ANNUAL REPORT 2012 for the year ended March 31, 2012

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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 negotiating 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 ¥20,000 million and lease obligations of ¥4,900 million) totaled ¥1,409,800 million as of March 31, 2012. Of this total, loans accounted for 74.2%, bonds for 15.7%, commercial paper for 2.3%, and asset-backed securities for 7.8%.

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 by examining 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 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 Business accounted for 64.0%. Their annual average turnover was more than four times, helping Credit Saison maintain a high level of liquidity.

2. Cash Flows

Cash Flows from Operating Activities

Net cash provided by operating activities amounted to ¥25,611 million, compared to ¥152,063 million in the previous fiscal year.

The main factor was the recording of a loss on business restructuring of subsidiaries of ¥59,796 million. On the other hand, there was an increase in trade receivables of ¥47,104 million.

Cash Flows from Investing Activities

Net cash provided by investing activities was ¥123,138 million, compared with net cash used in investing activities of ¥35,269 million in the previous fiscal year.

The main factor increasing cash was proceeds of ¥135,794 million from transferring the affinity card issuance business operated with Sogo & Seibu to Seven CS Card Service.

Cash Flows from Financing Activities

Net cash used in financing activities amounted to ¥161,237 million, compared with ¥117,420 million in the previous fiscal year.

The main use of cash was repayments of long-term debt of ¥157,519 million.
As a result of the above, cash and cash equivalents at the end of year decreased by ¥12,526 million from the previous fiscal year-end to ¥60,001 million.

3. Assets, Liabilities and Equity

Total assets at the end of fiscal 2011 had decreased by ¥75,431 million from a year earlier to ¥2,155,906 million. The decline in assets can be primarily attributed to a decline in accounts receivable—installment of ¥111,372 million due to the company spinoff that took effect on April 1, 2011, and other factors.

Total current liabilities at the end of fiscal 2011 had increased by ¥27,048 million from a year earlier to ¥824,714 million. Total longterm liabilities had decreased by ¥110,200 million to ¥975,465 million. These changes included a ¥154,630 million reduction in interest-bearing debt due to the redemption of commercial paper and corporate bonds.

Total equity at the end of fiscal 2011 had increased by ¥7,811 million from the previous fiscal year-end to ¥355,727 million. This increase included an increase of ¥3,906 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 the balance of lease investment assets with the balance of contingent liabilities), receivables overdue by more than 90 days amounted to ¥120,422 million, a decrease of 29.1% year on year. The balance of the allowance for uncollectible receivables (current assets) as of March 31, 2012 was ¥95,172 million, a 19.8% year-on-year decrease. Consequently, the ratio of the allowance to the receivables overdue for more than 90 days increased to 200.5% from 175.8% at the previous fiscal year-end.

COMPARISON OF DELINQUENT RECEIVABLES AND THE ALLOWANCE FOR RECEIVABLES

  (Millions of yen)
2012 2011 % change
(1) Receivables 1,786,198 1,981,604 (9.9)
(2) Receivables overdue by more than 90 days 120,422 169,770 (29.1)
(3) Collateralized portion included in (2) 72,943 102,311 (28.7)
(4) Allowance for losses on receivables included in current assets 95,172 118,625 (19.8)
Receivables overdue by more than 90 days as a percentage of
receivables [(2) ÷ (1)]
6.7% 8.6%
Ratio of allowance of losses on receivables to receivables overdue by more than 90 days [(4) ÷ ((2) – (3))] 200.5% 175.8%
(Reference) Receivables overdue by more than 90 days excluding collateralized portion as a percentage of receivables [((2) – (3)) ÷ (1)] 2.7% 3.4%
(Years ended March 31)

Composition of Interest-Bearing Debt,Total Equity And Shareholders' Equity Ratio,Delinquency Ratio (Over 90 Days) And Write-Off Ratio (Non-Consolidated Basis)

CHANGES IN THE ALLOWANCE FOR UNCOLLECTIBLE RECEIVABLES

  (Millions of yen)
2012 2011 % change
Allowance for losses on receivables at the beginning of the year 123,594 126,496 (2.3)
Increase 35,693 55,936 (36.2)
Decrease 61,857 58,838 5.1 
Allowance for losses on receivables at the end of the year 97,430 123,594 (21.2)
(Reference) Losses on receivables 2 5 (53.2)
(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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