Annual Report 2012. Secure, Reliable and High Quality Credit Bureau

Annual Report 2012 Secure, Reliable and High Quality Credit Bureau

We are pleased to present the results of operations for fiscal year 2011. Business Activities and Results Contents Financial Conditions Issues to Be Addressed Directors and Auditors Corporate Information 1

Business Activities and Results T he Japanese economy, severely hit by the tremendous damage caused by the Great East Japan Earthquake in March 2011, has since then been following a mild recovery trend. Primary contributing factors to the mild recovery include the expansion of domestic demand as full-scale efforts in reconstruction projects began in the affected areas in eastern Japan and the growth of export driven by strong demand primarily in developing countries. T he Great East Japan Earthquake also hit the credit industry, significantly affecting consumer shopping credit by causing a decline in consumer confidence. However, the business climate surrounding the industry has been partly showing signs of improvement, as a result of cost-reduction efforts in the areas of credit granting costs and other expenses and due to a decrease in the overall number of claims for repayment of overpaid interests by borrowers. U nder these circumstances, we at CIC continued our activities to appropriately cope with changes in the credit industry and earn even greater confidence from the members and general consumers. Our external efforts included addressing the enhancement of our functions as a designated credit bureau, and the protection and improvement of personal credit information. Internally, we worked on the fundamental structural reforms towards our goal of becoming a secure, reliable and high quality credit bureau. The sections below describe our major activities taken in the 28th business term of CIC. 2

Enhancement of Functions as a Designated Credit Bureau Business Activities and Results Improvement of reliability of credit information We made all efforts necessary to ensure the currency and accuracy of credit information, with the aim of contributing to the prevention of problems associated with multiple debts and excessive lending. In addition, we reviewed the current mechanism for "Nayose" (matching the names of individual consumers) and promoted the preparations for building of a new database that is more efficient and accurate. Secure and stable system operation and completion of replacement CIC studied the opportunities for improving and enhancing our system risk management structure and took all possible measures to ensure the secure and stable operation of the inquiry and registration system. In addition, as part of our efforts to promote the safe and secure migration of the operations of CIC, we completed the replacement of our main system in August 2011, as well as the relocation and replacement of our backup center in January 2012. Enhancement of monitoring capabilities CIC carried out strict and fair assessment of membership, including field investigations, on third-party credit vendors and moneylenders hoping to join CIC. For example, we checked if and how the candidate members of CIC designed, implemented and maintained safety control measures in connection with the treatment of credit information. Financial Conditions Issues to Be Addressed Directors and Auditors Corporate Information 3

Business Activities and Results Establishment of Sustainable Growth Model Increase in membership and number of inquiries We promoted CIC membership to business operators that are subject to the Installment Sales Act and the Money Lending Business Act, as well as other business operators handling consumer credit. Promotion of additional services We created a structure for enhancing our marketing functions and activities, under which we developed a number of new services based on the needs of our members. Through this structure, the Financial File Supporting Edition was created as a new feedback service which utilizes the information from Financial Files. We also created the Automatic Extraction Batch Package Service, in which CIC extracts a customer designated by a member automatically and edits the inquiry response results for the customer. The latter service went operational in April 2012. 4

Shift to Low-cost Structure Business Activities and Results Promotion of structural reform In our efforts to realize a shift to a lower-cost structure through the streamlining and increased efficiency of the entire operations, CIC created the Second Structural Reform Promotion Committee to facilitate the thorough promotion of the structural reform issues identified in FY2010. The committee promoted the individual measures through four subcommittees: System design, Fee schedule, Information and Services, and Disclosure. System cost reduction In conjunction with the replacement of main system, we addressed system cost reduction through the promotion of reorganization and consolidation of existing equipment configurations and system environments. Cost reduction for disclosure services In April 2011, CIC started providing the disclosure services over the Internet in order to increase convenience for consumers. Continuous cost reduction Towards the achievement of effective and strategic investment in systems, CIC created the System Investigation Committee assigned to review proposed system investment plans for minimizing investment losses. We also continuously endeavored to reduce general administrative and other clerical costs, in addition to structural cost reduction efforts. Financial Conditions Issues to Be Addressed Directors and Auditors Corporate Information 5

Business Activities and Results Strengthening of Internal Control and Compliance Oversight Strengthening of compliance oversight We studied and made necessary reviews of our internal control, risk management and compliance oversight in order to further strengthen CIC s internal control. As part of these reviews, we worked to improve and strengthen our information management structure to deal with problems associated with complaints. We also tried to make it known as widely and deeply possible throughout the organization of CIC as to what each employee can do to accurately analyze a problem once it occurs and to prevent such a problem from occurring. In July 2011, we created an organization called the Internal Control Expert Committee that consists of external experts as its members. Based on the objective assessment and advice provided by the committee, we reviewed the measures being taken in CIC for internal control and compliance and then addressed the improvement of the compliance risk management structure on a continuous basis. Strengthening of risk management activities We worked to improve our business continuity plan (BCP) for minimizing the impact of and damage caused by a crisis situation. We also made efforts to improve the workability in the event of crisis of each business continuity measure defined in the plan, including implementing crisis management training. Conducting of Internal and External Audits Our Internal Audit Specialist Team audited all departments within our organization. The audit process was conducted with focus on the validity of our internal control activities, personal information protection, security structure and the progress of the activities toward the steady achievement of our business plans. As for external audit, we received a conventional type of audit based on the information security management system (ISMS). In addition to this, we introduced new types of audit, including web-based disclosure system audit and project audit related to main system replacement and backup center replacement, thereby increasing the reliability and security of the services that handle credit information. 6

Other Major Activities Promotion and strengthening of personal information protection We reviewed and improved the relevant structures, rules and regulations existing within CIC with a view to become the first designated credit bureau to obtain a Privacy Mark certificate. CIC was awarded the certificate by the Japan Institute for Promotion of Digital Economy and Community (JIPDEC) in February 2012. Promotion of Customer Satisfaction (CS) efforts We centrally managed information on complaints/problems fed back from our members and consumers, and based on such information, addressed these complaints/problems by identifying their root causes and taking various measures to prevent them from recurring and prevent their occurrence. Publicity and enlightenment activities The CIC staff visited consumer affairs centers and other similar facilities actively to obtain from consumers and the people working at these facilities a correct understanding and cooperation in the pursuit of CIC s missions. With the aim of increasing recognition of and confidence in CIC, we also worked to strengthen the relationships with mass media and actively promoted publicity by our executive officers. Development of human resources We worked to ensure the proper operation of the new HR system introduced in April 2011, and implemented the educational and training programs based on the new education system introduced in September 2011 to present our employees with a clear picture of a human resource sought after by CIC. Business Activities and Results Financial Conditions Issues to Be Addressed Directors and Auditors Corporate Information 7

Business Activities and Results Operational Results As a result of the activities described above, CIC achieved annual sales of 7,721million during the current term, income before extraordinary items of 855 million and net income of 433 million. The results by service segment area are outlined below. Basic Services The sales from the on-line credit inquiries totaled 2,633 million, representing an increase of 51million (1.9%) over the previous term, due to the growth in number of inquiries. As for the batch credit inquiries, the total sales was 2,109 million increasing by 140 million (7.1%) from the previous term. This increase is due to the growth in number of inquiries similar to the on-line credit inquiries. In total, the sales from all the basic services totaled 4,743 million, an increase of 191 million (4.2%) from the previous term. 4,743 million (millions of yen) 4,800 4,400 4,000 3,600 3,200 2,800 2,400 2,000 FY2007 FY2008 FY2009 FY2010 FY2011 Other Services The sales from the telephone-based services were 246 million in total, decreasing by 21.7% from the previous term. The sales from the monitoring services totaled 156 million, a 39.1% decrease from the previous term. As a result, including the remaining services, the total sales of all the other services were 754 million, a decrease of 224million (-22.8%) from the previous term. 754 million (millions of yen) 1,400 1,200 1,000 800 600 400 200 0 FY2007 FY2008 FY2009 FY2010 FY2011 8

Business Activities and Results Exchange of Outstanding Loan Information The sales from information exchange service with other Designated Credit Bureau as required by the Money Lending Business Act was 532 million increasing by 56 million (11.9%) from the previous term. (millions of yen) Exchange of Delinquent Information with Other Credit Bureaus (CRIN Service) 600 500 400 300 200 100 0 FY2010 FY2011 In the area of information exchange with other credit bureaus, the number of inquiries from CIC to others decreased by 12.7% and that of inquiries from others to CIC decreased by 8.6%. Taken together, the sales in the two directions totaled 1,096 million, resulting in a year-on-year decrease of 146 million (-11.7%). (millions of yen) 3,000 2,500 2,000 1,500 1,000 532 million Delinquent information etc. 1,096 million Financial Conditions Issues to Be Addressed Directors and Auditors Corporate Information 500 0 FY2007 FY2008 FY2009 FY2010 FY2011 9

Financial Conditions (as of March 31, 2012) Income Statement [Unit: JPY1,000] FY2011 Net sales Cost of sales Gross profit Selling, general, and administrative expenses Operating income Non-operating revenue Interest and dividend earned Indemnifications received Miscellaneous income Non-operating expenses Income before extraordinary items Extraordinary profit Extraordinary loss Income before income taxes Income taxes Income taxes-deferred Net income FY2009 7,249,598 4,700,400 2,549,198 2,411,938 137,259 79,638 61,635-18,002 3,924 212,973 14,931 26,720 201,184 3,178 63,364 134,642 FY2010 7,821,627 4,643,930 3,177,697 2,594,364 583,332 87,609 69,513-18,096 7,163 663,778 862 58,575 606,066 194,192 56,305 355,568 7,721,599 4,311,170 3,410,429 2,602,965 807,464 60,017 25,613 18,499 15,904 12,155 855,326-95,993 759,333 279,707 46,008 433,617 10

Balance Sheet [1/2] [ Assets ] FY2009 FY2010 [Unit: JPY1,000] FY2011 Business Activities and Results Current assets 2,400,987 3,777,547 4,086,568 Cash and cash equivalents 1,415,251 2,763,257 2,506,267 Accounts receivable 844,071 901,087 962,561 Securities 500,000 Deferred tax assets 56,939 81,231 78,788 Advancements 15,811 20,303 22,141 Other Current assets 68,913 11,667 16,808 Fixed assets 6,858,587 7,279,040 7,105,734 Tangible fixed assets 2,380,632 3,249,827 3,250,101 Buildings 694,895 672,286 649,677 Annexed structures 615,639 571,003 554,129 Appurtenances and fixtures 69,409 116,763 127,472 Land 775,000 775,000 775,000 Leased assets 225,687 1,114,773 1,143,822 Intangible fixed assets 3,753,734 3,440,290 3,327,128 Software programs 3,669,910 2,767,045 2,964,705 Software programs temporary suspense account 83,823 673,245 362,422 Investments and Other assets 724,220 588,922 528,504 Investment in common stock of subsidiary 50,000 50,000 50,000 Guaranty money deposited 251,073 196,465 179,612 Long-term prepaid expenses 92 - Deferred tax assets 423,054 342,457 298,892 Total Assets 9,259,574 11,056,588 11,192,302 Financial Conditions Issues to Be Addressed Directors and Auditors Corporate Information 11

Financial Conditions Balance Sheet [2/2] [Unit: JPY1,000] [ Liabilities ] FY2009 FY2010 Current liabilities 783,335 1,545,150 1,501,770 Accounts payable 463,517 710,499 663,528 Lease obligation 87,270 298,593 276,684 Accrued expenses 54,084 102,468 130,441 Income taxes payable 8,758 190,136 192,906 Consumption tax payable 16,051 45,229 17,054 Accrued bonuses 130,588 145,472 147,393 Other current liabilities 23,064 52,750 73,761 Fixed liabilities 711,806 1,434,636 1,348,112 Lease obligation 139,462 819,148 792,119 Accrued retirement benefits 469,594 461,897 413,271 Accrued officer s retirement bonuses FY2011 102,750 153,590 142,721 Total liabilities 1,495,141 2,979,787 2,849,882 [ Stockholders Equity ] FY2009 FY2010 Capital 500,000 500,000 500,000 Retained earnings 7,264,432 7,576,801 7,842,419 Legal reserve 125,000 125,000 125,000 Other retained earnings 7,139,432 7,451,801 7,717,419 Appropriations 4,050,000 4,050,000 4,050,000 Retained earning brought forward [Unit: JPY1,000] FY2011 3,089,432 3,401,801 3,667,419 [incl. Current term profit] [134,642] [355,568] [433,617] Total Stockholders equity 7,764,432 8,076,801 8,342,419 Total Liabilities and Stockholders Equity 9,259,574 11,056,588 11,192,302 12

Result of Business Sales breakdown Business Activities and Results Basic Services (Credit inquiry) Sales [JPY1,000] Growth Rate Share Number of requests [Unit: 1,000] Growth Rate 4,743,372 4.2% 61.4% 168,905 10.4% Other services 754,788 22.8% 9.8% 15,811 25.2% Membership Fee 594,325 3.9% 7.7% Exchange of Outstanding Loan Information 532,862 11.9% 6.9% 34,969 11.9% CRIN 1,096,252 11.7% 14.2% 9,591 11.7% Total 7,721,599 1.2% 100.0% 229,277 6.0% Data registration (as of March 31, 2012) Credit information Delinquent information Application information Reference material FY2009 FY2010 FY2011 [Unit: 1,000] Growth Rate 488,416 506,963 545,272 7.5% 9,897 10,385 14,017 34.9% 33,562 33,292 38,802 16.5% 22 20 19 6.5% Total 522,001 540,227 584,094 8.1% Matching ratio 94.7% 94.3% 93.3% 1.0% Membership 947 companies 1,021 companies 1,011 companies 10 companies Financial Conditions Issues to Be Addressed Directors and Auditors Corporate Information Note: Reference material includes information reported by consumers themselves or requested to register from "Japan Financial Services Association." 13

Financial Conditions Consumer disclosure (as of March 31, 2012) Number of disclosures FY2009 FY2010 FY2011 109,191 (9,099) 112,976 (9,414) 108,073 (9,006) Growth Rate 4.3% Number of consultations and inquiries 54,287 (4,523) 59,834 (4,986) 53,202 (4,433) 11.0% Total 163,478 (13,623) 172,810 (14,400) 161,275 (13,439) 6.6% Notes: 1. Number of disclosures refers to the number of requests received from consumers for disclosure of credit information. 2. Number of consultations and inquiries refers to the number of requests received from consumers for consultation concerning credit, credit information, etc. 3. Figures in parentheses refer to the monthly average figures. Change in Business Results and Assets [Unit: JPY1,000 except per share data] FY2007 FY2008 FY2009 FY2010 FY2011 Sales 7,882,898 7,929,942 7,249,598 7,821,627 7,721,599 Net income 90,151 196,014 134,642 355,568 433,617 Current term profit per share 9,390 20,418 14,025 37,038 45,168 Total assets 8,815,463 9,462,429 9,259,574 11,056,588 11,192,302 14

Issues to Be Addressed A s a designated credit bureau under the Installment Sales Act and the Money Lending Business Act, we will ensure to play the roles and functions expected of CIC in society, continue to promote structural reforms and work to improve and expand the operating foundations of CIC. Business Activities and Results I n addition to the above, towards our business goal of becoming a secure, reliable and high quality credit bureau, we as a designated credit bureau will address the following issues, with primary focus on developing our operations based on the customer (i.e. member and consumer)-oriented and quality-oriented policies, and continuing to promote fundamental structural reforms. Establishment of Sustainable Growth Model Increase in membership and number of inquiries As a way to secure stability in medium- and long-term business operations, we will actively promote participation in CIC membership to business operators handling consumer credit and make our members always use our products and services in their credit inquiry for initial credit granting and account management, as well as that (Batch inquiry) for appropriate customer management, prescribed by the Installment Sales Act and the Money Lending Business Act. We will also strengthen communication and information interchange with member companies. In addition to this, we will strive to provide solution selling for CIC's credit information to these companies and to offer our batch inquiry and value-added services for our members to achieve appropriate customer management. Financial Conditions Issues to Be Addressed Directors and Auditors Corporate Information 15

Issues to Be Addressed Research and development of new services We will work to strengthen our marketing functions and activities, and promote research and development efforts to create effective services that can meet the needs of our members as identified based on their industry sector, business category and size. Design of new fee (discount) structure We will make an overall review of our current fee schedule and discount system, so as to identify a right approach to the design of a new structure that is appropriate and highly convincing to all parties concerned. Research and studies for new business fields We will promote research and studies for new business fields that may be viable for CIC to pursue in the consumer credit market. 16

Improvement of System Infrastructure Business Activities and Results Secure and stable operation of information systems As a designated credit bureau under the Installment Sales Act and the Money Lending Business Act, we will work to improve and enhance our system risk management activities while taking all possible measures to ensure the secure and stable operation of the inquiry and registration system. We will also conduct general inspections to identify any risks that may exist in the systems operating within CIC, and perform internal and external audits to increase the reliability of these systems. Furthermore, we will take necessary actions to enhance the security and availability of our backup systems with the aim of increasing the feasibility of our BCP (Business Continuity Plan). Improvement of system infrastructure For higher convenience of our members, we will build a new inquiry and registration system utilizing web technology and promote the development and provision of new services through such new system. We will promote a review of the existing methods that we are using for "Nayose" (matching the names of individual consumers) and rebuild an efficient and accurate "Nayose" database, thereby improving and enhancing our "Nayose" system. Activities for preparedness for new-generation systems While researching and studying the progress of information technology, we will promote a consideration of how our new-generation main system should be in light of the middle-term IT plan of CIC (grand design). Financial Conditions Issues to Be Addressed Directors and Auditors Corporate Information 17

Issues to Be Addressed Strengthening of Risk Management Strengthening of risk control We will deploy the CSA (Control Self-assessment) activity throughout the organization of CIC and work to improve and strengthen the inspection being conducted by each department. We will develop an additional BCP (Business Continuity Plan) with a view to minimize the impact of a crisis situation on the operations of CIC and the consequential damage thereto. Strengthening of internal control and compliance oversight Based on our compliance program, we will promote and strengthen the company-wide internal control and compliance activities. We will also promote and give guidance for the internal control and compliance oversight, and provide our employees with compliance education on a continuous basis. Sophistication of internal audit practices For the purpose of having a clear view of how the measures related to internal control and compliance activities are being conducted and with the aim of increasing the corporate value of CIC, we will address internal audit at regular intervals and work to improve the sophistication of various kinds of audit skills. 18

Shift to Low-cost Structure Business Activities and Results System cost reduction Based on a view across the entire CIC Group, we will establish a structure that can ensure efficient and effective development and operation of systems. We will also conduct verification of cost effectiveness in the provision of our existing services, whose results will be utilized in our efforts to improve the efficiency and effectiveness of our systems and operations. Cost reduction for disclosure services In order to achieve greater accuracy and higher efficiency in our disclosure services oriented to CS (Customer Satisfaction), we will address the systematization of the visit disclosure service and implement measures to promote a shift among users from postal disclosure to web disclosure. Ensuring appropriateness of system investment For the realization of effective and appropriate investment in systems, we will thoroughly carry out the examination of proposed system investments and the effectiveness verification of completed ones. Strengthening of organizational and human resources structures We will conduct a continuous review toward proper organizational and human resources structures by taking account all relevant factors, such as changes in social and business environments. Financial Conditions Issues to Be Addressed Directors and Auditors Corporate Information 19

Issues to Be Addressed Other Major Activities Promotion and strengthening of personal information protection We will ensure compliance of all CIC s activities with laws, regulations, guidelines and so forth in relation to personal information protection. We will also provide appropriate supervision over our officers, employees and contractors with respect to the handling of credit information. Promotion of CS (Customer Satisfaction) efforts In addition to the information on a complaint/problems fed back from our members and consumers, we will centrally manage opinions and requests sent to CIC to help us improve our services more effectively. We will also strengthen operational guidance for employees engaged in various job functions to improve service and customer response qualities. 20

Directors and Auditors Directors President & CEO Kazuhiro Omori Business Activities and Results Senior Executive Director Senior Executive Director Executive Director Director Director Outside Directors Kazuyuki Kamoi Souhei Sasaki Tatsuya Shinose Naoe Sugimoto Auditors Auditor Outside Auditors Hiroyoshi Iguchi Michiaki Kaneda Mitsutoshi Morita Gouichi Takehara Tadayoshi Yoshida Hisashi Matsuyama Yasuyuki Shuto Yoshimasa Nishida Yasuhisa Fujita Tetsuo Matsui Satoshi Yoshida Hiroshi Senma Kouichi Tsukihara Financial Conditions Issues to Be Addressed Directors and Auditors Corporate Information 21

Corporate Information Corporate Outline (as of June 15, 2012) Company name Credit Information Center Corp. (CIC) Establishment September 27, 1984 Capital 500 million yen Shares outstanding 9,600 Employees 142 Business offices Description of Business Head Office, System Center and 7 branches Collecting, storing, providing personal credit information related to consumer credit transactions, and disclosure to consumers. Organization Chart Internal Audit Department Hokkaido Branch Research & Planning Department Tohoku Branch Metropolitan Sales Department Comprehensive Risk Management Department Chubu Branch Kinki Branch General Meeting of Stockholders Board of Auditors Board of Directors President & CEO Executive Committee General Affairs Department Marketing and Sales Promotion Department Compliance Department Operation Planning Department Chushikoku Branch Kyushu Branch Hokkaido Consumer Disclosure & Advice Office Tohoku Consumer Disclosure & Advice Office Metropolitan Consumer Disclosure & Advice Office Consumer Relations Department Chubu Consumer Disclosure & Advice Office System Administration Department Information Management Department Kinki Consumer Disclosure & Advice Office Chushikoku Consumer Disclosure & Advice Office Kyushu Consumer Disclosure & Advice Office 22

Business Office Locations Head Office CIC System Center Business Activities and Results First West Bldg., 1-23-7 Nishi-Shinjuku, Shinjuku-Ku, Tokyo, Japan 160-8375 Phone: +81-3-3348-0601 Fax: +81-3-3345-1905 Branches Hokkaido Branch Sapporo Center Bldg., 6-2 Kita-Gojonishi, Chuo-Ku, Sapporo city, Hokkaido [Service area: Hokkaido] Tohoku Branch Mitsui Sumitomo Bank Sendai Bldg., 2-2-6 Chuo, Aoba-Ku, Sendai city, Miyagi [Service area: Miyagi, Aomori, Iwate, Akita, Yamagata and Fukushima] Metropolitan Sales Department, Consumer Disclosure & Advice Office First West Bldg., 1-23-7 Nishi-Shinjuku, Shinjuku-Ku, Tokyo [Service area: Tokyo, Ibaraki, Tochigi, Gunma, Saitama, Chiba, Kanagawa, Yamanashi, Nagano and Niigata] Chubu Branch Marunouchi ST Bldg., 2-20-25 Marunouchi, Naka-Ku, Nagoya city, Aichi [Service area: Aichi, Gifu, Mie and Shizuoka] Shibuya-Ku, Tokyo Kinki Branch Mainichi Inteshio Bldg., 3-4-5 Umeda, Kita-Ku, Osaka city, Osaka [Service area: Osaka, Shiga, Kyoto, Hyogo, Nara, Wakayama, Toyama, Ishikawa and Fukui] Chushikoku Branch Nihonseimei Okayama Daini Bldg., 1-1-3 Shimoishii, Kita-Ku, Okayama city, Okayama [Service area: Hiroshima, Yamaguchi, Okayama, Tottori, Shimane, Ehime, Tokushima, Kagawa and Kochi] Kyusyu Branch Tenjin 122 Bldg., 1-2-12 Tenjin, Chuo-Ku, Fukuoka city, Fukuoka [Service area: Fukuoka, Saga, Nagasaki, Kumamoto, Oita, Miyazaki, Kagoshima and Okinawa] Financial Conditions Issues to Be Addressed Directors and Auditors Corporate Information 23

First West Bldg., 1-23-7 Nishi-Shinjuku, Shinjuku-Ku, Tokyo, Japan 160-8375