Ltd.) (current position)July 2005
    
    Executive Director, Executive Officer, General Manager
of Investor Relations Department and Officer-in-Charge
East Asia Region (current position)Keishi Ishigaki
(April 3, 1971)
    
    Director and
Executive Officer
(Deputy Head of
Sales & Marketing
and Sales &
Marketing Group
Manager)
    
    April 1995
April 1996
April 2001
April 2002
    
    Joined Nissin Co., Ltd.
Manager of Koriyama Branch
General Manager of Finance Department
General Manager of Osaka Branch Office and Western
Japan Sales DepartmentJune 2002
    
    DirectorApril 2003
    
    Director and General Manager of Finance DepartmentJuly 2004
    
    Director and General Manager, Advice to Sales &
Marketing Control DivisionAugust 2004
    
    Director of Venture Link Co., Ltd. (current position)July 2005
    
    Concurrently Executive OfficerJune 2006
    
    Director, Executive Officer, Deputy Head of Sales &
Marketing and Sales & Marketing Group Manager (current
position)Katsutoshi Shimizu
(April 9, 1954)
    
    Director and
Executive Officer
(Deputy Head of
Sales & Marketing,
Real Estate
Business Group
Manager and General
Manager of Real
Estate Business
Control Department)
    
    April 1999
October 2002
June 2003
January 2004
March 2004
September 2005
    
    Joined RISA Partners, Inc.
Director
Joined A-MAX Corporation
Director
Joined Nissin Servicer Co., Ltd.
Director and General Manager of Credit Screening
Department
Director and General Manager of Asset Management
Department
Director, Advice to Asset Management Department
(current position)Joined Nissin Co., Ltd.General Manager of Real Estate Business Control
DepartmentFebruary 2006
    
    Concurrently Executive OfficerJune 2006
    
    Director, Executive Officer, Deputy Head of Sales &
Marketing, Real Estate Business Group Manager and
General Manager of Real Estate Business Control
Department (current position)
 -78-




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##### Table of Contents



PositionName
    
    (Executive Officer(Date of Birth)
    
    Position)
    
    Business CareerAkira Imaki
(February 15, 1949)
    
    Director and
Executive Officer
(Deputy Head of
Sales & Marketing
and Strategic
Business
Development Group
Manager)
    
    October 2003
September 2004
October 2005
    
    Joined Capital Partners Securities Co., Ltd.
Managing Director of Investment Banking Division
Joined Mercer Human Resource Consulting LLC.
Joined Nissin Co., Ltd.
General Manager, Assistant to President, Sales &
Marketing Control DivisionApril 2006
    
    Concurrently Executive OfficerJune 2006
    
    Director, Executive Officer, Deputy Head of Sales &
Marketing and Strategic Business Development Group
Manager (current position)Hidenori Nakagawa(3)
(November 20, 1967)
    
    Director (Outside)
    
    April 1992
    
    Registered 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 as a Partner (current position)June 2006
    
    Outside Director (current position)Yoshiki Kishimura
(August 25, 1944)
    
    Statutory Auditor
(Standing)
    
    May 1980
February 2001
    
    Joined Sanyo Shinpan Finance Co., Ltd.
Joined Nissin Co., Ltd.Corporate Adviser of Finance DepartmentJune 2003
    
    Statutory Auditor (current position)August 2004
    
    Statutory Auditor of Venture Link Co., Ltd. (current
position)Akio Sakioka(2)
(September 22,1950)
    
    Statutory Auditor
(Standing)
    
    March 1971
January 1976
    
    Joined Nissin Co., Ltd.
Manager of Takamatsu BranchApril 1984
    
    DirectorJuly 1994
    
    Executive Director and General Manager of Tokyo OfficeOctober 1996
    
    Executive Director and General Manager of Finance
DepartmentOctober 2000
    
    Executive Director, Advice to Business Audit DepartmentJune 2002
    
    Retired from DirectorStatutory Auditor (current position)Isao Narimatsu(4)
(July 6, 1949)
    
    Statutory Auditor
(Outside)
    
    April 1979
July 1981
    
    Joined Miyata Certified Public Tax Accountant Office
Opened Isao Narimatsu Certified Public Tax Accountant
OfficeJune 2001
    
    Statutory Auditor (current position)Katsuhiko Asada(4)
(February 10, 1955)
    
    Statutory Auditor
(Outside)
    
    October 1979
    
    Joined Arthur Andersen 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 (current position)
 
 (1)
    
    Kunihiko Sakioka is the second son of Hideo Sakioka.(2)
    
    Akio Sakioka is the nephew of Hideo Sakioka.(3)
    
    Hidenori Nakagawa is a Director assigned from outside the
Group pursuant to Article 2-15 of
the Corporate Law.(4)
    
    Isao Narimatsu and Katsuhiko Asada are Statutory Auditors
assigned from outside the Group pursuant to Article 2-16 of the Corporate Law. -79-




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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 2006
    
    June 2007Shinsuke Amiya
    
    June 2006
    
    June 2006
    
    June 2007Hideo Sakioka
    
    May 1960
    
    June 2006
    
    June 2007Hitoshi Higaki
    
    June 1994
    
    June 2006
    
    June 2007Toshioki Otani
    
    June 2002
    
    June 2006
    
    June 2007Akihiro Nojiri
    
    June 2004
    
    June 2006
    
    June 2007Yunwei Chen
    
    June 2003
    
    June 2006
    
    June 2007Keishi Ishigaki
    
    June 2002
    
    June 2006
    
    June 2007Katsutoshi Shimizu
    
    June 2006
    
    June 2006
    
    June 2007Akira Imaki
    
    June 2006
    
    June 2006
    
    June 2007Hidenori Nakagawa(1)
    
    June 2006
    
    June 2006
    
    June 2007Statutory Auditors:Yoshiki Kishimura
    

    June 2003
    
    June 2003
    
    June 2007Akio Sakioka

    
    June 2002
    
    June 2005
    
    June 2009Isao Narimatsu(2)
    

    June 2001
    
    June 2004
    
    June 2008Katsuhiko 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. -80-




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##### Table of Contents



Board of Directors
   Board of Statutory Auditors
  Independent Registered Public Accounting Firm
  -81-




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##### Table of Contents



Significant Differences Between Our Corporate Governance Practices and Those of New York Stock
Exchange-listed U.S. Companies
   Corporate Governance Practices Followed
    
    Corporate Governance Practices Followedby NYSE-listed U.S. Companies
    
    by UsA NYSE-listed U.S. company must have
a majority of directors meeting the
independence requirements under
Section 303A of the NYSE Listed
Company Manual.
    
    Under the Corporate Law effective as
of May 1, 2006, 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 task of overseeing
management and accounting firms is
assigned to the statutory auditors,
who are separate from the companys
management. Pursuant to the
Corporate Law which came into effect
as of May 1, 2006, Japanese
companies with a board of statutory
auditors, including us, are required
to have at least 50% of our
statutory auditors be outside
statutory auditors who must meet
independence requirements under the
Corporate Law, by which he or she
must have not 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.
 -82-




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##### Table of Contents



Corporate Governance Practices Followed
    
    Corporate Governance Practices Followedby NYSE-listed U.S. Companies
    
    by UsA NYSE-listed U.S. company must have
an audit committee composed entirely
of independent directors, and the
audit committee must have at least
three members.
    
    As discussed above, we employ the
statutory auditor system. Under
this system, the board of statutory
auditors is a legally separate and
independent body from the board of
directors.The function of the
board of statutory auditors is
similar to that served by
independent directors, including
those who are members of the audit
committee, of a U.S. company: to
monitor the performance of the
directors, and review and express
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
the companys 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 director 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 became applicable to
foreign private issuers, we have
relied on an exemption under that
rule, which is available to foreign
private issuers with boards of
statutory auditors meeting certain
criteria. We make disclosure
regarding such reliance in Item 16D
of this annual report on Form 20-F.A NYSE-listed U.S. company must have
a nominating/corporate governance
committee composed entirely of
independent directors.
    
    Directors are elected at a meeting
of shareholders. The board of
directors does not have the power to
fill vacancies in the board.Statutory auditors are also elected
at a meeting of shareholders. Under
the Corporate Law, a proposal to a
meeting of shareholders by our board
of directors to elect a statutory
auditor must be approved by a
resolution of its board of statutory
auditors. The board of statutory
auditors is empowered to adopt a
resolution requesting that our
directors submit a proposal for
election of a statutory auditor to a
meeting of shareholders. Statutory
auditors have the right to state
their opinion concerning election
and resignation of a statutory
auditor at the meeting of
shareholders.
 -83-




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##### Table of Contents



Corporate Governance Practices Followed
    
    Corporate Governance Practices Followedby NYSE-listed U.S. Companies
    
    by UsA NYSE-listed U.S. company must have
a compensation committee composed
entirely of independent directors.
    
    We determine the compensation for
our directors and statutory auditors
pursuant to the statutory auditor
system, which we employ. Unless
otherwise provided in our articles
of incorporation, total amounts of
compensation for our directors and
statutory auditors are respectively
proposed to, and voted on, a meeting
of shareholders. Our articles of
incorporation do not provide for
such total amounts. Once the
proposals for the total amounts of
compensation are approved at the
meeting of shareholders, our board
of directors allocates the total
amount for the directors among its
members and among our statutory
auditors, unless there is a
resolution at the shareholders
meeting or a provision in the
articles of incorporation relating
to allocation of compensation, for
the statutory auditors to allocate
the total amount among themselves.A NYSE-listed U.S. company must
generally obtain shareholder
approval with respect to any equity
compensation plan.
    
    Under the Corporate Law, new share
subscription rights as stock options
granted to directors and employees
are not deemed to be an issuance of
new share subscription rights with
specifically favorable conditions,
even if the stock options are issued
at no charge, since a company would
receive benefits from the issuance
by enhancing their incentives for
services. While we are not required
to obtain shareholder approval for
any stock option to be issued to our
directors and employees, we must
obtain shareholder approval for
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
this system, our internal audit
function is maintained by the
Internal Audit Department. The
Internal Audit Department is
separate from the board of
statutory auditors, and reports
directly to our president.
 -84-




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##### Table of Contents



D. Employees.
  As of March 31,2004
    
    2005
    
    2006Full-time:Integrated financial services(1)
    
    
    811
    
    
    
    759
    
    
    
    924Loan servicing
    
    
    40
    
    
    
    59
    
    
    
    74Sub-total
    
    
    851
    
    
    
    818
    
    
    
    998Part-time(2)
    
    
    87
    
    
    
    89
    
    
    
    101Temporary(3)
    
    
    181
    
    
    
    181
    
    
    
    198Total
    
    
    1,119
    
    
    
    1,088
    
    
    
    1,297
 
 (1)
    
    Includes the number of full-time employees engaged in other businesses, which was 2 at March
31, 2004, 33 at March 31, 2005 and 23 at March 31, 2006.(2)
    
    The average number of part-time employees was 94 for the year ended March 31, 2004, 85 for
the year ended March 31, 2005 and 100 for the year ended March 31, 2006.(3)
    
    Temporary employees are employees dispatched from personnel agencies.   E. Share Ownership.
 Share Ownership by Directors and Statutory Auditors
  Percentage ofNumber of Shares
    
    Common StockBeneficially
    
    Outstanding as ofOwned as of
    
    March 31,Name
    
    Position
    
    Date of Birth
    
    March 31, 2006(1)
    
    2006(2)Directors:Kunihiko Sakioka
    
    Chairman,
Representative
Director and Co-CEO
    
    January 10, 1962
    
    
    753,987,732
    (3)
    
    27.6%(3)Shinsuke Amiya
    
    President,
Representative
Director and Co-CEO
    
    October 3, 1957
    
    
    
    (5)
    
    (5)Hideo Sakioka
    
    Director and Advisor
    
    May 14, 1928
    
    
    743,074,044
    (4)
    
    27.2(4)
 -85-




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##### Table of Contents



Percentage ofNumber of Shares
    
    Common StockBeneficially
    
    Outstanding as ofOwned as of
    
    March 31,Name
    
    Position
    
    Date of Birth
    
    March 31, 2006(1)
    
    2006(2)Hitoshi Higaki
    
    Senior Executive
Director and
Executive Officer
    
    December 14, 1959
    
    
    7,843,128
    
    
    *Toshioki Otani
    
    Executive Director
and Executive
Officer
    
    December 22, 1970
    
    
    3,662,308
    
    
    *Akihiro Nojiri
    
    Executive Director
and Executive
Officer
    
    November 15, 1968
    
    
    682,120
    
    
    *Yunwei Chen
    
    Executive Director
and Executive
Officer
    
    January 16, 1969
    
    
    3,269,116
    
    
    *Keishi Ishigaki
    
    Director and
Executive Officer
    
    April 3, 1971
    
    
    3,003,160
    
    
    *Katsutoshi Shimizu
    
    Director and
Executive Officer
    
    April 9, 1954
    
    
    96,000
    
    
    *Akira Imaki
    
    Director and
Executive Officer
    
    February 15, 1949
    
    
    
    
    
    Hidenori Nakagawa
    
    Director (Outside)
    
    November 20, 1967
    
    
    
    
    
    Statutory Auditors:Yoshiki Kishimura
    
    Statutory Auditor
(Standing)
    
    August 25, 1944
    
    
    2,001,664
    
    
    *Akio Sakioka
    
    Statutory Auditor
(Standing)
    
    September 22, 1950
        
    24,620,032    
    
    *Isao Narimatsu
    
    Statutory Auditor
(Outside)
    
    July 6, 1949
    
    
    768,000
    
    
    *Katsuhiko Asada
    
    Statutory Auditor
(Outside)
    
    February 10, 1955
    
    
    144,000
    
    
    *
 
 (1)
    
    As adjusted for our April 2006 stock split.(2)
    
    Asterisks indicate beneficial ownership of less than 1%.(3)
    
    Comprised of 89,610,440 over which Kunihiko Sakioka has sole voting and dispositive power;
335,702,016 shares held by Nissin Building Co., Ltd. (Nissin Building) over which Kunihiko
Sakioka may be deemed to share beneficial ownership with Hideo Sakioka and voting or
dispositive power with Michimasa Sakioka and Midori Moriyama; and 328,675,276 shares held by
Shuho Ltd. (Shuho) over which Kunihiko Sakioka may be deemed to share voting or dispositive
power with Hideo Sakioka. Exclude shareholdings of other Sakioka family members. Members of
the Sakioka family, including the ones listed above, directly and indirectly held an aggregate
of 1,022,230,316 shares, or 37.4% of our outstanding shares of common stock, as of March 31,
2006.(4)
    
    Comprised of 78,696,752 shares over which Hideo Sakioka has sole voting and dispositive
power; 335,702,016 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 328,675,276 shares held by Shuho over which Hideo Sakioka may be deemed to share
voting or dispositive power with Kunihiko Sakioka. Exclude shareholding of other Sakioka
family members. Members of the Sakioka family, including the ones listed above, directly and
indirectly held an aggregate of 1,022,230,316 shares, or 37.4% of our outstanding shares of
common stock, as of March 31, 2006.(5)
    
    In June 2006, Shinsuke Amiya acquired 1,000,000 shares from Shuho. As a result, the number
of shares beneficially owned by Kunihiko Sakioka and Hideo Sakioka decreased by 1,000,000
shares, respectively.  -86-




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##### Table of Contents



Stock Option Plans
  
    
    March 2006 Stock Option Plan: We granted options exercisable for a total of
1,920,000 shares at a purchase price per share of ¥131 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 options exercisable for a total of
14,400,000 shares at a purchase price per share of ¥58 to 251 of our directors and
employees and those of our subsidiaries and affiliates on July 15, 2005. These are
exercisable until July 31, 2008.
    
    April 2005 Stock Option Plan: We granted stock options exercisable for a total of
7,142,400 shares at a purchase price per share of ¥67 to 120 of our employees and those
of our subsidiaries and affiliates on April 21, 2005. These are exercisable until
April 30, 2008.
    
    January 2005 Stock Option Plan: We granted stock options exercisable for a total of
768,000 shares at a purchase price per share of ¥55 to 9 of our employees on January
20, 2005. These are exercisable until January 31, 2008.
    
    July 2004 Stock Option Plan: We granted stock options exercisable for a total of
63,936,000 shares at a purchase price per share of ¥53 to 1,149 of our directors and
employees and those of our subsidiaries and affiliates on July 15, 2004. These are
exercisable until July 31, 2007.
    
    July 2003 Stock Option Plan: We granted stock options exercisable for a total of
25,920,000 shares at a purchase price per share of ¥28 to 183 of our directors and
employees and those of our subsidiaries and affiliates on July 16, 2003. These are
exercisable until July 31, 2006.
  -87-




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##### Table of Contents



Number of sharesissuable upon exerciseof stock options as ofName
    
    Position
    
    March 31, 2006Directors:Kunihiko Sakioka
    
    Chairman, Representative Director and Co-CEO
    
    
    160,000Shinsuke Amiya
    
    President, Representative Director and Co-CEO
        
    Hideo Sakioka
    
    Director and Advisor
    
    
    Hitoshi Higaki
    
    Senior Executive Director and Executive Officer
    
    
    Toshioki Otani
    
    Executive Director and Executive Officer
    
    
    160,000Akihiro Nojiri
    
    Executive Director and Executive Officer
    
    
    544,000Yunwei Chen
    
    Executive Director and Executive Officer
    
    
    544,000Keishi Ishigaki
    
    Director and Executive Officer
    

    Katsutoshi Shimizu
    
    Director and Executive Officer
    
    
    424,000Akira Imaki
    
    Director and Executive Officer
    
    
    120,000Hidenori Nakagawa
    
    Director
    

    Statutory Auditors:Yoshiki Kishimura
    
    Statutory Auditor
    
    
    544,000Akio Sakioka
    
    Statutory Auditor
    

    Isao Narimatsu
    
    Statutory Auditor
    
    
    160,000Katsuhiko Asada
    
    Statutory Auditor
    
    
    448,0003,104,000
 Employee Stock Purchase Plan
  -88-




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##### Table of Contents



Item 7. Major Shareholders and Related Party Transactions.
 A. Major Shareholders.
  Number of Shares
    
    Percentage ofof Common Stock
    
    Common StockOwned as of
    
    Outstanding as ofShareholders
    
    March 31, 2006(5)
    
    March 31, 2006(5)Kunihiko Sakioka(1) (5) (6)
    
    
    753,987,732
    
    
    
    27.6
    %Hideo Sakioka(2) (5) (6)
    
    
    743,074,044
    
    
    
    27.2Midori Moriyama(3) (5)
    
    
    375,476,120
    
    
    
    13.7Michimasa Sakioka(4) (5)
    
    
    371,956,836
    
    
    
    13.6
 
 (1)
    
    Comprised of 89,610,440 shares over which Kunihiko Sakioka has sole voting and dispositive
power; 335,702,016 shares held by Nissin Building over which Kunihiko Sakioka may be deemed to
share beneficial ownership with Hideo Sakioka and voting or dispositive power with Michimasa
Sakioka and Midori Moriyama; and 328,675,276 shares held by Shuho, over which Kunihiko Sakioka
may be deemed to share voting and dispositive power with Hideo Sakioka.(2)
    
    Comprised of 78,696,752 shares over which Hideo Sakioka has sole voting and dispositive
power; 335,702,016 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 328,675,276 shares held by Shuho, over which Hideo Sakioka may be deemed to
share voting and dispositive power with Kunihiko Sakioka.(3)
    
    Comprised of 39,774,104 shares over which Midori Moriyama has sole voting and dispositive
power; and 335,702,016 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 36,254,820 shares over which Michimasa Sakioka has sole voting and dispositive
power; and 335,702,016 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)
    
    Exclude shareholding of other Sakioka family members. Members of the Sakioka family,
including the ones listed above, directly and indirectly held an aggregate of 1,022,230,316
shares, or 37.4% of our outstanding shares of common stock, as of March 31, 2006.(6)
    
    In June 2006, Shinsuke Amiya, our president, representative director and Co-CEO, acquired
1,000,000 shares from Shuho. As a result, the number of shares beneficially owned by Kunihiko
Sakioka and Hideo Sakioka decreased by 1,000,000 shares, respectively.   -89-




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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 subsidiary;
 
    
    any director, officer, statutory auditor or family member of any
of the preceding or any enterprise over which such person directly
or indirectly is able to exercise significant influence;
 
    
    any individual shareholder directly or indirectly having
significant influence over us or any of our subsidiary or a family
member of such individual or any enterprise over which such person
directly or indirectly is able to exercise significant influence,
or their respective family members or enterprises over which they
exercise significant influence, or
    
    any unconsolidated enterprise in which we have a significant
influence or which has a significant influence over us.
 Transactions with Our Directors, Corporate Officers, Statutory Auditors or Companies with Whom They
Have a Relationship
 Transactions with Shuho
  Year ended March 31,2004
    
    2005
    
    2006(in millions)Insurance paid
    
    ¥
    1
    
    
    ¥
    
    
    
    ¥
    Rent income received
    
    
    1
    
    
    
    1
    
    
    
    1
  Transactions with Nissin Building
  Year ended March 31,2004
    
    2005
    
    2006(in millions)Rent income received
    
    ¥
    2
    
    
    ¥
    2
    
    
    ¥
    1
  Transactions with Susumu Sakioka
  -90-




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##### Table of Contents



Transactions with Our Principal Shareholders or Affiliates
 Transactions with Ascot
  Transactions with Shinsei Business Finance
  Year ended March 31,2004
    
    2005
    
    2006(in millions)Commissions on customers referral paid
    
    ¥
    11
    
    
    ¥
    32
    
    
    ¥
    13Agency commissions received
    
    
    16
    
    
    
    13
    
    
    
    4Loan guarantee fees received
    
    
    90
    
    
    
    316
    
    
    
    467Bank loan guarantee fees received
    
    
    6
    
    
    
    34
    
    
    
    9
  Transactions with Webcashing.com
  Year ended March 31,2004
    
    2005
    
    2006(in millions)Commissions on customers referral paid
    
    ¥
    291
    
    
    ¥
    205
    
    
    ¥
    151Advertising expenses and other fees paid
    
    
    10
    
    
    
    175
    
    
    
    518Proceeds from sale of equipment and software
    
    
    22
    
    
    
    
    
    
    
    
  -91-




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##### Table of Contents



Transactions with Chuo Mitsui Finance Service
  Year ended March 31,2005
    
    2006(in millions)Commissions on customers referral paid
    
    ¥
    
    
    
    
    ¥
    9Loan guarantee fees received
    
    
    
    
    
    
    
    26Bank loan guarantee fees received
    
    
    
    
    
    
    
    11
  C. Interests of Experts and Counsel.
  
 Item 8. Financial Information.
 A. Consolidated Statements and Other Financial Information.
 Financial Statements
  Legal or Arbitration Proceedings
  Dividend Policy
 Cash Dividends
  -92-




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##### Table of Contents



Dividends per
    
    Dividends pershare
    
    shareRecord Date
    
    (Actual)
    
    (As adjusted)September 30, 2001 (interim)
    
    ¥
    12.50
    
    
    ¥
    0.16March 31, 2002
    
    
    12.50
    
    
    
    0.16September 30, 2002 (interim)
    
    
    6.50
    
    
    
    0.17March 31, 2003
    
    
    8.50
    
    
    
    0.22September 30, 2003 (interim)
    
    
    3.75
    
    
    
    0.20March 31, 2004
    
    
    4.75
    
    
    
    0.25September 30, 2004 (interim)
    
    
    1.375
    (1)
    
    
    0.29March 31, 2005
    
    
    2.50
    
    
    
    0.52September 30, 2005 (interim)
    
    
    1.00
    (2)
    
    
    0.50March 31, 2006
    
    
    1.10
    
    
    
    0.55
 
 (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.    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 million)
    
    
    
    
    
    (in million)
    
    
    
    
    
    (in million)2002
    
    
    15,409,304
    
    
    ¥
    347
    
    
    
    
    
    
    ¥
    
    
    
    
    15,409,304
    
    
    ¥
    3472003
    
    
    103,710,180
    
    
    
    2,493
    
    
    
    768,000
    
    
    
    20
    
    
    
    102,942,180
    
    
    
    2,4732004
    
    
    57,671,212
    
    
    
    1,209
    
    
    
    12,867,840
    
    
    
    338
    
    
    
    44,803,372
    
    
    
    8712005
    
    
    28,096
    
    
    
    1
    
    
    
    30,291,840
    
    
    
    909
    
    
    
    (30,263,744
    )
    
    
    (908
    )2006
    
    
    37,502
    
    
    
    2
    
    
    
    52,833,762
    
    
    
    2,209
    
    
    
    (52,796,260
    )
    
    
    (2,207
    )2007
(through August 31, 2006)
    
    
    1,291
    
    
    
    
    
    
    
    9,245,120
    
    
    
    362
    
    
    
    (9,243,829
    )
    
    
    (362
    )
  -93-




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##### Table of Contents



B. Significant Changes.
  
 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)2002
    
    ¥
    38
    
    
    ¥
    19
    
    
    
    5,053,9962003
    
    
    30
    
    
    
    19
    
    
    
    4,838,7642004
    
    
    48
    
    
    
    20
    
    
    
    6,692,1602005
    
    
    69
    
    
    
    34
    
    
    
    9,489,400First Quarter
    
    
    47
    
    
    
    34
    
    
    
    10,660,076Second Quarter
    
    
    53
    
    
    
    45
    
    
    
    9,501,044Third Quarter
    
    
    54
    
    
    
    44
    
    
    
    7,326,084Fourth Quarter
    
    
    69
    
    
    
    51
    
    
    
    10,486,3562006
    
    
    154
    
    
    
    50
    
    
    
    31,057,455First Quarter
    
    
    64
    
    
    
    50
    
    
    
    8,539,338Second Quarter
    
    
    83
    
    
    
    52
    
    
    
    15,323,019Third Quarter
    
    
    154
    
    
    
    70
    
    
    
    62,482,161Fourth Quarter
    
    
    145
    
    
    
    100
    
    
    
    38,401,1842007
    
    
    131
    
    
    
    77
    
    
    
    19,311,997First Quarter
    
    
    131
    
    
    
    77
    
    
    
    19,311,997
 Average DailyTradingPrice Per Share
    
    VolumeCalendar month
    
    High
    
    Low
    
    (in shares)January 2006
    
    ¥
    145
    
    
    ¥
    109
    
    
    
    48,724,011February 2006
    
    
    139
    
    
    
    100
    
    
    
    35,189,920March 2006
    
    
    135
    
    
    
    105
    
    
    
    32,405,345April 2006
    
    
    131
    
    
    
    107
    
    
    
    18,603,805May 2006
    
    
    117
    
    
    
    88
    
    
    
    20,342,990June 2006
    
    
    98
    
    
    
    77
    
    
    
    19,018,541July 2006
    
    
    91
    
    
    
    52
    
    
    
    36,152,225August 2006
    
    
    82
    
    
    
    62
    
    
    
    27,902,736
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Maximum dailyPrevious days closing price or special quote
    
    price movementLess than
    
    ¥
    100
    
    
    ¥
    30Over
    
    ¥
    100
    
    
    Less than
    
    
    200
    
    
    
    50Over
    
    
    200
    
    
    Less than
    
    
    500
    
    
    
    80Over
    
    
    500
    
    
    Less than
    
    
    1,000
    
    
    
    100
 New York Stock Exchange
  Average DailyTradingNew York Stock Exchange price
    
    Volume 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
    
    
    
    4,629First Quarter
    
    
    4.33
    
    
    
    3.03
    
    
    
    8,504Second Quarter
    
    
    4.81
    
    
    
    4.14
    
    
    
    2,880Third Quarter
    
    
    5.41
    
    
    
    4.09
    
    
    
    3,550Fourth Quarter
    
    
    6.29
    
    
    
    4.85
    
    
    
    5,1672006
    
    
    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
    
    
    
    6.64
    
    
    
    5,589First Quarter
    
    
    11.00
    
    
    
    6.64
    
    
    
    5,589
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Average DailyTradingNew York Stock Exchange price
    
    Volume ofper ADS
    
    ADSsHigh
    
    LowCalendar MonthJanuary 2006
    
    $
    12.72
    
    
    $
    9.86
    
    
    
    40,900February 2006
    
    
    11.71
    
    
    
    9.00
    
    
    
    14,347March 2006
    
    
    11.20
    
    
    
    8.69
    
    
    
    8,278April 2006
    
    
    11.00
    
    
    
    9.35
    
    
    
    4,547May 2006
    
    
    10.05
    
    
    
    7.77
    
    
    
    5,736June 2006
    
    
    8.58
    
    
    
    6.64
    
    
    
    6,341July 2006
    
    
    7.39
    
    
    
    4.88
    
    
    
    6,605August 2006
    
    
    7.38
    
    
    
    5.41
    
    
    
    12,417
  B. Plan of Distribution.
  C. Markets.
   D. Selling Shareholders.
  E. Dilution.
  F. Expenses of the Issue.
  -96-




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Item 10. Additional Information.


A. Share Capital.
  B. Memorandum and Articles of Association.
 Purposes in Our Article 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 estate;
    
    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;
 -97-




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
    
    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;
    
    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 general bridal 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; and
    
    All business that is ancillary to each of the preceding items.
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Provisions Regarding Our Directors
      Rights of Our Shareholders
  Rights with Respect to Distribution of Surplus, Stock Repurchases and Stock Splits
 Dividends
  (a)
    
    The company employs independent certified public accountant and corporate
governance system based on a board of statutory auditors or committees, 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 our assets and profit or loss, as required by the ordinances
of the Ministry of Justice.
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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 stated capital after the end of the last fiscal
year) the amount of such reduction less the portion thereof that has been transferred
to additional paid-in capital or legal reserve (if any);D=
    
    (if we have reduced our 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 stated capital (if any);E=
    
    (if we have cancelled 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 stated capital,
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 additional paid-in capital or legal reserve (if any) as
required by the ordinances of the Ministry of Justice.
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(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 the ordinances of the Ministry of
Justice, including (if the sum of one-half of good will and the deferred assets
exceeds the total of stated capital, additional paid-in capital and legal reserve,
each such amount being that appearing on our non-consolidate balance sheet as of the
end of the last fiscal year) all or certain part of such exceeding amount as
calculated in accordance with the ordinances of the Ministry of Justice.
 renketsu
haito kisei tekiyo kaisha
  Repurchase of Our Shares
   -101-




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Distribution of Surplus
     
    
    repurchasing those that constitute less than one unit upon the request of their holder,
    
    repurchasing those from our subsidiary company,
    
    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
   -102-




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Voting Rights
   
    
    a reduction of the stated capital,
    
    amendment of the articles of incorporation (except amendments that the board of
directors are authorized to make under the Corporate Law as described in  Rights with
Respect to Distribution of Surplus, Stock Repurchases and Stock Splits above and
Limitations Affecting Security Holders  Japanese Unit Share System below),
    
    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,
    
    any issuance of new shares or transfer of existing shares as treasury stock to
persons other than the shareholders at a specifically 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 specifically favorable conditions.
  -103-




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New Share Subscription Rights
   Liquidation Rights
  Liability to Further Calls or Assessments
  Shareholders Rights to Bring Actions Against Directors
  -104-




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##### Table of Contents



Limitations Affecting Security Holders
 Japanese Unit Share System
   
    
    to receive distributions of Surplus,
    
    to receive cash or other assets in case of 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
  Rights of Foreign Investors
  -105-




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Reporting Requirements of Shareholders
 Report of Substantial Shareholdings
  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
  -106-




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Clearing System for Our Shares
  Settlement for Our Shares
   Share Registrar for Our Shares
  Record Date for Our Shares
   -107-




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##### Table of Contents



C. Material Contracts.
  D. Exchange Controls.
  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.
  -108-




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
    
    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.
  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).
 -109-




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
    
    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.
   -110-




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Mark-to-market Rules
   Foreign Tax Credit
    -111-




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##### Table of Contents



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 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 gain or loss computed as a difference between the basis of shares subject to
the tender offer at the shareholders level and the amount of the consideration for the
tender offer, deducting the amount corresponding to the deemed dividend computed as (i)
above under Article 61-2 (1) of the same law.
  -112-




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
    
    7% for dividends to be paid between January 1, 2004 and March 31, 2008 as a
temporary measurement; and
    
    15% thereafter, except for dividends paid to any individual shareholder who holds 5%
or more of our issued shares, in which case the applicable rate is 20%.
    -113-




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F. Dividends and Paying Agents.
  G. Statement by Experts.
  H. Documents on Display.
  I. Subsidiary Information.
  -114-




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Item 11. Quantitative and Qualitative Disclosures About Market Risk
  Interest Rate Risk
 Liabilityside Risk
   As ofMarch 31,Year ending March 31,
    
    
    
    
    
    20062007
    
    2008
    
    2009
    
    2010
    
    2011
    
    Thereafter
    
    Total
    
    Fair value(in millions except percentage)Bonds
    
    ¥
    2,682
    
    
    ¥
    8,360
    
    
    ¥
    17,930
    
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    
    
    
    ¥
    28,972
    
    
    ¥
    30,395Average interest rate
    
    
    1.23
    %
    
    
    1.15
    %
    
    
    1.12
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.14
    %Variable(1)
    
    
    38,049
    
    
    
    28,973
    
    
    
    10,927
    
    
    
    1,460
    
    
    
    5,385
    
    
    
    
    
    
    
    84,794
    
    
    
    84,794Average interest rate
    
    
    1.39
    %
    
    
    1.31
    %
    
    
    1.12
    %
    
    
    0.60
    %
    
    
    1.22
    %
    
    
    
    
    
    
    1.31
    %Fixed
    
    
    33,144
    
    
    
    32,415
    
    
    
    14,099
    
    
    
    2,849
    
    
    
    2,651
    
    
    
    
    
    
    
    85,158
    
    
    
    85,298Average interest rate
    
    
    1.65
    %
    
    
    1.57
    %
    
    
    1.38
    %
    
    
    2.21
    %
    
    
    2.47
    %
    
    
    
    
    
    
    1.62
    %
 
 (1)
    
    Variable interest rate borrowings include asset-backed securities.    Assumed weighted average interest rate2%
    
    3%
    
    4%(in millions)Net income as reported
    
    ¥
    8,455
    
    
    ¥
    8,455
    
    
    ¥
    8,455Net income as adjusted for hypothetical increase in interest rates
    
    
    8,126
    
    
    
    7,640
    
    
    
    7,154
  -115-




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##### Table of Contents



Asset-side Risk
 Integrated Financial Services
   As of March 31,2004
    
    
    2005
    
    
    2006(years)Small business owner loans
    
    
    4.8
    
    
    
    4.3
    
    
    
    3.9Business Timely loans(1)
    
    
    3.0
    
    
    
    3.0
    
    
    
    3.0Secured loans
    
    
    5.9
    
    
    
    1.6
    
    
    
    1.5Wide loans
    
    
    4.9
    
    
    
    5.0
    
    
    
    5.1Consumer loans(1)
    
    
    3.0
    
    
    
    3.0
    
    
    
    3.0Other loans
    
    
    (2)
    
    
    
    3.5
    
    
    
    4.3
 
 (1)
    
    The average maturity of 3.0 years for Business Timely loans and consumer loans is based on
the three-year term of the loan contract, which is automatically renewable.(2)
    
    The average maturity for other loans as of March 31, 2004 was inapplicable.  Year ended March 31,2004
    
    2005
    
    2006Small business owner loans
    
    
    20.4
    %
    
    
    19.5
    %
    
    
    17.7
    %Business Timely loans
    
    
    25.6
    
    
    
    25.0
    
    
    
    24.2Secured loans
    
    
    9.2
    
    
    
    9.6
    
    
    
    7.3Wide loans
    
    
    20.8
    
    
    
    19.7
    
    
    
    19.4Consumer loans
    
    
    25.3
    
    
    
    37.1
    (1)
    
    
    24.7Other loans
    
    
    13.4
    
    
    
    12.0
    
    
    
    10.7
 
 (1)
    
    Reflecting the sale of most of the outstanding balance of our consumer loans to Orient Credit
in June 2004.  Assumed average actual interest rate per year16.0%
    
    15.5%
    
    15.0%(in millions)Net income as reported
    
    ¥
    8,455
    
    
    ¥
    8,455
    
    
    ¥
    8,455Net income as adjusted for hypothetical decrease in interest rates
    
    
    7,966
    
    
    
    7,418
    
    
    
    6,871
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Loan Servicing
  Investment Price Risk
   
 Item 12. Description of Securities Other than Equity Securities.
  -117-




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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
    Changes in Internal Control Over Financial Reporting
  -118-




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##### Table of Contents




    
    pertain to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of our assets;
    
    provide reasonable assurance that transactions are recorded as necessary to permit
preparation of our financial statements in accordance with generally accepted
accounting principles, and that our receipts and expenditures are being made only in
accordance with authorizations of our management and directors; and
    
    provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have a material
effect on our financial statements.
  
 Item 16A. Audit Committee Financial Expert.
  
 Item 16B. Code of Ethics.
  -119-




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Item 16C. Principal Accountant Fees and Services.
  Year ended March 31,2004
    
    2005
    
    2006(millions)Audit fees(1)
    
    ¥
    47
    
    
    ¥
    45
    
    
    ¥
    54Audit-related fees(2)
    
    
    6
    
    
    
    17
    
    
    
    6Tax fees(3)
    
    
    
    
    
    
    
    
    
    
    All other fees(4)
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    These are the aggregate fees billed for the fiscal year for professional services rendered by
our principal accountants for the audit of our annual financial statements and services that
are normally provided in connection with statutory and regulatory filings or engagements for
those years.(2)
    
    These are the aggregate fees billed for the fiscal year for assurance and related services by
our principal accountants that are reasonably related to the performance of the audit of our
financial statements other than those reported under Audit Fees above. These services
include due diligence and preparation of comfort letters in connection with bond offerings.(3)
    
    These are the aggregate fees billed for the fiscal year for professional services rendered
by our principle accountants for tax compliance, tax advice and tax planning.(4)
    
    These are the aggregate fees billed for the fiscal year for products and services provided
by our principle accountants other than those included above.  
 Item 16D. Exemptions from the Listing Standards for Audit Committees.
  
    
    The board of corporate 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 corporate auditors to be separate
from the board of directors.
    
    None of the members of the board of corporate auditors may be elected by management,
and none of the listed companys executive officers may be a member of the board of
corporate auditors.
    
    Japanese law must and does set forth standards for the independence of the members
of the board of corporate auditors from the listed company or its management.
    
    The board of corporate 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.
 -120-




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
    
    To the extent permitted by Japanese law:
 
    
    the board of corporate auditors must establish procedures for (i) the
receipt, retention and treatment of complaints received by us regarding
accounting, internal accounting controls, or auditing matters, and (ii) the
confidential, anonymous submission by our employees of concerns regarding questionable
accounting or auditing matters;
 
    
    the board of corporate 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 corporate 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 us, (ii) compensation to any advisers employed by the board of corporate
auditors, and (iii) ordinary administrative expenses of the board of
corporate auditors that are necessary or appropriate in carrying out its
duties.
  
 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 orPeriod
    
    Shares Purchased
    
    
    per Share
    
    
    Program
    
    
    ProgramsApril 2005
    
    
    960
    
    
    ¥
    63
    
    
    
    N/A
    
    
    
    N/AMay 2005
    
    
    8,956
    
    
    
    53
    
    
    
    N/A
    
    
    
    N/AJune 2005
    
    
    7,316
    
    
    
    52
    
    
    
    N/A
    
    
    
    N/AJuly 2005
    
    
    3,532
    
    
    
    56
    
    
    
    N/A
    
    
    
    N/AAugust 2005
    
    
    4,232
    
    
    
    60
    
    
    
    N/A
    
    
    
    N/ASeptember 2005
    
    
    4,552
    
    
    
    66
    
    
    
    N/A
    
    
    
    N/AOctober 2005
    
    
    1,442
    
    
    
    72
    
    
    
    N/A
    
    
    
    N/ANovember 2005
    
    
    828
    
    
    
    92
    
    
    
    N/A
    
    
    
    N/ADecember 2005
    
    
    3,172
    
    
    
    108
    
    
    
    N/A
    
    
    
    N/AJanuary 2006
    
    
    808
    
    
    
    139
    
    
    
    N/A
    
    
    
    N/AFebruary 2006
    
    
    580
    
    
    
    125
    
    
    
    N/A
    
    
    
    N/AMarch 2006
    
    
    1,124
    
    
    
    113
    
    
    
    N/A
    
    
    
    N/ATotal
    
    
    37,502
    
    
    ¥
    67
    
    
    
    N/A
    
    
    
    N/A
  -121-




---



##### 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 Common Stock Certificate (English Translation) (incorporated by
reference to the corresponding exhibit to our Registration Statement Form F-1 (File
No. 333-97229) declared effective on August 1, 2002)2.2
    
    
    
    Form of Deposit Agreement Among Nissin Co., Ltd., The Bank of New York as Depositary
and All Owners and Holders from Time to Time of American Depositary Receipts,
Including the Form of American Depositary Receipt (incorporated by reference to the
Registration Statement on Form F-6 (File No. 333-97133) filed on July 24, 2002)8.1
    
    
    
    List of Our Subsidiaries12.1
    
    
    
    Certification of principal executive officer required by 17 C.F.R. 240. 13a-14(a)12.2
    
    
    
    Certification of principal executive officer required by 17 C.F.R. 240. 13a-14(a)12.3
    
    
    
    Certification of principal financial officer required by 17 C.F.R. 240. 13a-14(a)13.1
    
    
    
    Certification of chief executive officer required by 18 U.S.C. Section 135013.2
    
    
    
    Certification of chief executive officer required by 18 U.S.C. Section 135013.3
    
    
    
    Certification of chief financial officer required by 18 U.S.C. Section 1350
  -122-




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##### Table of Contents



SIGNATURES
  NISSIN CO., LTD.By
    /s/ Shinsuke AmiyaName:
    Shinsuke AmiyaTitle:
    President,
Representative Director and
Co-Chief Executive Officer  S-1




---



##### 



NISSIN CO., LTD.
 INDEX TO FINANCIAL STATEMENTS
 PageAnnual Financial StatementsReport of Independent Registered Public Accounting Firm
    
    F-2Consolidated Balance Sheets as of March 31, 2005 and 2006
    
    F-3Consolidated Statements of Income for the Years Ended March 31, 2004, 2005 and 2006
    
    F-4Consolidated
Statements of Shareholders Equity for the Years Ended March 31, 2004, 2005 and 2006
    
    F-6Consolidated Statements of Cash Flows for the Years Ended March 31, 2004, 2005 and 2006
    
    F-8Notes to the Consolidated Financial Statements
    
    F-10
  F-1




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     
 F-2




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##### Table of Contents



CONSOLIDATED BALANCE SHEETS
 NISSIN CO., LTD. AND SUBSIDIARIES
March 31, 2005 and 2006
 Thousands ofMillions of Yen
    
    
    U.S. Dollars (Note 1)2005
    
    
    2006
    
    
    2006AssetsCash and cash equivalents
    
    ¥
    25,709
    
    
    ¥
    22,860
    
    
    
    $   194,603Restricted cash
    
    
    846
    
    
    
    3,417
    
    
    
    29,088Loans receivable, net
    
    
    146,119
    
    
    
    225,947
    
    
    
    1,923,444Purchased loans receivable, net
    
    
    13,581
    
    
    
    24,155
    
    
    
    205,627Interest receivable
    
    
    831
    
    
    
    1,021
    
    
    
    8,692Investment securities
    
    
    28,443
    
    
    
    42,071
    
    
    
    358,143Real estate for sale
    
    
    1,136
    
    
    
    20,792
    
    
    
    176,998Property and equipment, net
    
    
    5,285
    
    
    
    11,169
    
    
    
    95,078Investment in affiliates
    
    
    514
    
    
    
    617
    
    
    
    5,252Deferred income taxes
    
    
    333
    
    
    
    721
    
    
    
    6,138Other assets
    
    
    5,604
    
    
    
    7,173
    
    
    
    61,064Total assets
    
    ¥
    228,401
    
    
    ¥
    359,943
    
    
    
    $3,064,127Liabilities and Shareholders EquityShort-term borrowings
    
    ¥
    12,600
    
    
    ¥
    60,411
    
    
    
    $   514,267Accrued income taxes
    
    
    716
    
    
    
    6,089
    
    
    
    51,835Accrued expenses
    
    
    497
    
    
    
    702
    
    
    
    5,976Long-term borrowings
    
    
    136,844
    
    
    
    198,924
    
    
    
    1,693,403Capital lease obligations
    
    
    1,683
    
    
    
    1,337
    
    
    
    11,382Accrued retirement benefits
    
    
    330
    
    
    
    647
    
    
    
    5,508Deferred income taxes
    
    
    4,439
    
    
    
    1,382
    
    
    
    11,765Other liabilities
    
    
    3,175
    
    
    
    7,514
    
    
    
    63,964Total liabilities
    
    
    160,284
    
    
    
    277,006
    
    
    
    2,358,100Minority interests
    
    
    1,146
    
    
    
    2,433
    
    
    
    20,712Commitments and contingencies (Notes 12, 13 and 16)Shareholders equity (Note 17):Common stock  designated valueAuthorized
 1,920,000,000 and 7,680,000,000 shares at
                    March 31, 2005 and 2006, respectivelyIssued          2,614,408,468 and 2,812,941,288 shares at
                    March 31, 2005 and 2006, respectively
    
    
    7,779
    
    
    
    11,849
    
    
    
    100,868Additional paid-in capital
    
    
    9,836
    
    
    
    14,808
    
    
    
    126,058Retained earnings
    
    
    44,313
    
    
    
    50,197
    
    
    
    427,318Cumulative other comprehensive income
    
    
    8,086
    
    
    
    5,485
    
    
    
    46,693Less treasury stock, at cost:132,898,332 shares and 80,102,074 shares at March 31,
2005 and 2006, respectively
    
    
    (3,043
    )
    
    
    (1,835
    )
    
    
    (15,622
    )Total shareholders equity
    
    
    66,971
    
    
    
    80,504
    
    
    
    685,315Total liabilities and shareholders equity
    
    ¥
    228,401
    
    
    ¥
    359,943
    
    
    
    $3,064,127
  F-3




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##### Table of Contents



CONSOLIDATED STATEMENTS OF INCOME
 NISSIN CO., LTD. AND SUBSIDIARIES
For the Years Ended March 31, 2004, 2005 and 2006
 Thousands ofMillions of Yen
    
    
    U.S. Dollars (Note 1)2004
    
    
    2005
    
    
    2006
    
    
    2006Interest income:Loans
    
    ¥
    38,036
    
    
    ¥
    29,298
    
    
    ¥
    28,849
    
    
    
    $245,586Purchased loans
    
    
    2,069
    
    
    
    3,255
    
    
    
    4,960
    
    
    
    42,224Other
    
    
    2
    
    
    
    2
    
    
    
    92
    
    
    
    783Total interest income
    
    
    40,107
    
    
    
    32,555
    
    
    
    33,901
    
    
    
    288,593Interest expense:Borrowings
    
    
    3,611
    
    
    
    2,972
    
    
    
    2,608
    
    
    
    22,201Other
    
    
    113
    
    
    
    187
    
    
    
    497
    
    
    
    4,231Total interest expense
    
    
    3,724
    
    
    
    3,159
    
    
    
    3,105
    
    
    
    26,432Net interest income
    
    
    36,383
    
    
    
    29,396
    
    
    
    30,796
    
    
    
    262,161Provision for loan losses, net
    
    
    13,461
    
    
    
    8,576
    
    
    
    9,463
    
    
    
    80,557Net interest income after provision for loan
losses
    
    
    22,922
    
    
    
    20,820
    
    
    
    21,333
    
    
    
    181,604Non-interest income:Gain on sale of loans receivable
    
    
    
    
    
    
    3,327
    
    
    
    
    
    
    
    (Losses) gain on sale and impairment of investment
securities, net
    
    
    (268
    )
    
    
    (513
    )
    
    
    3,708
    
    
    
    31,566Gain (losses) on sale of subsidiaries and affiliates, net
    
    
    670
    
    
    
    1,339
    
    
    
    (43
    )
    
    
    (366
    )Guarantee fees received, net
    
    
    113
    
    
    
    317
    
    
    
    508
    
    
    
    4,325Equity losses in affiliates, net
    
    
    (183
    )
    
    
    (92
    )
    
    
    (61
    )
    
    
    (519
    )Rents, dividends and other
    
    
    398
    
    
    
    1,606
    
    
    
    5,822
    
    
    
    49,561Total non-interest income
    
    
    730
    
    
    
    5,984
    
    
    
    9,934
    
    
    
    84,567Non-interest expense:Salaries and employee benefits
    
    
    6,735
    
    
    
    6,521
    
    
    
    7,181
    
    
    
    61,131Occupancy, furniture and equipment
    
    
    2,060
    
    
    
    2,395
    
    
    
    2,654
    
    
    
    22,593Advertising
    
    
    218
    
    
    
    332
    
    
    
    629
    
    
    
    5,355Other general and administrative expenses
    
    
    3,349
    
    
    
    4,869
    
    
    
    5,060
    
    
    
    43,075Losses on sale, disposal and impairment of long-lived
assets, net
    
    
    530
    
    
    
    94
    
    
    
    16
    
    
    
    136Other
    
    
    97
    
    
    
    493
    
    
    
    456
    
    
    
    3,881Minority interests
    
    
    4
    
    
    
    192
    
    
    
    602
    
    
    
    5,125Total non-interest expense
    
    
    12,993
    
    
    
    14,896
    
    
    
    16,598
    
    
    
    141,296Income before income taxes
    
    
    10,659
    
    
    
    11,908
    
    
    
    14,669
    
    
    
    124,875Income taxes
    
    
    4,582
    
    
    
    4,646
    
    
    
    6,214
    
    
    
    52,899Net income
    
    ¥
    6,077
    
    
    ¥
    7,262
    
    
    ¥
    8,455
    
    
    
    $ 71,976
 F-4




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##### Table of Contents



CONSOLIDATED STATEMENTS OF INCOME  NISSIN CO., LTD. AND SUBSIDIARIES  For the Years Ended March 31, 2004, 2005 and 2006
 U.S. DollarsYen
    
    
    (Note 1)Per share data:
    
    2004
    
    
    2005
    
    
    2006
    
    
    2006Net income  basic
    
    
    ¥2.54
    
    
    
    ¥2.98
    
    
    
    ¥3.27
    
    
    
    $0.028 diluted
    
    
    2.34
    
    
    
    2.70
    
    
    
    3.08
    
    
    
    0.026Cash dividends paid
    
    
    0.42
    
    
    
    0.53
    
    
    
    1.02
    
    
    
    0.009
 Weighted average shares outstanding
 Thousands of Shares2004
    
    
    2005
    
    
    2006Basic
    
    
    2,393,856
    
    
    
    2,441,656
    
    
    
    2,584,935Diluted
    
    
    2,640,788
    
    
    
    2,703,868
    
    
    
    2,758,832
  F-5




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##### Table of Contents



CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 NISSIN CO., LTD. AND SUBSIDIARIES
For the Years Ended March 31, 2004, 2005 and 2006
 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, 2003
    
    
    2,546,380
    
    
    
    ¥6,611
    
    
    
    ¥8,462
    
    
    
    ¥33,275
    
    
    
    ¥     70
    
    
    
    ¥(2,821
    )
    
    
    ¥45,597Exercise of stock warrants
    
    
    40,364
    
    
    
    607
    
    
    
    607
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,214Stock issuance costs
    
    
    
    
    
    
    
    
    
    
    (13
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13
    )Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,077
    
    
    
    
    
    
    
    
    
    
    
    6,077Other comprehensive
income, net of taxChange in net
unrealized gains on
investment securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,304
    
    
    
    
    
    
    
    3,304Change in net
unrealized losses on
derivative instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,378Cash dividends paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,001
    )
    
    
    
    
    
    
    
    
    
    
    (1,001
    )Repurchases of warrants
    
    
    
    
    
    
    
    
    
    
    (7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7
    )Purchases of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,209
    )
    
    
    (1,209
    )Sales of treasury stock
    
    
    
    
    
    
    
    
    
    
    43
    
    
    
    
    
    
    
    
    
    
    
    295
    
    
    
    338Balance as of March 31, 2004
    
    
    2,586,744
    
    
    
    7,218
    
    
    
    9,092
    
    
    
    38,351
    
    
    
    3,371
    
    
    
    (3,735
    )
    
    
    54,297Exercise of stock warrants
and convertible bonds
    
    
    27,664
    
    
    
    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
    
    
    2,614,408
    
    
    
    7,779
    
    
    
    9,836
    
    
    
    44,313
    
    
    
    8,086
    
    
    
    (3,043
    )
    
    
    66,971
 (Continued)
 F-6




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##### Table of Contents



CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
NISSIN CO., LTD. AND SUBSIDIARIES
For the Years Ended March 31, 2004, 2005 and 2006
 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, 2005
    
    
    2,614,408
    
    
    
    7,779
    
    
    
    9,836
    
    
    
    44,313
    
    
    
    8,086
    
    
    
    (3,043
    )
    
    
    66,971Conversion
of convertible bonds
    
    
    198,533
    
    
    
    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
    
    
    2,812,941
    
    
    ¥
    11,849
    
    
    
    ¥14,808
    
    
    ¥
    50,197
    
    
    
    ¥5,485
    
    
    
    ¥(1,835
    )
    
    
    ¥80,504
 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, 2005
    
    
    2,614,408
    
    
    $
    66,221
    
    
    
    $  83,732
    
    
    $
    377,228
    
    
    
    $ 68,835
    
    
    
    $(25,904
    )
    
    
    $570,112Conversion
of convertible bonds
    
    
    198,533
    
    
    
    34,647
    
    
    
    34,477
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    69,124Stock issuance costs
    
    
    
    
    
    
    
    
    
    
    (655
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (655
    )Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71,976
    
    
    
    
    
    
    
    
    
    
    
    71,976Other comprehensive
income, net of taxChange in net
unrealized gains on investment securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23,538
    )
    
    
    
    
    
    
    (23,538
    )Change in net
unrealized losses on derivative instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34
    
    
    
    
    
    
    
    34Change in foreign
currency adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,362
    
    
    
    
    
    
    
    1,362Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49,834Cash dividends paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21,886
    )
    
    
    
    
    
    
    
    
    
    
    (21,886
    )Purchases of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18
    )
    
    
    (18
    )Sales of treasury stock
    
    
    
    
    
    
    
    
    
    
    8,504
    
    
    
    
    
    
    
    
    
    
    
    10,300
    
    
    
    18,804Balance as of March 31, 2006
    
    
    2,812,941
    
    
    $
    100,868
    
    
    
    $126,058
    
    
    $
    427,318
    
    
    
    $ 46,693
    
    
    
    $(15,622
    )
    
    
    $685,315
  F-7




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##### Table of Contents



CONSOLIDATED STATEMENTS OF CASH FLOWS
NISSIN CO., LTD. AND SUBSIDIARIES
For the Years Ended March 31, 2004, 2005 and 2006
 Thousands ofMillions of Yen
    
    
    U.S. Dollars (Note 1)2004
    
    
    2005
    
    
    2006
    
    
    2006Operating ActivitiesNet income
    
    
    ¥     6,077
    
    
    
    ¥     7,262
    
    
    
    ¥      8,455
    
    
    
    $    71,976Adjustments to reconcile net income to net cash provided
by operating activities:Provision for loan losses, net
    
    
    13,461
    
    
    
    8,576
    
    
    
    9,463
    
    
    
    80,557Depreciation and amortization
    
    
    884
    
    
    
    1,175
    
    
    
    1,333
    
    
    
    11,348Amortization of debt issuance costs
    
    
    221
    
    
    
    239
    
    
    
    184
    
    
    
    1,566Amortization of loan origination costs
    
    
    751
    
    
    
    540
    
    
    
    431
    
    
    
    3,669Gain on sale of loans receivable
    
    
    
    
    
    
    (3,327
    )
    
    
    
    
    
    
    Losses (gain) on sale and impairment of investment
securities, net
    
    
    268
    
    
    
    513
    
    
    
    (3,708
    )
    
    
    (31,566
    )Losses on sale, disposal and impairment of long-lived
assets, net
    
    
    530
    
    
    
    94
    
    
    
    16
    
    
    
    136(Gain) losses on sale of subsidiaries and affiliates, net
    
    
    (670
    )
    
    
    (1,339
    )
    
    
    43
    
    
    
    366Equity losses in affiliates, net
    
    
    183
    
    
    
    92
    
    
    
    61
    
    
    
    519Deferred income taxes
    
    
    (633
    )
    
    
    1,427
    
    
    
    (1,460
    )
    
    
    (12,429
    )Minority interests
    
    
    4
    
    
    
    192
    
    
    
    602
    
    
    
    5,125Changes in assets and liabilities:Interest receivable
    
    
    117
    
    
    
    229
    
    
    
    (166
    )
    
    
    (1,413
    )Accrued income taxes and expenses
    
    
    (58
    )
    
    
    (2,181
    )
    
    
    5,521
    
    
    
    46,999Other liabilities
    
    
    807
    
    
    
    1,194
    
    
    
    3,495
    
    
    
    29,753Net cash provided by operating activities
    
    
    21,942
    
    
    
    14,686
    
    
    
    24,270
    
    
    
    206,606Investing ActivitiesProceeds from sales of loans receivable
    
    
    
    
    
    
    32,697
    
    
    
    
    
    
    
    Loans receivable, net of principal collections
    
    
    (13,764
    )
    
    
    (17,615
    )
    
    
    (82,347
    )
    
    
    (701,005
    )Purchases of distressed loans
    
    
    (4,502
    )
    
    
    (16,896
    )
    
    
    (19,779
    )
    
    
    (168,375
    )Proceeds from principal collections of distressed loans
    
    
    2,469
    
    
    
    6,840
    
    
    
    6,956
    
    
    
    59,215Proceeds from sales of distressed loans
    
    
    
    
    
    
    
    
    
    
    711
    
    
    
    6,053Purchases of investment securities
    
    
    (3,605
    )
    
    
    (16,508
    )
    
    
    (26,794
    )
    
    
    (228,092
    )Proceeds from sales of investment securities
    
    
    2,173
    
    
    
    5,125
    
    
    
    12,707
    
    
    
    108,172Purchases of
real estate for sale
    
    
    
    
    
    
    (1,958
    )
    
    
    (24,699
    )
    
    
    (210,258
    )Proceeds
from sales of real estate
    
    
    20
    
    
    
    974
    
    
    
    5,395
    
    
    
    45,927Purchases of property and equipment
    
    
    (880
    )
    
    
    (1,754
    )
    
    
    (6,368
    )
    
    
    (54,210
    )Proceeds from sales of property and equipment
    
    
    382
    
    
    
    16
    
    
    
    3
    
    
    
    26Investment in affiliates
    
    
    (450
    )
    
    
    (160
    )
    
    
    (46
    )
    
    
    (392
    )Proceeds from sales of affiliates
    
    
    504
    
    
    
    
    
    
    
    
    
    
    
    Acquisition of a new subsidiary, net of cash acquired
    
    
    
    
    
    
    (764
    )
    
    
    (554
    )
    
    
    (4,716
    )Proceeds from sales of subsidiaries, net of cash decreased
    
    
    78
    
    
    
    
    
    
    
    
    
    
    
    Other changes in other assets
    
    
    (726
    )
    
    
    (2,543
    )
    
    
    (1,161
    )
    
    
    (9,883
    )Net cash used in investing activities
    
    
    (18,301
    )
    
    
    (12,546
    )
    
    
    (135,976
    )
    
    
    (1,157,538
    )
 (Continued)
 F-8




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##### Table of Contents



CONSOLIDATED STATEMENTS OF CASH FLOWS
NISSIN CO., LTD. AND SUBSIDIARIES
For the Years Ended March 31, 2004, 2005 and 2006
 Thousands ofMillions of Yen
    
    
    U.S. Dollars (Note 1)2004
    
    
    2005
    
    
    2006
    
    
    2006(Continued)Financing ActivitiesDeposit of restricted cash
    
    
    (212
    )
    
    
    (411
    )
    
    
    (2,571
    )
    
    
    (21,886
    )Issuance of commercial paper
    
    
    13,000
    
    
    
    15,100
    
    
    
    65,900
    
    
    
    560,994Repayments of commercial paper
    
    
    (12,200
    )
    
    
    (14,800
    )
    
    
    (39,400
    )
    
    
    (335,405
    )Proceeds from short-term borrowings
    
    
    3,539
    
    
    
    20,851
    
    
    
    107,472
    
    
    
    914,889Repayments of short-term borrowings
    
    
    (4,100
    )
    
    
    (13,483
    )
    
    
    (87,144
    )
    
    
    (741,840
    )Proceeds from long-term borrowings
    
    
    56,564
    
    
    
    83,685
    
    
    
    141,918
    
    
    
    1,208,121Repayments of long-term borrowings
    
    
    (62,686
    )
    
    
    (88,555
    )
    
    
    (76,425
    )
    
    
    (650,592
    )Payments of capital lease obligations
    
    
    (762
    )
    
    
    (823
    )
    
    
    (614
    )
    
    
    (5,227
    )Repurchases of stock warrants
    
    
    (7
    )
    
    
    
    
    
    
    
    
    
    
    Proceeds from exercise of stock warrants
    
    
    1,214
    
    
    
    54
    
    
    
    
    
    
    
    Stock issuance costs
    
    
    (13
    )
    
    
    (23
    )
    
    
    (77
    )
    
    
    (655
    )Purchases of treasury stock
    
    
    (1,209
    )
    
    
    (1
    )
    
    
    (2
    )
    
    
    (18
    )Proceeds from sales of treasury stock
    
    
    338
    
    
    
    909
    
    
    
    2,209
    
    
    
    18,805Dividends paid
    
    
    (1,001
    )
    
    
    (1,300
    )
    
    
    (2,571
    )
    
    
    (21,886
    )Dividends
paid to minority interests
    
    
    
    
    
    
    
    
    
    
    (99
    )
    
    
    (843
    )Proceeds from issuance of new shares by subsidiaries
    
    
    525
    
    
    
    2,132
    
    
    
    79
    
    
    
    673Net cash (used in) provided by financing activities
    
    
    (7,010
    )
    
    
    3,335
    
    
    
    108,675
    
    
    
    925,130Effect of exchange rate changes on cash and cash equivalents
    
    
    
    
    
    
    (9
    )
    
    
    182
    
    
    
    1,549Net (decrease) increase in cash and cash equivalents
    
    
    (3,369
    )
    
    
    5,466
    
    
    
    (2,849
    )
    
    
    (24,253
    )Cash and cash equivalents at beginning of year
    
    
    23,612
    
    
    
    20,243
    
    
    
    25,709
    
    
    
    218,856Cash and cash equivalents at end of year
    
    
    ¥ 20,243
    
    
    
    ¥ 25,709
    
    
    
    ¥   22,860
    
    
    
    $   194,603
  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
   Small business owner loans
 Business Timely loans
 Secured loans
 Wide loans
 Consumer loans
 Other loans
 Other products
   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 Statements Presentation in U.S. Dollars
  2. Summary of Significant Accounting Policies
 (a) Cash and Cash Equivalents
  F-11




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (b) Foreign Currencies Translation
   (c) Interest Income from Loans Receivable and Loan Origination Costs
     (d) Loans Receivable and Allowance for Loan Losses
  F-12




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
   Small business owner loans and Wide loans:
 Business Timely loans and Consumer loans:
 Secured loans:
 (e) Investment in Leases and Revenue Recognition
   (f) Purchased Loans Receivable and Revenue Recognition
  F-13




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
   (g) Investment Securities
       (h) Real Estate for Sale
    F-14




---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (i) Long-lived Assets
    (j) Investments in Affiliates
  (k) Goodwill and Other Intangible Assets
   F-15




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (l) Derivative Financial Instruments
     (1)
    
    specific assets and liabilities on the balance sheet, or(2)
    
    specific firm commitments or forecasted transactions.
   F-16




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  (1)
    
    it determines that the derivative is no longer effective in offsetting changes in the
cash flows of a hedged item;(2)
    
    the derivative expires or is sold, terminated, or exercised;(3)
    
    it is no longer probable that the forecasted transaction will occur; or(4)
    
    management determines that designating the derivative as a hedging instrument is no
longer appropriate.
    (m) Guarantees
    (n) Treasury Stock
  (o) Advertising Costs
  F-17




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (p) Income Taxes
  (q) Net Income Per Share (EPS)
   (r) Stock-based Compensation
   F-18




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Thousands ofMillions of Yen
    
    
    U.S. Dollars2004
    
    
    2005
    
    
    2006
    
    
    2006Net income, as reported
    
    
    ¥6,077
    
    
    
    ¥7,262
    
    
    
    ¥8,455
    
    
    
    $71,976Add 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
    
    
    121
    
    
    
    129
    
    
    
    346
    
    
    
    2,946Pro forma net income
    
    
    ¥5,956
    
    
    
    ¥7,133
    
    
    
    ¥8,109
    
    
    
    $69,030
 Yen
    
    U.S. Dollars2004
    
    2005
    
    2006
    
    2006Net income per common share:As reported  basic
    
    
    ¥2.54
    
    
    
    ¥2.98
    
    
    
    ¥3.27
    
    
    
    $0.028As reported  diluted
    
    
    2.34
    
    
    
    2.70
    
    
    
    3.08
    
    
    
    0.026
 Yen
    
    U.S. Dollars2004
    
    2005
    
    2006
    
    2006Net income per common share:Pro forma  basic
    
    
    ¥2.49
    
    
    
    ¥2.92
    
    
    
    ¥3.14
    
    
    
    $0.027Pro forma  diluted
    
    
    2.30
    
    
    
    2.64
    
    
    
    2.94
    
    
    
    0.025
  2004
    
    2005
    
    2006Weighted-average assumptions:Risk-free interest rate
    
    
    0.3
    %
    
    
    0.3
    %
    
    
    1.5
    %Expected lives
    
    3.0 years
    
    3.0 years
    
    3.2 yearsExpected volatility
    
    
    38
    %
    
    
    33
    %
    
    
    31
    %Dividend yield
    
    
    1.7
    %
    
    
    1.1
    %
    
    
    1.3
    %Weighted-average fair value of grant per share
    
    
    ¥3.30
    
    
    
    ¥6.47
    
    
    
    ¥7.79
 (s) Issuance of Stock by Subsidiaries or Affiliates
  (t) Comprehensive Income
  F-19




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 3. Recently Issued Accounting Pronouncements
  4. Loans Receivable and Allowance for Loan Losses
  Thousands ofMillions of Yen
    
    
    U.S. Dollars2005
    
    
    2006
    
    
    2006Small business owner loans
    
    ¥
    58,961
    
    
    ¥
    65,447
    
    
    $
    557,138Business Timely loans
    
    
    20,862
    
    
    
    25,282
    
    
    
    215,221Secured loans
    
    
    18,812
    
    
    
    91,610
    
    
    
    779,859Wide loans
    
    
    47,604
    
    
    
    41,163
    
    
    
    350,413Consumer loans
    
    
    2,827
    
    
    
    2,995
    
    
    
    25,496Other loans
    
    
    6,296
    
    
    
    10,681
    
    
    
    90,924Total loans outstanding
    
    
    155,362
    
    
    
    237,178
    
    
    
    2,019,051Allowance for loan losses
    
    
    (10,034
    )
    
    
    (11,003
    )
    
    
    (93,666
    )Deferred origination costs (fee income)
    
    
    791
    
    
    
    (228
    )
    
    
    (1,941
    )Loans receivable, net
    
    ¥
    146,119
    
    
    ¥
    225,947
    
    
    $
    1,923,444
  Thousands ofMillions of Yen
    
    
    U.S. Dollars2004
    
    
    2005
    
    
    2006
    
    
    2006Balance at beginning of year
    
    ¥
    11,827
    
    
    ¥
    13,528
    
    
    ¥
    10,034
    
    
    $
    85,418Provision for loans receivable on sold loans
    
    
    
    
    
    
    (3,327
    )
    
    
    
    
    
    
    Provision for loan losses
    
    
    12,824
    
    
    
    7,759
    
    
    
    8,277
    
    
    
    70,461Charge-offs, net of recoveries, and other
    
    
    (11,123
    )
    
    
    (7,926
    )
    
    
    (7,308
    )
    
    
    (62,213
    )Balance at end of year
    
    ¥
    13,528
    
    
    ¥
    10,034
    
    
    ¥
    11,003
    
    
    $
    93,666
 F-20




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Millions of Yen2005SmallBusiness
    
    
    BusinessOwner
    
    
    Timely
    
    
    Secured
    
    
    
    
    
    
    ConsumerLoans
    
    
    Loans
    
    
    Loans
    
    
    Wide Loans
    
    
    Loans
    
    
    Other Loans
    
    
    TotalHistorical Loss Components- CurrentCurrent
    
    ¥
    50,825
    
    
    ¥
    20,295
    
    
    ¥
    18,405
    
    
    ¥
    39,542
    
    
    ¥
    2,719
    
    
    ¥
    6,149
    
    
    ¥
    137,935Restructured
    
    
    6,371
    
    
    
    567
    
    
    
    71
    
    
    
    6,758
    
    
    
    108
    
    
    
    
    
    
    
    13,875Loans outstanding
    
    
    57,196
    
    
    
    20,862
    
    
    
    18,476
    
    
    
    46,300
    
    
    
    2,827
    
    
    
    6,149
    
    
    
    151,810Allowance
    
    
    1,993
    
    
    
    2,231
    
    
    
    582
    
    
    
    1,698
    
    
    
    308
    
    
    
    120
    
    
    
    6,932- 67 to 96 daysLoans outstanding
    
    
    206
    
    
    
    
    
    
    
    14
    
    
    
    103
    
    
    
    
    
    
    
    97
    
    
    
    420Allowance
    
    
    144
    
    
    
    
    
    
    
    10
    
    
    
    72
    
    
    
    
    
    
    
    61
    
    
    
    287- 97 to 120 daysLoans outstanding
    
    
    113
    
    
    
    
    
    
    
    5
    
    
    
    82
    
    
    
    
    
    
    
    20
    
    
    
    220Allowance
    
    
    113
    
    
    
    
    
    
    
    5
    
    
    
    82
    
    
    
    
    
    
    
    20
    
    
    
    220- Over 120 daysLoans outstanding
    
    
    841
    
    
    
    
    
    
    
    9
    
    
    
    585
    
    
    
    
    
    
    
    18
    
    
    
    1,453Allowance
    
    
    841
    
    
    
    
    
    
    
    9
    
    
    
    585
    
    
    
    
    
    
    
    18
    
    
    
    1,453Loans outstanding
    
    
    58,356
    
    
    
    20,862
    
    
    
    18,504
    
    
    
    47,070
    
    
    
    2,827
    
    
    
    6,284
    
    
    
    153,903Allowance
    
    
    3,091
    
    
    
    2,231
    
    
    
    606
    
    
    
    2,437
    
    
    
    308
    
    
    
    219
    
    
    
    8,892Other Components:- Bankrupt loansLoans outstanding
    
    
    441
    
    
    
    
    
    
    
    4
    
    
    
    404
    
    
    
    
    
    
    
    12
    
    
    
    861Allowance
    
    
    431
    
    
    
    
    
    
    
    3
    
    
    
    394
    
    
    
    
    
    
    
    12
    
    
    
    840- Loans under legal processLoans outstanding
    
    
    164
    
    
    
    
    
    
    
    304
    
    
    
    130
    
    
    
    
    
    
    
    
    
    
    
    598Allowance
    
    
    84
    
    
    
    
    
    
    
    152
    
    
    
    66
    
    
    
    
    
    
    
    
    
    
    
    302Loans outstanding
    
    
    605
    
    
    
    
    
    
    
    308
    
    
    
    534
    
    
    
    
    
    
    
    12
    
    
    
    1,459Allowance
    
    
    515
    
    
    
    
    
    
    
    155
    
    
    
    460
    
    
    
    
    
    
    
    12
    
    
    
    1,142Total loans outstanding
    
    ¥
    58,961
    
    
    ¥
    20,862
    
    
    ¥
    18,812
    
    
    ¥
    47,604
    
    
    ¥
    2,827
    
    
    ¥
    6,296
    
    
    ¥
    155,362Total allowance
    
    
    3,606
    
    
    
    2,231
    
    
    
    761
    
    
    
    2,897
    
    
    
    308
    
    
    
    231
    
    
    
    10,034
 F-21




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Millions of Yen2006SmallBusiness
    
    
    BusinessOwner
    
    
    Timely
    
    
    Secured
    
    
    
    
    
    
    ConsumerLoans
    
    
    Loans
    
    
    Loans
    
    
    Wide Loans
    
    
    Loans
    
    
    Other Loans
    
    
    TotalHistorical Loss Components- CurrentCurrent
    
    ¥
    55,604
    
    
    ¥
    24,503
    
    
    ¥
    90,905
    
    
    ¥
    34,259
    
    
    ¥
    2,892
    
    
    ¥
    10,375
    
    
    ¥
    218,538Restructured
    
    
    6,917
    
    
    
    779
    
    
    
    665
    
    
    
    5,934
    
    
    
    103
    
    
    
    12
    
    
    
    14,410Loans outstanding
    
    
    62,521
    
    
    
    25,282
    
    
    
    91,570
    
    
    
    40,193
    
    
    
    2,995
    
    
    
    10,387
    
    
    
    232,948Allowance
    
    
    2,049
    
    
    
    2,694
    
    
    
    532
    
    
    
    1,481
    
    
    
    213
    
    
    
    197
    
    
    
    7,166- 67 to 96 daysLoans outstanding
    
    
    339
    
    
    
    
    
    
    
    2
    
    
    
    83
    
    
    
    
    
    
    
    87
    
    
    
    511Allowance
    
    
    238
    
    
    
    
    
    
    
    2
    
    
    
    58
    
    
    
    
    
    
    
    61
    
    
    
    359- 97 to 120 daysLoans outstanding
    
    
    73
    
    
    
    
    
    
    
    
    
    
    
    32
    
    
    
    
    
    
    
    141
    
    
    
    246Allowance
    
    
    73
    
    
    
    
    
    
    
    
    
    
    
    32
    
    
    
    
    
    
    
    141
    
    
    
    246- Over 120 daysLoans outstanding
    
    
    1,452
    
    
    
    
    
    
    
    15
    
    
    
    499
    
    
    
    
    
    
    
    16
    
    
    
    1,982Allowance
    
    
    1,452
    
    
    
    
    
    
    
    15
    
    
    
    499
    
    
    
    
    
    
    
    16
    
    
    
    1,982Loans outstanding
    
    
    64,385
    
    
    
    25,282
    
    
    
    91,587
    
    
    
    40,807
    
    
    
    2,995
    
    
    
    10,631
    
    
    
    235,687Allowance
    
    
    3,812
    
    
    
    2,694
    
    
    
    549
    
    
    
    2,070
    
    
    
    213
    
    
    
    415
    
    
    
    9,753Other Components:- Bankrupt loansLoans outstanding
    
    
    833
    
    
    
    
    
    
    
    19
    
    
    
    264
    
    
    
    
    
    
    
    40
    
    
    
    1,156Allowance
    
    
    785
    
    
    
    
    
    
    
    7
    
    
    
    256
    
    
    
    
    
    
    
    36
    
    
    
    1,084- Loans under legal processLoans outstanding
    
    
    229
    
    
    
    
    
    
    
    4
    
    
    
    92
    
    
    
    
    
    
    
    10
    
    
    
    335Allowance
    
    
    114
    
    
    
    
    
    
    
    2
    
    
    
    46
    
    
    
    
    
    
    
    4
    
    
    
    166Loans outstanding
    
    
    1,062
    
    
    
    
    
    
    
    23
    
    
    
    356
    
    
    
    
    
    
    
    50
    
    
    
    1,491Allowance
    
    
    899
    
    
    
    
    
    
    
    9
    
    
    
    302
    
    
    
    
    
    
    
    40
    
    
    
    1,250Total loans outstanding
    
    ¥
    65,447
    
    
    ¥
    25,282
    
    
    ¥
    91,610
    
    
    ¥
    41,163
    
    
    ¥
    2,995
    
    
    ¥
    10,681
    
    
    ¥
    237,178Total allowance
    
    
    4,711
    
    
    
    2,694
    
    
    
    558
    
    
    
    2,372
    
    
    
    213
    
    
    
    455
    
    
    
    11,003
 F-22




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Thousands of U.S. Dollars2006SmallBusiness
    
    
    BusinessOwner
    
    
    Timely
    
    
    Secured
    
    
    
    
    
    
    ConsumerLoans
    
    
    Loans
    
    
    Loans
    
    
    Wide Loans
    
    
    Loans
    
    
    Other Loans
    
    
    TotalHistorical Loss Components:- CurrentCurrent
    
    $
    473,346
    
    
    $
    208,589
    
    
    $
    773,857
    
    
    $
    291,640
    
    
    $
    24,619
    
    
    $
    88,320
    
    
    $
    1,860,371Restructured
    
    
    58,883
    
    
    
    6,632
    
    
    
    5,661
    
    
    
    50,515
    
    
    
    877
    
    
    
    102
    
    
    
    122,670Loans outstanding
    
    
    532,229
    
    
    
    215,221
    
    
    
    779,518
    
    
    
    342,155
    
    
    
    25,496
    
    
    
    88,422
    
    
    
    1,983,041Allowance
    
    
    17,443
    
    
    
    22,934
    
    
    
    4,529
    
    
    
    12,607
    
    
    
    1,813
    
    
    
    1,677
    
    
    
    61,003- 67 to 96 daysLoans outstanding
    
    
    2,886
    
    
    
    
    
    
    
    17
    
    
    
    707
    
    
    
    
    
    
    
    740
    
    
    
    4,350Allowance
    
    
    2,026
    
    
    
    
    
    
    
    17
    
    
    
    494
    
    
    
    
    
    
    
    520
    
    
    
    3,057- 97 to 120 daysLoans outstanding
    
    
    621
    
    
    
    
    
    
    
    
    
    
    
    272
    
    
    
    
    
    
    
    1,200
    
    
    
    2,093Allowance
    
    
    621
    
    
    
    
    
    
    
    
    
    
    
    272
    
    
    
    
    
    
    
    1,200
    
    
    
    2,093- Over 120 daysLoans outstanding
    
    
    12,361
    
    
    
    
    
    
    
    128
    
    
    
    4,248
    
    
    
    
    
    
    
    136
    
    
    
    16,873Allowance
    
    
    12,361
    
    
    
    
    
    
    
    128
    
    
    
    4,248
    
    
    
    
    
    
    
    136
    
    
    
    16,873Loans outstanding
    
    
    548,097
    
    
    
    215,221
    
    
    
    779,663
    
    
    
    347,382
    
    
    
    25,496
    
    
    
    90,498
    
    
    
    2,006,357Allowance
    
    
    32,451
    
    
    
    22,934
    
    
    
    4,674
    
    
    
    17,621
    
    
    
    1,813
    
    
    
    3,533
    
    
    
    83,026Other Components:- Bankrupt loansLoans outstanding
    
    
    7,091
    
    
    
    
    
    
    
    162
    
    
    
    2,247
    
    
    
    
    
    
    
    341
    
    
    
    9,841Allowance
    
    
    6,683
    
    
    
    
    
    
    
    60
    
    
    
    2,179
    
    
    
    
    
    
    
    306
    
    
    
    9,228- Loans under legal processLoans outstanding
    
    
    1,950
    
    
    
    
    
    
    
    34
    
    
    
    784
    
    
    
    
    
    
    
    85
    
    
    
    2,853Allowance
    
    
    969
    
    
    
    
    
    
    
    17
    
    
    
    392
    
    
    
    
    
    
    
    34
    
    
    
    1,412Loans outstanding
    
    
    9,041
    
    
    
    
    
    
    
    196
    
    
    
    3,031
    
    
    
    
    
    
    
    426
    
    
    
    12,694Allowance
    
    
    7,652
    
    
    
    
    
    
    
    77
    
    
    
    2,571
    
    
    
    
    
    
    
    340
    
    
    
    10,640Total loans outstanding
    
    $
    557,138
    
    
    $
    215,221
    
    
    $
    779,859
    
    
    $
    350,413
    
    
    $
    25,496
    
    
    $
    90,924
    
    
    $
    2,019,051Total allowance
    
    
    40,103
    
    
    
    22,934
    
    
    
    4,751
    
    
    
    20,192
    
    
    
    1,813
    
    
    
    3,873
    
    
    
    93,666
  (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-23




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Thousands ofMillions of Yen
    
    
    U.S. DollarsYear ending March 31,2007
    
    ¥
    134,936
    
    
    $
    1,148,6852008
    
    
    44,032
    
    
    
    374,8362009
    
    
    33,737
    
    
    
    287,1972010
    
    
    14,706
    
    
    
    125,1892011 and thereafter
    
    
    9,767
    
    
    
    83,144Total loans outstanding
    
    ¥
    237,178
    
    
    $
    2,019,051
  Thousands ofMillions of Yen
    
    
    U.S. Dollars2005
    
    
    2006
    
    
    2006Aggregate lease payments receivable
    
    ¥
    3,000
    
    
    ¥
    4,002
    
    
    $
    34,068Initial direct costs
    
    
    
    
    
    
    
    
    
    
    Unearned lease income
    
    
    (751
    )
    
    
    (901
    )
    
    
    (7,670
    )Investment in direct financing leases
    
    
    2,249
    
    
    
    3,101
    
    
    
    26,398Allowance for loan and lease losses
    
    
    (81
    )
    
    
    (122
    )
    
    
    (1,038
    )Investment in direct financing leases, net
    
    ¥
    2,168
    
    
    ¥
    2,979
    
    
    $
    25,360
   Thousands ofMillions of Yen
    
    
    U.S. DollarsYear ending March 31,2007
    
    ¥
    1,098
    
    
    $
    9,3472008
    
    
    1,081
    
    
    
    9,2022009
    
    
    1,002
    
    
    
    8,5302010
    
    
    643
    
    
    
    5,4742011 and thereafter
    
    
    178
    
    
    
    1,515Aggregate lease payments receivable
    
    ¥
    4,002
    
    
    $
    34,068
  F -24




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 5. Purchased Loans Receivable
   Thousands ofMillions of Yen
    
    
    U.S. Dollars2005
    
    
    2006
    
    
    2006Purchased loans outstanding
    
    ¥
    14,863
    
    
    ¥
    25,947
    
    
    $
    220,882Allowance for loan losses
    
    
    (1,282
    )
    
    
    (1,792
    )
    
    
    (15,255
    )Purchased loans receivable, net
    
    ¥
    13,581
    
    
    ¥
    24,155
    
    
    $
    205,627
  Thousands ofMillions of Yen
    
    
    U.S. Dollars2004
    
    
    2005
    
    
    2006
    
    
    2006Purchased loans receivable:Balance at beginning of year
    
    ¥
    3,078
    
    
    ¥
    5,059
    
    
    ¥
    14,863
    
    
    $
    126,527Purchases
    
    
    4,502
    
    
    
    16,896
    
    
    
    19,779
    
    
    
    168,375Principal collections(A)
    
    
    (2,469
    )
    
    
    (6,840
    )
    
    
    (7,308
    )
    
    
    (62,212
    )Sales(B)
    
    
    
    
    
    
    
    
    
    
    (711
    )
    
    
    (6,053
    )Charge-offs
    
    
    (52
    )
    
    
    (252
    )
    
    
    (676
    )
    
    
    (5,755
    )Balance at end of year
    
    
    5,059
    
    
    
    14,863
    
    
    
    25,947
    
    
    
    220,882Allowance for loan losses:Balance at beginning of year
    
    
    132
    
    
    
    717
    
    
    
    1,282
    
    
    
    10,914Provision for loan losses
    
    
    637
    
    
    
    817
    
    
    
    1,186
    
    
    
    10,096Charge-offs
    
    
    (52
    )
    
    
    (252
    )
    
    
    (676
    )
    
    
    (5,755
    )Balance at end of year
    
    
    717
    
    
    
    1,282
    
    
    
    1,792
    
    
    
    15,255Purchased loans receivable, net
    
    ¥
    4,342
    
    
    ¥
    13,581
    
    
    ¥
    24,155
    
    
    $
    205,627
 
 (A)
    
    Including non-cash payments such as foreclosed property of ¥352 million ($2,997 thousand) for
the year ended March 31, 2006.(B)
    
    Sold to an equity-method affiliate at cost. The Group did not recognize any gains or
losses from this transaction.   F -25




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 6. Investment Securities
  Thousands ofMillions of Yen
    
    
    U.S. Dollars2005
    
    
    2006
    
    
    2006Marketable securities:Marketable equity securities
    
    ¥
    18,644
    
    
    ¥
    23,396
    
    
    $
    199,166Debt securities
    
    
    155
    
    
    
    114
    
    
    
    970Other investments
    
    
    9,644
    
    
    
    18,561
    
    
    
    158,007Total investment securities
    
    ¥
    28,443
    
    
    ¥
    42,071
    
    
    $
    358,143
  2005:
 Millions of YenGross
    
    
    GrossUnrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueMarketable equity
securities
    
    ¥
    5,031
    
    
    ¥
    13,613
    
    
    ¥
    
    
    
    ¥
    18,6442006: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
    
    ¥
    14,424
    
    
    ¥
    9,121
    
    
    ¥
    149
    
    
    ¥
    23,396
    
    
    $
    122,789
    
    
    $
    77,645
    
    
    $
    1,268
    
    
    $
    199,166
    Thousands ofMillions of Yen
    
    
    U.S. Dollars2005
    
    
    2006
    
    
    2006Non-marketable equity securities
    
    ¥
    2,716
    
    
    ¥
    4,594
    
    
    $
    39,108Investment funds
    
    
    6,812
    
    
    
    13,734
    
    
    
    116,915Other
    
    
    116
    
    
    
    233
    
    
    
    1,984Total other investments
    
    ¥
    9,644
    
    
    ¥
    18,561
    
    
    $
    158,007
 F-26




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 7. Property and Equipment
  Thousands ofMillions of Yen
    
    
    U.S. Dollars2005
    
    
    2006
    
    
    2006Land
    
    ¥
    356
    
    
    ¥
    4,070
    
    
    $
    34,647Buildings and structures
    
    
    1,264
    
    
    
    4,043
    
    
    
    34,417Equipment and software
    
    
    5,756
    
    
    
    6,587
    
    
    
    56,074Sub-total
    
    
    7,376
    
    
    
    14,700
    
    
    
    125,138Less accumulated depreciation and amortization
    
    
    (2,091
    )
    
    
    (3,531
    )
    
    
    (30,060
    )Property and equipment, net
    
    ¥
    5,285
    
    
    ¥
    11,169
    
    
    $
    95,078
   8. Acquisitions
   F-27




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##### 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 Yen
    
    
    Thousands ofU.S. DollarsFair value of assets acquired:Current assets
    
    
    ¥  7,896
    
    
    
    $   67,217Other tangible assets
    
    
    619
    
    
    
    5,269Amortizable intangible assets
    
    
    16
    
    
    
    136Unamortizable assets
    
    
    196
    
    
    
    1,669Total assets acquired
    
    
    8,727
    
    
    
    74,291Less: liabilities assumed
    
    
    (6,624
    )
    
    
    (56,389
    )Less: minority interests
    
    
    (657
    )
    
    
    (5,592
    )Total purchase price
    
    
    ¥  1,446
    
    
    
    $   12,310
  F -28




---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 9. Variable Interest Entities
     10. Investment in Affiliates
  2005:
  2006:
  F -29




---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 11. Goodwill and Other Intangible Assets
  Thousands ofMillions of Yen
    
    U.S. Dollars2005
    
    2006
    
    2006Goodwill
    
    
    ¥201
    
    
    
    ¥201
    
    
    
    $1,711License
    
    
    600
    
    
    
    600
    
    
    
    5,108Other
    
    
    8
    
    
    
    13
    
    
    
    110Total goodwill and other intangible assets
    
    
    ¥809
    
    
    
    ¥814
    
    
    
    $6,929
   Thousands ofMillions of Yen
    
    U.S. Dollars2004
    
    2005
    
    2006
    
    2006Balance at beginning of year
    
    
    ¥  
    
    
    
    ¥201
    
    
    
    ¥801
    
    
    
    $6,819Acquired during the year
    
    
    201
    
    
    
    600
    
    
    
    
    
    
    
    Impairment losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at end of year
    
    
    ¥201
    
    
    
    ¥801
    
    
    
    ¥801
    
    
    
    $6,819
 12. Short-Term and Long-Term Borrowings
  Thousands ofMillions of Yen
    
    
    U.S. Dollars2005
    
    
    2006
    
    
    2006Bank loans
    
    ¥
    9,017
    
    
    ¥
    30,283
    
    
    
    $257,793Commercial paper
    
    
    3,500
    
    
    
    30,000
    
    
    
    255,384Rediscounted notes
    
    
    83
    
    
    
    128
    
    
    
    1,090Total short-term borrowings
    
    ¥
    12,600
    
    
    ¥
    60,411
    
    
    
    $514,267
  F-30




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Thousands ofMillions of Yen
    
    
    U.S. Dollars2005
    
    
    2006
    
    
    20062.35% unsecured bonds, due November 1, 2005
    
    ¥
    5,000
    
    
    ¥
    
    
    
    $
    1.18% unsecured bonds, due February 25, 2008
    
    
    7,500
    
    
    
    7,500
    
    
    
    63,8461.90% unsecured bonds, due July 31, 2006
    
    
    500
    
    
    
    500
    
    
    
    4,2560.75% unsecured bonds, due September 19, 2008
    
    
    210
    
    
    
    150
    
    
    
    1,2770.64% unsecured bonds, due March 26, 2007
    
    
    500
    
    
    
    500
    
    
    
    4,2560.45% unsecured bonds, due September 27, 2006
    
    
    500
    
    
    
    500
    
    
    
    4,2560.67% unsecured bonds, due September 27, 2007
    
    
    500
    
    
    
    500
    
    
    
    4,2561.17% unsecured bonds, due June 20, 2008
    
    
    
    
    
    
    7,500
    
    
    
    63,8461.08% unsecured bonds, due September 16, 2008
    
    
    
    
    
    
    10,000
    
    
    
    85,1280.90% unsecured bonds, due March 27, 2009
    
    
    
    
    
    
    1,000
    
    
    
    8,5131.70% unsecured convertible bonds, due September 29, 2006(A)
    
    
    8,942
    
    
    
    822
    
    
    
    6,999Total bonds
    
    
    23,652
    
    
    
    28,972
    
    
    
    246,633Loans from banks and other financial institutionsSecured:Due 2005 to 2009 with fixed interest rates ranging from 1.595% to
2.900% per annum, weighted average actual rate is 2.134%
    
    
    11,086
    
    
    
    
    
    
    
    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
    
    
    
    122,176Due 2005 to 2008 with variable interest rates principally based on
Long-term Prime Rate (LTPR) plus -0.306% to 1.475% per annum,
weighted average actual rate is 1.346%(B)
    
    
    14,822
    
    
    
    
    
    
    
    Due 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
    
    
    
    335,251Unsecured:Due 2005 to 2010 with fixed interest rates ranging from 1.275% to
2.750% per annum, weighted average actual rate is 1.975%
    
    
    43,224
    
    
    
    
    
    
    
    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
    
    
    
    602,758Due 2005 to 2009 with variable interest rates based on LTPR plus
-0.100% to 1.425% per annum, weighted average actual rate is 2.080%
    
    
    44,060
    
    
    
    
    
    
    
    Due 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
    
    
    
    386,585Total loans from banks and other financial institutions
    
    
    113,192
    
    
    
    169,952
    
    
    
    1,446,770Total long-term borrowings
    
    ¥
    136,844
    
    
    ¥
    198,924
    
    
    $
    1,693,403
 F-31




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (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 is ¥40.90 ($0.35) per share
of common stock which was the market value plus 30% premium at the time of issuance. For the
year ended March 31, 2005 and 2006, convertible bonds totaling
¥1,058 million and ¥8,120 million ($69,124 thousand) were
converted to 25,871 thousand shares of common stock and 198,533 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, 2005 and 2006, entrusted loans
outstanding included in loans receivable are ¥9,216 million and ¥30,907 million ($263,105
thousand), respectively. The related long-term liability recorded in loans from banks and
other financial institutions are ¥6,673 million and ¥21,670 million ($184,473 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, 2005 and 2006,
deposits of restricted cash in banks related to the above borrowings are ¥382 million and ¥491
million ($4,180 thousand), respectively.
    Thousands ofMillions of Yen
    
    U.S. DollarsYear ending March 31,2007
    
    
    ¥   73,875
    
    
    
    $    628,8842008
    
    
    69,748
    
    
    
    593,7522009
    
    
    42,956
    
    
    
    365,6762010
    
    
    4,309
    
    
    
    36,6822011 and thereafter
    
    
    8,036
    
    
    
    68,409Total long-term borrowings:
    
    
    ¥198,924
    
    
    
    $1,693,403
  Thousands ofMillions of Yen
    
    U.S. DollarsRestricted cash
    
    
    ¥  1,662
    
    
    
    $  14,148Loans receivable
    
    
    15,510
    
    
    
    132,034Purchased loans receivable
    
    
    380
    
    
    
    3,235Real estate for sale
    
    
    6,542
    
    
    
    55,691Total assets pledged as collateral
    
    
    ¥24,094
    
    
    
    $205,108
 F-32




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
   13. Lease Obligations
   Thousands ofMillions of Yen
    
    U.S. DollarsYear ending March 31,2007
    
    
    ¥   971
    
    
    
    $  8,2662008
    
    
    516
    
    
    
    4,3932009
    
    
    10
    
    
    
    85Total minimum future rentals
    
    
    ¥1,497
    
    
    
    $12,744
   Thousand ofMillions of Yen
    
    
    U.S. Dollars2005
    
    
    2006
    
    
    2006Acquisition costs
    
    ¥
    2,762
    
    
    ¥
    2,875
    
    
    
    $ 24,474Accumulated amortization
    
    
    (1,101
    )
    
    
    (1,563
    )
    
    
    (13,305
    )Net leased property
    
    ¥
    1,661
    
    
    ¥
    1,312
    
    
    
    $ 11,169
 F-33




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Thousands ofMillions of Yen
    
    U.S. DollarsYear ending March 31,2007
    
    
    ¥    641
    
    
    
    $   5,4572008
    
    
    428
    
    
    
    3,6432009
    
    
    211
    
    
    
    1,7962010
    
    
    67
    
    
    
    5702011 and thereafter
    
    
    25
    
    
    
    213Total minimum lease payments
    
    
    1,372
    
    
    
    11,679Less: Amount representing interest
    
    
    (35
    )
    
    
    (297
    )Present value of minimum lease payments
    
    
    1,337
    
    
    
    11,382Less: Current portion
    
    
    (621
    )
    
    
    (5,287
    )Long-term capital lease obligations
    
    
    ¥    716
    
    
    
    $  6,095
 14. Retirement Plans  Employee, Director and Statutory Auditor
  Directors and Statutory Auditors:
   Employees:
   Thousand ofMillions of Yen
    
    U.S. Dollars2006
    
    2006Accrued retirement benefits
    
    
    ¥265
    
    
    
    $2,256Unrecognized actuarial difference
    
    
    9
    
    
    
    77Retirement benefit obligation
    
    
    ¥274
    
    
    
    $2,333
 F-34




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Thousands ofMillions of Yen
    
    
    U.S. DollarsChange in benefit obligation
    
    2005
    
    
    2006
    
    
    2006Benefit obligation at beginning of year
    
    
    ¥334
    
    
    
    ¥330
    
    
    
    $2,809Increase in obligation due to
acquisition of a subsidiary
    
    
    
    
    
    
    310
    
    
    
    2,639Service cost
    
    
    
    
    
    
    6
    
    
    
    51Interest cost
    
    
    
    
    
    
    1
    
    
    
    9Benefit paid
    
    
    (4
    )
    
    
    
    
    
    
    Benefit obligation at end of year
    
    
    ¥330
    
    
    
    ¥647
    
    
    
    $5,508
 Thousands ofMillions of Yen
    
    
    U.S. DollarsTotal recognized liabilities in the balance sheets
    
    2005
    
    
    2006
    
    
    2006Employees
    
    
    ¥  
    
    
    
    ¥265
    
    
    
    $2,256Directors and statutory auditors
    
    
    330
    
    
    
    382
    
    
    
    3,252Obligations in excess of plan assets
    
    
    ¥330
    
    
    
    ¥647
    
    
    
    $5,508
  15. Derivative Financial Instruments and Risk Management
   Interest rate swap:
 2005:
 Millions of Yen
    
    
    
    
    
    

    
    Millions of YenNumber of
    
    Notional
    
    
    Interest Rate

    
    Ultimate

    
    Fair
        
      DeferredAgreements
    
    Principal
    
    
    Pay

    
    Receive

    
    Maturity

    
    Value
    
    
    Amount1
    
    
    ¥   483
    
    
    Fixed at 2.190%
    
    TIBOR+1.250%
    
    August 2006
    
    
    ¥(2
    )
    
    
    ¥(2
    )1
    
    
    2,000
    
    
    Fixed at 1.610%
    
    TIBOR+1.250 %
    
    March 2006
    
    
    (5
    )
    
    
    (5
    )2
    
    
    ¥2,483
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    ¥(7
    )
    
    
    ¥(7
    )
 F-35




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 2006:
 Millions of Yen
    
    
    
    
    
    
    
    Millions of YenNumber of
    
    Notional
    
    Interest Rate
    
    Ultimate
    
    Fair
    
    DeferredAgreements
    
    Principal
    
    Pay
    
    Receive
    
    Maturity
    
    Value
    
    Amount1
    
    ¥97
    
    Fixed at 2.190%
    
    TIBOR+1.250%
    
    August 2006
    
    ¥()
    
    ¥()Thousands ofU.S. Dollars
    
    
    
    
    
    
    
    Thousands of U.S. DollarsNumber of
    
    Notional
    
    Interest Rate
    
    Ultimate
    
    Fair
    
    DeferredAgreements
    
    Principal
    
    Pay
    
    Receive
    
    Maturity
    
    Value
    
    Amount1
    
    $826
    
    Fixed at 2.190%
    
    TIBOR+1.250%
    
    August 2006
    
    $()
    
    $()
 Applicable
interest rate as of March 31, 2005 is as follows:¥TIBOR (TIBOR Yen Rate for 3 Months)
    0.093
    %Applicable
interest rate as of March 31, 2006 is as follows:¥TIBOR (TIBOR Yen Rate for 3 Months)
    0.128
    %
  16.
Commitments and Contingencies
   Thousands ofMillions of Yen
    
    
    U.S. Dollars2005
    
    
    2006
    
    
    2006Business Timely loans:Unfunded credit lines with loans outstanding
    
    ¥
    5,645
    
    
    ¥
    9,181
    
    
    $
    78,156Unfunded credit lines without loans
outstanding
    
    
    35,075
    
    
    
    42,429
    
    
    
    361,190Consumer loans:Unfunded credit lines with loans outstanding
    
    
    420
    
    
    
    436
    
    
    
    3,711Unfunded credit lines without loans
outstanding
    
    
    5,345
    
    
    
    5,223
    
    
    
    44,462Other:Unfunded credit lines with loans outstanding
    
    
    120
    
    
    
    25
    
    
    
    213Unfunded credit lines without loans
outstanding
    
    
    385
    
    
    
    385
    
    
    
    3,278Total unfunded credit lines
    
    ¥
    46,990
    
    
    ¥
    57,679
    
    
    $
    491,010
 F-36




---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
      3S
loans:
 Business loans:
  Business Card loans
 F-37




---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Real Estate Finance
      Thousands ofMillions of Yen
    
    U.S. Dollars2005
    
    2006
    
    2006Guaranteed borrowings
    
    ¥
    7,343
    
    
    ¥
    11,886
    
    
    $
    101,183Guaranteed accounts receivable
    
    
    358
    
    
    
    964
    
    
    
    8,206Guarantees for borrowings of other companies:Shinsei Business Finance Co., Ltd.
    
    
    3,645
    
    
    
    
    
    
    
    Chuo Mitsui Finance Service Co., Ltd.
    
    
    150
    
    
    
    1,920
    
    
    
    16,345Reserve for guarantee losses
    
    
    371
    
    
    
    629
    
    
    
    5,355
 F-38




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Thousands ofMillions of Yen
    
    
    U.S. Dollars2004
    
    
    2005
    
    
    2006
    
    
    2006Guarantee fees received from:Guaranteed borrowings and accounts receivable
    
    
    ¥ 362
    
    
    
    ¥ 845
    
    
    
    ¥1,386
    
    
    
    $11,799Guarantees for borrowings of other companies
    
    
    6
    
    
    
    34
    
    
    
    20
    
    
    
    170Total guarantee fees received
    
    
    368
    
    
    
    879
    
    
    
    1,406
    
    
    
    11,969Administrative expenses and other expenses paid
    
    
    (255
    )
    
    
    (562
    )
    
    
    (898
    )
    
    
    (7,644
    )Guarantee fees received, net
    
    
    ¥ 113
    
    
    
    ¥ 317
    
    
    
    ¥  508
    
    
    
    $  4,325
  17. Shareholders Equity
      F-39




---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  18. Issuance of Stock by Subsidiaries
   19. Sale of Subsidiaries
  20. Related Party Transactions
   F-40




---



##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Thousands ofMillions of Yen
    
    U.S. Dollars2004
    
    2005
    
    2006
    
    2006Insurance paid to related party
    
    ¥
    1
    
    
    ¥
    
    
    
    ¥
    
    
    
    $
    Rent income from related party
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    9
     Thousands ofMillions of Yen
    
    U.S. Dollars2004
    
    2005
    
    2006
    
    2006Commissions paid
    
    ¥
    11
    
    
    ¥
    32
    
    
    ¥
    13
    
    
    $
    111Commissions received
    
    
    16
    
    
    
    13
    
    
    
    4
    
    
    
    34Loan guarantee fees received
    
    
    90
    
    
    
    316
    
    
    
    467
    
    
    
    3,975Bank loan guarantee fees received
    
    
    6
    
    
    
    34
    
    
    
    9
    
    
    
    77
  Thousands ofMillions of Yen
    
    U.S. Dollars2004
    
    2005
    
    2006
    
    2006Commissions paid
    
    ¥
    291
    
    
    ¥
    205
    
    
    ¥
    151
    
    
    $
    1,285Advertising expenses and other fees paid
    
    
    10
    
    
    
    175
    
    
    
    518
    
    
    
    4,410Proceeds from sale of equipment and software
    
    
    22
    
    
    
    
    
    
    
    
    
    
    
    
 F-41




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Thousands ofMillions of Yen
    
    U.S. Dollars2005
    
    2006
    
    2006Commissions paid
    
    ¥
    
    
    
    
    ¥  9
    
    
    
    $  77Loan guarantee fees received
    
    
    
    
    
    
    26
    
    
    
    221Bank loan guarantee fees received
    
    
    
    
    
    
    11
    
    
    
    94
 Note:
    
    For the year ended March 31, 2005, the Group paid commissions of ¥6 thousand, and
received loan guarantee fees of ¥6 thousand and bank loan guarantee fees of ¥29 thousand.
 21. Income Taxes
  Thousands ofMillions of Yen
    
    
    U.S. Dollars2004
    
    
    2005
    
    
    2006
    
    
    2006Current:National
    
    
    ¥3,353
    
    
    
    ¥2,132
    
    
    
    ¥ 5,211
    
    
    
    $ 44,360Local
    
    
    1,862
    
    
    
    1,087
    
    
    
    2,463
    
    
    
    20,9685,215
    
    
    
    3,219
    
    
    
    7,674
    
    
    
    65,328Deferred:National
    
    
    (407
    )
    
    
    945
    
    
    
    (991
    )
    
    
    (8,436
    )Local
    
    
    (226
    )
    
    
    482
    
    
    
    (469
    )
    
    
    (3,993
    )(633
    )
    
    
    1,427
    
    
    
    (1,460
    )
    
    
    (12,429
    )Income taxes
    
    
    ¥4,582
    
    
    
    ¥4,646
    
    
    
    ¥ 6,214
    
    
    
    $ 52,899
 F-42




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Thousands ofMillions of Yen
    
    
    U.S. Dollars2005
    
    
    2006
    
    
    2006Deferred tax assets:Loans receivable charge-offs
    
    ¥
    16
    
    
    ¥
    25
    
    
    
    $      213Allowance for loan losses
    
    
    649
    
    
    
    793
    
    
    
    6,751Reserve for guarantee losses
    
    
    141
    
    
    
    241
    
    
    
    2,052Reserve for losses on interest repayments
    
    
    
    
    
    
    239
    
    
    
    2,035Accrued local taxes
    
    
    22
    
    
    
    444
    
    
    
    3,780Accrued retirement benefits
    
    
    134
    
    
    
    262
    
    
    
    2,230Accrued salary expenses
    
    
    407
    
    
    
    460
    
    
    
    3,916Impairment of long-lived assets
    
    
    239
    
    
    
    239
    
    
    
    2,035Loan origination costs
    
    
    
    
    
    
    92
    
    
    
    783Other
    
    
    173
    
    
    
    214
    
    
    
    1,820Total deferred tax assets
    
    
    1,781
    
    
    
    3,009
    
    
    
    25,615Deferred tax liabilities:Investment securities  difference in basis
    
    
    5,371
    
    
    
    3,418
    
    
    
    29,097Bond issuance costs
    
    
    104
    
    
    
    114
    
    
    
    970Loan origination costs
    
    
    320
    
    
    
    
    
    
    
    Accumulated depreciation
    
    
    57
    
    
    
    85
    
    
    
    724Other
    
    
    35
    
    
    
    53
    
    
    
    451Total deferred tax liabilities
    
    
    5,887
    
    
    
    3,670
    
    
    
    31,242Deferred tax assets (liabilities), net
    
    ¥
    (4,106
    )
    
    ¥
    (661
    )
    
    $
    (5,627
    )
   Thousands ofMillions of Yen
    
    

U.S. Dollars2005
    
    
    2006
    
    
    2006Deferred tax assets
    
    ¥
    333
    
    
    ¥
    721
    
    
    
    $  6,138Deferred tax liabilities
    
    
    4,439
    
    
    
    1,382
    
    
    
    11,765Deferred tax assets (liabilities), net
    
    ¥
    (4,106
    )
    
    ¥
    (661
    )
    
    
    $ (5,627
    )
  F-43




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  2004
    
    2005
    
    2006Statutory tax rate
    
    
    41.8
    %
    
    
    40.5
    %
    
    
    40.5
    %Increase (reduction) in taxes resulting from:Expenses not deductible for tax purpose
    
    
    0.4
    
    
    
    0.3
    
    
    
    0.3Per capita levy
    
    
    0.6
    
    
    
    0.4
    
    
    
    0.3Special tax credit upon application of
IT Investment Promotion Tax Incentive
    
    
    (0.1
    )
    
    
    (1.9
    )
    
    
    (0.1
    )Effect of tax rate change
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    0.3
    
    
    
    (0.9
    )
    
    
    (0.3
    )Effective income tax rate
    
    
    43.0
    %
    
    
    38.4
    %
    
    
    40.7
    %
 22. Reconciliation of the Differences Between Basic and Diluted Net Income Per Share
  Thousands ofMillions of Yen
    
    
    U.S. Dollars2004
    
    
    2005
    
    
    2006
    
    
    2006Net income
    
    ¥
    6,077
    
    
    ¥
    7,262
    
    
    ¥
    8,455
    
    
    
    $71,976Aftertax
equivalent of
interest expense on
1.7% convertible
bond
    
    
    101
    
    
    
    100
    
    
    
    57
    
    
    
    485Loss on change of
equity interest as
a result of
exercise of stock
options of a
subsidiary
    
    
    
    
    
    
    (53
    )
    
    
    (28
    )
    
    
    (238
    )Income for purpose
of computing
diluted net income
per share
    
    ¥
    6,178
    
    
    ¥
    7,309
    
    
    ¥
    8,484
    
    
    
    $72,223
 Thousands of Shares2004
    
    2005
    
    2006Weighted-average shares outstanding basic
    
    
    2,393,856
    
    
    
    2,441,656
    
    
    
    2,584,935Effect of dilutive securities:Warrants and options
    
    
    2,344
    
    
    
    19,948
    
    
    
    35,873Convertible bond
    
    
    244,588
    
    
    
    242,264
    
    
    
    138,024Weighted-average shares outstanding for
diluted EPS computation
    
    
    2,640,788
    
    
    
    2,703,868
    
    
    
    2,758,832
 Yen
    
    
    U.S. Dollars2004
    
    
    2005
    
    
    2006
    
    
    2006Basic EPS
    
    ¥
    2.54
    
    
    ¥
    2.98
    
    
    ¥
    3.27
    
    
    
    $0.028Diluted EPS
    
    
    2.34
    
    
    
    2.70
    
    
    
    3.08
    
    
    
    0.026
  F-44




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 23. Stock-based Compensation
  Warrant Plan:
  Stock Option Plan:
     F-45




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
      Weighted-average
    
    
    Weighted-average ExerciseNumber of Shares
    
    
    Remaining Life
    
    
    Price Per Shares(Thousands)
    
    
    (Years)
    
    
    Yen
    
    U.S. DollarsOutstanding at March
31, 2003
    
    
    97,018
    
    
    
    1.8
    
    
    
    ¥28
    
    
    
    $0.24Granted
    
    
    25,920
    
    
    
    3.1
    
    
    
    28
    
    
    
    0.24Exercised
    
    
    (53,232
    )
    
    
    
    
    
    
    30
    
    
    
    0.26Expired or forfeited
    
    
    (10,880
    )
    
    
    
    
    
    
    28
    
    
    
    0.24Outstanding at March
31, 2004
    
    
    58,826
    
    
    
    1.8
    
    
    
    28
    
    
    
    0.24Granted
    
    
    64,704
    
    
    
    3.1
    
    
    
    53
    
    
    
    0.45Exercised
    
    
    (32,020
    )
    
    
    
    
    
    
    31
    
    
    
    0.26Expired or forfeited
    
    
    (7,441
    )
    
    
    
    
    
    
    46
    
    
    
    0.39Outstanding at March
31, 2005
    
    
    84,069
    
    
    
    1.9
    
    
    
    45
    
    
    
    0.38Granted
    
    
    23,462
    
    
    
    3.0
    
    
    
    67
    
    
    
    0.57Exercised
    
    
    (52,688
    )
    
    
    
    
    
    
    43
    
    
    
    0.37Expired or forfeited
    
    
    (5,184
    )
    
    
    
    
    
    
    58
    
    
    
    0.49Outstanding at March
31, 2006
    
    
    49,659
    
    
    
    1.6
    
    
    
    ¥56
    
    
    
    $0.48
 F-46




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
   Weighted-averageNumber of Shares Outstanding
    
    Remaining LifeExercise Prices (Yen)
    
    (Thousands)
    
    (Years)¥28
    
    
    5,288
    
    
    
    0.3¥53
    
    
    28,790
    
    
    
    1.3¥55
    
    
    461
    
    
    
    1.8¥67
    
    
    3,740
    
    
    
    2.1¥58
    
    
    9,460
    
    
    
    2.3¥131
    
    
    1,920
    
    
    
    3.0Total
    
    
    49,659
    
    
    
    1.6
       F-47




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
  Weighted-average
    
    
    Weighted-average ExerciseNumber of Shares
    
    
    Remaining Life
    
    
    Price Per Shares(Shares)
    
    
    (Years)
    
    
    Yen
    
    
    U.S. DollarsOutstanding at March 31, 2003
    
    
    76,400
    
    
    
    4.5
    
    
    
    ¥     625
    
    
    
    $    5.32Granted
    
    
    38,560
    
    
    
    5.0
    
    
    
    3,114
    
    
    
    26.51Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expired or forfeited
    
    
    (14,800
    )
    
    
    
    
    
    
    815
    
    
    
    6.94Outstanding at March 31, 2004
    
    
    100,160
    
    
    
    3.9
    
    
    
    1,555
    
    
    
    13.24Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (63,200
    )
    
    
    
    
    
    
    625
    
    
    
    5.32Expired or forfeited
    
    
    (2,160
    )
    
    
    
    
    
    
    3,403
    
    
    
    28.97Outstanding at March 31, 2005
    
    
    34,800
    
    
    
    3.5
    
    
    
    3,130
    
    
    
    26.65Granted
    
    
    2,620
    
    
    
    4.9
    
    
    
    51,549
    
    
    
    438.83Exercised
    
    
    (19,200
    )
    
    
    
    
    
    
    1,063
    
    
    
    9.05Expired or forfeited
    
    
    (600
    )
    
    
    
    
    
    
    21,350
    
    
    
    181.75Outstanding at March 31, 2006
    
    
    17,620
    
    
    
    3.0
    
    
    
    ¥11,961
    
    
    
    $101.82
  Weighted-averageNumber of Shares Outstanding
    
    Remaining LifeExercise Prices (Yen)
    
    (Thousands)
    
    (Years)¥625
    
    
    1,600
    
    
    1.5¥6,250
    
    
    13,600
    
    
    3.0¥51,549
    
    
    2,420
    
    
    4.3Total
    
    
    17,620
    
    
    3.0
 F-48




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 24. Cumulative Other Comprehensive Income
  Millions of YenOther
    
    
    
    
    
    
    CumulativeComprehensive
    
    
    
    
    
    
    OtherIncome
    
    
    Tax (Expense)
    
    
    ComprehensiveBefore Tax
    
    
    or Benefit
    
    
    IncomeMarch 31, 2003
    
    
    ¥     118
    
    
    
    ¥      (48
    )
    
    
    ¥        70Unrealized gains on investment securities:Unrealized holding gains (losses) during the period
    
    
    5,276
    
    
    
    (2,132
    )
    
    
    3,144Reclassification adjustment for realized (gains) losses
included in net income
    
    
    268
    
    
    
    (108
    )
    
    
    160Net unrealized holding gains (losses) during the period
    
    
    5,544
    
    
    
    (2,240
    )
    
    
    3,304Unrealized losses on derivative instruments:Unrealized holding gains (losses) during the period
    
    
    (5
    )
    
    
    2
    
    
    
    (3
    )Reclassification adjustment for realized (gains) losses
included in net income
    
    
    
    
    
    
    
    
    
    
    March 31, 2004
    
    
    5,657
    
    
    
    (2,286
    )
    
    
    3,371Unrealized gains on investment securities:Unrealized holding gains (losses) during the period
    
    
    7,428
    
    
    
    (3,008
    )
    
    
    4,420Reclassification adjustment for realized (gains) losses
included in net income
    
    
    513
    
    
    
    (208
    )
    
    
    305Net unrealized holding gains (losses) during the period
    
    
    7,941
    
    
    
    (3,216
    )
    
    
    4,725Unrealized losses on derivative instruments:Unrealized holding gains (losses) during the period
    
    
    (2
    )
    
    
    1
    
    
    
    (1
    )Reclassification adjustment for realized (gains) losses
included in net income
    
    
    
    
    
    
    
    
    
    
    Foreign currency translation adjustments:Unrealized gains (losses) arising during the period
    
    
    (9
    )
    
    
    
    
    
    
    (9
    )Reclassification adjustment for realized (gains) losses
included in net income
    
    
    
    
    
    
    
    
    
    
    March 31, 2005
    
    
    13,587
    
    
    
    (5,501
    )
    
    
    8,086Unrealized gains on investment securities:Unrealized holding gains (losses) gains 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 holding gains (losses) during the period
    
    
    7
    
    
    
    (3
    )
    
    
    4Reclassification adjustment for realized (gains) losses
included in net income
    
    
    
    
    
    
    
    
    
    
    Foreign currency translation adjustments:Unrealized gains (losses) arising during the period
    
    
    160
    
    
    
    
    
    
    
    160Reclassification adjustment for realized (gains) losses
included in net income
    
    
    
    
    
    
    
    
    
    
    March 31, 2006
    
    
    ¥  9,130
    
    
    
    ¥(3,645
    )
    
    
    ¥  5,485
 F-49




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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, 2005
    
    
    $115,664
    
    
    
    $(46,829
    )
    
    
    $68,835Unrealized gains on investment securities:Unrealized holding gains (losses) gains during the period
    
    
    (7,356
    )
    
    
    2,861
    
    
    
    (4,495
    )Reclassification adjustment for realized (gains) losses
included in net income
    
    
    (32,008
    )
    
    
    12,965
    
    
    
    (19,043
    )Net unrealized holding gains (losses) during the period
    
    
    (39,364
    )
    
    
    15,826
    
    
    
    (23,538
    )Unrealized losses on derivative instruments:Unrealized holding gains (losses) during the period
    
    
    60
    
    
    
    (26
    )
    
    
    34Reclassification adjustment for realized (gains) losses
included in net income
    
    
    
    
    
    
    
    
    
    
    Foreign currency translation adjustments:Unrealized gains (losses) arising during the period
    
    
    1,362
    
    
    
    
    
    
    
    1,362Reclassification adjustment for realized (gains) losses
included in net income
    
    
    
    
    
    
    
    
    
    
    March 31, 2006
    
    
    $ 77,722
    
    
    
    $(31,029
    )
    
    
    $46,693
 25. Cash Flow Information
  Thousands ofMillions of Yen
    
    
    U.S. Dollars2004
    
    
    2005
    
    
    2006
    
    
    2006Interest
    
    
    ¥3,591
    
    
    
    ¥2,999
    
    
    
    ¥2,779
    
    
    
    $23,657Income taxes
    
    
    5,378
    
    
    
    5,266
    
    
    
    2,302
    
    
    
    19,596
  Thousands ofMillions of Yen
    
    
    U.S. Dollars2004
    
    
    2005
    
    
    2006
    
    
    2006Property and
equipment obtained
under capital
leases
    
    
    ¥922
    
    
    
    ¥   792
    
    
    
    ¥   278
    
    
    
    $  2,367Conversion of
convertible bonds
to common stock
    
    
    
    
    
    
    1,058
    
    
    
    8,120
    
    
    
    69,124
  F-50




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 26. Disclosures About Fair Value of Financial Instruments
   Millions of Yen
    
    
    Thousands of U.S. Dollars2005
    
    
    2006
    
    
    2006Carrying
    
    
    
    
    
    
    Carrying
    
    
    
    
    
    
    CarryingAmount
    
    
    Fair Value
    
    
    Amount
    
    
    Fair Value
    
    
    Amount
    
    
    Fair ValueFinancial assets:Cash and cash equivalents
    
    ¥
    25,709
    
    
    ¥
    25,709
    
    
    ¥
    22,860
    
    
    ¥
    22,860
    
    
    $
    194,603
    
    
    $
    194,603Loans receivable, net
    
    
    146,119
    
    
    
    146,119
    
    
    
    225,947
    
    
    
    220,502
    
    
    
    1,923,444
    
    
    
    1,877,092Purchased loans receivable, net
    
    
    13,581
    
    
    
    13,581
    
    
    
    24,155
    
    
    
    24,155
    
    
    
    205,627
    
    
    
    205,627Investment securities
    
    
    28,443
    
    
    
    28,443
    
    
    
    42,071
    
    
    
    42,071
    
    
    
    358,143
    
    
    
    358,143Financial liabilities:Short-term borrowings
    
    
    12,600
    
    
    
    12,600
    
    
    
    60,411
    
    
    
    60,411
    
    
    
    514,267
    
    
    
    514,267Long-term borrowings
    
    
    136,844
    
    
    
    140,752
    
    
    
    198,924
    
    
    
    200,487
    
    
    
    1,693,403
    
    
    
    1,706,708Off-balance-sheet financial
instruments:Interest rate swaps
    
    
    
    
    
    
    (7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Borrowings with guarantees
    
    
    
    
    
    
    (371
    )
    
    
    
    
    
    
    (629
    )
    
    
    
    
    
    
    (5,355
    )
  a)
    
    Cash and Cash Equivalents:Cash and cash equivalents are carried at an amount that
approximates fair value.b)
    
    Loans Receivable:The market rate of interest for the Groups loan products has not
changed significantly during the lapsed term of the Groups loans receivable. The fair
value of loans receivable are estimated based on discounted future cash flows. The Groups
lending interest rates were compared to changes in the benchmark, Long-term Prime Rate, over
the remaining life of loans receivable as of March 31, 2006.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 ¥9,799 million and ¥18,675 million ($158,977 thousand) in
debt securities and other investments, including non-marketable
equity securities as of March 31, 2005 and 2006, 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.
 F-51




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 e)
    
    Short-Term Borrowings:Short-term borrowings are carried at an amount that approximates fair
value.f)
    
    Long-Term Borrowings:Long-term borrowings, including current portion, are estimated based
on either the market value or the discounted amounts of future cash flows. The borrowing
interest rates which were currently available to the 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)
    
    Borrowings with Guarantees:The fair value of guaranteed borrowings generally reflects the
probable and estimable amounts that the Group would pay for the delinquent payments of
borrowing under guarantee.
 27. Segment Information
  Millions of YenIntegrated FinancialServices
    
    
    Loan Servicing
    
    
    Total2004:Total interest income
    
    
    ¥  38,038
    
    
    
    ¥2,069
    
    
    
    ¥  40,107Total interest expense
    
    
    3,603
    
    
    
    121
    
    
    
    3,724Provision for loan losses, net
    
    
    12,824
    
    
    
    637
    
    
    
    13,461Net income
    
    
    5,671
    
    
    
    406
    
    
    
    6,077Total assets
    
    
    203,527
    
    
    
    6,741
    
    
    
    210,2682005:Total interest income
    
    
    ¥  29,299
    
    
    
    ¥   3,256
    
    
    
    ¥  32,555Total interest expense
    
    
    3,006
    
    
    
    153
    
    
    
    3,159Provision for loan losses, net
    
    
    7,759
    
    
    
    817
    
    
    
    8,576Net income
    
    
    6,244
    
    
    
    1,018
    
    
    
    7,262Total assets
    
    
    206,692
    
    
    
    21,709
    
    
    
    228,401
 F-52




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 Millions of YenIntegrated FinancialServices
    
    
    Loan Servicing
    
    
    Total2006:Total interest income
    
    
    ¥  28,938
    
    
    
    ¥  4,963
    
    
    
    ¥  33,901Total interest expense
    
    
    2,697
    
    
    
    408
    
    
    
    3,105Provision for loan losses, net
    
    
    8,277
    
    
    
    1,186
    
    
    
    9,463Net income
    
    
    6,117
    
    
    
    2,338
    
    
    
    8,455Total assets
    
    
    316,943
    
    
    
    43,000
    
    
    
    359,943
 Thousands of U.S. DollarsIntegrated FinancialServices
    
    
    Loan Servicing
    
    
    Total2006:Total interest income
    
    
    $  246,344
    
    
    
    $  42,249
    
    
    
    $  288,593Total interest expense
    
    
    22,959
    
    
    
    3,473
    
    
    
    26,432Provision for loan losses, net
    
    
    70,461
    
    
    
    10,096
    
    
    
    80,557Net income
    
    
    52,073
    
    
    
    19,903
    
    
    
    71,976Total assets
    
    
    2,698,076
    
    
    
    366,051
    
    
    
    3,064,127
 28. Subsequent Events
 1)
    
    On December 20, 2005, the Board of Directors approved a 2-for-1 stock split effective on
April 1, 2006. The Companys common shares owned by shareholders recorded in the fiscal register
of shareholders and the register of beneficiary shareholders as of March 31, 2006 shall be
split two for each one share. The effect of this stock split has been reflected in these
consolidated financial statements.2)
    
    On June 24, 2006, the shareholders of the Company authorized the following at the Annual
Shareholders Meeting:
 (1)
    
    Payment of a year-end cash dividend of ¥0.55 ($0.005) per share to shareholders of
record as of March 31, 2006 or a total of ¥1,503 million ($12,795 thousand)(2)
    
    Payment of bonuses to directors of ¥74 million ($630 thousand)(3)
    
    Change of the upper limits of compensation for a director and a statutory auditor per
year from ¥250 million ($2,128 thousand) to ¥500 million ($4,256 thousand) and from ¥60
million ($511 thousand) to ¥150 million ($1,277 thousand), respectively.(4)
    
    The upper limit of ¥500 million ($4,256 thousand) per year for stock options in form
of new share subscription rights to directors as compensation, separately from the revised
amount of directors compensation. The details of stock options will be determined in
accordance with a resolution of the Board of Directors on issuance.
 (5)
    
    Partial amendments of the Article of Incorporation
 
    
    The company name has been changed from Nissin Co., Ltd. to NIS Group Co., Ltd.
In addition, the change shall be effective on October 1, 2006.
 F-53




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##### Table of Contents



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 3)
    
    On June 24, 2006, Mr. Shinsuke Amiya has been appointed as President, Representative Director
and Co-CEO. In addition, Mr. Kunihiko Sakioka, former President, Representative Director and
Executive Officer, has been appointed as Chairman, Representative Director and Co-CEO.4)
    
    On June 23, 2006, the shareholders of SVC authorized payment of bonuses to its directors and
statutory auditors of ¥28 million ($238 thousand) at its Annual Shareholders Meeting.
 F-54




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##### Table of Contents



INDEX OF EXHIBITS
 ExhibitNumber
    
    Description1.1
    
    
    
    
    
    Our Articles of Incorporation (English Translation)1.2
    
    
    
    
    
    Our Share Handling Regulations (English Translation)1.3
    
    
    
    
    
    Our Regulations of the Board of Directors (English Translation)1.4
    
    
    
    
    
    Our Regulations of the Board of Statutory Auditors (English Translation)2.1
    
    
    
    
    
    Our Specimen Common Stock Certificate (English Translation) (incorporated by
reference to the corresponding exhibit to our Registration Statement Form F-1
(File No. 333-97229) declared effective on August 1, 2002)2.2
    
    
    
    
    
    Form of Deposit Agreement Among Nissin Co., Ltd., The Bank of New York as
Depositary and All Owners and Holders from Time to Time of American Depositary
Receipts, Including the Form of American Depositary Receipt (incorporated by
reference to the Registration Statement on Form F-6 (File No. 333-97133) filed on
July 24, 2002)8.1
    
    
    
    
    
    List of Our Subsidiaries12.1
    
    
    
    
    
    Certification of principal executive officer required by 17 C.F.R. 240. 13a-14(a)12.2
    
    
    
    
    
    Certification of principal executive officer required by 17 C.F.R. 240. 13a-14(a)12.3
    
    
    
    
    
    Certification of principal financial officer required by 17 C.F.R. 240. 13a-14(a)13.1
    
    
    
    
    
    Certification of chief executive officer required by 18 U.S.C. Section 135013.2
    
    
    
    
    
    Certification of chief executive officer required by 18 U.S.C. Section 135013.3
    
    
    
    
    
    Certification of chief financial officer required by 18 U.S.C. Section 1350