Form 6-K

6-K 1 d24106d6k.htm FORM 6-K Form 6-K

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16 OF

THE SECURITIES EXCHANGE ACT OF 1934

For the month of November 2020.

Commission File Number: 001-14856

ORIX Corporation

(Translation of Registrant’s Name into English)

World Trade Center Bldg., 2-4-1 Hamamatsu-cho, Minato-ku,

Tokyo, JAPAN

(Address of Principal Executive Offices)

(Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.)

Form 20-F ☒ Form 40-F ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐

Table of Document(s) Submitted


1.		This is an English translation of ORIX Corporation’s quarterly financial report (shihanki houkokusho ) as filed with the Kanto Financial Bureau in Japan on November 13, 2020, which includes unaudited consolidated financial information prepared in accordance with generally accepted accounting principles in the United States as of March 31, 2020 and September 30, 2020 and for the three and six months ended September 30, 2019 and 2020.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	ORIX Corporation

Date: November 13, 2020	By	/s/ SHOJI TANIGUCHI
		Shoji Taniguchi
		Member of the Board of Directors Senior Managing Executive Officer Responsible for Treasury and Accounting Headquarters Responsible for Enterprise Risk Management Headquarters Responsible for Corporate Planning Department
		Responsible for Corporate Communications Department Assistant to CEO
		ORIX Corporation

CONSOLIDATED FINANCIAL INFORMATION

Notes to Translation

The following is an English translation of ORIX Corporation’s quarterly financial report (shihanki houkokusho) as filed with the Kanto Financial Bureau in Japan on November 13, 2020, which includes unaudited consolidated financial information prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) as of March 31, 2020 and September 30, 2020 and for the three and six months ended September 30, 2019 and 2020.

2.	Significant differences between U.S. GAAP and generally accepted accounting principles in Japan (“Japanese GAAP”) are stated in Note 1 “Overview of Accounting Principles Utilized” of the notes to Consolidated Financial Statements.

In preparing its consolidated financial information, ORIX Corporation (the “Company”) and its subsidiaries have complied with U.S. GAAP.

This document may contain forward-looking statements about expected future events and financial results that involve risks and uncertainties. Such statements are based on the Company’s current expectations and are subject to uncertainties and risks that could cause actual results to differ materially from those described in the forward-looking statements. Factors that could cause such a difference include, but are not limited to, those described under “Risk Factors” in the Company’s most recent annual report on Form 20-F filed with the U.S. Securities and Exchange Commission.

The Company believes that it may have been a “passive foreign investment company” for U.S. federal income tax purposes in the year to which these consolidated financial results relate by reason of the composition of its assets and the nature of its income. In addition, the Company may be a PFIC for the foreseeable future. Assuming that the Company is a PFIC, a U.S. holder of the shares or ADSs of the Company will be subject to special rules generally intended to eliminate any benefits from the deferral of U.S. federal income tax that a holder could derive from investing in a foreign corporation that does not distribute all of its earnings on a current basis. Investors should consult their tax advisors with respect to such rules, which are summarized in the Company’s annual report.

– 1 –

1.	Information on the Company and its Subsidiaries

(1) Consolidated Financial Highlights


	Millions of yen (except for per share amounts and ratios)
	Six months ended September 30, 2019			Six months ended September 30, 2020			Fiscal year ended March 31, 2020
Total revenues	¥	1,135,445		¥	1,084,738		¥	2,280,329
Income before income taxes		228,629			134,174			412,561
Net income attributable to ORIX Corporation shareholders		159,150			93,842			302,700
Comprehensive Income attributable to ORIX Corporation shareholders		123,365			88,110			245,509
ORIX Corporation shareholders’ equity		2,962,073			2,979,684			2,993,608
Total assets		12,511,073			13,168,070			13,067,528
Earnings per share for net income attributable to ORIX Corporation shareholders
Basic (yen)		124.34			75.22			237.38
Diluted (yen)		124.24			75.16			237.17
ORIX Corporation shareholders’ equity ratio (%)		23.7			22.6			22.9
Cash flows from operating activities		532,850			519,772			1,042,466
Cash flows from investing activities		(703,479	)		(420,148	)		(1,470,486	)
Cash flows from financing activities		6,676			72,145			288,703
Cash, Cash Equivalents and Restricted Cash at end of Period		1,109,440			1,307,306			1,135,284


Notes:	1.	Consumption tax is excluded from the stated amount of total revenues.
	2.	Accounting Standards Update 2016-13 (“Measurement of Credit Losses on Financial Instruments”—ASC 326 (“Financial Instruments—Credit Losses”)) (hereinafter, “Credit Losses Standard”) has been adopted since April 1, 2020. For further information, see Note 2 “Significant Accounting and Reporting Policies (ah) New accounting pronouncements.”


	Millions of yen (except for per share amounts)
	Three months ended September 30, 2019		Three months ended September 30, 2020
Total revenues	¥	586,996	¥	547,097
Net income attributable to ORIX Corporation shareholders		89,940		43,794
Earnings per share for net income attributable to ORIX Corporation shareholders
Basic (yen)		70.27		35.15


Notes:	1.	Consumption tax is excluded from the stated amount of total revenues.
	2.	Credit Losses Standard has been adopted since April 1, 2020. For further information, see Note 2 “Significant Accounting and Reporting Policies (ah) New accounting pronouncements.”

(2) Overview of Activities

During the six months ended September 30, 2020, no significant changes were made in the Company and its subsidiaries’ operations. Additionally, there were no changes of principal subsidiaries and affiliates.

– 2 –

2.	Risk Factors

Investing in the Company’s securities involves risks. You should carefully consider the information described herein as well as the risks described under “Risk Factors” in our Form 20-F for the fiscal year ended March 31, 2020 and the other information in that annual report, including, but not limited to, the Company’s consolidated financial statements and related notes and “Item 11. Quantitative and Qualitative Disclosures about Market Risk.” The Company continues to closely monitor the effects of COVID-19 on the business activities, financial condition and results of operations of the ORIX Group. The Company’s business activities, financial condition and results of operations and the trading prices of the Company’s securities could be adversely affected by any of the factors mentioned above or other factors.

3.	Analysis of Financial Results and Condition

The following discussion provides management’s explanation of factors and events that have significantly affected the Company’s financial condition and results of operations. Also included is management’s assessment of factors and trends that could have a material effect on the Company’s financial condition and results of operations in the future. However, please be advised that financial conditions and results of operations in the future may also be affected by factors other than those discussed herein. These factors and trends regarding the future were assessed as of the issue date of this quarterly financial report (shihanki houkokusho).

(1) Qualitative Information Regarding Consolidated Financial Results

Financial Highlights

Financial Results for the Six Months Ended September 30, 2020


Total revenues		¥1,084,738 million (Down 4% year on year)
Total expenses		¥964,899 million (Down 1% year on year)
Income before income taxes		¥134,174 million (Down 41% year on year)
Net income attributable to ORIX Corporation Shareholders		¥93,842 million (Down 41% year on year)
Earnings per share for net income attributable to ORIX Corporation Shareholders
(Basic)		¥75.22 (Down 40% year on year)
(Diluted)		¥75.16 (Down 40% year on year)
ROE (Annualized) *1		6.3% (10.9% during the same period in the previous fiscal year)
ROA (Annualized) *2		1.43% (2.58% during the same period in the previous fiscal year)

*1	ROE is the ratio of net income attributable to ORIX Corporation Shareholders for the period to average ORIX Corporation Shareholders’ Equity.

*2	ROA is the ratio of net income attributable to ORIX Corporation Shareholders for the period to average Total Assets.

Total revenues for the six months ended September 30, 2020 decreased 4% to ¥1,084,738 million compared to ¥1,135,445 million during the same period of the previous fiscal year due to decreases in services income, gains on investment securities and dividends, and operating leases revenues despite increases in life insurance premiums and related investment income, and sales of goods and real estate.

Total expenses decreased 1% to ¥964,899 million compared to ¥973,743 million during the same period of the previous fiscal year due to a decrease in services expense despite increases in life insurance costs, and costs of goods and real estate sold in line with the aforementioned revenue declines.

In addition, equity in net income of affiliates decreased 93% to ¥2,289 million compared to ¥32,617 million and gains on sales of subsidiaries and affiliates and liquidation losses, net decreased 77% to ¥7,681 million compared to ¥33,288 million during the same period of the previous fiscal year.

Due to the above results and the impact of COVID-19, income before income taxes for the six months ended September 30, 2020 decreased 41% to ¥134,174 million compared to ¥228,629 million during the same period of the previous fiscal year and net income attributable to ORIX Corporation shareholders decreased 41% to ¥93,842 million compared to ¥159,150 million during the same period of the previous fiscal year.

– 3 –

Segment Information

Our operating segments used by the chief operating decision maker to make decisions about resource allocations and assess performance are organized into 10 segments based on our business management organization which is classified by the nature of major products and services, customer base, regulations and business areas. The 10 segments are Corporate Financial Services and Maintenance Leasing, Real Estate, PE Investment and Concession, Environment and Energy, Insurance, Banking and Credit, Aircraft and Ships, ORIX USA, ORIX Europe, and Asia and Australia. Since April 1, 2020, the reporting segments have been changed to the aforementioned segments. As a result of this change, segment data for the previous fiscal year has been retrospectively restated.

Since April 1, 2020, the selling, general and administrative expenses that should be borne by ORIX Group as a whole, which were initially charged directly to its respective segments, have been included in the difference between segment total profits and consolidated amounts. As a result of this change, segment data for the six months ended September 30, 2019 has been retrospectively restated.

Since April 1, 2020, Credit Losses Standard has been adopted, and the amounts of provision for doubtful receivables and probable loan losses have been reclassified to provision for credit losses. For further information, see Note 2 “Significant Accounting and Reporting Policies (ah) New accounting pronouncements.”

Total revenues and profits by segment for the six months ended September 30, 2019 and 2020 are as follows:


	Millions of yen
	Six months ended September 30, 2019					Six months ended September 30, 2020						Change (revenues)						Change (profits)
	Segment Revenues		Segment Profits			Segment Revenues			Segment Profits			Amount			Percent (%)			Amount			Percent (%)
Corporate Financial Services and Maintenance Leasing	¥	211,546	¥	32,581		¥	208,591		¥	24,948		¥	(2,955	)		(1	)	¥	(7,633	)		(23	)
Real Estate		229,428		47,444			167,276			10,355			(62,152	)		(27	)		(37,089	)		(78	)
PE Investment and Concession		143,844		19,649			157,826			4,077			13,982			10			(15,572	)		(79	)
Environment and Energy		78,327		8,527			71,418			14,132			(6,909	)		(9	)		5,605			66
Insurance		184,200		25,926			235,754			34,716			51,554			28			8,790			34
Banking and Credit		41,788		18,769			41,661			24,239			(127	)		(0	)		5,470			29
Aircraft and Ships		29,434		16,842			14,876			4,713			(14,558	)		(49	)		(12,129	)		(72	)
ORIX USA		65,922		35,894			57,859			11,414			(8,063	)		(12	)		(24,480	)		(68	)
ORIX Europe		77,202		16,688			73,046			16,291			(4,156	)		(5	)		(397	)		(2	)
Asia and Australia		72,752		19,187			58,962			4,635			(13,790	)		(19	)		(14,552	)		(76	)

Total		1,134,443		241,507			1,087,269			149,520			(47,174	)		(4	)		(91,987	)		(38	)

Difference between Segment Total and Consolidated Amounts		1,002		(12,878	)		(2,531	)		(15,346	)		(3,533	)		—			(2,468	)		—

Total Consolidated Amounts	¥	1,135,445	¥	228,629		¥	1,084,738		¥	134,174		¥	(50,707	)		(4	)	¥	(94,455	)		(41	)

– 4 –

Total assets by segment as of March 31, 2020 and September 30, 2020 are as follows:


	Millions of yen
	March 31, 2020				September 30, 2020				Change
	Segment Assets		Composition Ratio (%)		Segment Assets		Composition Ratio (%)		Amount			Percent (%)
Corporate Financial Services and Maintenance Leasing	¥	1,789,693		14	¥	1,709,878		13	¥	(79,815	)		(4	)
Real Estate		821,194		6		827,330		6		6,136			1
PE Investment and Concession		322,522		2		322,588		3		66			0
Environment and Energy		478,796		4		478,167		4		(629	)		(0	)
Insurance		1,580,158		12		1,710,425		13		130,267			8
Banking and Credit		2,603,736		20		2,676,617		20		72,881			3
Aircraft and Ships		585,304		4		568,866		4		(16,438	)		(3	)
ORIX USA		1,374,027		11		1,294,184		10		(79,843	)		(6	)
ORIX Europe		317,847		2		318,682		2		835			0
Asia and Australia		1,010,268		8		992,937		8		(17,331	)		(2	)

Total		10,883,545		83		10,899,674		83		16,129			0

Difference between Segment Total and Consolidated Amounts		2,183,983		17		2,268,396		17		84,413			4

Total Consolidated Amounts	¥	13,067,528		100	¥	13,168,070		100	¥	100,542			1

Segment information for the six months ended September 30, 2020 is as follows:

Corporate Financial Services and Maintenance Leasing: Finance and fee business; leasing and rental of automobiles, electronic measuring instruments and IT-related equipment; Yayoi

In corporate financial services, we are engaged in leasing and lending businesses with a focus on profitability. We also focus on fee businesses by providing life insurance and environment and energy-related products and services to domestic small and medium-sized enterprise customers, as well as business succession support in domestic regions. In the automobile-related businesses, we aim to increase market share in small and medium-sized enterprises and individual customers, as well as large corporate customers by enhancing our competitive advantages stemming from our industry-leading number of fleets under management and one-stop automobile-related services. In the rental business operated by ORIX Rentec Corporation, we are strengthening our engineering solution businesses by not only providing electronic measuring instruments and IT-related equipment leasing and lending, but also developing new services relating to robots and drones.

Segment revenues decreased 1% to ¥208,591 million compared to the same period of the previous fiscal year. This decrease was primarily due to lower finance revenues resulting from a decrease in financial assets and lower operating leases revenues resulting from a decrease in revenues from our car rental business, despite an increase in services income from investees in our corporate financial services business.

Due to the above-mentioned reasons as well as increases in costs of operating leases and services expense, and the absence of bargain purchase gains recorded in relation to companies acquired in our corporate financial services business during the six months ended September 30, 2019, segment profits decreased 23% to ¥24,948 million compared to the same period of the previous fiscal year.

Segment assets decreased 4% to ¥1,709,878 million compared to the end of the previous fiscal year. This decrease was mainly due to decreases in net investment in leases, installment loans, and investment in operating leases.

Asset efficiency declined compared to the same period of the previous fiscal year.

– 5 –


	Six months ended September 30, 2019		Six months ended September 30, 2020		Change
	Six months ended September 30, 2019		Six months ended September 30, 2020		Amount			Percent (%)
	(Millions of yen, except percentage data)
Segment Revenues:
Finance revenues	¥	30,386	¥	28,252	¥	(2,134	)		(7	)
Gains on investment securities and dividends		672		1,168		496			74
Operating leases		121,571		120,034		(1,537	)		(1	)
Sales of goods and real estate		6,024		4,661		(1,363	)		(23	)
Services income		52,893		54,476		1,583			3

Total Segment Revenues		211,546		208,591		(2,955	)		(1	)

Segment Expenses:
Interest expense		3,187		2,833		(354	)		(11	)
Costs of operating leases		96,110		99,350		3,240			3
Costs of goods and real estate sold		3,687		2,942		(745	)		(20	)
Services expense		24,949		27,160		2,211			9
Selling, general and administrative expenses		42,977		42,699		(278	)		(1	)
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities		488		0		(488	)		—
Provision for credit losses and write-downs of long-lived assets and securities		0		627		627			—
Other		9,131		8,092		(1,039	)		(11	)

Total Segment Expenses		180,529		183,703		3,174			2

Segment Operating Income		31,017		24,888		(6,129	)		(20	)

Equity in Net income (Loss) of Affiliates, and others		1,564		60		(1,504	)		(96	)

Segment Profits	¥	32,581	¥	24,948	¥	(7,633	)		(23	)


	As of March 31, 2020		As of September 30, 2020		Change
	As of March 31, 2020		As of September 30, 2020		Amount			Percent (%)
	(Millions of yen, except percentage data)
Net investment in leases	¥	648,627	¥	613,938	¥	(34,689	)		(5	)
Installment loans		379,541		348,085		(31,456	)		(8	)
Investment in operating leases		572,492		559,919		(12,573	)		(2	)
Investment in securities		28,616		29,442		826			3
Property under facility operations		19,992		19,314		(678	)		(3	)
Inventories		736		676		(60	)		(8	)
Advances for finance lease and operating lease		293		603		310			106
Investment in affiliates		18,347		18,323		(24	)		(0	)
Advances for property under facility operations		760		760		0			0
Goodwill, intangible assets acquired in business combinations		120,289		118,818		(1,471	)		(1	)

Total Segment Assets	¥	1,789,693	¥	1,709,878	¥	(79,815)			(4	)

– 6 –

Real Estate: Real estate development, rental and management; facility operations; real estate asset management

In real estate business, we aim to promote portfolio rebalancing by selling rental properties in favorable market conditions while investing in real estate development projects that can generate added value. We are also building a revenue base that is less affected by volatility in the real estate market by expanding the scale of our asset management business, such as REIT and real estate investment advisory services. We aim to enhance mutually complementary aspects of the DAIKYO INCORPORATED (“DAIKYO”) and ORIX real estate businesses, to gain stable profits by accumulating expertise through the operation of various facilities such as hotels and Japanese inns, and to develop new businesses by taking advantage of our value chain of real estate development and rental, asset management, facility operations, residential management, office building management, construction contracting, and real estate brokerage.

Our operating facilities have faced temporary closure and low occupancy rates during the six months ended September 30, 2020 due to the impact of the COVID-19 pandemic. Consequently, services income from our facility operations business declined. We also experienced a decline in gains on sales of real estate under operating leases. In addition, DAIKYO’s revenues from real estate contract work decreased due to the dissipation of increased last-minute demand before the consumption tax hike in Japan during the same period of the previous year. As a result, segment revenues decreased 27% to ¥167,276 million compared to the same period of the previous fiscal year.

Due to the above-mentioned reasons as well as the absence of gains on the sale of a subsidiary which operates senior housings, which had been recorded during the six months ended September 30, 2019, segment profits decreased 78% to ¥10,355 million compared to the same period of the previous fiscal year despite a decrease in services expense from our facility operations business.

Investment in operating leases declined due to the sales of real estate under operating leases. However, this decline was offset by increases in investment in affiliates and advances for finance lease and operating lease. As a result, segment assets increased 1% to ¥827,330 million compared to the end of the previous fiscal year.

Asset efficiency declined compared to the same period of the previous fiscal year.


	Six months ended September 30, 2019			Six months ended September 30, 2020			Change
	Six months ended September 30, 2019			Six months ended September 30, 2020			Amount			Percent (%)
	(Millions of yen, except percentage data)
Segment Revenues:
Finance revenues	¥	3,431		¥	3,113		¥	(318	)		(9	)
Operating leases		35,322			28,111			(7,211	)		(20	)
Sales of goods and real estate		47,481			40,293			(7,188	)		(15	)
Services income		143,288			95,749			(47,539	)		(33	)
Other		(94	)		10			104			—

Total Segment Revenues		229,428			167,276			(62,152	)		(27	)

Segment Expenses:
Interest expense		904			1,171			267			30
Costs of operating leases		13,480			12,526			(954	)		(7	)
Costs of goods and real estate sold		43,951			34,826			(9,125	)		(21	)
Services expense		121,265			93,178			(28,087	)		(23	)
Selling, general and administrative expenses		19,508			17,804			(1,704	)		(9	)
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities		217			0			(217	)		—
Provision for credit losses and write-downs of long-lived assets and securities		0			413			413			—
Other		1,060			(1,594	)		(2,654	)		—

Total Segment Expenses		200,385			158,324			(42,061	)		(21	)

Segment Operating Income		29,043			8,952			(20,091	)		(69	)

Equity in Net income (Loss) of Affiliates, and others		18,401			1,403			(16,998	)		(92	)

Segment Profits	¥	47,444		¥	10,355		¥	(37,089	)		(78	)

– 7 –


	As of March 31, 2020		As of September 30, 2020		Change
	As of March 31, 2020		As of September 30, 2020		Amount			Percent (%)
	(Millions of yen, except percentage data)
Net investment in leases	¥	73,279	¥	70,493	¥	(2,786	)		(4	)
Investment in operating leases		319,550		292,746		(26,804	)		(8	)
Investment in securities		7,274		8,048		774			11
Property under facility operations		140,416		138,228		(2,188	)		(2	)
Inventories		82,762		91,594		8,832			11
Advances for finance lease and operating lease		37,272		47,055		9,783			26
Investment in affiliates		91,835		105,439		13,604			15
Advances for property under facility operations		7,327		13,297		5,970			81
Goodwill, intangible assets acquired in business combinations		61,479		60,430		(1,049	)		(2	)

Total Segment Assets	¥	821,194	¥	827,330	¥	6,136			1

PE Investment and Concession: Private equity investment and concession

In the private equity business, we aim to earn stable profits from investees and sustainable gains on sales by rebalancing our portfolio. We aim to expand investment in focused industries and increase value through rollups and alliances with existing investees as a starting point. At the same time, we seek business opportunities created by changes in the industrial structure and explore diversified investment methods. In the concession business, we aim to strengthen our operations in the three airports (Kansai International Airport, Osaka International Airport and Kobe Airport), and proactively engage in the operation of public infrastructures other than airports.

Segment revenues increased 10% to ¥157,826 million compared to the same period of the previous fiscal year. This increase was primarily due to the increase in sales of goods by our investees, despite a decrease in services income resulting from the sale of a subsidiary during the nine months ended December 31, 2019.

Due to the impact of COVID-19, the number of passengers and flights at our three airports in Kansai decreased substantially, resulting in a decrease in equity in net income of affiliates in our concession business. Also, due to the absence of gains on the sale of a subsidiary, which had been recorded during the six months ended September 30, 2019, in our private equity business, segment profits decreased 79% to ¥4,077 million compared to the same period of the previous fiscal year.

Segment assets totaled ¥322,588 million, remaining substantially unchanged compared to the end of the previous fiscal year. This was mainly due to an increase in advances for property under facility operations and an increase in intangible assets resulting from the allocation of acquisition costs of a subsidiary acquired during the three months ended March 31, 2020, offset by a decrease in investment in affiliates.

Asset efficiency declined compared to the same period of the previous fiscal year.

– 8 –


	Six months ended September 30, 2019			Six months ended September 30, 2020			Change
	Six months ended September 30, 2019			Six months ended September 30, 2020			Amount			Percent (%)
	(Millions of yen, except percentage data)
Segment Revenues:
Finance revenues	¥	60		¥	80		¥	20			33
Gains on investment securities and dividends		1,130			542			(588	)		(52	)
Sales of goods and real estate		123,701			144,417			20,716			17
Services income		18,953			9,551			(9,402	)		(50	)
Other		0			3,236			3,236			—

Total Segment Revenues		143,844			157,826			13,982			10

Segment Expenses:
Interest expense		601			877			276			46
Costs of goods and real estate sold		106,684			123,508			16,824			16
Services expense		12,897			6,827			(6,070	)		(47	)
Selling, general and administrative expenses		16,885			17,133			248			1
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities		66			0			(66	)		—
Provision for credit losses and write-downs of long-lived assets and securities		0			13			13			—
Other		(244	)		1,455			1,699			—

Total Segment Expenses		136,889			149,813			12,924			9

Segment Operating Income		6,955			8,013			1,058			15

Equity in Net income (Loss) of Affiliates, and others		12,694			(3,936	)		(16,630	)		—

Segment Profits	¥	19,649		¥	4,077		¥	(15,572	)		(79	)


	As of March 31, 2020			As of September 30, 2020			Change
	As of March 31, 2020			As of September 30, 2020			Amount			Percent (%)
	(Millions of yen, except percentage data)
Net investment in leases	¥	141		¥	128		¥	(13	)		(9	)
Investment in operating leases		9,367			10,843			1,476			16
Investment in securities		17,916			14,976			(2,940	)		(16	)
Property under facility operations		43,735			44,594			859			2
Inventories		40,263			41,303			1,040			3
Investment in affiliates		68,603			60,713			(7,890	)		(12	)
Advances for property under facility operations		245			5,532			5,287			—
Goodwill, intangible assets acquired in business combinations		142,252			144,499			2,247			2

Total Segment Assets	¥	322,522		¥	322,588		¥	66			0

– 9 –

Environment and Energy: Domestic and overseas renewable energy; electric power retailing; ESCO services; sales of solar panels and electricity storage system; recycling and waste management

In the environment and energy business, we aim to increase services revenue as a comprehensive energy service provider by promoting our renewable energy business and electric power retailing business. In our solar power generation business, we have secured top solar power production capacity in Japan and we are gradually proceeding with operations. In the renewable energy business and electricity storage system business, we aim to design new business models based on the anticipated future business environment. In the recycling and waste management business, we are making new investments in facilities, with the aim of further expansion of business. We intend to accelerate our renewable energy business overseas by capitalizing on the expertise we have gained in the domestic market.

Segment revenues decreased 9% to ¥71,418 million compared to the same period of the previous fiscal year due to a decrease in services income resulting from the decrease in electricity sales.

Segment profits increased 66% to ¥14,132 million compared to the same period of the previous fiscal year. This increase was primarily due to the recognition of bargain purchase gains that resulted from the conversion of an investee involved in wind power generation business in India, into a wholly owned subsidiary.

Segment assets totaled ¥478,167 million, remaining substantially unchanged compared to the end of the previous fiscal year.

Asset efficiency improved compared to the same period of the previous fiscal year.


	Six months ended September 30, 2019			Six months ended September 30, 2020		Change
	Six months ended September 30, 2019			Six months ended September 30, 2020		Amount			Percent (%)
	(Millions of yen, except percentage data)
Segment Revenues:
Finance revenues	¥	847		¥	1,156	¥	309			36
Services income		75,216			68,796		(6,420	)		(9	)
Other		2,264			1,466		(798	)		(35	)

Total Segment Revenues		78,327			71,418		(6,909	)		(9	)

Segment Expenses:
Interest expense		3,152			5,589		2,437			77
Services expense		58,601			48,076		(10,525	)		(18	)
Selling, general and administrative expenses		6,100			5,862		(238	)		(4	)
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities		(1	)		0		1			—
Provision for credit losses and write-downs of long-lived assets and securities		0			475		475			—
Other		1,986			1,230		(756	)		(38	)

Total Segment Expenses		69,838			61,232		(8,606	)		(12	)

Segment Operating Income		8,489			10,186		1,697			20

Equity in Net income (Loss) of Affiliates, and others		38			3,946		3,908			—

Segment Profits	¥	8,527		¥	14,132	¥	5,605			66

– 10 –


	As of March 31, 2020		As of September 30, 2020		Change
	As of March 31, 2020		As of September 30, 2020		Amount			Percent (%)
	(Millions of yen, except percentage data)
Net investment in leases	¥	25,355	¥	25,372	¥	17			0
Investment in operating leases		1,958		2,092		134			7
Investment in securities		191		28		(163	)		(85	)
Property under facility operations		338,695		342,425		3,730			1
Inventories		394		338		(56	)		(14	)
Advances for finance lease and operating lease		1,861		56		(1,805	)		(97	)
Investment in affiliates		82,253		80,947		(1,306	)		(2	)
Advances for property under facility operations		12,229		15,256		3,027			25
Goodwill, intangible assets acquired in business combinations		15,860		11,653		(4,207	)		(27	)

Total Segment Assets	¥	478,796	¥	478,167	¥	(629)			(0	)

Insurance: Life insurance

In the life insurance business, we sell life insurance policies through sales agencies and online. With “simple-to-understand” and “providing reasonable guarantee at reasonable price” as the concepts of product development, we aim to expand the number of new life insurance contracts and increase life insurance premium income by constantly incorporating our customer needs while expanding the product lineup.

Segment revenues increased 28% to ¥235,754 million compared to the same period of the previous fiscal year. This increase was due to an increase in life insurance premiums in line with an increase in new insurance contracts, as well as an increase in life insurance related investment income from variable life insurance contracts.

Due to the above-mentioned reasons as well as the reversal of policy liability reserves related to variable life insurance contracts and fixed annuity insurance contracts, segment profits increased 34% to ¥34,716 million compared to the same period of the previous fiscal year.

Segment assets increased 8% to ¥1,710,425 million compared to the end of the previous fiscal year due to an increase in investment in securities.

Asset efficiency improved compared to the same period of the previous fiscal year.

– 11 –


	Six months ended September 30, 2019			Six months ended September 30, 2020			Change
	Six months ended September 30, 2019			Six months ended September 30, 2020			Amount			Percent (%)
	(Millions of yen, except percentage data)
Segment Revenues:
Finance revenues	¥	105		¥	117		¥	12			11
Life insurance premiums and related investment income		183,571			234,857			51,286			28
Other		524			780			256			49

Total Segment Revenues		184,200			235,754			51,554			28

Segment Expenses:
Life insurance costs		131,916			172,940			41,024			31
Selling, general and administrative expenses		25,953			27,917			1,964			8
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities		(1	)		0			1			—
Provision for credit losses and write-downs of long-lived assets and securities		0			(1	)		(1	)		—
Other		406			186			(220	)		(54	)

Total Segment Expenses		158,274			201,042			42,768			27

Segment Operating Income		25,926			34,712			8,786			34

Equity in Net income (Loss) of Affiliates, and others		0			4			4			—

Segment Profits	¥	25,926		¥	34,716		¥	8,790			34


	As of March 31, 2020			As of September 30, 2020			Change
	As of March 31, 2020			As of September 30, 2020			Amount			Percent (%)
	(Millions of yen, except percentage data)
Installment loans	¥	17,720		¥	17,761		¥	41			0
Investment in operating leases		29,271			29,055			(216	)		(1	)
Investment in securities		1,528,042			1,658,437			130,395			9
Goodwill, intangible assets acquired in business combinations		5,125			5,172			47			1

Total Segment Assets	¥	1,580,158		¥	1,710,425		¥	130,267			8

– 12 –

Banking and Credit: Banking and consumer finance

In the banking business, we aim to increase finance revenues by increasing the balance of outstanding real estate investment loans, which is the core of our banking business. In the consumer finance business, we aim to increase finance revenues by providing loans directly to our customers with our expertise in credit screening. We also aim to increase guarantee fees income by expanding guarantees against loans disbursed by other financial institutions. In the mortgage bank business, we aim to expand our market share by expanding our agency network and strengthening our product lineup.

Segment revenues totaled ¥41,661 million, remaining substantially unchanged compared to the same period of the previous fiscal year. This was primarily due to increased services income generated from the mortgage bank business of ORIX Credit and increased finance revenues derived from real estate investment loans in our banking business offset by a decline in finance revenues of ORIX Credit.

Segment profits increased 29% to ¥24,239 million compared to the same period of the previous fiscal year resulting from a decrease in provision for credit losses during the six months ended September 30, 2020, which was primarily due to the impacts of a decrease in new executions as well as low default rates in ORIX Credit.

Segment assets increased 3% to ¥2,676,617 million compared to the end of the previous fiscal year due to an increase in the balance of real estate investment loans in our banking business.

Asset efficiency improved compared to the same period of the previous fiscal year.


	Six months ended September 30, 2019		Six months ended September 30, 2020		Change
	Six months ended September 30, 2019		Six months ended September 30, 2020		Amount			Percent (%)
	(Millions of yen, except percentage data)
Segment Revenues:
Finance revenues	¥	40,012	¥	39,264	¥	(748	)		(2	)
Other		1,776		2,397		621			35

Total Segment Revenues		41,788		41,661		(127	)		(0	)

Segment Expenses:
Interest expense		2,101		2,479		378			18
Selling, general and administrative expenses		11,237		11,397		160			1
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities		6,716		0		(6,716	)		—
Provision for credit losses and write-downs of long-lived assets and securities		0		222		222			—
Other		2,967		3,325		358			12

Total Segment Expenses		23,021		17,423		(5,598	)		(24	)

Segment Operating Income		18,767		24,238		5,471			29

Equity in Net income (Loss) of Affiliates, and others		2		1		(1	)		(50	)

Segment Profits	¥	18,769	¥	24,239	¥	5,470			29


	As of March 31, 2020		As of September 30, 2020		Change
	As of March 31, 2020		As of September 30, 2020		Amount			Percent (%)
	(Millions of yen, except percentage data)
Installment loans	¥	2,318,347	¥	2,392,439	¥	74,092			3
Investment in securities		273,218		272,107		(1,111	)		(0	)
Investment in affiliates		400		300		(100	)		(25	)
Goodwill, intangible assets acquired in business combinations		11,771		11,771		0			—

Total Segment Assets	¥	2,603,736	¥	2,676,617	¥	72,881			3

– 13 –

Aircraft and Ships: Aircraft leasing and management; ship-related finance and investment

In the aircraft leasing business, we are focusing on a wide range of profit opportunities, including operating leases of owned aircraft, sale of aircraft to investors, and asset management services for aircraft owned by domestic and overseas investors. We aim for medium-and long-term growth by further enhancing our presence in the global aircraft-leasing market through mutually complementary relationships with Avolon Holdings Limited (“Avolon”). In the ship-related business, we flexibly replace assets while closely monitoring the market environment, and aim to achieve goals such as increasing commission income by arranging investment in ships for domestic corporate investors. In the future, we aim to expand our business by collaborating with excellent partners based on our expertise in finance and investment.

Segment revenues decreased 49% to ¥14,876 million compared to the same period of the previous fiscal year. This was due to a decline in operating leases revenues resulting from declines in both the number of aircraft owned and the number of aircraft sold, a decline in fee income resulting from the decline in the number of aircraft sold to investors in our aircraft leasing business, and the absence of gains on sales of ships, which had been recorded during the six months ended September 30, 2019.

With the above-mentioned reasons and a decrease in equity in net income of affiliates from Avolon, segment profits decreased 72% to ¥4,713 million compared to the same period of the previous fiscal year.

Segment assets decreased 3% to ¥568,866 million compared to the end of the previous fiscal year. The decrease was mainly due to a decline in installment loans in our ship-related business and a decline in investment in affiliates in our aircraft leasing business.

Asset efficiency declined compared to the same period of the previous fiscal year.


	Six months ended September 30, 2019		Six months ended September 30, 2020			Change
	Six months ended September 30, 2019		Six months ended September 30, 2020			Amount			Percent (%)
	(Millions of yen, except percentage data)
Segment Revenues:
Finance revenues	¥	1,384	¥	567		¥	(817	)		(59	)
Operating leases		21,329		12,804			(8,525	)		(40	)
Services income		4,056		1,505			(2,551	)		(63	)
Other		2,665		0			(2,665	)		—

Total Segment Revenues		29,434		14,876			(14,558	)		(49	)

Segment Expenses:
Interest expense		9,402		7,519			(1,883	)		(20	)
Costs of operating leases		7,210		6,873			(337	)		(5	)
Services expense		1,903		128			(1,775	)		(93	)
Selling, general and administrative expenses		4,469		3,513			(956	)		(21	)
Provision for credit losses and write-downs of long-lived assets and securities		0		(160	)		(160	)		—
Other		1,323		483			(840	)		(63	)

Total Segment Expenses		24,307		18,356			(5,951	)		(24	)

Segment Operating Income		5,127		(3,480	)		(8,607	)		—

Equity in Net income (Loss) of Affiliates, and others		11,715		8,193			(3,522	)		(30	)

Segment Profits	¥	16,842	¥	4,713		¥	(12,129	)		(72	)

– 14 –


	As of March 31, 2020		As of September 30, 2020		Change
	As of March 31, 2020		As of September 30, 2020		Amount			Percent (%)
	(Millions of yen, except percentage data)
Net investment in leases	¥	1,839	¥	4,637	¥	2,798			152
Installment loans		24,088		13,428		(10,660	)		(44	)
Investment in operating leases		253,717		254,042		325			0
Advances for finance lease and operating lease		4,990		3,876		(1,114	)		(22	)
Investment in affiliates		284,453		278,952		(5,501	)		(2	)
Goodwill, intangible assets acquired in business combinations		16,217		13,931		(2,286	)		(14	)

Total Segment Assets	¥	585,304	¥	568,866	¥	(16,438	)		(3	)

ORIX USA: Finance, investment and asset management in the Americas

ORIX Corporation USA provides various types of finance services such as corporate finance, real estate finance, private equity investment, and investment in bonds to our clients in response to their needs. We aim to expand such asset businesses by utilizing our expertise in them. We are also engaged in expanding the function of our asset management and servicing platform to increase stable fee revenues. With the expansion of both principle investments and assets under management, we aim for profit growth along with capital efficiency improvement.

Segment revenues decreased 12% to ¥57,859 million compared to the same period of the previous fiscal year. The decline was primarily due to decreased services income and a decline in gains on investment securities and dividends.

Due to the above-mentioned reasons as well as the absence of gains on sales of Houlihan Lokey, Inc., which had been recorded during the six months ended September 30, 2019, the recording of write-downs of securities, and increases in selling, general and administrative expenses and provision for credit losses, segment profits decreased 68% to ¥11,414 million compared to the same period of the previous fiscal year.

Segment assets decreased 6% to ¥1,294,184 million compared to the end of the previous fiscal year due to decreases in installment loans and investment in securities.

Asset efficiency declined compared to the same period of the previous fiscal year.

– 15 –


	Six months ended September 30, 2019		Six months ended September 30, 2020			Change
	Six months ended September 30, 2019		Six months ended September 30, 2020			Amount			Percent (%)
	(Millions of yen, except percentage data)
Segment Revenues:
Finance revenues	¥	38,823	¥	40,665		¥	1,842			5
Gains on investment securities and dividends		9,048		4,102			(4,946	)		(55	)
Services income		16,678		10,854			(5,824	)		(35	)
Other		1,373		2,238			865			63

Total Segment Revenues		65,922		57,859			(8,063	)		(12	)

Segment Expenses:
Interest expense		13,058		9,415			(3,643	)		(28	)
Services expense		1,842		750			(1,092	)		(59	)
Selling, general and administrative expenses		27,954		33,327			5,373			19
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities		1,483		0			(1,483	)		—
Provision for credit losses and write-downs of long-lived assets and securities		0		7,705			7,705			—
Other		260		(1,502	)		(1,762	)		—

Total Segment Expenses		44,597		49,695			5,098			11

Segment Operating Income		21,325		8,164			(13,161	)		(62	)

Equity in Net income (Loss) of Affiliates, and others		14,569		3,250			(11,319	)		(78	)

Segment Profits	¥	35,894	¥	11,414		¥	(24,480	)		(68	)


	As of March 31, 2020		As of September 30, 2020			Change
	As of March 31, 2020		As of September 30, 2020			Amount			Percent (%)
	(Millions of yen, except percentage data)
Net investment in leases	¥	1,172	¥	450		¥	(722	)		(62	)
Installment loans		778,249		733,331			(44,918	)		(6	)
Investment in operating leases		9,148		7,270			(1,878	)		(21	)
Investment in securities		320,217		302,944			(17,273	)		(5	)
Property under facility operations and servicing assets		66,416		65,876			(540	)		(1	)
Inventories		1,442		825			(617	)		(43	)
Advances for finance lease and operating lease		1,259		680			(579	)		(46	)
Investment in affiliates		52,361		49,164			(3,197	)		(6	)
Goodwill, intangible assets acquired in business combinations		143,763		133,644			(10,119	)		(7	)

Total Segment Assets	¥	1,374,027	¥	1,294,184		¥	(79,843	)		(6	)

– 16 –

ORIX Europe: Equity and fixed income asset management

Under ORIX Corporation Europe as the holding company, Robeco Institutional Asset Management B.V. and Transtrend B.V. headquartered in the Netherlands, Boston Partners Global Investors, Inc. and Harbor Capital Advisors, Inc. headquartered in the United States, and Canara Robeco Asset Management Company Ltd. located in India are engaged in asset management business through investment in stocks, bonds, and so on. In addition to the focus on expanding the existing businesses, we aim to increase assets under management with expanding products and investment strategies through M&As. ORIX Europe is also engaged in capturing a wide range of business opportunities as the strategic business location of ORIX Group in Europe.

Despite an increase in gains on investment securities and dividends, segment revenues decreased 5% to ¥73,046 million compared to the same period of the previous fiscal year due to a decrease in services income, which was associated with pervasive price declines in the equity markets during the three months ended March 31, 2020, resulting in a lower average amount of assets under management during the six months ended September 30, 2020, compared to the same period of the previous fiscal year.

Despite a decrease in selling, general and administrative expenses such as personnel expenses, segment profits decreased 2% to ¥16,291 million compared to the same period of the previous fiscal year due to the above reason.

Segment assets totaled ¥318,682 million, remaining substantially unchanged compared to the end of the previous fiscal year. This was mainly due to a decrease in investment in securities offset by increases in goodwill and intangible assets acquired in business combinations due to the effect of changes in foreign exchange rates.

Asset efficiency improved compared to the same period of the previous fiscal year.


	Six months ended September 30, 2019			Six months ended September 30, 2020			Change
	Six months ended September 30, 2019			Six months ended September 30, 2020			Amount			Percent (%)
	(Millions of yen, except percentage data)
Segment Revenues:
Finance revenues	¥	230		¥	46		¥	(184	)		(80	)
Gains on investment securities and dividends		1,589			6,046			4,457			280
Services income		75,383			66,954			(8,429	)		(11	)

Total Segment Revenues		77,202			73,046			(4,156	)		(5	)

Segment Expenses:
Interest expense		548			708			160			29
Services expense		18,008			17,838			(170	)		(1	)
Selling, general and administrative expenses		40,284			33,695			(6,589	)		(16	)
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities		(17	)		0			17			—
Other		1,481			3,647			2,166			146

Total Segment Expenses		60,304			55,888			(4,416	)		(7	)

Segment Operating Income		16,898			17,158			260			2

Equity in Net income (Loss) of Affiliates, and others		(210	)		(867	)		(657	)		—

Segment Profits	¥	16,688		¥	16,291		¥	(397	)		(2	)


	As of March 31, 2020			As of September 30, 2020			Change
	As of March 31, 2020			As of September 30, 2020			Amount			Percent (%)
	(Millions of yen, except percentage data)
Investment in securities	¥	38,057		¥	29,360		¥	(8,697	)		(23	)
Investment in affiliates		1,495			1,540			45			3
Goodwill, intangible assets acquired in business combinations		278,295			287,782			9,487			3

Total Segment Assets	¥	317,847		¥	318,682		¥	835			0

– 17 –

Asia and Australia: Finance and investment businesses in Asia and Australia

Our overseas subsidiaries are well-versed in business practices and laws and regulations that vary from region to region, and are primarily engaged in financial services such as leasing and lending. Our overseas subsidiaries also invest in private equity in Asian countries, particularly in China. We will further enhance the functions of our overseas subsidiaries and further invest in targeted markets in order to expand our business with an emphasis on profitability.

Segment revenues decreased 19% to ¥58,962 million compared to the same period of the previous fiscal year. The decrease was due to the absence of gains on investment securities of an investee in Asia recorded during the six months ended September 30, 2019, and decreases in services income and finance revenues.

In addition to the above-mentioned reasons, despite the recognition of gains on sales of subsidiaries and affiliates in Asia, equity in net income of affiliates declined due to the recording of an impairment loss on an investment in an affiliate. As a result, segment profits decreased 76% to ¥4,635 million compared to the same period of the previous fiscal year.

Segment assets decreased 2% to ¥992,937 million compared to the end of the previous fiscal year due to decreases in investment in affiliates and net investment in leases.

Asset efficiency declined compared to the same period of the previous fiscal year.


	Six months ended September 30, 2019		Six months ended September 30, 2020		Change
	Six months ended September 30, 2019		Six months ended September 30, 2020		Amount			Percent (%)
	(Millions of yen, except percentage data)
Segment Revenues:
Finance revenues	¥	21,508	¥	19,666	¥	(1,842	)		(9	)
Gains on investment securities and dividends		8,290		731		(7,559	)		(91	)
Operating leases		33,311		32,529		(782	)		(2	)
Services income		9,509		5,979		(3,530	)		(37	)
Other		134		57		(77	)		(57	)

Total Segment Revenues		72,752		58,962		(13,790	)		(19	)

Segment Expenses:
Interest expense		11,842		9,632		(2,210	)		(19	)
Costs of operating leases		24,707		24,571		(136	)		(1	)
Services expense		6,829		4,268		(2,561	)		(38	)
Selling, general and administrative expenses		13,607		12,826		(781	)		(6	)
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities		1,696		0		(1,696	)		—
Provision for credit losses and write-downs of long-lived assets and securities		0		2,496		2,496			—
Other		505		651		146			29

Total Segment Expenses		59,186		54,444		(4,742	)		(8	)

Segment Operating Income		13,566		4,518		(9,048	)		(67	)

Equity in Net income (Loss) of Affiliates, and others		5,621		117		(5,504	)		(98	)

Segment Profits	¥	19,187	¥	4,635	¥	(14,552	)		(76	)

– 18 –


	As of March 31, 2020		As of September 30,		Change
	As of March 31, 2020		2020		Amount			Percent (%)
	(Millions of yen, except percentage data)
Net investment in leases	¥	330,346	¥	318,756	¥	(11,590	)		(4	)
Installment loans		222,465		227,195		4,730			2
Investment in operating leases		195,660		209,862		14,202			7
Investment in securities		29,248		29,385		137			0
Property under facility operations		2,600		1,683		(917	)		(35	)
Inventories		242		341		99			41
Advances for finance lease and operating lease		1,742		1,479		(263	)		(15	)
Investment in affiliates		221,853		198,085		(23,768	)		(11	)
Goodwill, intangible assets acquired in business combinations		6,112		6,151		39			1

Total Segment Assets	¥	1,010,268	¥	992,937	¥	(17,331	)		(2	)

– 19 –

(2) Financial Condition


	As of March 31, 2020			As of September 30, 2020			Change
	As of March 31, 2020			As of September 30, 2020			Amount			Percent (%)
	(Millions of yen except per share, ratios and percentages)
Total assets	¥	13,067,528		¥	13,168,070		¥	100,542			1
(Segment assets)		10,883,545			10,899,674			16,129			0
Total liabilities		9,991,362			10,127,385			136,023			1
(Short- and long-term debt)		4,616,186			4,624,986			8,800			0
(Deposits)		2,231,703			2,321,840			90,137			4
ORIX Corporation shareholders’ equity		2,993,608			2,979,684			(13,924	)		(0	)
ORIX Corporation shareholders’ equity per share (yen)*1		2,386.35			2,392.31			5.96			0
ORIX Corporation shareholders’ equity ratio*2		22.9	%		22.6	%		—			—
D/E ratio (Debt-to-equity ratio) (Short-and long-term debt (excluding deposits) / ORIX Corporation shareholders’ equity)		1.5x			1.6x			—			—

*1	ORIX Corporation shareholders’ equity per share is calculated using total ORIX Corporation shareholders’ equity.

*2	ORIX Corporation shareholders’ equity ratio is the ratio as of the period end of ORIX Corporation shareholders’ equity to total assets.

Total assets increased 1% to ¥13,168,070 million compared to the balance as of March 31, 2020 due to an increase in investment in securities despite decreases in net investment in leases and investment in operating leases, and furthermore, an increase in allowance for credit losses compared to allowance for doubtful receivables on finance leases and probable loan losses as of the end of the previous fiscal year as a result of the adoption the Credit Losses Standard. In addition, segment assets remained flat at ¥10,899,674 million compared to the balance as of March 31, 2020.

Total liabilities increased 1% to ¥10,127,385 million compared to the balance as of March 31, 2020 due to a decrease in trade notes, accounts and other payable despite increases in deposits, and policy liabilities and policy account balances.

Shareholders’ equity remained flat at ¥2,979,684 million compared to the balance as of March 31, 2020.

– 20 –

(3) Liquidity and Capital Resources

ORIX Group formulates funding policies that are designed to improve procurement efficiency and reduce liquidity risk. As a concrete measure to stabilize procurement efficiency while engaging in activities such as borrowing, capital market procurement and securitization of assets, we are diversifying our procurement methods and our country and investor base. To reduce liquidity risk we are prolonging our borrowings from financial institutions and issuing long-term corporate bonds domestically and internationally with dispersed redemption periods. We are also holding cash and entering into committed credit facilities agreements. In order to maintain an appropriate level of liquidity at hand, we conduct stress tests from the perspective of both funding stability and financial efficiency and review the necessary levels accordingly.

The Company continues to closely monitor the effects of COVID-19 on the liquidity and capital resources of the ORIX Group.

Our funding is comprised of borrowings from financial institutions, direct fund procurement from capital markets, and deposits. ORIX Group’s total funding including that from short-and long-term debt and deposits on a consolidated basis was ¥6,946,826 million as of September 30, 2020. Borrowings are procured from a diverse range of financial institutions including major banks, regional banks, foreign banks and life and casualty insurance companies. The number of financial institutions from which we procured borrowings was about 200 as of September 30, 2020. Our debt from capital markets is mainly composed of bonds, MTNs, CP, and securitization of loans receivables and other assets (including asset backed securities). The majority of deposits are attributable to ORIX Bank Corporation.

Short-term and long-term debt and deposits

(a) Short-term debt


	Millions of yen
	March 31, 2020		September 30, 2020
Borrowings from financial institutions	¥	319,122	¥	348,526
Commercial paper		17,710		12,999

Total short-term debt	¥	336,832	¥	361,525

Short-term debt as of September 30, 2020 was ¥361,525 million, which accounted for 8% of the total amount of short and long-term debt (excluding deposits) as compared to 7% as of March 31, 2020.

While the amount of short-term debt as of September 30, 2020 was ¥361,525 million, the sum of cash and cash equivalents and the unused amount of committed credit facilities as of September 30, 2020 was ¥1,619,355 million.

(b) Long-term debt


	Millions of yen
	March 31, 2020		September 30, 2020
Borrowings from financial institutions	¥	3,094,474	¥	3,122,871
Bonds		845,938		835,622
Medium-term notes		176,802		138,055
Payables under securitized loan receivables and other assets		162,140		166,913

Total long-term debt	¥	4,279,354	¥	4,263,461

The balance of long-term debt as of September 30, 2020 was ¥4,263,461 million, which accounted for 92% of the total amount of short and long-term debt (excluding deposits) as compared to 93% as of March 31, 2020.


	Millions of yen
	March 31, 2020		September 30, 2020
Deposits	¥	2,231,703	¥	2,321,840

Apart from the short-term and long-term debt noted above, ORIX Bank Corporation and ORIX Asia Limited accept deposits. These deposit-taking subsidiaries are regulated institutions, and loans from these subsidiaries to ORIX Group entities are subject to maximum regulatory limits.

– 21 –

(4) Summary of Cash Flows

Cash, cash equivalents and restricted cash as of September 30, 2020 increased by ¥172,022 million to ¥1,307,306 million compared to March 31, 2020.

Cash flows provided by operating activities were ¥519,772 million in the six months ended September 30, 2020, down from ¥532,850 million during the same period of the previous fiscal year, primarily resulting from a decrease in net income.

Cash flows used in investing activities were ¥420,148 million in the six months ended September 30, 2020, down from ¥703,479 million during the same period of the previous fiscal year, primarily resulting from a decrease in installment loans made to customers.

Cash flows provided by financing activities were ¥72,145 million in the six months ended September 30, 2020, up from ¥6,676 million during the same period of the previous fiscal year, primarily from a change from a decrease to an increase in debt with maturities of three months or less.

(5) Management Policy and Strategy

We expect the impact of COVID-19 to remain to some extent during the fiscal year ending March 31, 2022. Some of our business segments have been impacted by COVID-19, but our ¥13 trillion portfolio is well diversified and should allow us to maintain a sound asset mix. For the ORIX Life Insurance and ORIX Bank, even if COVID-19 continues, we reconfirm that the impact will be limited.

As we judge that the environment surrounding ORIX has begun to stabilize, we will continue to proactively consider new investments which will produce stable earnings and contribute to future growth from the second half of the fiscal year ending March 31, 2021 and beyond.

Target Performance Indicators

In pursuit of sustainable growth, ORIX Group uses the following performance indicators: net income attributable to ORIX Corporation shareholders to measure profitability, ROE to measure capital efficiency, and credit ratings to measure financial soundness.

When results for the fiscal year ended March 31, 2020 were announced, we faced difficulty in formulating estimates of COVID-19 impact for both the spread of contagion and the rapid global economic slump. We outlined the following two scenarios for the fiscal year ending March 31, 2021: (1) if the situation gradually normalizes by the end of Q3, net income is estimated at about ¥180.0 ~¥200.0 billion, (2) the situation persists until the end of this fiscal year, net income is estimated at about ¥80.0 ~ ¥120.0 billion.

Although it is still challenging to get a clear view on this, we announced interim financial results featuring a full-year net income estimate of ¥190 billion, as we see the latter scenario (net income of ¥80.0~ ¥120.0 billion) as unlikely.

Performance indicators for the fiscal years ended March 31, 2018, 2019 and 2020 and for the six months ended September 30, 2020 are as follows.

Year ended
March 31,
2018

Year ended
March 31,
2019

Year ended
March 31,
2020

Six months ended
September 30,
2020

Net Income Attributable to ORIX Corporation Shareholders (millions of yen)

313,135

323,745

302,700

93,842

ROE*1 (%)

12.1

11.6

10.3

6.3 *2

Credit Ratings

R&I Long-Term Debt

A + (Stable)

A + (Positive)

AA - (Stable)

AA - Stable)

S&P Long-Term Debt

A - (Stable)

A - (Negative)

Fitch Long-Term Debt

A - (Stable)

A - (Negative)

Moody’s Long-Term Debt

Baa1 (Positive)

A3 (Stable)

A3 (Negative)

*1	ROE is the ratio of Net Income Attributable to ORIX Corporation Shareholders for the period to average ORIX Corporation Shareholders’ Equity.

*2	Annualized.

– 22 –

(6) Challenges to be addressed on a priority basis

There were no significant changes for the six months ended September 30, 2020.

(7) Research and Development Activity

There were no significant changes in research and development activities for the six months ended September 30, 2020.

(8) Major Facilities

There were no significant changes in major facilities for the six months ended September 30, 2020.

4.	Material Contracts

Not applicable.

5.	Company Stock Information

(The following disclosure is provided for ORIX Corporation on a stand-alone basis and has been prepared based on Japanese GAAP.)

(1) Issued Shares, Common Stock and Capital Reserve

The number of issued shares, the amount of common stock and capital reserve for the three months ended September 30, 2020 is as follows:


In thousands			Millions of yen
Number of issued shares			Common stock				Capital reserve
Increase, net	September 30, 2020		Increase, net		September 30, 2020		Increase, net		September 30, 2020
0		1,313,954	¥	0	¥	221,111	¥	0	¥	248,290

(2) List of Major Shareholders

The following is a list of major shareholders based on our share registry as of September 30, 2020:


Name	Number of shares held (in thousands)		Percentage of total shares issued
Address
The Master Trust Bank of Japan, Ltd. (Trust Account)		107,986		8.65	%
2-11-3, Hamamatsu-cho, Minato-ku, Tokyo

Custody Bank of Japan, Ltd. (Trust Account)		88,005		7.05
1-8-12, Harumi, Chuo-ku, Tokyo

Custody Bank of Japan, Ltd. (Trust Account7)		27,737		2.22
1-8-12, Harumi, Chuo-ku, Tokyo

Custody Bank of Japan, Ltd. (Trust Account5)		25,513		2.04
1-8-12, Harumi, Chuo-ku, Tokyo

SSBTC Client Omnibus Account		24,772		1.99
One Lincoln Street, Boston MA USA 02111

Citibank, N.A.-NY, As Depositary Bank For Depositary Share Holders		23,420		1.88
388 Greenwich Street New York, NY 10013 USA

Northern Trust Co. (AVFC) Sub A/C Non Treaty		21,512		1.72
50 Bank Street Canary Wharf London E14 5Nt, UK

SMBC Nikko Securities Inc.		21,375		1.71
3-3-1, Marunouchi, Chiyoda-ku, Tokyo

JP Morgan Securities Inc.		21,162		1.70
Tokyo Building, 2-7-3, Marunouchi, Chiyoda-ku, Tokyo

JP Morgan Chase Bank 385781		20,649		1.65
25 Bank Street, Canary Wharf, London, E14 5JP, United Kingdom

		382,133		30.63	%

– 23 –


Notes 1:		The number of shares held in relation to a trust business may not be all inclusive and therefore is reported with reference to the names listed as shareholders.
2:		In addition to the above, the Company has treasury stock shares of 66,231 thousand shares. The Company’s shares held through the Board Incentive Plan Trust (2,197 thousand shares) are not included in the number of treasury stock shares.
3:		On May 12, 2020, Asset Management One Co., Ltd. and Asset Management One International Ltd. jointly filed a large shareholding report (an alteration report), as required under Japanese regulations, that shows their shareholdings of the Company as of April 30, 2020 as follows. The following information is not included in the List of Major Shareholders above because we were unable to confirm our share registry as of September 30, 2020 with regard to the reported number of shares held.


Name	Number of shares held (in thousands)		Percentage of total shares issued
Asset Management One Co., Ltd.		55,281		4.17	%
Asset Management One International Ltd.		1,652		0.12

Total		56,933		4.30	%


4:		On July 20, 2020, Nomura Asset Management Co., Ltd. filed a large shareholding report (an alteration report), as required under Japanese regulations, that shows their shareholdings of the Company as of July 15, 2020 as follows. The following information is not included in the List of Major Shareholders above because we were unable to confirm our share registry as of September 30, 2020 with regard to the reported number of shares held.


Name	Number of shares held (in thousands)		Percentage of total shares issued
Nomura Asset Management Co., Ltd.		66,918		5.09	%

Total		66,918		5.09	%

6.	Directors and Executive Officers

Between the filing date of Form 20-F for the fiscal year ended March 31, 2020 and September 30, 2020, there were no changes of directors and executive officers.

– 24 –

7.	Financial Information

(1) Condensed Consolidated Balance Sheets (Unaudited)


		Millions of yen
Assets		March 31, 2020			September 30, 2020
Cash and Cash Equivalents		¥	982,666		¥	1,182,557
Restricted Cash			152,618			124,749
Net Investment in Leases			1,080,964			1,033,980
Installment Loans			3,740,486			3,732,261
The amounts which are measured at fair value by electing the fair value option are as follows:
March 31, 2020	¥90,893 million
September 30, 2020	¥94,885 million
Allowance for Doubtful Receivables on Finance Leases and Probable Loan Losses			(56,836	)		0
Allowance for Credit Losses			0			(85,761	)
Investment in Operating Leases			1,400,001			1,375,958
Investment in Securities			2,245,323			2,347,344
The amounts which are measured at fair value by electing the fair value option are as follows:
March 31, 2020	¥25,295 million
September 30, 2020	¥7,263 million
The amounts which are associated to available-for-sale debt securities are as follows:
September 30, 2020
Amortized Cost	¥1,724,180 million
Allowance for Credit Losses	¥0 million
Property under Facility Operations			562,485			562,612
Investment in Affiliates			821,662			793,506
Trade Notes, Accounts and Other Receivable			312,744			254,220
Inventories			126,013			135,234
Office Facilities			203,930			195,577
Other Assets			1,495,472			1,515,833
The amounts which are measured at fair value by electing the fair value option are as follows:
March 31, 2020	¥18,206 million
September 30, 2020	¥9,062 million

Total Assets		¥	13,067,528		¥	13,168,070


Notes:	1.	Accounting Standards Update 2016-13 (“Measurement of Credit Losses on Financial Instruments”—ASC 326 (“Financial Instruments—Credit Losses”)) (hereinafter, “Credit Losses Standard”) has been adopted since April 1, 2020 and the amounts of allowance for doubtful receivables on finance leases and probable loan losses have been reclassified to allowance for credit losses. For further information, see Note 2 “Significant Accounting and Reporting Policies (ah) New accounting pronouncements.”
	2.	Allowance for credit losses of loans to affiliates are recorded in investment in affiliates since the second quarter of fiscal 2021. Before fiscal 2020, there were no allowance for doubtful receivables on loans to affiliates.
	3.	The assets of consolidated variable interest entities (VIEs) that can be used only to settle obligations of those VIEs are below:


	Millions of yen
	March 31, 2020		September 30, 2020
Cash and Cash Equivalents	¥	7,117	¥	4,392
Net Investment in Leases (Net of Allowance for Doubtful Receivables on Finance Leases and Probable Loan Losses / Allowance for Credit Losses)		3,377		1,358
Installment Loans (Net of Allowance for Doubtful Receivables on Finance Leases and Probable Loan Losses / Allowance for Credit Losses)		218,268		250,114
Investment in Operating Leases		75,904		73,447
Property under Facility Operations		296,208		300,360
Investment in Affiliates		51,456		51,170
Other		136,641		108,787

	¥	788,971	¥	789,628

– 25 –


	Millions of yen
Liabilities and Equity	March 31, 2020			September 30, 2020
Liabilities:
Short-Term Debt	¥	336,832		¥	361,525
Deposits		2,231,703			2,321,840
Trade Notes, Accounts and Other Payable		282,727			197,062
Policy Liabilities and Policy Account Balances		1,591,475			1,727,963
The amounts which are measured at fair value by electing the fair value option are as follows:
March 31, 2020 ¥300,739 million
September 30, 2020 ¥296,810 million
Current and Deferred Income Taxes		356,350			354,184
Long-Term Debt		4,279,354			4,263,461
Other Liabilities		912,921			901,350

Total Liabilities		9,991,362			10,127,385

Redeemable Noncontrolling Interests		10,331			0

Commitments and Contingent Liabilities
Equity:
Common Stock		221,111			221,111
Additional Paid-in Capital		257,638			243,061
Retained Earnings		2,754,461			2,753,954
Accumulated Other Comprehensive Income (Loss)		(118,532	)		(124,264	)
Treasury Stock, at Cost		(121,070	)		(114,178	)

ORIX Corporation Shareholders’ Equity		2,993,608			2,979,684
Noncontrolling Interests		72,227			61,001

Total Equity		3,065,835			3,040,685

Total Liabilities and Equity	¥	13,067,528		¥	13,168,070


Notes:	1.	Credit Losses Standard has been adopted since April 1, 2020. For further information, see Note 2 “Significant Accounting and Reporting Policies (ah) New accounting pronouncements.”
	2.	The liabilities of consolidated VIEs for which creditors (or beneficial interest holders) do not have recourse to the general credit of the Company and its subsidiaries are below:


	Millions of yen
	March 31, 2020		September 30, 2020
Short-Term Debt	¥	6,030	¥	5,942
Trade Notes, Accounts and Other Payable		3,140		3,667
Long-Term Debt		464,904		457,013
Other		45,671		44,194

	¥	519,745	¥	510,816

– 26 –

(2) Condensed Consolidated Statements of Income (Unaudited)


	Millions of yen
	Six months ended September 30, 2019		Six months ended September 30, 2020
Revenues:
Finance revenues	¥	136,372	¥	131,904
Gains on investment securities and dividends		20,381		12,832
Operating leases		214,925		197,961
Life insurance premiums and related investment income		182,468		233,751
Sales of goods and real estate		184,494		192,653
Services income		396,805		315,637

Total revenues		1,135,445		1,084,738

Expenses:
Interest expense		50,243		42,161
Costs of operating leases		143,440		145,810
Life insurance costs		130,960		173,025
Costs of goods and real estate sold		160,042		163,538
Services expense		247,749		202,118
Other (income) and expense		9,473		7,833
Selling, general and administrative expenses		221,191		218,619
Provision for doubtful receivables and probable loan losses		10,573		0
Provision for credit losses		0		7,336
Write-downs of long-lived assets		36		583
Write-downs of securities		36		3,876

Total expenses		973,743		964,899

Operating Income		161,702		119,839
Equity in Net Income of Affiliates		32,617		2,289
Gains on Sales of Subsidiaries and Affiliates and Liquidation Losses, net		33,288		7,681
Bargain Purchase Gain		1,022		4,365

Income before Income Taxes		228,629		134,174
Provision for Income Taxes		66,965		38,682

Net Income		161,664		95,492

Net Income Attributable to the Noncontrolling Interests		2,192		1,673

Net Income (Loss) Attributable to the Redeemable Noncontrolling Interests		322		(23	)

Net Income Attributable to ORIX Corporation Shareholders	¥	159,150	¥	93,842


Note:	1.	Credit Losses Standard has been adopted since April 1, 2020 and the amounts of provision for doubtful receivables and probable loan losses have been reclassified to provision for credit losses. For further information, see Note 2 “Significant Accounting and Reporting Policies (ah) New accounting pronouncements.”
	2.	Provision for credit losses of loans to affiliates are recorded in equity in net income of affiliates since the second quarter of fiscal 2021.


	Yen
	Six months ended September 30, 2019		Six months ended September 30, 2020
Amounts per Share of Common Stock for Net Income Attributable to ORIX Corporation Shareholders:
Basic:	¥	124.34	¥	75.22
Diluted:	¥	124.24	¥	75.16

– 27 –


	Millions of yen
	Three months ended September 30, 2019		Three months ended September 30, 2020
Revenues:
Finance revenues	¥	68,584	¥	66,473
Gains on investment securities and dividends		6,838		10,463
Operating leases		113,156		103,015
Life insurance premiums and related investment income		94,778		117,628
Sales of goods and real estate		97,342		84,288
Services income		206,298		165,230

Total revenues		586,996		547,097

Expenses:
Interest expense		24,077		19,480
Costs of operating leases		72,166		74,218
Life insurance costs		69,199		87,380
Costs of goods and real estate sold		84,610		70,669
Services expense		130,423		104,519
Other (income) and expense		4,778		2,728
Selling, general and administrative expenses		109,783		110,252
Provision for doubtful receivables and probable loan losses		5,857		0
Provision for credit losses		0		931
Write-downs of long-lived assets		16		326
Write-downs of securities		36		2,271

Total expenses		500,945		472,774

Operating Income		86,051		74,323
Equity in Net Income of Affiliates		19,634		(10,141	)
Gains on Sales of Subsidiaries and Affiliates and Liquidation Losses, net		24,084		2,361

Income before Income Taxes		129,769		66,543
Provision for Income Taxes		38,009		21,506

Net Income		91,760		45,037

Net Income Attributable to the Noncontrolling Interests		1,807		1,243

Net Income Attributable to the Redeemable Noncontrolling Interests		13		0

Net Income Attributable to ORIX Corporation Shareholders	¥	89,940	¥	43,794


Note:	1.	Credit Losses Standard has been adopted since April 1, 2020 and the amounts of provision for doubtful receivables and probable loan losses have been reclassified to provision for credit losses. For further information, see Note 2 “Significant Accounting and Reporting Policies (ah) New accounting pronouncements.”
	2.	Provision for credit losses of loans to affiliates are recorded in equity in net income of affiliates since the second quarter of fiscal 2021.


	Yen
	Three months ended September 30, 2019		Three months ended September 30, 2020
Amounts per Share of Common Stock for Net Income Attributable to ORIX Corporation Shareholders:
Basic:	¥	70.27	¥	35.15
Diluted:	¥	70.21	¥	35.12

– 28 –

(3) Condensed Consolidated Statements of Comprehensive Income (Unaudited)


	Millions of yen
	Six months ended September 30, 2019			Six months ended September 30, 2020
Net Income	¥	161,664		¥	95,492

Other comprehensive income (loss), net of tax:
Net change of unrealized gains (losses) on investment in securities		4,904			1,879
Net change of debt valuation adjustments		204			(534	)
Net change of defined benefit pension plans		786			125
Net change of foreign currency translation adjustments		(38,045	)		(8,749	)
Net change of unrealized gains (losses) on derivative instruments		(5,728	)		(520	)

Total other comprehensive income (loss)		(37,879	)		(7,799	)

Comprehensive Income		123,785			87,693

Comprehensive Income (Loss) Attributable to the Noncontrolling Interests		373			(114	)

Comprehensive Income (Loss) Attributable to the Redeemable Noncontrolling Interests		47			(303	)

Comprehensive Income Attributable to ORIX Corporation Shareholders	¥	123,365		¥	88,110


	Millions of yen
	Three months ended September 30, 2019			Three months ended September 30, 2020
Net Income	¥	91,760		¥	45,037

Other comprehensive income (loss), net of tax:
Net change of unrealized gains (losses) on investment in securities		(331	)		3,285
Net change of debt valuation adjustments		72			(102	)
Net change of defined benefit pension plans		447			28
Net change of foreign currency translation adjustments		(14,105	)		(7,476	)
Net change of unrealized gains (losses) on derivative instruments		(1,849	)		865

Total other comprehensive income (loss)		(15,766	)		(3,400	)

Comprehensive Income		75,994			41,637

Comprehensive Income (Loss) Attributable to the Noncontrolling Interests		1,276			(421	)

Comprehensive Income (Loss) Attributable to the Redeemable Noncontrolling Interests		25			(176	)

Comprehensive Income Attributable to ORIX Corporation Shareholders	¥	74,693		¥	42,234

– 29 –

(4) Condensed Consolidated Statements of Changes in Equity (Unaudited)

Six months ended September 30, 2019


	Millions of yen
	ORIX Corporation Shareholders’ Equity
	Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total ORIX Corporation Shareholders’ Equity			Noncontrolling Interests			Total Equity
Balance at March 31, 2019	¥	221,111	¥	257,625		¥	2,555,585		¥	(61,343	)	¥	(75,904	)	¥	2,897,074		¥	56,127		¥	2,953,201

Contribution to subsidiaries																0			11,812			11,812
Transaction with noncontrolling interests				188												188			(1,654	)		(1,466	)
Comprehensive income, net of tax:
Net income							159,150									159,150			2,192			161,342
Other comprehensive income (loss)
Net change of unrealized gains (losses) on investment in securities										4,911						4,911			(7	)		4,904
Net change of debt valuation adjustments										204						204			0			204
Net change of defined benefit pension plans										786						786			0			786
Net change of foreign currency translation adjustments										(36,029	)					(36,029	)		(1,741	)		(37,770	)
Net change of unrealized gains (losses) on derivative instruments										(5,657	)					(5,657	)		(71	)		(5,728	)

Total other comprehensive income (loss)																(35,785	)		(1,819	)		(37,604	)

Total comprehensive income																123,365			373			123,738

Cash dividends							(58,962	)								(58,962	)		(1,015	)		(59,977	)
Acquisition of treasury stock													(0	)		(0	)		0			(0	)
Disposal of treasury stock				(29	)								43			14			0			14
Other, net				394												394			0			394

Balance at September 30, 2019	¥	221,111	¥	258,178		¥	2,655,773		¥	(97,128	)	¥	(75,861	)	¥	2,962,073		¥	65,643		¥	3,027,716

Six months ended September 30, 2020


	Millions of yen
	ORIX Corporation Shareholders’ Equity
	Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total ORIX Corporation Shareholders’ Equity			Noncontrolling Interests			Total Equity
Balance at March 31, 2020	¥	221,111	¥	257,638		¥	2,754,461		¥	(118,532	)	¥	(121,070	)	¥	2,993,608		¥	72,227		¥	3,065,835

Cumulative effect of adopting Accounting Standards Update 2016-13							(42,855	)								(42,855	)		(71	)		(42,926	)

Balance at April 1, 2020	¥	221,111	¥	257,638		¥	2,711,606		¥	(118,532	)	¥	(121,070	)	¥	2,950,753		¥	72,156		¥	3,022,909

Contribution to subsidiaries																0			3,825			3,825
Transaction with noncontrolling interests				3,152												3,152			(8,312	)		(5,160	)
Comprehensive income (loss), net of tax:
Net income							93,842									93,842			1,673			95,515
Other comprehensive income (loss)
Net change of unrealized gains (losses) on investment in securities										1,871						1,871			8			1,879
Net change of debt valuation adjustments										(534	)					(534	)		0			(534	)
Net change of defined benefit pension plans										127						127			(2	)		125
Net change of foreign currency translation adjustments										(6,671	)					(6,671	)		(1,798	)		(8,469	)
Net change of unrealized gains (losses) on derivative instruments										(525	)					(525	)		5			(520	)

Total other comprehensive income (loss)																(5,732	)		(1,787	)		(7,519	)

Total comprehensive income (loss)																88,110			(114	)		87,996

Cash dividends							(51,493	)								(51,493	)		(6,554	)		(58,047	)
Acquisition of treasury stock													(11,243	)		(11,243	)		0			(11,243	)
Disposal of treasury stock				(183	)								257			74			0			74
Cancellation of treasury stock				(17,877	)								17,877			0			0			0
Other, net				331			(1	)					1			331			0			331

Balance at September 30, 2020	¥	221,111	¥	243,061		¥	2,753,954		¥	(124,264	)	¥	(114,178	)	¥	2,979,684		¥	61,001		¥	3,040,685


Note:		Changes in the redeemable noncontrolling interests are not included in this table. For further information, see Note 13 “Redeemable Noncontrolling Interests.”

– 30 –

Three months ended September 30, 2019


	Millions of yen
	ORIX Corporation Shareholders’ Equity
	Common Stock		Additional Paid-in Capital			Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total ORIX Corporation Shareholders’ Equity			Noncontrolling Interests			Total Equity
Balance at June 30, 2019	¥	221,111	¥	257,911		¥	2,565,833	¥	(81,881	)	¥	(75,904	)	¥	2,887,070		¥	58,893		¥	2,945,963

Contribution to subsidiaries															0			6,464			6,464
Transaction with noncontrolling interests				114											114			(500	)		(386	)
Comprehensive income, net of tax:
Net income							89,940								89,940			1,807			91,747
Other comprehensive income (loss)
Net change of unrealized gains (losses) on investment in securities									(327	)					(327	)		(4	)		(331	)
Net change of debt valuation adjustments									72						72			0			72
Net change of defined benefit pension plans									447						447			0			447
Net change of foreign currency translation adjustments									(13,647	)					(13,647	)		(470	)		(14,117	)
Net change of unrealized gains (losses) on derivative instruments									(1,792	)					(1,792	)		(57	)		(1,849	)

Total other comprehensive income (loss)															(15,247	)		(531	)		(15,778	)

Total comprehensive income															74,693			1,276			75,969

Cash dividends															0			(490	)		(490	)
Acquisition of treasury stock												(0	)		(0	)		0			(0	)
Disposal of treasury stock				(29	)							43			14			0			14
Other, net				182											182			0			182

Balance at September 30, 2019	¥	221,111	¥	258,178		¥	2,655,773	¥	(97,128	)	¥	(75,861	)	¥	2,962,073		¥	65,643		¥	3,027,716

Three months ended September 30, 2020


	Millions of yen
	ORIX Corporation Shareholders’ Equity
	Common Stock		Additional Paid-in Capital			Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total ORIX Corporation Shareholders’ Equity			Noncontrolling Interests			Total Equity
Balance at June 30, 2020	¥	221,111	¥	239,888		¥	2,710,160	¥	(122,704	)	¥	(113,281	)	¥	2,935,174		¥	70,378		¥	3,005,552

Contribution to subsidiaries															0			2,525			2,525
Transaction with noncontrolling interests				3,216											3,216			(8,234	)		(5,018	)
Comprehensive income (loss), net of tax:
Net income							43,794								43,794			1,243			45,037
Other comprehensive income (loss)
Net change of unrealized gains (losses) on investment in securities									3,282						3,282			3			3,285
Net change of debt valuation adjustments									(102	)					(102	)		0			(102	)
Net change of defined benefit pension plans									29						29			(1	)		28
Net change of foreign currency translation adjustments									(5,618	)					(5,618	)		(1,682	)		(7,300	)
Net change of unrealized gains (losses) on derivative instruments									849						849			16			865

Total other comprehensive income (loss)															(1,560	)		(1,664	)		(3,224	)

Total comprehensive income (loss)															42,234			(421	)		41,813

Cash dividends															0			(3,247	)		(3,247	)
Acquisition of treasury stock												(1,155	)		(1,155	)		0			(1,155	)
Disposal of treasury stock				(183	)							257			74			0			74
Other, net				140								1			141			0			141

Balance at September 30, 2020	¥	221,111	¥	243,061		¥	2,753,954	¥	(124,264	)	¥	(114,178	)	¥	2,979,684		¥	61,001		¥	3,040,685

Note: Changes in the redeemable noncontrolling interests are not included in this table.

– 31 –

(5) Condensed Consolidated Statements of Cash Flows (Unaudited)


	Millions of yen
	Six months ended September 30, 2019			Six months ended September 30, 2020
Cash Flows from Operating Activities:
Net income	¥	161,664		¥	95,492
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		149,887			154,979
Principal payments received under net investment in leases		242,715			208,285
Provision for doubtful receivables and probable loan losses		10,573			0
Provision for credit losses		0			7,336
Equity in net income of affiliates (excluding interest on loans)		(31,266	)		(1,483	)
Gains on sales of subsidiaries and affiliates and liquidation losses, net		(33,288	)		(7,681	)
Bargain purchase gain		(1,022	)		(4,365	)
Gains on sales of securities other than trading		(14,091	)		(6,510	)
Gains on sales of operating lease assets		(26,596	)		(15,888	)
Write-downs of long-lived assets		36			583
Write-downs of securities		36			3,876
(Increase) Decrease in trading securities		19,638			(14,617	)
Increase in inventories		(5,104	)		(7,436	)
Decrease in trade notes, accounts and other receivable		12,102			17,982
Decrease in trade notes, accounts and other payable		(43,853	)		(48,200	)
Increase in policy liabilities and policy account balances		37,707			136,488
Other, net		53,712			931

Net cash provided by operating activities		532,850			519,772

Cash Flows from Investing Activities:
Purchases of lease equipment		(446,422	)		(313,194	)
Installment loans made to customers		(787,103	)		(541,225	)
Principal collected on installment loans		554,458			501,231
Proceeds from sales of operating lease assets		134,133			81,998
Investment in affiliates, net		6,509			(6,206	)
Proceeds from sales of investment in affiliates		25,755			18,550
Purchases of available-for-sale debt securities		(389,685	)		(265,217	)
Proceeds from sales of available-for-sale debt securities		144,962			129,725
Proceeds from redemption of available-for-sale debt securities		57,065			18,970
Purchases of equity securities other than trading		(19,345	)		(12,443	)
Proceeds from sales of equity securities other than trading		17,943			14,402
Purchases of property under facility operations		(12,115	)		(26,396	)
Acquisitions of subsidiaries, net of cash acquired		(4,526	)		(1,709	)
Sales of subsidiaries, net of cash disposed		36,638			319
Other, net		(21,746	)		(18,953	)

Net cash used in investing activities		(703,479	)		(420,148	)

Cash Flows from Financing Activities:
Net increase (decrease) in debt with maturities of three months or less		(4,243	)		68,417
Proceeds from debt with maturities longer than three months		303,964			515,997
Repayment of debt with maturities longer than three months		(407,403	)		(526,556	)
Net increase in deposits due to customers		164,977			90,431
Cash dividends paid to ORIX Corporation shareholders		(58,962	)		(51,493	)
Acquisition of treasury stock		(0	)		(11,243	)
Contribution from noncontrolling interests		10,880			7,723
Purchases of shares of subsidiaries from noncontrolling interests		(1,093	)		(4,282	)
Net decrease in call money		0			(10,000	)
Other, net		(1,444	)		(6,849	)

Net cash provided by financing activities		6,676			72,145

Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash		(10,187	)		253

Net increase (decrease) in Cash, Cash Equivalents and Restricted Cash		(174,140	)		172,022

Cash, Cash Equivalents and Restricted Cash at Beginning of Period		1,283,580			1,135,284

Cash, Cash Equivalents and Restricted Cash at End of Period	¥	1,109,440		¥	1,307,306


Notes:	1.	Credit Losses Standard has been adopted since April 1, 2020, and the amounts of Provision for doubtful receivables and probable loan losses has been reclassified to Provision for credit losses. For further information, see Note 2 “Significant Accounting and Reporting Policies (ah) New accounting pronouncements.”
	2.	The following tables provide information about Cash, Cash Equivalents and Restricted Cash which are included in the Company’s consolidated balance sheets as of September 30, 2019 and September 30, 2020, respectively.


	Millions of yen
	September 30, 2019		September 30, 2020
Cash and Cash Equivalents	¥	981,565	¥	1,182,557
Restricted Cash		127,875		124,749

Cash, Cash Equivalents and Restricted Cash	¥	1,109,440	¥	1,307,306

– 32 –

Notes to Consolidated Financial Statements

1.	Overview of Accounting Principles Utilized

In preparing the accompanying consolidated financial statements, ORIX Corporation (the “Company”) and its subsidiaries have complied with generally accepted accounting principles in the United States (“U.S. GAAP”), except for the accounting for stock splits.

These statements include all adjustments (consisting of normal recurring accruals) that we considered necessary to present a fair statement of our results of operations, financial position and cash flows. The results reported in these consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year. These consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in our March 31, 2020 consolidated financial statements on Form 20-F.

Since the Company listed on the New York Stock Exchange in September 1998, the Company has filed the annual report (Form 20-F) including the consolidated financial statements with the Securities and Exchange Commission.

Significant differences between U.S. GAAP and generally accepted accounting principles in Japan (“Japanese GAAP”) are as follows:

(a) Revenue recognition for revenue from contracts with customers

Under U.S. GAAP, revenues from contracts with customers such as sales of goods and real estate, and services income are recognized to depict the transfer of promised goods or services to customers in the amounts that reflect the consideration to which the entity expects to be entitled in exchange for those goods or services.

Under Japanese GAAP, revenues are generally recognized when cash or monetary assets are received as a consideration by sales of goods or rendering of services in accordance with realization principle.

(b) Initial direct costs

Under U.S. GAAP, initial direct costs of sales-type leases and direct financing leases are mainly being deferred and amortized as a yield adjustment over the life of the related lease using the interest method. Initial direct costs of operating leases are being deferred and amortized on a straight-line basis over the life of the related lease.

Under Japanese GAAP, those initial direct costs are recognized as expenses when they are incurred.

(c) Allowance for credit losses

Under U.S. GAAP, the allowance for credit losses to financial assets not individually evaluated is accounted for by estimating all credit losses expected to occur in future over the remaining life. And for the credit losses over the remaining life resulting from off-balance sheet credit exposures, the allowance is recognized.

Under Japanese GAAP, the allowance for loan losses to financial receivables, etc. not individually evaluated is accounted for based on the prior charge-off experience to the outstanding balance of financial receivables at the reporting date.

(d) Operating leases

Under U.S. GAAP, revenues from operating leases are recognized on a straight-line basis over the contract terms. Operating lease assets are depreciated over their estimated useful lives mainly on a straight-line basis.

Japanese GAAP allows for operating lease assets to be depreciated using mainly either a declining-balance basis or a straight-line basis.

(e) Accounting for life insurance operations

Under U.S. GAAP, certain costs related directly to the successful acquisition of new (or renewal of) insurance contracts are deferred and amortized over the respective policy periods in proportion to anticipated premium revenue.

Under Japanese GAAP, such costs are recorded as expenses currently in earnings in each accounting period.

– 33 –

In addition, under U.S. GAAP, policy liabilities for future policy benefits are established using the net level premium method based on actuarial estimates of the amount of future policyholder benefits. Under Japanese GAAP, these are calculated by the methodology which relevant authorities accept.

(f) Accounting for goodwill and other intangible assets in business combinations

Under U.S. GAAP, goodwill and indefinite-lived intangible assets are not amortized, but assessed for impairment at least annually. Additionally, if events or changes in circumstances indicate that the asset might be impaired, the Company and its subsidiaries test for impairment when such events or changes occur.

Under Japanese GAAP, goodwill is amortized over an appropriate period up to 20 years.

(g) Accounting for pension plans

Under U.S. GAAP, the net actuarial gain (loss) is amortized using the corridor approach.

Under Japanese GAAP, the net actuarial gain (loss) is fully amortized over a certain term within the average remaining service period of employees.

(h) Partial sale of the parent’s ownership interest in subsidiaries

Under U.S. GAAP, in a transaction that results in the loss of control, the gain or loss recognized in income includes the realized gain or loss related to the portion of ownership interest sold and the gain or loss on the remeasurement to fair value of the interest retained.

Under Japanese GAAP, in a transaction that results in the loss of control, only the realized gain or loss related to the portion of ownership interest sold is recognized in income and the gain or loss on the remeasurement to fair value of the interest retained is not recognized.

(i) Consolidated statements of cash flows

Classification in the statements of cash flows under U.S. GAAP differs from that under Japanese GAAP. As significant differences, purchase of lease equipment, proceeds from sales of operating lease assets, installment loans made to customers and principal collected on installment loans (excluding issues and collections of loans held for sale) are included in “Cash Flows from Investing Activities” under U.S. GAAP while they are classified as “Cash Flows from Operating Activities” under Japanese GAAP.

Under U.S. GAAP, in addition, restricted cash is required to be added to the balance of cash and cash equivalents.

(j) Transfer of financial assets

Under U.S. GAAP, an entity is required to perform analysis to determine whether or not to consolidate trusts or special purpose companies, collectively called special-purpose entities (“SPEs”) for securitization under the VIE’s consolidation rules. If it is determined from the analysis that the enterprise transferred financial assets in a securitization transaction to a SPE that needs to be consolidated, the transaction is not accounted for as a sale.

In addition, if the transferor transfers a portion of financial assets, the transaction is not accounted for as a sale but accounted for as a secured borrowing unless each interest held by the transferor and transferee meets the definition of a participating interest and the transfer of a portion of financial assets meets criteria for derecognition of transferred financial assets.

Under Japanese GAAP, a SPE that meets certain conditions may be considered not to be a subsidiary of the transferor. Therefore, if an enterprise transfers financial assets to this type of SPE in a securitization transaction, the transferee SPE is not required to be consolidated, and the enterprise accounts for the transaction as a sale and recognizes a gain or loss on the sale into earnings when control over the transferred assets is surrendered.

In addition, if the transferor transfers a portion of financial assets, the enterprise accounts for the transaction as a sale and recognizes a gain or loss on the sale into earnings when the transfer of a portion of financial assets meets criteria for derecognition of transferred financial assets.

– 34 –

(k) Investment in securities

Under U.S. GAAP, unrealized gains and losses from all equity securities are generally recognized in income. In addition, credit losses on available-for-sale debt securities are recognized in earnings through an allowance, and unrealized gains and losses on available-for-sale debt securities related to other factors than credit losses are recognized in other comprehensive income (loss), net of applicable income taxes.

Under Japanese GAAP, such unrealized gains and losses from securities other than trading or held-to-maturity are recognized in other comprehensive income (loss), net of applicable income taxes.

(l) Fair value option

Under U.S. GAAP, an entity is permitted to carry certain eligible financial assets and liabilities at fair value and to recognize changes in that item’s fair value in earnings through the election of the fair value option. The portion of the total change in the fair value of the financial liability that results from a change in the instrument-specific credit risk is to be recognized in other comprehensive income (loss), net of applicable income taxes.

Under Japanese GAAP, there is no accounting standard for fair value option.

(m) Lessee’s lease

Under U.S. GAAP, right-of-use (hereinafter, “ROU”) assets and lease liabilities from the lessee’s lease transaction are generally recognized on the balance sheet.

Under Japanese GAAP, operating leases from the lessee’s lease transaction are off-balance sheet.

– 35 –

2.	Significant Accounting and Reporting Policies

(a) Principles of consolidation

The consolidated financial statements include the accounts of the Company and all of its subsidiaries. Investments in affiliates, where the Company has the ability to exercise significant influence by way of 20% – 50% ownership or other means, are accounted for by using the equity method. Where the Company holds majority voting interests but noncontrolling shareholders have substantive participating rights to decisions that occur as part of the ordinary course of their business, the equity method is applied. In addition, the consolidated financial statements include VIEs to which the Company and its subsidiaries are primary beneficiaries.

A certain overseas subsidiary consolidates subsidiaries determined as investment companies under ASC 946 (“Financial Services—Investment Companies”). Investments held by the investment company subsidiaries are carried at fair value with changes in fair value recognized in earnings.

A lag period of up to three months is used on a consistent basis for recognizing the results of certain subsidiaries and affiliates.

All significant intercompany accounts and transactions have been eliminated in consolidation.

(b) Use of estimates

The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company has identified ten areas where it believes assumptions and estimates are particularly critical to the financial statements. The Company makes estimates and assumptions to the selection of valuation techniques and determination of assumptions used in fair value measurements, the determination and periodic reassessment of the unguaranteed residual value for finance leases and operating leases, the determination and reassessment of insurance policy liabilities and deferred policy acquisition costs, the determination of the allowance for doubtful receivables on finance leases and probable loan losses and the allowance for credit losses (including the allowance for off-balance sheet credit exposures), the recognition and measurement of impairment of long-lived assets, the recognition and measurement of impairment of investment in securities, the determination of the valuation allowance for deferred tax assets and the evaluation of tax positions, the assessment and measurement of effectiveness in hedging relationship using derivative financial instruments, the determination of benefit obligation and net periodic pension cost and the recognition and measurement of impairment of goodwill and indefinite-lived intangible assets.

In addition, we carefully considered the future outlook regarding the spread of the COVID-19. As of September 30, 2020, there were no significant changes in the forecast assumed at the end of the previous fiscal year, and there was no significant impact on our accounting estimates. However, the outlook for future outbreaks of COVID-19 and the resulting global economic slowdown is uncertain and it may change rapidly. Therefore, our accounting estimates may change over time.

(c) Foreign currencies translation

The Company and its subsidiaries maintain their accounting records in their functional currency. Transactions in foreign currencies are recorded in the entity’s functional currency based on the prevailing exchange rates on the transaction date. Monetary assets and liabilities in foreign currencies are recorded in the entity’s functional currency based on the prevailing exchange rates at the end of each fiscal year.

The financial statements of overseas subsidiaries and affiliates are translated into Japanese yen by applying the exchange rates in effect at the end of each fiscal year to all assets and liabilities. Income and expenses are translated at the average rates of exchange prevailing during the fiscal year. The currencies in which the operations of the overseas subsidiaries and affiliates are conducted are regarded as the functional currencies of these companies. Foreign currency translation adjustments reflected in other comprehensive income (loss), net of applicable income taxes, arise from the translation of foreign currency financial statements into Japanese yen.

(d) Revenue recognition

The Company and its subsidiaries recognize revenues from only contracts with customers, such as sales of goods and real estate, and services income, based on the following five steps;

Step 1: Identify the contract(s) with a customer

Step 2: Identify the performance obligations in the contract

– 36 –

Step 3: Determine the transaction price

Step 4: Allocate the transaction price to the performance obligations in the contract

Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation

In accordance with these steps, revenues are recognized to depict the transfer of promised goods or services to customers in the amounts that reflect the consideration to which the entity expects to be entitled in exchange for those goods or services. Revenues are recognized net of discount, incentives and estimated sales returns. In case that the Company and its subsidiaries receive payment from customers before satisfying performance obligations, the amounts are recognized as contract liabilities. In transactions that involve third parties, if the Company and its subsidiaries control the goods or services before they are transferred to the customers, revenue is recognized on gross amount as the principal.

Excluding the aforementioned policy, the policies as specifically described hereinafter are applied for each of revenue items.

Finance Revenues—Finance revenues mainly include revenues from finance leases, installment loans, and financial guarantees.

(1) Revenues from finance leases

Lessor leases consist of leases for various equipment types, including office equipment, industrial machinery, transportation equipment and real estates. Net investment in leases includes sales-type leases and direct financing leases which are full-payout leases. Leases not qualifying as sales-type leases or direct financing leases are accounted for as operating leases. Interest income on net investment in leases is recognized over the life of each respective lease using the interest method. When lease payment is variable, it is accounted for as income in profit or loss in the period when the changes in facts and circumstances on which the variable payment is based occur. When providing leasing services, the Company and its subsidiaries simultaneously conduct supplementary businesses, such as handling taxes and paying insurance on leased assets on behalf of lessees. The compensations for those lessor costs received from lessees are recognized in revenues from finance leases. The estimated unguaranteed residual value represents estimated proceeds from the disposition of equipment at the time the lease is terminated. Estimates of residual values are determined based on market values of used equipment, estimates of when and the extent to which equipment will become obsolete and actual recovery being experienced for similar used equipment. Initial direct costs of sales-type leases and direct financing leases are being deferred and amortized as a yield adjustment over the life of the related lease by using interest method. The unamortized balance of initial direct costs of sales-type leases and direct financing leases is reflected as a component of net investment in leases.

(2) Revenues from installment loans

Interest income on installment loans is recognized on an accrual basis. Certain direct loan origination costs, net of origination fees, are being deferred and amortized over the contractual term of the loan as an adjustment of the related loan’s yield using the interest method. Interest payments received on loans other than purchased loans are recorded as interest income unless the collection of the remaining investment is doubtful at which time payments received are recorded as reductions of principal. For purchased loans, although the acquired assets may remain loans in legal form, collections on these loans often do not reflect the normal historical experience of collecting delinquent accounts, and the need to tailor individual collateral-realization strategies often makes it difficult to reliably estimate the amount, timing, or nature of collections. Accordingly, the Company and its subsidiaries use the cost recovery method of income recognition for such purchased loans.

(3) Revenues from financial guarantees

At the inception of a guarantee, fair value for the guarantee is recognized as a liability in the consolidated balance sheets. The Company and its subsidiaries recognize revenue mainly over the term of guarantee by a systematic and rational amortization method as the Company and the subsidiaries are released from the risk of the obligation.

– 37 –

(4) Non-accrual policy

In common with all classes, for net investment in leases and installment loans, past-due financing receivables are receivables for which principal or interest is past-due 30 days or more. Loans whose terms have been modified are not classified as past-due financing receivables if the principals and interests are not past-due 30 days or more in accordance with the modified terms. The Company and its subsidiaries suspend accruing revenues on past-due installment loans and net investment in leases when principal or interest is past-due 90 days or more, or earlier, if management determines that their collections are doubtful based on factors such as individual debtors’ creditworthiness, historical loss experience, current delinquencies and delinquency trends. However, delinquencies during the relevant period of past-due financing receivables are out of the scope of the suspension of revenue recognition unless their collections are doubtful when the government issues a request for grace of repayment within a maximum of 6 months due to reasons that cannot be attributed to the obligor, such as a disaster, or when similar requests are made by public bodies. Accrued but uncollected interest is reclassified to net investment in leases or installment loans in the accompanying consolidated balance sheets and becomes subject to the allowance for credit losses process. Cash repayments received on non-accrual loans are applied first against past due interest and then any surpluses are applied to principal in view of the conditions of the contract and obligors. The Company and its subsidiaries return non-accrual loans and net investment in leases to accrual status when it becomes probable that the Company and its subsidiaries will be able to collect all amounts due according to the contractual terms of these loans and receivables, as evidenced by continual payments from the debtors. The period of such continual payments before returning to accrual status varies depending on factors that we consider are relevant in assessing the debtors’ creditworthiness, such as the debtors’ business characteristics and financial conditions as well as relevant economic conditions and trends.

Gains on investment securities and dividends—Gains on investment securities are recorded on a trade date basis. Dividends are recorded when right to receive dividends is established.

Operating leases—Revenues from operating leases are recognized on a straight-line basis over the contract terms. When lease payment is variable, it is accounted for as income in profit or loss in the period when the changes in facts and circumstances on which the variable payment is based occur. In principle, any conditions changed from original lease agreement should be accounted for as a lease modification. However, if lessees applied for COVID-19 related rent concessions and changes of lease payments do not result in a substantial increase to the rights of the lessor or the obligations of the lessee, the concessions are eligible to be applied for the practical expedient. The Company and its subsidiaries applied the practical expedient when accounting for eligible rent concessions mentioned above. Taking lessees’ future business performance into consideration, the Company and its subsidiaries applied the practical expedient by the following 3 approaches: recognize revenue under the original lease contract, recognize revenue under the conditions changed by rent concessions or only recognize revenue when receiving the lease payments.

In providing leasing services, the Company and its subsidiaries simultaneously conduct supplementary businesses, such as handling taxes and paying insurance on leased assets on behalf of lessees. The compensations for those lessor costs received from lessees are recognized in operating lease revenues. Investment in operating leases is recorded at cost less accumulated depreciation, which was ¥678,245 million and ¥696,395 million as of March 31, 2020 and September 30, 2020, respectively. Operating lease assets are depreciated over their estimated useful lives mainly on a straight-line basis. Depreciation expenses are included in costs of operating leases. Gains or losses arising from disposition of operating lease assets are included in operating lease revenues.

Estimates of residual values are based on market values of used equipment, estimates of when and the extent to which equipment will become obsolete and actual recovery being experienced for similar used equipment. Initial direct costs of operating leases are being deferred and amortized as a straight-line basis over the life of the related lease. The unamortized balance of initial direct costs is reflected as investment in operating leases.

(e) Insurance and reinsurance transactions

Premium income from life insurance policies, net of premiums on reinsurance ceded, is recognized as earned premiums when due.

Life insurance benefits are recorded as expenses when they are incurred. Policy liabilities and policy account balances for future policy benefits are measured using the net level premium method, based on actuarial estimates of the amount of future policyholder benefits. The policies are characterized as long-duration policies and mainly consist of whole life, term life, endowments, medical insurance and individual annuity insurance contracts. For policies other than individual annuity insurance contracts, computation of policy liabilities necessarily includes assumptions about mortality, morbidity, lapse rates, future yields on related investments and other factors applicable at the time the policies are written. A certain subsidiary continually evaluates the potential for changes in the estimates and assumptions applied in determining policy liabilities, both positive and negative, and uses the results of these evaluations both to adjust recorded liabilities and to adjust underwriting criteria and product offerings.

– 38 –

The insurance contracts sold by the subsidiary include variable annuity, variable life and fixed annuity insurance contracts. The subsidiary manages investment assets on behalf of variable annuity and variable life policyholders, which consist of equity securities and are included in investment in securities in the consolidated balance sheets. These investment assets are measured at fair value with realized and unrealized gains or losses recognized in life insurance premiums and related investment income in the consolidated statements of income. The subsidiary elected the fair value option for the entire variable annuity and variable life insurance contracts with changes in the fair value recognized in life insurance costs.

The subsidiary provides minimum guarantees to variable annuity and variable life policyholders under which it is exposed to the risk of compensating losses incurred by the policyholders to the extent contractually required. To mitigate the risk, a portion of the minimum guarantee risk related to variable annuity and variable life insurance contracts is ceded to reinsurance companies and the remaining risk is economically hedged by entering into derivative contracts. The reinsurance contracts do not relieve the subsidiary from the obligation as the primary obligor to compensate certain losses incurred by the policyholders, and the default of the reinsurance companies may impose additional losses on the subsidiary. Certain subsidiaries have elected the fair value option for certain reinsurance contracts relating to variable annuity and variable life insurance contracts, which are included in other assets in the consolidated balance sheets.

Policy liabilities and policy account balances for fixed annuity insurance contracts are measured based on the single-premiums plus interest based on expected rate and fair value adjustments relating to the acquisition of the subsidiary, less withdrawals, expenses and other charges. The credited interest is recorded in life insurance costs in the consolidated statements of income.

Certain costs related directly to the successful acquisition of new or renewal insurance contracts, or deferred policy acquisition costs are deferred and amortized over the respective policy periods in proportion to anticipated premium revenue. These deferred policy acquisition costs consist primarily of agent commissions, except for recurring policy maintenance costs and certain variable costs and expenses for underwriting policies.

(f) Allowance for doubtful receivables on net investment in leases and probable loan losses

The allowance for doubtful receivables on net investment in leases and probable loan losses is maintained at a level which, in the judgment of management, is appropriate to provide for probable losses inherent in lease and loan portfolios. The allowance is increased by provision charged to income and is decreased by charge-offs, net of recoveries.

Developing the allowance for doubtful receivables on net investment in leases and probable loan losses is subject to numerous estimates and judgments. In evaluating the appropriateness of the allowance, management considers various factors, including the business characteristics and financial conditions of the obligors, current economic conditions and trends, prior charge-off experience, current delinquencies and delinquency trends, future cash flows expected to be received from the net investment in leases and loans and value of underlying collateral and guarantees.

Impaired loans are individually evaluated for a valuation allowance based on the present value of expected future cash flows, the loan’s observable market price or the fair value of the collateral securing the loans if the loans are collateral-dependent. For non-impaired loans, including loans that are not individually evaluated for impairment, and net investment in leases, the Company and its subsidiaries evaluate prior charge-off experience segmented by the debtors’ industries and the purpose of the loans, and then develop the allowance for doubtful receivables on net investment in leases and probable loan losses considering the prior charge-off experience and current economic conditions.

The Company and its subsidiaries charge off doubtful receivables when the likelihood of any future collection is believed to be minimal considering debtors’ creditworthiness and the liquidation status of collateral, etc.

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(g) Allowance for credit losses

Accounting Standards Update 2016-13 (“Measurement of Credit Losses on Financial Instruments”—ASC 326 (“Financial Instruments—Credit Losses”)) (hereinafter, “Credit Losses Standard”) has been adopted since April 1, 2020.

The allowance for credit losses estimates all credit losses expected to occur in future over the remaining life of net investment in leases, financial assets measured at amortized cost, such as installment loans, held-to-maturity debt securities and other receivables, and is recognized adequately based on the management judgement. Expected repayments are reflected in the remaining life. The allowance for credit losses is increased by provision charged to income and is decreased by charge-offs, net of recoveries mainly.

Developing the allowance for credit losses is subject to numerous estimates and judgments. In evaluating the appropriateness of the allowance, management considers various factors, including the business characteristics and financial conditions of the obligors, prior charge-off experience, current delinquencies and delinquency trends, value of underlying collateral and guarantees, current economic conditions and trends and expected outlook in future.

The Company and its subsidiaries estimate the allowance for credit losses by using various methods according to these estimates and judgments. When certain financial assets have similar risk characteristics to other financial assets, these financial assets are collectively evaluated as a pool. On the contrary, when financial assets do not have similar risk characteristics to other financial assets, the financial assets are evaluated individually. The company and its subsidiaries select the most appropriate calculation method based on available information, such as the nature and related risk characteristics on financial assets, the prior charge-off experience and future forecast scenario with correlated economic indicators.

In addition, credit losses related to the loan commitments, such as card loans, installment loans and financial guarantees are in the scope of the allowance for credit losses. If the entity has a present contractual obligation to extend the credit and the obligation is not unconditionally cancelable by the entity, the loan commitments are recognized as credit losses for the expected exercise portion. The allowance for off-balance sheet credit exposure is accounted for in other liabilities on the consolidated balance sheets.

(h) Impairment of long-lived assets

The Company and its subsidiaries perform a recoverability test for long-lived assets to be held and used in operations, including tangible assets and intangible assets being depreciated or amortized, consisting primarily of office buildings, condominiums, mega solar facilities and other properties under facility operations, whenever events or changes in circumstances indicated that the assets might be impaired. The assets are considered not recoverable when the undiscounted future cash flows estimated to be generated by those assets are less than the carrying amount of those assets. The carrying amount of assets not recoverable is reduced to fair value if lower than the carrying amount. The Company and its subsidiaries determine the fair value using appraisals prepared by independent third party appraisers or our own staff of qualified appraisers, based on recent transactions involving sales of similar assets or other valuation techniques such as discounted cash flows methodologies using future cash flows estimated to be generated from operation of the existing assets or completion of development projects, as appropriate.

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(i) Investment in securities

Equity securities are generally reported at fair value with unrealized gains and losses included in income. Equity securities without readily determinable fair values are recorded at its cost minus impairment, if any, plus or minus changes resulting from observable price changes under the election of the measurement alternative, except for investments which are valued at net asset value per share.

Equity securities elected to apply the measurement alternative are written down to its fair value with losses included in income if a qualitative assessment indicates that the investment is impaired and the fair value of the investment is less than its carrying value.

In addition, investments included in equity securities that are accounted for under the equity method are recorded at fair value with unrealized gains and losses included in income if certain subsidiaries elect the fair value option.

Trading debt securities are reported at fair value with unrealized gains and losses included in income.

Available-for-sale debt securities are reported at fair value, and unrealized gains or losses are recorded in other comprehensive income (loss), net of applicable income taxes, except for investments which are recorded at fair value with unrealized gains and losses included in income by electing the fair value option.

Credit Losses Standard has been adopted to the impairment of available-for-sale debt securities since April 1, 2020. If the fair value is less than the amortized cost, the debt securities are impaired. The Company and its subsidiaries identify per each impaired security whether the decline of fair value is due to credit losses component or non-credit losses component. Impairment related to credit losses is recognized in earnings through an allowance for credit losses. Impairment related to other factors than credit losses is recognized in other comprehensive income (loss), net of applicable income taxes. In estimating an allowance for credit losses, the Company and its subsidiaries consider that credit losses exist when the present value of estimated cash flows is less than the amortized cost basis. When the Company and its subsidiaries intend to sell the debt securities for which an allowance for credit losses is previously established or it is more likely than not that the Company and its subsidiaries will be required to sell the debt securities before recovery of the amortized cost basis, the allowance for credit losses is fully written off and the amortized cost is reduced to the fair value after recognizing additional impairment in earnings. In addition, the Company and its subsidiaries recognize in earnings the full difference between the amortized cost and the fair value of the debt securities by direct write-down, without any allowance for credit losses, if the debt securities are expected to be sold and the fair value is less than the amortized cost. In the past fiscal year, if the Company and its subsidiaries concluded that the impairment was other-than-temporary, the credit loss component was recognized in earnings as direct write-down of the amortized cost.

Held-to-maturity debt securities are recorded at amortized cost. Held-to-maturity debt securities are in the scope of Credit Losses Standard, see Note 2 “Significant Accounting and Reporting Policies (g) Allowance for credit losses.”

(j) Income taxes

The Company, in general, determines its provision for income taxes for quarterly periods by applying the current estimate of the effective tax rate for the full fiscal year to the actual year-to-date income before income taxes. The estimated effective tax rate is determined by dividing the estimated provision for income taxes for the full fiscal year by the estimated income before income taxes for the full fiscal year.

At the fiscal year end, income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and for tax loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rate is recognized in income in the period that includes the enactment date. The Company and its subsidiaries release to earnings stranded income tax effects in accumulated other comprehensive income (loss) resulting from changes in tax laws or rates or changes in judgment about realization of a valuation allowance on a specific identification basis when the individual items are completely sold or terminated. A valuation allowance is recognized if, based on the weight of available evidence, it is “more likely than not” that some portion or all of the deferred tax asset will not be realized.

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The effective income tax rates for the six months ended September 30, 2019 and 2020 were approximately 29.3% and 28.8%, respectively. These rates are approximately 29.3% and 32.3% for the three months ended September 30, 2019 and 2020, respectively. For the six and three months ended September 30, 2019 and 2020, the Company and its subsidiaries in Japan were subject to a National Corporate tax of approximately 24%, an Inhabitant tax of approximately 4% and a deductible Enterprise tax of approximately 4%, which in the aggregate result in a statutory income tax rate of approximately 31.5%. The effective income tax rate is different from the statutory tax rate primarily because of certain nondeductible expenses for tax purposes, non-taxable income for tax purposes, changes in valuation allowance, the effect of lower tax rates on certain subsidiaries and the effect of investor taxes on earnings of subsidiaries.

The Company and its subsidiaries file tax returns in Japan and certain foreign tax jurisdictions and recognize the financial statement effects of a tax position taken or expected to be taken in a tax return when it is more likely than not, based on the technical merits, that the position will be sustained upon tax examination, including resolution of any related appeals or litigation processes, and measure tax positions that meet the recognition threshold at the largest amount of tax benefit that is greater than 50 percent likely to be realized upon settlement with the taxing authority. The Company and its subsidiaries present an unrecognized tax benefit as either a reduction of a deferred tax asset, a reduction of an amount refundable or a liability, based on the intended method of settlement. The Company and its subsidiaries classify penalties and interest expense related to income taxes as part of provision for income taxes in the consolidated statements of income.

The Company and certain subsidiaries have elected to file a consolidated tax return for National Corporation tax purposes.

(k) Securitized assets

The Company and its subsidiaries have securitized and sold to investors various financial assets such as lease receivables and loan receivables. In the securitization process, the assets to be securitized are sold to SPEs that issue asset-backed beneficial interests and securities to the investors.

SPEs used in securitization transactions are consolidated if the Company and its subsidiaries are the primary beneficiary of the SPEs, and the transfers of the financial assets to those consolidated SPEs are not accounted for as sales. Assets held by consolidated SPEs continue to be accounted for as lease receivables or loan receivables, as they were before the transfer, and asset-backed beneficial interests and securities issued to the investors are accounted for as debt. When the Company and its subsidiaries have transferred financial assets to a transferee that is not subject to consolidation, the Company and its subsidiaries account for the transfer as a sale if control over the transferred assets is surrendered.

The Company and certain subsidiaries originate and sell loans into the secondary market, while retaining the obligation to service those loans. In addition, a certain subsidiary undertakes obligations to service loans originated by others. The subsidiary recognizes servicing assets if it expects the benefit of servicing to more than adequately compensate it for performing the servicing or recognizes servicing liabilities if it expects the benefit of servicing to less than adequately compensate it. These servicing assets and liabilities are initially recognized at fair value and subsequently accounted for using the amortization method whereby the assets and liabilities are amortized in proportion to and over the period of estimated net servicing income or net servicing loss. On a quarterly basis, servicing assets and liabilities are evaluated for impairment or increased obligations. The fair value of servicing assets and liabilities is estimated using an internal valuation model, or by obtaining an opinion of value from an independent third-party vendor. Both methods are based on calculating the present value of estimated future net servicing cash flows, taking into consideration discount rates, prepayments and servicing costs. The internal valuation model is validated at least semiannually through third-party valuations.

(l) Derivative financial instruments

The Company and its subsidiaries recognize all derivatives on the consolidated balance sheets at fair value. The accounting treatment of subsequent changes in the fair value depends on their use, and whether they qualify as effective “hedges” for accounting purposes. Derivatives for the purpose of economic hedge that are not qualified for hedge accounting are adjusted to fair value through the consolidated statements of income. If a derivative is a hedge, then depending on its nature, changes in its fair value will be either offset against changes in the fair value of hedged assets or liabilities through the consolidated statements of income, or recorded in other comprehensive income (loss), net of applicable income taxes.

If a derivative is held as a hedge of the variability of fair value related to a recognized asset or liability or an unrecognized firm commitment (“fair value” hedge), changes in the fair value of the derivative are recorded in earnings along with the changes in the fair value of the hedged item.

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If a derivative is held as a hedge of the variability of cash flows related to a forecasted transaction or a recognized asset or liability (“cash flow” hedge), changes in the fair value of the derivative are recorded in other comprehensive income (loss), net of applicable income taxes, until earnings are affected by the variability in cash flows of the designated hedged item.

If a derivative is held as a hedge of a foreign-currency fair-value or cash-flow hedge (“foreign currency” hedge), changes in the fair value of the derivative are recorded in either earnings or other comprehensive income (loss), net of applicable income taxes, depending on whether the hedging activity is a fair-value hedge or a cash-flow hedge. However, if a derivative is used as a hedge of a net investment in a foreign operation, changes in its fair value are recorded in the foreign currency translation adjustments account within other comprehensive income (loss), net of applicable income taxes.

The Company and its subsidiaries select either the amortization approach or the fair value approach, depending on the type of hedging activity, for the initial value of the component excluded from the assessment of effectiveness, and recognize it through the consolidated statements of income. When the amortization approach is adopted, the change in fair value is recognized in earnings using a systematic and rational method over the life of the hedging instrument and then any difference between the change in fair value and the amount recognized in earnings is recognized in other comprehensive income (loss), net of applicable income taxes. When the fair value approach is adopted, the change in the fair value is immediately recognized through the consolidated statements of income.

For all hedging relationships that are designated and qualified for hedge accounting, at the inception of the hedge, the Company and its subsidiaries formally document the details of the hedging relationship and the hedging activity. The Company and its subsidiaries formally assess, both at the hedge’s inception and on an ongoing basis, the effectiveness of the hedge relationship. The Company and its subsidiaries cease hedge accounting prospectively when the derivative no longer qualifies for hedge accounting.

(m) Pension plans

The Company and certain subsidiaries have contributory and non-contributory pension plans covering substantially all of their employees. Among the plans, the costs of defined benefit pension plans are accrued based on amounts determined using actuarial methods, with assumptions of discount rate, rate of increase in compensation level, expected long-term rate of return on plan assets and others.

The Company and its subsidiaries also recognize the funded status of pension plans, measured as the difference between the fair value of plan assets and the benefit obligation, on the consolidated balance sheets. Changes in that funded status are recognized in the year in which the changes occur through other comprehensive income (loss), net of applicable income taxes.

(n) Stock-based compensation

In principle, the Company and its subsidiaries measure stock-based compensation expense as consideration for services provided by employees based on the fair value on the grant date. The costs are recognized over the requisite service period.

(o) Stock splits

Stock splits implemented prior to October 1, 2001 had been accounted for by transferring an amount equivalent to the par value of the shares from additional paid-in capital to common stock as required by the Japanese Commercial Code (the “Code”) before amendment. However, no such reclassification was made for stock splits when common stock already included a portion of the proceeds from shares issued at a price in excess of par value. This method of accounting was in conformity with accounting principles generally accepted in Japan.

As a result of a revision to the Code before amendment effective on October 1, 2001 and the Companies Act implemented on May 1, 2006, the above-mentioned method of accounting required by the Code became unnecessary.

In the United States, stock splits in comparable circumstances are considered to be stock dividends and are accounted for by transferring from retained earnings to common stock and additional paid-in capital amounts equal to the fair market value of the shares issued. Common stock is increased by the par value of the shares and additional paid-in capital is increased by the excess of the market value over par value of the shares issued.

Had such stock splits made prior to October 1, 2001 been accounted for in this manner, additional paid-in capital as of September 30, 2020 would have increased by approximately ¥24,674 million, with a corresponding decrease in retained earnings. Total ORIX Corporation shareholders’ equity would remain unchanged. Stock splits on May 19, 2000 were excluded from the above amounts because the stock splits were not considered to be stock dividends under U.S. GAAP.

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(p) Cash and cash equivalents

Cash and cash equivalents include cash on hand, deposits placed with banks and short-term highly liquid investments with original maturities of three months or less.

(q) Restricted cash

Restricted cash consists of trust accounts under securitization programs and real estate, deposits related to servicing agreements, deposits collected on the underlying assets and applied to non-recourse loans, deposits held on behalf of third parties in the aircraft-related business and others.

(r) Installment loans

Certain loans, for which the Company and its subsidiaries have the intent and ability to sell to outside parties in the foreseeable future, are considered held for sale and are carried at the lower of cost or market value determined on an individual basis, except loans held for sale for which the fair value option was elected. A subsidiary elected the fair value option on its loans held for sale. The subsidiary enters into forward sale agreements to offset the change in the fair value of loans held for sale, and the election of the fair value option allows the subsidiary to recognize both the change in the fair value of the loans and the change in the fair value of the forward sale agreements due to changes in interest rates in the same accounting period.

Loans held for sale are included in installment loans, and the outstanding balances of these loans as of March 31, 2020 and September 30, 2020 were ¥127,194 million and ¥104,894 million, respectively. There were ¥90,893 million and ¥94,885 million of loans held for sale as of March 31, 2020 and September 30, 2020, respectively, measured at fair value by electing the fair value option.

(s) Property under facility operations

Property under facility operations consist primarily of operating facilities (including hotels and training facilities) and environmental assets (including mega solar facilities and thermal power stations), which are stated at cost less accumulated depreciation, and depreciation is calculated mainly on a straight-line basis over the estimated useful lives of the assets. Accumulated depreciation was ¥105,433 million and ¥120,806 million as of March 31, 2020 and September 30, 2020, respectively.

(t) Trade notes, accounts and other receivable

Trade notes, accounts and other receivable primarily include accounts receivables in relation to sales of assets to be leased, inventories and other assets, and receivables relating to debt securities sold.

(u) Inventories

Inventories consist primarily of residential condominiums under development, completed residential condominiums (including those waiting to be delivered to buyers under the contract for sale), and merchandise for sale. Residential condominiums under development are carried at cost less any impairment losses, and completed residential condominiums and merchandise for sale are stated at the lower of cost or fair value less cost to sell. The cost of inventories that are unique and not interchangeable is determined on the specific identification method and the cost of other inventories is principally determined on the average method. As of March 31, 2020 and September 30, 2020, residential condominiums under development were ¥56,156 million and ¥73,163 million, respectively, and completed residential condominiums and merchandise for sale were ¥69,857 million and ¥62,071 million, respectively.

The Company and its subsidiaries recorded ¥154 million and ¥125 million of write-downs principally on completed residential condominiums and merchandise for sale for the six months ended September 30, 2019 and 2020, respectively, primarily resulting from a decrease in expected sales price. The amounts of such write-downs for the three months ended September 30, 2019 and 2020 were ¥55 million and ¥63 million, respectively. These write-downs were recorded in costs of goods and real estate sold and included in Real Estate, PE Investment and Concession and Corporate Financial Services and Maintenance Leasing.

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(v) Office facilities

Office facilities are stated at cost less accumulated depreciation. Depreciation is calculated on a declining-balance basis or straight-line basis over the estimated useful lives of the assets. Accumulated depreciation was ¥68,117 million and ¥66,898 million as of March 31, 2020 and September 30, 2020, respectively.

(w) Right-of-use assets

The Company and its subsidiaries record the ROU assets recognized from the lessee’s lease transaction as investment in operating leases, property under facility operations and office facilities. Lease liabilities are included in other liabilities.

ROU assets are consisted of the amount of the initial measurement of the lease liability and any lease payments made to the lessor at or before the commencement date and stated at cost less accumulated amortization. The initial measurement of the lease liability is at the present value of the lease payments not yet paid, discounted using the lessee’s incremental borrowing rate at lease commencement. ROU assets of finance leases are amortized mainly on a straight-line basis over the lease term. ROU assets of operating leases are amortized over the lease term by the fixed term operating cost minus the interest cost. Amortization of ROU assets of finance leases and operating leases expenses are included in costs of operating leases, services expense and selling, general and administrative expenses.

(x) Other assets

Other assets consist primarily of goodwill and other intangible assets in acquisitions, reinsurance recoverables in relation to reinsurance contracts, deferred insurance policy acquisition costs which are amortized over the contract periods, leasehold deposits, advance payments made in relation to construction of real estate under operating leases and property under facility operations, prepaid benefit cost, prepaid expenses for property tax, maintenance fees and insurance premiums in relation to lease contracts, servicing assets, derivative assets, contract assets related to real estate contract works and deferred tax assets.

(y) Goodwill and other intangible assets

The Company and its subsidiaries account for all business combinations using the acquisition method. The Company and its subsidiaries recognize intangible assets acquired in a business combination apart from goodwill if the intangible assets meet one of two criteria—either the contractual-legal criterion or the separately identifiable criterion. Goodwill is measured as an excess of the aggregate of consideration transferred and the fair value of noncontrolling interests over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed in the business combination measured at fair value. The Company and its subsidiaries would recognize a bargain purchase gain when the amount of recognized net assets exceeds the sum of consideration transferred and the fair value of noncontrolling interests. In a business combination achieved in stages, the Company and its subsidiaries remeasure their previously held equity interest at their acquisition-date fair value and recognize the resulting gain or loss, if any, in earnings.

The Company and its subsidiaries perform an impairment test for goodwill and any indefinite-lived intangible assets at least annually. Additionally, if events or changes in circumstances indicate that the asset might be impaired, the Company and its subsidiaries test for impairment when such events or changes occur.

The Company and its subsidiaries have the option to perform a qualitative assessment to determine whether to calculate the fair value of a reporting unit under the goodwill impairment test. The Company and its subsidiaries perform the qualitative assessment for some goodwill but bypass the qualitative assessment and proceed directly to the impairment test for other goodwill. For the goodwill for which the qualitative assessment is performed, if, after assessing the totality of events or circumstances, the Company and/or subsidiaries determine that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then the Company and/or subsidiaries do not perform the impairment test. However, if the Company and/or subsidiaries conclude otherwise or determine to bypass the qualitative assessment, the Company and/or subsidiaries proceed to perform the impairment test. The goodwill impairment test calculates the fair value of the reporting unit and compares the fair value with the carrying amount of the reporting unit. If the fair value of the reporting unit falls below its carrying amount, an impairment loss is recognized in an amount equal to the difference. The Company and its subsidiaries test the goodwill either at the operating segment level or one level below the operating segments.

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The Company and its subsidiaries have the option to perform a qualitative assessment to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired. The Company and its subsidiaries perform the qualitative assessment for some indefinite-lived intangible assets but bypass the qualitative assessment and perform the quantitative assessment for other indefinite-lived intangible assets. For those indefinite-lived intangible assets for which the qualitative assessment is performed, if, after assessing the totality of events and circumstances, the Company and/or subsidiaries conclude that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the Company and/or subsidiaries do not perform the quantitative impairment test. However, if the Company and/or subsidiaries conclude otherwise or determine to bypass the qualitative assessment, the Company and/or subsidiaries calculate the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test. If the carrying amount of the indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.

Intangible assets with finite lives are amortized over their useful lives and tested for impairment. The Company and its subsidiaries perform a recoverability test for the intangible assets whenever events or changes in circumstances indicate that the assets might be impaired. The intangible assets are considered not recoverable when the undiscounted future cash flows estimated to be generated by those assets are less than the carrying amount of those assets, and the net carrying amount of assets not recoverable is reduced to fair value if lower than the carrying amount.

The amount of goodwill was ¥443,818 million and ¥427,168 million as of March 31, 2020 and September 30, 2020, respectively.

The amount of other intangible assets was ¥404,492 million and ¥412,045 million as of March 31, 2020 and September 30, 2020, respectively.

(z) Trade notes, accounts and other payable

Trade notes, accounts and other payable include primarily accounts payable in relation to purchase of assets to be leased, merchandise for sale and other assets, accounts payable in relation to construction work of residential condominiums and deposits received mainly for withholding income tax.

(aa) Other Liabilities

Other liabilities include primarily lease liabilities recognized from the lessee’s lease transaction, accrued expenses related to interest and bonus, accrued benefit liability, advances received from lessees in relation to lease contracts, deposits received from real estate transaction, contract liabilities mainly related to automobile maintenance services and software services, derivative liabilities and allowance for credit losses on off-balance sheet credit exposures.

(ab) Capitalization of interest costs

The Company and its subsidiaries capitalized interest costs primarily related to assets under construction such as specific environmental assets, long-term real estate development and ship projects.

(ac) Advertising

The costs of advertising are expensed as incurred.

(ad) Earnings per share

Basic earnings per share is computed by dividing net income attributable to ORIX Corporation shareholders by the weighted average number of shares of outstanding common stock in each period. Diluted earnings per share is calculated by reflecting the potential dilution that could occur if securities or other contracts issuing common stock were exercised or converted into common stock.

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(ae) Additional acquisition and partial sale of the parent’s ownership interest in subsidiaries

Additional acquisition of the parent’s ownership interest in subsidiaries and partial sale of such interest where the parent continues to retain control of the subsidiary are accounted for as equity transactions. On the other hand, in a transaction that results in the loss of control, the gain or loss recognized in income includes the realized gain or loss related to the portion of ownership interest sold and the gain or loss on the remeasurement to fair value of the interest retained.

(af) Redeemable noncontrolling interests

Noncontrolling interests in a certain subsidiary are redeemable preferred shares which are subject to call and put rights upon certain shareholder events. As redemption of the noncontrolling interest is not solely in the control of the subsidiary, it is recorded between liabilities and equity on the consolidated balance sheets at its estimated redemption value.

(ag) Issuance of stock by an affiliate

When an affiliate issues stocks to unrelated third parties, the Company and its subsidiaries’ ownership interest in the affiliate decreases. In the event that the price per share is more or less than the Company and its subsidiaries’ average carrying amount per share, the Company and its subsidiaries adjust the carrying amount of its investment in the affiliate and recognize the gain or loss in the consolidated statements of income in the year in which the change in ownership interest occurs.

(ah) New accounting pronouncements

In June 2016, Accounting Standards Update 2016-13 (“Measurement of Credit Losses on Financial Instruments”—ASC 326 (“Financial Instruments—Credit Losses”)) was issued, and related amendments were issued thereafter. These updates significantly change how companies measure and recognize credit impairment for many financial assets. The new current expected credit loss model requires companies to immediately recognize an estimate of credit losses expected to occur over the remaining life of the financial assets that are within the scope of these updates. These updates also make targeted amendments to the current impairment model for available-for-sale debt securities. The Company and its subsidiaries adopted these updates on April 1, 2020 through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period. Consequently, financial information of comparative periods has not been updated and the disclosures required under New Credit Losses Standard are not provided for periods before April 1, 2020. The allowance for credit losses for financial assets such as installment loans, net investment in leases and off-balance-sheet credit exposures such as financial guarantees and loan commitments was increased due to the changes of the measurement of the allowance for credit losses. The effect of the adoption of these updates on the Company and its subsidiaries’ financial position at the adoption date was an increase of ¥31,745 million in the allowance for credit losses for financial assets, an increase of ¥28,294 million in other liabilities related to off-balance sheet credit exposures and a decrease of ¥42,855 million in retained earnings in the consolidated balance sheets as of April 1, 2020. The Company and its subsidiaries expanded their disclosures that were required by these updates, primarily regarding credit quality information and estimates of the allowance for credit losses.

In January 2017, Accounting Standards Update 2017-04 (“Simplifying the Test for Goodwill Impairment”—ASC 350 (“Intangible—Goodwill and Other”)) was issued. This update eliminates Step 2 from the conventional two-step goodwill impairment test. Instead, goodwill impairments would be measured by the amount by which the carrying amount exceeds the reporting unit’s fair value. This update also eliminates the requirement for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it is more likely than not that the goodwill is impaired, to perform Step 2 of the goodwill impairment test. The Company and its subsidiaries adopted this update on April 1, 2020. Generally, the effect of adopting this update on the Company and its subsidiaries’ results of operation or financial position will depend on the outcomes of future goodwill impairment tests.

In August 2018, Accounting Standards Update 2018-12 (“Targeted Improvements to the Accounting for Long-Duration Contracts”—ASC 944 (“Financial Services—Insurance”)) was issued, and the original effective date was deferred by two years by related amendments which were issued thereafter. These updates change the recognition, measurement, presentation and disclosure requirements for long-duration contracts issued by an insurance entity. These updates require an insurance entity to review and, if there is a change, update cash flow assumptions at least annually and to update discount rate used for liability for future policy benefits at each reporting date for nonparticipating traditional long-duration and limited-payment contracts. The effect of updating the discount rate is recognized in other comprehensive income (loss). These updates also require market risk benefits to be measured at fair value, and simplify amortization of deferred acquisition costs. Furthermore, these updates require additional disclosures for long-duration contracts. These updates are effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. Early application is permitted. For the liability for future policy benefits and deferred acquisition costs, these updates are applied to contracts in force as of beginning of the earliest period presented (hereinafter, “the transition date” of these updates) on a modified retrospective basis, and an insurance entity may elect to apply retrospectively. For the market risk benefits, these updates are applied retrospectively at the transition date, and the difference between fair value and carrying value requires an adjustment to retained earnings at the transition date. The cumulative effect of changes in the instrument-specific credit risk between contract inception date and the transition date should be recognized in accumulated other comprehensive income at the transition date. The Company and its subsidiaries will adopt these updates on April 1, 2023. The Company and its subsidiaries are currently evaluating the effect that the adoption of these updates will have on the Company and its subsidiaries’ results of operations or financial position, as well as changes in disclosures required by these updates.

– 47 –

In August 2018, Accounting Standards Update 2018-13 (“Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement”—ASC 820 (“Fair Value Measurement”)) was issued. This update modifies and adds the disclosure requirements for Fair Value Measurements. This update also removes disclosure requirements of the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels, and the valuation processes for Level 3 fair value measurements. The Company and its subsidiaries early adopted the removals of disclosure requirements from the three months ended September 30, 2018. The Company and its subsidiaries adopted the modifications and additions of disclosure requirements on April 1, 2020. Since this update relates to disclosure requirements, the adoption had no effect on the Company and its subsidiaries’ results of operations or financial position.

In August 2018, Accounting Standards Update 2018-14 (“Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans”—ASC 715-20 (“Compensation—Retirement Benefits—Defined Benefit Plans—General”)) was issued. This update adds and clarifies the disclosure requirements for Pension Plans, and removes certain disclosure requirements such as the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year. The Company and its subsidiaries adopted this update on April 1, 2020. Since this update relates to disclosure requirements, the adoption had no effect on the Company and its subsidiaries’ results of operations or financial position.

In December 2019, Accounting Standards Update 2019-12 (“Simplifying the Accounting for Income Taxes”—ASC 740 (“Income Taxes”)) was issued. This update removes the exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment, the exception to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary, and other exceptions. This update also simplifies certain other elements of the accounting for income taxes. This update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020 and early adoption is permitted. The income tax simplifications related to changes in ownership of foreign equity method investments and foreign subsidiaries shall be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The other amendments in this update shall be applied on a retrospective basis to all periods presented, or on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption, or on a prospective basis. The Company and its subsidiaries will adopt this update on April 1, 2021. The Company and its subsidiaries are currently evaluating the effect that the adoption of this update will have on the Company and its subsidiaries’ results of operations or financial position, as well as changes in disclosures required by this update.

In January 2020, Accounting Standards Update 2020-01 (“Clarifying the Interactions between Equity Securities, Equity Method and Joint Ventures, and Derivatives and Hedging” —ASC 321 (“Investments—Equity Securities”), ASC 323 (“Investments—Equity Method and Joint Ventures”), and ASC 815 (“Derivatives and Hedging”)) was issued. This update clarifies that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with ASC 321 (“Investments—Equity Securities”) immediately before applying or upon discontinuing the equity method. This update also clarifies the scope of considerations for forward contracts and purchased options on certain securities that do not meet the definition of a derivative. This update is effective prospectively for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, and early adoption is permitted. The Company and its subsidiaries will adopt this update on April 1, 2021. The Company and its subsidiaries are currently evaluating the effect that the adoption of this update will have on the Company and its subsidiaries’ results of operations or financial position.

In March 2020, Accounting Standards Update 2020-04 (“Facilitation of the Effects of Reference Rate Reform on Financial Reporting”—ASC 848 (“Reference Rate Reform”)) was issued. This update provides companies with optional expedients and exceptions to contract, hedging relationships and other transactions that reference London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. This update is effective as of March 12, 2020 through December 31, 2022. We are currently in the process of identifying the potential effect on the Company and its subsidiaries’ results of operations or financial position by the adoption of this update.

– 48 –

3. Fair Value Measurements

The Company and its subsidiaries classify and prioritize inputs used in valuation techniques to measure fair value into the following three levels:


Level 1	—	Inputs of quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2	—	Inputs other than quoted prices included within Level 1 that are observable for the assets or liabilities, either directly or indirectly.
Level 3	—	Unobservable inputs for the assets or liabilities.

The Company and its subsidiaries differentiate between those assets and liabilities required to be carried at fair value at every reporting period (“recurring”) and those assets and liabilities that are only required to be adjusted to fair value under certain circumstances (“nonrecurring”). The Company and its subsidiaries mainly measure certain loans held for sale, trading debt securities, available-for-sale debt securities, certain equity securities, derivatives, certain reinsurance recoverables, and variable annuity and variable life insurance contracts at fair value on a recurring basis.

– 49 –

The following tables present recorded amounts of major financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2020 and September 30, 2020:

March 31, 2020


	Millions of yen
	Total Carrying Value in Consolidated Balance Sheets			Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Loans held for sale*1	¥	90,893		¥	0	¥	90,893	¥	0
Trading debt securities		7,431			0		7,431		0
Available-for-sale debt securities:		1,631,185			21,490		1,521,342		88,353
Japanese and foreign government bond securities*2		653,945			3,301		650,644		0
Japanese prefectural and foreign municipal bond securities		250,355			0		247,523		2,832
Corporate debt securities*3		596,477			18,189		574,294		3,994
CMBS and RMBS in the Americas		48,672			0		48,672		0
Other asset-backed securities and debt securities		81,736			0		209		81,527
Equity securities45		375,174			58,400		232,873		83,901
Derivative assets:		39,690			202		20,258		19,230
Options held/written and other		21,346			0		2,116		19,230
Futures, foreign exchange contracts		13,265			202		13,063		0
Foreign currency swap agreements		5,079			0		5,079		0
Netting*6		(9,152	)		0		0		0
Net derivative assets		30,538			0		0		0
Other assets:		18,206			0		0		18,206
Reinsurance recoverables*7		18,206			0		0		18,206

Total	¥	2,162,579		¥	80,092	¥	1,872,797	¥	209,690

Liabilities:
Derivative liabilities:	¥	73,649		¥	2,471	¥	71,178	¥	0
Interest rate swap agreements		44,002			0		44,002		0
Options held/written and other		20,004			0		20,004		0
Futures, foreign exchange contracts		9,506			2,471		7,035		0
Foreign currency swap agreements		137			0		137		0
Netting*6		(9,152	)		0		0		0
Net derivative Liabilities		64,497			0		0		0
Policy Liabilities and Policy Account Balances:		300,739			0		0		300,739
Variable annuity and variable life insurance contracts*8		300,739			0		0		300,739

Total	¥	374,388		¥	2,471	¥	71,178	¥	300,739

– 50 –

September 30, 2020


	Millions of yen
	Total Carrying Value in Consolidated Balance Sheets			Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Loans held for sale*1	¥	94,885		¥	0	¥	94,885	¥	0
Trading debt securities		5,464			0		5,464		0
Available-for-sale debt securities:		1,719,604			3,966		1,614,346		101,292
Japanese and foreign government bond securities*2		703,087			2,651		700,436		0
Japanese prefectural and foreign municipal bond securities		252,677			0		249,924		2,753
Corporate debt securities*3		621,138			1,315		618,322		1,501
CMBS and RMBS in the Americas		45,458			0		45,458		0
Other asset-backed securities and debt securities		97,244			0		206		97,038
Equity securities45		395,653			73,254		245,735		76,664
Derivative assets:		28,474			337		7,604		20,533
Options held/written and other		22,584			0		2,051		20,533
Futures, foreign exchange contracts		4,294			337		3,957		0
Foreign currency swap agreements		1,596			0		1,596		0
Netting*6		(1,775	)		0		0		0
Net derivative assets		26,699			0		0		0
Other assets:		9,062			0		0		9,062
Reinsurance recoverables*7		9,062			0		0		9,062

Total	¥	2,253,142		¥	77,557	¥	1,968,034	¥	207,551

Liabilities:
Derivative liabilities:	¥	69,196		¥	387	¥	68,768	¥	41
Interest rate swap agreements		40,491			0		40,491		0
Options held/written and other		22,380			0		22,339		41
Futures, foreign exchange contracts		5,957			387		5,570		0
Foreign currency swap agreements		368			0		368		0
Netting*6		(1,775	)		0		0		0
Net derivative Liabilities		67,421			0		0		0
Policy Liabilities and Policy Account Balances:		296,810			0		0		296,810
Variable annuity and variable life insurance contracts*8		296,810			0		0		296,810

Total	¥	366,006		¥	387	¥	68,768	¥	296,851

– 51 –

A certain subsidiary elected the fair value option on certain loans held for sale. These loans are multi-family and seniors housing loans and are sold to Federal National Mortgage Association (“Fannie Mae”), Federal Home Loan Mortgage Corporation (“Freddie Mac”) and institutional investors. Included in “Other (income) and expense” in the consolidated statements of income were gains of ¥349 million and losses of ¥461 million from the change in the fair value of the loans for the six months ended September 30, 2019 and 2020, respectively. Included in “Other (income) and expense” in the consolidated statements of income were gain of ¥187 million and ¥1,982 million from the change in the fair value of the loans for the three months ended September 30, 2019 and 2020, respectively. No gains or losses were recognized in earnings during the six months ended September 30, 2019 and 2020 attributable to changes in instrument-specific credit risk. The amounts of aggregate unpaid principal balance and aggregate fair value of the loans held for sale as of March 31, 2020, were ¥84,906 million and ¥90,893 million, respectively, and the amount of the aggregate fair value exceeded the amount of aggregate unpaid principal balance by ¥5,987 million. The amounts of aggregate unpaid principal balance and aggregate fair value of the loans held for sale as of September 30, 2020, were ¥89,483 million and ¥94,885 million, respectively, and the amount of the aggregate fair value exceeded the amount of aggregate unpaid principal balance by ¥5,402 million. As of March 31, 2020 and September 30, 2020, there were no loans that are 90 days or more past due or, in non-accrual status.

A certain subsidiary elected the fair value option for investments in foreign government bond securities included in available-for-sale debt securities. Included in “Gains on investment securities and dividends” in the consolidated statements of income were losses of ¥0 million and gains of ¥14 million from the change in the fair value of those investments for the six months ended September 30, 2019 and 2020, respectively. Included in “Gains on investment securities and dividends” in the consolidated statements of income were gains of ¥1 million and losses of ¥3 million from the change in the fair value of those investments for the three months ended September 30, 2019 and 2020, respectively. The amounts of aggregate fair value elected the fair value option were ¥780 million and ¥604 million as of March 31, 2020 and September 30, 2020, respectively.

A certain subsidiary elected the fair value option for investments in foreign corporate debt securities included in available-for-sale debt securities. Included in “Gains on investment securities and dividends” in the consolidated statements of income were gains of ¥817 million and ¥1,147 million from the change in the fair value of those investments for the six months ended September 30, 2019 and 2020, respectively. Included in “Gains on investment securities and dividends” in the consolidated statements of income were gains of ¥373 million and ¥18 million from the change in the fair value of those investments for the three months ended September 30, 2019 and 2020, respectively. The amounts of aggregate fair value elected the fair value option were ¥18,189 million and ¥1,315 million as of March 31, 2020 and September 30, 2020, respectively.

Certain subsidiaries elected the fair value option for certain investments in investment funds included in equity securities. Included in “Gains on investment securities and dividends” in the consolidated statements of income were gains of ¥412 million and ¥2,614 million from the change in the fair value of those investments for the six months ended September 30, 2019 and 2020, respectively. Included in “Gains on investment securities and dividends” in the consolidated statements of income were gains of ¥203 million and ¥2,724 million from the change in the fair value of those investments for the three months ended September 30, 2019 and 2020, respectively. The amounts of aggregate fair value elected the fair value option were ¥6,326 million and ¥5,344 million as of March 31, 2020 and September 30, 2020, respectively.

*5	The amounts of investment funds measured at net asset value per share which are not included in the above tables were ¥11,631 million and ¥10,919 million as of March 31, 2020 and September 30, 2020, respectively.

*6	It represents the amount offset under counterparty netting of derivative assets and liabilities.

Certain subsidiaries elected the fair value option for certain reinsurance contracts held. The fair value of the reinsurance contracts elected for the fair value option in other assets were ¥18,206 million and ¥9,062 million as of March 31, 2020 and September 30, 2020, respectively. For the effect of changes in the fair value of those reinsurance contracts on earnings during the six and three months ended September 30, 2019 and 2020, see Note 18 “Life Insurance Operations.”

Certain subsidiaries elected the fair value option for the entire variable annuity and variable life insurance contracts held. The fair value of the variable annuity and variable life insurance contracts elected for the fair value option in policy liabilities and policy account balances were ¥300,739 million and ¥296,810 million as of March 31, 2020 and September 30, 2020, respectively. For the effect of changes in the fair value of the variable annuity and variable life insurance contracts on earnings during the six and three months ended September 30, 2019 and 2020, see Note 18 “Life Insurance Operations.”

– 52 –

The following tables present the reconciliation of financial assets and liabilities (net) measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the six months ended September 30, 2019 and 2020:

Six months ended September 30, 2019


	Millions of yen
	Balance at April 1, 2019		Gains or losses (realized/unrealized)									*Purchases 3**		Sales			*Settlements 4**			Transfers in and/ or out of Level 3 (net)			Balance at September 30, 2019		Change in unrealized gains or losses included in earnings for assets and liabilities still held at September 30, *2019 1**
	Balance at April 1, 2019		Included in *earnings 1**			Included in other comprehensive *income 2**			Total			*Purchases 3**		Sales			*Settlements 4**						Balance at September 30, 2019
Available-for-sale debt securities	¥	100,447	¥	1,095		¥	(2,145	)	¥	(1,050	)	¥	16,074	¥	(132	)	¥	(25,083	)	¥	(2,991	)	¥	87,265	¥	72
Japanese prefectural and foreign municipal bond securities		2,888		0			(80	)		(80	)		0		0			0			0			2,808		0
Corporate debt securities		7,158		33			(4	)		29			4,284		0			(535	)		(2,991	)		7,945		0
Other asset-backed securities and debt securities		90,401		1,062			(2,061	)		(999	)		11,790		(132	)		(24,548	)		0			76,512		72
Equity securities		61,193		4,665			(1,414	)		3,251			5,436		(2,392	)		(1,634	)		0			65,854		4,395
Investment funds		61,193		4,665			(1,414	)		3,251			5,436		(2,392	)		(1,634	)		0			65,854		4,395
Derivative assets and liabilities (net)		5,272		11,361			(358	)		11,003			0		0			0			0			16,275		11,361
Options held/written and other		5,272		11,361			(358	)		11,003			0		0			0			0			16,275		11,361
Other asset		12,449		(2,481	)		0			(2,481	)		1,553		0			(139	)		0			11,382		(2,481	)
Reinsurance recoverables*5		12,449		(2,481	)		0			(2,481	)		1,553		0			(139	)		0			11,382		(2,481	)
Policy Liabilities and Policy Account Balances		360,198		(2,039	)		283			(1,756	)		0		0			(25,114	)		0			336,840		(2,039	)
Variable annuity and variable life insurance contracts*6		360,198		(2,039	)		283			(1,756	)		0		0			(25,114	)		0			336,840		(2,039	)

– 53 –

Six months ended September 30, 2020


	Millions of yen
	Balance at April 1, 2020		Gains or losses (realized/unrealized)									*Purchases 3**		Sales			*Settlements 4**			Transfers in and/ or out of Level 3 (net)			Balance at September 30, 2020		Change in unrealized gains or losses included in earnings for assets and liabilities still held at September 30, *2020 1**			Change in unrealized gains or losses included in other comprehensive income for assets and liabilities still held at September 30, *2020 2**
	Balance at April 1, 2020		Included in *earnings 1**			Included in other comprehensive *income 2**			Total			*Purchases 3**		Sales			*Settlements 4**						Balance at September 30, 2020
Available-for-sale debt securities	¥	88,353	¥	(1,383	)	¥	8,838		¥	7,455		¥	13,631	¥	(3,999	)	¥	(2,148	)	¥	(2,000	)	¥	101,292	¥	59		¥	8,696
Japanese prefectural and foreign municipal bond securities		2,832		0			(79	)		(79	)		0		0			0			0			2,753		0			(79	)
Corporate debt securities		3,994		0			2			2			0		0			(495	)		(2,000	)		1,501		0			2
Other asset-backed securities and debt securities		81,527		(1,383	)		8,915			7,532			13,631		(3,999	)		(1,653	)		0			97,038		59			8,773
Equity securities		83,901		1,844			(2,243	)		(399	)		869		(3,372	)		(4,010	)		(325	)		76,664		1,776			(2,239	)
Investment funds		83,901		1,844			(2,243	)		(399	)		869		(3,372	)		(4,010	)		(325	)		76,664		1,776			(2,239	)
Derivative assets and liabilities (net)		19,230		1,791			(559	)		1,232			30		0			0			0			20,492		1,791			(559	)
Options held/written and other		19,230		1,791			(559	)		1,232			30		0			0			0			20,492		1,791			(559	)
Other asset		18,206		(10,359	)		0			(10,359	)		1,373		0			(158	)		0			9,062		(10,359	)		0
Reinsurance recoverables*5		18,206		(10,359	)		0			(10,359	)		1,373		0			(158	)		0			9,062		(10,359	)		0
Policy Liabilities and Policy Account Balances		300,739		(17,441	)		(741	)		(18,182	)		0		0			(22,111	)		0			296,810		(17,441	)		(741	)
Variable annuity and variable life insurance contracts*6		300,739		(17,441	)		(741	)		(18,182	)		0		0			(22,111	)		0			296,810		(17,441	)		(741	)

Principally, gains and losses from available-for-sale debt securities are included in “Gains on investment securities and dividends”, “Write-downs of securities” or “Life insurance premiums and related investment income”; equity securities are included in “Gains on investment securities and dividends” and derivative assets and liabilities (net) are included in “Other (income) and expense” respectively. Additionally, for available-for-sale debt securities, amortization of interest recognized in finance revenues is included in these columns.

Unrealized gains and losses from available-for-sale debt securities are included in “Net change of unrealized gains (losses) on investment in securities” and “Net change of foreign currency translation adjustments”, unrealized gains and losses from equity securities and derivative assets and liabilities (net) are included mainly in “Net change of foreign currency translation adjustments”, unrealized gains and losses from policy liabilities and policy account balances are included in “Net change of debt valuation adjustments.”

*3	Increases resulting from an acquisition of a subsidiary and insurance contracts ceded to reinsurance companies are included.

*4	Decreases resulting from the receipts of reimbursements for benefits, and decreases resulting from insurance payouts to variable annuity and variable life policyholders due to death, surrender and maturity of the investment period are included.

*5	“Included in earnings” in the above table includes changes in the fair value of reinsurance contracts recorded in “Life insurance costs” and reinsurance premiums, net of reinsurance benefits received, recorded in “Life insurance premiums and related investment income.”

“Included in earnings” in the above table is recorded in “Life insurance costs” and includes changes in the fair value of policy liabilities and policy account balances resulting from gains or losses on the underlying investment assets managed on behalf of variable annuity and variable life policyholders, and the changes in the minimum guarantee risks relating to variable annuity and variable life insurance contracts as well as insurance costs recognized for insurance and annuity payouts as a result of insured events.

In the six months ended September 30, 2019, corporate debt securities totaling ¥2,991 million were transferred from Level 3 to Level 2, since the inputs became observable. In the six months ended September 30, 2020, corporate debt securities totaling ¥2,000 million and investment funds totaling ¥325 million were transferred from Level 3 to Level 2, since the inputs became observable.

– 54 –

Three months ended September 30, 2019


	Millions of yen
	Balance at June 30, 2020		Gains or losses (realized/unrealized)									*Purchases 3**		Sales			*Settlements 4**			Transfers in and/ or out of Level 3 (net)		Balance at September 30, 2019		Change in unrealized gains or losses included in earnings for assets and liabilities still held at September 30, 2019 *1
	Balance at June 30, 2020		Included in *earnings 1**			Included in other comprehensive *income 2**			Total			*Purchases 3**		Sales			*Settlements 4**					Balance at September 30, 2019
Available-for-sale debt securities	¥	79,401	¥	74		¥	(449	)	¥	(375	)	¥	9,923	¥	0		¥	(1,684	)	¥	0	¥	87,265	¥	35
Japanese prefectural and foreign municipal bond securities		2,805		0			3			3			0		0			0			0		2,808		0
Corporate debt securities		3,976		33			(7	)		26			4,284		0			(341	)		0		7,945		0
Other asset-backed securities and debt securities		72,620		41			(445	)		(404	)		5,639		0			(1,343	)		0		76,512		35
Equity securities		61,900		3,793			407			4,200			2,536		(1,561	)		(1,221	)		0		65,854		3,939
Investment funds		61,900		3,793			407			4,200			2,536		(1,561	)		(1,221	)		0		65,854		3,939
Derivative assets and liabilities (net)		14,015		2,284			(24	)		2,260			0		0			0			0		16,275		2,284
Options held/written and other		14,015		2,284			(24	)		2,260			0		0			0			0		16,275		2,284
Other asset		11,916		(1,232	)		0			(1,232	)		765		0			(67	)		0		11,382		(1,232	)
Reinsurance recoverables*5		11,916		(1,232	)		0			(1,232	)		765		0			(67	)		0		11,382		(1,232	)
Policy Liabilities and Policy Account Balances		347,173		(2,352	)		99			(2,253	)		0		0			(12,586	)		0		336,840		(2,352	)
Variable annuity and variable life insurance contracts*6		347,173		(2,352	)		99			(2,253	)		0		0			(12,586	)		0		336,840		(2,352	)

– 55 –

Three months ended September 30, 2020


	Millions of yen
	Balance at June 30, 2020		Gains or losses (realized/unrealized)									*Purchases 3**		Sales			*Settlements 4**			Transfers in and/ or out of Level 3 (net)			Balance at September 30, 2020		Change in unrealized gains or losses included in earnings for assets and liabilities still held at September 30, 2020 *1			Change in unrealized gains or losses included in other comprehensive income for assets and liabilities still held at September 30, 2020 *2
	Balance at June 30, 2020		Included in *earnings 1**			Included in other comprehensive *income 2**			Total			*Purchases 3**		Sales			*Settlements 4**						Balance at September 30, 2020
Available-for-sale debt securities	¥	99,953	¥	(265	)	¥	1,287		¥	1,022		¥	7,158	¥	(3,999	)	¥	(842	)	¥	(2,000	)	¥	101,292	¥	33		¥	1,122
Japanese prefectural and foreign municipal bond securities		2,804		0			(51	)		(51	)		0		0			0			0			2,753		0			(51	)
Corporate debt securities		3,657		0			3			3			0		0			(159	)		(2,000	)		1,501		0			2
Other asset-backed securities and debt securities		93,492		(265	)		1,335			1,070			7,158		(3,999	)		(683	)		0			97,038		33			1,171
Equity securities		78,797		3,862			(1,322	)		2,540			456		(2,924	)		(1,880	)		(325	)		76,664		3,841			(1,295	)
Investment funds		78,797		3,862			(1,322	)		2,540			456		(2,924	)		(1,880	)		(325	)		76,664		3,841			(1,295	)
Derivative assets and liabilities (net)		19,334		1,530			(372	)		1,158			0		0			0			0			20,492		1,530			(372	)
Options held/written and other		19,334		1,530			(372	)		1,158			0		0			0			0			20,492		1,530			(372	)
Other asset		10,854		(2,453	)		0			(2,453	)		727		0			(66	)		0			9,062		(2,453	)		0
Reinsurance recoverables*5		10,854		(2,453	)		0			(2,453	)		727		0			(66	)		0			9,062		(2,453	)		0
Policy Liabilities and Policy Account Balances		302,201		(7,350	)		(142	)		(7,492	)		0		0			(12,883	)		0			296,810		(7,350	)		(142	)
Variable annuity and variable life insurance contracts*6		302,201		(7,350	)		(142	)		(7,492	)		0		0			(12,883	)		0			296,810		(7,350	)		(142	)

*3	Increases resulting from an acquisition of a subsidiary and insurance contracts ceded to reinsurance companies are included.

*4	Decreases resulting from the receipts of reimbursements for benefits, and decreases resulting from insurance payouts to variable annuity and variable life policyholders due to death, surrender and maturity of the investment period are included.

*5	“Included in earnings” in the above table includes changes in the fair value of reinsurance contracts recorded in “Life insurance costs” and reinsurance premiums, net of reinsurance benefits received, recorded in “Life insurance premiums and related investment income.”

There were no transfers in or out of Level 3 in the three months ended September 30, 2019. In the three months ended September 30, 2020, corporate debt securities totaling ¥2,000 million and investment funds totaling ¥325 million were transferred from Level 3 to Level 2, since the inputs became observable.

– 56 –

The following tables present recorded amounts of assets measured at fair value on a nonrecurring basis during year ended March 31, 2020 and the six months ended September 30, 2020. These assets are measured at fair value on a nonrecurring basis mainly to recognize impairment:

Year ended March 31, 2020


	Millions of yen
	Total Carrying Value in Consolidated Balance Sheets		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Loans held for sale	¥	4,823	¥	0	¥	0	¥	4,823
Real estate collateral-dependent loans (net of allowance for probable loan losses)		12,557		0		0		12,557
Investment in operating leases and property under facility operations		5,731		0		1,193		4,538
Certain investments in affiliates		11,213		8,741		0		2,472

	¥	34,324	¥	8,741	¥	1,193	¥	24,390

Six months ended September 30, 2020


	Millions of yen
	Total Carrying Value in Consolidated Balance Sheets		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Loans held for sale	¥	467	¥	0	¥	467	¥	0
Real estate collateral-dependent loans (net of allowance for credit losses)		9,637		0		0		9,637
Investment in operating leases and property under facility operations		619		0		363		256
Equity securities		3,377		0		0		3,377
Certain investments in affiliates		5,779		4,212		0		1,567

	¥	19,879	¥	4,212	¥	830	¥	14,837

The following is a description of the main valuation methodologies used for assets and liabilities measured at fair value.

Loans held for sale

Certain loans, which the Company and its subsidiaries have the intent and ability to sell to outside parties in the foreseeable future, are considered held-for-sale. The loans held for sale in the Americas are classified as Level 2, if the Company and its subsidiaries measure their fair value based on a market approach using inputs other than quoted prices that are observable for the assets such as treasury rate, swap rate and market spread. The loans held for sale in the Americas are classified as Level 3, if the Company and its subsidiaries measure their fair value based on discounted cash flow methodologies using inputs that are unobservable in the market.

Real estate collateral-dependent loans

The allowance for credit losses for large balance non-homogeneous loans is individually evaluated based on the present value of expected future cash flows, the loan’s observable market price or the fair value of the collateral securing the loans if the loans are collateral-dependent. According to ASC 820 (“Fair Value Measurement”), measurement for loans with deterioration in credit quality determined using a present value technique is not considered a fair value measurement. However, measurement for loans with deterioration in credit quality determined using the loan’s observable market price or the fair value of the collateral securing the collateral-dependent loans are fair value measurements and are subject to the disclosure requirements for nonrecurring fair value measurements.

– 57 –

The Company and its subsidiaries determine the fair value of the real estate collateral of real estate collateral-dependent loans using appraisals prepared by independent third party appraisers or our own staff of qualified appraisers based on recent transactions involving sales of similar assets or other valuation techniques such as discounted cash flows methodologies using future cash flows estimated to be generated from operation of the existing assets or completion of development projects, as appropriate. The Company and its subsidiaries generally obtain a new appraisal once a fiscal year. In addition, the Company and its subsidiaries periodically monitor circumstances of the real estate collateral and then obtain a new appraisal in situations involving a significant change in economic and/or physical conditions, which may materially affect the fair value of the collateral. Real estate collateral-dependent loans whose fair values are estimated using appraisals of the underlying collateral based on these valuation techniques are classified as Level 3 because such appraisals involve unobservable inputs. These unobservable inputs contain discount rates and cap rates as well as future cash flows estimated to be generated from real estate collateral. An increase (decrease) in the discount rate or cap rate and a decrease (increase) in the estimated future cash flows would result in a decrease (increase) in the fair value of real estate collateral-dependent loans.

Investment in operating leases and property under facility operations, and land and buildings undeveloped or under construction

Investment in operating leases measured at fair value is mostly real estate. The Company and its subsidiaries determine the fair value of investment in operating leases and property under facility operations, and land and buildings undeveloped or under construction using appraisals prepared by independent third party appraisers or the Company’s own staff of qualified appraisers based on recent transactions involving sales of similar assets or other valuation techniques such as discounted cash flow methodologies using future cash flows estimated to be generated from operation of the existing assets or completion of development projects, as appropriate. The Company and its subsidiaries classified these assets as Level 3 because such appraisals involve unobservable inputs. These unobservable inputs contain discount rates as well as future cash flows estimated to be generated from the assets or projects. An increase (decrease) in the discount rate and a decrease (increase) in the estimated future cash flows would result in a decrease (increase) in the fair value of investment in operating leases and property under facility operations and land and buildings undeveloped or under construction.

Movable properties owned by a certain subsidiary are classified as Level 2, because fair value measurement is based on observable inputs other than quoted prices included within Level 1, such as prices for similar assets.

Trading debt securities and available-for-sale debt securities

The Company and its subsidiaries classified CMBS and RMBS in the Americas and other asset-backed securities as Level 2 if the inputs such as trading price and/or bid price are observable. The Company and its subsidiaries classified CMBS and RMBS in the Americas and other asset-backed securities as Level 3 if the Company and subsidiaries evaluate the fair value based on the unobservable inputs. In determining whether the inputs are observable or unobservable, the Company and its subsidiaries evaluate various factors such as the lack of recent transactions, price quotations that are not based on current information or vary substantially over time or among market makers, a significant increase in implied risk premium, a wide bid-ask spread, significant decline in new issuances, little or no public information (e.g. a principal-to-principal market) and other factors. With respect to certain CMBS and RMBS in the Americas and other asset-backed securities, the Company and its subsidiaries classified these securities that were measured at fair value based on the observable inputs such as trading price and/or bit price as Level 2. But for those securities that lacked observable trades because they are older vintage or below investment grade securities, the Company and its subsidiaries limit the reliance on independent pricing service vendors and brokers. As a result, the Company and its subsidiaries established internally developed pricing models using valuation techniques such as discounted cash flow model using Level 3 inputs in order to estimate fair value of these debt securities and classified them as Level 3. Under the models, the Company and its subsidiaries use anticipated cash flows of the security, discounted at a risk-adjusted discount rate that incorporates our estimate of credit risk and liquidity risk that a market participant would consider. The cash flows are estimated based on a number of assumptions such as default rate and prepayment speed, as well as seniority of the security. An increase (decrease) in the discount rate or default rate would result in a decrease (increase) in the fair value of CMBS and RMBS in the Americas and other asset-backed securities.

– 58 –

Equity securities and investment in affiliates

If active market prices are available, fair value measurement is based on quoted active market prices and, accordingly, these securities are classified as Level 1. If active market prices are not available, fair value measurement is based on observable inputs other than quoted prices included within Level 1, such as prices for similar assets and accordingly these securities are classified as Level 2. In addition, a certain overseas subsidiary measures its investments held by the investment companies which are owned by the subsidiary at fair value. These investment funds and certain investments in affiliates are classified as Level 3, because fair value measurement is based on the combination of discounted cash flow methodologies and market multiple valuation methods, and broker quotes. Discounted cash flow methodologies use future cash flows to be generated from investees, weighted average cost of capital (WACC) and others. Market multiple valuation methods use earnings before interest, taxes, depreciation and amortization (EBITDA) multiples based on actual and projected cash flows, comparable peer companies, and comparable precedent transactions and others. Furthermore, certain subsidiaries elected the fair value option for investments in some funds. These investment funds for which the fair value option is elected are classified as level 3, because the subsidiaries measure their fair value using discounting to net asset value based on inputs that are unobservable in the market.

Derivatives

For exchange-traded derivatives, fair value is based on quoted market prices, and accordingly, classified as Level 1. For non-exchange traded derivatives, fair value is based on commonly used models and discounted cash flow methodologies. If the inputs used for these measurements including yield curves and volatilities, are observable, the Company and its subsidiaries classify it as Level 2. If the inputs are not observable, the Company and its subsidiaries classify it as Level 3. These unobservable inputs contain discount rates. An increase (decrease) in the discount rate would result in a decrease (increase) in the fair value of derivatives.

Reinsurance recoverables

Certain subsidiaries have elected the fair value option for certain reinsurance contracts related to variable annuity and variable life insurance contracts to partially offset the changes in fair value recognized in earnings of the policy liabilities and policy account balances attributable to the changes in the minimum guarantee risks of the variable annuity and variable life insurance contracts. These reinsurance contracts for which the fair value option is elected are classified as Level 3 because the subsidiaries measure their fair value using discounted cash flow methodologies based on inputs that are unobservable in the market.

Variable annuity and variable life insurance contracts

A certain subsidiary has elected the fair value option for the entire variable annuity and variable life insurance contracts held in order to match earnings recognized for changes in fair value of policy liabilities and policy account balances with the earnings recognized for gains or losses from the investment assets managed on behalf of variable annuity and variable life policyholders, derivative contracts and changes in fair value of reinsurance contracts. The changes in fair value of the variable annuity and variable life insurance contracts are linked to the fair value of the investment in securities managed on behalf of variable annuity and variable life policyholders. These securities consist mainly of equity securities traded in the market. In addition, variable annuity and variable life insurance contracts are exposed to the minimum guarantee risk, and the subsidiary adjusts the fair value of the underlying investments by incorporating changes in fair value of the minimum guarantee risk in the evaluation of the fair value of the entire variable annuity and variable life insurance contracts. The variable annuity and variable life insurance contracts for which the fair value option is elected are classified as Level 3 because the subsidiary measures the fair value using discounted cash flow methodologies based on inputs that are unobservable in the market.

– 59 –

Information about Level 3 Fair Value Measurements

The following tables provide information about the valuation techniques and significant unobservable inputs used in the valuation of Level 3 assets and liabilities measured at fair value on a recurring basis as of March 31, 2020 and September 30, 2020.


	March 31, 2020
	Millions of yen		Valuation technique(s)	Significant unobservable inputs	Range (Weighted average)
	Fair value		Valuation technique(s)	Significant unobservable inputs	Range (Weighted average)
Assets:
Available-for-sale debt securities:
Japanese prefectural and foreign municipal bond securities	¥	2,832	Discounted cash flows	Discount rate	8.5%
					(8.5%)
Corporate debt securities		1,995	Discounted cash flows	Discount rate	0.4% – 2.5%
					(0.8%)
		1,999	Appraisals/Broker quotes	—	—
Other asset-backed securities and debt securities		20,582	Discounted cash flows	Discount rate	1.0% – 51.2%
					(12.1%)
				Probability of default	1.9%
					(1.9%)
		60,945	Appraisals/Broker quotes	—	—
Equity securities:
Investment funds		5,714	Internal cash flows	Discount rate	0.0%
					(0.0%)
		54,898	Discounted cash flows	WACC	7.6% – 19.1%
					(16.5%)
				EV/Terminal EBITDA multiple	7.0x-11.9x
					(9.3x)
			Market multiples	EV/Last twelve months EBITDA multiple	7.5x-11.8x
					(9.4x)
				EV/Forward EBITDA multiple	6.5x-10.3x
					(8.4x)
				EV/Precedent transaction last twelve months EBITDA multiple	7.5x-12.1x
					(9.5x)
		23,289	Appraisals/Broker quotes	—	—
Derivative assets:
Options held/written and other		19,170	Discounted cash flows	Discount rate	12.0% – 33.0%
					(14.4%)
		60	Appraisals/Broker quotes	—	—
Other assets:
Reinsurance recoverables		18,206	Discounted cash flows	Discount rate	(0.2)% – 0.6%
					(0.2%)
				Mortality rate	0.0% – 100.0%
					(1.4%)
				Lapse rate	1.5% – 14.0%
					(7.1%)
				Annuitization rate (guaranteed minimum annuity benefit)	0.0% – 100.0% (100.0%)

Total	¥	209,690

Liabilities:
Policy liabilities and Policy Account Balances:
Variable annuity and variable life insurance contracts	¥	300,739	Discounted cash flows	Discount rate	(0.2)% – 0.6%
					(0.2%)
				Mortality rate	0.0% – 100.0%
					(1.3%)
				Lapse rate	1.5% – 30.0%
					(6.9%)
				Annuitization rate (guaranteed minimum annuity benefit)	0.0% – 100.0% (80.9%)

Total	¥	300,739

– 60 –


	September 30, 2020
	Millions of yen		Valuation technique(s)	Significant unobservable inputs	Range (Weighted average)
	Fair value		Valuation technique(s)	Significant unobservable inputs	Range (Weighted average)
Assets:
Available-for-sale debt securities:
Japanese prefectural and foreign municipal bond securities	¥	2,753	Discounted cash flows	Discount rate	8.5%
					(8.5%)
Corporate debt securities		1,501	Discounted cash flows	Discount rate	0.3% – 1.8%
					(0.7%)
Other asset-backed securities and debt securities		22,049	Discounted cash flows	Discount rate	1.0% – 51.2%
					(10.9%)
				Probability of default	1.9%
					(1.9%)
		74,989	Appraisals/Broker quotes	—	—
Equity securities:
Investment funds		4,677	Internal cash flows	Discount rate	0.0%
					(0.0%)
		50,572	Discounted cash flows	WACC	13.1% – 18.7%
					(16.8%)
				EV/Terminal EBITDA multiple	6.7x-11.0x
					(9.0x)
			Market multiples	EV/Last twelve months EBITDA multiple	5.0x-6.8x
					(6x)
				EV/Forward EBITDA multiple	6.7x-10.1x
					(8.2x)
				EV/Precedent transaction last twelve months EBITDA multiple	6.7x-11.2x
					(9.6x)
		21,718	Appraisals/Broker quotes	—	—
Derivative assets:
Options held/written and other		20,460	Discounted cash flows	Discount rate	12.0% – 33.0%
					(14.8%)
		73	Appraisals/Broker quotes	—	—
Other assets:
Reinsurance recoverables		9,062	Discounted cash flows	Discount rate	(0.1)% – 0.4%
					(0.1%)
				Mortality rate	0.0% – 100.0%
					(1.5%)
				Lapse rate	1.5% – 14.0%
					(7.1%)
				Annuitization rate (guaranteed minimum annuity benefit)	0.0% – 100.0% (100.0%)

Total	¥	207,854

Liabilities:
Derivative liabilities:
Other		41	Appraisals/Broker quotes	—	—
Policy liabilities and Policy Account Balances:
Variable annuity and variable life insurance contracts	¥	296,810	Discounted cash flows	Discount rate	(0.1)% – 0.4%
					(0.1%)
				Mortality rate	0.0% – 100.0%
					(1.4%)
				Lapse rate	1.5% – 30.0%
					(7.2%)
				Annuitization rate (guaranteed minimum annuity benefit)	0.0% – 100.0% (80.1%)

Total	¥	296,851

– 61 –

The following tables provide information about the valuation techniques and significant unobservable inputs used in the valuation of Level 3 assets measured at fair value on a nonrecurring basis during year ended March 31, 2020 and the six months ended September 30, 2020.


	Year ended March 31, 2020
	Millions of yen		Valuation technique(s)	Significant unobservable inputs	Range (Weighted average)
	Fair value		Valuation technique(s)	Significant unobservable inputs	Range (Weighted average)
Assets:
Loans held for sale	¥	4,823	Discounted cash flows	Discount rate	5.7% – 7.7%
					(6.8%)
Real estate collateral-dependent loans (net of allowance for probable loan losses)		12,557	Direct capitalization	Capitalization rate	5.6% – 7.0%
					(6.0%)
			Appraisals	—	—
Investment in operating leases and property under facility operations		302	Direct capitalization	Capitalization rate	4.3%
					(4.3%)
			Discounted cash flows	Discount rate	4.1%
					(4.1%)
		4,236	Appraisals	—	—
Certain investments in affiliates		359	Discounted cash flows	WACC	14.0%
					(14.0%)
			Market multiples	EV/Precedent transaction last twelve months EBITDA multiple	7.0x
					(7.0x)
				EV/Precedent transaction three year average EBITDA multiple	7.0x
					(7.0x)
		2,113	Appraisals	—	—

	¥	24,390


	Six months ended September 30, 2020
	Millions of yen		Valuation technique(s)	Significant unobservable inputs	Range (Weighted average)
	Fair value		Valuation technique(s)	Significant unobservable inputs	Range (Weighted average)
Assets:
Real estate collateral-dependent loans (net of allowance for credit losses)		9,637	Direct capitalization	Capitalization rate	5.6% – 7.1%
					(6.2%)
Investment in operating leases and property under facility operations		256	Appraisals	—	—
Equity security		3,377	Appraisals	—	—
Certain investments in affiliates		1,567	Appraisals	—	—

	¥	14,837

The Company and its subsidiaries generally use discounted cash flow methodologies or similar internally developed models to determine the fair value of Level 3 assets and liabilities. Use of these techniques requires determination of relevant inputs and assumptions, some of which represent significant unobservable inputs as indicated in the preceding table. Accordingly, changes in these unobservable inputs may have a significant impact on the fair value.

Certain of these unobservable inputs will have a directionally consistent impact on the fair value of the asset or liability for a given change in that input. Alternatively, the fair value of the asset or liability may move in an opposite direction for a given change in another input. Where multiple inputs are used within the valuation technique of an asset or liability, a change in one input in a certain direction may be offset by an opposite change in another input having a potentially muted impact to the overall fair value of that particular asset or liability. Additionally, a change in one unobservable input may result in a change to another unobservable input (that is, changes in certain inputs are interrelated to one another), which may counteract or magnify the fair value impact.

Unobservable inputs are weighted by the relative fair value of the asset or liability.

For more analysis of the uncertainty of each input, see the description of the main valuation methodologies used for assets and liabilities measured at fair value.

– 62 –

4.	Acquisitions and Divestitures

(1) Acquisitions

There were no material acquisitions during the six months ended September 30, 2019 and 2020.

During the three months ended June 30, 2020, we completed the purchase price allocation of wind power generation subsidiaries in India, which became our wholly owned subsidiaries during the three months ended December 31, 2019. As a result, the fair value of net assets acquired, which is the difference between the assets acquired and liabilities assumed, exceeded the fair value of the consideration paid by ¥4,365 million, and this excess was recognized as bargain purchase gain.

(2) Divestitures

Gains on sales of subsidiaries and affiliates and liquidation losses, net for the six months ended September 30, 2019 and 2020 were ¥33,288 million and ¥7,681 million, respectively. Gains on sales of subsidiaries and affiliates and liquidation losses, net for the six months ended September 30, 2019 mainly consisted of ¥16,106 million in Real Estate segment, ¥15,352 million in ORIX USA and ¥1,935 million in PE Investment and Concession. Gains on sales of subsidiaries and affiliates and liquidation losses, net for the six months ended September 30, 2020 mainly consisted of ¥2,426 million in ORIX USA and ¥4,936 million in Asia and Australia.

Gains on sales of subsidiaries and affiliates and liquidation losses, net for the three months ended September 30, 2019 and 2020 were ¥24,084 million and ¥2,361 million, respectively. Gains on sales of subsidiaries and affiliates and liquidation losses, net for the three months ended September 30, 2019 mainly consisted of ¥16,116 million in Real Estate and ¥7,993 million in ORIX USA. Gains on sales of subsidiaries and affiliates and liquidation losses, net for the three months ended September 30, 2020 mainly consisted of ¥2,040 million in ORIX USA and ¥126 million in Asia and Australia.

Since April 1, 2020, the reportable segments have been reorganized. As a result of this change, the segment data of the previous fiscal year has been retrospectively restated.

– 63 –

5.	Revenues from Contracts with Customers

The following table provides information about revenues from contracts with customers, and other sources of revenue for the six and three months ended September 30, 2019 and 2020 are as follows;


	Millions of yen		Millions of yen
	Six months ended September 30, 2019		Six months ended September 30, 2020
Revenues from contracts with customers	¥	577,056	¥	505,743
Other revenues *		558,389		578,995

Total revenues	¥	1,135,445	¥	1,084,738


	Millions of yen		Millions of yen
	Three months ended September 30, 2019		Three months ended September 30, 2020
Revenues from contracts with customers	¥	301,619	¥	249,114
Other revenues *		285,377		297,983

Total revenues	¥	586,996	¥	547,097

*	Other revenues are not considered to be within the scope of revenue from contracts with customers, such as life insurance premiums and related investment income, operating leases, finance revenues that include interest income, and others.

The Company and its subsidiaries recognize revenues when control of the promised goods or services is transferred to our customers, in the amounts that reflect the consideration we expect to receive in exchange for those goods or services. Revenues are recognized net of discounts, incentives and estimated sales returns. Amount to be collected for third party is deducted from revenues. The Company and its subsidiaries evaluate whether we are principal or agent on distinctive goods or services. When a revenue transaction involves a third party, if the Company and its subsidiaries control the goods or services before they are transferred to customers, revenue is recognized on gross amount as the principal. There is no significant variability in considerations included in revenues, except for the performance fees regarding asset management business hereinafter, and there is no significant financing component in considerations on transactions.

For further information about breakdowns of revenues disaggregated by goods or services category and geographical location by segment, see Note 25 “Segment Information.”

– 64 –

Revenue recognition criteria on each goods or services category are mainly as follows:

Sales of goods

The Company and its subsidiaries sell various goods such as precious metals, medical equipment, business management software and other to customers. Revenues from sales of goods are recognized when there is a transfer of control of the product to customers. The Company and its subsidiaries determine transfer of control based on when the products are shipped or delivered to customers, or inspected by customers.

Real estate sales

Certain subsidiaries are involved in condominium business. Revenues from sales of detached houses and residential condominiums are recognized when the real estate is delivered to customers.

Asset management and servicing

Certain subsidiaries offer customers investment management services for their financial assets, asset management as well as maintenance and administrative services for their real estate properties. Furthermore, the Company and its subsidiaries perform servicing on behalf of customers. Revenues from asset management and servicing primarily include management fees, servicing fees, and performance fees. Management and servicing fees are recognized over the contract period with customers, since the customers simultaneously receive and consume all of the benefits provided by the subsidiaries as the subsidiaries perform. Management fees are calculated based on the predetermined percentages of the market value of the assets under management or net assets of the investment funds in accordance with contract terms. Servicing fees are calculated based on the predetermined percentages of the amount in assets under management in accordance with contract terms. Fees based on the performance of the assets under management are recognized when the performance obligations are satisfied, to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The performance fee is estimated by using the most likely amount method, in accordance with contract terms. Servicing fees related to financial assets that the Company and its subsidiaries had originated and transferred to investors, are not in the scope of revenue from contracts with customers. These fees are accounted for servicing assets under which the benefits of servicing are expected to more than adequately compensate for performing the servicing, or servicing liabilities under which the benefits of servicing are not expected to adequately compensate for performing the servicing.

Automobile related services

Certain subsidiaries mainly provide automobile maintenance services to customers, as automobile related services. In the service, since customers simultaneously receive and consume all of the benefits provided by the subsidiaries as the subsidiaries perform, revenues are recognized over the contract period with customers. For measurement of progress, the cost incurred is used, because that reasonably describes transfer of control of services to customers. The subsidiaries receive payments from customers before satisfying performance obligations, and the amounts are reported in other liabilities on the consolidated balance sheets as contract liabilities.

Facilities operation

The Company and its subsidiaries are running hotels, Japanese inns, training facilities, a multipurpose dome and other facilities. Revenues from these operations are recognized over the customers’ usage period of the facilities, since customers simultaneously receive and consume all of the benefits provided by the Company and its subsidiaries as the Company and its subsidiaries perform. The value transferred to customers is directly measured based on the usage period. With respect to operation of a multipurpose dome, a certain subsidiary receives payments from customers before satisfying performance obligations, and the amounts are reported in other liabilities on the consolidated balance sheets as contract liabilities. Gains on sale of property under facility operations included in services income are not within the scope of revenue from contracts with customers because these gains refer to transfers of non-financial assets to counterparties that are not considered to be our customers.

Environment and energy services

The Company and its subsidiaries offer services that provide electric power to business operators’ factories, office buildings and other facilities. Revenues from electric power supply by purchasing electricity or running power plants are recognized over the contracted distribution period with customers, since customers simultaneously receive and consume all of the benefits provided by the Company and its subsidiaries as the Company and its subsidiaries perform. The value transferred to customers is directly measured based on electricity usage by customers. Furthermore, certain subsidiaries are running waste processing facilities. Revenues from resources and waste processing business are primarily recognized over the service contract period with customers, since customers simultaneously receive and consume the all of the benefits provided by the subsidiaries as the subsidiaries perform. The value transferred to customers is directly measured based on the amount of resources and waste to be processed.

– 65 –

Real estate management and brokerage

The Company and its subsidiaries mainly offer management of condominiums, office buildings, and facilities and others, to customers, as real estate management and brokerage business. Since customers simultaneously receive and consume all of the benefits provided by the Company and its subsidiaries as the Company and its subsidiaries perform, revenues from these services are recognized over the contract period with customers. Direct measurement of the value transferred to customers based on time elapsed, is used as method of measuring progress. The Company and its subsidiaries receive payments from customers before satisfying performance obligations, and the amounts are reported in other liabilities on the consolidated balance sheets as contract liabilities.

Real estate contract work

Certain subsidiaries offer repair and contract work for condominiums, office buildings, and facilities, and other, to customers. The work is held on the real estate where customers own or rent, and the subsidiaries’ performance creates the asset that the customers’ control as the asset is created or enhanced. Additionally, the performance does not create an asset with an alternative use to the subsidiaries, and the subsidiaries have a substantial enforceable right to payment for performance completed to date so that revenues are recognized over the contract work period. For measurement of progress, the cost incurred is used, because that reasonably describes transfer of control of services to customers. The subsidiaries recognize a part of its performance obligations that it performs as contract assets, and the amounts are reported under other assets on the consolidated balance sheet. Furthermore, the subsidiaries receive payments from customers before satisfying performance obligations, and the amounts are reported in other liabilities on the consolidated balance sheets as contract liabilities.

Other

The Company and its subsidiaries have been developing a variety of businesses. Main revenue streams are as follows;

Maintenance services of software, measurement equipment and other:

Certain subsidiaries offer business management software maintenance services and support, and maintenance of measurement equipment to customers. Revenues from these services are recognized over the contract period with customers, since customers simultaneously receive and consume all of the benefits provided by the subsidiaries as the subsidiaries perform. For measurement of progress, the cost incurred is used, because that reasonably describes transfer of control of services to customers. The subsidiaries receive payments from customers before satisfying performance obligations, and the amounts are reported in other liabilities on the consolidated balance sheets as contract liabilities.

Fee business:

The Company and its subsidiaries are involved in insurance policy referrals and other agency business. Commission revenues from these businesses are primarily recognized when the contract between our customers and their client is signed.

– 66 –

The following table provides information about balances from contracts with customers as of March 31, 2020 and September 30, 2020.


	Millions of yen
	March 31, 2020		September 30, 2020
Trade Notes, Accounts and Other Receivable	¥	165,676	¥	151,307
Contract assets (Included in Other Assets)		3,811		3,504
Contract liabilities (Included in Other Liabilities)		32,805		30,694

For the six months ended September 30, 2019 and 2020, there were no significant changes in contract assets. For the six months ended September 30, 2019 and 2020, there were no significant changes in contract liabilities.

For the six months ended September 30, 2019, revenue amounted to ¥22,947 million was included in contract liabilities as of the beginning of the previous fiscal year. For the six months ended September 30, 2020, revenue amounted to ¥21,579 million was included in contract liabilities as of the end of the previous fiscal year.

For the three months ended September 30, 2019, revenue amounted to ¥9,086 million was included in contract liabilities as of the beginning of the previous fiscal year. For the three months ended September 30, 2020, revenue amounted to ¥7,622 million was included in contract liabilities as of the end of the previous fiscal year.

As of September 30, 2020, transaction price allocated to the performance obligations that are unsatisfied (or partially unsatisfied) is mainly related to automobile related services, real estate sales and amounted to ¥140,140 million. Remaining term for the obligations ranges up to 14 years. Furthermore, automobile related services primarily constitute the performance obligations that are unsatisfied (or partially unsatisfied) will be recognized as revenue over the next 10 years. The Company and its subsidiaries applied practical expedients in the disclosure, and performance obligations for contracts that have an original expected duration of one year or less and contracts under which the value transferred to a customer is directly measured and recognized as revenue by the amount it has a right to invoice to the customer are not included. The transaction price allocated to unsatisfied performance obligations does not include the estimate of material variable consideration.

– 67 –

6.	Leases

Lessor

Lease income for the six and three months ended September 30, 2019 and 2020 are as follows:


	Millions of yen
	Six months ended September 30, 2019		Six months ended September 30, 2020
Lease income — net investment in leases
Interest income	¥	37,255	¥	34,313
Other		1,090		865
Lease income — operating leases *		214,925		197,961

Total lease income	¥	253,270	¥	233,139


* Gains from the disposition of real estate under operating leases included in operating lease revenues were ¥18,408 million and ¥12,754 million, and gains from the disposition of operating lease assets other than real estate included in operating lease revenues were ¥8,188 million and ¥3,134 million, for the six months ended September 30, 2019 and 2020, respectively.
	Millions of yen
	Three months ended September 30, 2019		Three months ended September 30, 2020
Lease income — net investment in leases
Interest income	¥	18,681	¥	17,217
Other		616		478
Lease income — operating leases *		113,156		103,015

Total lease income	¥	132,453	¥	120,710


* Gains from the disposition of real estate under operating leases included in operating lease revenues were ¥14,056 million and ¥8,050 million, and gains from the disposition of operating lease assets other than real estate included in operating lease revenues were ¥2,503 million and ¥2,022 million, for the three months ended September 30, 2019 and 2020, respectively. Lease income from net investment in leases is included in finance revenues in the consolidated statements of income. Gains and losses from the disposition of net investment in leases were not material for the six and three months ended September 30, 2019 and 2020.

– 68 –

7.	Credit Quality of Financing Receivables and the Allowance for Credit Losses

The Company and its subsidiaries provide the following information disaggregated by portfolio segment and class of financing receivable.

Allowance for credit losses—by portfolio segment

Credit quality of financing receivables—by class

•

Impaired loans

•

Credit quality indicators

•

Non-accrual and past-due financing receivables

Information about troubled debt restructurings—by class

A portfolio segment is defined as the level at which an entity develops and documents a systematic methodology to determine its allowance for credit losses. The Company and its subsidiaries classify our portfolio segments by instruments of loans and net investment in leases. Classes of financing receivables are determined based on the initial measurement attribute, risk characteristics of the financing receivables and the method for monitoring and assessing obligors’ credit risk, and are defined as the level of detail necessary for a financial statement user to understand the risks inherent in the financing receivables. Classes of financing receivables generally are a disaggregation of a portfolio segment, and the Company and its subsidiaries disaggregate our portfolio segments into classes by regions, instruments or industries of our debtors.

The following table provides information about the allowance for credit losses as of March 31, 2020, for the six and three months ended September 30, 2019:


	Six months ended September 30, 2019
	Millions of yen
	Loans												Net investment in leases			Total
	Consumer			Corporate						Purchased *loans 1**
	Consumer			Non-recourse loans			Other			Purchased *loans 1**
Allowance for credit losses :
Beginning balance	¥	21,195		¥	919		¥	20,662		¥	3,186		¥	12,049		¥	58,011
Provision (Reversal)		6,975			161			1,741			(78	)		1,774			10,573
Charge-offs		(6,620	)		(1	)		(4,359	)		(363	)		(1,338	)		(12,681	)
Recoveries		273			0			97			20			10			400
Other *2		(34	)		(24	)		(808	)		(5	)		(259	)		(1,130	)

Ending balance	¥	21,789		¥	1,055		¥	17,333		¥	2,760		¥	12,236		¥	55,173

Individually evaluated for impairment		3,508			226			5,476			1,578			0			10,788
Not individually evaluated for impairment		18,281			829			11,857			1,182			12,236			44,385

Financing receivables :
Ending balance	¥	2,053,749		¥	129,016		¥	1,216,910		¥	14,650		¥	1,123,863		¥	4,538,188

Individually evaluated for impairment		25,414			2,696			23,903			3,221			0			55,234
Not individually evaluated for impairment		2,028,335			126,320			1,193,007			11,429			1,123,863			4,482,954

– 69 –


	Three months ended September 30, 2019
	Millions of yen
	Loans											Net investment in leases			Total
	Consumer			Corporate					Purchased *loans 1**
	Consumer			Non-recourse loans		Other			Purchased *loans 1**
Allowance for credit losses :
Beginning balance	¥	20,622		¥	952	¥	18,255		¥	3,037		¥	11,942		¥	54,808
Provision (Reversal)		3,682			102		1,264			(40	)		849			5,857
Charge-offs		(2,653	)		0		(2,211	)		(273	)		(479	)		(5,616	)
Recoveries		152			0		19			13			0			184
Other *3		(14	)		1		6			23			(76	)		(60	)

Ending balance	¥	21,789		¥	1,055	¥	17,333		¥	2,760		¥	12,236		¥	55,173


	March 31, 2020
	Millions of yen
	Loans											Net investment in leases			Total
	Consumer			Corporate					Purchased *loans 1**
	Consumer			Non-recourse loans		Other			Purchased *loans 1**
Allowance for credit losses :
Ending balance	¥	20,542		¥	1,786	¥	21,358		¥	1,458		¥	11,692		¥	56,836

Individually evaluated for impairment		3,602			228		8,950			667			0			13,447
Not individually evaluated for impairment		16,940			1,558		12,408			791			11,692			43,389

Financing receivables :
Ending balance	¥	2,171,139		¥	132,081	¥	1,296,854		¥	13,218		¥	1,080,964		¥	4,694,256

Individually evaluated for impairment		26,533			2,466		55,216			1,605			0			85,820
Not individually evaluated for impairment		2,144,606			129,615		1,241,638			11,613			1,080,964			4,608,436

Note: Loans held for sale are not included in the table above.

*1	Purchased loans represent loans with evidence of deterioration of credit quality since origination and for which it is probable at acquisition that collection of all contractually required payments from the debtors is unlikely.

*2	Other mainly includes foreign currency translation adjustments and a decrease in allowance related to a sale of a subsidiary.

*3	Other mainly includes foreign currency translation adjustments.

– 70 –

In developing the allowance for credit losses, the Company and its subsidiaries consider, among other things, the following factors:

•

business characteristics and financial conditions of obligors;

•

current economic conditions and trends;

•

prior charge-off experience;

•

current delinquencies and delinquency trends; and

•

value of underlying collateral and guarantees.

The Company and its subsidiaries individually develop the allowance for credit losses for impaired loans. For non-impaired loans, including loans that are not individually evaluated for impairment, and net investment in leases, the Company and its subsidiaries evaluate prior charge-off experience as segmented by debtor’s industry and the purpose of the loans and develop the allowance for credit losses based on such prior charge-off experience as well as current economic conditions.

In common with all portfolio segments, a deterioration of debtors’ condition may increase the risk of delay in payments of principal and interest. For loans to consumer borrowers, the amount of the allowance for credit losses is changed by the variation of individual debtors’ creditworthiness and value of underlying collateral and guarantees, and the prior charge-off experience. For loans to corporate other borrowers and net investment in leases, the amount of the allowance for credit losses is changed by current economic conditions and trends, the value of underlying collateral and guarantees, and the prior charge-off experience in addition to the debtors’ creditworthiness.

The decline of the value of underlying collateral and guarantees may increase the risk of inability to collect from the loans and net investment in leases. Particularly for non-recourse loans for which cash flow from real estate is the source of repayment, their collection depends on the real estate collateral value, which may decline as a result of decrease in liquidity of the real estate market, rise in vacancy rate of rental properties, fall in rents and other factors. These risks may change the amount of the allowance for credit losses. For purchased loans, their collection may decrease due to a decline in the real estate collateral value and debtors’ creditworthiness. Thus, these risks may change the amount of the allowance for credit losses.

In common with all portfolio segments, the Company and its subsidiaries charge off doubtful receivables when the likelihood of any future collection is believed to be minimal, mainly based upon an evaluation of the relevant debtors’ creditworthiness and the liquidation status of collateral.

– 71 –

The following table provides information about the impaired loans as of March 31, 2020:


	March 31, 2020
		Millions of yen
Portfolio segment	Class	Loans individually evaluated for impairment		Unpaid principal balance		Related allowance
*With no related allowance recorded 1**		¥	36,528	¥	36,524	¥	0
Consumer borrowers			997		995		0
	Real estate loans		584		582		0
	Card loans		0		0		0
	Other		413		413		0
Corporate borrowers			35,423		35,421		0
Non-recourse loans	The Americas		1,705		1,705		0
Other than Non-recourse loans	Real estate companies in Japan		2,268		2,267		0
	Real estate companies in overseas		11,231		11,231		0
	Commercial, industrial and other companies in Japan		8,831		8,830		0
	Commercial, industrial and other companies in overseas		11,388		11,388		0
Purchased loans			108		108		0
*With an allowance recorded 2**			49,292		48,936		13,447
Consumer borrowers			25,536		25,316		3,602
	Real estate loans		5,178		5,162		817
	Card loans		3,932		3,924		632
	Other		16,426		16,230		2,153
Corporate borrowers			22,259		22,123		9,178
Non-recourse loans	The Americas		761		761		228
Other than Non-recourse loans	Real estate companies in Japan		1,233		1,219		374
	Real estate companies in overseas		1,260		1,260		486
	Commercial, industrial and other companies in Japan		3,649		3,527		2,371
	Commercial, industrial and other companies in overseas		15,356		15,356		5,719
Purchased loans			1,497		1,497		667

Total		¥	85,820	¥	85,460	¥	13,447

Consumer borrowers			26,533		26,311		3,602

	Real estate loans		5,762		5,744		817

	Card loans		3,932		3,924		632

	Other		16,839		16,643		2,153

Corporate borrowers			57,682		57,544		9,178

Non-recourse loans	The Americas		2,466		2,466		228

Other than Non-recourse loans	Real estate companies in Japan		3,501		3,486		374

	Real estate companies in overseas		12,491		12,491		486

	Commercial, industrial and other companies in Japan		12,480		12,357		2,371

	Commercial, industrial and other companies in overseas		26,744		26,744		5,719

Purchased loans			1,605		1,605		667

Note: Loans held for sale are not included in the table above.

*1	“With no related allowance recorded” represents impaired loans with no allowance for credit losses as all amounts are considered to be collectible.

*2	“With an allowance recorded” represents impaired loans with the allowance for credit losses as all or a part of the amounts are not considered to be collectible.

– 72 –

The Company and its subsidiaries recognize installment loans other than purchased loans and loans to consumer borrowers as impaired loans when principal or interest is past-due 90 days or more, or it is probable that the Company and its subsidiaries will be unable to collect all amounts due according to the contractual terms of the loan agreements due to various debtor conditions, including insolvency filings, suspension of bank transactions, dishonored bills and deterioration of businesses. For non-recourse loans, in addition to these conditions, the Company and its subsidiaries perform an impairment review using financial covenants, acceleration clauses, loan-to-value ratios, and other relevant available information.

For purchased loans, the Company and its subsidiaries recognize them as impaired loans when it is probable that the Company and its subsidiaries will be unable to collect book values of the remaining investment due to factors such as a decline in the real estate collateral value and debtors’ creditworthiness since the acquisition of these loans.

The Company and its subsidiaries consider that loans to consumer borrowers, including real estate loans, card loans and other, are impaired when terms of these loans are modified as troubled debt restructurings.

Interest payments received on impaired loans other than purchased loans are recorded as interest income unless the collection of the remaining investment is doubtful at which time payments received are recorded as reductions of principal. For purchased loans, although the acquired assets may remain loans in legal form, collections on these loans often do not reflect the normal historical experience of collecting delinquent accounts, and the need to tailor individual collateral-realization strategies often makes it difficult to reliably estimate the amount, timing, or nature of collections. Accordingly, the Company and its subsidiaries use the cost recovery method of income recognition for such purchased loans regardless of whether impairment is recognized or not.

In common with all classes, impaired loans are individually evaluated for a valuation allowance based on the present value of expected future cash flows, the loan’s observable market price or the fair value of the collateral securing the loans if the loans are collateral-dependent. For non-recourse loans, in principle, the estimated collectible amount is determined based on the fair value of the collateral securing the loans as they are collateral-dependent. Further for certain non-recourse loans, the estimated collectible amount is determined based on the present value of expected future cash flows. The fair value of the real estate collateral securing the loans is determined using appraisals prepared by independent third-party appraisers or our own staff of qualified appraisers based on recent transactions involving sales of similar assets or other valuation techniques such as discounted cash flows methodologies using future cash flows estimated to be generated from operation of the existing assets or completion of development projects, as appropriate. We generally obtain a new appraisal once a fiscal year. In addition, we periodically monitor circumstances of the real estate collateral and then obtain a new appraisal in situations involving a significant change in economic and/or physical conditions which may materially affect its fair value. For impaired purchased loans, the Company and its subsidiaries develop the allowance for credit losses based on the difference between the book value and the estimated collectible amount of such loans.

– 73 –

The following table provides information about the average recorded investments in impaired loans and interest income on impaired loans for the six and three months ended September 30, 2019:


	Six months ended September 30, 2019
		Millions of yen
Portfolio segment	Class	Average recorded investments in impaired loans *		Interest income on impaired loans		Interest on impaired loans collected in cash
Consumer borrowers		¥	24,085	¥	235	¥	200
	Real estate loans		4,835		75		73
	Card loans		3,921		31		25
	Other		15,329		129		102
Corporate borrowers			28,451		52		50
Non-recourse loans	Japan		227		2		2
	The Americas		3,066		0		0
Other than Non-recourse loans	Real estate companies in Japan		1,542		19		19
	Real estate companies in overseas		438		0		0
	Commercial, industrial and other companies in Japan		5,830		27		25
	Commercial, industrial and other companies in overseas		17,348		4		4
Purchased loans			3,540		86		86

Total		¥	56,076	¥	373	¥	336


	Three months ended September 30, 2019
		Millions of yen
Portfolio segment	Class	Average recorded investments in impaired loans *		Interest income on impaired loans		Interest on impaired loans collected in cash
Consumer borrowers		¥	24,546	¥	128	¥	121
	Real estate loans		5,035		50		49
	Card loans		3,909		14		13
	Other		15,602		64		59
Corporate borrowers			26,729		22		22
Non-recourse loans	Japan		225		0		0
	The Americas		2,491		0		0
Other than Non-recourse loans	Real estate companies in Japan		1,548		10		10
	Commercial, industrial and other companies in Japan		5,879		12		12
	Commercial, industrial and other companies in overseas		16,586		0		0
Purchased loans			3,428		54		54

Total		¥	54,703	¥	204	¥	197

Note: Loans held for sale are not included in the table above.

*	Average balances are calculated on the basis of fiscal beginning and quarter-end balances.

– 74 –

The following table provides information about the credit quality indicators as of March 31, 2020:


	March 31, 2020
		Millions of yen
				Non-performing
Portfolio segment	Class	Performing		Loans individually evaluated for impairment		90+ days past-due loans not individually evaluated for impairment		Subtotal		Total
Consumer borrowers		¥	2,134,342	¥	26,533	¥	10,264	¥	36,797	¥	2,171,139
	Real estate loans		1,877,227		5,762		1,370		7,132		1,884,359
	Card loans		218,011		3,932		1,708		5,640		223,651
	Other		39,104		16,839		7,186		24,025		63,129
Corporate borrowers			1,371,253		57,682		0		57,682		1,428,935
Non-recourse loans	Japan		48,566		0		0		0		48,566
	The Americas		81,049		2,466		0		2,466		83,515
Other than Non-recourse loans	Real estate companies in Japan		297,483		3,501		0		3,501		300,984
	Real estate companies in overseas		119,403		12,491		0		12,491		131,894
	Commercial, industrial and other companies in Japan		242,831		12,480		0		12,480		255,311
	Commercial, industrial and other companies in overseas		581,921		26,744		0		26,744		608,665
Purchased loans			11,613		1,605		0		1,605		13,218
Net investment in leases			1,065,618		0		15,346		15,346		1,080,964
	Japan		741,636		0		5,971		5,971		747,607
	Overseas		323,982		0		9,375		9,375		333,357

Total		¥	4,582,826	¥	85,820	¥	25,610	¥	111,430	¥	4,694,256

Note: Loans held for sale are not included in the table above.

In common with all classes, the Company and its subsidiaries monitor the credit quality indicators as performing and non-performing assets. The category of non-performing assets includes financing receivables for debtors who have filed for insolvency proceedings, whose bank transactions are suspended, whose bills are dishonored, whose businesses have deteriorated, whose repayment is past-due 90 days or more, financing receivables modified as troubled debt restructurings, and performing assets include all other financing receivables. Regarding purchased loans, they are classified as non-performing assets when considered impaired, while all the other loans are included in the category of performing assets.

Out of non-performing assets, the Company and its subsidiaries consider smaller balance homogeneous loans, including housing loans, card loans and other, which are not restructured and net investment in leases, as 90 days or more past-due financing receivables not individually evaluated for impairment, and consider the others as loans individually evaluated for impairment. After the Company and its subsidiaries have set aside provision for those non-performing assets, the Company and its subsidiaries continue to monitor at least on a quarterly basis the quality of any underlying collateral, the status of management of the debtors and other important factors in order to report to management and develop additional provision as necessary.

– 75 –

The following table provides information about the non-accrual and past-due financing receivables as of March 31, 2020 :


	March 31, 2020
		Millions of yen
		Past-due financing receivables
Portfolio segment	Class	30-89 days past-due		90 days or more past-due		Total past-due		Total financing receivables		Non-accrual
Consumer borrowers		¥	6,604	¥	13,607	¥	20,211	¥	2,171,139	¥	13,607
	Real estate loans		1,863		2,469		4,332		1,884,359		2,469
	Card loans		595		2,114		2,709		223,651		2,114
	Other		4,146		9,024		13,170		63,129		9,024
Corporate borrowers			3,365		26,999		30,364		1,428,935		44,622
Non-recourse loans	Japan		0		0		0		48,566		0
	The Americas		0		2,466		2,466		83,515		2,466
Other than Non-recourse loans	Real estate companies in Japan		0		586		586		300,984		586
	Real estate companies in overseas		1		12,386		12,387		131,894		12,491
	Commercial, industrial and other companies in Japan		226		2,409		2,635		255,311		2,409
	Commercial, industrial and other companies in overseas		3,138		9,152		12,290		608,665		26,670
Net investment in leases			13,702		15,346		29,048		1,080,964		15,346
	Japan		2,755		5,971		8,726		747,607		5,971
	Overseas		10,947		9,375		20,322		333,357		9,375

Total		¥	23,671	¥	55,952	¥	79,623	¥	4,681,038	¥	73,575

Note: Loans held for sale and purchased loans are not included in the table above.

In common with all classes, the Company and its subsidiaries consider financing receivables as past-due financing receivables when principal or interest is past-due 30 days or more. Loans whose terms have been modified are not classified as past-due financing receivables if the principals and interests are not past-due 30 days or more in accordance with the modified terms.

The Company and its subsidiaries suspend accruing revenues on past-due installment loans and net investment in leases when principal or interest is past-due 90 days or more, or earlier, if management determines that their collections are doubtful based on factors such as individual debtors’ creditworthiness, historical loss experience, current delinquencies and delinquency trends. Cash repayments received on non-accrual loans are applied first against past due interest and then any surpluses are applied to principal in view of the conditions of the contract and obligors. The Company and its subsidiaries return to accrual status non-accrual loans and lease receivables when it becomes probable that the Company and its subsidiaries will be able to collect all amounts due according to the contractual terms of these loans and lease receivables, as evidenced by continual payments from the debtors. The period of such continual payments before returning to accrual status varies depending on factors that we consider are relevant in assessing the debtor’s creditworthiness, such as the debtor’s business characteristics and financial conditions as well as relevant economic conditions and trends.

– 76 –

The following table provides information about troubled debt restructurings of financing receivables that occurred during the six and three months ended September 30, 2019:


	Six months ended September 30, 2019
		Millions of yen
Portfolio segment	Class	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment
Consumer borrowers		¥	6,108	¥	4,634
	Real estate loans		16		14
	Card loans		945		688
	Other		5,147		3,932
Corporate borrowers			2,447		2,447
Other than Non-recourse loans	Commercial, industrial and other companies in overseas		2,447		2,447

Total		¥	8,555	¥	7,081


	Three months ended September 30, 2019
		Millions of yen
Portfolio segment	Class	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment
Consumer borrowers		¥	3,145	¥	2,395
	Real estate loans		14		13
	Card loans		478		346
	Other		2,653		2,036
Corporate borrowers			2,391		2,391
Other than Non-recourse loans	Commercial, industrial and other companies in overseas		2,391		2,391

Total		¥	5,536	¥	4,786

A troubled debt restructuring is defined as a restructuring of a financing receivable in which the creditor grants a concession to the debtor for economic or other reasons related to the debtor’s financial difficulties.

The Company and its subsidiaries offer various types of concessions to our debtors to protect as much of our investment as possible in troubled debt restructurings. For the debtors of non-recourse loans, the Company and its subsidiaries offer concessions including an extension of the maturity date at an interest rate lower than the current market rate for a debt with similar risk characteristics. For the debtors of all financing receivables other than non-recourse loans, the Company and its subsidiaries offer concessions such as a reduction of the loan principal, a temporary reduction in the interest payments, or an extension of the maturity date at an interest rate lower than the current market rate for a debt with similar risk characteristics. In addition, the Company and its subsidiaries may acquire collateral assets from the debtors in troubled debt restructurings to satisfy fully or partially the loan principal or past due interest.

In common with all portfolio segments, financing receivables modified as troubled debt restructurings are recognized as impaired and are individually evaluated for a valuation allowance. In most cases, these financing receivables have already been considered impaired and individually evaluated for allowance for credit losses prior to the restructurings. However, as a result of the restructuring, the Company and its subsidiaries may recognize additional provision for the restructured receivables.

– 77 –

The following table provides information about financing receivables modified as troubled debt restructurings within the previous 12 months from September 30, 2019 and for which there was a payment default during the six and three months ended September 30, 2019:


	Six months ended September 30, 2019
			Millions of yen
Portfolio segment	Class		Recorded investment
Consumer borrowers			¥	1,069
		Card loans		16
		Other		1,053

Total			¥	1,069


	Three months ended September 30, 2019
			Millions of yen
Portfolio segment	Class		Recorded investment
Consumer borrowers			¥	1,033
		Card loans		3
		Other		1,030

Total			¥	1,033

The Company and its subsidiaries consider financing receivables whose terms have been modified in a restructuring as defaulted receivables when principal or interest is past-due 90 days or more in accordance with the modified terms.

In common with all portfolio segments, the Company and its subsidiaries suspend accruing revenues and may recognize additional provision as necessary for the defaulted financing receivables.

As of March 31, 2020, there were no foreclosed residential real estate properties. The carrying amounts of installment loans in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure were ¥109 million as of March 31, 2020.

– 78 –

8.	Credit Quality of Financial Assets and the Allowance for Credit Losses

The Company and its subsidiaries provide the following information disaggregated by portfolio segment and class of financial assets.

Allowance for credit losses—by portfolio segment

Credit quality of financial assets—by class

•

Credit quality indicators

•

Past-due financing receivables

•

Non-accrual

Information about troubled debt restructurings—by class

A portfolio segment is defined as the level at which an entity develops and documents a systematic methodology to determine its allowance for credit losses. The Company and its subsidiaries classify our portfolio segments by instruments of loans, net investment in leases and other financial assets measured at amortized cost. Classes of financial assets are determined based on the initial measurement attribute, risk characteristics of the financing receivables and the method for monitoring and assessing obligors’ credit risk and are defined as the level of detail necessary for a financial statement user to understand the risks inherent in the financial assets. Classes of financial assets generally are a disaggregation of a portfolio segment, and the Company and its subsidiaries disaggregate our portfolio segments into classes by regions, instruments or industries of our debtors.

The following table provides information about the allowance for credit losses for installment loans, net investment in leases and other financial assets measured at amortized cost for the six and three months ended September 30, 2020:


	Six months ended September 30, 2020
	Millions of yen
	Installment loans												Net investment in leases			Other financial assets measured at amortized cost *2			Total
	Consumer			Corporate						Purchased *loans 1**
	Consumer			Non-recourse loans			Other than non-recourse loans			Purchased *loans 1**
Allowance for credit losses :
Beginning balance	¥	20,542		¥	1,786		¥	20,209		¥	1,458		¥	11,692		¥	1,149		¥	56,836
Cumulative effect of adopting According Standards Update 2016-13		14,500			1,601			10,725			0			3,550			1,369			31,745
Reclassification to allowance for investment in operating leases *3		0			0			0			0			0			(312	)		(312	)
Balance at April 1, 2020		35,042			3,387			30,934			1,458			15,242			2,206			88,269
Provision (Reversal)		4,007			124			6,149			5			1,464			782			12,531
Allowance of purchased loans during the reporting period		0			0			0			340			0			0			340
Charge-offs *4		(5,178	)		0			(7,903	)		(427	)		(604	)		(146	)		(14,258	)
Recoveries		251			0			69			30			8			0			358
Other *6		228			(97	)		(828	)		102			96			54			(445	)

Ending balance	¥	34,350		¥	3,414		¥	28,421		¥	1,508		¥	16,206		¥	2,896		¥	86,795

Collective (pool) assessment		30,168			3,193			18,618			664			9,090			1,210			62,943
Individual assessment		4,182			221			9,803			844			7,116			1,686			23,852

– 79 –


	Three months ended September 30, 2020
	Millions of yen
	Loans												Net investment in leases			Other financial assets measured at amortized cost *2			Total
	Consumer			Corporate						Purchased *loans 1**
	Consumer			Non-recourse loans			Other than non-recourse loans			Purchased *loans 1**
Allowance for credit losses :
Beginning balance	¥	36,322		¥	3,755		¥	31,646		¥	1,152		¥	16,219		¥	2,766		¥	91,860
Provision (Reversal)		956			(273	)		2,570			393			449			177			4,272
Allowance of purchased loans during the reporting period		0			0			0			302			0			0			302
Charge-offs *5		(2,975	)		0			(5,374	)		(340	)		(381	)		(117	)		(9,187	)
Recoveries		162			0			16			(1	)		(2	)		0			175
Other *6		(115	)		(68	)		(437	)		2			(79	)		70			(627	)

Ending balance	¥	34,350		¥	3,414		¥	28,421		¥	1,508		¥	16,206		¥	2,896		¥	86,795


Notes 1:		Loans held for sale and policy loan receivables of an insurance entity are not included in the table above.

Held-to-maturity debt securities held by the Company and subsidiaries consist of Japanese government bonds (JGBs) and other securities secured by JGBs. Since there is insignificant credit risk associated with those government-backed securities, no allowance for credit losses is recognized. And there are no delinquent or on non-accrual status on held-to-maturity debt securities

*1 Purchased loans represent loans with evidence of deterioration of credit quality since origination and for which it is probable at acquisition that collection of all contractually required payments from the debtors is unlikely. Due to the adoption of the credit losses standards, allowance of ¥176,714 million was recorded as credit loss gross-up treatment for purchased loans on April 1, 2020, and the same amount has been amortized.

*2 Other financial assets measured at amortized cost includes the allowance for credit losses on financial receivables, such as loans to affiliates and accounts receivable. The provision for credit losses of loans to affiliates of ¥261 million were recorded in equity in net income of affiliates. And the allowance for credit losses on loans to affiliates of ¥1,034 million were recorded in investment in affiliates.

*3 The allowance for accrued payments for investment in operating leases was reclassified to the investment in operating leases balance on April 1, 2020, due to the application of the credit loss standard.

*4 Charge-off include the amount of ¥340 million for write-offs of purchased loans.

*5 Charge-off include the amount of ¥302 million for write-offs of purchased loans.

*6 Other mainly includes foreign currency translation adjustments and a decrease in allowance related to a sale of a subsidiary..

– 80 –

The following table provides information about purchased loans which is acquired for the six and three months ended September 30, 2020:


	Millions of yen
	Six months ended September 30, 2020
Purchase price	¥	387
Allowance for credit losses at acquisition date		340
Discount or premium attributable to other factors		57

Par value	¥	784


	Millions of yen
	Three months ended September 30, 2020
Purchase price	¥	311
Allowance for credit losses at acquisition date		302
Discount or premium attributable to other factors		51

Par value	¥	664

The Company and its subsidiaries develop the allowance for credit losses for all credit losses expected to occur in future over the remaining life of financial assets and recognize adequately based on the management judgement. In developing the allowance for credit losses, the Company and its subsidiaries consider, among other things, the following factors in collective assessment and individual assessment by each portfolio:

•

business characteristics and financial conditions of obligors;

•

prior charge-off experience;

•

current delinquencies and delinquency trends;

•

value of underlying collateral and guarantees; and

•

current economic conditions and trends and expected outlook in future.

When certain performing financial assets mainly have similar risk characteristics to other financial assets, the performing financial assets are collectively evaluated as a pool. On the contrary, when financial assets do not have similar risk characteristics to other financial assets, the financial assets are evaluated individually.

Consumer borrowers mainly consist of real estate loans and card loans. The credit quality of real estate loans is affected from the cash flows derived from the property and its collateral value. The credit quality of card loans is affected from the repayment ability of customer attributes or payment history. The Company and its subsidiaries use these economic indicators to estimate the allowance for credit losses because these factors are reflected to probability of default and loss given default in each portfolio.

Corporate borrowers are classified into non-recourse loans and other than non-recourse loans. Furthermore, other than non-recourse loans are classified into real estate companies and commercial industrial companies and other, which are classified in Japan and overseas, respectively. The credit quality of real estate companies is affected from the real estate market trends. The credit quality of commercial industrial companies and other, which consist of various industries are affected from broader trends in the financial and economic conditions. The allowance for credit losses for corporate borrowers is estimated by considering debtors’ situation, economic conditions and trends in its industries, the value of underlying collateral and guarantees, and probability of default and loss given default.

Net investment in leases consists of various equipment types, including office equipment, industrial machinery, transportation equipment and real estate properties. The allowance for credit losses for net investment in leases is estimated based on the value of the underlying leases properties, debtors’ situation, economic conditions and trends in its industries, and probability of default and loss given default

The forecasted future economic indicators correlated with the prior charge-off experience are reflected to the estimate of the allowance for credit losses. Economic indicators correlated with prior charge-off experience are determined over the reasonable and supportable forecasted period. Economic indicators include GDP growth rate, consumer price index, unemployment rate, and government bond interest rates. It also considers forward-looking scenarios of how the selected economic indicators will change in the future. The Company and its subsidiaries use the latest economic forecasts available from the economic reports published by the government and the Financial Services Agency of the Bank of Japan and third-party information providers as economic indicators. For the impact on the expansion of COVID-19, the Company and its subsidiaries review forward-looking scenarios with the necessary quantitative adjustment based on the analysis of impact to the referring economic conditions.

– 81 –

On the other hand, if the Company and its subsidiaries are not able to make or obtain reasonable and supportable forecasts of future economic conditions for the entire life of the financial asset, it is required to estimate expected credit losses for the remaining life using an approach that reverts to historical credit loss information.

There are no significant changes on methodologies and indicators used to estimate the allowance for credit losses for six months ended September 30, 2020.

On the contrary, when non-performing financial assets with worse credit quality have similar risk characteristics to other financial assets, the allowance for credit losses is collectively evaluated based on loss given default and so on, On the other hand, if the non-performing financial assets do not have similar risk characteristics to other financial assets, the allowance for credit losses is individually evaluated. The individual assessment estimates the allowance for credit losses individually based on the present value of expected future cash flow, the observable market price or the fair value of the collateral securing the financial receivables if the financial receivables are collateral-dependent. The collateral-dependent financial receivables are defined as the finance receivables, which a debtor would be financial difficulty and the collection significantly depend on the collateral. These financial receivables are non-recourse loans and purchased loans for which cash flow from real estate is the source of repayment. Their collection depends on the real estate collateral value, which may decline as a result of decrease in liquidity of the real estate market, rise in vacancy rate of rental properties, fall in rents and other factors. For purchased loans, their collection may decrease due to a decline in the real estate collateral value and debtors’ creditworthiness. Thus, the changes of these risks affect to the amount of the allowance for credit losses.

– 82 –

The following table provides information about the origination years of financial assets as of September 30, 2020. The revolving repayment card loans that cannot be classified into the origination year among card loans in consumer borrowers are excluded from the table.


					September 30, 2020
					Millions of yen
Portfolio segment					Origination year (years ended March 31)												Total
	Class				Origination year (years ended March 31)
				Credit Quality	2021		2020		2019		2018		2017		Prior
Consumer borrowers:
				Performing	¥	216,008	¥	455,562	¥	344,629	¥	232,132	¥	235,565	¥	550,264	¥	2,034,160
				Non-Performing		7,835		12,458		7,310		3,884		2,989		4,796	¥	39,272

		Real estate loans
				Performing		213,493		440,708		336,185		226,749		233,563		548,768	¥	1,999,466
				Non-Performing		3		567		1,784		1,698		2,140		4,328	¥	10,520
		Other*
				Performing		2,515		14,854		8,444		5,383		2,002		1,496	¥	34,694
				Non-Performing		7,832		11,891		5,526		2,186		849		468	¥	28,752
Corporate borrowers:
				Performing		157,595		463,946		271,263		154,452		94,667		135,927	¥	1,277,850
				Non-Performing		6,387		7,769		11,117		14,387		4,267		14,960	¥	58,887

		Non-recourse loans
			Japan
				Performing		4,212		24,519		5,284		2,828		0		9,066	¥	45,909
			The Americas
				Performing		697		38,689		27,930		14,184		5,398		8,472	¥	95,370
				Non-Performing		0		0		0		1,576		0		740	¥	2,316
		Other than non-recourse loans
			Real estate companies in Japan
				Performing		60,584		89,168		44,550		31,737		26,910		26,893	¥	279,842
				Non-Performing		26		420		2,426		0		342		574	¥	3,788
			Real estate companies in overseas
				Performing		7,008		63,148		16,592		13,536		2,928		2,978	¥	106,190
				Non-Performing		0		0		0		8,995		0		3,804	¥	12,799
			Commercial, industrial and other companies in Japan
				Performing		48,806		63,704		34,108		14,817		14,671		26,901	¥	203,007
				Non-Performing		4,173		6,728		2,221		1,790		392		1,797	¥	17,101

– 83 –


				September 30, 2020
				Millions of yen
Portfolio segment				Origination year (years ended March 31)												Total
	Class			Origination year (years ended March 31)
			Credit Quality	2021		2020		2019		2018		2017		Prior
		Commercial, industrial and other companies in overseas
			Performing		36,288		184,718		142,799		77,350		44,760		61,617	¥	547,532
			Non-Performing		2,188		621		6,470		2,026		3,533		8,045	¥	22,883
Purchased loans:
			Performing		0		8		0		127		136		10,742	¥	11,013
			Non-Performing		0		0		0		0		26		1,246	¥	1,272

Net investment in leases:
			Performing		171,278		311,165		210,464		136,097		86,558		95,478	¥	1,011,040
			Non-Performing		604		4,299		4,442		4,419		3,455		5,721	¥	22,940
	Japan
			Performing		94,965		189,004		144,515		105,167		76,229		91,732	¥	701,612
			Non-Performing		113		821		1,351		1,772		1,540		2,927	¥	8,524
	Overseas
			Performing		76,313		122,161		65,949		30,930		10,329		3,746	¥	309,428
			Non-Performing		491		3,478		3,091		2,647		1,915		2,794	¥	14,416
Other financial assets measured at amortized cost
			Performing		14,239		854		996		1,085		2,734		14,395	¥	34,303
			Non-Performing		0		0		0		1,459		0		845	¥	2,304

Total (excluding revolving repayment card loans)
			Performing		559,120		1,231,535		827,352		523,893		419,660		806,806	¥	4,368,366
			Non-Performing		14,826		24,526		22,869		24,149		10,737		27,568	¥	124,675

Note: Loans held for sale and policy loan receivables of an insurance entity are not included in the table above.

*	Other in consumer borrowers includes guarantee claims of consumer loans. For further information, see Note 24 “Commitments, Guarantees and Contingent Liabilities”

– 84 –

The revolving repayment card loans that cannot be classified into the origination year among card loans in consumer borrowers as of September 30, 2020 are as follows:


	September 30, 2020
	Millions of yen
Portfolio segment	Revolving repayment card loans		Modification of collection condition by relief of contract condition		Total—revolving repayment card loans		Total— origination year (excluding revolving repayment card loans)		Total— financial assets measured at amortized cost
Credit quality	Revolving repayment card loans				Total—revolving repayment card loans				Total— financial assets measured at amortized cost
Consumer borrowers:
Performing	¥	192,901	¥	0	¥	192,901	¥	4,368,366	¥	4,561,267

Non-Performing		2,150		3,822		5,972		124,675	¥	130,647

In common with all classes, the Company and its subsidiaries monitor the credit quality indicators as performing and non-performing assets. The category of non-performing assets includes financing receivables for debtors who have filed for insolvency proceedings, whose bank transactions are suspended, whose bills are dishonored, whose businesses have deteriorated, whose repayment is past-due 90 days or more, financing receivables modified as troubled debt restructurings, and performing assets include all other financing receivables. Regarding purchased loans, they are classified as non-performing assets when the purchased loans are considered not to be collected the acquisition price probably, while all the other purchased loans are included in the category of performing assets.

Out of non-performing assets, the Company and its subsidiaries consider smaller balance homogeneous loans (including real estate loans, card loans and other, which are not restructured) and net investment in leases as 90 days or more past-due financing receivables not individually evaluated, and consider the others as loans individually evaluated. After the Company and its subsidiaries have set aside provision for those non-performing assets, the Company and its subsidiaries continue to monitor at least on a quarterly basis the quality of any underlying collateral, the business conditions of the debtors and other important factors in order to report to management and develop additional provision for credit losses as necessary.

The following table provides information about the past-due financial assets as of September 30, 2020:


	September 30, 2020
		Millions of yen
		Past-due financing assets
Portfolio segment	Class	30-89 days past-due		90 days or more past-due		Total past-due		Total financing receivables
Consumer borrowers		¥	8,110	¥	16,117	¥	24,227	¥	2,272,305
	Real estate loans		1,469		3,085		4,554		2,009,985
	Card loans		336		2,191		2,527		198,874
	Other		6,305		10,841		17,146		63,446
Corporate borrowers			7,370		46,051		53,421		1,336,737
Non-recourse loans	Japan		0		0		0		45,909
	The Americas		855		2,316		3,171		97,686
Other than Non-recourse loans	Real estate companies in Japan		14		2,907		2,921		283,630
	Real estate companies in overseas		0		12,798		12,798		118,989
	Commercial, industrial and other companies in Japan		211		14,638		14,849		220,108
	Commercial, industrial and other companies in overseas		6,290		13,392		19,682		570,415
Net investment in leases			8,767		21,363		30,130		1,033,980
	Japan		1,969		7,814		9,783		710,136
	Overseas		6,798		13,549		20,347		323,844

Total		¥	24,247	¥	83,531	¥	107,778	¥	4,643,022

Note: Loans held for sale and purchased loans are not included in the table above.

– 85 –

In common with all classes, the Company and its subsidiaries consider financial assets as past-due financial assets when principal or interest is past-due 30 days or more. Loans whose terms have been modified are not classified as past-due financial assets if the principals and interests are not past-due 30 days or more in accordance with the modified terms.

The following table provides information about non-accrual of financial assets as of September 30, 2020:


	September 30, 2020
	Millions of yen
	Installment loans						Net investment in leases		Total
	Consumer borrowers		Corporate borrowers
	Consumer borrowers		Non- recourse loans		Other than non- recourse loans
Non-accrual of financial assets:
Beginning balance	¥	13,607	¥	2,466	¥	42,156	¥	15,346	¥	73,575
Ending balance		15,095		9,078		35,827		21,363	¥	81,363
Interest income recognized during the reporting period		291		0		46		0	¥	337
Balance not associated allowance for credit losses among financial assets measured at amortized cost, which is suspending recognition of income		550		0		20,211		0	¥	20,761

The Company and its subsidiaries suspend accruing revenues on past-due installment loans and net investment in leases when principal or interest is past-due 90 days or more, or earlier, if management determines that their collections are doubtful based on factors such as individual debtors’ creditworthiness, historical loss experience, current delinquencies and delinquency trends. Cash repayments received on non-accrual loans are applied first against past due interest and then any surpluses are applied to principal in view of the conditions of the contract and obligors. The Company and its subsidiaries return to accrual status non-accrual loans and net investment in leases when it becomes probable that the Company and its subsidiaries will be able to collect all amounts due according to the contractual terms of these loans and lease receivables, as evidenced by continual payments from the debtors. The period of such continual payments before returning to accrual status varies depending on factors that we consider are relevant in assessing the debtor’s creditworthiness, such as the debtor’s business characteristics and financial conditions as well as relevant economic conditions and trends.

– 86 –

The following table provides information about troubled debt restructurings of financing receivables that occurred during the six and three months ended September 30, 2020:


	Six months ended September 30, 2020
		Millions of yen
Portfolio segment	Class	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment
Consumer borrowers		¥	5,379	¥	4,151
	Real estate loans		15		13
	Card loans		869		670
	Other		4,495		3,468
Corporate borrowers			7,101		6,768
Non-recourse loans	The Americas		340		340
Other than Non-recourse loans	Real estate companies in overseas		104		104
	Commercial, industrial and other companies in Japan		38		38
	Commercial, industrial and other companies in overseas		6,619		6,286

Total		¥	12,480	¥	10,919


	Three months ended September 30, 2020
		Millions of yen
Portfolio segment	Class	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment
Consumer borrowers		¥	2,488	¥	1,982
	Card loans		479		360
	Other		2,009		1,622
Corporate borrowers			3,755		3,755
Other than Non-recourse loans	Real estate companies in overseas		104		104
	Commercial, industrial and other companies in Japan		38		38
	Commercial, industrial and other companies in overseas		3,613		3,613

Total		¥	6,243	¥	5,737

In common with all portfolio segments, financing receivables modified as troubled debt restructurings are recognized as impaired and are individually evaluated for allowance for credit losses. In most cases, these financing receivables have already been considered impaired and individually evaluated for allowance for credit losses prior to the restructurings. However, as a result of the restructuring, the Company and its subsidiaries may recognize additional allowance for credit losses for the restructured receivables.

– 87 –

For the six months ended September 30, 2020, while there are the financial assets required to defer the payments other than the troubled debt restructuring stated above due to the spread of COVID-19, the payment deferrals, which are judged not to meet the definition of troubled debt restructuring are not included in the troubled debt restructuring stated the above.

The following table provides information about financing receivables modified as troubled debt restructurings within the previous 12 months from September 30, 2020 and for which there was a payment default during the six and three months ended September 30, 2020:


	Six months ended September 30, 2020
			Millions of yen
Portfolio segment	Class		Recorded investment
Consumer borrowers			¥	556
		Card loans		32
		Other		524
Consumer borrowers				2
Other than Non-recourse loans		Commercial, industrial and other companies in overseas		2

Total			¥	558


	Three months ended September 30, 2020
			Millions of yen
Portfolio segment	Class		Recorded investment
Consumer borrowers			¥	185
		Card loans		17
		Other		168

Total			¥	185

In common with all portfolio segments, the Company and its subsidiaries suspend accruing revenues and may recognize additional allowance for credit losses as necessary for the defaulted financing receivables.

As of September 30, 2020, there were no foreclosed residential real estate properties. The carrying amounts of installment loans in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure were ¥324 million as of September 30, 2020.

– 88 –

9.	Investment in Securities

Investment in securities as of March 31, 2020 and September 30, 2020 consists of the following:


	Millions of yen
	March 31, 2020		September 30, 2020
Equity securities *	¥	492,902	¥	508,710
Trading debt securities		7,431		5,464
Available-for-sale debt securities		1,631,185		1,719,604
Held-to-maturity debt securities		113,805		113,566

Total	¥	2,245,323	¥	2,347,344

The amount of assets under management of variable annuity and variable life insurance contracts included in equity securities were ¥254,853 million and ¥270,950 million as of March 31, 2020 and September 30, 2020, respectively. The amount of investment funds that are accounted for under the equity method included in equity securities were ¥70,129 million and ¥61,562 million as of March 31, 2020 and September 30, 2020, respectively. The amount of investment funds elected for the fair value option included in equity securities were ¥6,326 million and ¥5,344 million as of March 31, 2020 and September 30, 2020, respectively.

Gains and losses realized from the sale of equity securities and net unrealized holding gains (losses) on equity securities are included in gains on investment securities and dividends, life insurance premiums and related investment income, and write-downs of securities. For further information, see Note 18 “Life Insurance Operations.” Net unrealized holding gains (losses) on equity securities held as of September 30, 2019 were gains of ¥12,346 million and ¥10,222 million, respectively, for the six and three months ended September 30, 2019. Net unrealized holding gains (losses) on equity securities held as of September 30, 2020 were gains of ¥41,484 million and ¥16,183 million, respectively, for the six and three months ended September 30, 2020, which did not include net unrealized holding gains (losses) on the both investment funds above mentioned.

Equity securities include non-marketable equity securities and preferred equity securities, etc. elected for the measurement alternative. Upward or downward adjustments resulting from observable price changes are included in gains on investment securities and dividends and life insurance premiums and related investment income. Impairments are included in write-downs of securities. The following tables provide information about impairment and upward or downward adjustments resulting from observable price changes as of March 31, 2020 and September 30, 2019, and for the six and three months ended September 30, 2019 and 2020.


	Millions of yen
	March 31, 2020							Six months ended September 30, 2019					Three months ended September 30, 2019
	Carrying value		Accumulated impairments and downward adjustments			Accumulated upward adjustments		Impairments and downward adjustments			Upward adjustments		Impairments and downward adjustments			Upward adjustments
Equity securities measured using the measurement alternative	¥	35,968	¥	(13,428	)	¥	112	¥	(38	)	¥	38	¥	(36	)	¥	37

	Millions of yen
	September 30, 2020							Six months ended September 30, 2020					Three months ended September 30, 2020
	Carrying value		Accumulated impairments and downward adjustments			Accumulated upward adjustments		Impairments and downward adjustments			Upward adjustments		Impairments and downward adjustments			Upward adjustments
Equity securities measured using the measurement alternative	¥	40,576	¥	(13,127	)	¥	208	¥	(774	)	¥	96	¥	(134	)	¥	82

– 89 –

Gains and losses realized from the sale of trading debt securities and net unrealized holding gains (losses) on trading debt securities are included in gains on investment securities and dividends. Net unrealized holding gains (losses) on trading debt securities held as of September 30, 2019 were gains of ¥67 million and ¥19 million, respectively, for the six and three months ended September 30, 2019. Net unrealized holding gains (losses) on trading debt securities held as of September 30, 2020 were losses of ¥7 million and gains of ¥14 million, respectively, for the six and three months ended September 30, 2020.

Certain subsidiaries elected the fair value option for certain investments in investment funds included in equity securities whose net asset values do not represent the fair value of investments due to the illiquid nature of these investments. The subsidiaries manage these investments on a fair value basis and the election of the fair value option enables the subsidiaries to reflect more appropriate assumptions to measure the fair value of these investments. As of March 31, 2020 and September 30, 2020, these investments were fair valued at ¥6,326 million and ¥5,344 million, respectively.

A certain subsidiary elected the fair value option for investments in foreign government bond securities included in available-for-sale debt securities to mitigate volatility in the consolidated statements of income caused by the difference in recognition of gain or loss that would otherwise exist between the foreign government bond securities and the derivatives used to reduce the risks of fluctuations in market interest rates and exchange rates on these foreign government bond securities. As of March 31, 2020 and September 30, 2020, these investments were fair valued at ¥780 million and ¥604 million, respectively.

A certain subsidiary elected the fair value option for investments in foreign corporate debt securities included in available-for-sale debt securities to mitigate volatility in the consolidated statements of income caused by the difference in recognition of gain or loss that would otherwise exist between the foreign corporate debt securities and the derivatives used to reduce the risks of fluctuations in market interest rates and exchange rates on these foreign corporate debt securities. As of March 31, 2020 and September 30, 2020, these investments were fair valued at ¥18,189 million and ¥1,315 million, respectively.

– 90 –

The amortized cost basis amounts, gross unrealized holding gains, gross unrealized holding losses and fair values of available-for-sale debt securities and held-to-maturity debt securities in each major security type as of March 31, 2020 and September 30, 2020 are as follows:

March 31, 2020


	Millions of yen
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
Available-for-sale debt securities:
Japanese and foreign government bond securities	¥	640,197	¥	21,063	¥	(7,315	)	¥	653,945
Japanese prefectural and foreign municipal bond securities		251,738		2,031		(3,414	)		250,355
Corporate debt securities		595,625		8,727		(7,875	)		596,477
CMBS and RMBS in the Americas		56,957		929		(9,214	)		48,672
Other asset-backed securities and debt securities		92,363		3,267		(13,894	)		81,736

		1,636,880		36,017		(41,712	)		1,631,185

Held-to-maturity debt securities:
Japanese government bond securities and other		113,805		29,384		0			143,189

	¥	1,750,685	¥	65,401	¥	(41,712	)	¥	1,774,374

September 30, 2020


	Millions of yen
	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value

Available-for-sale debt securities:
Japanese and foreign government bond securities	¥	711,578	¥	12,493	¥	(20,984	)	¥	703,087
Japanese prefectural and foreign municipal bond securities		251,508		3,376		(2,207	)		252,677
Corporate debt securities		616,619		11,138		(6,619	)		621,138
CMBS and RMBS in the Americas		47,264		1,402		(3,208	)		45,458
Other asset-backed securities and debt securities		97,211		3,949		(3,916	)		97,244

		1,724,180		32,358		(36,934	)		1,719,604

Held-to-maturity debt securities:
Japanese government bond securities and other		113,566		27,909		0			141,475

	¥	1,837,746	¥	60,267	¥	(36,934	)	¥	1,861,079

– 91 –

The following tables provide information about available-for-sale debt securities with gross unrealized losses and the length of time that individual securities have been in a continuous unrealized loss position as of March 31, 2020 and September 30, 2020, respectively:

March 31, 2020


	Millions of yen
	Less than 12 months					12 months or more					Total
	Fair value		Gross unrealized losses			Fair value		Gross unrealized losses			Fair value		Gross unrealized losses
Available-for-sale debt securities:
Japanese and foreign government bond securities	¥	116,967	¥	(2,881	)	¥	165,642	¥	(4,434	)	¥	282,609	¥	(7,315	)
Japanese prefectural and foreign municipal bond securities		143,563		(3,413	)		219		(1	)		143,782		(3,414	)
Corporate debt securities		260,738		(4,643	)		22,631		(3,232	)		283,369		(7,875	)
CMBS and RMBS in the Americas		30,830		(7,486	)		5,768		(1,728	)		36,598		(9,214	)
Other asset-backed securities and debt securities		26,612		(3,759	)		22,727		(10,135	)		49,339		(13,894	)

	¥	578,710	¥	(22,182	)	¥	216,987	¥	(19,530	)	¥	795,697	¥	(41,712	)


September 30, 2020
	Millions of yen
	Less than 12 months					12 months or more					Total
	Fair value		Gross unrealized losses			Fair value		Gross unrealized losses			Fair value		Gross unrealized losses
Available-for-sale debt securities:
Japanese and foreign government bond securities	¥	309,135	¥	(11,804	)	¥	183,958	¥	(9,180	)	¥	493,093	¥	(20,984	)
Japanese prefectural and foreign municipal bond securities		93,187		(1,536	)		12,668		(671	)		105,855		(2,207	)
Corporate debt securities		255,642		(4,408	)		29,555		(2,211	)		285,197		(6,619	)
CMBS and RMBS in the Americas		23,578		(3,144	)		2,595		(64	)		26,173		(3,208	)
Other asset-backed securities and debt securities		23,303		(516	)		32,675		(3,400	)		55,978		(3,916	)

	¥	704,845	¥	(21,408	)	¥	261,451	¥	(15,526	)	¥	966,296	¥	(36,934	)

Note: There was no allowance for credit losses for available-for-sale debt securities with gross unrealized losses as of September 30, 2020.

The number of investment securities that were in an unrealized loss position as of March 31, 2020 and September 30, 2020 were 678 and 584, respectively. The gross unrealized losses on these debt securities are attributable to a number of factors including changes in interest rates, credit spreads and market trends.

As of September 30, 2020, the amount of accrued revenues on available-for-sale debt securities was ¥5,741 million, which was included in other assets. The Company and its subsidiaries estimate credit losses and develop an allowance for credit losses for accrued interest receivables. There was no allowance for credit losses for accrued interest receivables as of September 30, 2020.

Credit Losses Standard has been adopted since April 1, 2020.

For debt securities other than trading, before the adoption of Credit Losses Standard, in the case of the fair value being below the amortized cost, the Company and its subsidiaries assess whether the debt securities are other-than-temporarily impaired on the basis of all available information about the collectability. The Company and its subsidiaries do not consider debt securities other-than-temporarily impaired if (1) the Company and its subsidiaries do not intend to sell the debt securities, (2) it is not more likely than not that the Company and its subsidiaries will be required to sell the debt securities before recovery of the amortized cost basis and (3) the present value of estimated cash flows will fully cover the amortized cost. On the other hand, the Company and its subsidiaries consider debt securities other-than-temporarily impaired if any of the three conditions mentioned above are not met.

– 92 –

There were no other-than-temporary impairment losses recognized in other comprehensive income (loss) or earnings for the six months ended September 30, 2019.

For debt securities other than trading securities, after the adoption of Credit Losses Standard, if the fair value is less than the amortized cost, the debt securities are impaired. The Company and its subsidiaries identify per each impaired security whether the decline of fair value is due to credit losses component or non-credit losses component. Impairment related to credit losses is recognized in earning through an allowance for credit losses. Impairment related to other factors than credit losses is recognized in other comprehensive income (loss), net of applicable income taxes. In estimating an allowance of credit losses, the Company and its subsidiaries consider the existence of credit losses if the present value of estimated cash flows is less than the amortized cost basis. When the Company and its subsidiaries intend to sell the debt securities for which an allowance for credit losses is previously established or it is more likely than not that the Company and its subsidiaries will be required to sell the debt securities before recovery of the amortized cost basis, the allowance for credit losses is fully written-off and the amortized cost is reduced to the fair value after recognizing additional impairment in earnings. In addition, the Company and its subsidiaries recognize in earnings the full difference between the amortized cost and the fair value of the debt securities by direct write-down, without any allowance for credit losses, if the debt securities are expected to be sold and the fair value is less than the amortized cost. As a result, available-for-sale debt securities without any direct write-down recognized no allowance for credit losses for the six months ended September 30, 2020, because no credit losses existed. Note, the Company and its subsidiaries do not intend to sell the available-for-sale debt securities or it is not more likely than not that the Company and its subsidiaries will be required to sell the available-for-sale debt securities before recovery of the amortized cost basis.

Unrealized losses on available-for-sale debt securities mainly result from changes in market interest rates and foreign exchange rates, and changes in risk premiums. In order to evaluate the recoverability of the available-for-sale debt securities, the Company and its subsidiaries utilize all available information such as issuer’s financial condition and business outlook. The fair value of Japanese and foreign government bond securities, Japanese prefectural and foreign municipal bond, and corporate debt securities is mainly estimated based on prices for similar assets. If there are no prices for similar assets available, the fair value of these securities is estimated by using discounted cash flow methodologies and broker quotes. The fair value of CMBS and RMBS in the Americas and other asset-backed securities and debt securities refers to prices from independent pricing service vendors and brokers, such as trading prices and bit prices. If the Company and its subsidiaries cannot rely on such prices, the fair value is calculated by using discounted cash flow methodologies and broker quotes. In discounted cash flow methodologies, future cash flows estimated based on a number of assumptions such as default rate, prepayment rate, and seniority are discounted by discount rate adjusted for credit risk and liquidity risk.

For available-for-sale debt securities held as of September 30, 2019, roll-forwards of the amount of accumulated other-than-temporary impairments related to credit losses for the six and three months ended September 30, 2019 are as follows:


	Millions of yen
	Six months ended September 30, 2019
Beginning	¥	2,102
Movement during the period		0

Ending	¥	2,102

	Millions of yen
	Three months ended September 30, 2019
Beginning	¥	2,102
Movement during the period		0

Ending	¥	2,102

– 93 –

In addition, the non-credit loss component on the other-than-temporary impaired available-for-sale debt securities mentioned above is recognized in other comprehensive income (loss), net of applicable income taxes. These impairments included the amount of unrealized gains or losses for the changes in fair value of the available-for-sale debt securities after recognition of other-than-temporary impairments in earnings. Unrealized gains and unrealized losses recorded in accumulated other comprehensive income (loss) on these available-for-sale debt securities as of March 31, 2020 were not material.

10.

Transfer of Financial Assets

The Company and its subsidiaries have securitized and transferred financial assets such as installment loans (commercial mortgage loans, housing loans and other).

In the securitization process, these financial assets are transferred to SPEs that issue beneficial interests of the securitization trusts and securities backed by the financial assets to investors. The cash flows collected from these assets transferred to the SPEs are then used to repay these asset-backed beneficial interests and securities. As the transferred assets are isolated from the Company and its subsidiaries, the investors and the SPEs have no recourse to other assets of the Company and its subsidiaries in cases where the debtors or the issuers of the transferred financial assets fail to perform under the original terms of those financial assets.

The Company and its subsidiaries often have continuing involvement with transferred financial assets by retaining the servicing arrangements and the interests in the SPEs in the form of the beneficial interest of the securitization trusts. Those interests that continue to be held include interests in the transferred assets and are often subordinate to other tranche(s) of the securitization. Those beneficial interests that continue to be held by the Company and its subsidiaries are subject to credit risk, interest rate risk and prepayment risk on the securitized financial assets. With regards to these subordinated interests that the Company and its subsidiaries retain, they are subordinated to the senior investments and are exposed to different credit and prepayment risks, since they first absorb the risk of the decline in the cash flows from the financial assets transferred to the SPEs for defaults and prepayment of the transferred assets. If there is any excess cash remaining in the SPEs after payment to investors in the securitization of the contractual rate of returns, most of such excess cash is distributed to the Company and its subsidiaries for payments of the subordinated interests. SPEs used in securitization transactions have been consolidated if the Company and its subsidiaries are the primary beneficiary of the SPEs.

When the Company and its subsidiaries have transferred financial assets to a transferee that is not subject to consolidation, the Company and its subsidiaries account for the transfer as a sale if control over the transferred assets is surrendered.

For the six months ended September 30, 2019 and 2020, the amount of installment loans that has been derecognized due to new securitization and transfer of loans were ¥276,489 million and ¥552,905 million, respectively. For the six months ended September 30, 2019 and 2020, gains (losses) from the securitization and transfer of loans were ¥9,703 million and ¥16,045 million, respectively, which is included in finance revenues in the consolidated statements of income.

For the three months ended September 30, 2019 and 2020, the amount of installment loans that has been derecognized due to new securitization and transfer of loans were ¥143,441 million and ¥282,763 million, respectively. For the three months ended September 30, 2019 and 2020, gains (losses) from the securitization and transfer of loans were ¥5,628 million and ¥9,243 million, respectively, which is included in finance revenues in the consolidated statements of income.

A certain subsidiary originates and sells loans into the secondary market while retaining the obligation to service those loans. In addition, the subsidiary undertakes obligations to service loans originated by others. The servicing assets related to those servicing activities are included in other assets in the consolidated balance sheets and roll-forwards of the amount of the servicing assets for the six and three months ended September 30, 2019 and 2020 are as follows:


	Millions of yen
	Six months ended September 30, 2019			Six months ended September 30, 2020			Three months ended September 30, 2019			Three months ended September 30, 2020
Beginning balance	¥	31,572		¥	57,705		¥	31,441		¥	57,861
Increase mainly from loans sold with servicing retained		4,101			6,962			2,103			3,612
Decrease mainly from amortization		(2,425	)		(5,345	)		(1,221	)		(2,730	)
Increase (Decrease) from the effects of changes in foreign exchange rates		(884	)		(1,621	)		41			(1,042	)

Ending balance	¥	32,364		¥	57,701		¥	32,364		¥	57,701

– 94 –


The fair value of the servicing assets as of March 31, 2020 and September 30, 2020 are as follows:
	Millions of yen
	March 31, 2020		September 30, 2020
Beginning balance	¥	39,846	¥	60,419
Ending balance	¥	60,419	¥	61,294

– 95 –

11.

Variable Interest Entities

The Company and its subsidiaries use SPEs in the ordinary course of business.

These SPEs are not always controlled by voting rights, and there are cases where voting rights do not exist for these SPEs. The Company and its subsidiaries determine a variable interest entity (hereinafter, “VIE”) among those SPEs when (a) the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support provided by any parties, including the equity holders or (b) as a group, the holders of the equity investment at risk do not have (1) the ability to make decisions about an entity’s activities that most significantly impact the entity’s economic performance through voting rights or similar rights, (2) the obligation to absorb the expected losses of the entity or (3) the right to receive the expected residual returns of the entity.

The Company and its subsidiaries perform a qualitative analysis to identify the primary beneficiary of VIEs. An enterprise that has both of the following characteristics is considered to be the primary beneficiary and therefore results in the consolidation of the VIE:

•

the power to direct the activities of a VIE that most significantly impact the entity’s economic performance; and

•

the obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE.

All facts and circumstances are taken into consideration when determining whether the Company and its subsidiaries have variable interests that would deem it the primary beneficiary and therefore require consolidation of the VIE. The Company and its subsidiaries make ongoing reassessment of whether they are the primary beneficiaries of a VIE.

The following are the factors that the Company and its subsidiaries are considering in a qualitative assessment:

•

which activities most significantly impact the economic performance of the VIE and who has the power to direct such activities;

•

characteristics of the Company and its subsidiaries’ variable interest or interests and other involvements (including involvement of related parties and de facto agents);

•

involvement of other variable interest holders; and

•

the entity’s purpose and design, including the risks that the entity was designed to create and pass through to its variable interest holders.

The Company and its subsidiaries generally consider the following types of involvement to be significant when determining the primary beneficiary:

•

designing the structuring of a transaction;

•

providing an equity investment and debt financing;

•

being the investment manager, asset manager or servicer and receiving variable fees; and

•

providing liquidity and other financial support.

The Company and its subsidiaries do not have the power to direct activities of a VIE that most significantly impact the VIE’s economic performance if that power is shared among multiple unrelated parties, and accordingly do not consolidate such VIE.

– 96 –

Information about VIEs (consolidated and non-consolidated) for the Company and its subsidiaries are as follows:

1.	Consolidated VIEs

March 31, 2020


	Millions of yen
Types of VIEs	Total *assets 1**		Total *liabilities 1**		Assets which are pledged as *collateral 2**		*Commitments 3**
(a) VIEs for liquidating customer assets	¥	0	¥	0	¥	0	¥	0
(b) VIEs for acquisition of real estate and real estate development projects for customers		2,546		2		0		0
(c) VIEs for acquisition of real estate for the Company and its subsidiaries’ real estate-related business		80,385		17,941		21,970		5,153
(d) VIEs for corporate rehabilitation support business		465		9		0		0
(e) VIEs for investment in securities		82,098		28		0		0
(f) VIEs for securitizing financial assets such as finance lease receivable and loan receivable		267,548		159,181		267,548		0
(g) VIEs for securitization of loan receivable originated by third parties		2,358		3,037		2,358		0
(h) VIEs for power generation projects		393,797		284,772		355,107		40,111
(i) Other VIEs		163,948		66,411		141,988		0

Total	¥	993,145	¥	531,381	¥	788,971	¥	45,264


September 30, 2020

	Millions of yen
Types of VIEs	Total *assets 1**		Total *liabilities 1**		Assets which are pledged as *collateral 2**		*Commitments 3**
(a) VIEs for liquidating customer assets	¥	0	¥	0	¥	0	¥	0
(b) VIEs for acquisition of real estate and real estate development projects for customers		2,026		0		0		0
(c) VIEs for acquisition of real estate for the Company and its subsidiaries’ real estate-related business		63,622		11,288		17,282		4,644
(d) VIEs for corporate rehabilitation support business		456		5		0		0
(e) VIEs for investment in securities		77,006		151		33		0
(f) VIEs for securitizing financial assets such as finance lease receivable and loan receivable		278,801		166,220		278,801		0
(g) VIEs for securitization of loan receivable originated by third parties		578		925		578		0
(h) VIEs for power generation projects		391,545		276,359		355,913		37,938
(i) Other VIEs		167,780		63,215		137,021		0

Total	¥	981,814	¥	518,163	¥	789,628	¥	42,582

*1	The assets of most VIEs are used only to repay the liabilities of the VIEs, and the creditors of the liabilities of most VIEs have no recourse to other assets of the Company and its subsidiaries.

*2	The assets are pledged as collateral by VIE for financing of the VIE.

*3	This item represents remaining balance of commitments that could require the Company and its subsidiaries to provide investments or loans to the VIE.

– 97 –

2.	Non-consolidated VIEs

March 31, 2020


	Millions of yen
			Carrying amount of the variable interests in the VIEs held by the Company and its subsidiaries
Types of VIEs	Total assets		Non-recourse loans		Investments		Maximum exposure to loss *
(a) VIEs for liquidating customer assets	¥	8,508	¥	0	¥	991	¥	991
(b) VIEs for acquisition of real estate and real estate development projects for customers		51,746		0		4,542		4,542
(c) VIEs for acquisition of real estate for the Company and its subsidiaries’ real estate-related business		0		0		0		0
(d) VIEs for corporate rehabilitation support business		0		0		0		0
(e) VIEs for investment in securities		3,820,403		0		55,645		72,527
(f) VIEs for securitizing financial assets such as finance lease receivable and loan receivable		0		0		0		0
(g) VIEs for securitization of loan receivable originated by third parties		1,239,325		0		15,663		15,668
(h) VIEs for power generation projects		25,037		0		1,719		1,719
(i) Other VIEs		200,325		2,837		10,523		13,476

Total	¥	5,345,344	¥	2,837	¥	89,083	¥	108,923


September 30, 2020

	Millions of yen
			Carrying amount of the variable interests in the VIEs held by the Company and its subsidiaries
Types of VIEs	Total assets		Non-recourse loans		Investments		Maximum exposure to loss *
(a) VIEs for liquidating customer assets	¥	25,620	¥	1,492	¥	991	¥	2,483
(b) VIEs for acquisition of real estate and real estate development projects for customers		308,954		11,291		4,230		15,521
(c) VIEs for acquisition of real estate for the Company and its subsidiaries’ real estate-related business		0		0		0		0
(d) VIEs for corporate rehabilitation support business		0		0		0		0
(e) VIEs for investment in securities		3,414,137		0		50,815		66,494
(f) VIEs for securitizing financial assets such as finance lease receivable and loan receivable		815		0		2		2
(g) VIEs for securitization of loan receivable originated by third parties		2,151,247		0		25,856		25,859
(h) VIEs for power generation projects		25,623		0		1,860		1,860
(i) Other VIEs		267,113		2,782		10,265		13,047

Total	¥	6,193,509	¥	15,565	¥	94,019	¥	125,266

*	Maximum exposure to loss includes remaining balance of commitments that could require the Company and its subsidiaries to provide investments or loans to the VIE.

– 98 –

(a) VIEs for liquidating customer assets

The Company and its subsidiaries may use VIEs in structuring financing for customers to liquidate specific customer assets. The VIEs are typically used to provide a structure that is bankruptcy remote with respect to the customer and the use of VIE structure is requested by such customer. Such VIEs typically acquire assets to be liquidated from the customer, borrow non-recourse loans from financial institutions and have an equity investment made by the customer. The Company and its subsidiaries provide non-recourse loans to such VIEs and make investments in them. By using cash flows from the liquidated assets, these VIEs repay the loan and pay dividends to equity investors if sufficient funds exist.

(b) VIEs for acquisition of real estate and real estate development projects for customers

Customers, and the Company and its subsidiaries, are involved with VIEs formed to acquire real estate and/or develop real estate projects. In each case, a customer establishes and makes an equity investment in a VIE that is designed to be bankruptcy remote from the customer. The VIEs acquire real estate and/or develop real estate projects.

The Company and its subsidiaries provide non-recourse loans to such VIEs and hold specified bonds issued by them and/or make investments in them. The Company and its subsidiaries have consolidated certain VIEs because the Company or its subsidiary effectively controls the VIEs by acting as the asset manager of the VIEs.

In the Company’s consolidated balance sheets, assets of consolidated VIEs are mainly included in cash and cash equivalents and investment in affiliates.

With respect to variable interests of non-consolidated VIEs held by the Company and its subsidiaries, non-recourse loans are included in installment loans, and investments are mainly included in investment in securities, investment in affiliates and other assets in the Company’s consolidated balance sheets. The Company and its subsidiaries concluded that the VIEs are not consolidated because the power to direct these VIEs is held by unrelated parties. In some cases, the Company and its subsidiaries concluded that the VIEs are not consolidated because the power to direct these VIEs is shared among multiple unrelated parties.

(c) VIEs for acquisition of real estate for the Company and its subsidiaries’ real estate-related business

The Company and its subsidiaries establish VIEs and acquire real estate to borrow non-recourse loans from financial institutions and simplify the administration activities necessary for the real estate. The Company and its subsidiaries consolidate such VIEs even though the Company and its subsidiaries may not have voting rights if substantially all of such VIEs’ subordinated interests are issued to the Company and its subsidiaries, and therefore the VIEs are controlled by and for the benefit of the Company and its subsidiaries.

In the Company’s consolidated balance sheets, assets of the consolidated VIEs are mainly included in cash and cash equivalents, restricted cash, investment in operating leases, investment in securities, property under facility operations and other assets, and liabilities of those consolidated VIEs are mainly included in long-term debt and other liabilities. The Company and certain subsidiaries have commitment agreements by which the Company and the subsidiaries may be required to make additional investment or execute loans in certain such consolidated VIEs.

(d) VIEs for corporate rehabilitation support business

Financial institutions, the Company and its subsidiaries are involved with VIEs established for the corporate rehabilitation support business. VIEs receive the funds from investors including the financial institutions, the Company and the subsidiary, and purchase loan receivables due from borrowers which have financial problems, but are deemed to have the potential to recover in the future. The servicing operations for the VIEs are conducted by the subsidiary.

The Company and its subsidiaries consolidated such VIEs since the Company and its subsidiaries have the majority of the investment share of such VIEs, and have the power to direct the activities of the VIEs that most significantly impact the entities’ economic performance through the servicing operations.

In the Company’s consolidated balance sheets, assets of the consolidated VIEs are mainly included in installment loans, and liabilities of those consolidated VIEs are mainly included in other liabilities.

– 99 –

(e) VIEs for investment in securities

The Company and its subsidiaries have interests in VIEs that are investment funds and mainly invest in equity and debt securities. Such VIEs are managed by certain subsidiaries or fund management companies that are independent of the Company and its subsidiaries.

Certain subsidiaries consolidated certain such VIEs since the subsidiaries have the majority of the investment share of them, and have the power to direct the activities of those VIEs that most significantly impact the entities’ economic performance through involvement with the design of the VIEs or other means.

In the Company’s consolidated balance sheets, assets of the consolidated VIEs are mainly included in investment in securities and investment in affiliates, and liabilities of those consolidated VIEs are mainly included in other liabilities.

Variable interests of non-consolidated VIEs, which the Company and its subsidiaries have, are included in investment in securities in the Company’s consolidated balance sheets. The Company and its subsidiaries have commitment agreements by which the Company and its subsidiaries may be required to make additional investment in certain such non-consolidated VIEs.

(f) VIEs for securitizing financial assets such as finance lease receivable and loan receivable

The Company and its subsidiaries use VIEs to securitize financial assets such as finance lease receivables and loans receivables. In the securitization process, these financial assets are transferred to SPEs, and the SPEs issue beneficial interests or securities backed by the transferred financial assets to investors. After the securitization, the Company and its subsidiaries continue to hold a subordinated part of the securities and act as a servicer.

The Company and its subsidiaries consolidated such VIEs since the Company and its subsidiaries have the power to direct the activities that most significantly impact the entity’s economic performance by designing the securitization scheme and conducting servicing activities, and have a responsibility to absorb losses of the VIEs that could potentially be significant to the entities by retaining the subordinated part of the securities.

In the Company’s consolidated balance sheets, assets of the consolidated VIEs are mainly included in restricted cash, net investment in leases and installment loans, and liabilities of those consolidated VIEs are mainly included in long-term debt.

(g) VIEs for securitization of loan receivable originated by third parties

The Company and its subsidiaries invest in CMBS, RMBS and other asset-backed securities originated by third parties. In some cases of such securitization, certain subsidiaries hold the subordinated portion and the subsidiaries act as a special-servicer of the securitization transaction. As the special servicer, the subsidiaries have rights to dispose of real estate collateral related to the securitized commercial mortgage loans.

The subsidiaries consolidate certain of these VIEs when the subsidiaries have the power to direct the activities of the VIEs that most significantly impact the entities’ economic performance through its role as special-servicer, including the right to dispose of the collateral, and have a responsibility to absorb losses of the VIEs that could potentially be significant to the entities by holding the subordinated part of the securities.

Variable interests of non-consolidated VIEs, which the Company and its subsidiaries have, are included in investment in securities in the Company’s consolidated balance sheets. The Company has a commitment agreement by which the Company may be required to make additional investment in certain such non-consolidated VIEs.

(h) VIEs for power generation projects

The Company and its subsidiaries may use VIEs in power generation projects. VIEs receive the funds from the Company and its subsidiaries, construct solar power stations, thermal power stations and wind power stations on acquired or leased lands, and sell the generated power to electric power companies. The Company and its subsidiaries have consolidated certain VIEs because the Company and its subsidiaries have the majority of the investment shares of such VIEs and effectively control the VIEs by acting as the asset manager of the VIEs.

– 100 –

In the Company’s consolidated balance sheets, assets of the consolidated VIEs are mainly included in cash and cash equivalents, restricted cash, property under facility operations and other assets, and liabilities of those consolidated VIEs are mainly included in short-term debt, long-term debt, and other liabilities. The Company and certain subsidiaries have commitment agreements by which the Company and the subsidiaries may be required to make additional investment or execute loans in certain such consolidated VIEs.

Variable interests of non-consolidated VIEs, which the Company has, are included in investment in affiliates in the Company’s consolidated balance sheets.

(i) Other VIEs

The Company and its subsidiaries are involved with other types of VIEs for various purposes. Consolidated and non-consolidated VIEs of this category are mainly kumiai structures. In addition, certain subsidiaries have consolidated VIEs that are not included in the categories (a) through (h) above, because the subsidiaries hold the subordinated portion of the VIEs and the VIEs are effectively controlled by the subsidiaries.

In Japan, certain subsidiaries provide investment products to their customers that employ a contractual mechanism known as a kumiai, which in part result in the subsidiaries forming a type of SPE. As a way to finance the purchase of aircraft or other large-ticket items to be leased to third parties, the Company and its subsidiaries arrange and market kumiai products to investors, who invest a portion of the funds necessary into the kumiai structure. The remainder of the purchase funds is borrowed by the kumiai structure in the form of a non-recourse loan from one or more financial institutions. The kumiai investors (and any lenders to the kumiai structure) retain all of the economic risks and rewards in connection with purchasing and leasing activities of the kumiai structure, and all related gains or losses are recorded on the financial statements of the investors in the kumiai. The Company and its subsidiaries are responsible for the arrangement and marketing of these products and may act as servicer or administrator in kumiai transactions. The fee income for the arrangement and administration of these transactions is recognized in the Company’s consolidated statements of income. In some cases, the Company and its subsidiaries make investments in the kumiai or its related SPE, and these VIEs are consolidated because the Company and its subsidiaries have a responsibility to absorb any significant potential loss through the investments and have the power to direct the activities that most significantly impact their economic performance. In other cases, the Company and its subsidiaries are not considered to be the primary beneficiary of the VIEs or kumiais because the Company and its subsidiaries did not make significant investments or guarantee or otherwise undertake any significant financial commitments or exposure with respect to the kumiai or its related SPE.

The Company may use VIEs for financing. The Company transfers its own held assets to SPEs, which borrow non-recourse loan from financial institutions and effectively pledge such assets as collateral. The Company continually holds subordinated interests in the SPEs and performs administrative work of such assets. The Company consolidates such SPEs because the Company has a right to direct the activities of them that most significantly impact their economic performance by setting up the scheme and performing administrative work of the assets and has the obligation to absorb expected losses of them by holding the subordinated interests.

In the Company’s consolidated balance sheets, assets of the consolidated VIEs are mainly included in investment in operating leases, investment in affiliates, office facilities and other assets, and liabilities of those consolidated VIEs are mainly included in long-term debt and other liabilities.

With respect to variable interests of non-consolidated VIEs held by the Company and its subsidiaries, non-recourse loans are included in installment loans, and investments are mainly included in investment in securities and investment in affiliates in the Company’s consolidated balance sheets. Certain subsidiaries have commitment agreements by which the Company and its subsidiaries may be required to make additional investment in certain such non-consolidated VIEs.

– 101 –

12.

Investment in Affiliates

Investment in affiliates at March 31, 2020 and September 30, 2020 consists of the following:


	Millions of yen
	March 31, 2020			September 30, 2020
Shares	¥	770,750		¥	759,365
Loans and others		50,912			34,141

	¥	821,662		¥	793,506

13. Redeemable Noncontrolling Interests Changes in redeemable noncontrolling interests for the six months ended September 30, 2019 and 2020 are as follows:
	Millions of yen
	Six months ended September 30, 2019			Six months ended September 30, 2020
Beginning balance	¥	9,780		¥	10,331
Transaction with noncontrolling interests		0			(10,028	)
Comprehensive income (loss)
Net income (loss)		322			(23	)
Other comprehensive income (loss)
Net change of foreign currency translation adjustments		(275	)		(280	)
Total other comprehensive income (loss)		(275	)		(280	)
Comprehensive income (loss)		47			(303	)
Dividends		(289	)		0

Ending balance	¥	9,538		¥	0

– 102 –

14.

Accumulated Other Comprehensive Income (Loss)

Changes in each component of accumulated other comprehensive income (loss) attributable to ORIX Corporation Shareholders for the six months ended September 30, 2019 and 2020, are as follows:


	Six months ended September 30, 2019
	Millions of yen
	Net unrealized gains (losses) on investment in securities			Debt valuation adjustments			Defined benefit pension plans			Foreign currency translation adjustments			Net unrealized gains (losses) on derivative instruments			Accumulated other comprehensive income (loss)
Balance at March 31, 2019	¥	17,389		¥	582		¥	(27,902	)	¥	(43,558	)	¥	(7,854	)	¥	(61,343	)

Net unrealized gains (losses) on investment in securities, net of tax of ¥(3,169) million		8,310															8,310
Reclassification adjustment included in net income, net of tax of ¥1,387 million		(3,406	)														(3,406	)
Debt valuation adjustments, net of tax of ¥(86) million					222												222
Reclassification adjustment included in net income, net of tax of ¥7 million					(18	)											(18	)
Defined benefit pension plans, net of tax of ¥(183) million								535									535
Reclassification adjustment included in net income, net of tax of ¥(102) million								251									251
Foreign currency translation adjustments, net of tax of ¥(7,681) million											(39,603	)					(39,603	)
Reclassification adjustment included in net income, net of tax of ¥(710) million											1,558						1,558
Net unrealized gains (losses) on derivative instruments, net of tax of ¥1,580 million														(6,321	)		(6,321	)
Reclassification adjustment included in net income, net of tax of ¥(214) million														593			593

Total other comprehensive income (loss)		4,904			204			786			(38,045	)		(5,728	)		(37,879	)

Less: Other Comprehensive Income (Loss) Attributable to the Noncontrolling Interest		(7	)		0			0			(1,741	)		(71	)		(1,819	)

Less: Other Comprehensive Income (Loss) Attributable to the Redeemable Noncontrolling Interests		0			0			0			(275	)		0			(275	)

Balance at September 30, 2019	¥	22,300		¥	786		¥	(27,116	)	¥	(79,587	)	¥	(13,511	)	¥	(97,128	)

– 103 –


	Six months ended September 30, 2020
	Millions of yen
	Net unrealized gains (losses) on investment in securities			Debt valuation adjustments			Defined benefit pension plans			Foreign currency translation adjustments			Net unrealized gains (losses) on derivative instruments			Accumulated other comprehensive income (loss)
Balance at March 31, 2020	¥	(5,001	)	¥	1,457		¥	(26,375	)	¥	(72,471	)	¥	(16,142	)	¥	(118,532	)

Net unrealized gains (losses) on investment in securities, net of tax of ¥449 million *		1,190															1,190
Reclassification adjustment included in net income, net of tax of ¥(17) million		689															689
Debt valuation adjustments, net of tax of ¥196 million					(508	)											(508	)
Reclassification adjustment included in net income, net of tax of ¥11 million					(26	)											(26	)
Defined benefit pension plans, net of tax of ¥105 million								(259	)								(259	)
Reclassification adjustment included in net income, net of tax of ¥(178) million								384									384
Foreign currency translation adjustments, net of tax of ¥(3,466) million											(10,257	)					(10,257	)
Reclassification adjustment included in net income, net of tax of ¥(679) million											1,508						1,508
Net unrealized gains (losses) on derivative instruments, net of tax of ¥793 million														(2,106	)		(2,106	)
Reclassification adjustment included in net income, net of tax of ¥(473) million														1,586			1,586

Total other comprehensive income (loss)		1,879			(534	)		125			(8,749	)		(520	)		(7,799	)

Less: Other Comprehensive Income (Loss) Attributable to the Noncontrolling Interests		8			0			(2	)		(1,798	)		5			(1,787	)

Less: Other Comprehensive Income (Loss) Attributable to the Redeemable Noncontrolling Interests		0			0			0			(280	)		0			(280	)

Balance at September 30, 2020	¥	(3,130	)	¥	923		¥	(26,248	)	¥	(79,142	)	¥	(16,667	)	¥	(124,264	)

*	There were no net unrealized gains (losses) on investment in securities related to available-for-sale debt securities with allowance for credit losses for the six months ended September 30, 2020.

– 104 –

Changes in each component of accumulated other comprehensive income (loss) attributable to ORIX Corporation Shareholders for the three months ended September 30, 2019 and 2020, are as follows:


	Three months ended September 30, 2019
	Millions of yen
	Net unrealized gains (losses) on investment in securities			Debt valuation adjustments			Defined benefit pension plans			Foreign currency translation adjustments			Net unrealized gains (losses) on derivative instruments			Accumulated other comprehensive income (loss)
Balance at June 30, 2019	¥	22,627		¥	714		¥	(27,563	)	¥	(65,940	)	¥	(11,719	)	¥	(81,881	)

Net unrealized gains (losses) on investment in securities, net of tax of ¥(344) million		797															797
Reclassification adjustment included in net income, net of tax of ¥460 million		(1,128	)														(1,128	)
Debt valuation adjustments, net of tax of ¥(31) million					84												84
Reclassification adjustment included in net income, net of tax of ¥4 million					(12	)											(12	)
Defined benefit pension plans, net of tax of ¥(121) million								338									338
Reclassification adjustment included in net income, net of tax of ¥(51) million								109									109
Foreign currency translation adjustments, net of tax of ¥(1,211) million											(14,885	)					(14,885	)
Reclassification adjustment included in net income, net of tax of ¥(355) million											780						780
Net unrealized gains (losses) on derivative instruments, net of tax of ¥317 million														(2,438	)		(2,438	)
Reclassification adjustment included in net income, net of tax of ¥(213) million														589			589

Total other comprehensive income (loss)		(331	)		72			447			(14,105	)		(1,849	)		(15,766	)

Less: Other Comprehensive Income (Loss) Attributable to the Noncontrolling Interest		(4	)		0			0			(470	)		(57	)		(531	)

Less: Other Comprehensive Income Attributable to the Redeemable Noncontrolling Interests		0			0			0			12			0			12

Balance at September 30, 2019	¥	22,300		¥	786		¥	(27,116	)	¥	(79,587	)	¥	(13,511	)	¥	(97,128	)

– 105 –


	Three months ended September 30, 2020
	Millions of yen
	Net unrealized gains (losses) on investment in securities			Debt valuation adjustments			Defined benefit pension plans			Foreign currency translation adjustments			Net unrealized gains (losses) on derivative instruments			Accumulated other comprehensive income (loss)
Balance at June 30, 2020	¥	(6,412	)	¥	1,025		¥	(26,277	)	¥	(73,524	)	¥	(17,516	)	¥	(122,704	)

Net unrealized gains (losses) on investment in securities, net of tax of ¥(1,186) million *		3,591															3,591
Reclassification adjustment included in net income, net of tax of ¥230 million		(306	)														(306	)
Debt valuation adjustments, net of tax of ¥34 million					(90	)											(90	)
Reclassification adjustment included in net income, net of tax of ¥6 million					(12	)											(12	)
Defined benefit pension plans, net of tax of ¥64 million								(164	)								(164	)
Reclassification adjustment included in net income, net of tax of ¥(89) million								192									192
Foreign currency translation adjustments, net of tax of ¥503 million											(7,997	)					(7,997	)
Reclassification adjustment included in net income, net of tax of ¥(234) million											521						521
Net unrealized gains (losses) on derivative instruments, net of tax of ¥270 million														181			181
Reclassification adjustment included in net income, net of tax of ¥(35) million														684			684

Total other comprehensive income (loss)		3,285			(102	)		28			(7,476	)		865			(3,400	)

Less: Other Comprehensive Income (Loss) Attributable to the Noncontrolling Interests		3			0			(1	)		(1,682	)		16			(1,664	)

Less: Other Comprehensive Income (Loss) Attributable to the Redeemable Noncontrolling Interests		0			0			0			(176	)		0			(176	)

Balance at September 30, 2020	¥	(3,130	)	¥	923		¥	(26,248	)	¥	(79,142	)	¥	(16,667	)	¥	(124,264	)

*	There were no net unrealized gains (losses) on investment in securities related to available-for-sale debt securities with allowance for credit losses for the three months ended September 30, 2020.

– 106 –

Amounts reclassified to net income from accumulated other comprehensive income (loss) in the six months ended September 30, 2019 and 2020 are as follows:


	Six months ended September 30, 2019
Details about accumulated other comprehensive income components	Reclassification adjustment included in net income			Consolidated statements of income caption
	Millions of yen			Consolidated statements of income caption
Net unrealized gains (losses) on investment in securities
Sales of debt securities	¥	1,914		Gains on investment securities and dividends
Sales of debt securities		3,555		Life insurance premiums and related investment income
Amortization of debt securities		(379	)	Finance revenues
Amortization of debt securities		(297	)	Life insurance premiums and related investment income

		4,793		Total before income tax
		(1,387	)	Income tax (expense) or benefit

	¥	3,406		Net of tax

Debt valuation adjustments
Fulfillment of policy liabilities and amortization of policy account balances	¥	25		Life insurance costs

		25		Total before income tax
		(7	)	Income tax (expense) or benefit

	¥	18		Net of tax

Defined benefit pension plans
Amortization of prior service credit	¥	481		See Note 17 “Pension Plans”
Amortization of net actuarial loss	¥	(832	)	See Note 17 “Pension Plans”
Amortization of transition obligation		(2	)	See Note 17 “Pension Plans”

		(353	)	Total before income tax
		102		Income tax (expense) or benefit

	¥	(251	)	Net of tax

Foreign currency translation adjustments
Foreign exchange contracts	¥	(2,268	)	Interest expense/Other (income) and expense

		(2,268	)	Total before income tax
		710		Income tax (expense) or benefit

	¥	(1,558	)	Net of tax

Net unrealized gains (losses) on derivative instruments
Interest rate swap agreements	¥	(366	)	Interest expense/Other (income) and expense
Foreign exchange contracts		(148	)	Interest expense
Foreign currency swap agreements		(293	)	Interest expense/Other (income) and expense

		(807	)	Total before income tax
		214		Income tax (expense) or benefit

	¥	(593	)	Net of tax

– 107 –


	Six months ended September 30, 2020
Details about accumulated other comprehensive income components	Reclassification adjustment included in net income			Consolidated statements of income caption
	Millions of yen			Consolidated statements of income caption
Net unrealized gains (losses) on investment in securities
Sales of debt securities	¥	368		Gains on investment securities and dividends
Sales of debt securities		3,921		Life insurance premiums and related investment income
Amortization of debt securities		(1,129	)	Finance revenues
Amortization of debt securities		(627	)	Life insurance premiums and related investment income
Others		(3,239	)	Write-downs of securities and other

		(706	)	Total before income tax
		17		Income tax (expense) or benefit

	¥	(689	)	Net of tax

Debt valuation adjustments
Fulfillment of policy liabilities and amortization of policy account balances	¥	37		Life insurance costs

		37		Total before income tax
		(11	)	Income tax (expense) or benefit

	¥	26		Net of tax

Defined benefit pension plans
Amortization of prior service credit	¥	236		See Note 17 “Pension Plans”
Amortization of net actuarial loss		(797	)	See Note 17 “Pension Plans”
Amortization of transition obligation		(1	)	See Note 17 “Pension Plans”

		(562	)	Total before income tax
		178		Income tax (expense) or benefit

	¥	(384	)	Net of tax

Foreign currency translation adjustments
Foreign exchange contracts	¥	(2,211	)	Gains on sales of subsidiaries and affiliates and liquidation losses, net/Interest expense/Other (income) and expense
Sales or liquidation, other		24		Gains on sales of subsidiaries and affiliates and liquidation losses, net

		(2,187	)	Total before income tax
		679		Income tax (expense) or benefit

	¥	(1,508	)	Net of tax

Net unrealized gains (losses) on derivative instruments
Interest rate swap agreements	¥	(546	)	Interest expense
Foreign exchange contracts		(149	)	Interest expense/Other (income) and expense
Foreign currency swap agreements		(1,364	)	Interest expense/Other (income) and expense

		(2,059	)	Total before income tax
		473		Income tax (expense) or benefit

	¥	(1,586	)	Net of tax

– 108 –

Amounts reclassified to net income from accumulated other comprehensive income (loss) in the three months ended September 30, 2019 and 2020 are as follows:


	Three months ended September 30, 2019
Details about accumulated other comprehensive income components	Reclassification adjustment included in net income			Consolidated statements of income caption
	Millions of yen			Consolidated statements of income caption
Net unrealized gains (losses) on investment in securities
Sales of debt securities	¥	248		Gains on investment securities and dividends
Sales of debt securities		2,084		Life insurance premiums and related investment income
Amortization of debt securities		(509	)	Finance revenues
Amortization of debt securities		(235	)	Life insurance premiums and related investment income

		1,588		Total before income tax
		(460	)	Income tax (expense) or benefit

	¥	1,128		Net of tax

Debt valuation adjustments
Fulfillment of policy liabilities and amortization of policy account balances	¥	16		Life insurance costs

		16		Total before income tax
		(4	)	Income tax (expense) or benefit

	¥	12		Net of tax

Defined benefit pension plans
Amortization of prior service credit	¥	237		See Note 17 “Pension Plans”
Amortization of net actuarial loss		(395	)	See Note 17 “Pension Plans”
Amortization of transition obligation		(2	)	See Note 17 “Pension Plans”

		(160	)	Total before income tax
		51		Income tax (expense) or benefit

	¥	(109	)	Net of tax

Foreign currency translation adjustments
Foreign exchange contracts	¥	(1,135	)	Interest expense/Other (income) and expense

		(1,135	)	Total before income tax
		355		Income tax (expense) or benefit

	¥	(780	)	Net of tax

Net unrealized gains (losses) on derivative instruments
Interest rate swap agreements	¥	(306	)	Interest expense/Other (income) and expense
Foreign exchange contracts		(214	)	Interest expense
Foreign currency swap agreements		(282	)	Interest expense/Other (income) and expense

		(802	)	Total before income tax
		213		Income tax (expense) or benefit

	¥	(589	)	Net of tax

– 109 –


	Three months ended September 30, 2020
Details about accumulated other comprehensive income components	Reclassification adjustment included in net income			Consolidated statements of income caption
	Millions of yen			Consolidated statements of income caption
Net unrealized gains (losses) on investment in securities
Sales of debt securities	¥	1,017		Gains on investment securities and dividends
Sales of debt securities		2,649		Life insurance premiums and related investment income
Amortization of debt securities		(566	)	Finance revenues
Amortization of debt securities		(318	)	Life insurance premiums and related investment income
Others		(2,246	)	Write-downs of securities and other

		536		Total before income tax
		(230	)	Income tax (expense) or benefit

	¥	306		Net of tax

Debt valuation adjustments
Fulfillment of policy liabilities and amortization of policy account balances	¥	18		Life insurance costs

		18		Total before income tax
		(6	)	Income tax (expense) or benefit

	¥	12		Net of tax

Defined benefit pension plans
Amortization of prior service credit	¥	120		See Note 17 “Pension Plans”
Amortization of net actuarial loss		(400	)	See Note 17 “Pension Plans”
Amortization of transition obligation		(1	)	See Note 17 “Pension Plans”

		(281	)	Total before income tax
		89		Income tax (expense) or benefit

	¥	(192	)	Net of tax

Foreign currency translation adjustments
Foreign exchange contracts	¥	(755	)	Interest expense

		(755	)	Total before income tax
		234		Income tax (expense) or benefit

	¥	(521	)	Net of tax

Net unrealized gains (losses) on derivative instruments
Interest rate swap agreements	¥	(287	)	Interest expense
Foreign exchange contracts		(70	)	Interest expense/Other (income) and expense
Foreign currency swap agreements		(362	)	Interest expense/Other (income) and expense

		(719	)	Total before income tax
		35		Income tax (expense) or benefit

	¥	(684	)	Net of tax

– 110 –

15.

ORIX Corporation Shareholders’ Equity

Information about ORIX Corporation Shareholders’ Equity for the six months ended September 30, 2019 and 2020 are as follows:

(1)	Dividend payments


	Six months ended September 30, 2019	Six months ended September 30, 2020
Resolution	The board of directors on May 22, 2019	The board of directors on May 21, 2020
Type of shares	Common stock	Common stock
Total dividends paid	¥58,962 million	¥51,493 million
Dividend per share	46.00	¥41.00
Date of record for dividend	March 31, 2019	March 31, 2020
Effective date for dividend	June 3, 2019	June 18, 2020
Dividend resource	Retained earnings	Retained earnings

Total dividends paid by resolution of the board of directors on May 22, 2019 include ¥83 million of dividends paid to the Board Incentive Plan Trust for the six months ended September 30, 2019. Total dividends paid by resolution of the board of directors on May 21, 2020 include ¥60 million of dividends paid to the Board Incentive Plan Trust for the six months ended September 30, 2020.

(2)	Applicable dividends for which the date of record was in the six months ended September 30, 2019 and 2020, and for which the effective date was after September 30, 2019 and 2020


	Six months ended September 30, 2019	Six months ended September 30, 2020
Resolution	The board of directors on October 28, 2019	The board of directors on November 2, 2020
Type of shares	Common stock	Common stock
Total dividends paid	¥44,862 million	¥43,670 million
Dividend per share	¥35.00	¥35.00
Date of record for dividend	September 30, 2019	September 30, 2020
Effective date for dividend	December 3, 2019	December 9, 2020
Dividend resource	Retained earnings	Retained earnings

Total dividends to be paid by resolution of the board of directors on October 28, 2019 include ¥62 million of dividends to be paid to the Board Incentive Plan Trust for the six months ended September 30, 2019. Total dividends to be paid by resolution of the board of directors on November 2, 2020 include ¥76 million of dividends to be paid to the Board Incentive Plan Trust for the six months ended September 30, 2020.

– 111 –

16.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the six months ended September 30, 2019 and 2020 are as follows:


	Millions of yen
	Six months ended September 30, 2019		Six months ended September 30, 2020
Personnel expenses	¥	125,790	¥	128,129
Selling expenses		35,181		28,613
Administrative expenses		56,672		57,801
Depreciation of office facilities		3,548		4,076

Total	¥	221,191	¥	218,619

Selling, general and administrative expenses for the three months ended September 30, 2019 and 2020 are as follows:


	Millions of yen
	Three months ended September 30, 2019		Three months ended September 30, 2020
Personnel expenses	¥	60,995	¥	64,511
Selling expenses		18,441		14,052
Administrative expenses		28,564		29,565
Depreciation of office facilities		1,783		2,124

Total	¥	109,783	¥	110,252

– 112 –

17.

Pension Plans

The Company and certain subsidiaries have contributory and non-contributory pension plans covering substantially all of their employees. Those contributory funded pension plans include defined benefit pension plans and defined contribution pension plans. Under the plans, employees are entitled to lump-sum payments at the time of termination of their employment or pension payments. Defined benefit pension plans consist of a plan of which the amounts of such payments are determined on the basis of length of service and remuneration at the time of termination and a cash balance plan.

The Company and certain subsidiaries’ funding policy is to contribute annually the amounts actuarially determined. Assets of the plans are invested primarily in debt securities and marketable equity securities.

Net periodic pension cost for the six months ended September 30, 2019 and 2020 consists of the following:


	Millions of yen
	Six months ended September 30, 2019			Six months ended September 30, 2020
Japanese plans:
Service cost	¥	2,877		¥	2,829
Interest cost		287			346
Expected return on plan assets		(1,370	)		(1,213	)
Amortization of prior service credit		(405	)		(89	)
Amortization of net actuarial loss		577			660
Amortization of transition obligation		0			0

Net periodic pension cost	¥	1,966		¥	2,533


	Millions of yen
	Six months ended September 30, 2019			Six months ended September 30, 2020
Overseas plans:
Service cost	¥	1,766		¥	1,626
Interest cost		849			827
Expected return on plan assets		(2,141	)		(1,773	)
Amortization of prior service credit		(76	)		(147	)
Amortization of net actuarial loss		255			137
Amortization of transition obligation		2			1

Net periodic pension cost	¥	655		¥	671

Note:

The components of net periodic pension cost other than the service cost component are included in personnel expenses, which is included in selling, general and administrative expenses in the consolidated statements of income.

– 113 –

Net pension cost of the plans for the three months ended September 30, 2019 and 2020 consists of the following:


	Millions of yen
	Three months ended September 30, 2019			Three months ended September 30, 2020
Japanese plans:
Service cost	¥	1,439		¥	1,409
Interest cost		142			173
Expected return on plan assets		(676	)		(606	)
Amortization of prior service credit		(200	)		(45	)
Amortization of net actuarial loss		288			331
Amortization of transition obligation		0			0

Net periodic pension cost	¥	993		¥	1,262


	Millions of yen
	Three months ended September 30, 2019			Three months ended September 30, 2020
Overseas plans:
Service cost	¥	876		¥	833
Interest cost		415			420
Expected return on plan assets		(1,045	)		(903	)
Amortization of prior service credit		(37	)		(75	)
Amortization of net actuarial loss		107			69
Amortization of transition obligation		2			1

Net periodic pension cost	¥	318		¥	345

Note:

– 114 –

18.

Life Insurance Operations

Life insurance premiums and related investment income for the six and three months ended September 30, 2019 and 2020 consist of the following:


	Millions of yen
	Six months ended September 30, 2019		Six months ended September 30, 2020
Life insurance premiums	¥	167,262	¥	191,000
Life insurance related investment income*		15,206		42,751

	¥	182,468	¥	233,751

*	Life insurance related investment income for the six months ended September 30, 2019 and 2020 include net unrealized holding gains of ¥6,906 million and ¥36,951 million on equity securities held as of September 30, 2019 and 2020, respectively.


	Millions of yen
	Three months ended September 30, 2019		Three months ended September 30, 2020
Life insurance premiums	¥	85,968	¥	101,349
Life insurance related investment income*		8,810		16,279

	¥	94,778	¥	117,628

*	Life insurance related investment income for the three months ended September 30, 2019 and 2020 include net unrealized holding gains of ¥5,336 million and ¥12,432 million on equity securities held as of September 30, 2019 and 2020, respectively.

Life insurance premiums include reinsurance benefits, net of reinsurance premiums. For the six and three months ended September 30, 2019 and 2020, reinsurance benefits and reinsurance premiums included in life insurance premiums are as follows:


	Millions of yen
	Six months ended September 30, 2019			Six months ended September 30, 2020
Reinsurance benefits	¥	1,175		¥	1,163
Reinsurance premiums		(2,651	)		(2,526	)

	Millions of yen
	Three months ended September 30, 2019			Three months ended September 30, 2020
Reinsurance benefits	¥	602		¥	333
Reinsurance premiums		(1,258	)		(1,170	)

The benefits and expenses of life insurance operations included in life insurance costs in the consolidated statements of income are recognized so as to associate with earned premiums over the life of contracts. This association is accomplished by means of the provision for future policy benefits and the deferral and subsequent amortization of policy acquisition costs (principally commissions and certain other expenses directly relating to policy issuance and underwriting). Amortization charged to income for the six months ended September 30, 2019 and 2020 amounted to ¥9,132 million and ¥9,918 million, respectively. In addition, amortization charged to income for the three months ended September 30, 2019 and 2020 amounted to ¥4,667 million and ¥5,461 million, respectively.

Life insurance premiums and related investment income include net realized and unrealized gains or losses from investment assets under management on behalf of variable annuity and variable life policyholders, and net gains or losses from derivative contracts, which consist of gains or losses from futures, foreign exchange contracts and options held, entered to economically hedge a portion of the minimum guarantee risk relating to variable annuity and variable life insurance contracts. In addition, the fair value option was elected for the entire variable annuity and variable life insurance contracts to offset earnings recognized for gains or losses from the investment assets managed on behalf of variable annuity and variable life policyholders, derivative contracts and the changes in the fair value of reinsurance contracts. Life insurance costs include the net amount of the changes in fair value of the variable annuity and variable life insurance contracts for which the fair value option was elected and insurance costs recognized for insurance and annuity payouts as a result of insured events. Certain subsidiaries have elected the fair value option for certain reinsurance contracts to partially offset the changes in fair value recognized in earnings of the policy liabilities and policy account balances attributable to the changes in the minimum guarantee risks of the variable annuity and variable life insurance contracts, and the changes in the fair value of the reinsurance contracts were recorded in life insurance costs.

– 115 –

The portion of the total change in the fair value of variable annuity and variable life insurance contracts that results from a change in the instrument-specific credit risk is recognized in other comprehensive income (loss), net of applicable income taxes.

The above mentioned gains or losses relating to variable annuity and variable life insurance contracts for the six and three months ended September 30, 2019 and 2020 are mainly as follows:


	Millions of yen
	Six months ended September 30, 2019			Six months ended September 30, 2020
Life insurance premiums and related investment income :
Net realized and unrealized gains or losses from investment assets	¥	7,301		¥	39,900
Net gains or losses from derivative contracts :		(824	)		(6,010	)
Futures		(1,008	)		(5,460	)
Foreign exchange contracts		279			39
Options held		(95	)		(589	)

Life insurance costs :
Changes in the fair value of the policy liabilities and policy account balances	¥	(23,075	)	¥	(4,670	)
Insurance costs recognized for insurance and annuity payouts as a result of insured events		25,114			22,111
Changes in the fair value of the reinsurance contracts		1,067			9,144

	Millions of yen
	Three months ended September 30, 2019			Three months ended September 30, 2020
Life insurance premiums and related investment income :
Net realized and unrealized gains or losses from investment assets	¥	5,375		¥	12,984
Net gains or losses from derivative contracts :		(1,251	)		(1,544	)
Futures		(1,253	)		(1,499	)
Foreign exchange contracts		49			16
Options held		(47	)		(61	)

Life insurance costs :
Changes in the fair value of the policy liabilities and policy account balances	¥	(10,234	)	¥	(5,533	)
Insurance costs recognized for insurance and annuity payouts as a result of insured events		12,586			12,883
Changes in the fair value of the reinsurance contracts		534			1,792

– 116 –

19.

Write-Downs of Long-Lived Assets

The Company and its subsidiaries perform tests for recoverability on long-lived assets classified as held and used for which events or changes in circumstances indicated that the assets might be impaired. The Company and its subsidiaries consider an asset’s carrying amount as not recoverable when such carrying amount exceeds the undiscounted future cash flows estimated to result from the use and eventual disposition of the asset. The net carrying amount of assets not recoverable is reduced to fair value if lower than the carrying amount.

As of March 31, 2020 and September 30, 2020, the long-lived assets and liabilities associated with those assets classified as held for sale in the accompanying consolidated balance sheets are as follows.


	Millions of yen
	As of March 31, 2020		As of September 30, 2020
Investment in operating leases	¥	5,208	¥	1,078
Property under facility operations		436		668
Other liabilities		0		78

The long-lived assets classified as held for sale as of March 31, 2020 are included in Real Estate and Environment and Energy. The long-lived assets classified as held for sale as of September 30, 2020 are included in Real Estate and Environment and Energy.

The Company and its subsidiaries determine the fair value using appraisals prepared by independent third party appraisers or our own staff of qualified appraisers, based on recent transactions involving sales of similar assets or other valuation techniques such as discounted cash flows methodologies using future cash flows estimated to be generated from operation of the existing assets or completion of development projects, as appropriate.

For the six months ended September 30, 2019 and 2020, the Company and its subsidiaries recognized impairment losses for the difference between carrying amounts and fair values in the amount of ¥36 million and ¥583 million, respectively, which are reflected as write-downs of long-lived assets. Breakdowns of these amounts are as follows.


	Six months ended September 30, 2019				Six months ended September 30, 2020
	Amount (Millions of yen)		The number of properties		Amount (Millions of yen)		The number of properties
Write-downs due to decline in estimated future cash flows:
Commercial facilities other than office buildings	¥	20		1	¥	0		0
Condominiums		0		0		64		2
Land undeveloped or under construction		0		0		17		1
Others*		16		—		502		—

Total	¥	36		—	¥	583		—

*	For “Others,” the number of properties is omitted. In addition, write-downs of other long-lived assets for the six months ended

September 30, 2020, include a write-down of ¥433 million of two hotels.

Losses of ¥20 million in Real Estate and ¥16 million in Asia and Australia were recorded for the six months ended September 30, 2019. Losses of ¥433 million in Real Estate, ¥17 million in Environment and Energy, ¥60 million in ORIX USA and ¥73 million in Asia and Australia were recorded for the six months ended September 30, 2020.

– 117 –

For the three months ended September 30, 2019 and 2020, the Company and its subsidiaries recognized impairment losses for the difference between carrying amounts and fair values in the amount of ¥16 million and ¥326 million, respectively, which are reflected as write-downs of long-lived assets. Breakdowns of these amounts are as follows.


	Three months ended September 30, 2019				Three months ended September 30, 2020
	Amount (Millions of yen)		The number of properties		Amount (Millions of yen)		The number of properties
Write-downs due to decline in estimated future cash flows:
Condominiums	¥	0		0	¥	26		1
Land undeveloped or under construction		0		0		17		1
Others*		16		—		283		—

Total	¥	16		—	¥	326		—

*	For “Others,” the number of properties is omitted. In addition, write-downs of other long-lived assets for the three months ended

September 30, 2020, include a write-down of ¥280 million of one hotel.

A loss of ¥16 million in Asia and Australia was recorded for the three months ended September 30, 2019. Losses of ¥280 million in Real Estate, ¥17 million in Environment and Energy, and ¥29 million in Asia and Australia were recorded for the three months ended September 30, 2020.

Since April 1, 2020, the reportable segments have been reorganized. As a result of this change, the segment data of the previous fiscal year has been retrospectively restated.

– 118 –

20.

Per Share Data

Reconciliation of the differences between basic and diluted earnings per share (EPS) in the six and three months ended September 30, 2019 and 2020 is as follows:

During the six and three months ended September 30, 2019 and 2020, there was no stock compensation which was antidilutive.


	Millions of yen
	Six months ended September 30, 2019		Six months ended September 30, 2020
Net Income attributable to ORIX Corporation shareholders	¥	159,150	¥	93,842


	Millions of yen
	Three months ended September 30, 2019		Three months ended September 30, 2020
Net Income attributable to ORIX Corporation shareholders	¥	89,940	¥	43,794


	Thousands of Shares
	Six months ended September 30, 2019		Six months ended September 30, 2020
Weighted-average shares		1,279,965		1,247,495
Effect of dilutive securities —
Stock compensation		1,040		1,006

Weighted-average shares for diluted EPS computation		1,281,005		1,248,501


	Thousands of Shares
	Three months ended September 30, 2019		Three months ended September 30, 2020
Weighted-average shares		1,279,968		1,245,927
Effect of dilutive securities —
Stock compensation		1,069		1,126

Weighted-average shares for diluted EPS computation		1,281,037		1,247,053


	Yen
	Six months ended September 30, 2019		Six months ended September 30, 2020
Earnings per share for net income attributable to ORIX Corporation shareholders:
Basic	¥	124.34	¥	75.22
Diluted		124.24		75.16

	Yen
	Three months ended September 30, 2019		Three months ended September 30, 2020
Earnings per share for net income attributable to ORIX Corporation shareholders:
Basic	¥	70.27	¥	35.15
Diluted		70.21		35.12


Note:		The Company’s shares held through the Board Incentive Plan Trust are included in the number of treasury stock to be deducted in calculation of the weighted-average shares for EPS computation. (1,820,136 and 1,659,728 shares for the six months ended September 30, 2019 and 2020, 1,817,243 and 1,796,903 shares for the three months ended September 30, 2019 and 2020)

– 119 –

21.

Derivative Financial Instruments and Hedging

Risk management policy

The Company and its subsidiaries manage interest rate risk through asset-liability management (“ALM”). The Company and its subsidiaries use derivative financial instruments to hedge interest rate risk and avoid changes in interest rates that could have a significant adverse effect on the Company’s results of operations. As a result of interest rate changes, the fair value and/or cash flow of interest sensitive assets and liabilities will fluctuate. However, such fluctuations will generally be offset by using derivative financial instruments as hedging instruments. Derivative financial instruments that the Company and its subsidiaries use as part of the interest risk management include interest rate swaps.

The Company and its subsidiaries utilize foreign currency borrowings, foreign exchange contracts and foreign currency swap agreements to hedge exchange rate risk that are associated with certain transactions and investments denominated in foreign currencies. Similarly, overseas subsidiaries generally structure their liabilities to match the currency-denomination of assets in each region. A certain subsidiary holds option agreements, futures and foreign exchange contracts for the purpose of economic hedges against minimum guarantee risk of variable annuity and variable life insurance contracts.

By using derivative instruments, the Company and its subsidiaries are exposed to credit risk in the event of non-performance by counterparties. The Company and its subsidiaries attempt to manage the credit risk by carefully evaluating the content of transactions and the quality of counterparties in advance and regularly monitoring the amount of notional principal, fair value, type of transaction and other factors pertaining to each counterparty.

The Company and its subsidiaries have no derivative instruments with credit-risk-related contingent features as of March 31, 2020 and September 30, 2020.

(a) Cash flow hedges

The Company and its subsidiaries designate interest rate swap agreements, foreign currency swap agreements and foreign exchange contracts as cash flow hedges for variability of cash flows originating from floating rate borrowings and forecasted transactions and for exchange fluctuations.

(b) Fair value hedges

The Company and its subsidiaries use financial instruments designated as fair value hedges to hedge their exposure to interest rate risk and foreign currency exchange risk. The Company and its subsidiaries designate foreign exchange contracts to minimize foreign currency exposures on bonds in foreign currencies. The Company and certain overseas subsidiaries use interest rate swap agreements to hedge interest rate exposure of the fair values of National government bonds in foreign currencies.

(c) Hedges of net investment in foreign operations

The Company uses foreign exchange contracts and borrowings and bonds denominated in foreign currencies to hedge the foreign currency exposure of the net investment in overseas subsidiaries.

(d) Derivatives not designated as hedging instruments

The Company and its subsidiaries entered into interest rate swap agreements, futures and foreign exchange contracts for risk management purposes which are not qualified for hedge accounting. A certain subsidiary holds option agreements, futures and foreign exchange contracts for the purpose of economic hedges against minimum guarantee risk of variable annuity and variable life insurance contracts.

– 120 –

The effect of derivative instruments on the consolidated statements of income, pre-tax, for the six months ended September 30, 2019 is as follows.

(1) Cash flow hedges


	Millions of yen
	Gains (losses) recognized in other comprehensive income on derivative			Gains (losses) reclassified from other comprehensive income (loss) into income
				Interest expense		Other (income) and expense
Interest rate swap agreements	¥	(7,091	)	¥	366	¥	(0	)
Foreign exchange contracts		(114	)		148		0
Foreign currency swap agreements		(696	)		285		8

(2) Fair value hedges


	Millions of yen
	Gains (losses) recognized in income on derivative and other					Gains (losses) recognized in income on hedged item
	Life insurance premiums and related investment income			Other (income) and expense		Life insurance premiums and related investment income			Other (income) and expense
Interest rate swap agreements	¥	(9,140	)	¥	0	¥	8,730		¥	0
Foreign exchange contracts		2,106			26		(2,280	)		(30	)

(3) Hedges of net investment in foreign operations


	Millions of yen
	Gains (losses) recognized in other comprehensive income on derivative and others		Gains (losses) reclassified from other comprehensive income (loss) into income (Millions of yen)
			Interest expense		Other (income) and expense
Foreign exchange contracts	¥	16,704	¥	2,254	¥	14
Borrowings and bonds in foreign currencies		18,819		0		0

(4) Derivatives not designated as hedging instruments


	Millions of yen
	Gains (losses) recognized in income on derivative (Millions of yen)
	Life insurance premiums and related investment income*			Interest expense		Other (income) and expense
Interest rate swap agreements	¥	0		¥	3	¥	132
Futures		(1,008	)		0		607
Foreign exchange contracts		514			2,516		(4,523	)
Credit derivatives held		0			0		(16	)
Options held/written and other		(95	)		0		(126	)

Futures, foreign exchange contracts and options held/written and other in the above table include gains (losses) arising from futures, foreign exchange contracts and options held to economically hedge the minimum guarantee risk of variable annuity and variable life insurance contracts for the six months ended September 30, 2019 (see Note 18 “Life Insurance Operations”).

– 121 –

The effect of derivative instruments on the consolidated statements of income, pre-tax, for the six months ended September 30, 2020 is as follows.

(1) Cash flow hedges


	Millions of yen
	Gains (losses) recognized in other comprehensive income on derivative			Gains (losses) reclassified from other comprehensive income (loss) into income
				Interest expense		Other (income) and expense
Interest rate swap agreements	¥	(642	)	¥	546	¥	0
Foreign exchange contracts		(79	)		255		(106	)
Foreign currency swap agreements		(2,178	)		283		1,081

(2) Fair value hedges


	Millions of yen
	Gains (losses) recognized in income on derivative and other				Gains (losses) recognized in income on hedged item
	Life insurance premiums and related investment income		Other (income) and expense		Life insurance premiums and related investment income			Other (income) and expense
Interest rate swap agreements	¥	1,108	¥	0	¥	(910	)	¥	0
Foreign exchange contracts		3,492		220		(4,068	)		(208	)

(3) Hedges of net investment in foreign operations


	Millions of yen
	Gains (losses) recognized in other comprehensive income on derivative and others			Gains (losses) reclassified from other comprehensive income (loss) into income (Millions of yen)
				Gains on sales of subsidiaries and affiliates and liquidation losses, net			Interest expense		Other (income) and expense
Foreign exchange contracts	¥	(8,009	)	¥	(154	)	¥	2,036	¥	21
Borrowings and bonds in foreign currencies		12,815			0			0		0

(4) Derivatives not designated as hedging instruments


	Millions of yen
	Gains (losses) recognized in income on derivative (Millions of yen)
	Life insurance premiums and related investment income*			Interest expense		Other (income) and expense
Interest rate swap agreements	¥	0		¥	3	¥	4
Futures		(5,460	)		0		3,799
Foreign exchange contracts		96			1,512		1,392
Options held/written and other		(589	)		0		(318	)

– 122 –

The effect of derivative instruments on the consolidated statements of income, pre-tax, for the three months ended September 30, 2019 is as follows.

(1) Cash flow hedges


	Millions of yen
	Gains (losses) recognized in other comprehensive income on derivative			Gains (losses) reclassified from other comprehensive income (loss) into income
				Interest expense		Other (income) and expense
Interest rate swap agreements	¥	(4,158	)	¥	306	¥	(0	)
Foreign exchange contracts		(346	)		214		0
Foreign currency swap agreements		1,749			283		(1	)

(2) Fair value hedges


	Millions of yen
	Gains (losses) recognized in income on derivative and other						Gains (losses) recognized in income on hedged item
	Life insurance premiums and related investment income			Other (income) and expense			Life insurance premiums and related investment income			Other (income) and expense
Interest rate swap agreements	¥	(3,925	)	¥	0		¥	3,662		¥	0
Foreign exchange contracts		509			(20	)		(585	)		20

(3) Hedges of net investment in foreign operations


	Millions of yen
	Gains (losses) recognized in other comprehensive income on derivative and others		Gains (losses) reclassified from other comprehensive income (loss) into income (Millions of yen)
			Interest expense		Other (income) and expense
Foreign exchange contracts	¥	14,390	¥	1,128	¥	7
Borrowings and bonds in foreign currencies		1,663		0		0

(4) Derivatives not designated as hedging instruments


	Millions of yen
	Gains (losses) recognized in income on derivative (Millions of yen)
	Life insurance premiums and related investment income *			Interest expense		Other (income) and expense
Interest rate swap agreements	¥	0		¥	1	¥	70
Futures		(1,253	)		0		(117	)
Foreign exchange contracts		13			1,178		2,118
Credit derivatives held		0			0		(9	)
Options held/written and other		(47	)		0		(611	)

Futures, foreign exchange contracts and options held/written and other in the above table include gains (losses) arising from futures, foreign exchange contracts and options held to economically hedge the minimum guarantee risk of variable annuity and variable life insurance contracts for the three months ended September 30, 2019 (see Note 18 “Life Insurance Operations”).

– 123 –

The effect of derivative instruments on the consolidated statements of income, pre-tax, for the three months ended September 30, 2020 is as follows.

(1) Cash flow hedges


	Millions of yen
	Gains (losses) recognized in other comprehensive income on derivative			Gains (losses) reclassified from other comprehensive income (loss) into income
				Interest expense		Other (income) and expense
Interest rate swap agreements	¥	702		¥	287	¥	0
Foreign exchange contracts		(39	)		201		(131	)
Foreign currency swap agreements		(752	)		177		185

(2) Fair value hedges


	Millions of yen
	Gains (losses) recognized in income on derivative and other				Gains (losses) recognized in income on hedged item
	Life insurance premiums and related investment income		Other (income) and expense		Life insurance premiums and related investment income			Other (income) and expense
Interest rate swap agreements	¥	1,776	¥	0	¥	(1,792	)	¥	0
Foreign exchange contracts		1,816		129		(2,392	)		(126	)

(3) Hedges of net investment in foreign operations


	Millions of yen
	Gains (losses) recognized in other comprehensive income on derivative and others			Gains (losses) reclassified from other comprehensive income (loss) into income (Millions of yen)
				Gains on sales of subsidiaries and affiliates and liquidation losses, net		Interest expense		Other (income) and expense
Foreign exchange contracts	¥	(4,384	)	¥	0	¥	755	¥	0
Borrowings and bonds in foreign currencies		7,556			0		0		0

(4) Derivatives not designated as hedging instruments


	Millions of yen
	Gains (losses) recognized in income on derivative (Millions of yen)
	Life insurance premiums and related investment income *			Interest expense		Other (income) and expense
Interest rate swap agreements	¥	0		¥	1	¥	(1	)
Futures		(1,499	)		0		1,101
Foreign exchange contracts		61			527		(1,857	)
Options held/written and other		(61	)		0		1,535

Futures, foreign exchange contracts and options held/written and other in the above table include gains (losses) arising from futures, foreign exchange contracts and options held to economically hedge the minimum guarantee risk of variable annuity and variable life insurance contracts for the three months ended September 30, 2020 (see Note 18 “Life Insurance Operations”).

– 124 –

The effect of the components excluded from the assessment of hedge effectiveness on the consolidated statements of income, pre-tax, for the six months ended September 30, 2019 is as follows.

Fair value hedges


	Millions of yen
	Gains (losses) recognized in income
	Life insurance premiums and related investment income
Foreign exchange contracts	¥	(420	)

The effect of the components excluded from the assessment of hedge effectiveness on the consolidated statements of income, pre-tax, for the three months ended September 30, 2019 is as follows.

Fair value hedges


	Millions of yen
	Gains (losses) reclassified from other comprehensive income (loss) into income
	Life insurance premiums and related investment income
Foreign exchange contracts	¥	(999	)

The carrying amount of hedged assets and liabilities recognized in balance sheets in fair value hedges and the cumulative amount of fair value hedging adjustments included in the carrying amount at March 31, 2020 is as follows.


Assets as hedged items in fair value hedges					Liabilities as hedged items in fair value hedges
	Millions of yen						Millions of yen
Consolidated balance sheets location	Carrying amount		The cumulative amount of fair value hedging adjustments included in the carrying amount		Consolidated balance sheets location		Carrying amount		The cumulative amount of fair value hedging adjustments included in the carrying amount
Investment in Securities *	¥	320,344	¥	24,397		—	¥	0	¥	0

*	Accumulated fair value hedge adjustments of ¥(1,599) million are included for hedged items for which hedge accounting has been discontinued.

– 125 –

The effect of the components excluded from the assessment of hedge effectiveness on the consolidated statements of income, pre-tax, for the six months ended September 30, 2020 is as follows.

Fair value hedges


	Millions of yen
	Gains (losses) recognized in income
	Life insurance premiums and related investment income			Interest expense		Other (income) and expense
Foreign exchange contracts	¥	(922	)	¥	5	¥	0
Options held/written and other		0			0		16

The effect of the components excluded from the assessment of hedge effectiveness on the consolidated statements of income, pre-tax, for the three months ended September 30, 2020 is as follows.

Fair value hedges


	Millions of yen
	Gains (losses) recognized in income
	Life insurance premiums and related investment income			Interest expense		Other (income) and expense
Foreign exchange contracts	¥	(185	)	¥	3	¥	0
Options held/written and other		0			0		8


Assets as hedged items in fair value hedges					Liabilities as hedged items in fair value hedges
	Millions of yen						Millions of yen
Consolidated balance sheets location	Carrying amount		The cumulative amount of fair value hedging adjustments included in the carrying amount		Consolidated balance sheets location		Carrying amount		The cumulative amount of fair value hedging adjustments included in the carrying amount
Investment in Securities	¥	285,298	¥	25,254		—	¥	0	¥	0

– 126 –

Notional amounts of derivative instruments and other, fair values of derivative instruments and other before offsetting at March 31, 2020 and September 30, 2020 are as follows.

March 31, 2020


			Derivative assets			Derivative liabilities
	Notional amount		Fair value		Consolidated balance sheets location	Fair value		Consolidated balance sheets location
	Millions of yen		Millions of yen			Millions of yen
Derivatives designated as hedging instruments and other:

Interest rate swap agreements	¥	494,893	¥	0	—	¥	43,889	Other Liabilities

Options held/written and other		742		28	Other Assets		0	—

Futures, foreign exchange contracts		623,172		7,555	Other Assets		4,365	Other Liabilities

Foreign currency swap agreements		68,840		5,079	Other Assets		137	Other Liabilities

Foreign currency long-term debt		612,536		0	—		0	—

Derivatives not designated as hedging instruments:

Interest rate swap agreements	¥	7,644	¥	0	—	¥	113	Other Liabilities

Options held/written and other *		670,044		21,318	Other Assets		20,004	Other Liabilities

Futures, foreign exchange contracts *		372,948		5,710	Other Assets		5,141	Other Liabilities

The notional amounts of options held/written and other and futures, foreign exchange contracts in the above table include options held of ¥16,754 million, futures contracts of ¥35,875 million and foreign exchange contracts of ¥16,656 million to economically hedge the minimum guarantee risk of variable annuity and variable life insurance contracts at March 31, 2020, respectively. Derivative assets in the above table include fair value of the options held, futures contracts and foreign exchange contracts before offsetting of ¥598 million, ¥165 million and ¥111 million and derivative liabilities include fair value of the futures and foreign exchange contracts before offsetting of ¥1,564 million and ¥178 million at March 31, 2020, respectively.

– 127 –

September 30, 2020


			Derivative assets			Derivative liabilities
	Notional amount		Fair value		Consolidated balance sheets location	Fair value		Consolidated balance sheets location
	Millions of yen		Millions of yen			Millions of yen
Derivatives designated as hedging instruments and other:

Interest rate swap agreements	¥	461,948	¥	0	—	¥	40,388	Other Liabilities

Options held/written and other		721		7	Other Assets		0	—

Futures, foreign exchange contracts		549,745		2,140	Other Assets		4,575	Other Liabilities

Foreign currency swap agreements		69,861		1,596	Other Assets		368	Other Liabilities

Foreign currency long-term debt		509,322		0	—		0	—

Derivatives not designated as hedging instruments:

Interest rate swap agreements	¥	7,404	¥	0	—	¥	103	Other Liabilities

Options held/written and other *		805,984		22,577	Other Assets		22,380	Other Liabilities

Futures, foreign exchange contracts *		347,101		2,154	Other Assets		1,382	Other Liabilities

The notional amounts of options held/written and other and futures, foreign exchange contracts in the above table include options held of ¥7,896 million, futures contracts of ¥27,354 million and foreign exchange contracts of ¥8,938 million to economically hedge the minimum guarantee risk of variable annuity and variable life insurance contracts at September 30, 2020, respectively. Derivative assets in the above table include fair value of the options held, futures contracts and foreign exchange contracts before offsetting of ¥9 million, ¥27 million and ¥36 million and derivative liabilities include fair value of the options written, futures and foreign exchange contracts before offsetting of ¥43 million, ¥357 million and ¥22 million at September 30, 2020, respectively.

– 128 –

22.

Offsetting Assets and Liabilities

The gross amounts recognized, gross amounts offset, and net amounts presented in the consolidated balance sheets regarding derivative assets and liabilities as of March 31, 2020 and September 30, 2020 are as follows.

March 31, 2020


	Millions of yen
	Gross amounts recognized		Gross amounts offset in the consolidated balance sheets			Net amounts presented in the consolidated balance sheets		Gross amounts not offset in the consolidated balance sheets *						Net amount
	Gross amounts recognized							Financial instruments			Collateral received/pledged			Net amount
Derivative assets	¥	39,690	¥	(9,152	)	¥	30,538	¥	(598	)	¥	(843	)	¥	29,097

Total assets	¥	39,690	¥	(9,152	)	¥	30,538	¥	(598	)	¥	(843	)	¥	29,097

Derivative liabilities	¥	73,649	¥	(9,152	)	¥	64,497	¥	(25,997	)	¥	0		¥	38,500

Total liabilities	¥	73,649	¥	(9,152	)	¥	64,497	¥	(25,997	)	¥	0		¥	38,500

September 30, 2020


	Millions of yen
	Gross amounts recognized		Gross amounts offset in the consolidated balance sheets			Net amounts presented in the consolidated balance sheets		Gross amounts not offset in the consolidated balance sheets *						Net amount
	Gross amounts recognized							Financial instruments			Collateral received/pledged			Net amount
Derivative assets	¥	28,474	¥	(1,775	)	¥	26,699	¥	(9	)	¥	0		¥	26,690

Total assets	¥	28,474	¥	(1,775	)	¥	26,699	¥	(9	)	¥	0		¥	26,690

Derivative liabilities	¥	69,196	¥	(1,775	)	¥	67,421	¥	(22,236	)	¥	(81	)	¥	45,104

Total liabilities	¥	69,196	¥	(1,775	)	¥	67,421	¥	(22,236	)	¥	(81	)	¥	45,104

*	The balances related to enforceable master netting agreements or similar agreements which were not offset in the consolidated balance sheets.

– 129 –

23.

Estimated Fair Value of Financial Instruments

The following information is provided to help readers gain an understanding of the relationship between carrying amounts of financial instruments reported in the Company’s consolidated balance sheets and the related market or fair value. The disclosures do not include net investment in leases, investment in affiliates, pension obligations and insurance contracts and reinsurance contracts except for those classified as investment contracts.

March 31, 2020


	Millions of yen
	Carrying amount		Estimated fair value		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	¥	982,666	¥	982,666	¥	982,666	¥	0	¥	0
Restricted cash		152,618		152,618		152,618		0		0
Installment loans (net of allowance for probable loan losses)		3,695,342		3,653,042		0		207,950		3,445,092
Equity securities*1		375,174		375,174		58,400		232,873		83,901
Trading debt securities		7,431		7,431		0		7,431		0
Available-for-sale debt securities		1,631,185		1,631,185		21,490		1,521,342		88,353
Held-to-maturity debt securities		113,805		143,189		0		118,472		24,717
Other Assets:
Time deposits		5,918		5,918		0		5,918		0
Derivative assets*2		30,538		30,538		0		0		0
Reinsurance recoverables (Investment contracts)		8,625		8,298		0		0		8,298
Liabilities:
Short-term debt	¥	336,832	¥	336,832	¥	0	¥	336,832	¥	0
Deposits		2,086,765		2,088,513		0		2,088,513		0
Policy liabilities and Policy account balances (Investment contracts)		213,885		214,048		0		0		214,048
Long-term debt		4,279,354		4,291,697		0		1,247,587		3,044,110
Other Liabilities:
Derivative liabilities*2		64,497		64,497		0		0		0

*1	The amount of ¥11,631 million of investment funds measured at net asset value per share is not included.

*2	It represents the amount after offset under counterparty netting of derivative assets and liabilities. For the information of input level before netting, see Note 3 “Fair Value Measurements.”

– 130 –

September 30, 2020


	Millions of yen
	Carrying amount		Estimated fair value		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	¥	1,182,557	¥	1,182,557	¥	1,182,557	¥	0	¥	0
Restricted cash		124,749		124,749		124,749		0		0
Installment loans (net of allowance for credit losses)		3,664,568		3,683,391		0		260,217		3,423,174
Equity securities*1		395,653		395,653		73,254		245,735		76,664
Trading debt securities		5,464		5,464		0		5,464		0
Available-for-sale debt securities		1,719,604		1,719,604		3,966		1,614,346		101,292
Held-to-maturity debt securities		113,566		141,475		0		117,510		23,965
Other Assets:
Time deposits		4,477		4,477		0		4,477		0
Derivative assets*2		26,699		26,699		0		0		0
Reinsurance recoverables (Investment contracts)		7,904		8,078		0		0		8,078
Liabilities:
Short-term debt	¥	361,525	¥	361,525	¥	0	¥	361,525	¥	0
Deposits		2,181,722		2,183,181		0		2,183,181		0
Policy liabilities and Policy account balances (Investment contracts)		207,272		207,401		0		0		207,401
Long-term debt		4,263,461		4,293,466		0		828,120		3,465,346
Other Liabilities:
Derivative liabilities*2		67,421		67,421		0		0		0

*1	The amount of ¥10,919 million of investment funds measured at net asset value per share is not included.

*2	It represents the amount after offset under counterparty netting of derivative assets and liabilities. For the information of input level before netting, see Note 3 “Fair Value Measurements.”

Input level of fair value measurement

If active market prices are available, fair value measurement is based on quoted active market prices and classified as Level 1. If active market prices are not available, fair value measurement is based on observable inputs other than quoted prices included within Level 1 such as quoted market prices of similar assets and classified as Level 2. If market prices are not available and there are no observable inputs, then fair value is estimated by using valuation models including discounted cash flow methodologies, commonly used option-pricing models and broker quotes and classified as Level 3, as the valuation models and broker quotes are based on inputs that are unobservable in the market.

– 131 –

24.

Commitments, Guarantees and Contingent Liabilities

Commitments—The Company and certain subsidiaries have commitments for the purchase of equipment to be leased, having a cost of ¥3,027 million and ¥8,318 million as of March 31, 2020 and September 30, 2020, respectively.

Certain computer systems of the Company and certain subsidiaries have been operated and maintained under non-cancelable contracts with third-party service providers. For such services, the Company and certain subsidiaries made payments totaling ¥3,514 million and ¥3,134 million for the six months ended September 30, 2019 and 2020, respectively, and ¥1,780 million and ¥1,517 million for the three months ended September 30, 2019 and 2020, respectively. As of March 31, 2020 and September 30, 2020, the amounts due are as follows:


	Millions of yen
	March 31, 2020		September 30, 2020
Within one year	¥	3,183	¥	3,576
More than one year		2,728		3,338

Total	¥	5,911	¥	6,914

The Company and certain subsidiaries have commitments to fund estimated construction costs and so forth to complete ongoing real estate development projects and other commitments, totaling ¥78,509 million and ¥67,848 million as of March 31, 2020 and September 30, 2020, respectively.

The Company and certain subsidiaries have agreements to commit to execute loans for customers, and to invest in funds, as long as the agreed-upon terms are met. The total unused credit and capital amount available are ¥377,870 million and ¥378,996 million as of March 31, 2020 and September 30, 2020, respectively.

– 132 –

Guarantees—At the inception of a guarantee, the Company and its subsidiaries recognize a liability in the consolidated balance sheets at fair value for the guarantee within the scope of ASC460 (“Guarantees”). The following table represents the summary of potential future payments, book value recorded as guarantee liabilities of the guarantee contracts outstanding and maturity of the longest guarantee contracts as of March 31, 2020 and September 30, 2020:


	March 31, 2020						September 30, 2020
	Millions of yen				Fiscal year		Millions of yen				Fiscal year
Guarantees	Potential future payment		Book value of guarantee liabilities		Maturity of the longest contract		Potential future payment		Book value of guarantee liabilities		Maturity of the longest contract
Corporate loans	¥	490,839	¥	6,065		2026	¥	480,865	¥	4,846		2027
Transferred loans		355,452		2,371		2060		518,582		4,658		2061
Consumer loans		341,466		41,019		2031		307,407		54,732		2031
Real estate loans		29,235		4,422		2048		11,491		4,288		2048
Other		130		0		2024		524		394		2030

Total	¥	1,217,122	¥	53,877		—	¥	1,318,869	¥	68,918		—

Guarantee of corporate loans: The Company and certain subsidiaries mainly guarantee corporate loans issued by financial institutions for customers. The Company and the subsidiaries are obliged to pay the outstanding loans when the guaranteed customers fail to pay principal and/or interest in accordance with the contract terms. In some cases, the corporate loans are secured by the guaranteed customers’ assets. Once the Company and the subsidiaries assume the guaranteed customers’ obligation, the Company and the subsidiaries obtain a right to claim the collateral assets. In other cases, certain contracts that guarantee corporate loans issued by financial institutions for customers include contracts that the amounts of performance guarantee are limited to a certain range of guarantee commissions. As of March 31, 2020 and September 30, 2020, total notional amount of the loans subject to such guarantees are ¥715,000 million and ¥715,000 million, respectively, and book value of guarantee liabilities are ¥2,498 million and ¥1,922 million, respectively. The potential future payment amounts for these guarantees are limited to a certain range of the guarantee commissions, which are less than the total notional amounts of the loans subject to these guarantees. The potential future payment amounts for the contract period are calculated from the guarantee limit which is arranged by financial institutions in advance as to contracts that the amounts of performance guarantee are unlimited to a certain range of guarantee commissions. For this reason, the potential future payment amounts for these guarantees include the amount of the guarantee which may occur in the future, which is larger than the balance of guarantee executed as of the end of fiscal year or the end of interim period. The executed guarantee balance includes defrayment by financial institutions which we bear temporarily at the time of execution, and credit risk for financial institutions until liquidation of this guarantee. Our substantial amounts of performance guarantee except credit risk for financial institutions are limited to our defrayment which is arranged by financial institutions in advance.

Payment or performance risk of the guarantees is considered based on the historical experience of credit events. There have been no significant changes in the payment or performance risk of the guarantees for the six months ended September 30, 2020.

Guarantee of transferred loans: A subsidiary in the United States is authorized to underwrite, originate, fund, and service multi-family and seniors housing loans without prior approval mainly from Fannie Mae under the Delegated Underwriting and Servicing program and Freddie Mac under the Delegated Underwriting Initiative program. As part of these programs, Fannie Mae and Freddie Mac provide a commitment to purchase the loans.

Under these programs, the subsidiary guarantees the performance of the loans transferred to Fannie Mae and Freddie Mac and has the payment or performance risk of the guarantees to absorb some of the losses when losses arise from the transferred loans. There were no significant changes in the payment or performance risk of these guarantees for the six months ended September 30, 2020.

As of March 31, 2020 and September 30, 2020, the total outstanding principal amount of loans transferred under the Delegated Underwriting and Servicing program, for which the subsidiary guarantees to absorb some of the losses, were ¥1,643,060 million and ¥1,682,373 million, respectively.

– 133 –

Guarantee of consumer loans: A certain subsidiary guarantees consumer loans, typically card loans, issued by Japanese financial institutions. The subsidiary is obligated to pay the outstanding obligations when these loans become delinquent generally three months or more.

Payment or performance risk of the guarantees is considered based on the historical experience of credit events. There were no significant changes in the payment or performance risk of the guarantees for the six months ended September 30, 2020.

Guarantee of real estate loans: The Company and certain subsidiaries guarantee real estate loans for consumer issued by Japanese financial institutions to third party individuals. The Company and the subsidiaries are typically obliged to pay the outstanding loans when these loans become delinquent three months or more. The real estate loans are usually secured by the real properties. Once the Company and the subsidiaries assume the guaranteed parties’ obligation, the Company and the subsidiaries obtain a right to claim the collateral assets.

Other guarantees: Other guarantees include the guarantees to financial institutions and the guarantees derived from collection agency agreements. Pursuant to the contracts of the guarantees to financial institutions, a certain subsidiary pays to the financial institutions when customers of the financial institutions become debtors and default on the debts. Pursuant to the agreements of the guarantees derived from collection agency agreements, the Company and certain subsidiaries collect third parties’ debt and pay the uncovered amounts.

Allowance for off-balance sheet credit exposures—Credit losses related the loan commitments of card loans and installment loans and financial guarantees are in the scope of the allowance for credit losses. If the entity has a present contractual obligation to extend the credit and the obligation is not unconditionally cancelable by the entity, the loan commitments are recognized credit losses for the expected exercise portion. The allowance for off-balance sheet credit exposure is accounted in other liabilities in the consolidated balance sheets and the allowance was ¥28,293 million as of September 30, 2020.

Litigation—The Company and certain subsidiaries are involved in legal proceedings and claims in the ordinary course of business. In the opinion of management, none of such proceedings and claims will have a significant impact on the Company’s financial position or results of operations.

Collateral—Other than the assets of the consolidated VIEs pledged as collateral for financing described in Note 11 “Variable Interest Entities”, the Company and certain subsidiaries provide the following assets as collateral for the short-term and long-term debt payables to financial institutions as of March 31, 2020 and September 30, 2020:


	Millions of yen
	March 31, 2020		September 30, 2020
Lease payments, loans and investment in operating leases	¥	198,160	¥	222,151
Investment in securities		167,800		165,222
Property under facility operations		28,275		27,654
Other assets and other		26,982		33,453

Total	¥	421,217	¥	448,480

As of March 31, 2020 and September 30, 2020, debt liabilities were secured by shares of subsidiaries, which were eliminated through consolidation adjustment, of ¥166,888 million and ¥176,446 million, respectively, debt liabilities of affiliates were secured by investment in affiliates of ¥60,104 million and ¥56,163 million, respectively, and debt liabilities were secured by loans to subsidiaries of ¥10,587 million and ¥10,286 million, respectively. In addition, ¥69,313 million and ¥74,824 million, respectively, were pledged primarily by investment in securities for collateral deposits and deposit for real estate transaction as of March 31, 2020 and September 30, 2020.

Under loan agreements relating to short-term and long-term debt from commercial banks and certain insurance companies, the Company and certain subsidiaries are required to provide collateral against these debts at any time if requested by the lenders. The Company and the subsidiaries did not receive any such requests from the lenders as of September 30, 2020.

– 134 –

25.

Segment Information

Financial information about the operating segments reported below is that which is available by segment and evaluated regularly by the chief operating decision maker to make decision about resource allocations and assess performance.

An overview of operations for each of the ten segments follows below.


Corporate Financial Services and Maintenance Leasing	:	Finance and fee business; leasing and rental of automobiles, electronic measuring instruments and IT-related equipment; Yayoi
Real Estate	:	Real estate development, rental and management; facility operations; real estate asset management
PE Investment and Concession	:	Private equity investment and concession
Environment and Energy	:	Domestic and overseas renewable energy; electric power retailing; ESCO services; sales of solar panels and electricity storage system; recycling and waste management
Insurance	:	Life insurance
Banking and Credit	:	Banking and consumer finance
Aircraft and Ships	:	Aircraft leasing and management; ship-related finance and investment
ORIX USA	:	Finance, investment and asset management in the Americas
ORIX Europe	:	Equity and fixed income asset management
Asia and Australia	:	Finance and investment businesses in Asia and Australia

Since April 1, 2020, the operating segments regularly reviewed by the chief operating decision maker to make decisions about resource allocations and assess performance have been changed, resulting in a reorganization of our reportable segments. As a result of this change, segment data for the previous fiscal year has been retrospectively restated.

Since April 1, 2020, the selling, general and administrative expenses that should be borne by ORIX Group as a whole, which were initially charged directly to its respective segments, have been included in the difference between segment total profits and consolidated amounts. As a result of this change, segment data for the three months ended September 30, 2019 and the six months ended September 30, 2019 have been retrospectively restated.

Since April 1, 2020, Credit Losses Standard has been adopted, and the amounts of allowance for doubtful receivables on finance leases and probable loan losses have been reclassified to allowance for credit losses. For further information, see Note 2 “Significant Accounting and Reporting Policies (ah) New accounting pronouncements.”

Financial information of the segments for the six months ended September 30, 2019 and 2020, and segment assets information as of March 31, 2020 and September 30, 2020 are as follows:


	Millions of yen
	Six months ended September 30, 2019				Six months ended September 30, 2020				March 31, 2020		September 30, 2020
	Segment revenues		Segment profits		Segment revenues		Segment profits		Segment assets		Segment assets
Corporate Financial Services and Maintenance Leasing	¥	211,546	¥	32,581	¥	208,591	¥	24,948	¥	1,789,693	¥	1,709,878
Real Estate		229,428		47,444		167,276		10,355		821,194		827,330
PE Investment and Concession		143,844		19,649		157,826		4,077		322,522		322,588
Environment and Energy		78,327		8,527		71,418		14,132		478,796		478,167
Insurance		184,200		25,926		235,754		34,716		1,580,158		1,710,425
Banking and Credit		41,788		18,769		41,661		24,239		2,603,736		2,676,617
Aircraft and Ships		29,434		16,842		14,876		4,713		585,304		568,866
ORIX USA		65,922		35,894		57,859		11,414		1,374,027		1,294,184
ORIX Europe		77,202		16,688		73,046		16,291		317,847		318,682
Asia and Australia		72,752		19,187		58,962		4,635		1,010,268		992,937

Total	¥	1,134,443	¥	241,507	¥	1,087,269	¥	149,520	¥	10,883,545	¥	10,899,674

– 135 –

Financial information of the segments for the three months ended September 30, 2019 and 2020 are as follows:


	Millions of yen
	Three months ended September 30, 2019				Three months ended September 30, 2020
	Segment revenues		Segment profits		Segment revenues		Segment profits
Corporate Financial Services and Maintenance Leasing	¥	107,797	¥	17,124	¥	106,789	¥	14,741
Real Estate		135,600		41,911		88,627		8,840
PE Investment and Concession		66,368		9,394		68,053		(415	)
Environment and Energy		40,668		4,810		37,192		6,029
Insurance		95,666		12,758		118,682		16,754
Banking and Credit		21,481		9,619		20,997		12,787
Aircraft and Ships		14,995		6,292		7,329		(2,575	)
ORIX USA		34,059		20,096		33,090		11,165
ORIX Europe		37,645		8,125		36,881		9,553
Asia and Australia		31,549		5,153		30,635		(2,755	)

Total	¥	585,828	¥	135,282	¥	548,275	¥	74,124

The accounting policies of the segments are almost the same as those described in Note 2 “Significant Accounting and Reporting Policies” except for the treatment of income tax expenses, net income attributable to the noncontrolling interests, net income attributable to the redeemable noncontrolling interests. Net income attributable to noncontrolling interests and redeemable noncontrolling interests are not included in segment profits or losses because the management evaluates segments’ performance based on profits or losses (pre-tax) attributable to ORIX Corporation Shareholders. Income taxes are not included in segment profits or losses because the management evaluates segments’ performance on a pre-tax basis. Additionally, net income attributable to the noncontrolling interests, net income attributable to the redeemable noncontrolling interests, which are recognized net of tax in the accompanying consolidated statements of income, are adjusted to profit or loss before income taxes, when calculating segment profits or losses. Most of selling, general and administrative expenses, including compensation costs that are directly related to the revenue generating activities of each segment and excluding the expenses that should be borne by ORIX Group as a whole, have been accumulated by and charged to each segment. Gains and losses that management does not consider for evaluating the performance of the segments, such as write-downs of certain long-lived assets and certain foreign exchange gains or losses (included in other (income) and expense) are excluded from the segment profits or losses, and are regarded as corporate items.

Assets attributed to each segment are net investment in leases, installment loans, investment in operating leases, investment in securities, property under facility operations, investment in affiliates, inventories, advances for finance lease and operating lease (included in other assets), advances for property under facility operations (included in other assets), goodwill, intangible assets acquired in business combinations (included in other assets) and servicing assets (included in other assets). This has resulted in the depreciation of office facilities being included in each segment’s profit or loss while the carrying amounts of corresponding assets are not allocated to each segment’s assets. However, the effect resulting from this allocation is not significant.

– 136 –

The reconciliation of segment totals to consolidated financial statement amounts is as follows:

Significant items to be reconciled are segment revenues, segment profits and segment assets. Other items do not have a significant difference between segment amounts and consolidated amounts.


	Millions of yen
	Six months ended September 30, 2019			Six months ended September 30, 2020
Segment revenues:
Total revenues for segments	¥	1,134,443		¥	1,087,269
Revenues related to corporate assets		10,240			5,933
Revenues from inter-segment transactions		(9,238	)		(8,464	)

Total consolidated revenues	¥	1,135,445		¥	1,084,738

Segment profits:
Total profits for segments	¥	241,507		¥	149,520
Corporate profits (losses)		(15,410	)		(17,509	)
Net income attributable to the noncontrolling interests and net income attributable to the redeemable noncontrolling interests		2,532			2,163

Total consolidated income before income taxes	¥	228,629		¥	134,174


	Millions of yen
	Three months ended September 30, 2019			Three months ended September 30, 2020
Segment revenues:
Total revenues for segments	¥	585,828		¥	548,275
Revenues related to corporate assets		5,546			3,225
Revenues from inter-segment transactions		(4,378	)		(4,403	)

Total consolidated revenues	¥	586,996		¥	547,097

Segment profits:
Total profits for segments	¥	135,282		¥	74,124
Corporate profits (losses)		(7,337	)		(9,067	)
Net income attributable to the noncontrolling interests and net income attributable to the redeemable noncontrolling interests		1,824			1,486

Total consolidated income before income taxes	¥	129,769		¥	66,543


	Millions of yen
	March 31, 2020			September 30, 2020
Segment assets:
Total assets for segments	¥	10,883,545		¥	10,899,674
Cash and cash equivalents, restricted cash		1,135,284			1,307,306
Allowance for doubtful receivables on finance leases and probable loan losses		(56,836	)		0
Allowance for credit losses		0			(85,761	)
Trade notes, accounts and other receivable		312,744			254,220
Other corporate assets		792,791			792,631

Total consolidated assets	¥	13,067,528		¥	13,168,070

– 137 –

The following information represents geographical revenues and income before income taxes, which are attributed to geographic areas, based on the country location of the Company and its subsidiaries for the six months ended September 30, 2019 and 2020.

For the six months ended September 30, 2019


	Millions of yen
	Six months ended September 30, 2019
	Japan		*The Americas 1**		*Other 2**		Total
Total Revenues	¥	889,620	¥	101,520	¥	144,305	¥	1,135,445
Income before Income Taxes		140,724		45,733		42,172		228,629
For the six months ended September 30, 2020
	Millions of yen
	Six months ended September 30, 2020
	Japan		*The Americas 1**		*Other 2**		Total
Total Revenues	¥	870,327	¥	91,871	¥	122,540	¥	1,084,738
Income before Income Taxes		96,460		19,726		17,988		134,174
The following information represents geographical revenues and income before income taxes, which are attributed to geographic areas, based on the country location of the Company and its subsidiaries for the three months ended September 30, 2019 and 2020. For the three months ended September 30, 2019
	Millions of yen
	Three months ended September 30, 2019
	Japan		*The Americas 1**		*Other 2**		Total
Total Revenues	¥	467,857	¥	51,071	¥	68,068	¥	586,996
Income before Income Taxes		88,782		25,499		15,488		129,769
For the three months ended September 30, 2020
	Millions of yen
	Three months ended September 30, 2020
	Japan		*The Americas 1**		*Other 2**		Total
Total Revenues	¥	433,698	¥	49,757	¥	63,642	¥	547,097
Income before Income Taxes		49,149		16,058		1,336		66,543

*1	Mainly the United States

*2	Mainly Asia, Europe, Australasia and Middle East

– 138 –

The following information represents disaggregation of revenues for revenues from contracts with customers, by goods and services category and geographical location for the six months ended September 30, 2019 and 2020.

For the six months ended September 30, 2019


	Millions of yen
	Six months ended September 30, 2019
	Reportable segments
	Corporate Financial Services and Maintenance Leasing		Real Estate		PE Investment and Concession		Environment and Energy		Insurance			Banking and Credit		Aircraft and Ships
Goods or services category
Sales of goods	¥	6,024	¥	2,911	¥	123,701	¥	2,419	¥	0		¥	0	¥	2,680
Real estate sales		0		44,570		0		0		0			0		0
Asset management and servicing		160		3,902		19		0		0			80		10
Automobile related services		29,512		0		0		124		0			0		0
Facilities operation		0		40,634		0		0		0			0		0
Environment and energy services		1,688		0		0		74,219		0			0		0
Real estate management and brokerage		0		52,931		0		0		0			0		0
Real estate contract work		0		42,681		0		0		0			0		0
Other		21,533		2,088		18,934		661		524			1,441		4,046

Total revenues from contracts with customers		58,917		189,717		142,654		77,423		524			1,521		6,736

Geographical location
Japan		58,543		189,717		142,654		76,605		524			1,521		2,147
The Americas		0		0		0		0		0			0		0
Other		374		0		0		818		0			0		4,589

Total revenues from contracts with customers		58,917		189,717		142,654		77,423		524			1,521		6,736

Other revenues *		152,629		39,711		1,190		904		183,676			40,267		22,698

Segment revenues/Total revenues	¥	211,546	¥	229,428	¥	143,844	¥	78,327	¥	184,200		¥	41,788	¥	29,434


	Millions of yen
	Six months ended September 30, 2019
	Reportable segments								Corporate revenue and intersegment transactions			Total revenues
	ORIX USA		ORIX Europe		Asia and Australia		Total					Total revenues
Goods or services category
Sales of goods	¥	478	¥	0	¥	134	¥	138,347	¥	1,076		¥	139,423
Real estate sales		501		0		0		45,071		0			45,071
Asset management and servicing		10,533		75,077		3		89,784		(42	)		89,742
Automobile related services		0		0		8,630		38,266		13			38,279
Facilities operation		0		0		256		40,890		925			41,815
Environment and energy services		581		0		0		76,488		(361	)		76,127
Real estate management and brokerage		0		0		0		52,931		(1,465	)		51,466
Real estate contract work		0		0		0		42,681		0			42,681
Other		2,591		306		614		52,738		(286	)		52,452

Total revenues from contracts with customers		14,684		75,383		9,637		577,196		(140	)		577,056

Geographical location
Japan		0		0		19		471,730		1,593			473,323
The Americas		14,684		34,309		0		48,993		0			48,993
Other		0		41,074		9,618		56,473		(1,733	)		54,740

Total revenues from contracts with customers		14,684		75,383		9,637		577,196		(140	)		577,056

Other revenues *		51,238		1,819		63,115		557,247		1,142			558,389

Segment revenues/Total revenues	¥	65,922	¥	77,202	¥	72,752	¥	1,134,443	¥	1,002		¥	1,135,445

– 139 –

For the six months ended September 30, 2020


	Millions of yen
	Six months ended September 30, 2020
	Reportable segments
	Corporate Financial Services and Maintenance Leasing		Real Estate		PE Investment and Concession		Environment and Energy		Insurance			Banking and Credit		Aircraft and Ships
Goods or services category
Sales of goods	¥	4,661	¥	1,390	¥	144,417	¥	1,278	¥	0		¥	0	¥	0
Real estate sales		0		38,903		0		0		0			0		0
Asset management and servicing		168		2,967		17		0		0			95		13
Automobile related services		29,140		0		0		119		0			0		0
Facilities operation		0		7,644		0		0		0			0		0
Environment and energy services		1,740		0		0		68,016		0			0		0
Real estate management and brokerage		0		50,210		0		0		0			0		0
Real estate contract work		0		33,678		0		0		0			0		0
Other		23,428		814		9,534		662		780			2,033		1,492

Total revenues from contracts with customers		59,137		135,606		153,968		70,075		780			2,128		1,505

Geographical location
Japan		58,715		135,606		153,968		63,710		780			2,128		355
The Americas		0		0		0		0		0			0		0
Other		422		0		0		6,365		0			0		1,150

Total revenues from contracts with customers		59,137		135,606		153,968		70,075		780			2,128		1,505

Other revenues *		149,454		31,670		3,858		1,343		234,974			39,533		13,371

Segment revenues/Total revenues	¥	208,591	¥	167,276	¥	157,826	¥	71,418	¥	235,754		¥	41,661	¥	14,876


	Millions of yen
	Six months ended September 30, 2020
	Reportable segments								Corporate revenue and intersegment transactions			Total revenues
	ORIX USA		ORIX Europe		Asia and Australia		Total					Total revenues
Goods or services category
Sales of goods	¥	1,202	¥	0	¥	57	¥	153,005	¥	306		¥	153,311
Real estate sales		439		0		0		39,342		0			39,342
Asset management and servicing		6,817		66,902		0		76,979		(52	)		76,927
Automobile related services		0		0		5,540		34,799		(2	)		34,797
Facilities operation		0		0		0		7,644		243			7,887
Environment and energy services		609		0		0		70,365		(725	)		69,640
Real estate management and brokerage		0		0		0		50,210		(1,256	)		48,954
Real estate contract work		0		0		0		33,678		(119	)		33,559
Other		1,439		52		317		40,551		775			41,326

Total revenues from contracts with customers		10,506		66,954		5,914		506,573		(830	)		505,743

Geographical location
Japan		0		0		1		415,263		(392	)		414,871
The Americas		10,506		29,163		0		39,669		0			39,669
Other		0		37,791		5,913		51,641		(438	)		51,203

Total revenues from contracts with customers		10,506		66,954		5,914		506,573		(830	)		505,743

Other revenues *		47,353		6,092		53,048		580,696		(1,701	)		578,995

Segment revenues/Total revenues	¥	57,859	¥	73,046	¥	58,962	¥	1,087,269	¥	(2,531	)	¥	1,084,738

– 140 –

For the three months ended September 30, 2019


	Millions of yen
	Three months ended September 30, 2019
	Reportable segments
	Corporate Financial Services and Maintenance Leasing		Real Estate			PE Investment and Concession		Environment and Energy		Insurance			Banking and Credit		Aircraft and Ships
Goods or services category
Sales of goods	¥	3,192	¥	2,079		¥	56,714	¥	1,368	¥	0		¥	0	¥	2,680
Real estate sales		0		30,039			0		0		0			0		0
Asset management and servicing		87		1,835			9		0		0			42		5
Automobile related services		14,438		0			0		56		0			0		0
Facilities operation		0		20,625			0		0		0			0		0
Environment and energy services		864		0			0		38,693		0			0		0
Real estate management and brokerage		0		26,724			0		0		0			0		0
Real estate contract work		0		28,589			0		0		0			0		0
Other		11,862		1,015			9,080		24		247			739		1,673

Total revenues from contracts with customers		30,443		110,906			65,803		40,141		247			781		4,358

Geographical location
Japan		30,336		110,906			65,803		39,588		247			781		835
The Americas		0		0			0		0		0			0		0
Other		107		0			0		553		0			0		3,523

Total revenues from contracts with customers		30,443		110,906			65,803		40,141		247			781		4,358

Other revenues *		77,354		24,694			565		527		95,419			20,700		10,637

Segment revenues/Total revenues	¥	107,797	¥	135,600		¥	66,368	¥	40,668	¥	95,666		¥	21,481	¥	14,995


	Millions of yen
	Three months ended September 30, 2019
	Reportable segments									Corporate revenue and intersegment transactions			Total revenues
	ORIX USA		ORIX Europe			Asia and Australia		Total					Total revenues
Goods or services category
Sales of goods	¥	256	¥	0		¥	128	¥	66,417	¥	611		¥	67,028
Real estate sales		275		0			0		30,314		0			30,314
Asset management and servicing		4,954		37,077			2		44,011		(22	)		43,989
Automobile related services		0		0			4,232		18,726		13			18,739
Facilities operation		0		0			127		20,752		520			21,272
Environment and energy services		343		0			0		39,900		(181	)		39,719
Real estate management and brokerage		0		0			0		26,724		(906	)		25,818
Real estate contract work		0		0			0		28,589		384			28,973
Other		1,617		(1	)		245		26,501		(734	)		25,767

Total revenues from contracts with customers		7,445		37,076			4,734		301,934		(315	)		301,619

Geographical location
Japan		0		0			2		248,498		845			249,343
The Americas		7,445		16,717			0		24,162		0			24,162
Other		0		20,359			4,732		29,274		(1,160	)		28,114

Total revenues from contracts with customers		7,445		37,076			4,734		301,934		(315	)		301,619

Other revenues *		26,614		569			26,815		283,894		1,483			285,377

Segment revenues/Total revenues	¥	34,059	¥	37,645		¥	31,549	¥	585,828	¥	1,168		¥	586,996

– 141 –

For the three months ended September 30, 2020


	Millions of yen
	Three months ended September 30, 2020
	Reportable segments
	Corporate Financial Services and Maintenance Leasing		Real Estate		PE Investment and Concession		Environment and Energy		Insurance			Banking and Credit		Aircraft and Ships
Goods or services category
Sales of goods	¥	2,269	¥	782	¥	61,382	¥	719	¥	0		¥	0	¥	0
Real estate sales		0		18,035		0		0		0			0		0
Asset management and servicing		107		1,345		8		0		0			50		10
Automobile related services		14,465		0		0		60		0			0		0
Facilities operation		0		6,276		0		0		0			0		0
Environment and energy services		818		0		0		35,515		0			0		0
Real estate management and brokerage		0		25,660		0		0		0			0		0
Real estate contract work		0		18,722		0		0		0			0		0
Other		12,496		487		4,438		270		397			1,191		699

Total revenues from contracts with customers		30,155		71,307		65,828		36,564		397			1,241		709

Geographical location
Japan		29,976		71,307		65,828		33,224		397			1,241		292
The Americas		0		0		0		0		0			0		0
Other		179		0		0		3,340		0			0		417

Total revenues from contracts with customers		30,155		71,307		65,828		36,564		397			1,241		709

Other revenues *		76,634		17,320		2,225		628		118,285			19,756		6,620

Segment revenues/Total revenues	¥	106,789	¥	88,627	¥	68,053	¥	37,192	¥	118,682		¥	20,997	¥	7,329


	Millions of yen
	Three months ended September 30, 2020
	Reportable segments								Corporate revenue and intersegment transactions			Total revenues
	ORIX USA		ORIX Europe		Asia and Australia		Total					Total revenues
Goods or services category
Sales of goods	¥	623	¥	0	¥	4	¥	65,779	¥	240		¥	66,019
Real estate sales		234		0		0		18,269		0			18,269
Asset management and servicing		3,208		35,238		0		39,966		(27	)		39,939
Automobile related services		0		0		2,788		17,313		(1	)		17,312
Facilities operation		0		0		0		6,276		138			6,414
Environment and energy services		365		0		0		36,698		(365	)		36,333
Real estate management and brokerage		0		0		0		25,660		(607	)		25,053
Real estate contract work		0		0		0		18,722		(95	)		18,627
Other		716		37		8		20,739		409			21,148

Total revenues from contracts with customers		5,146		35,275		2,800		249,422		(308	)		249,114

Geographical location
Japan		0		0		0		202,265		(229	)		202,036
The Americas		5,146		15,218		0		20,364		0			20,364
Other		0		20,057		2,800		26,793		(79	)		26,714

Total revenues from contracts with customers		5,146		35,275		2,800		249,422		(308	)		249,114

Other revenues *		27,944		1,606		27,835		298,853		(870	)		297,983

Segment revenues/Total revenues	¥	33,090	¥	36,881	¥	30,635	¥	548,275	¥	(1,178	)	¥	547,097

*	Other revenues include revenues that are not in the scope of revenue from contracts with customers, such as life insurance premiums and related investment income, operating leases, finance revenues that include interest income, and others.

– 142 –

26. Subsequent Events

The Company’s Board of Directors has passed a resolution approving the matters required under Article 156, Paragraph 1 of the Companies Act for the repurchase of its own shares, to be implemented pursuant to Article 459, Paragraph 1 of the Companies Act and Article 34 of the Articles of Incorporation.

(1)

Reason for Repurchase of Own Shares

The Company will repurchase its own shares in order to enhance shareholder returns and improve capital efficiency.

(2)

Details of Share Repurchase

•

Class of shares to be repurchased: Common shares

•

Total number of shares: Up to 50,000,000 shares

(approximately 4.0% of the total outstanding shares (excluding treasury shares))

•

Total purchase price of shares to be repurchased: Up to 44.2 billion yen

•

Repurchase period: From November 9, 2020 to March 31, 2021

•

Method of share repurchase: Market purchases based on the discretionary dealing contract regarding repurchase of own shares

– 143 –