ANNUAL REPORT 2013 for the year ended March 31, 2013

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Credit Saison Co., Ltd. and Consolidated Subsidiaries
For the year ended March 31, 2013

4. ACCOUNTS RECEIVABLE―INSTALLMENT

As of March 31, 2013 and 2012, liquidated receivables were as noted below. The following amounts of accounts receivable generated from liquidation or operational transactions were included in accounts receivable—installment.


  Millions of yen   Thousands of
U.S. dollars
2013 2012   2013
Liquidating receivables:        
Single-payment card shopping, etc. ¥30,000 ¥20,000   $318,640
Accounts receivable include:        
Single-payment card shopping, etc. 3,708 2,472   39,383

5. PLEDGED ASSETS

As of March 31, 2013 and 2012, pledged assets and liabilities related to pledged assets were as follows.


  Millions of yen   Thousands of U.S. dollars
2013 2012   2013
Pledged assets:        
Accounts receivable―installment ¥22,050 ¥44,750   $234,201
Lease investment assets 22,213 41,202   235,933
Liabilities related to pledged assets:        
Current portion of long-term debt 35,715 41,079   379,340
Long term debt 8,548 44,873   90,794

6. INVENTORIES

Inventories at March 31, 2013 and 2012, consisted of the following:


  Millions of yen   Thousands of U.S. dollars
2013 2012   2013
Receivable by purchase ¥9,304 ¥10,316   $98,819
Real estate for sale 79,903 183,784   848,678
Other 1,339 1,252   14,228
Total ¥90,546 ¥195,352   $961,725

7. INVESTMENT PROPERTY

In November 2008, the ASBJ issued ASBJ Statement No. 20, “Accounting Standard for Investment Property and Related Disclosures” and issued ASBJ Guidance No. 23, “Guidance on Accounting Standard for Investment Property and Related Disclosures.”

The Companies owns certain rental properties (include liquidation business assets) such as office buildings and land in Tokyo and other areas. The net of rental income and operating expenses for those rental properties was ¥4,221 million ($44,832 thousand) for the fiscal year ended March 31, 2013.

In addition, the carrying amounts, changes in such balances and market prices of such properties are as follows:


      Millions of yen
April 1, 2012 Increase/Decrease   March 31, 2013
Carrying Amount ¥31,228 ¥98,192   ¥129,420
Fair Value       ¥147,648
         
      Thousands of U.S. dollars
April 1, 2012 Increase/Decrease   March 31, 2013
Carrying Amount $331,679 $1,042,939   $1,374,618
Fair Value       $1,568,221

Notes: 1. Carrying amount recognized in the consolidated balance sheets is net of accumulated depreciation and accumulated impairment
     losses, if any.
  2. Increase during the fiscal year ended March 31, 2013, primarily represents the transfer from inventories to liquidation business
     assets of ¥90,611 million ($962,408 thousand).
  3. Fair value of properties as of March 31, 2013, is measured by the Companies in accordance with its Real-Estate Appraisal Standard.
  4. The corresponding information for the year ended March 31, 2012, had been omitted from that there was no significance.

8. 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
2013 2012   2013
Total loan limits ¥4,417,004 ¥4,736,245   $46,914,543
Loan executions 267,898 320,905   2,845,441
  ¥4,149,106 ¥4,415,340   $44,069,102

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, 2013 and 2012 was as follows.


  Millions of yen   Thousands of U.S. dollars
2013 2012   2013
Total loan limits ¥125,000 ¥125,000   $1,327,669
Loan executions  
  ¥125,000 ¥125,000   $1,327,669

9. 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 0.66% and 0.75% as of March 31, 2013 and 2012, respectively.

Commercial paper is issued by the Companies with an average interest rate of 0.15% and 0.13% as of March 31, 2013 and 2012, respectively.

Long-term debt and lease obligations as of March 31, 2013 and 2012, consisted of the following:


  Millions of yen   Thousands of U.S. dollars
2013 2012   2013
Average 1.25% (2013) and 1.39% (2012) unsecured loans from banks,        
insurance companies and other financial institutions, due in installments through 2023 ¥792,811 ¥811,846   $8,420,722
0.38% to 2.41% (2013) and 0.46% to 2.41% (2012) bonds , due in        
installments through 2020 260,663 220,887   2,768,587
Lease obligations*1 4,159 4,927   44,175
Average 1.31% (2013) and 1.32% (2012) payables on under-securitized loans*2 44,263 85,952   470,134
Subtotal 1,101,896 1,123,612   11,703,618
Less: Current portion (186,818) (245,402)   (1,984,258)
  ¥915,078 ¥878,210   $9,719,360
  • *1 Because interest is included in lease obligations, presentation of the average interest rate is omitted.
  • *2 Payables under securitized lease receivables and loans resulting from liquidation.

The aggregate annual maturities of long-term debt subsequent to March 31, 2013, are as follows:


Year ending March 31 Millions of yen Thousands of U.S. dollars
2015¥230,205$2,445,084
2016205,6632,184,417
2017160,9731,709,755
2018120,5461,280,361
2019 and thereafter197,6912,099,743

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.

10. LEASE TRANSACTIONS

(A) FINANCE LEASES THAT DO NOT TRANSFER OWNERSHIP (LESSEE)

i. Lease assets

Property and equipment―mainly servers and other equipment

Intangible assets―mainly software used in the credit service business

ii. Depreciation

Depreciation equivalent is computed by the straight-line method under the assumption that the lease term equals the useful life and that there is no residual value.

iii. As discussed in Note 3 (E), the Companies account for leases which existed at the transition date (March 31, 2008) and do not transfer ownership of the leased property to the lessee as operating lease transactions.

Pro forma information of such leases existing at the transition date, such as acquisition cost, accumulated depreciation, obligations under finance leases, depreciation expense, interest expense, and on an “as if capitalized” basis for the years ended March 31, 2013 and 2012 is as follows:


Pro forma capitalization of leased items

  Millions of yen   Thousands of U.S. dollars
2013 2012   2013
Building:        
Acquisition cost ¥105 ¥115   $1,112
Accumulated depreciation (94) (88)   (992)
Net leased property value 11 27   120
Other (fixtures and equipment):        
Acquisition cost 82 138   870
Accumulated depreciation (67) (108)   (710)
Net leased property value 15 30   160
Total:        
Acquisition cost 187 253   1,982
Accumulated depreciation (161) (196)   (1,702)
Net leased property value ¥26 ¥57   $280

Obligations under finance leases


  Millions of yen   Thousands of U.S. dollars
2013 2012   2013
Due within one year ¥24 ¥35   $250
Due after one year 8 32   90
Total ¥32 ¥67   $340

Lease payments, depreciation equivalent and interest equivalent


  Millions of yen   Thousands of U.S. dollars
2013 2012   2013
Lease payments ¥36 ¥116   $385
Reversal of allowance for impairment losses on leased property 1  
Depreciation equivalent 31 98   334
Interest payable equivalent 2 4   18

Depreciation equivalent is computed by the straight-line method over their lease term determined by their useful lives, with zero residual value.

Interest equivalent, which represents the aggregate lease payments less the acquisition cost equivalent, is allocated over the lease term based on the interest method.

(B) FINANCE LEASES THAT DO NOT TRANSFER OWNERSHIP (LESSOR)

i. Lease investment assets

Lease investment assets at March 31, 2013 and 2012, consisted of the following:


  Millions of yen   Thousands of U.S. dollars
2013 2012   2013
Gross lease receivables ¥247,673 ¥247,679   $2,630,624
Residual value  
Unearned interest income (28,101) (29,289)   (298,474)
Lease investment assets ¥219,572 ¥218,390   $2,332,150

ii. Collection schedule for the amount of lease payments related to lease investment assets after March 31, 2013 and 2012

  Millions of yen   Thousands of U.S. dollars
2013 2012   2013
Lease
investment
assets
Gross lease
receivables
Lease
investment
assets
Gross lease
receivables
  Lease
investment
assets
Gross lease
receivables
Due within one year ¥57,722 ¥68,861 ¥57,093 ¥68,837   $613,089 $731,401
Due within two years and after one year 52,285 60,049 52,520 60,792   555,336 637,798
Due within three years and after two years 44,546 49,456 44,873 49,977   473,141 525,291
Due within four years and after three years 33,664 36,380 33,805 36,482   357,553 386,404
Due within five years and after four years 20,622 21,799 20,081 21,214   219,029 231,532
Due after five years 10,733 11,128 10,018 10,376   114,002 118,198
Total ¥219,572 ¥247,673 ¥218,390 ¥247,678   $2,332,150 $2,630,624

iii. The Companies account for the value of lease investment assets which existed at the transition date (March 31, 2008) and do not transfer ownership of the leased property to the lessee to take over the appropriate book value (net of accumulated depreciation) of the leased property as of March 31, 2008, and after the adoption of the revised accounting standard, the aggregate amount equivalent to interest is allocated over the lease term based on the straight-line method.

As a result, income (loss) before income taxes and minority interests as of March 31, 2013 and 2012, increased (decreased) more than it would have if the revised accounting standard had been retroactively adopted starting from the lease transaction commencement dates as follows:

  Millions of yen   Thousands of U.S. dollars
2013 2012   2013
Income (loss) before income taxes and minority interests ¥1,253 ¥2,218   $13,311

(C) OPERATING LEASES

i. Lessee

The minimum rental commitments under noncancelable operating leases at March 31, 2013 and 2012, were as follows:


  Millions of yen   Thousands of U.S. dollars
2013 2012   2013
Due within one year ¥11 ¥390   $118
Due after one year 20 21   216
Total ¥31 ¥411   $334

ii. Lessor

The minimum rental commitments under noncancelable operating leases at March 31, 2013 and 2012 were as follows:


    Millions of yen   Thousands of U.S. dollars
2013 2012   2013
Due within one year ¥173 ¥194   $1,834
Due after one year 103 249   1,093
Total ¥276 ¥443   $2,927
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