ANNUAL REPORT 2011 for the year ended March 31, 2011

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Credit Saison Co., Ltd. and Consolidated Subsidiaries
For the Years Ended March 31, 2012 and 2011

4. BUSINESS COMBINATION

At the Board of Directors meeting held on December 22, 2010, the Company resolved to implement an absorption-type company split of the Company's affinity card business (the "card business") to Seven CS Card Service Co., Ltd. ("Seven CS card"), a wholly owned subsidiary of the Company, effective April 1, 2011, based on a comprehensive business partnership contract with Seven Financial Service Co., Ltd. ("Seven financial service") and Sogo & Seibu Co., Ltd. ("Sogo & Seibu") on September 10, 2010.

Furthermore, on April 1, 2011, the Company transferred 51% of shares in Seven CS card to Seven financial service.


TRANSACTIONS UNDER COMMON CONTROL

(A) OUTLINE OF BUSINESS

The Company has issued an affinity card with Sogo & Seibu.

(B) DATE OF BUSINESS COMBINATION

April 1, 2011

(C) LEGAL FORM OF BUSINESS COMBINATION

Part of the Company was split for absorption by Seven CS Card as the succeeding company.

(D) DETAILS OF ALLOTMENTS WITH REGARD TO THE SPLIT

i. Allotment of stock

Upon execution of this absorption-type company split, the succeeding company issued one new share of common stock, which was allotted to the Company.

As a result, the Company came to own a total of 1,000 shares in the succeeding company.
Of those shares, 510 shares were transferred to Seven Financial Service effective April 1, 2011, in accordance with a stock transfer contract concluded with Seven Financial Service on September 10, 2010.

ii. Payment of cash

The succeeding company made interest payments at a rate of 0.8% per year on the amount that was calculated based on the net assets transferred from the Company in the split and a deduction of ¥22.0 billion (total equity of the succeeding company), prorated for the actual number of days from the day after April 1, 2011 (including such date) until the payment date (counting such date) of the split.

(E) RIGHTS AND OBLIGATIONS TAKEN OVER BY THE SUCCEEDING COMPANY

The succeeding company took over the assets, liabilities and contractual status of the affinity credit card business from the Company.

Excluded were obligations arising out of unlawful actions or regulatory infringements on or before April 1, 2011 (including the obligation to refund excess interest payments-received on cash advances and other loans).

(F) DETAILS OF THE ASSETS AND LIABILITIES ACQUIRED BY THE SUCCEEDING COMPANY

Year ended March 31, 2011 Millions of yen
Current assets ¥158,288
Non-current assets 49
Total assets ¥158,337
Current liabilities ¥742
Long-term liabilities
Total liabilities ¥742

(G) PURPOSE OF TRANSACTION

The Company decided to this split after considering the many benefits that will result from the new business, including the ability to offer existing holders of Sogo & Seibu affinity cards access to all of the attractive services provided by the Seven financial service.

In addition, the business integration with Seven Card Service Co., Ltd., and Seven CS Card will dramatically expand the scale of the business compared with its present level and allow the Company to develop a strategy for growth over the medium- to long-term future, including increased processing revenues and other income from Seven CS Card.

(H) OUTLINE OF THE ACCOUNTING TREATMENT IMPLEMENTED

This transaction was accounted for as a transaction under common control in accordance with the "Accounting Standard for Business Combinations" issued by the Business Accounting Council in Japan and "Guidance on Accounting Standard for Business Combinations" and "Accounting Standard for Business Divestitures," issued by the ASBJ.

(I) OUTLINE OF THE SUCCEEDING COMPANY


(As of March 31, 2011)  
Name Seven CS Card Service Co., Ltd.
Representative Toshiharu Yamamoto, Representative Director and President
Address 8-8 Nibancho, Chiyoda-ku, Tokyo
Establishment date September 17, 2010
Main line of business Credit card issuance and related activities
Fiscal year-end End of February
Employee headcount 464 employees
Total assets ¥382 million
Total liabilities ¥255 million
Capital ¥100 million
Total shares issued 999 shares
Composition and equity ratio of major shareholders Credit Saison Co., Ltd. 100%

5. ACCOUNTS RECEIVABLE-INSTALLMENT

As of March 31, 2012 and 2011, liquidated receivables were as noted below. The following amounts of trust beneficiary rights and other receivables generated from liquidation or operational transactions were included in accounts receivable-installment.


  Millions of yen   Thousands of U.S. dollars
2012 2011   2012
Liquidating receivables:        
Single-payment card shopping, etc. ¥20,000 ¥112,000   $243,487
Trust beneficiary rights and other receivables include:        
Single-payment card shopping, etc. 2,472 12,744   30,094
Acquisition from operational transaction 2  

6. LEASE INVESTMENT ASSETS

As of March 31, 2012 and 2011, liquidated lease investment assets were as noted below. The following amounts of trust beneficiary rights were included in lease investment assets.


  Millions of yen   Thousands of U.S. dollars
2012 2011   2012
Liquidating receivables ¥- ¥1,400   $-
Trust beneficiary rights 6,881  

7. PLEDGED ASSETS

As of March 31, 2012 and 2011, pledged assets and liabilities related to pledged assets were as follows.


  Millions of yen   Thousands of U.S. dollars
2012 2011   2012
Pledged assets:        
Accounts receivable-installment ¥44,750 ¥47,500   $544,802
Lease investment assets 41,202 46,669   501,603
Liabilities related to pledged assets:        
Current portion of long-term debt 41,079 15,851   500,110
Long term debt 44,873 78,318   546,294

8. INVENTORIES

Inventories at March 31, 2012 and 2011 consisted of the following:


  Millions of yen   Thousands of U.S. dollars
2012 2011   2012
Receivable by purchase ¥10,316 ¥12,738   $125,584
Real estate for sale 183,784 229,997   2,237,452
Other 1,252 1,114   15,241
Total ¥195,352 ¥243,849   $2,378,277

9. LOAN COMMITMENTS

(A) LENDER

The Companies provide cashing and card loan services that supplement their credit card operations.

The unexercised loans contingent with the loan commitments in these businesses were as follows:


  Millions of yen   Thousands of U.S. dollars
2012 2011   2012
Total loan limits ¥4,736,245 ¥5,710,496   $57,660,636
Loan executions 320,905 443,428   3,906,806
  ¥4,415,340 ¥5,267,068   $53,753,830

Most of the contracts for the above loan commitments were for cashing services supplementary to credit card services furnished to the

Company's cardholders, such that not all unexecuted loans will be exercised.

(B) BORROWER

The Companies have concluded loan commitment contracts with 5 banks for efficient procurement of working capital.

The portion of the credit line that had not been exercised under these contracts as of March 31, 2012 and 2011 was as follows.


  Millions of yen   Thousands of U.S. dollars
2012 2011   2012
Total loan limits ¥125,000 ¥125,000   $1,521,792
Loan executions  
  ¥125,000 ¥125,000   $1,521,792

10. SHORT-TERM LOANS AND LONG-TERM DEBT

Short-term loans are represented principally by 30 to 365 day notes to banks with an average interest rate of 0.75% and 0.81% as of March 31, 2012 and 2011, respectively.

Commercial paper is issued by the Companies with an average interest rate of 0.13% and 0.14% as of March 31, 2012 and 2011, respectively.

Long-term debt and lease obligations as of March 31, 2012 and 2011 consisted of the following:


  Millions of yen   Thousands of U.S. dollars
2012 2011   2012
Average 1.39% (2012) and 1.47% (2011) unsecured loans from banks, insurance ¥811,846 ¥830,595   $9,883,686
companies and other financial institutions, due in installments through 2022        
0.46% to 2.41% (2012) and 0.47% to 2.41% (2011) bonds, 220,887 256,112   2,689,159
due in installments through 2017        
Lease obligations*1 4,927 5,528   59,983
Average 1.32% (2012) and 1.39% (2011) payables on under-securitized loans*2 85,952 94,169   1,046,404
Subtotal 1,123,612 1,186,404   13,679,232
Less: Current portion (245,402) (201,635)   (2,987,605)
  ¥878,210 ¥984,769   $10,691,627
  • *1 Because interest is included in lease obligations, presentation of the average interest rate is omitted.
  • *2 Payables under securitized lease receivables and loans result from liquidation.

The aggregate annual maturities of long-term debt subsequent to March 31, 2012 are as follows:


Year ending March 31 Millions of yen Thousands of U.S. dollars
2013¥186,980$2,276,361
2014229,7532,797,096
2015191,8432,335,555
2016160,4481,953,349
2017 and thereafter109,1861,329,266

As is customary in Japan, short-and long-term bank loans are made under general agreements that provide that additional security and guarantees for present and future indebtedness will be given upon request of the bank under certain circumstances and that any collateral so furnished will be applicable to all indebtedness to the bank. To date, the Companies have not received any such requests from their banks.

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