ANNUAL REPORT 2011 for the year ended March 31, 2011

Financial Section Management's Discussion and Analysis

V. Liquidity And Financial Position

1. Fund Procurement and Liquidity Management

Fund Procurement

The Credit Saison Group emphasizes stability and low cost in the procurement of funds, and is actively working to diversify fund procurement methods. Key procurement methods include negotiated transactions with banks, related financial institutions, life insurance companies and non-life insurance companies. In addition, the Group procures funds indirectly through syndicated loans and committed lines of credit, and directly by issuing commercial paper and by securitizing receivables. Consolidated interest-bearing debt (including debt incurred through off-balance-sheet securitizations in the amount of ¥113,400 million and lease obligations of ¥5,500 million) totaled ¥1,657.8 billion as of March 31, 2011. Of this total, bank loans, corporate bonds, commercial paper, and asset-backed securities accounted for 65.1%, 15.4%, 6.6%, and 12.9%, respectively.

With regard to indirect fund procurement, in an effort to mitigate refinance risks and reduce costs, Credit Saison is working to strengthen its relations with existing lenders. We also aim to diversify sources of procurement and examine new counterparties, targeting financial institutions with which we can expect long-term stable transactions. In terms of direct fund procurement, in an effort to mitigate liquidity risk and reduce costs, Credit Saison not only utilizes straight corporate bonds and commercial paper, but is also setting up new fund procurement schemes, including securitization of receivables that will be unaffected by the creditworthiness of Credit Saison.

To support smooth fund procurement from the capital market, Credit Saison has obtained credit ratings for the bonds it issues. We have been given an A+ rating for domestic unsecured corporate bonds, and an a-1 rating for domestic commercial paper by Rating and Investment Information, Inc. (R&I).

Liquidity Management

Of the total assets held by the Credit Saison Group, installment accounts receivable centered on the Credit Service Segment accounted for 68.8%. Their annual average turnover was more than three times, helping Credit Saison maintain a high level of liquidity.

2. Cash Flows

Net Cash Provided by Operating Activities

Net cash provided by operating activities amounted to ¥152,063 million, compared with ¥99,135 million in the previous fiscal year.

The main cash inflow was a decrease in trade receivables of ¥198,048 million, consisting mainly of installment accounts receivable. The main cash outflow was a decrease in notes and accounts payable of ¥35,691 million.

Net Cash Used in Investing Activities

Net cash used in investing activities amounted to ¥35,269 million, compared with ¥14,043 million in the previous fiscal year.

The main cash outflow was ¥37,272 million in payments for purchases of property and equipment, and other assets, primarily related to the development of a next-generation information system.

Net Cash Used in Financing Activities

Net cash used in financing activities amounted to ¥117,420 million, compared with ¥80,243 million in the previous fiscal year.

The main cash outflows were payments of payables under securitized account receivables and lease investment assets of ¥54,962 million and a decrease in short-term debts of ¥48,895 million.

As a result of the above, cash and cash equivalents at the end of fiscal 2010 amounted to ¥72,527 million, mainly reflecting a decrease of ¥661 million in cash and cash equivalents from the previous fiscal year-end, partly offset by an increase in cash and cash equivalents of newly consolidated subsidiaries of ¥57 million.

3. A ssets, Liabilities and Equity

Total assets at the end of fiscal 2010 decreased by ¥142,883 million from a year earlier, to ¥2,231,247 million. The contraction in assets can be primarily attributed to a decline in cash advance balances because of amendments to the Money-Lending Business Control and Regulation Law.

Total liabilities as of the end of fiscal 2010 stood at ¥1,883,331 million, a decrease of ¥149,394 million from a year earlier. This decrease included a decline in interest-bearing debt of ¥118,995 million, mainly reflecting the repayment of loans to financial institutions and the redemption of securitized receivables.

Total equity rose by ¥6,511 million from a year earlier to ¥347,916 million at the end of fiscal 2010. This increase included an increase of ¥6,392 million in retained earnings.

VI. Credit Risks

Of total receivables (i.e. the balance calculated by adding up the balance of installment accounts receivable and lease investment assets with the balance of contingent liabilities), receivables overdue by more than 90 days amounted to ¥169,770 million, a decrease of 23.6% year on year. The balance of the allowance for uncollectible receivables (current assets) as of March 31, 2011 was ¥118,625 million, a 2.3% year-on-year decrease. Consequently, the ratio of the allowance to the receivables overdue for more than 90 days increased to 175.8% from 156.2% at the previous fiscal year-end.

Comparison of Delinquent Receivables And The Allowance For Receivables

  (Millions of yen)
2011 2010 % change
(1) Receivables 1,981,604 2,199,237 (9.9)
(2) Receivables overdue by more than 90 days 169,770 222,273 (23.6)
(3) Collateralized portion included in (2) 102,311 144,517 (29.2)
(4) Allowance for losses on receivables included in current assets 118,625 121,458 (2.3)
Receivables overdue by more than 90 days as a percentage of receivables [(2) ÷ (1)] 8.6% 10.1% -
Ratio of allowance of losses on receivables to receivables overdue by more than 90 days [(4) ÷ ((2) - (3))] 175.8% 156.2% -
(Reference) Receivables overdue by more than 90 days excluding collateralized portion as a percentage of receivables [((2) - (3)) ÷ (1)] 3.4% 3.5% -
(Years ended March 31)

Composition of Interest-Bearing Debt


Composition of Interest-Bearing Debt

Total Equity And Shareholders' Equity Ratio


Total Equity And Shareholders' Equity Ratio

Delinquency Ratio (Over 90 Days) And Write-Off Ratio (Non-Consolidated Basis)

Delinquency Ratio (Over 90 Days) And Write-Off Ratio (Non-Consolidated Basis)

Changes In The Allowance For Uncollectible Receivables

  (Millions of yen)
2011 2010 % change
Allowance for losses on receivables at the beginning of the year 126,496 121,886 3.8
Increase 55,936 60,062 (6.9)
Decrease 58,838 55,451 6.1
Allowance for losses on receivables at the end of the year 123,594 126,496 (2.3)
(Reference) Losses on receivables 5 0 5,980.9
(Years ended March 31)
Note:
The increase in the fiscal year ended March 31, 2011 includes a provision of ¥8,156 million to the allowance for uncollectible receivables recorded in response to the Great East Japan Earthquake of March 11, 2011.

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