ANNUAL REPORT 2013 for the year ended March 31, 2013

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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 ¥30.0 billion and lease obligations of ¥4.1 billion) totaled ¥1,359.8 billion as of March 31, 2013. Of this total, loans accounted for 74.0%, bonds for 19.2%, commercial paper for 1.1%, and asset-backed securities for 5.7%.

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 60.3%. 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 ¥75,773 million, compared to ¥25,611 million in the previous fiscal year.

The main factors were a ¥38,966 million decrease in trade receivables, including installment accounts receivable, as well as a ¥15,334 million increase in notes and accounts payable.

Cash Flows from Investing Activities

Net cash used in investing activities was ¥11,382 million, compared with net cash provided by investing activities of ¥123,1378 million in the previous fiscal year.

Cash was mainly used for ¥26,814 million in payments for purchases of property and equipment and other assets, including outlays for the development of shared core systems. This was partly offset by cash provided by ¥17,818 million in proceeds from the real estate liquidation business.

Cash Flows from Financing Activities

Net cash used in financing activities amounted to ¥66,961 million, compared with ¥161,237 million in the previous fiscal year.

The main cash outflows were payments of payables under securitized account receivables and lease investment assets of ¥41,689 million and a decrease in short-term debts of ¥21,230 million.


As a result of the above, cash and cash equivalents at the end of year decreased by ¥2,544 million from the previous fiscal year-end to ¥57,457 million.

3. Assets, Liabilities and Equity

Total assets at the end of fiscal 2012 had decreased by ¥14,104 million from a year earlier to ¥2,141,802 million. The decline in assets can be primarily attributed to a decline in accounts receivable—installment.

Total current liabilities at the end of fiscal 2012 had decreased by ¥53,245 million from a year earlier to ¥1,746,934 million. This decrease included a ¥49,946 million reduction in interest-bearing debt due to the repayment of debt associated with securitized receivables.

Total equity at the end of fiscal 2012 had increased by ¥39,141 million from the previous fiscal year-end to ¥394,868 million. This increase included an increase of ¥28,348 million in retained earnings.

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

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 ¥55,404 million, a decrease of 54.0% year on year. The balance of the allowance for uncollectible receivables (current assets) as of March 31, 2013 was ¥64,910 million, a 31.8% year-on-year decrease. Consequently, the ratio of the allowance to the receivables overdue for more than 90 days decreased to 185.2% from 200.5% at the previous fiscal year-end.

COMPARISON OF DELINQUENT RECEIVABLES AND THE ALLOWANCE FOR RECEIVABLES

  (Millions of yen)
2013 2012 % change
(1) Receivables 1,738,637 1,786,198 (2.7)
(2) Receivables overdue by more than 90 days 55,404 120,422 (54.0)
(3) Collateralized portion included in (2) 20,359 72,943 (72.1)
(4) Allowance for losses on receivables included in current assets 64,910 95,172 (31.8)
Receivables overdue by more than 90 days as a percentage of
receivables [(2) ÷ (1)]
3.2% 6.7%
Ratio of allowance of losses on receivables to receivables overdue by more than 90 days
[(4) ÷ ((2) – (3))]
185.2% 200.5%
(Reference) Receivables overdue by more than 90 days excluding collateralized portion as a
percentage of receivables [((2) – (3)) ÷ (1)]
2.0% 2.7%
(Years ended March 31)

CHANGES IN THE ALLOWANCE FOR UNCOLLECTIBLE RECEIVABLES

  (Millions of yen)
2013 2012 % change
Allowance for losses on receivables at the beginning of the year 97,430 123,594 (21.2)
Increase 17,364 35,693 (51.3)
Decrease 31,842 61,857 (48.5)
Allowance for losses on receivables at the end of the year 82,952 97,430 (14.9)
(Reference) Losses on receivables 2 2 9.6
(Years ended March 31)
Note:
The increase in the fiscal year ended March 31, 2012 includes a provision of ¥11,968 million to the allowance for uncollectible receivables associated with the business restructuring of consolidated subsidiary Atrium Co., Ltd. The decrease includes a ¥4,075 million partial reversal of the allowance for uncollectible receivables recorded in response to the Great East Japan Earthquake that struck on March 11, 2011.

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