ANNUAL REPORT

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM

20-F

(Mark One)

☐

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

☒

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2021

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

☐

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report:

Commission file number:

001-14856

ORIX KABUSHIKI KAISHA

(Exact name of Registrant as specified in its charter)

ORIX CORPORATION

(Translation of Registrant’s name into English)

Japan

(Jurisdiction of incorporation or organization)

World Trade Center Building

SOUTH TOWER,

2-4-1

Hamamatsu-cho

Minato-ku

Tokyo

105-5135,

Japan

(Address of principal executive offices)

Hiroya Goto

World Trade Center Building

SOUTH TOWER,

2-4-1

Hamamatsu-cho

Minato-ku

Tokyo

105-5135,

Japan

Telephone:

+81-3-3435-1274

Facsimile:

+81-3-3435-1276

(Name, telephone,

e-mail

and/or facsimile number and address of company contact person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:


	Title of each class	Trading Symbols(s)	Name of each exchange on which registered
(1)	American depository shares (the “ADSs”), each of which represents five shares	IX	New York Stock Exchange
(2)	Common stock without par value (the “Shares”)*

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

As of March 31, 2021, 1,285,724,480

Shares were outstanding, including Shares that were represented by

661

728

ADSs.

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

☒ Yes ☐ No

If this report is an annual or transition report, indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

☐ Yes ☒ No

Note—Checking the box above will not relieve any Registrant required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 from their obligations under those sections.

Indicate by check mark whether the Registrant

(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

☒ Yes

☐ No

Indicate by check mark whether the Registrant submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation

S-T

during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).

☒ Yes ☐ No

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, or an emerging growth company. See definition of “large accelerated filer” , “accelerated filer”, and “emerging growth company” in Rule

12b-2

of the Exchange Act.

☒ Large accelerated filer ☐ Accelerated filer ☐

Non-accelerated

filer ☐ Emerging growth company

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

Indicate by check mark which basis of accounting the Registrant has used to prepare the financial statements included in this filing.

☒ U.S. GAAP ☐ International Financial Reporting Standards as issued by the International Accounting Standards Board ☐ Other

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the Registrant has elected to follow.

☐ Item 17 ☐ Item 18

If this is an annual report, indicate by check mark whether the Registrant is a shell company (as defined in Rule

12b-2

of the Exchange Act).

☐ Yes ☒ No

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the Registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

☐ Yes ☐ No

*	Not for trading, but only for technical purposes in connection with the registration of the ADSs.

CERTAIN DEFINED TERMS, CONVENTIONS AND

PRESENTATION OF FINANCIAL INFORMATION

As used in this annual report, unless the context otherwise requires, the “Company” and “ORIX” refer to ORIX Corporation, and “ORIX Group,” “Group,” “we,” “us,” “our” and similar terms refer to ORIX Corporation and its subsidiaries.

In this annual report, “subsidiary” and “subsidiaries” refer to consolidated subsidiaries of ORIX, generally companies in which ORIX owns more than 50% of the outstanding voting stock and exercises effective control over the companies’ operations; and “affiliate” and “affiliates” refer to all of our affiliates accounted for by the equity method, generally companies in which ORIX has the ability to exercise significant influence over their operations by way of

20-50%

ownership of the outstanding voting stock or other means.

The consolidated financial statements of ORIX have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). For certain entities where we hold majority voting interests but noncontrolling shareholders have substantive participating rights to decisions that occur as part of the ordinary course of the business, the equity method is applied. In addition, the consolidated financial statements also include variable interest entities (“VIEs”) of which the Company and its subsidiaries are primary beneficiaries. Unless otherwise stated or the context otherwise requires, all amounts in such financial statements are expressed in Japanese yen.

References in this annual report to “¥” or “yen” are to Japanese yen and references to “US$,” “$” or “dollars” are to United States dollars.

Certain monetary amounts and percentage data included in this annual report have been subject to rounding adjustments for the convenience of the reader. Accordingly, figures shown as totals in tables may not be equal to the arithmetic sums of the figures that precede them.

The Company’s fiscal year ends on March 31. The fiscal year ended March 31, 2021 is referred to throughout this annual report as “fiscal 2021,” and other fiscal years are referred to in a corresponding manner. References to years not specified as being fiscal years are to calendar years.

FORWARD-LOOKING STATEMENTS

This annual report contains statements that constitute “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934. When included in this annual report, the words “will,” “should,” “expects,” “intends,” “anticipates,” “estimates” and similar expressions, among others, identify forward looking statements. Such statements, which include, but are not limited to, statements contained in “Item 3. Key Information—Risk Factors,” “Item 5. Operating and Financial Review and Prospects” and “Item 11. Quantitative and Qualitative Disclosures About Market Risk,” inherently are subject to a variety of risks and uncertainties that could cause actual results to differ materially from those set forth in such statements. These forward-looking statements are made only as of the filing date of this annual report. The Company expressly disclaims any obligation or undertaking to release any update or revision to any forward-looking statement contained herein to reflect any change in the Company’s expectations with regard thereto or any change in events, conditions or circumstances on which any statement is based.


	As of March 31,
	2017			2018			2019			2020			2021
	(Millions of yen, except number of shares)
Balance sheet data* 1 :
Investment in Direct Financing Leases* 3	¥	1,204,024		¥	1,194,888		¥	1,155,632		¥	0		¥	0
Net Investment in Leases* 3		0			0			0			1,080,964			1,029,518
Installment Loans* 3		2,815,706			2,823,769			3,277,670			3,740,486			3,670,784
Allowance for Doubtful Receivables on Finance Leases and Probable Loan Losses* 4		(59,227	)		(54,672	)		(58,011	)		(56,836	)		0
Allowance for Credit Losses* 4		0			0			0			0			(78,945	)
Investment in Operating Leases		1,313,164			1,344,926			1,335,959			1,400,001			1,408,189
Investment in Securities		2,026,512			1,729,455			1,928,916			2,245,323			2,660,443
Property under Facility Operations		398,936			434,786			441,632			562,485			491,855
Others		3,532,780			3,952,830			4,093,119			4,095,105			4,381,238

Total Assets	¥	11,231,895		¥	11,425,982		¥	12,174,917		¥	13,067,528		¥	13,563,082

Short-term Debt, Long-term Debt and Deposits	¥	5,753,059		¥	5,890,720		¥	6,423,512		¥	6,847,889		¥	7,041,887
Policy Liabilities and Policy Account Balances		1,564,758			1,511,246			1,521,355			1,591,475			1,822,422
Common Stock		220,524			220,961			221,111			221,111			221,111
Additional Paid-in Capital		268,138			267,291			257,625			257,638			259,361
ORIX Corporation Shareholders’ Equity		2,507,698			2,682,424			2,897,074			2,993,608			3,028,456
Number of Issued Shares		1,324,107,328			1,324,495,728			1,324,629,128			1,324,629,128			1,285,724,480
Number of Outstanding Shares* 5		1,302,587,061			1,280,000,872			1,279,961,352			1,254,471,656			1,217,338,316


	As of and for the Year Ended March 31,
	2017		2018		2019		2020		2021
	(Yen and dollars, except ratios and number of employees)
Key ratios (%)* 6 :
Return on ORIX Corporation shareholders’ equity (“ROE”)		11.3		12.1		11.6		10.3		6.4
Return on assets (“ROA”)		2.46		2.76		2.74		2.40		1.44
ORIX Corporation shareholders’ equity ratio		22.3		23.5		23.8		22.9		22.3
Allowance/investment in direct financing leases and installment loans		1.5		1.4		1.3		0		0
Allowance/net investment in leases and installment loans		0		0		0		1.2		0
Allowance for credit losses/net investment in leases and installment loans		0		0		0		0		1.7

Per share data and employees:
ORIX Corporation shareholders’ equity per share* 7	¥	1,925.17	¥	2,095.64	¥	2,263.41	¥	2,386.35	¥	2,487.77
Basic earnings per share for net income attributable to ORIX Corporation shareholders		208.88		244.40		252.92		237.38		155.54
Diluted earnings per share for net income attributable to ORIX Corporation shareholders		208.68		244.15		252.70		237.17		155.39
Dividends applicable to fiscal year per share		52.25		66.00		76.00		76.00		78.00
Dividends applicable to fiscal year per share* 8	$	0.48	$	0.60	$	0.69	$	0.71	$	0.73
Number of employees		34,835		31,890		32,411		31,233		33,153

Accounting Standards Update

2014-09

(“Revenue from Contracts with Customers”—ASC 606 (“Revenue from Contracts with Customers”)), Accounting Standards Update

2016-01

(“Recognition and Measurement of Financial Assets and Financial Liabilities”—ASC

825-10

(“Financial Instruments—Overall”)) and Accounting Standards Update

2016-16

(“Intra-Entity Transfers of Assets Other Than Inventory”—ASC 740 (“Income Taxes”)) were adopted on April 1, 2018. In addition, Accounting Standards Update

2016-02

(ASC 842 (“Leases”)) (hereinafter, “New Lease Standard”) was adopted on April 1, 2019.

* 2	Consumption tax is excluded from the stated amount of total revenues.

The sum of assets considered 90 days or more past due and loans individually evaluated for impairment amounted to ¥80,347 million, ¥71,974 million, ¥86,046 million and ¥111,430 million as of March 31, 2017, 2018, 2019 and 2020, respectively. These sums included: (i) investment in direct financing leases considered 90 days or more past due of ¥11,600 million, ¥12,084 million and ¥14,807 million as of March 31, 2017, 2018 and 2019, respectively, and net investment in leases considered 90 days or more past due of ¥15,346 million as of March 31, 2020, (ii) installment loans (excluding loans individually evaluated for impairment) considered 90 days or more past due of ¥9,722 million, ¥12,748 million, ¥12,412 million and ¥10,264 million as of March 31, 2017, 2018, 2019 and 2020, respectively, and (iii) installment loans individually evaluated for impairment of ¥59,025 million, ¥47,142 million, ¥58,827 million and ¥85,820 million as of March 31, 2017, 2018, 2019 and 2020, respectively. The sum of net investment in leases and installment loans considered

non-performing

amounted to ¥106,863 million as of March 31, 2021. This sum included: (i) net investment in leases considered

non-performing

of ¥18,925 million as of March 31, 2021 and (ii) installment loans considered

non-performing

of ¥87,938 million as of March 31, 2021. See “Item 5. Operating and Financial Review and Prospects—Results of Operations—Year Ended March 31, 2021 Compared to Year Ended March 31, 2020—Details of Operating Results—Revenues, New Business Volumes and Investments—Asset quality.”

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 1 of “Item 18. Financial Statements.”

The Company’s shares held through the Board Incentive Plan Trust, which was established in July 2014 to provide shares at the time of retirement as compensation, are included in the number of treasury stock and excluded from the number of outstanding shares. The Board Incentive Plan Trust held 2,126,076 shares, 1,651,443 shares, 1,823,993 shares, 1,476,828 shares and 2,154,248 shares as of March 31, 2017, 2018, 2019, 2020 and 2021, respectively.

Return on ORIX Corporation shareholders’ equity is the ratio of net income attributable to ORIX Corporation shareholders for the period to average ORIX Corporation shareholders’ equity based on fiscal year beginning and ending balances for the period. Return on assets is the ratio of net income attributable to ORIX Corporation shareholders for the period to average total assets based on fiscal year beginning and ending balances for the period. ORIX Corporation shareholders’ equity ratio is the ratio as of the period end of ORIX Corporation shareholders’ equity to total assets. Allowance/investment in direct financing leases and installment loans is the ratio as of the period end of the allowance for doubtful receivables on direct financing leases and probable loan losses to the sum of investment in direct financing leases and installment loans. Allowance/net investment in leases and installment loans is the ratio as of the period end of the allowance for doubtful receivables on finance leases and probable loan losses to the sum of net investment in leases and installment loans.

* 7	ORIX Corporation shareholders’ equity per share is the amount derived by dividing ORIX Corporation shareholders’ equity by the number of outstanding shares.

The U.S. dollar amounts represent translations of the Japanese yen amounts using noon buying rates for Japanese yen per $1.00 in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York in effect on the respective dividend payment dates.

RISK FACTORS

Investing in our securities involves risks. You should carefully consider the risks described below as well as all the other information in this annual report, including, but not limited to, our consolidated financial statements and related notes and “Item 11. Quantitative and Qualitative Disclosures about Market Risk.” Our business activities, financial condition and results of operations and the trading prices of our securities could be adversely affected by any of the factors discussed below or other factors. Even if we do not incur direct financial loss as a result of these risks, our reputation may be adversely affected. This annual report also contains forward-looking statements that involve uncertainties. Our actual results could differ from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to, the risks faced by us described below and elsewhere in this annual report. See “Forward-Looking Statements.” Forward-looking statements in this section are made only as of the filing date of this annual report.

For information about our management of the principal risks we face, see “Item 5. Risk Management—Management of Principal Risks.”

1. Effects of

COVID-19

Since the beginning of 2020, the novel coronavirus disease 2019

(“COVID-19”)

has spread worldwide and the world economy and business activity have been adversely impacted by preventative measures instituted by governments across the globe, including restrictions on people’s movement and gatherings, such as

stay-at-home

orders and limitations on travel and immigration, and requests and orders to limit the operations of, or to close, certain public and private facilities and businesses. In particular, businesses in industries that rely on consumer spending, such as those relating to travel and recreation, passenger transport,

in-store

dining and lodging industries, have been significantly impacted and the global economy experienced a significant downturn. Although some countries have been showing some signs of recovery since the second half of 2020, many countries, including Japan, have continued to experience increases in

COVID-19

cases, which has resulted in the imposition by some countries of additional restrictive measures. New variants of coronavirus have also been reported in many countries around the world, including Japan, which could lead to further spread of

COVID-19.

Although vaccines for

COVID-19

have been developed and approved for use, and it appears the implementation of vaccination programs and economic stimulus may both help prevent the spread of

COVID-19

and encourage economic activity, in many countries it is not yet clear to what extent the vaccines will be able to contain the spread of

COVID-19.

Accordingly, it continues to be difficult to predict when the economic and business activity will return to levels seen before the

COVID-19

pandemic.

As of the filing date of this annual report, the spread of

COVID-19

is significantly impacting various business in the ORIX Group. In our Real Estate segment, Japan

in-bound

travel restrictions and declarations of state of emergencies within Japan leading to closings of facilities and other

COVID-19-related

factors are adversely impacting operating revenue of our businesses that operate hotels and Japanese inns and other recreational facilities. In our PE Investment and Concession segment, decreases in the number of flights and passengers due to reduced demand for air travel is adversely impacting operating revenue from our operation of airports. In our Aircraft and Ships segment, reduced demand for aircraft is adversely impacting our aircraft leasing business and may do so over the long term as airline companies continue to request forbearance on lease fees leading to decreased revenue, among other effects.

In addition, other businesses in the ORIX Group are experiencing decreased profits resulting from reduced revenue due to economic slowdown, increasing credit costs due to deterioration of borrowers’ business performance, negative impact on asset values due to market volatility and increasing costs related to efforts to prevent the spread of

COVID-19.

In order to prevent the spread of

COVID-19,

the ORIX Group has implemented various measures, including policies on working remotely and restrictions on

face-to-face

meetings and domestic and overseas business trips. The implementation of these and other measures may adversely impact our business activities and efficiency.

The ORIX Group has expanded its various businesses into a global network that spans 31 countries and regions around the globe. For this and other reasons, if the global spread of

COVID-19

continues, we expect it could have a multi-faceted and adverse impact on all businesses we operate.

If the

COVID-19

pandemic is prolonged, it is possible that the businesses described above and others in the ORIX Group may experience increases in credit costs due to the deterioration of borrowers’ business performance and declines in assets under management, as well as decreased revenue and increased costs. Depending on developments in the spread of

COVID-19,

there may be increases in liquidity risk, such as increased funding costs and a heightening of the various risks described above and elsewhere in this annual report. In addition, it is possible that the

COVID-19

pandemic will adversely affect our business, management and financial results in ways that are currently unexpected or unknown to us. For further information, see “Item 4. Information on the Company—Strategy—Operating Environment,” “Item 4. Information on the Company—Business Segments,” “Item 5. Operating and Financial Review and Prospects—Overview—Results Overview” and “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources.”

2. Risks Related to our External Environment (Risk Related to Unpredictable Events)

(1) Global economic weakness and instability or political turmoil could adversely affect our business activities, financial condition and results of operations.

We conduct business operations in Japan and other areas of Asia, as well as in the Americas, Europe, Oceania and the Middle East. Our business is affected by general economic conditions and financial conditions in these countries and regions. These conditions are affected by changes in various factors including, for example, changes in fiscal and monetary policies and trade and technology frictions between the United States and China. Fluctuations or shifts in commodity market prices and consumer demand, trade disputes, political, social or economic instability in these countries and regions could also adversely affect our business activities, financial condition and results of operations.

Despite our attempts to minimize the adverse effects of such factors through, for example, improving our risk management procedures, global economic weakness and instability, or political turmoil could adversely affect our business activities, financial condition and results of operations.

(2) Competition could affect our business

We compete on the basis of pricing, transaction structure, service quality and other terms. It is possible that our competitors may seek to compete aggressively on the basis of pricing and other terms through their advantageous funding costs or without regard to their profitability. As a result of such aggressive competition by our competitors, our market share or our profitability may decline.

(3) Negative publicity could affect our business activities, financial condition, results of operations and share price

Our business is built upon the confidence of our customers and market participants. Whether based on facts or not, negative publicity about our activities, our industries or the parties with whom we do business could harm our reputation and diminish confidence in our business. In such an event, we may lose customers or business opportunities, which could adversely affect our business activities, financial condition and results of operations, as well as our share price.

(4) Our business activities, financial condition and results of operations may be adversely affected by natural disasters and other unpredictable events

Our business activities, financial condition and results of operations may be adversely affected by unpredictable events or any continuing effects caused by such events. Unpredictable events include extreme

weather due to the effects of climate change, and natural events, such as earthquakes, storms, tsunamis, floods, fires and outbreaks of infectious diseases, and

man-made

events, such as accidents, war, terrorism, and insurgency. If any such event occurs, it may, among other things, cause unexpectedly large market price movements or unanticipated deterioration of economic conditions in a country or region, or cause major injuries to our personnel or damage to our facilities, equipment and other property, which could adversely affect our business activities, financial condition and results of operations.

(5) Dispositions of Shares may adversely affect market prices for our Shares

Between June 30, 2020, and June 29, 2021, one of our shareholders filed a large shareholder report pursuant to the Financial Instruments and Exchange Act (“FIEA”) indicating, at the time of filing, beneficial ownership, as that term is used in the FIEA, of more than five percent of the total number of our outstanding Shares by each relevant reporting shareholder. Such shareholder or other of our shareholders may, for strategic, investment or other reasons, decide to reduce their shareholdings in ORIX. Dispositions of Shares, particularly dispositions of large numbers of Shares by major shareholders, may adversely affect market prices for our Shares. For information on major shareholders, see “Item 7. Major Shareholders and Related Party Transactions.”

If foreign investors reduce their investment in Japanese stocks due to changes in global or domestic economic or political conditions, market prices for our Shares could be adversely affected because a large percentage of our Shares are owned by investors outside of Japan.

3. Credit Risk

We maintain an allowance for credit losses on finance leases and probable loan losses. However, we cannot be sure that the allowance will be adequate to cover future credit losses. This allowance may be inadequate due to unexpected adverse changes in the Japanese and overseas economies in which we operate, whether due to

COVID-19

or otherwise, or deterioration of specific industries, markets or customers’ business performance. While we constantly strive to mitigate risk through portfolio management, we may be required to make additional provisions in the future depending on economic trends and other factors.

Furthermore, if adverse economic or market conditions affect the value of underlying collateral, secondhand equipment, or guarantees, our credit-related costs other than the allowance might increase. If any such event occurs, our business activities, financial condition and results of operations could be adversely affected.

4. Business Risk

(1) We are exposed to risks from expansion of our businesses, acquisitions of companies and assets, entry into joint ventures and alliances with other companies and similar activities with uncertain outcomes

We are engaged in a broad range of businesses in Japan and overseas and continue to expand such range, including through acquisitions of companies and businesses. The breadth of our business and continued expansion may expose us to new and complex risks that we may be unable to fully control or foresee, and, as a result, we may incur unexpected and potentially substantial costs or losses. Such unexpected costs and losses, which may result from regulatory, technological or other factors, may be particularly acute when we expand our business through acquisitions. In addition, we may not achieve targeted results if our business or business opportunities do not develop as expected or if competitive pressures undermine profitability. Furthermore, when we acquire companies or businesses to expand our business, we could be required to make large write-downs of goodwill or other assets if the results of operations of an acquired company or business are lower than what we expected at the time we made such acquisition, or if they encounter other financial or operational difficulties.

We have a wide range of investments in business operations, including operations that are very different from our financial services business. If we fail to manage our investee companies effectively, we may experience

financial losses as well as losses of future business opportunities. In addition, we may not be able to sell or otherwise dispose of investments at the times or prices we initially expected or at all. We may also need to provide financial support, including credit support or equity investments, to some investee companies if their financial condition deteriorates.

From time to time we also enter into joint ventures and other alliances, and the success of these alliances is often dependent upon the operational capabilities, the financial stability and the legal environment of our counterparties. If an alliance suffers a decline in its financial condition or is subject to operational instability because of a change in applicable laws or regulations, we may be required to pay in additional capital, reduce our investment at a loss, or terminate the alliance.

If any such events occur, our business activities, financial condition results of operations and reputation may be adversely affected.

(2) We are exposed to risks related to asset value volatility

In the management of our businesses, we hold various classes of assets and investments, including real estate, aircraft, ships and other assets in Japan and overseas, which we may hold for our own use or lease to our customers. The market values of these assets and investments may be volatile and may decline substantially in the future.

Asset valuation losses are recorded based on the fair market values at the time when revaluation is conducted in accordance with applicable accounting principles. However, losses from the sale of these assets, including as a result of a sudden need for liquidity or to mitigate an adverse credit event at one of our customers, may exceed the amount of recorded valuation losses.

We estimate the residual value for certain operating leases at the time of contract. Our estimates of the residual value of equipment are based on current market values of used equipment and assumptions about when and to what extent the equipment will become obsolete; however, we may need to recognize additional valuation losses if our estimates differ from actual trends in equipment valuation and the secondhand market, and we may incur losses if we are unable to collect such estimated residual amounts.

In addition, due to our operation of asset management businesses, if there are changes in the market value of asset such as shares and other securities, it could affect the results of our asset management services, which could lead to reductions in our assets under management and related fees and negatively impact our revenue.

If any event described above occurs, our business activities, financial condition and results of operations may be adversely affected.

(3) Risks related to our other businesses

We operate a wide range of businesses in Japan and overseas, including financial services businesses.

Entry into new businesses, and the results of operations following such entry, are accompanied by various uncertainties, and if any unanticipated risk does occur, it may adversely affect our business activities, financial condition and results of operations.

5. Market Risk

(1) Changes in market interest rates and currency exchange rates could adversely affect our assets and our business activities, financial condition and results of operations

Our business activities are subject to risks relating to changes in market interest rates and currency exchange rates in Japan and overseas. Although we conduct asset-liability management (“ALM”), changes in the yield curve and currency exchange rates could adversely affect our results of operations.

When funding costs increase due to actual or perceived increases in market interest rates, financing lease terms and loan interest rates for new transactions may diverge from the trend in market interest rates.

Changes in market interest rates could have an adverse effect on the credit quality of our assets and our asset structure. For example, with respect to floating-rate loan assets, if market interest rates increase, the repayment burdens of our customers may also increase, which could adversely affect the financial condition of such customers and their ability to repay their obligations to us. Alternatively, a decline in interest rates could result in an increase in early repayment of loans and a corresponding decrease in our assets, which could adversely impact our revenue generation capabilities.

Although we enter into derivative investments to hedge our market interest and currency risks, we may not be able to perfectly hedge against all risks arising from our business operations in foreign currencies and overseas investments. As a result, a significant change in interest rates or currency exchange rates could have an adverse impact on our business activities, financial condition and results of operations.

(2) Our risk management strategy of using derivatives for hedging purposes may not be effective

We may use derivative instruments to reduce fluctuations in the value of our investments and to hedge against interest rate and currency risks. However, it is possible that this risk management strategy may not be fully effective in all circumstances due to our failure to appraise the value of assets being hedged or execute such derivative instruments properly or at all, or our failure to achieve the intended results of such hedging due to the unavailability of offsetting or roll-over transactions in the event of sudden turbulence in the market or otherwise. Furthermore, our derivatives counterparties could fail to honor the terms of their contracts with us. Our existing derivative contracts and new derivative transactions may also be adversely affected if our credit ratings are downgraded.

In such instances, our business activities, financial condition and results of operations could be adversely affected.

(3) Fluctuations in market prices of stocks and bonds may adversely affect our business activities, financial condition and results of operations

We hold investments in shares of private and public company stock, including shares of our equity method affiliates, and corporate and government bonds in Japan and overseas. The market values of our investment assets are volatile and may fluctuate substantially in the future. A significant decline in the value of our investment assets could adversely affect our business activities, financial condition and results of operations.

(4) The transition away from and discontinuation of LIBOR and other interest rate benchmarks could have a negative impact on our results of operations.

The UK Financial Conduct Authority, which regulates LIBOR, is expected to stop persuading or compelling banks to submit rates for the calculation of LIBOR after 2021. However, this date has been extended by 18 months for certain U.S. dollar LIBOR settings. We are continuing to identify certain assets and liabilities linked to LIBOR and other interest rate benchmarks across our businesses that will require transition to alternative reference rates as a result.

The transition away from and discontinuation of LIBOR and other interest rate benchmarks, uncertainty as to the availability and/or suitability of alternative reference rates, and differences between LIBOR and other interest rate benchmarks and alternative reference rates may affect financial markets and market participants, including us. In response, we have taken, and are continuing to take, necessary steps to proactively address the transition, including monitoring external developments, negotiating successor reference rates with relevant counterparties, planning for the circumstances where the transition results in a mismatch with the fallback reference rates used (particularly in the case of derivatives contracts used for hedging purposes), and evaluating the potential impact on our financial results and condition. However, we remain subject to the risks that our actions to address the transition may be delayed or may not be successful, which could adversely affect our financial condition and the results of our business.

6. Liquidity Risk

Our primary sources of financing include: borrowings from banks and other institutional lenders, funding from capital markets (such as through issuances of bonds, medium-term notes or commercial paper (“CP”), loans receivables and other assets) and deposits. Such sources include a significant amount of short-term debt, such as CP and other short-term borrowings from various institutional lenders and the portion of our long-term debt maturing in the current fiscal year. Some of our committed credit lines require us to comply with financial covenants.

Adverse economic conditions or financial market instability, among other things, may adversely affect our ability to raise new funds or to renew existing funding sources, and may subject us to increased funding costs. If our access to liquidity is restricted, or if we are unable to obtain our required funding at acceptable costs, our business activities, financial condition and results of operations may be significantly and adversely affected.

We obtain credit ratings from ratings agencies. Downgrades of our credit ratings due to reasons such as market turmoil or the worsening of our financial condition could result in increases in our interest expenses and could have an adverse effect on our fund-raising ability by increasing costs of issuing CP and corporate debt securities and borrowing from banks and other financial institutions, reducing the amount of bank credit available to us or decreasing the attractiveness of our equity securities to investors. As a result, our business activities, financial condition and results of operations may be significantly and adversely affected.

7. Compliance Risk

Our efforts to implement and maintain thorough internal controls for appropriate compliance and legal risk management, as well as compliance education programs for our staff, in order to prevent violations of applicable laws, regulations and internal rules may not be fully effective in preventing all violations. In addition, we engage in a wide range of businesses, and our expansion into new businesses through acquisitions may cause our current internal controls to not be fully effective. If we are unable to implement and maintain robust internal controls to prevent any such violations and adjust such controls in response to expansion of our business, we may be subject to sanctions, which could also apply to our officers or employees. Such events could adversely affect our business activities, financial condition, results of operations and reputation.

In addition, we are also indirectly exposed to compliance risk through our joint venture and alliance partners, investee companies and other business partners or counterparties, whom we may not be able to control. If any of those parties engage in violations of applicable laws or regulations, our business activities, financial condition, results of operations and reputation may be adversely affected.

8. Legal Risk

(1) We are subject to various laws and regulations in Japan and overseas that affect may our business

Our businesses and employees are subject to domestic and international laws, as well as regulatory oversight by government authorities who implement those laws, relating to the various sectors in which we operate and to our business operations generally. These include laws and regulations applicable to specific businesses and industries, such as moneylending, financial instruments exchange construction, real estate transactions, hotels, insurance, banking and trust services, as well as laws applicable more generally, such as the Companies Act of Japan, laws and regulations applicable due to our registration with the SEC, such as U.S. securities laws, and laws and regulations on antitrust, personal data protection, anti-money laundering and anti-bribery.

Regardless of whether we have violated any laws, if we become the subject of a governmental investigation, litigation or other proceeding in connection with our businesses, our business activities, financial condition and results of operations may be adversely affected.

For information on the regulations that apply to our businesses, see “Item 4. Information on the Company—Business Regulation.”

(2) Enactment of, or changes in, laws, regulations and accounting standards may affect our business activities, financial condition and results of operations

Enactment of, or changes in, laws and regulations may adversely affect the way that we conduct our business and the products or services that we may offer, as well as limit the activities of our customers, borrowers, invested companies and funding sources. Such enactment or changes may increase our compliance costs. In recent years, foreign laws and regulations on subject matters such as personal data protection, anti-money laundering, anti-bribery and antitrust have been enacted and strengthened such that they may directly apply to the activities of our businesses, even if conducted outside the relevant jurisdiction. If such pattern continues and it becomes necessary for us to comply with different countries’ regulations, in addition to significantly increasing the number of laws and regulations that we need to comply with, it may also significantly increase our compliance costs.

If accounting standards are changed, even if such changes do not directly affect our profitability or financial soundness, industries related to our businesses, our clients or the financial market may be negatively affected. As a result of such enactments or changes, our business activities, financial condition and results of operations could be adversely affected.

(3) Contractual deficiencies may affect our business and other initiatives

When engaging in business and other transactions, deficiencies, including our failure to execute legally required or binding agreements or our execution of agreements that do not reflect our intentions regarding parties’ contractual obligations, may lead to adverse events such as our being the target of infringement, breach of contract and other legal claims by contractual counterparties and third parties or disruption of our ability to obtain rights we expected as part of such transactions. Such events may adversely affect our business activities, financial condition and results of operations.

9. Information Risk

(1) Risks relating to loss, damage or leakage of information

We maintain various information such as customer information including information on individuals, accounting information and personnel information. We have implemented internal rules and training programs to properly manage such information. We also implement technical measures such as vulnerability countermeasures

for our information systems and maintenance of various network security measures to protect against or mitigate cyber-attacks. However, in spite of such efforts, our measures may not be always effective and it is possible that our information may be lost, damaged or leaked.

In such event, we could be subject to governmental investigation, litigation or other proceedings in connection with potential violations of applicable data protection laws and regulations, such as the Act on the Protection of Personal Information of Japan and the General Data Protection Regulation adopted in the EU, and may be sued for damages. Our business activities, financial condition, results of operations and reputation may be adversely affected due to these and similar events.

(2) Failures in our computer and other information systems could interfere with our operations and damage our business activities, financial condition and results of operations

We use information systems for financial transactions, personal information management, business monitoring and processing and as part of our business decision-making and risk management activities. Some of these information systems may be outsourced.

System shutdowns, malfunctions or failures, the mishandling of data or fraudulent acts by employees, vendors or other third parties, cyber or ransomware attack by a computer virus, hacking, unauthorized access, business interruption or other types of cyber-terrorism, or a large-scale natural disaster, could have adverse effects on our operations, by causing, for example, delays in the receipt and payment of funds, the loss, damage or leakage of confidential or personal information of our customers or employees, the generation of errors in information used by our management for business decision-making and risk management evaluation and planning, the suspension of certain products or services we provide to our customers or other interruptions of our business activities. In such event, our liquidity or the liquidity of customers who rely on us for financing or payment could be adversely affected. We may also incur substantial costs to recover our business functionality or be sanctioned by regulatory authorities for violating applicable laws and regulations and may be sued for damages.

As a result of the above, our business activities, financial condition, results of operations and reputation may be adversely affected.

10. Operational Risk

(1) If our internal control over financial reporting is identified as being insufficient, our share price, reputation and business activities may be adversely affected

We have established and assessed our internal control over financial reporting in a manner intended to ensure compliance with the requirements of various laws and regulations. However, in future periods our management or independent registered public accounting firm may identify material weaknesses or deficiencies through the respective evaluations and audits of our internal control over financial reporting, that they conduct and such finding may cause us and our accountants to disclose that our internal control over financial reporting is ineffective, which could cause a loss of investor confidence in the reliability of our financial statements and cause our share price to fall. As a result, our business activities, financial condition, results of operations and reputation may be adversely affected.

(2) Our risk management may not be effective

We continuously seek to improve our risk management function. However, due to the rapid expansion of our business or significant changes in the business environment, our risk management may not always be effective. As a result, our business activities, financial condition and results of operations may be adversely affected. For a detailed discussion of our risk management system, see “Item 5. Operating and Financial Review and Prospects—Risk Management.”

(3) We may not be able to hire or retain qualified personnel

Our businesses require a considerable investment in human resources and the retention of qualified personnel in order to successfully compete in markets in Japan and overseas. If we cannot develop, hire or retain the necessary qualified personnel, we may incur additional costs to hire specialists or the quality of our products and services may decline, which could prevent us from continuing our business operation in a stable manner and adversely affect our business activities, financial condition and results of operations.

(4) Other operational risks

Our business entails many types of operational risks. Examples include inappropriate sales practices; inadequate handling of client and customer complaints; inadequate internal communication of necessary information; misconduct of officers, employees, agents, franchisees, trading associates, vendors or other third parties; errors in the settlement of accounts and conflicts with employees concerning labor and workplace management.

When we offer new products or services, we must ensure that we have the capacity to properly undertake and perform such operations. If we lack such capacity or fail to perform such operations successfully, we may lose the confidence of the market and our customers, which may cause us to suffer decreased profitability or force us to withdraw from such operations.

Our management attempts to manage operational risk and maintain it at a level that we believe is appropriate. However, operational risk is part of the business environment in which we operate, and despite our control measures, our business activities, financial condition results of operations and reputation may be adversely affected at any time due to this risk.

11. Risks Related to Holding or Trading our Shares and ADRs

(1) Rights of shareholders under Japanese law may be different from those under the laws of other jurisdictions

Our Articles of Incorporation, the regulations of our board of directors and the Companies Act govern our corporate affairs. Legal principles relating to matters such as the validity of corporate procedures, directors’ and officers’ fiduciary duties and shareholders’ rights are different from those that would apply if we were incorporated elsewhere. Shareholders’ rights under Japanese law are different in some respects from shareholders’ rights under the laws of jurisdictions within the United States and other countries. You may have more difficulty in asserting your rights as a shareholder than you would as a shareholder of a corporation organized in a jurisdiction outside Japan. For a detailed discussion of the relevant provisions of the Companies Act and our Articles of Incorporation, see “Item 10. Additional Information—Memorandum and Articles of Incorporation.”

(2) It may not be possible for investors to effect service of process within the United States upon ORIX or ORIX’s directors or executive officers, or to enforce against ORIX or those persons judgments obtained in U.S. courts predicated upon the civil liability provisions of the federal securities laws of the United States

ORIX is a joint stock corporation formed in Japan. Almost all of ORIX’s directors and executive officers are residents of countries other than the United States. Although some of ORIX’s subsidiaries have substantial assets in the United States, substantially all of ORIX’s assets and the assets of ORIX’s directors and executive officers are located outside the United States. As a result, it may not be possible for investors to effect service of process within the United States upon ORIX or ORIX’s directors and executive officers or to enforce against ORIX or those persons, in U.S. courts, judgments of U.S. courts predicated upon the civil liability provisions of U.S. securities laws. ORIX has been advised by its Japanese counsel that there is doubt, in original actions or in actions to enforce judgments of U.S. courts, as to the enforceability in Japan of civil liabilities based solely on U.S. securities laws. A Japanese court may refuse to allow an original action based on U.S. securities laws.

The United States and Japan do not currently have a treaty providing for reciprocal recognition and enforcement of judgments, other than arbitration awards, in civil or commercial matters. Therefore, if you obtain a civil judgment by a U.S. court, you will not necessarily be able to enforce such judgment directly in Japan.

(3) We may be a passive foreign investment company, which could result in adverse U.S. federal income tax consequences to U.S. investors

We believe that we may have been a passive foreign investment company (a “PFIC”) under the U.S. Internal Revenue Code of 1986, as amended, for the year to which this report relates because of the composition of our assets and the nature of our income. In addition, we may be a PFIC in the foreseeable future. Assuming this is the case, U.S. investors in our Shares or ADSs will be subject to special rules of taxation in respect of certain dividends or gains on such Shares or ADSs, including the treatment of gains realized on the disposition of, and certain dividends received on, the Shares or ADSs as ordinary income earned pro rata over a U.S. investor’s holding period for such Shares or ADSs, taxed at the maximum rate applicable during the years in which such income is treated as earned, with the resulting tax liability subject to interest charges for a deemed deferral benefit. In addition, in the case of any dividends that are not subject to the foregoing rule, the favorable rates of tax applicable to certain dividends received by certain

non-corporate

U.S. investors would not be available. See “Item 10. Additional Information—Taxation—United States Taxation.” Investors are urged to consult their own tax advisors regarding all aspects of the income tax consequences of investing in our Shares or ADSs.

(4) If you hold fewer than 100 Shares, you will not have all the rights of shareholders with 100 or more Shares

One “unit” of our Shares is comprised of one hundred Shares. Each unit of the Shares has one vote. A holder who owns Shares other than in multiples of one hundred will own less than a whole unit (i.e., for the portion constituting of fewer than one hundred Shares.) The Companies Act imposes significant restrictions on the rights of holders of shares constituting less than a whole unit, which include restrictions on the right to vote. Under the unit share system, a holder of Shares constituting less than a unit has the right to require ORIX to purchase its Shares and the right to require ORIX to sell it additional Shares to create a whole unit. However, a holder of ADRs is not permitted to withdraw underlying Shares representing less than one unit, which is equivalent to 20 ADSs, and, as a practical matter, is unable to require ORIX to purchase those underlying Shares. The unit share system, however, does not affect the transferability of ADSs, which may be transferred in lots of any number of whole ADSs.

(5) Foreign exchange fluctuations may affect the value of our securities and dividends

Market prices for our ADSs may decline if the value of the yen declines against the dollar. In addition, the dollar amount of cash dividends or other cash payments made to holders of ADSs will decline if the value of the yen declines against the dollar.

(6) A holder of ADRs has fewer rights than a shareholder and must act through the depositary to exercise those rights

The rights of shareholders under Japanese law to take various actions, including voting shares, receiving dividends and distributions, bringing derivative actions, examining a company’s accounting books and records and exercising dissenters’ rights, are available only to holders of record on a company’s register of shareholders. The Shares represented by our ADSs are registered in the name of a nominee of the depositary, through its custodian agent. Only the depositary is able to exercise those rights in connection with the deposited Shares. The depositary will make efforts to vote the Shares represented by our ADSs as instructed by the holders of the ADRs representing such ADSs and will pay to those holders the dividends and distributions collected from us. However, a holder of ADRs will not be able to directly bring a derivative action, examine our accounting books and exercise dissenters’ rights through the depositary unless the depositary specifically undertakes to exercise those rights and is indemnified to its satisfaction by the holder for doing so.

Item 4. Information on the Company

GENERAL

ORIX is a joint stock corporation

(kabushiki kaisha)

formed under Japanese law. Our principal place of business is at World Trade Center Building, SOUTH TOWER,

2-4-1

Hamamatsu-cho,

Minato-ku,

Tokyo

105-5135,

Japan, and our phone number is: +81 3 3435 3000. Our general contact URL is https://ssl.orix-form.jp/ir/inquiry_e/ and our corporate website URL is: https://www.orix.co.jp/grp/en. The information on our website is not incorporated by reference into this annual report. ORIX Corporation USA is ORIX’s agent in the United States, and its principal place of business is at 1717 Main Street, Suite 1100, Dallas, Texas 75201, USA.

CORPORATE HISTORY

ORIX was established in April, 1964 in Osaka, Japan as Orient Leasing Co., Ltd. by three trading companies and five banks that included Nichimen Corporation, Nissho Corporation and Iwai Corporation (presently Sojitz Corporation), the Sanwa Bank (presently The Bank of Mitsubishi UFJ, Ltd.), Toyo Trust & Banking (presently Mitsubishi UFJ Trust and Banking Corporation), the Industrial Bank of Japan and Nippon Kangyo Bank (presently Mizuho Bank, Ltd.), and the Bank of Kobe (presently Sumitomo Mitsui Banking Corporation).

Our initial development occurred during the period of sustained economic growth in Japan during the 1960s and the early 1970s. We capitalized on the growing demand in this period by expanding our portfolio of leasing assets.

During this time, our marketing strategy shifted from a focus on using the established networks of the trading companies and other initial shareholders to one that concentrated on independent marketing as the number of our branches expanded. In April 1970, we listed our Shares on the second section of the Osaka Securities Exchange. Since February 1973, our Shares have been listed on the first sections of the Tokyo Stock Exchange and the Osaka Securities Exchange (which was integrated into Tokyo Stock Exchange in 2013). ORIX was also listed on the first section of the Nagoya Stock Exchange from February 1973 to October 2004.

ORIX set up a number of specialized leasing companies to tap new market potential, starting with the establishment of Orient Auto Leasing Corporation (presently ORIX Auto Corporation) in 1973 and Orient Instrument Rentals Corporation (presently ORIX Rentec Corporation), Japan’s first electric measuring equipment rental company, in 1976. With the establishment of the credit company Family Consumer Credit Corporation (presently ORIX Credit Corporation, concentrating on card loans) in 1979, ORIX began to move into the retail market by offering financing services to individuals.

It was also during this time that ORIX began expanding overseas, commencing with the establishment of its first overseas office in Hong Kong in 1971, followed by Singapore (1972), Malaysia (1973), Indonesia (1975), the Philippines (1977) and Thailand (1978).

In the 1980s and early 1990s, ORIX established offices in the United States (1981), Australia (1986), Pakistan (1986) and Taiwan (1991). The Japanese company Budget

Rent-a-Car

(presently ORIX Auto Corporation) was also established in 1985.

In 1989, we introduced a corporate identity program and changed our name to ORIX Corporation from Orient Leasing Co., Ltd. to reflect our increasingly international profile and diversification into financial services other than leasing.

In 1991, ORIX established ORIX Aviation Systems Limited in Ireland. In the same year, ORIX established ORIX Omaha Life Insurance Corporation (presently ORIX Life Insurance Corporation) and entered the life insurance business. In 1998, ORIX purchased Yamaichi Trust & Bank, Ltd. (presently ORIX Bank Corporation). In 1998, ORIX listed on the New York Stock Exchange (Ticker Symbol: IX) and, through registration with the U.S. Securities and Exchange Commission (“SEC”), has worked to further strengthen its corporate governance regulations. ORIX Real Estate Corporation was established in 1999 to concentrate on condominium development that was first begun in 1993 as well as develop office buildings in pursuit of improved real estate expertise. In 1999, we established ORIX Asset Management and Loan Services Corporation.

Since 2000, we have actively expanded our automobile-related operations by acquiring companies and assets. We combined seven automobile-related companies into ORIX Auto Corporation in 2005.

We have also continued our overseas expansion. In China, we established a rental company in Tianjin in 2004 and in 2005 established a leasing company in Shanghai. In 2009, we established a Chinese Headquarters in Dalian. We also set up local subsidiaries in Saudi Arabia (2001), and the United Arab Emirates (2002).

In 2006, we entered the investment banking field in the United States with the acquisition of Houlihan Lokey, Inc. (“Houlihan Lokey”) (All shares sold through a wholly-owned subsidiary ORIX USA in July 2019). In 2010, we acquired RED Capital Group (presently ORIX Real Estate Capital Holdings, LLC), a U.S.-based company that provides financing for multi-family, senior living and healthcare-related real estate development projects in the United States. In 2010, we also acquired Mariner Investment Group LLC, a leading independent

SEC-registered

hedge fund manager (All shares sold through a wholly-owned subsidiary ORIX USA in July 2020).

We managed ORIX Credit Corporation (“ORIX Credit”) over a continuous three-year period jointly with Sumitomo Mitsui Banking Corporation pursuant to an alliance established in July 2009. In June 2012, ORIX purchased all the shares of ORIX Credit, making ORIX Credit a wholly-owned subsidiary of ORIX.

In July 2013, ORIX acquired Robeco Groep N.V. (presently ORIX Corporation Europe N.V.), a holding company of global asset management companies based in the Netherlands, to pursue a new business model by combining finance with related services. In October 2016, ORIX purchased all the shares of Robeco, making Robeco a wholly-owned subsidiary of ORIX.

In July 2014, we acquired Hartford Life Insurance K.K. (“HLIKK”) (presently ORIX Life Insurance Corporation). In December 2014, we acquired Yayoi Co., Ltd. (“Yayoi”), a software service provider targeting small businesses.

In December 2015, ORIX and VINCI Airports S.A.S., an airport concession holder and operator based in France, established Kansai Airports to operate and manage Kansai International Airport and Osaka International Airport.

In November 2018, ORIX acquired 30% shareholding of Avolon Holdings Limited (“Avolon”), a leading global aircraft leasing company located in Ireland.

In January 2019, ORIX made DAIKYO INCORPORATED a wholly-owned subsidiary due to the acquisition of common shares of DAIKYO through a tender offer.

STRATEGY

Operating Environment

Since the beginning of 2020, the spread of

COVID-19

continued worldwide, as did the various countermeasures and responses undertaken by governments around the world, including restrictions on the movement and gatherings of people. As a result, the global economy has continued to experience a severe downturn due to demand and supply chain disruptions. In fiscal 2021, ORIX Group has experienced a deterioration in the business environments in which it operates and also declining profitability, with the effects felt most strongly in the facility operation business in Real Estate Segment, the concession business in PE Investment and Concession Segment and the aircraft leasing business in Aircraft and Ships Segment.

In the future, it is hoped that vaccination programs and economic policy will balance the prevention of the further spread of

COVID-19

with economic recovery. However, the situation remains unpredictable for the foreseeable future. The negative impact of

COVID-19

on the three above-mentioned business segments in particular may be longer-term.

Progress on Target Performance Indicators

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

In fiscal 2021, although certain of our businesses were adversely affected by the

COVID-19

pandemic, the impact to the ORIX group was limited because of the diversified nature of our businesses. As a result, net income attributable to ORIX Corporation shareholders was ¥192.4 billion. ROE for fiscal 2021 declined from 10.3% in the previous fiscal year to 6.4% due to a decrease in net income attributable to ORIX Corporation shareholders and an increase in shareholders’ equity. Our ROE target is 11% or more in the medium and long term. We continue to maintain a credit rating of A or higher.

Three- year trends in performance indicators are as follows.


			As of March 31,
			2019		2020		2021
Net income attributable to ORIX Corporation shareholders	(Millions of yen	)		323,745		302,700		192,384
ROE (1)	(%)			11.6		10.3		6.4

(1)	ROE is the ratio of Net income attributable to ORIX Corporation shareholders for the period to average ORIX Corporation shareholders’ equity based on fiscal year beginning and ending balances.

Corporate Challenges to be Addressed

ORIX Group believes that providing new value to society and being a company that is needed by society is what enables a company to achieve sustainable growth. To this end, ORIX Group believes that it must strengthen its management base through the following initiatives.

Promote Sustainability: In order to promote Sustainability and expand disclosure on the status of our initiatives, we established the Sustainability Promotion Team in Corporate Planning Department (current Sustainability Team in Investor Relations and Sustainability Department) in July 2019. We established ORIX Corporate Sustainability Policy, ORIX Human Rights Policy, and ORIX Sustainable Investing and Lending Policy, and based on the ORIX Sustainable Investing and Lending Policy, we review investment and loan projects in the process of considerations from the perspective of sustainability. In addition, in October 2020 we

became a supporter of the recommendations of “TCFD” (the Task Force on Climate-related Financial Disclosures) which is aiming to assess and disclose the financial impact of risks and opportunities brought by climate change.

Enhance integrated risk management: We established the ERM Headquarters in June 2017. We are formulating Group-wide risk management policies and standards necessary for ORIX Group to achieve its management strategy and are creating mechanisms to continuously improve the effectiveness of structures and internal control systems for that purpose. In addition, we established Risk Management Department in the ERM Headquarters in August 2020 and we are making ongoing efforts to develop and enhance the operation of the system that can appropriately identify, evaluate, control and manage risks.

Strengthen information security and promote digital transformation: We established Information Security Control Department in June 2018 and Technology Planning and Governance Department in January 2020. We are solidifying the ORIX Group’s IT infrastructure, promoting digitalization of operations and strengthening the security of digitized management information. In the next step, we are considering an effective use of the massive transactional data accumulated over the years, leveraging information technology to expand existing businesses and launch new ones.

PROFILE OF BUSINESS BY SEGMENT

For a discussion of the basis for the breakdown of segments, see Note 34 of “Item 18. Financial Statements.” The following table shows a breakdown of profits by segment for fiscal 2019, 2020 and 2021. Since April 1, 2020, the reporting segments have been changed to the aforementioned segments. As a result of this change for fiscal 2021, segment data as of the end of and for the previous fiscal year has been retrospectively restated.


	Years ended March 31,
	2019			2020			2021
	(Millions of yen)
Corporate Financial Services and Maintenance Leasing	¥	78,310		¥	62,978		¥	59,149
Real Estate		93,748			80,182			24,684
PE Investment and Concession		23,061			44,110			3,431
Environment and Energy		12,144			11,625			28,563
Insurance		51,544			44,833			55,119
Banking and Credit		36,434			39,096			48,030
Aircraft and Ships		36,422			45,287			3,755
ORIX USA		50,056			56,690			43,614
ORIX Europe		35,629			43,778			37,886
Asia and Australia		7,521			14,673			14,660

Total segment profits		424,869			443,252			318,891

Difference between segment total and consolidated amounts		(29,139	)		(30,691	)		(31,330	)

Total Consolidated Amounts	¥	395,730		¥	412,561		¥	287,561

Each of our segments is briefly described below.

BUSINESS SEGMENTS

ORIX Group organizes its businesses into ten segments to facilitate strategy formulation, resource allocation and portfolio balancing at the segment level. These ten business 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, Asia and Australia. Management believes that organizing our business into large, strategic units allows us to maximize our corporate value by identifying and cultivating strategic advantages vis-à-vis anticipated competitors in each area and by helping ORIX Group achieve competitive advantage overall.

An overview of operations, operating environment and operating strategy for each of the ten segments follows. However, the operating strategy of each business may change in the future due to developments relating to the spread of

COVID-19,

including the duration and extent to which preventative measures are maintained across the globe.

Corporate Financial Services and Maintenance Leasing

This segment is involved in finance and fee business; leasing and rental of automobiles, electronic measuring instruments and

IT-related

equipment; and 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.

Real Estate

This segment consists of real estate development, rental and management, facility operation, and real estate asset management.

In our 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. In addition, we aim to gain stable profits by accumulating expertise through the operation of various facilities such as hotels and Japanese inns. We aim to enhance mutually complementary aspects of the DAIKYO INCORPORATED and its subsidiaries (hereinafter, “DAIKYO”) with ORIX real estate businesses through integration, and to take 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, and to develop new businesses that make the most of our comprehensive strengths.

PE Investment and Concession

This segment consists of 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.

Environment and Energy

This segment consists of domestic and overseas renewable energy, electric power retailing, ESCO services, sales of solar panels and electricity storage system, and 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 the expertise we have gained in the domestic market.

Insurance

This segment consists of life insurance.

In the life insurance business, we sell life insurance through agents, banks and other financial institutions,

face-to-face

sales through our own consulting services, and online sales. 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.

Banking and Credit

This segment consists of 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.

Aircraft and Ships

This segment consists of aircraft leasing and management, and ship-related finance and investment.

In the aircraft-related operations, 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. 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.

ORIX USA

This segment consists of finance, investment and asset management in the Americas.

ORIX Corporation USA provides various types of 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.

ORIX Europe

This segment consists of equity and fixed income asset management.

Under ORIX Corporation Europe N.V. (hereinafter, “OCE”) as the holding company, Robeco Institutional Asset Management B.V. (hereinafter, “Robeco”) and Transtrend B.V. headquartered in the Netherlands, Boston Partners Global Investors, Inc. and Harbor Capital Advisors, Inc. headquartered in the United States are engaged in the asset management business through investments in stocks, bonds, etc. In addition to the focus on expanding the existing businesses by leveraging the expertise of Robeco, a pioneer in sustainable investment, we aim to increase assets under management with expanding products and investment strategies through M&A activities. ORIX Europe is also engaged in capturing a wide range of business opportunities as the strategic business location of ORIX Group in Europe.

Asia and Australia

This segment consists of 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 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.

DIVISIONS, MAJOR SUBSIDIARIES AND AFFILIATES

A list of major subsidiaries and affiliates can be found in Exhibit 8.1.

CAPITAL PRINCIPAL EXPENDITURES AND DIVESTITURES

We are a financial services company with significant leasing, lending, real estate development and other operations based on investment in tangible assets. As such, we are continually acquiring and developing such assets as part of our business. A detailed discussion of these activities is presented elsewhere in this annual report, including in other parts of “Item 4. Information on the Company” and in “Item 5. Operating and Financial Review and Prospects.”

In general, we seek to expand and deepen our product and service offerings and enhance our financial performance through acquisitions of businesses or assets. We continually review acquisition opportunities, and selectively pursue such opportunities. We have in the past deployed a significant amount of capital for acquisition activities and expect to continue to make investments, on a selective basis. For a discussion of certain of our past acquisitions, see “Item 4. Information on the Company—Corporate History.”

PROPERTY, PLANT AND EQUIPMENT

As our primary business is to provide various financial services to our clients, we do not own any material factories or facilities that manufacture products. We have no plans to build any factories that manufacture products.

The following table shows the book values of the primary facilities we own, which include three office buildings, two thermal power stations, three solar power stations and two hotels.


	As of March 31, 2021
	Book Value (1)		Land Space (2)
	(Millions of yen)		(Thousands of m²)
Office building (Tachikawa, Tokyo)	¥	11,499		2
Office building (Shiba, Minato-ku, Tokyo)		30,962		2
Office building (Osaka, Osaka)		9,484		2
Thermal power station (Kitakyushu, Fukuoka)		29,168		37
Thermal power station (Soma, Fukushima)		33,278		63
Solar power station (Tsu, Mie)		13,113		1,193
Solar power station (Niigata, Niigata)		12,576		251
Solar power station (Tomakomai, Hokkaido)		11,193		—
Hotel (Beppu, Oita) (3)		21,077		166
Hotel (Kanazawa, Ishikawa)		11,207		2

(1)	Right-of-use assets (hereinafter, “ROU assets”) are included in the book value.

(2)	Land space is provided only for those facilities where we own the land.

(3)	Book value of hotel (Beppu, Oita) includes advances for property under facility operations of ¥3,184 million.

We plan to make capital expenditures totaling approximately ¥578,178 million to support the growth and development of our operating lease business and power generation business during fiscal 2022. The following table shows a breakdown of planned capital expenditures and includes the estimated investment amounts and expected methods of financing the expenditures.


	Fiscal 2022
	Estimated investment amounts		Expected methods of financing
	(Millions of yen)
Operating lease equipment and property	¥	430,000	Funds on hand, bank borrowings, etc.
Power generation equipment		148,178	Funds on hand, bank borrowings, etc.

Total	¥	578,178	—

Our operations are generally conducted in leased office space in cities throughout Japan and in other countries in which we operate. We believe our leased office space is suitable and adequate for our needs. We utilize, or expect to utilize in the near future, substantially all of our leased office space.

We own office buildings, apartment buildings and recreational facilities for our employees and others with an aggregate book value of ¥246,399 million as of March 31, 2021.

As of March 31, 2021, the acquisition cost of equipment we held for operating leases amounted to ¥2,006,993 million, consisting of ¥1,364,559 million of transportation equipment, ¥307,010 million of measuring

and information-related equipment, ¥291,917 million of real estate and ¥43,507 million of others, before accumulated depreciation. Accumulated depreciation on equipment held for operating leases was ¥741,022 million. We also recognized ¥114,268 million of ROU assets of operating leases, ¥28,259 million of accrued rental receivables and ¥(309) million of allowance for doubtful receivables on operating leases as of the same date.

SEASONALITY

Our business is not materially affected by seasonality.

RAW MATERIALS

Our business does not materially depend on the supply of raw materials.

PATENTS, LICENSES AND CONTRACTS

Our business and profitability are not materially dependent on any patents or licenses, industrial, commercial or financial contracts, or new manufacturing processes.

BUSINESS REGULATION

ORIX and its group companies in Japan are incorporated under, and our corporate activities are primarily governed by, the Companies Act and other Japanese laws. However, because certain of ORIX’s group companies are organized in jurisdictions other than Japan, and ORIX and its group companies are involved in diverse businesses, joint ventures and acquisitions in overseas jurisdictions, including in the United States, Europe, Asia and Oceania, we are therefore subject to various laws and regulations in each jurisdiction in which they are organized or operate, including, but not limited to, regulations relating to corporate governance, business and investment approvals, competition, anti-corruption, anti-money laundering and terrorism financing, consumer and business taxation, foreign exchange controls, intellectual property and personal information protection. In recent years, there has been an increasing number of laws and regulations on competition, anti-corruption, anti-money laundering and terrorism financing, and personal data protection that can apply directly to business activities taking place outside of the jurisdiction that enacted such law or regulation (extraterritorial application). Given the need for ORIX and its group companies to deal with the laws and regulations of multiple countries on each legal topic, there has been a tendency for costs to increase as a result of the increasing number of laws and regulations that need to be assessed. In addition, there is an increasing number of cases where significant fines and penalties have been imposed for violations of such laws and regulations. For example, fines for violations of the European Union’s General Data Protection Regulation can be up to 4% of total global turnover and fines for violations of the U.S. Foreign Corrupt Practices Act can be up to twice the benefit sought, in addition to penalties such as disgorgement of profits and prejudgment interest.

The next section describes the main laws and regulations applicable to each of our business segments.

1. Corporate Financial Services and Maintenance Leasing

ORIX and certain of our group companies are engaged in the moneylending business in Japan. The Moneylending Business Act requires that all companies engaged in moneylending business register with the Prime Minister or the relevant prefectural governors. Moneylenders permitted to register are regulated by the Financial Services Agency (“FSA”), and are required to file various notifications and provide documents such as

their annual business reports. Further, moneylenders are required to comply with applicable laws and to establish an internal management system to ensure the appropriate management of money lending operations. These obligations are supervised by the FSA. Accordingly, pursuant to the Moneylending Business Act, ORIX and certain of our group companies have registered with the Prime Minister or various prefectural governors, established the necessary internal systems, and provide the necessary reporting and notification to the FSA. The FSA has the power to issue business improvement orders, suspend all or part of a money lender’s activities, or to revoke the registration of a moneylender that has violated the law, depending on the severity of the violation.

Certain businesses conducted by ORIX and our group companies are governed by the Financial Instruments and Exchange Act. The act was established to regulate activities such as the issuance, sale and purchase of stocks and other securities in order to protect investors and facilitate finance, and requires that any person conducting such activities register with the Prime Minister as a “financial instruments traders.” Financial instruments traders are divided among four classifications depending on the type of business: (1) First Class Financial Instruments Exchange Business, (2) Second Class Financial Instruments Exchange Business, (3) Investment Management Business, and (4) Investment Advisory and Agency Business, and companies in the Corporate Financial Services and Maintenance Leasing segment conducting such activities are registered with the Prime Minister as Second Class Financial Instruments Exchange Businesses. Registered financial instruments traders are obligated to establish an internal management system to ensure compliance with relevant laws and regulations and appropriate management of its business, as well as to provide and deliver material information and explain risks to their customers. The relevant supervisory authority, the FSA, monitors registered financial instruments traders and has the power to order improvement of a business, or suspension of a part or the whole of a business, or to revoke the registration of such a trader that has violated the law, depending on the severity of the violation:

While the ORIX Group includes a life insurance company engaged in the insurance business, ORIX and certain of our group companies are also separately registered with the Prime Minister as insurance agencies for life insurance and/or

non-life

insurance and are subject to Insurance Business Act. As insurance agencies, the companies are obligated to establish certain systems and provide and deliver material information and explain risks to their customers. In the event an insurance agency violates such obligations, the FSA has the power to order improvement of a business, or suspension of a part or the whole of a business, or to revoke the registration of the insurance agency that has violated the law, depending on the severity of the violation. For information on regulations applicable to our insurance business other than our insurance agencies, see “—

Insurance

” below.

Leasing and rental businesses generally do not require registration or licenses. However, the renting of automobiles (operation of a car rental business) and

car-sharing

business is subject to licensing by the Minister of the Ministry of Land, Infrastructure and Transport (“MoLIT”). In addition, the leasing or renting of some types of goods may require compliance with regulations that specify reporting or notification obligations based on certain characteristics of the goods.

2. Real Estate

While it is unnecessary for a company to obtain a license to become a real estate developer, there are various regulations that apply to real estate activities. Certain of our group companies have obtained Construction Business Licenses from MoLIT for constructing buildings and conducting interior finishing work. Furthermore, ORIX and certain of our group companies, including ORIX Real Estate Corporation and DAIKYO, are required to be licensed by MoLIT or relevant prefectural governors under the Building Lots and Buildings Transaction Business Act to engage in activities such as the buying and selling land and buildings in Japan, and their operations are regulated by such laws, including the maintenance of registered real estate transaction managers on staff and the duty to provide and deliver material information to counterparties.

In addition, lodging facilities, such as Japanese inns and hotels, operated by ORIX Hotel Management Corporation have licenses from relevant prefectural governors under the Inns and Hotels Act, etc.

ORIX’s wholly owned subsidiaries ORIX Asset Management Corporation (“OAM”) and ORIX Real Estate Investment Advisors Corporation (“ORIA”) are each registered with the Prime Minister under the Financial Instruments and Exchange Act as an investment manager. Under the Financial Instruments and Exchange Act, any entity possessing voting rights in an investment manager at or above a specified threshold is considered a major shareholder and must report its shareholding to the Prime Minister. ORIX has filed such report as a major shareholder of OAM and ORIA.

ORIA is registered with the Prime Minister under the Financial Instruments and Exchange Act to engage in the investment advisory and agency business and regulated by the FSA.

3. PE Investment and Concession

ORIX conducts investment activities in a broad range of fields without regard for the specific industry. Due to this, we are subject to a wide variety of regulations, including those that are applicable to our investment activities and those that apply due to the type of business conducted by our investees. ORIX generally does not directly involve itself in the management of its investees, but it is necessary for us to pay attention to regulations that apply to our investees so that we can monitor their management.

4. Environment and Energy

The businesses that comprise our renewable energy business, such as our solar power generation business, are subject to and must comply with various requirements and regulations in the jurisdictions where they operate, including the Electricity Business Act, Environmental Impact Assessment Act and Act on Special Measures Concerning Procurement of Electricity from Renewable Energy Sources by Electricity Utilities in Japan and similar laws and regulations in other jurisdictions, when setting up a power generation facility, including business notification requirements, regulations relating to the facility location, and other various regulations, such as those designed to protect the environment and visual landscape and ensure safety from the perspective of disaster prevention.

5. Insurance

In order to engage in the life insurance business, ORIX Life Insurance has obtained and maintains a license from the Prime Minister under the Insurance Business Act. The relevant supervisory authority, the FSA, has the power to conduct broad supervision and guidance of the life insurance industry and to issue business improvement orders, suspend all or part of an insurance company’s activities, or to revoke the license of an insurance company that has violated the law or that has been determined to have an insufficient internal management system, depending on the severity of the violation or insufficiency. It is also generally necessary to receive FSA approval for the sale of new products and to revise pricing terms for existing products.

Any entity attempting to acquire voting rights in an insurance company at or above a specified threshold must receive permission from the Prime Minister in accordance with the Insurance Business Act. ORIX has received such permission as a major shareholder of ORIX Life Insurance.

6. Banking and Credit

ORIX Bank is licensed by the Prime Minister to engage in the banking and trust business and is regulated under the Banking Act and the Act on Engagement in Trust Business by Financial Institutions. The Banking Act governs the general banking business and the Act on Engagement in Trust Business by Financial Institutions and the Trust Business Act govern the trust business. A bank must establish a system for the protection of customers’ interests, which is supervised by the FSA.

In addition, any entity that attempts to obtain voting rights in a bank at or above a specified threshold must receive permission from the Prime Minister in accordance with the Banking Act. ORIX has received such permission as a major shareholder of ORIX Bank.

ORIX Credit is engaged in the business of providing moneylending services to consumers and licensed as a moneylender. For information on regulations applicable to moneylenders, see “—

Corporate Financial Services and Maintenance Leasing

” above.

7. Aircraft and Ships

The business of leasing aircraft and ships generally does not require a license, however it is necessary to register the ownership of aircraft and ships. In most jurisdictions, the lessee under an aircraft lease is responsible for registering the aircraft, while the lessor under a ship lease registers the ship with the appropriate flag state. In the case of ship leases, there are certain regulations that we must comply with because they apply directly not just to the lessee but also the lessor, such environmental regulations.

8. ORIX USA

Certain of our businesses in our ORIX USA segment are subject to extensive regulation in the United States and Brazil. Certain subsidiaries of ORIX Corporation USA manage investment funds and separately managed accounts and are registered as investment advisers with the SEC under the U.S. Investment Advisers Act of 1940, as amended (“Advisers Act”) and are subject to the requirements and regulations of the Advisers Act. Such requirements relate to, among other things, fiduciary duties to advisory clients, maintaining an effective compliance program and code of ethics, operational and marketing requirements, recordkeeping and reporting requirements, disclosure obligations and general anti-fraud prohibitions.

Lument Securities, a wholly owned subsidiary of ORIX Corporation USA, through which we conduct an investment banking and municipal securities business, is registered as a broker-dealer with the SEC and the Financial Industry Regulatory Authority (“FINRA”). Lument Securities is a municipal securities dealer registered with the SEC and the Municipal Securities Rulemaking Board (“MSRB”), and hence is subject to regulation and oversight by the SEC, FINRA, and the MSRB. Lument Securities is registered as a broker-dealer in 37 states, and as a result is a member of and is subject to regulation by FINRA, a self-regulatory organization subject to oversight by the SEC that adopts and enforces rules governing the conduct, and examines the activities, of its member firms. State securities regulators also have regulatory oversight authority over Lument Securities. Broker-dealers are subject to regulations that cover all aspects of the securities business, including, among others, the implementation of a supervisory control system over the securities business, advertising and sales practices, conduct of and compensation in connection with public securities offerings, maintenance of adequate net capital, record keeping and the conduct and qualifications of employees.

By virtue of their involvement in the multifamily and seniors housing mortgage lending business, Lument and its mortgage company subsidiaries must comply with rules and regulations administered by the Government National Mortgage Association, the Federal National Mortgage Association, the Department of Housing and Urban Development/Federal Housing Administration, the United States Department of Agriculture, and the Federal Home Loan Mortgage Corporation.

Certain of ORIX Corporation USA’s subsidiaries are licensed California Finance Lenders.

Boston Financial Investment Management, LP (“BFIM”), a subsidiary of ORIX Corporation USA, is a provider of syndication services as well as asset and portfolio management in the U.S.

Low-Income

Housing Tax Credits industry in connection with financing for the construction and rehabilitation of affordable housing. As the beneficiary of tax credits and often other subsidy and loan programs, a

Low-Income

Housing Tax Credits property is typically regulated at the U.S. federal, state, and local levels.

Day-to-day

responsibility of the

property resides with a third party general partner, who in addition to directing the agent that manages the property, has responsibility for compliance with applicable laws and regulations. As the general partner of a limited partnership, BFIM monitors such compliance on behalf of the other limited partners.

RB Capital Empreendimentos S.A. (“RB Capital”), a majority-owned subsidiary of ORIX Corporation USA headquartered in Sao Paulo, is a Brazilian capital markets and asset management platform. RB Capital and its subsidiaries’ financial and investment activities are regulated by the Central Bank of Brazil and the Securities and Exchange Commission of Brazil and RB Capital is a member of the Brazilian Financial and Capital Markets Association.

9. ORIX Europe

Certain of our businesses in our ORIX Europe segment, which includes entities and businesses that are organized in or operating in jurisdictions outside of Europe, are subject to extensive regulation in various jurisdictions across Europe, the United States and Asia.

Dutch subsidiaries of OCE are subject to European financial supervisory regulation, including, amongst others and as the case may be, the Alternative Investment Fund Managers Directive, the Undertakings for Collective Investment in Transferable Securities (“UCITS”) Directive, the Markets in Financial Instruments Directive, the European Market Infrastructure Regulation, the Market Abuse Regulation, the 5th Anti-Money Laundering Directive, the Benchmark Regulation, the Securities Financing Transactions Regulation and the Shareholder Rights Directive II.

UK-regulated

subsidiaries of OCE are subject to the UK FCA Conduct of Business Sourcebook. U.S. subsidiaries of OCE are subject to regulation, primarily at the federal level, by, as the case may be, the SEC, Department of Labor, Federal Reserve, Office of the Comptroller of the Currency, FINRA, National Futures Association (“NFA”), Department of Justice, Commodity Futures Trading Commission (“CFTC”) and New Hampshire Banking Commission (“NHBC”), as well as being subject to the Advisers Act.

Robeco Institutional Asset Management B.V. (“RIAM”), a subsidiary of OCE, is registered as an alternative investment fund manager (“AIFM”) and fund manager of UCITS in the Netherlands and regulated by the Dutch Authority for the Financial Markets (“AFM”) and the Dutch Central Bank (“DNB”). RIAM has branches and representative offices worldwide, including in Dubai, Germany, Spain, Italy and the United Kingdom, each of which either benefits from RIAM’s European passport or is subject to local regulatory supervision.

Robeco Schweiz AG, a subsidiary of OCE, is authorized and regulated by the Swiss Financial Market Supervisory Authority (“FINMA”). Robeco Schweiz is subject to Swiss legislation, including amongst others, the Federal Act on Collective Investment Schemes, the Federal Ordinance on Collective Investment Schemes , the Financial Services Act , the Financial Institutions Act, the FINMA Collective Investment Schemes Ordinance, the Anti-Money Laundering Act , the FINMA Anti-Money Laundering Ordinance, the FINMA Circular Outsourcing 18/3, the FINMA Circular 2013/08 Market Conduct Rules, the FINMA Circular 2010/1 on Remuneration Principles, the Code of Conduct from the Swiss Asset Management Association and their respective industry Guidelines, which are currently under review.

Certain other subsidiaries of OCE located across Europe, the United States and Asia that are affiliated with the Robeco group are registered, licensed or approved, as the case may be, by regulators in the jurisdictions in which they operate and subject to local regulations regarding their businesses. Such regulators include the AFM, SEC, Securities & Futures Commission of Hong Kong, Financial Services Commission of Korea (“FSC”), Australian Securities and Investments Commission, Asset Management Association of China and Monetary Authority of Singapore.

Transtrend B.V., a wholly owned subsidiary of OCE that offers asset management and commodity trading advisory services, is registered as an AIFM in the Netherlands and regulated by the AFM and DNB. Transtrend is also registered with the NFA and regulated by the CFTC.

Boston Partners Global Investors, Inc. (“Boston Partners”) is a subsidiary of OCE and registered with the SEC as an investment adviser. Boston Partners is also a member of the NFA and is registered as a commodity pool operator and as a commodity trading adviser with the CFTC. Furthermore, Boston Partners is registered with the FSC. Certain subsidiaries of Boston Partners located in the United States and the United Kingdom are also registered with the SEC, NHBC and the UK Financial Conduct Authority (“FCA”).

Harbor Capital Advisors, Inc. (“Harbor”) is a subsidiary of OCE and is registered with the SEC as an investment adviser. Certain subsidiaries of Harbor are registered with the SEC and NHBC.

Gravis Capital Management Limited (“Gravis”) is a UK asset manager and registered as an investment adviser with the FCA. OCE acquired 70% of the shares in Gravis in January 2021.

10. Asia and Australia

Our group companies in our Asia and Australia segment are subject to the laws and regulations of the various jurisdictions across Asia and Oceania in which they operate. Many of the businesses are also subject to oversight by regulatory authorities in those jurisdictions due to the industries in which they operate, particularly those businesses that offer of financial services, such as leasing, lending and banking. Regulatory authorities in these jurisdictions have authority with respect to financial services and can grant, suspend or cancel licenses or registrations that are necessary for our businesses to conduct certain of their operations.

Among group companies in the segment, ORIX Asia Limited is registered with the Hong Kong Monetary Authority as a restricted license bank. A wholly owned subsidiary of ORIX Leasing Malaysia Berhad has a money lending license from the Malaysia Ministry of Housing and Local Government, and is registered with Bank Negara Malaysia. PT. ORIX Indonesia Finance has a financial institution business license and is regulated by the Indonesia Financial Services Authority. ORIX Australia Corporation Limited is registered with the Australian Prudential Regulation Authority as a registered finance corporation. ORIX Capital Korea Corporation is registered with the Korea Financial Supervisory Service as a specialized credit finance business company.

LEGAL PROCEEDINGS

We are a plaintiff or a defendant in various lawsuits arising in the ordinary course of our business. We aggressively manage our pending litigation and assess appropriate responses to lawsuits in light of a number of factors, including the potential impact of the actions on the conduct of our operations. In the opinion of management, none of the pending legal matters is expected to have a material adverse effect on our financial condition or results of operations. However, there can be no assurance that an adverse decision in one or more of these lawsuits will not have a material adverse effect.

Item 4A. Unresolved Staff Comments

None.

Item 5. Operating and Financial Review and Prospects

Table of Contents for Item 5


		Page
Overview		28
Critical Accounting Policies and Estimates		30
Fair Value of Investment and Rental Property		40
Results of Operations		40
Liquidity and Capital Resources		99
Cash Flows		102
Commitments for Capital Expenditures		103
Off-Balance Sheet Arrangements		104
Research and Development, Patents and Licenses, Etc.		104
Trend Information		105
Tabular Disclosure of Contractual Obligations		106
Recent Developments		106
Risk Management		108

OVERVIEW

The following discussion provides management’s explanation of factors and events that have significantly affected our financial condition and results of operations. Also included is management’s assessment of factors and trends which are anticipated to have a material effect on our financial condition and results of operations in the future. However, please be advised that our financial condition and results of operations in the future may also be affected by factors other than those discussed here. This discussion should be read in conjunction with “Item 3. Key Information—Risk Factors” and “Item 18. Financial Statements” included in this annual report.

Basic approach to financial and capital strategy

Regarding funding activities, we strive to maintain a high ratio of long-term funds procured and staggered repayment periods, keeping in mind the diversification and balance of fund procurement methods and sources. We strive to ensure that liquidity on hand is at an appropriate level through stress testing and other means. With regard to shareholders’ equity, we measure risk in all assets using our own method, and strive to monitor the ratio of use of shareholders’ equity at an appropriate level while considering the balance between flexibility and financial soundness for new investments.

We aim to keep maximum effort to maintain A grade. ORIX is working to achieve its goals by measuring and evaluating its capital adequacy, financing conditions, and asset quality internally, and by regularly confirming evaluations from credit rating agencies.

The issuer ratings (or counterparty ratings) that the ORIX Group has obtained from rating agencies as of the filing date of this annual report are

“A-”

for S&P Global Ratings Japan,

“A-”

for Fitch Ratings Japan, “A3” for Moody’s Investors Service, and

“AA-”

for Rating and Investment Information, Inc. (R&I).

Major Use of funding

The ORIX Group’s major uses of funding include purchases of leased assets, such as office equipment, automobiles, IT equipment, measuring equipment, real estate, and aircraft, loans to customers, investments in affiliates, acquisition of subsidiaries, purchases of investment securities, and purchases of business assets.

Results Overview

In fiscal 2021, net income attributable to ORIX corporation shareholders decreased 36% to ¥192.4 billion compared to the previous fiscal year resulting from the impact of restrictions on economic and social activities due to the spread of

COVID-19

affecting some of our businesses. For fiscal 2021, ROE was 6.4%.

The following is a summary of the main factors behind the consolidated business results for fiscal 2021.

The segment profit in fiscal 2021 decreased 28% to ¥318.9 billion to compared to the previous fiscal year due to a decrease in segment profit in Corporate Financial Services and Maintenance Leasing, Real Estate, PE Investment and Concession, Aircraft and Ships, ORIX USA, ORIX Europe, and Asia and Australia, despite an increase in segment profit in Environment and Energy, Insurance, and Banking and Credit.

Corporate Financial Services and Maintenance Leasing Segment’s profit decreased due to a decrease in finance revenues resulting from a decrease in financial assets and a decrease in operating leases revenues in the automobile-related businesses resulting from a decrease in car rental demand.

Real Estate Segment’s profit decreased due to a decrease in services income from our facility operations business resulting from temporary closure and low occupancy rates due to the impact of

COVID-19.

PE Investment and Concession Segment’s profit decreased due to a decrease in equity in net income of affiliates resulting from a substantial decrease in the number of passengers and flights at our three airports in Kansai due to the impact of

COVID-19

and due to the absence of gains on the sale of a subsidiary in our private equity business, which had been recorded during the previous fiscal year.

Environment and Energy Segment’s profit increased mainly due to the recording of gains on sales of an investee involved in wind power generation business in India.

Insurance Segment’s profit increased due to the recording of reversals of policy liability reserves related to variable life insurance contracts.

Banking and Credit Segment’s profit increased due to a decrease in provision for credit losses, which was primarily due to the impacts of a decrease in Consumer loans and Consumer loans guarantee as well as low default rates in ORIX Credit.

Aircraft and Ships Segment’s profit decreased due to a decrease in operating leases revenues, fee income, and equity in net income of affiliates from Avolon due to the impact of

COVID-19.

ORIX USA Segment’s profit decreased due to the absence of gains on sales of equity interests of Houlihan Lokey, Inc., etc., which had been recorded during the previous fiscal year.

ORIX Europe Segment’s profit decreased due to the absence of gains on sale of certain business units which had been recorded during the previous fiscal year.

Asia and Australia Segment’s profit remained substantially unchanged compared to the previous fiscal year despite the absence of losses on valuation of investment securities of an investee in Asia which had been recorded during the previous fiscal year, as well as the recognition of gains on sales of subsidiaries and affiliates in Asia, due to the decrease in equity in net income of affiliates due to the recording of an impairment loss on an investment in an affiliate.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Accounting estimates are an integral part of the financial statements prepared by management and are based upon management’s current judgments. Note 1 of “Item 18. Financial Statements” includes a summary of the significant accounting policies used in the preparation of our consolidated financial statements. Certain accounting estimates are particularly sensitive because of their significance to the consolidated financial statements and the possibility that future events affecting the estimates may differ significantly from management’s current judgments. We consider the accounting estimates discussed in this section to be critical for us for two reasons. First, the estimates require us to make assumptions about matters that are highly uncertain at the time the accounting estimates are made. Second, different estimates that we reasonably could have used in the relevant period, or changes in the accounting estimates that are reasonably likely to occur from period to period, could have a material impact on the presentation of our financial condition, changes in financial condition or results of operations. We believe the following represent our critical accounting policies and estimates.

In addition, we carefully considered the future outlook regarding the spread of the

COVID-19.

As of March 31, 2021, 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.

FAIR VALUE MEASUREMENTS

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, a number of significant judgments, assumptions and estimates may be required. If observable market prices are not available, we use internally-developed valuation techniques, such as discounted cash flow methodologies, to measure fair value. These valuation techniques involve determination of assumptions that market participants would use in pricing the asset or liability. This determination involves significant judgment, and the use of different assumptions and/or valuation techniques could have a material impact on our financial condition or results of operations. Significant assumptions used in measuring fair values have a pervasive effect on various estimates, such as estimates of the allowance for real estate collateral-dependent loans, measurement of impairment of investments in securities, measurement of impairment of goodwill and indefinite-lived intangible assets, measurement of impairment of long-lived assets and recurring measurements of loans held for sale, investments in securities and derivative instruments.

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). We mainly measure certain loans held for sale, trading debt securities,

available-for-sale

debt securities, certain equity securities, derivatives, certain reinsurance recoverables in other assets and variable annuity and variable life insurance contracts in policy liabilities and policy account balances at fair value on a recurring basis. Certain subsidiaries measure certain loans held for sale, certain foreign government bond securities and foreign corporate debt securities included in

available-for-sale

debt securities, certain investment funds included in equity securities, certain reinsurance contracts, and variable annuity and variable life insurance contracts at fair value on a recurring basis as they elected the fair value option.

The following table presents recorded amounts of major financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2021:


	March 31, 2021
	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)
	(Millions of yen)
Financial Assets:
Loans held for sale	¥	63,272	¥	0	¥	63,272	¥	0
Trading debt securities		2,654		0		2,654		0
Available-for-sale debt securities		2,003,917		6,012		1,864,448		133,457
Equity securities		396,465		82,039		223,016		91,410
Derivative assets		22,696		352		8,521		13,823
Other assets		6,297		0		0		6,297

Total	¥	2,495,301	¥	88,403	¥	2,161,911	¥	244,987

Financial Liabilities:
Derivative liabilities	¥	71,034	¥	475	¥	70,526	¥	33
Policy Liabilities and Policy Account Balances		266,422		0		0		266,422

Total	¥	337,456	¥	475	¥	70,526	¥	266,455

Compared to financial assets classified as Level 1 and Level 2, measurements of financial assets classified as Level 3 are particularly sensitive because of their significance to the financial statements and the possibility that future events affecting the fair value measurements may differ significantly from management’s current measurements.

As of March 31, 2021, financial assets measured at fair value on a recurring basis and classified as Level 3 and the percentages of total assets are as follows:


	March 31, 2021
	Significant Unobservable Inputs (Level 3)		Percentage of Total Assets (%)
	(Millions of yen, except percentage data)
Level 3 Assets:
Available-for-sale debt securities	¥	133,457		1
Japanese prefectural and foreign municipal bond securities		2,761		0
Corporate debt securities		1,021		0
Other asset-backed securities and debt securities		129,675		1

Equity securities		91,410		1
Investment funds		91,410		1

Derivative assets		13,823		0
Options held/written and other		13,823		0

Other assets		6,297		0
Reinsurance recoverables		6,297		0

Total Level 3 financial assets	¥	244,987		2

Total assets	¥	13,563,082		100

As of March 31, 2021, the amount of financial assets classified as Level 3 was ¥244,987 million, among financial assets that we measured at fair value on a recurring basis. Level 3 assets represent 2% of our total assets.

Other asset-backed securities and debt securities, and Investment funds classified as Level 3 were ¥129,675 million and ¥91,410 million respectively, as of March 31, 2021, which are 53% and 37% of total Level 3 financial assets, respectively.

Investment funds classified as Level 3 are investments held by the investment companies which are owned by a certain Americas subsidiary, and certain investments in investment funds for which certain subsidiaries elected the fair value option. With respect to investments held by the investment companies which are owned by a certain Americas subsidiary, fair value measurement is based on the combination of discounted cash flow methodologies and market multiple valuation methods, or 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. With respect to certain investments in investment funds for which certain subsidiaries elected the fair value option, the subsidiaries measure their fair value using discounting to net asset value based on inputs that are unobservable in the market, or broker quotes.

With respect to the other asset-backed securities, we determined that due to the lack of observable trades for older vintage and below investment grade securities, we continue to limit the reliance on independent pricing service vendors and brokers. As a result, we established internally developed pricing models using valuation techniques such as discounted cash flow methodologies using Level 3 inputs in order to estimate fair value of these debt securities and classified them as Level 3. Under the models, we 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 other asset-backed securities.

In determining whether the inputs are observable or unobservable, we 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.

For more discussion, see Note 2 of “Item 18. Financial Statements.”

ALLOWANCE FOR CREDIT LOSSES

We estimate all credit losses expected to occur in future over the remaining life of financial assets, and allowance for credit losses is recognized. This evaluation process is subject to management’s estimates and judgments. The estimate made in determining the allowance for credit losses is a critical accounting estimate for all of our segments.

In developing the allowance for credit losses, we consider, among other things, the following factors:

•

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.

There are two methods for estimating the allowance for credit losses; collective evaluation and individual evaluation. We also recognize allowances for

off-balance

sheet credit exposures.

Collective evaluation

When certain financial assets have similar risk characteristics to other financial assets, we collectively evaluate these financial assets as a pool. 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 rates, consumer price indices, unemployment rates, and government bond interest rates. We also consider forward-looking scenarios of how the selected economic indicators will change in the future. We use the latest economic forecasts available from the economic reports published by the government and the Financial Services Agency, the Bank of Japan and third-party information providers as economic indicators.

Individual evaluation

When financial assets do not have similar risk characteristics to other financial assets, we evaluate individually the financial assets. In the individual assessment the allowance for credit losses is estimated individually 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 and purchased 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 and purchased 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.

We charge off doubtful receivables when the likelihood of any future collection is believed to be minimal considering debtor’s creditworthiness and the liquidation status of collateral.

Allowance for

off-balance

sheet credit exposures

If the entity has a present contractual obligation to extend the credit and the obligation is not unconditionally cancelable by the entity, 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.

For loan commitments of card loans and installment loans, credit losses are recognized on the loan commitments for the portion expected to be drawn.

For financial guarantees, the allowance is recognized for the contingent obligation which generates credit risk exposures.

These allowance for

off-balance

sheet credit exposures is measured using the same measurement objectives as the allowance for loans and net investment leases, considering quantitative and qualitative factors including historical loss experience, current conditions and reasonable and supportable forecasts.

The allowance for these

off-balance

sheet credit exposures is recorded in other liabilities on the consolidated balance sheets.

While management considers the allowance is adequate based on the currently available information, additional provisions may be required due to future uncertain events and factors.

IMPAIRMENT OF INVESTMENT IN SECURITIES

We make decisions about impairment of investment in debt securities other than trading and investment in equity securities elected for the measurement alternative as follows.

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. We 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, we consider that credit losses exist when the present value of estimated cash flows is less than the amortized cost basis. When we intend to sell the debt securities for which an allowance for credit losses is previously established or it is more likely than not that we 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, we 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 assessing whether

available-for-sale

debt securities are impaired, we consider all available information relevant to the collectability of the debt security, including but not limited to the following factors:

•

the extent to which the fair value is less than the amortized cost basis;

•

continuing analysis of the underlying collateral, age of the collateral, business climate, economic conditions and geographical considerations;

•

trends in delinquencies and charge-offs;

•

payment structure and subordination levels of the debt security; and

•

changes to the rating of the security by a rating agency.

Held-to-maturity

debt securities are in the scope of Credit Losses Standard, see Note 1 “Significant Accounting and Reporting Policies (h) Allowance for credit losses” of “Item 18. Financial Statements.”

For equity securities elected for the measurement alternative, we determine that the investment shall be 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 assessing whether equity securities elected for the measurement alternative are impaired, we make a qualitative assessment considering impairment indicators, including but not limited to the following factors:

•

a significant deterioration in the earnings performance, credit rating, asset quality, or business prospects of the investee;

•

a significant adverse change in the regulatory, economic, or technological environment of the investee;

•

a significant adverse change in the general market condition of either the geographical area or the industry in which the investee operates;

•

a bona fide offer to purchase, an offer by the investee to sell, or a completed auction process for the same or similar investment for an amount less than the carrying amount of that investment; and

•

factors that raise significant concerns about the investee’s ability to continue as a going concern, such as negative cash flows from operations, working capital deficiencies, or noncompliance with statutory capital requirements or debt covenants.

Determinations of whether investments in securities are impaired often involve estimating the outcome of future events that are highly uncertain at the time the estimates are made. Management judges whether there are any facts that an impairment loss should be recognized, based primarily on objective factors.

If the financial condition of an investee deteriorates, its forecasted performance is not met or actual market conditions are less favorable than those projected by management, we may charge against income additional losses on investment in securities.

The accounting estimates relating to impairment of investment in securities could affect all segments.

IMPAIRMENT OF GOODWILL AND INDEFINITE-LIVED INTANGIBLE ASSETS

We 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, we test for impairment whenever such events or changes occur.

Accounting Standard Update

2017-04

(“Simplifying the Test for Goodwill Impairment”—ASC 350 (“Intangible—Goodwill and Other”)) has been adopted since April 1, 2020. We 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. We 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, we determine that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then we do not perform the impairment test. However, if we conclude otherwise or determine to bypass the qualitative assessment, we 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. We test the goodwill either at the operating segment level or one level below the operating segments.

We 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. We 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, we conclude that it is not more likely than not that the indefinite-lived intangible asset is impaired, then we do not perform the quantitative impairment test. However, if we conclude otherwise, we 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. We 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.

The fair value of a reporting unit under the goodwill impairment test is determined by estimating the outcome of future events and assumptions made by management. Similarly, estimates and assumptions are used in determining the fair value of any indefinite-lived intangible assets. When necessary, we refer to an evaluation by a third party in determining the fair value of a reporting unit; however, such determinations are often made by

using discounted cash flows analyses performed by us. This approach uses numerous estimates and assumptions, including projected future cash flows of a reporting unit, discount rates reflecting the inherent risk, and growth rates. For example, determining the fair value of an asset management contract included in indefinite-lived intangible assets involves the estimated balances of assets under management of the underlying investment funds that provides the asset management service, and estimates and assumptions regarding the WACC. Management believes that the assumptions used in estimating fair value used to determine impairment are reasonable, but we may charge additional losses to income if actual cash flows or any items which affect a fair value are less favorable than those projected by management due to economic conditions or our own risk in the reporting unit.

The accounting estimates relating to impairment of goodwill and any indefinite-lived intangible assets could affect all segments.

IMPAIRMENT OF LONG-LIVED ASSETS

We periodically perform an impairment review for long-lived assets held and used in operations, including tangible assets and intangible assets being depreciated or amortized, consisting primarily of office buildings, condominiums, aircraft, ships, mega solar facilities and other properties under facility operations. The assets are tested for recoverability whenever events or changes in circumstances indicate that those assets might be impaired, including, but not limited to, the following:

•

significant decline in the market value of an asset;

•

significant deterioration in the usage range and method, or physical condition, of an asset;

•

significant deterioration of legal regulatory or business environments, including an adverse action or assessment by a relevant regulator;

•

acquisition and construction costs substantially exceeding estimates;

•

continued operating loss or actual or potential loss of cash flows; or

•

potential loss on a planned sale.

When we determine that assets might be impaired based upon the existence of one or more of the above factors or other factors, we estimate the future cash flows expected to be generated by those assets. For example, we estimate the future cash flows expected to be generated by aircraft mainly based on the underlying operating lease contracts and the appraisals obtained from independent third-party appraisers. Our estimates of the future cash flows are based upon historical trends adjusted to reflect our best estimate of future market and operating conditions. Our estimates also include the expected future periods in which future cash flows are expected. As a result of the recoverability test, when the sum of the estimated future undiscounted cash flows expected to be generated by those assets is less than its carrying amount, and when its fair value is less than its carrying amount, we determine the amount of impairment based on the fair value of those assets.

If the asset is considered impaired, an impairment charge is recorded for the amount by which the carrying amount of the asset exceeds fair value. We 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, as appropriate. Although management believes that the expected future cash flows and the calculations of fair value used to determine impairment are reasonable, if actual market and operating conditions under which assets are operated are less favorable than those projected by management, resulting in lower expected future cash flows or shorter expected future periods to generate such cash flows, additional impairment charges may be required. In addition, changes in estimates resulting in lower fair values due to unanticipated changes in business or operating assumptions could adversely affect the valuations of long-lived assets.

The accounting estimates relating to impairment of long-lived assets could affect all segments.

UNGUARANTEED RESIDUAL VALUE FOR FINANCE LEASES AND OPERATING LEASES

We estimate unguaranteed residual values of leased equipment (such as automobiles, office equipment, etc.) when we calculate unearned lease income to be recognized as income over the lease term for finance leases and when we calculate depreciation amounts for operating leases that carry inherently higher obsolescence and resale risks. Our estimates are based upon current market values of used equipment and estimates of when and how much equipment will become obsolete, and actual recovery being experienced for similar used equipment. If actual demand for

re-lease

or actual market conditions of used equipment is less favorable than that projected by management, write-downs of unguaranteed residual value may be required.

The accounting estimates relating to unguaranteed residual value for finance leases and operating leases affect mainly Corporate Financial Services and Maintenance Leasing segment, and Asia and Australia segment.

INSURANCE POLICY LIABILITIES AND DEFERRED POLICY ACQUISITION COSTS

A certain subsidiary writes life insurance policies to customers. 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. The 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 to adjust recorded liabilities as well as underwriting criteria and product offerings. If actual assumption data, such as mortality, morbidity, lapse rates, investment returns and other factors, do not properly reflect future policyholder benefits, we may establish a premium deficiency reserve.

A certain subsidiary elected the fair value option for the entire variable annuity and variable life insurance contracts with changes in the fair value recognized in earnings. 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. Additionally, 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. Therefore, 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 fair value of the minimum guarantee risk is measured using discounted cash flow methodologies based on discount rates, mortality, lapse rates, annuitization rates and other factors.

Certain subsidiaries ceded a portion of its minimum guarantee risk related to variable annuity and variable life insurance contracts to reinsurance companies in order to mitigate the risk and elected the fair value option for the reinsurance contracts with the remaining risk economically hedged through 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.

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 a subsidiary, less withdrawals, expenses and other charges.

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 first-year commissions,

except for recurring policy maintenance costs and certain variable costs and expenses for underwriting policies. Periodically, deferred policy acquisition costs are reviewed to determine whether relevant insurance and investment income are expected to recover the unamortized balance of the deferred acquisition costs. When such costs are expected to be unrecoverable, they are charged to income in that period. If the historical data, such as lapse rates, investment returns, mortality, morbidity and expense margins, which we use to calculate these assumptions, do not properly reflect future profitability, additional amortization may be required.

The accounting estimates relating to insurance policy liabilities and deferred policy acquisition costs affect Insurance segment.

ASSESSING HEDGE EFFECTIVENESS

We use foreign currency swap agreements, interest rate swap agreements and foreign exchange contracts for hedging purposes and apply fair value hedge, cash flow hedge or net investment hedge accounting to measure and account for subsequent changes in their fair value.

To qualify for hedge accounting, details of the hedging relationship are formally documented at the inception of the arrangement, including the risk management objective, hedging strategy, hedged item, specific risks that are to be hedged, the derivative instrument and how effectiveness is being assessed. Derivatives for hedging purposes must be highly effective in offsetting either changes in fair value or cash flows, as appropriate, for the risk being hedged and effectiveness needs to be assessed at the inception of the relationship.

Hedge effectiveness is assessed quarterly on a retrospective and prospective basis. If specified criteria for the assumption of effectiveness are not met at hedge inception or upon quarterly testing, then hedge accounting is discontinued. To assess effectiveness, we use techniques including regression analysis and the cumulative dollar offset method.

The accounting estimates used to assess hedge effectiveness could affect mainly Insurance segment and Asia and Australia segment.

PENSION PLANS

The determination of our projected benefit obligation and expense for our employee pension benefits is mainly dependent on the size of the employee population, actuarial assumptions, expected long-term rate of return on plan assets and the discount rate used in the accounting.

Pension expense is directly related to the number of employees covered by the plans. Increased employment through internal growth or acquisition would result in increased pension expense.

In estimating the projected benefit obligation, actuaries make assumptions regarding mortality rates, turnover rates, retirement rates and rates of compensation increase. Actual results that differ from the assumptions are accumulated and amortized over future periods and, therefore, affect expense in future periods.

We determine the expected long-term rate of return on plan assets annually based on the composition of the pension asset portfolios and the expected long-term rate of return on these portfolios. The expected long-term rate of return is designed to approximate the long-term rate of return actually earned on the plans’ assets over time to ensure that funds are available to meet the pension obligations that result from the services provided by employees. We use a number of factors to determine the reasonableness of the expected rate of return, including actual historical returns on the asset classes of the plans’ portfolios and independent projections of returns of the various asset classes.

We use March 31 as a measurement date for our pension assets and projected benefit obligation balances under all of our material plans. If we were to assume a 1% increase or decrease in the expected long-term rate of return, holding the discount rate and other actuarial assumptions constant, pension expense for fiscal 2021 would decrease or increase, respectively, by approximately ¥2,543 million.

Discount rates are used to determine the present value of our future pension obligations. The discount rates are reflective of rates available on long-term, high-quality fixed-income debt instruments with maturities that closely correspond to the timing of defined benefit payments. Discount rates are determined annually on the measurement date.

If we were to assume a 1% increase in the discount rate, and keep the expected long-term rate of return and other actuarial assumptions constant, pension expense for fiscal 2021 would decrease by approximately ¥1,976 million. If we were to assume a 1% decrease in the discount rate, and keep other assumptions constant, pension expense for fiscal 2021 would increase by approximately ¥2,799 million.

While we believe the estimates and assumptions used in our pension accounting are appropriate, differences in actual results or changes in these assumptions or estimates could adversely affect our pension obligations and future expenses.

INCOME TAXES

In preparing the consolidated financial statements, we make estimates relating to income taxes of the Company and its subsidiaries in each of the jurisdictions in which we operate. The process involves estimating our actual current income tax position together with assessing temporary differences resulting from different treatment of items for income tax reporting and financial reporting purposes. Such differences result in deferred tax assets and liabilities, which are included within the consolidated balance sheets. We must then assess the likelihood of whether our deferred tax assets will be recovered from future taxable income, and, to the extent we believe that realizability is not more likely than not, we must establish a valuation allowance. When we establish a valuation allowance or increase this allowance during a period, we must include an expense within the provision for income taxes in the consolidated statements of income.

Significant management judgments are required in determining our provision for income taxes, current income taxes, deferred tax assets and liabilities and any valuation allowance recorded against our deferred tax assets. We 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. Management judgments, including the interpretations about the application of the complex tax laws of Japan and certain foreign tax jurisdictions, are required in the process of evaluating tax positions; therefore, these judgments may differ from the actual results. We have recorded a valuation allowance due to uncertainties about our ability to utilize certain deferred tax assets, primarily certain tax loss carryforwards, before they expire. The valuation allowance is primarily recognized for deferred tax assets of consolidated subsidiaries with tax loss carryforwards. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible and tax loss carryforwards are utilizable. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and

tax-planning

strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that all of the deferred tax assets, net of the valuation allowance, will be realized. The valuation allowance is based on our estimates of taxable income by jurisdiction in which we operate and the period over

which our deferred tax assets will be recoverable. If actual results differ from these estimates or if we adjust these estimates in future periods, we may need to establish additional valuation allowances, which could materially impact the consolidated financial position and results of operations.

DISCUSSION WITH AND REVIEW BY THE AUDIT COMMITTEE

Our management discussed the development and selection of each critical accounting estimate with our Audit Committee.

FAIR VALUE OF INVESTMENT AND RENTAL PROPERTY

We own real estate such as rental office buildings, rental logistics centers, rental commercial facilities other than office buildings, rental condominiums and land which is utilized for development as operating leases. A large portion of our real estate held for investment and rental is located around major cities in Japan such as Tokyo. The following table sets forth the carrying amount of investment and rental property as of the beginning and end of fiscal 2021, as well as the fair value as of the end of fiscal 2021.


Year ended March 31, 2021
Carrying amount* 1
Balance at April 1, 2020	Change amount	Balance at March 31, 2021	Fair value at March 31, 2021* 2
	(Millions of yen)
¥309,343	¥41,456	¥350,799	¥410,858

* 1	Carrying amounts are stated as cost less accumulated depreciation and accumulated impairment loss.

* 2	Fair value is either obtained from appraisal reports by external qualified appraisers, calculated by internal appraisal department in accordance with “Real estate appraisal standards,” or calculated by other reasonable internal calculation utilizing similar methods.

Investment and rental property revenue and expense for fiscal 2021 were as follows:


Year Ended March 31, 2021
Revenue* 1	Expense* 2		Net
	(Millions of yen)
¥52,200	¥	31,710	¥	20,490

* 1	Revenue consists of revenue from leases and gains on sales of real estate under operating leases. Revenue from leases is composed of real estate-related revenues from “Operating leases” and “Life insurance premiums and related investment income.”

* 2	Expense consists of costs related to the above revenue such as rental payment, depreciation expense, repair cost, insurance cost, tax and duty which are included in “Costs of operating leases,” and “Write-downs of long-lived assets.”

RESULTS OF OPERATIONS

GUIDE TO OUR CONSOLIDATED STATEMENT OF INCOME

The following discussion and analysis provide information that management believes to be relevant to an understanding of our consolidated financial condition and results of operations. This discussion should be read in conjunction with our consolidated financial statements, including the notes thereto, included in this annual report. See “Item 18. Financial Statements.”

Our consolidated results of operations are presented in the accompanying financial statements with

sub-categorization

of revenues and expenses designed to enable the reader to better understand the diversified operating activities contributing to our overall operating performance.

As further described in “Item 4. Information on the Company,” after developing the Japanese leasing market in 1964, we extended the scope of our operations into various types of businesses which have become significant contributors to our consolidated operating results. Our initial leasing business has expanded into the provision of broader financial services, including direct lending to our lessees and other customers. Initial direct lending broadened into diversified finance such as real estate loans for consumers, loans secured by real estate, unsecured loans and

non-recourse

loans. Through our lending experience, we developed a loan servicing business and a loan securitization business. Through experience gained by our focusing on real estate as collateral for loans, we also developed our real estate leasing, development and management operations.

Furthermore, we also expanded our business by adding securities-related operations, to generate capital gains. Thereafter, we established and acquired a number of subsidiaries and affiliates in Japan and overseas to expand our operations into businesses such as banking, life insurance, real estate and asset management. Investment and Operation Headquarters selectively invests in companies and actively seeks to fulfill the needs of companies involved in or considering M&A activity, including, among other things, management buyouts, privatization or carve-outs of subsidiaries or business units and business succession.

The diversified nature of our operations is reflected in our presentation of operating results through the categorization of our revenues and expenses to align with operating activities. We categorize our revenues into finance revenues, gains on investment securities and dividends, operating leases, life insurance premiums and related investment income, sales of goods and real estate and services income, and these revenues are summarized into a subtotal of “Total revenues” consisting of our “Operating Income” on our consolidated statements of income.

The following provides supplemental explanation of certain account captions on our consolidated statements of income:

Finance revenues include primarily finance leases, interest on loans and interest on investment securities because we believe that capital we deploy is fungible and, whether used to provide financing in the form of loans and leases or through investment in debt securities, the decision to deploy the capital is a banking-type operation that shares the common objective of managing earning assets to generate a positive spread over our cost of borrowings. In addition, revenues from guarantees, which are from commission income by guarantees against loans disbursed by other financial institutions, are also included in finance revenues.

Securities investment activities originated by the Company were extended to certain group companies, including our subsidiaries operating in the Americas.

Sales of goods and real estate consists of revenues from sales of real estate and various types of goods, including precious metals and jewels.

Services income consists of revenues derived from various operations that are considered a part of our recurring operating activities, such as asset management and servicing, automobile related services, facilities operation, environment and energy services, real estate management, brokerage and contract work, maintenance services of software, measurement equipment and other, and fee business.

Similar to our revenues, we categorize our expenses based on our diversified operating activities. “Total expenses” includes mainly interest expense, costs of operating leases, life insurance costs, costs of goods and real estate sold, services expense and selling, general and administrative expenses.

Services expense is directly associated with the sales and revenues separately reported within services income. Interest expense is based on monies borrowed mainly to fund revenue-generating assets, including to purchase equipment for leases, extend loans and invest in securities and real estate operations. We also consider the principal part of selling, general and administrative expenses to be directly related to the generation of revenues. Therefore, they have been included within “Total expenses” deducted to derive “Operating Income.” We similarly view the provision for doubtful receivables and probable loan losses and provision for credit losses to be directly related to our finance activities and accordingly have included it within “Total expenses.” As our principal operations consist of providing financial products and/or finance-related services to our customers, these expenses are directly related to the potential risks and changes in these products and services. See “Year Ended March 31, 2021 Compared to Year Ended March 31, 2020” and “Year Ended March 31, 2020 Compared to Year Ended March 31, 2019.”

We have historically reflected write-downs of long-lived assets under “Operating Income” as related assets, primarily real estate assets, representing significant operating assets under management or development. Accordingly, the write-downs were considered to represent an appropriate component of “Operating Income” derived from the related real estate investment activities. Similarly, as we have identified investment in securities to represent an operating component of our financing activities, write-downs of securities are presented under “Operating Income.”

We believe that our financial statement presentation, as explained above, with the expanded presentation of revenues and expenses, aids in the comprehension of our diversified operating activities in Japan and overseas and supports the fair presentation of our consolidated statements of income.

YEAR ENDED MARCH 31, 2021 COMPARED TO YEAR ENDED MARCH 31, 2020

Performance Summary

Financial Results


	Year ended March 31,				Change
	2020		2021		Amount			Percent (%)
	(Millions of yen, except ratios, per Share data and percentages)
Total revenues	¥	2,280,329	¥	2,292,708	¥	12,379			1
Total expenses		2,010,648		2,033,894		23,246			1
Income before Income Taxes		412,561		287,561		(125,000	)		(30	)
Net Income Attributable to ORIX Corporation Shareholders		302,700		192,384		(110,316	)		(36	)
Earnings per Share (Basic)		237.38		155.54		(81.84	)		(34	)
(Diluted)		237.17		155.39		(81.78	)		(34	)
ROE* 1		10.3		6.4		(3.9	)		—
ROA* 2		2.40		1.44		(0.96	)		—

* 1	ROE is the ratio of Net Income Attributable to ORIX Corporation Shareholders for the period to average ORIX Corporation Shareholders’ Equity based on fiscal year beginning and ending balances.

* 2	ROA is the ratio of Net Income Attributable to ORIX Corporation Shareholders for the period to average Total Assets based on fiscal year beginning and ending balances.

Total revenues for fiscal 2021 increased 1% to ¥2,292,708 million compared to fiscal 2020 due to increases in life insurance premiums and related investment income, and gains on investment securities and dividends despite decreases in services income, and operating leases revenues.

Total expenses for fiscal 2021 increased 1% to ¥2,033,894 million compared to fiscal 2020 due to an increase in life insurance costs despite decreases in interest expense, and services expense.

On the other hand, equity in net income of affiliates for fiscal 2021 decreased 99% to ¥481 million compared to fiscal 2020 and gains on sales of subsidiaries and affiliates and liquidation losses, net for fiscal 2021 decreased 69% to ¥23,300 million compared to fiscal 2020.

Due to the above results and the impact of

COVID-19,

income before income taxes for fiscal 2021 decreased 30% to ¥287,561 million compared to fiscal 2020 and net income attributable to ORIX Corporation shareholders decreased 36% to ¥192,384 million compared to fiscal 2020.

Balance Sheet data


	As of March 31,						Change
	2020			2021			Amount			Percent (%)
	(Millions of yen except ratios, per share and percentages)
Total Assets	¥	13,067,528		¥	13,563,082		¥	495,554			4
(Segment assets)		10,883,545			11,341,789			458,244			4
Total Liabilities		9,991,362			10,459,938			468,576			5
(Short-term and Long-term debt)		4,616,186			4,724,102			107,916			2
(Deposits)		2,231,703			2,317,785			86,082			4
ORIX Corporation Shareholders’ Equity		2,993,608			3,028,456			34,848			1
ORIX Corporation Shareholders’ Equity per share		2,386.35			2,487.77			101.42			4
ORIX Corporation Shareholders’ Equity ratio*		22.9	%		22.3	%		(0.6	)%		—
D/E ratio (Debt-to-equity ratio) (Short-term and Long-term debt (excluding deposits) / ORIX Corporation Shareholders’ Equity)		1.5	x		1.6	x		0.1	x		—

*	ORIX Corporation Shareholders’ Equity ratio is the ratio as of the period end of ORIX Corporation Shareholder’s Equity to total assets.

Total assets increased 4% to ¥13,563,082 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, installment loans and property under facility operations, and furthermore, an increase in allowance for credit losses compared to allowance for doubtful receivables on finance leases and probable loan losses as of March 31, 2020 as a result of the adoption the Credit Losses Standard. In addition, segment assets increased 4% to ¥11,341,789 million compared to the balance as of March 31, 2020.

Total liabilities increased 5% to ¥10,459,938 million compared to the balance as of March 31, 2020 due to increases in deposits, long-term debt, and policy liabilities and policy account balances despite decreases in short-term debt and trade notes, accounts and other payable.

Shareholders’ equity increased 1% to ¥3,028,456 million compared to the balance as of March 31, 2020.

Details of Operating Results

The following is a discussion of certain items in the consolidated statements of income, operating assets in the consolidated balance sheets and other selected financial information, including on a segment by segment basis.

Segment Information

business areas. The ten 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 for fiscal 2021, segment data as of the end of and for fiscal 2020 has been retrospectively restated.

Financial information about the operating segments reported below is that which is available by segment and regularly reviewed by the chief operating decision maker to make decisions about resource allocations and assess performance. The chief operating decision maker evaluates the performance of the segments based on income before income taxes, net income attributable to noncontrolling interests and net income attributable to redeemable noncontrolling interests before applicable tax effect. Tax expenses are excluded from the segment profits.

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 for fiscal 2021. As a result of this change, segment data for fiscal 2020 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 1 of “Item 18. Financial Statements.”

For a description of the business activities of our segments, see “Item 4. Information on the Company—Business Segments.” See Note 34 of “Item 18. Financial Statements” for additional segment information, a discussion of how we prepare our segment information and the reconciliation of segment totals to consolidated financial statement amounts.


	Year ended March 31,						Change
	2020			2021			Amount			Percent (%)
	(Millions of yen, except percentage data)
Segment Revenues:
Corporate Financial Services and Maintenance Leasing	¥	428,036		¥	429,799		¥	1,763			0
Real Estate		468,086			359,798			(108,288	)		(23	)
PE Investment and Concession		296,365			331,222			34,857			12
Environment and Energy		148,423			143,187			(5,236	)		(4	)
Insurance		371,387			491,894			120,507			32
Banking and Credit		84,355			83,724			(631	)		(1	)
Aircraft and Ships		64,650			31,617			(33,033	)		(51	)
ORIX USA		135,709			138,017			2,308			2
ORIX Europe		148,524			160,798			12,274			8
Asia and Australia		137,797			128,309			(9,488	)		(7	)

Segment Total		2,283,332			2,298,365			15,033			1

Difference between Segment Total and Consolidated Amounts		(3,003	)		(5,657	)		(2,654	)		—

Consolidated Amounts	¥	2,280,329		¥	2,292,708		¥	12,379			1


	Year ended March 31,						Change
	2020			2021			Amount			Percent (%)
	(Millions of yen, except percentage data)
Segment Profits:
Corporate Financial Services and Maintenance Leasing	¥	62,978		¥	59,149		¥	(3,829	)		(6	)
Real Estate		80,182			24,684			(55,498	)		(69	)
PE Investment and Concession		44,110			3,431			(40,679	)		(92	)
Environment and Energy		11,625			28,563			16,938			146
Insurance		44,833			55,119			10,286			23
Banking and Credit		39,096			48,030			8,934			23
Aircraft and Ships		45,287			3,755			(41,532	)		(92	)
ORIX USA		56,690			43,614			(13,076	)		(23	)
ORIX Europe		43,778			37,886			(5,892	)		(13	)
Asia and Australia		14,673			14,660			(13	)		(0	)

Segment Total		443,252			318,891			(124,361	)		(28	)

Difference between Segment Total and Consolidated Amounts		(30,691	)		(31,330	)		(639	)		—

Consolidated Amounts	¥	412,561		¥	287,561		¥	(125,000	)		(30	)


	As of March 31,						Change
	2020			2021			Amount			Percent (%)
	(Millions of yen, except percentage data)
Segment Assets:
Corporate Financial Services and Maintenance Leasing	¥	1,789,693		¥	1,658,571		¥	(131,122	)		(7	)
Real Estate		821,194			872,095			50,901			6
PE Investment and Concession		322,522			378,698			56,176			17
Environment and Energy		478,796			506,666			27,870			6
Insurance		1,580,158			1,959,521			379,363			24
Banking and Credit		2,603,736			2,690,627			86,891			3
Aircraft and Ships		585,304			601,762			16,458			3
ORIX USA		1,374,027			1,220,081			(153,946	)		(11	)
ORIX Europe		317,847			369,546			51,699			16
Asia and Australia		1,010,268			1,084,222			73,954			7

Segment Total		10,883,545			11,341,789			458,244			4

Difference between Segment Total and Consolidated Amounts		2,183,983			2,221,293			37,310			2

Consolidated Amounts	¥	13,067,528		¥	13,563,082		¥	495,554			4

Corporate Financial Services and Maintenance Leasing

Segment revenues totaled ¥429,799 million, remaining substantially unchanged from fiscal 2020. This was due to an increase in operating leases revenues from the rental of

IT-related

equipment, mostly offset by lower finance revenues resulting from a decrease in financial assets and lower sales of goods.

Segment profits decreased 6% to ¥59,149 million due to an increase 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 fiscal 2020.

Segment assets decreased 7% to ¥1,658,571 million compared to the end of fiscal 2020. This decrease was mainly due to decreases in net investment in leases, installment loans, and investment in operating leases.

Asset efficiency declined compared to fiscal 2020.


	Year ended March 31,				Change
	2020		2021		Amount			Percent (%)
	(Millions of yen, except percentage data)
Finance revenues	¥	61,402	¥	57,780	¥	(3,622	)		(6	)
Gains on investment securities and dividends		111		1,616		1,505			—
Operating leases		243,977		247,190		3,213			1
Sales of goods and real estate		11,536		10,348		(1,188	)		(10	)
Services income		111,010		112,865		1,855			2

Total Segment Revenues		428,036		429,799		1,763			0

Interest expense		6,203		5,594		(609	)		(10	)
Costs of operating leases		194,162		199,774		5,612			3
Costs of goods and real estate sold		6,814		6,832		18			0
Services expense		53,020		56,447		3,427			6
Selling, general and administrative expenses		87,333		85,662		(1,671	)		(2	)
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities		1,189		0		(1,189	)		—
Provision for credit losses and write-downs of long-lived assets and securities		0		1,405		1,405			—
Other		17,648		16,129		(1,519	)		(9	)

Total Segment Expenses		366,369		371,843		5,474			1

Segment Operating Income		61,667		57,956		(3,711	)		(6	)

Equity in Net income (Loss) of Affiliates, and others		1,311		1,193		(118	)		(9	)

Segment Profits	¥	62,978	¥	59,149	¥	(3,829	)		(6	)


	As of March 31,				Change
	2020		2021		Amount			Percent (%)
	(Millions of yen, except percentage data)
Net investment in leases	¥	648,627	¥	592,874	¥	(55,753	)		(9	)
Installment loans		379,541		330,917		(48,624	)		(13	)
Investment in operating leases		572,492		548,677		(23,815	)		(4	)
Investment in securities		28,616		30,318		1,702			6
Property under facility operations		19,992		18,726		(1,266	)		(6	)
Inventories		736		630		(106	)		(14	)
Advances for finance lease and operating lease		293		500		207			71
Investment in affiliates		18,347		18,049		(298	)		(2	)
Advances for property under facility operations		760		0		(760	)		—
Goodwill, intangible assets acquired in business combinations		120,289		117,880		(2,409	)		(2	)

Total Segment Assets	¥	1,789,693	¥	1,658,571	¥	(131,122	)		(7	)

Real Estate

Our operating facilities have experienced temporary closure and low occupancy rates during fiscal 2021 due to the impact of

COVID-19.

Consequently, services income from our facility operations business decreased. Also, DAIKYO experienced a decrease in services income from real estate contract work due to the dissipation of increased last-minute demand before the consumption tax hike in Japan during fiscal 2020, as well as a decrease in sales of real estate. In addition, there was a decrease in gains on sales of real estate under operating leases. As a result, segment revenues decreased 23% to ¥359,798 million compared to fiscal 2020.

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 fiscal 2020, segment profits decreased 69% to ¥24,684 million compared to fiscal 2020 despite a decrease in services expense and costs of goods and real estate sold.

Investment in operating leases decreased due to the sales of real estate under operating leases. However, this decrease was offset by increases in inventories and advances for finance lease and operating lease. As a result, segment assets increased 6% to ¥872,095 million compared to the end of fiscal 2020.

Asset efficiency declined compared to fiscal 2020.


	Year ended March 31,						Change
	2020			2021			Amount			Percent (%)
	(Millions of yen, except percentage data)
Finance revenues	¥	6,723		¥	6,206		¥	(517	)		(8	)
Operating leases		63,149			46,022			(17,127	)		(27	)
Sales of goods and real estate		122,230			91,348			(30,882	)		(25	)
Services income		276,123			215,805			(60,318	)		(22	)
Other		(139	)		417			556			—

Total Segment Revenues		468,086			359,798			(108,288	)		(23	)

Interest expense		1,849			2,441			592			32
Costs of operating leases		26,654			24,929			(1,725	)		(6	)
Costs of goods and real estate sold		108,637			76,071			(32,566	)		(30	)
Services expense		239,096			202,269			(36,827	)		(15	)
Selling, general and administrative expenses		38,590			35,701			(2,889	)		(7	)
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities		545			0			(545	)		—
Provision for credit losses and write-downs of long-lived assets and securities		0			1,994			1,994			—
Other		1,267			(2,170	)		(3,437	)		—

Total Segment Expenses		416,638			341,235			(75,403	)		(18	)

Segment Operating Income		51,448			18,563			(32,885	)		(64	)

Equity in Net income (Loss) of Affiliates, and others		28,734			6,121			(22,613	)		(79	)

Segment Profits	¥	80,182		¥	24,684		¥	(55,498	)		(69	)

Asset efficiency declined compared to fiscal 2020.


	Year ended March 31,					Change
	2020		2021			Amount			Percent (%)
	(Millions of yen, except percentage data)
Finance revenues	¥	124	¥	152		¥	28			23
Gains on investment securities and dividends		585		846			261			45
Sales of goods and real estate		261,475		301,732			40,257			15
Services income		32,465		22,030			(10,435	)		(32	)
Other		1,716		6,462			4,746			277

Total Segment Revenues		296,365		331,222			34,857			12

Interest expense		1,187		1,736			549			46
Costs of goods and real estate sold		229,905		259,740			29,835			13
Services expense		22,021		15,947			(6,074	)		(28	)
Selling, general and administrative expenses		33,517		35,454			1,937			6
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities		98		0			(98	)		—
Provision for credit losses and write-downs of long-lived assets and securities		0		3,622			3,622			—
Other		802		3,365			2,563			320

Total Segment Expenses		287,530		319,864			32,334			11

Segment Operating Income		8,835		11,358			2,523			29

Equity in Net income (Loss) of Affiliates, and others		35,275		(7,927	)		(43,202	)		—

Segment Profits	¥	44,110	¥	3,431		¥	(40,679	)		(92	)


	As of March 31,				Change
	2020		2021		Amount			Percent (%)
	(Millions of yen, except percentage data)
Net investment in leases	¥	141	¥	1,541	¥	1,400			993
Investment in operating leases		9,367		23,455		14,088			150
Investment in securities		17,916		12,918		(4,998	)		(28	)
Property under facility operations		43,735		43,972		237			1
Inventories		40,263		45,597		5,334			13
Investment in affiliates		68,603		55,421		(13,182	)		(19	)
Advances for property under facility operations		245		6,732		6,487			—
Goodwill, intangible assets acquired in business combinations		142,252		189,062		46,810			33

Total Segment Assets	¥	322,522	¥	378,698	¥	56,176			17

Environment and Energy

Segment revenues decreased 4% to ¥143,187 million compared to fiscal 2020 due to a decrease in services income resulting from a decrease in electricity sales.

Segment profits increased 146% to ¥28,563 million compared to fiscal 2020. This increase was mainly due to the recording of gains of sales of an investee involved in wind power generation business in India.

Segment assets increased 6% to ¥506,666 million compared to the end of fiscal 2020. This increase was due to an increase in investments in affiliates, despite a decrease in business assets.

Asset efficiency improved compared to fiscal 2020.


	Year ended March 31,					Change
	2020			2021		Amount			Percent (%)
	(Millions of yen, except percentage data)
Finance revenues	¥	1,959		¥	2,531	¥	572			29
Services income		141,714			136,360		(5,354	)		(4	)
Other		4,750			4,296		(454	)		(10	)

Total Segment Revenues		148,423			143,187		(5,236	)		(4	)

Interest expense		7,732			10,423		2,691			35
Services expense		111,143			106,299		(4,844	)		(4	)
Selling, general and administrative expenses		11,807			11,929		122			1
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities		2,081			0		(2,081	)		—
Provision for credit losses and write-downs of long-lived assets and securities		0			567		567			—
Other		3,047			1,009		(2,038	)		(67	)

Total Segment Expenses		135,810			130,227		(5,583	)		(4	)

Segment Operating Income		12,613			12,960		347			3

Equity in Net income (Loss) of Affiliates, and others		(988	)		15,603		16,591			—

Segment Profits	¥	11,625		¥	28,563	¥	16,938			146


	As of March 31,					Change
	2020			2021		Amount			Percent (%)
	(Millions of yen, except percentage data)
Net investment in leases	¥	25,355		¥	26,470	¥	1,115			4
Investment in operating leases		1,958			2,051		93			5
Investment in securities		191			814		623			326
Property under facility operations		338,695			262,016		(76,679	)		(23	)
Inventories		394			396		2			1
Advances for finance lease and operating lease		1,861			1,392		(469	)		(25	)
Investment in affiliates		82,253			180,492		98,239			119
Advances for property under facility operations		12,229			19,963		7,734			63
Goodwill, intangible assets acquired in business combinations		15,860			13,072		(2,788	)		(18	)

Total Segment Assets	¥	478,796		¥	506,666	¥	27,870			6

Insurance

Segment revenues increased 32% to ¥491,894 million compared to fiscal 2020. 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 recording of reversals of policy liability reserves related to variable life insurance contracts, etc., segment profits increased 23% to ¥55,119 million compared to fiscal 2020.

Segment assets increased 24% to ¥1,959,521 million compared to the end of fiscal 2020 due to an increase in investment in securities.

Asset efficiency declined compared to fiscal 2020.


	Year ended March 31,				Change
	2020		2021		Amount			Percent (%)
	(Millions of yen, except percentage data)
Finance revenues	¥	220	¥	242	¥	22			10
Life insurance premiums and related investment income		370,144		489,985		119,841			32
Other		1,023		1,667		644			63

Total Segment Revenues		371,387		491,894		120,507			32

Interest expense		1		6		5			500
Life insurance costs		271,943		374,394		102,451			38
Selling, general and administrative expenses		54,216		62,193		7,977			15
Provision for credit losses and write-downs of long-lived assets and securities		0		7		7			—
Other		408		184		(224	)		(55	)

Total Segment Expenses		326,568		436,784		110,216			34

Segment Operating Income		44,819		55,110		10,291			23

Equity in Net income (Loss) of Affiliates, and others		14		9		(5	)		(36	)

Segment Profits	¥	44,833	¥	55,119	¥	10,286			23


	As of March 31,				Change
	2020		2021		Amount			Percent (%)
	(Millions of yen, except percentage data)
Installment loans	¥	17,720	¥	17,315	¥	(405	)		(2	)
Investment in operating leases		29,271		28,909		(362	)		(1	)
Investment in securities		1,528,042		1,908,148		380,106			25
Goodwill, intangible assets acquired in business combinations		5,125		5,149		24			0

Total Segment Assets	¥	1,580,158	¥	1,959,521	¥	379,363			24

Banking and Credit

Segment revenues decreased 1% to ¥83,724 million compared to fiscal 2020. This decrease was primarily due to a decrease in finance income due to a decrease in installment loans in ORIX Credit notwithstanding increases in services income generated from the mortgage bank business of ORIX Credit and finance revenues derived from real estate investment loans in our banking business.

Segment profits increased 23% to ¥48,030 million compared to fiscal 2020 resulting from a decrease in provision for credit losses during fiscal 2021, which was primarily due to the impacts of a decrease in new loan executions as well as low default rates in ORIX Credit.

Segment assets increased 3% to ¥2,690,627 million compared to the end of fiscal 2020 due to an increase in the balance of real estate investment loans in our banking business.

Asset efficiency improved compared to fiscal 2020.


	Year ended March 31,				Change
	2020		2021		Amount			Percent (%)
	(Millions of yen, except percentage data)
Finance revenues	¥	80,868	¥	78,071	¥	(2,797	)		(3	)
Other		3,487		5,653		2,166			62

Total Segment Revenues		84,355		83,724		(631	)		(1	)

Interest expense		4,488		4,931		443			10
Selling, general and administrative expenses		23,639		24,504		865			4
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities		11,971		0		(11,971	)		—
Provision for credit losses and write-downs of long-lived assets and securities		0		508		508			—
Other		5,164		5,754		590			11

Total Segment Expenses		45,262		35,697		(9,565	)		(21	)

Segment Operating Income		39,093		48,027		8,934			23

Equity in Net income (Loss) of Affiliates, and others		3		3		0			—

Segment Profits	¥	39,096	¥	48,030	¥	8,934			23


	As of March 31,				Change
	2020		2021		Amount			Percent (%)
	(Millions of yen, except percentage data)
Installment loans	¥	2,318,347	¥	2,402,916	¥	84,569			4
Investment in securities		273,218		275,740		2,522			1
Investment in affiliates		400		200		(200	)		(50	)
Goodwill, intangible assets acquired in business combinations		11,771		11,771		0			—

Total Segment Assets	¥	2,603,736	¥	2,690,627	¥	86,891			3

Aircraft and Ships

Segment revenues decreased 51% to ¥31,617 million compared to fiscal 2020. This was due to a decrease in operating leases revenues resulting from decreases in both the number of aircraft owned and the number of aircraft sold, a decrease in fee income resulting from the decrease 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 fiscal 2020.

Due to the above-mentioned decrease in revenues and a decrease in equity in net income of affiliates from Avolon, segment profits decreased 92% to ¥3,755 million compared to fiscal 2020.

Segment assets increased 3% to ¥601,762 million compared to the end of fiscal 2020. This increase was mainly due to an increase in installment loans and investment in operating leases in our ship-related business, as well as an increase in investment in affiliates.

Asset efficiency declined compared to fiscal 2020.


	Year ended March 31,					Change
	2020		2021			Amount			Percent (%)
	(Millions of yen, except percentage data)
Finance revenues	¥	2,478	¥	1,172		¥	(1,306	)		(53	)
Operating leases		49,271		27,105			(22,166	)		(45	)
Services income		10,216		3,340			(6,876	)		(67	)
Other		2,685		0			(2,685	)		—

Total Segment Revenues		64,650		31,617			(33,033	)		(51	)

Interest expense		18,402		14,292			(4,110	)		(22	)
Costs of operating leases		15,070		14,188			(882	)		(6	)
Services expense		4,379		655			(3,724	)		(85	)
Selling, general and administrative expenses		9,399		6,863			(2,536	)		(27	)
Provision for credit losses and write-downs of long-lived assets and securities		0		(159	)		(159	)		—
Other		789		372			(417	)		(53	)

Total Segment Expenses		48,039		36,211			(11,828	)		(25	)

Segment Operating Income		16,611		(4,594	)		(21,205	)		—

Equity in Net income (Loss) of Affiliates, and others		28,676		8,349			(20,327	)		(71	)

Segment Profits	¥	45,287	¥	3,755		¥	(41,532	)		(92	)


	As of March 31,					Change
	2020		2021			Amount			Percent (%)
	(Millions of yen, except percentage data)
Net investment in leases	¥	1,839	¥	2,994		¥	1,155			63
Installment loans		24,088		30,757			6,669			28
Investment in operating leases		253,717		262,482			8,765			3
Advances for finance lease and operating lease		4,990		578			(4,412	)		(88	)
Investment in affiliates		284,453		293,469			9,016			3
Goodwill, intangible assets acquired in business combinations		16,217		11,482			(4,735	)		(29	)

Total Segment Assets	¥	585,304	¥	601,762		¥	16,458			3

ORIX USA

Segment revenues increased 2% to ¥138,017 million compared to fiscal 2020. This increase was due to an increase in finance revenues from an increase in the number of new executions in our real estate loan origination and servicing business and an increase in gains on investment securities and dividends in our private equity investing business in the Americas, despite a decrease in services income resulting from a sale of an asset management-related business.

Due to the absence of gains on sales of equity interests of Houlihan Lokey, etc., which had been recorded during fiscal 2020, segment profits decreased 23% to ¥43,614 million compared to fiscal 2020.

Segment assets decreased 11% to ¥1,220,081 million compared to the end of fiscal 2020 due to a decrease in installment loans.

Asset efficiency declined compared to fiscal 2020.


	Year ended March 31,					Change
	2020			2021		Amount			Percent (%)
	(Millions of yen, except percentage data)
Finance revenues	¥	79,973		¥	87,172	¥	7,199			9
Gains on investment securities and dividends		15,956			24,510		8,554			54
Services income		37,116			22,546		(14,570	)		(39	)
Other		2,664			3,789		1,125			42

Total Segment Revenues		135,709			138,017		2,308			2

Interest expense		25,143			16,280		(8,863	)		(35	)
Services expense		3,235			2,765		(470	)		(15	)
Selling, general and administrative expenses		66,931			68,081		1,150			2
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities		8,251			0		(8,251	)		—
Provision for credit losses and write-downs of long-lived assets and securities		0			13,480		13,480			—
Other		(219	)		1,496		1,715			—

Total Segment Expenses		103,341			102,102		(1,239	)		(1	)

Segment Operating Income		32,368			35,915		3,547			11

Equity in Net income (Loss) of Affiliates, and others		24,322			7,699		(16,623	)		(68	)

Segment Profits	¥	56,690		¥	43,614	¥	(13,076	)		(23	)


	As of March 31,					Change
	2020			2021		Amount			Percent (%)
	(Millions of yen, except percentage data)
Net investment in leases	¥	1,172		¥	458	¥	(714	)		(61	)
Installment loans		778,249			617,822		(160,427	)		(21	)
Investment in operating leases		9,148			5,317		(3,831	)		(42	)
Investment in securities		320,217			342,631		22,414			7
Property under facility operations and servicing assets		66,416			72,094		5,678			9
Inventories		1,442			603		(839	)		(58	)
Advances for finance lease and operating lease		1,259			378		(881	)		(70	)
Investment in affiliates		52,361			43,816		(8,545	)		(16	)
Goodwill, intangible assets acquired in business combinations		143,763			136,962		(6,801	)		(5	)

Total Segment Assets	¥	1,374,027		¥	1,220,081	¥	(153,946	)		(11	)

ORIX Europe

Segment revenues increased 8% to ¥160,798 million compared to fiscal 2020. This increase was due to an increase in gains on investment securities and dividends.

Segment profits decreased 13% to ¥37,886 million due to the absence of gains on sale of some business unit which had been recorded during fiscal 2020, despite a decrease in selling, general and administrative expenses.

Segment assets increased 16% to ¥369,546 million compared to the end of fiscal 2020. This was mainly due to an increase in investment in securities, as well as increases in goodwill, intangible assets acquired in business combinations due to the effect of changes in foreign exchange rates.

Asset efficiency declined compared to fiscal 2020.


	Year ended March 31,						Change
	2020			2021			Amount			Percent (%)
	(Millions of yen, except percentage data)
Finance revenues	¥	559		¥	171		¥	(388	)		(69	)
Gains on investment securities and dividends		(2,079	)		10,239			12,318			—
Services income		150,044			150,388			344			0

Total Segment Revenues		148,524			160,798			12,274			8

Interest expense		1,136			1,125			(11	)		(1	)
Services expense		35,624			39,877			4,253			12
Selling, general and administrative expenses		81,383			73,526			(7,857	)		(10	)
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities		(17	)		0			17			—
Provision for credit losses and write-downs of long-lived assets and securities		0			34			34			—
Other		(62	)		6,836			6,898			—

Total Segment Expenses		118,064			121,398			3,334			3

Segment Operating Income		30,460			39,400			8,940			29

Equity in Net income (Loss) of Affiliates, and others		13,318			(1,514	)		(14,832	)		—

Segment Profits	¥	43,778		¥	37,886		¥	(5,892	)		(13	)


	As of March 31,						Change
	2020			2021			Amount			Percent (%)
	(Millions of yen, except percentage data)
Investment in securities	¥	38,057		¥	45,540		¥	7,483			20
Investment in affiliates		1,495			1,770			275			18
Goodwill, intangible assets acquired in business combinations		278,295			322,236			43,941			16

Total Segment Assets	¥	317,847		¥	369,546		¥	51,699			16

Asia and Australia

Segment revenues decreased 7% to ¥128,309 million compared to fiscal 2020. The decrease was due to decreases in services income and finance revenues, as well as the absence of gains on investment securities of an investee in Asia which had been recorded during fiscal 2020.

In addition to the above-mentioned reasons, despite the absence of losses on valuation of investment securities of an investee in Asia which had been recorded during fiscal 2020, as well as the recognition of gains on sales of subsidiaries and affiliates in Asia, due to the decrease in equity in net income of affiliates due to the recording of an impairment loss on an investment in an affiliate, segment profits remained substantially unchanged compared to fiscal 2020 at ¥14,660 million.

Segment assets increased 7% to ¥1,084,222 million compared to the end of fiscal 2020. The increase was mainly due to an increase in installment loans and investment in operating leases.

Asset efficiency declined compared to fiscal 2020.


	Year ended March 31,					Change
	2020		2021			Amount			Percent (%)
	(Millions of yen, except percentage data)
Finance revenues	¥	43,694	¥	39,931		¥	(3,763	)		(9	)
Gains on investment securities and dividends		8,971		7,578			(1,393	)		(16	)
Operating leases		66,322		68,104			1,782			3
Services income		18,323		12,631			(5,692	)		(31	)
Other		487		65			(422	)		(87	)

Total Segment Revenues		137,797		128,309			(9,488	)		(7	)

Interest expense		23,329		18,043			(5,286	)		(23	)
Costs of operating leases		49,529		50,954			1,425			3
Services expense		13,082		8,881			(4,201	)		(32	)
Selling, general and administrative expenses		27,012		25,854			(1,158	)		(4	)
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities		15,318		0			(15,318	)		—
Provision for credit losses and write-downs of long-lived assets and securities		0		3,514			3,514			—
Other		1,986		1,003			(983	)		(49	)

Total Segment Expenses		130,256		108,249			(22,007	)		(17	)

Segment Operating Income		7,541		20,060			12,519			166

Equity in Net income (Loss) of Affiliates, and others		7,132		(5,400	)		(12,532	)		—

Segment Profits	¥	14,673	¥	14,660		¥	(13	)		(0	)


	As of March 31,					Change
	2020		2021			Amount			Percent (%)
	(Millions of yen, except percentage data)
Net investment in leases	¥	330,346	¥	338,603		¥	8,257			2
Installment loans		222,465		271,038			48,573			22
Investment in operating leases		195,660		235,182			39,522			20
Investment in securities		29,248		32,804			3,556			12
Property under facility operations		2,600		1,284			(1,316	)		(51	)
Inventories		242		377			135			56
Advances for finance lease and operating lease		1,742		3,064			1,322			76
Investment in affiliates		221,853		195,413			(26,440	)		(12	)
Goodwill, intangible assets acquired in business combinations		6,112		6,457			345			6

Total Segment Assets	¥	1,010,268	¥	1,084,222		¥	73,954			7

Revenues, New Business Volumes and Investments Finance revenues
	Year ended March 31,					Change
	2020		2021			Amount			Percent (%)
	(Millions of yen, except percentage data)
Finance revenues:
Finance revenues	¥	276,864	¥	271,194		¥	(5,670	)		(2	)

Finance revenues decreased 2% to ¥271,194 million for fiscal 2021 compared to fiscal 2020 primarily due to a decrease in the average balance of installment loans and net investment in leases.

Net investment in leases


	As of and for the year ended March 31,				Change
	2020		2021		Amount			Percent (%)
	(Millions of yen, except percentage data)
Net investment in leases:
New equipment acquisitions	¥	444,841	¥	346,518	¥	(98,323	)		(22	)
Japan		244,087		192,708		(51,379	)		(21	)
Overseas		200,754		153,810		(46,944	)		(23	)
Net investment in leases		1,080,964		1,029,518		(51,446	)		(5	)

New equipment acquisitions related to net investment in leases decreased 22% to ¥346,518 million compared to fiscal 2020. In Japan, new equipment acquisitions decreased 21% in fiscal 2021 compared to fiscal 2020 due to a decreasing trend in new acquisition including auto leases. In overseas, new equipment acquisitions decreased 23% in fiscal 2021 compared to fiscal 2020 due to decreases in Asia.

Net investment in leases as of March 31, 2021 decreased 5% to ¥1,029,518 million compared to March 31, 2020 mainly due to decreases in assets in Japan.

As of March 31, 2021, no single lessee represented more than 1% of the balance of net investment in leases. As of March 31, 2021, 67% of our net investment in leases were to lessees in Japan, while 33% were to overseas lessees. 7% and 5% of our net investment in leases were to lessees in China and Malaysia, respectively. No other overseas country represented more than 5% of our total portfolio of net investment in leases.


	As of March 31,				Change
	2020		2021		Amount			Percent (%)
	(Millions of yen, except percentage data)
Net investment in leases by category:
Transportation equipment	¥	457,405	¥	437,759	¥	(19,646	)		(4	)
Industrial equipment		210,248		212,655		2,407			1
Electronics		134,775		121,021		(13,754	)		(10	)
Information-related and office equipment		104,218		95,708		(8,510	)		(8	)
Commercial services equipment		45,062		42,339		(2,723	)		(6	)
Other		129,256		120,036		(9,220	)		(7	)

Total	¥	1,080,964	¥	1,029,518	¥	(51,446	)		(5	)

For further information, see Note 6 and 7 of “Item 18. Financial Statements.”

Installment loans


	As of and for the year ended March 31,				Change
	2020		2021		Amount			Percent (%)
	(Millions of yen, except percentage data)
Installment loans:
New loans added	¥	1,529,175	¥	1,198,028	¥	(331,147	)		(22	)
Japan		1,134,586		862,930		(271,656	)		(24	)
Overseas		394,589		335,098		(59,491	)		(15	)
Installment loans		3,740,486		3,670,784		(69,702	)		(2	)

Note:

The balance of installment loans related to our life insurance operations is included in installment loans in our consolidated balance sheets; however, income and losses on these loans are recorded in life insurance premiums and related investment income in our consolidated statements of income.

New loans added decreased 22% to ¥1,198,028 million compared to fiscal 2020. In Japan, new loans added decreased 24% to ¥862,930 million in fiscal 2021 compared to fiscal 2020. In Overseas, new loans added decreased 15% to ¥335,098 million compared to fiscal 2020 mainly due to decreased lending activity in the Americas.

The balance of installment loans as of March 31, 2021 decreased 2% to ¥3,670,784 million compared to March 31, 2020, mainly due to the collection amount exceeded the new loans added.


	As of March 31,				Change
	2020		2021		Amount			Percent (%)
	(Millions of yen, except percentage data)
Installment loans:
Consumer borrowers in Japan
Real estate loans	¥	1,842,131	¥	1,995,031	¥	152,900			8
Card loans		223,651		188,547		(35,104	)		(16	)
Other		32,618		27,698		(4,920	)		(15	)

Subtotal		2,098,400		2,211,276		112,876			5

Corporate borrowers in Japan
Real estate companies		300,984		279,046		(21,938	)		(7	)
Non-recourse loans		48,566		47,956		(610	)		(1	)
Commercial, industrial and other companies		255,309		203,890		(51,419	)		(20	)

Subtotal		604,859		530,892		(73,967	)		(12	)

Overseas
Real estate companies		250,195		197,074		(53,121	)		(21	)
Non-recourse loans		83,515		113,129		29,614			35
Commercial, industrial companies and other		690,299		606,062		(84,237	)		(12	)

Subtotal		1,024,009		916,265		(107,744	)		(11	)

Purchased loans*		13,218		12,351		(867	)		(7	)

Total	¥	3,740,486	¥	3,670,784	¥	(69,702	)		(2	)

*	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.

As of March 31, 2021, ¥17,315 million, or 0.6%, of our portfolio of installment loans to consumer and corporate borrowers in Japan related to our life insurance operations. We reflect income from these loans as life insurance premiums and related investment income in our consolidated statements of income.

As of March 31, 2021, ¥476,120 million, or 13%, of the balance of installment loans were to real estate companies in Japan and overseas.

The balance of installment loans to consumer borrowers in Japan as of March 31, 2021 increased 5% to ¥2,211,276 million compared to the balance as of March 31, 2020, primarily due to an increase in the balance of real estate loans for consumer. The balance of installment loans to corporate borrowers in Japan as of March 31, 2021 decreased 12% to ¥530,892 million compared to the balance as of March 31, 2020, mainly due to the collection amount exceeded the new loans added. The balance of installment loans in Overseas as of March 31, 2021 decreased 11% to ¥916,265 million compared to the balance as of March 31, 2020 in line with the aforementioned increase in the Americas.

For further information, see Note 9 of “Item 18. Financial Statements.”

Asset quality

Net investment in leases


	As of March 31,
	2020			2021
	(Millions of yen, except percentage data)
90+ days past-due net investment in leases/Non-performing net investment in leases and allowances for doubtful receivables/credit losses on net investment in leases:
90+ days past-due net investment in leases/Non-performing net investment in leases	¥	15,346		¥	18,925
90+ days past-due net investment in leases/Non-performing net investment in leases as a percentage of the balance of net investment in leases		1.42	%		1.84	%
Provision for doubtful receivables/credit losses as a percentage of the average balance of net investment in leases*		0.29	%		0.31	%
Allowance for doubtful receivables/credit losses on net investment in leases	¥	11,692		¥	16,522
Allowance for doubtful receivables/credit losses on net investment in leases as a percentage of the balance of net investment in leases		1.08	%		1.60	%
The ratio of charge-offs as a percentage of the average balance of net investment in leases*		0.25	%		0.25	%

Notes:

Credit Losses Standard has been adopted since April 1, 2020, and the amounts of allowance for doubtful receivables on finance leases have been reclassified to allowance for credit losses on net investment in leases. In addition, 90+ days

past-due

net investment in leases have been changed to

Non-performing

net investment in leases.

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

The balance of

non-performing

net investment in leases as of March 31, 2021 increased ¥3,579 million to ¥18,925 million compared to the balance of 90+ days

past-due

net investment in leases as of March 31, 2020. As a result, the

non-performing

net investment in leases as a percentage of net investment in leases as of March 31, 2021 increased 0.42% to 1.84% from the 90+ days

past-due

net investment in leases as a percentage of net investment in leases as of March 31, 2020. Due to the change in the method of estimation of allowance for credit losses due to application of the Credit Losses Standard, the balance of allowance for credit losses on net investment in leases as of March 31, 2021 was ¥16,522 million, and as a percentage of the balance of net investment in leases as of March 31, 2021 increase 1.60% from allowance for doubtful receivables on net investment in leases as a percentage of the balance of net investment in leases as of March 31, 2020.

We believe that the ratio of allowance for credit losses to the balance of investment in net investment in leases provides a reasonable indication that our allowance for credit losses was appropriate as of March 31, 2021 for the following reasons:

•

lease receivables are generally diversified and the amount of realized loss on any particular contract is likely to be relatively small; and

•

all lease contracts are secured by collateral consisting of the underlying leased assets, and we can expect to recover at least a portion of the outstanding lease receivables by selling the collateral.

Loans not individually assessed for credit losses


	As of March 31,
	2020			2021
	(Millions of yen, except percentage data)
90+ days past-due loans not individually evaluated for impairment/Non-performing loans not individually assessed for credit losses and allowance for probable loan losses/credit losses on installment loans not individually assessed for credit losses:
90+ days past-due loans not individually evaluated for impairment/Non-performing loans not individually assessed for credit losses	¥	10,264		¥	28,181
90+ days past-due loans not individually evaluated for impairment/Non-performing loans not individually assessed for credit losses as a percentage of the balance of installment loans not individually assessed for credit losses		0.28	%		0.78	%
Provision for probable loan losses/credit losses as a percentage of the average balance of installment loans not individually assessed for credit losses*		0.43	%		0.02	%
Allowance for probable loan losses/credit losses on installment loans not individually assessed for credit losses	¥	31,697		¥	44,064
Allowance for probable loan losses/credit losses on installment loans not individually assessed for credit losses as a percentage of the balance of installment loans not individually assessed for credit losses		0.87	%		1.22	%
The ratio of charge-offs as a percentage of the average balance of loans not individually assessed for credit losses*		0.43	%		0.37	%

Notes:

Credit Losses Standard has been adopted since April 1, 2020, and the amounts of allowance for probable loan losses have been reclassified to allowance for credit losses. In addition, 90+ days

past-due

loans not individually evaluated for impairment have been changed to

Non-performing

loans not individually assessed for credit losses.

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

The provision as a percentage of the average balance of installment loans not individually assessed for credit losses in fiscal 2021 compared to fiscal 2020 decreased due to the reversal occurred in fiscal 2021, mainly because of the improvement of forecasted future economic indicators such as GDP growth rates and unemployment rates in the Americas compared to the beginning of the year.

The balance of

non-performing

loans not individually assessed that are estimated for credit losses by using installment loans with similar risk characteristics as one pool was ¥28,181 million as of March 31, 2021.


	As of March 31,
	2020		2021
	(Millions of yen)
90+ days past-due loans not individually evaluated for impairment/Non-performing loans not individually assessed for credit losses:
Consumer borrowers
Real estate loans	¥	1,370	¥	1,633
Card loans		1,708		1,132
Other		7,025		6,823

Subtotal		10,103		9,588

Corporate borrowers in Japan
Real estate companies		0		31

Subtotal		0		31

Consumer borrowers in Overseas
Real estate companies		0		14,505
Non-recourse loans		0		542
Commercial, industrial and other companies		161		3,515

Subtotal		161		18,562

Total	¥	10,264	¥	28,181

Due to the application of Credit Losses Standard, certain installment loans have been changed to not individually assessed for credit losses from individually evaluated, mainly in the Americas and Asia.

We recognize allowances for real estate loans, card loans and other loans to individual borrowers after careful evaluation of the value of collateral underlying the loans, past loss experience and any economic conditions that we believe may affect the default rate. We determine the allowance for our other items on the basis of past loss experience, general economic conditions and the current portfolio composition.

Loans individually assessed for credit losses


	As of March 31,
	2020		2021
	(Millions of yen)
Non-performing loans individually assessed for credit losses and allowance for probable loan losses/credit losses on installment loans individually assessed for credit losses:
Non-performing installment loans individually assessed for credit losses	¥	85,820	¥	59,757
Allowance for probable loan losses/credit losses on installment loans individually assessed for credit losses*		13,447		13,404

*	The allowance 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.

The provision for probable loan losses/credit losses on installment loans individually assesses for credit losses was ¥6,201 million and ¥15,248 million, respectively, in fiscal 2020 and fiscal 2021. The

charge-off

of impaired loans individually assessed for credit losses was ¥6,478 million and ¥16,356 million, respectively, in

fiscal 2020 and fiscal 2021. The provision of probable loan losses/credit losses for installment loans individual assessed for credit losses increased ¥9,047 million compared to fiscal 2020.

Charge-off

of installment loans individual assessed for credit losses increased ¥9,878 million compared to fiscal 2020.

The table below sets forth the outstanding balance of

non-performing

loans individually assessed for credit losses by region and type of borrower as of the dates indicated. Consumer loans in Japan primarily consist of restructured smaller-balance homogeneous loans individually assessed for credit losses. The balance of individually assessed

non-performing

loans of real estate companies and commercial, industrial and other companies in Overseas decreased due to a decrease in the Americas.


	As of March 31,
	2020		2021
	(Millions of yen)
Non-performing loans individually assessed for credit losses:
Consumer borrowers in Japan
Real estate loans	¥	5,758	¥	8,006
Card loans		3,932		3,693
Other		16,426		16,963

Subtotal		26,116		28,662

Corporate borrowers in Japan
Real estate companies		3,501		1,711
Commercial, industrial and other companies		12,480		7,263

Subtotal		15,981		8,974

Overseas
Real estate companies		12,491		0
Non-recourse loans		2,466		774
Commercial, industrial companies and other		27,161		19,524

Subtotal		42,118		20,298

Purchased loans		1,605		1,823

Total	¥	85,820	¥	59,757

Troubled debt restructuring

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 balance of

pre-modification

outstanding recorded investment of troubled debt restructurings for financing receivables occurred during fiscal 2020 and 2021 were ¥16,826 million and ¥24,002 million, respectively. And the balance of post-modification outstanding recorded investment were ¥13,804 million and ¥19,776 million for fiscal 2020 and 2021, respectively.

While there were certain other payment deferral requests for financing receivables which we accepted, due to the spread of the

COVID-19,

those receivables are not included in the troubled debt restructuring as we determined those deferrals did not meet the definition of troubled debt restructuring.

For further information, see Note 10 and 11 of “Item 18. Financial Statements.”

Allowance for doubtful receivables and probable loan losses and allowance for credit losses

We recognize allowances for doubtful receivables and probable loan losses and allowances for credit losses.


	As of March 31,						Change
	2020			2021			Amount			Percent (%)
	(Millions of yen, except percentage data)
Allowance for doubtful receivables on net investment in leases and probable loan losses on installment loans and allowance for credit losses:
Beginning balance	¥	58,011		¥	55,687		¥	(2,324	)		(4	)
Cumulative Effect of Adopting Accounting Standards Update 2016-13		0			30,376			30,376			—
(Adjusted) Beginning balance		58,011			86,063			28,052			48
Net investment in leases		12,049			15,242			3,193			27
Loans not individually assessed for credit losses		32,231			57,685			25,454			79
Loans individually assessed for credit losses		13,731			13,136			(595	)		(4	)
Provision (Reversal)		24,425			19,113			(5,312	)		(22	)
Net investment in leases		3,304			3,285			(19	)		(1	)
Loans not individually assessed for credit losses		14,920			580			(14,340	)		(96	)
Loans individually assessed for credit losses		6,201			15,248			9,047			146
Charge-offs (net)		(24,132	)		(32,395	)		(8,263	)		34
Net investment in leases		(2,835	)		(2,658	)		177			(6	)
Loans not individually assessed for credit losses		(14,819	)		(13,381	)		1,438			(10	)
Loans individually assessed for credit losses		(6,478	)		(16,356	)		(9,878	)		152
Other*		(1,468	)		1,209			2,677			—
Net investment in leases		(826	)		653			1,479			—
Loans not individually assessed for credit losses		(635	)		(820	)		(185	)		29
Loans individually assessed for credit losses		(7	)		1,376			1,383			—
Ending balance		56,836			73,990			17,154			30
Net investment in leases		11,692			16,522			4,830			41
Loans not individually assessed for credit losses		31,697			44,064			12,367			39
Loans individually assessed for credit losses		13,447			13,404			(43	)		(0	)

Notes:

Credit Losses Standard has been adopted since April 1, 2020, and the amounts of both allowance for doubtful receivables on net investment in leases and allowance for probable loan losses on installment loans have been reclassified to allowance for credit losses.

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

Credit Losses Standard has been adopted since April 1, 2020, and the allowance for credit losses is estimated for all credit losses expected to occur in future over the remaining life of net investment in leases and installment loans, and is recognized adequately based on management judgement. We adopted Credit Losses Standard through a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption.

The provision for probable loan losses on installment loans not individually assessed for credit losses was ¥14,920 million in fiscal 2020 while the provision for credit losses on installment loans not individually assessed for credit losses was ¥580 million in fiscal 2021. The provision in fiscal 2021 compared to fiscal 2020 decreased due to the reversal occurred in fiscal 2021, mainly because of the improvement of forecasted future economic indicators such as GDP growth rates and unemployment rates in the Americas compared to the beginning of the year.

For further information, see Note 10 and 11 of “Item 18. Financial Statements.”

Investment in Securities


	As of and for the year ended March 31,				Change
	2020		2021		Amount			Percent (%)
	(Millions of yen, except percentage data)
Investment in securities:
New securities added	¥	765,589	¥	765,663	¥	74			0
Japan		653,228		698,555		45,327			7
Overseas		112,361		67,108		(45,253	)		(40	)
Investment in securities		2,245,323		2,660,443		415,120			18

Note:

The balance of investment in securities related to our life insurance operations are included in investment in securities in our consolidated balance sheets; however, income and losses on these investment in securities are recorded in life insurance premiums and related investment income in our consolidated statements of income.

New securities added increased to ¥765,663 million in fiscal 2021 compared to fiscal 2020. New securities added in Japan increased 7% in fiscal 2021 compared to fiscal 2020 primarily due to an increase in investments in government bond securities, municipal bond securities and corporate debt securities. New securities added overseas decreased 40% in fiscal 2021 compared to fiscal 2020 primarily due to a decrease in investments in municipal bond securities and CMBS and RMBS in the Americas.

The balance of our investment in securities as of March 31, 2021 increased 18% to ¥2,660,443 million compared to March 31, 2020.


	As of March 31,				Change
	2020		2021		Amount			Percent (%)
	(Millions of yen, except percentage data)
Investment in securities by security type:
Equity securities	¥	492,902	¥	540,082	¥	47,180			10
Trading debt securities		7,431		2,654		(4,777	)		(64	)
Available-for-sale debt securities		1,631,185		2,003,917		372,732			23
Held-to-maturity debt securities		113,805		113,790		(15	)		(0	)

Total	¥	2,245,323	¥	2,660,443	¥	415,120			18

Investments in equity securities as of March 31, 2021 increased 10% to ¥540,082 million compared to March 31, 2020 primarily due to an increase in investment in equity securities with readily determinable fair value in the Europe and fund investment in the Americas. Investments in trading debt securities as of March 31, 2021 decreased 64% to ¥2,654 million compared to March 31, 2020 due to a decrease in investments in CMBS and RMBS in the Americas. Investments in

available-for-sale

debt securities as of March 31, 2021 increased 23% to ¥2,003,917 million compared to March 31, 2020 primarily due to an increase in investments in government bond securities, municipal bond securities and corporate debt securities in Japan.

Held-to-maturity

debt securities mainly consist of our life insurance business’s investment in Japanese government bonds.

For further information, see Note 12 of “Item 18. Financial Statements.”

Gains on investment securities and dividends


	Year ended March 31,				Change
	2020		2021		Amount			Percent (%)
	(Millions of yen, except percentage data)
Gains on investment securities and dividends:
Net gains on investment securities	¥	20,204	¥	44,622	¥	24,418			121
Dividends income		2,295		1,475		(820	)		(36	)

Total	¥	22,499	¥	46,097	¥	23,598			105


Notes:	1.	Income and losses on investment in securities related to our life insurance operations are recorded in life insurance premiums and related investment income in our consolidated statements of income.
	2.	Unrealized changes in fair value of investments in equity securities have been included in “Net gains on investment securities”.

Net gains on investment securities increased 121% to ¥44,622 million in fiscal 2021 compared to fiscal 2020 due to an increase in net unrealized holding gains on equity securities. Dividends income decreased 36% to ¥1,475 million in fiscal 2021 compared to fiscal 2020. Gains on investment securities and dividends increased 105% to ¥46,097 million in fiscal 2021 compared to fiscal 2020 due to an increase in net unrealized holding gains on equity securities despite a decrease in dividends income.

As of March 31, 2021, gross unrealized gains on

available-for-sale

debt securities, including those held in connection with our life insurance operations, were ¥25,291 million, compared to ¥36,017 million as of March 31, 2020. As of March 31, 2021, gross unrealized losses on

available-for-sale

debt securities, including those held in connection with our life insurance operations, were ¥48,021 million, compared to ¥41,712 million as of March 31, 2020.

Operating leases


	As of and for the year ended March 31,				Change
	2020		2021		Amount			Percent (%)
	(Millions of yen, except percentage data)
Operating leases:
Operating lease revenues	¥	430,665	¥	397,065	¥	(33,600	)		(8	)
Costs of operating leases		289,604		295,628		6,024			2
New equipment acquisitions		493,666		302,835		(190,831	)		(39	)
Japan		234,188		174,116		(60,072	)		(26	)
Overseas		259,478		128,719		(130,759	)		(50	)
Investment in operating leases		1,400,001		1,408,189		8,188			1

Revenues from operating leases in fiscal 2021 decreased 8% to ¥397,065 million compared to fiscal 2020 primarily due to not only decreases in both the number of aircraft owned and the number of aircraft sold in the aircraft leasing business, but also a decrease in gains on sales of real estate under operating leases. In fiscal 2020 and 2021, gains from the disposition of operating lease assets were ¥51,072 million and ¥26,358 million, respectively.

Costs of operating leases increased 2% to ¥295,628 million in fiscal 2021 compared to fiscal 2020 primarily due to an increase in depreciation expenses resulting from a year on year increase in the average balance of investment in the rental business of electronic measuring instruments and

IT-related

equipment.

New equipment acquisitions related to operating leases decreased 39% to ¥302,835 million in fiscal 2021 compared to fiscal 2020 primarily due to a decrease in purchases of aircraft overseas.

Investment in operating leases as of March 31, 2021 increased 1% to ¥1,408,189 million compared to March 31, 2020.


	As of March 31,					Change
	2020		2021			Amount			Percent (%)
	(Millions of yen, except percentage data)
Investment in operating leases by category:
Transportation equipment	¥	847,376	¥	873,697		¥	26,321			3
Measuring and information-related equipment		125,897		118,758			(7,139	)		(6	)
Real estate		269,483		249,225			(20,258	)		(8	)
Other		10,308		24,291			13,983			136
Right-of-use assets		121,553		114,268			(7,285	)		(6	)
Accrued rental receivables		25,384		28,259			2,875			11
Allowance for doubtful receivables on operating leases*		0		(309	)		(309	)		—

Total	¥	1,400,001	¥	1,408,189		¥	8,188			1

Credit Losses Standard has been adopted since April 1, 2020, and the allowance for doubtful accrued rental receivables on operating leases, which was previously recorded in allowance for doubtful receivables on finance leases and probable loan losses, has been reclassified to the balance of investment in operating leases.

Investment in transportation equipment operating leases as of March 31, 2021 increased 3% to ¥873,697 million compared to March 31, 2020 primarily due to an increase in new equipment acquisitions in the ship-related business, and an increase in investment in the automobile leasing business resulting from the effect of changes in foreign exchange rates. Investment in measuring and information-related equipment operating leases as of March 31, 2021 decreased 6% to ¥118,758 million compared to March 31, 2020 primarily due to depreciation of equipment held for operating leases in the rental business. Investment in real estate operating leases as of March 31, 2021 decreased 8% to ¥249,225 million compared to March 31, 2020 primarily due to continuous sales of real estate under operating leases in Japan. Investment in other operating leases as of March 31, 2021 increased 136% to ¥24,291 million compared to March 31, 2020 primarily due to an increase resulting from the acquisition of subsidiaries.

For further information, see Note 6 of “Item 18. Financial Statements.”

Life insurance

We reflect all income and losses (other than provision for doubtful receivables and probable loan losses and provision for credit losses) that we recognize on securities, installment loans, real estate under operating leases and other investments held in connection with our life insurance operations as life insurance premiums and related investment income in our consolidated statements of income.


	Year ended March 31,				Change
	2020		2021		Amount		Percent (%)
	(Millions of yen, except percentage data)
Life insurance premiums and related investment income and life insurance costs:
Life insurance premiums	¥	360,583	¥	403,799	¥	43,216		12
Life insurance-related investment income		7,195		83,751		76,556		—

Total	¥	367,778	¥	487,550	¥	119,772		33

Life insurance costs	¥	269,425	¥	374,348	¥	104,923		39


	Year ended March 31,						Change
	2020			2021			Amount			Percent (%)
	(Millions of yen, except percentage data)
Breakdown of life insurance-related investment income (loss):
Net income on investment securities	¥	8,674		¥	94,029		¥	85,355			984
Losses recognized in income on derivative		(1,910	)		(10,680	)		(8,770	)		459
Interest on loans, income on real estate under operating leases, and others		431			402			(29	)		(7	)

Total	¥	7,195		¥	83,751		¥	76,556			—

Life insurance premiums and related investment income increased 33% to ¥487,550 million in fiscal 2021 compared to fiscal 2020.

Life insurance premiums increased 12% to ¥403,799 million in fiscal 2021 compared to fiscal 2020 due to an increase in the number of policies in force.

Life insurance-related investment income increased to ¥83,751 million in fiscal 2021 compared to ¥7,195 million in fiscal 2020. Net income on investment securities increased mainly due to an increase in investment income from assets under variable annuity and variable life insurance contracts.

Life insurance costs increased 39% to ¥374,348 million in fiscal 2021 compared to fiscal 2020 due to the aforementioned increase in the number of policies in force.


	As of March 31,				Change
	2020		2021		Amount			Percent (%)
	(Millions of yen, except percentage data)
Investments by life insurance operations:
Equity securities	¥	264,625	¥	269,167	¥	4,542			2
Available-for-sale debt securities		1,149,612		1,525,191		375,579			33
Held-to-maturity debt securities		113,805		113,790		(15	)		(0	)

Total investment in securities		1,528,042		1,908,148		380,106			25

Installment loans, real estate under operating leases and other investments		46,991		46,224		(767	)		(2	)

Total	¥	1,575,033	¥	1,954,372	¥	379,339			24

Investment in securities as of March 31, 2021 increased 25% to ¥1,908,148 million compared to March 31, 2020 due to an increase in

available-for-sale

debt securities as a result of an increase in investments in government bond securities and corporate debt securities, as well as an increase in equity securities as a result of new investments.

Installment loans, real estate under operating leases and other investments as of March 31, 2021 decreased 2% to ¥46,224 million compared to March 31, 2020.

For further information, see Note 26 of “Item 18. Financial Statements.”

Sales of goods and real estate, Inventories


	Year ended March 31,				Change
	2020		2021		Amount			Percent (%)
	(Millions of yen, except percentage data)
Sales of goods and real estate, Inventories:
Sales of goods and real estate	¥	406,511	¥	410,953	¥	4,442			1
Costs of goods and real estate sold		354,006		347,721		(6,285	)		(2	)
New real estate added		82,442		81,854		(588	)		(1	)
Inventories		126,013		142,156		16,143			13

Sales of goods and real estate increased 1% to ¥410,953 million compared to fiscal 2020 mainly due to an increase in sales of goods of investees, partially offset by a decrease in sales of real estate.

Costs of goods and real estate sold decreased 2% to ¥347,721 million compared to fiscal 2020 due to a decrease in costs of real estate sold. We recognized ¥863 million and ¥2,510 million of write-downs for fiscal 2020 and 2021, respectively, which were included in costs of goods and real estate sold. Costs of goods and real estate sold include the upfront costs associated with advertising and creating model rooms.

New real estate added decreased 1% to ¥81,854 million in fiscal 2021 compared to fiscal 2020.

Inventories as of March 31, 2021 increased 13% to ¥142,156 million compared to March 31, 2020.

For further information, see Note 4 of “Item 18. Financial Statements.”

Services, Property under Facility Operations


	As of and for the year ended March 31,				Change
	2020		2021		Amount			Percent (%)
	(Millions of yen, except percentage data)
Services, Property under Facility Operations
Services income	¥	776,012	¥	679,849	¥	(96,163)			(12	)
Services expense		483,914		439,233		(44,681	)		(9	)
New assets added		34,181		30,143		(4,038	)		(12	)
Japan		33,312		30,053		(3,259	)		(10	)
Overseas		869		90		(779	)		(90	)
Property under Facility Operations		562,485		491,855		(70,630	)		(13	)

Services income decreased 12% to ¥679,849 million in fiscal 2021 compared to fiscal 2020 mainly due to the temporary closure of operating facilities and the sales of a subsidiary and an asset management-related business in fiscal 2020.

Services expense decreased 9% to ¥439,233 million in fiscal 2021 compared to fiscal 2020 mainly due to the temporary closure of operating facilities and the sale of the subsidiary in fiscal 2020, similar to the aforementioned decrease in services income.

New assets added for property under facility operations decreased 12% to ¥30,143 million in fiscal 2021 compared to fiscal 2020 due to the decrease in investments in electric power facilities.

Property under facility operations as of March 31, 2021 decreased 13% to ¥491,855 million compared to March 31, 2020, largely attributed to the sales of investees involved in wind power generation business in India.

For further information, see Note 4 of “Item 18. Financial Statements.”

Expenses

Interest expense

Interest expense decreased 21% to ¥78,068 million in fiscal 2021 compared to ¥99,138 million in fiscal 2020. Our total outstanding short-term debt, long-term debt and deposits as of March 31, 2021 increased 3% to ¥7,041,887 million compared to ¥6,847,889 million as of March 31, 2020.

The average interest rate on our short-term debt, long-term debt and deposits in domestic currency, calculated on the basis of average monthly balances, remained flat in fiscal 2021 at 0.4% compared to 0.4% in fiscal 2020. The average interest rate on our short-term debt, long-term debt and deposits in foreign currency, calculated on the basis of average monthly balances, decreased 0.8% to 2.5% in fiscal 2021 compared to 3.3% in fiscal 2020. For more information regarding our interest rate risk, see “Item 3. Key Information—Risk Factors.” For more information regarding our outstanding debt, see “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Short-term and long-term debt and deposits.”

Other (income) and expense

Other (income) and expense included a net expense of ¥14,925 million during fiscal 2020 and a net expense of ¥17,125 million during fiscal 2021. Foreign currency transaction losses (gains) included in other (income) and expense included gains of ¥1,805 million during fiscal 2021 compared to losses of ¥1,679 million during fiscal 2020. We recognized impairment losses on goodwill and other intangible assets included in other (income) and expense in the amount of ¥2,652 million during fiscal 2021 compared to no impairment losses on goodwill and other intangible assets during fiscal 2020. For further information on our goodwill and other intangible assets, see Note 16 of “Item 18. Financial Statements.”

Selling, general and administrative expenses


	Year ended March 31,				Change
	2020		2021		Amount			Percent (%)
	(Millions of yen, except percentage data)
Selling, general and administrative expenses:
Personnel expenses	¥	256,931	¥	263,026	¥	6,095			2
Selling expenses		75,860		64,749		(11,111	)		(15	)
Administrative expenses		119,694		120,751		1,057			1
Depreciation of office facilities		7,714		8,269		555			7

Total	¥	460,199	¥	456,795	¥	(3,404	)		(1	)

Employee salaries and other personnel expenses accounted for 58% of selling, general and administrative expenses in fiscal 2021, and the remaining portion consists of other expenses, such as rent for office space, communication expenses and travel expenses. Selling, general and administrative expenses in fiscal 2021 decreased 1% year on year.

Write-downs of long-lived assets

As a result of impairment reviews we performed in fiscal 2021 for long-lived assets in Japan and overseas, such as office buildings, commercial facilities other than office buildings, condominiums, hotels, and land undeveloped or under construction, write-downs of long-lived assets decreased 1% to ¥3,020 million in fiscal 2021 compared to ¥3,043 million in fiscal 2020. These write-downs, which are reflected as write-downs of long-lived assets, consisted of impairment losses of ¥331 million on one office building, ¥1,256 million on six commercial facilities other than office buildings, ¥64 million on two condominiums, ¥98 million on two pieces of land undeveloped or under construction and ¥1,271 million on other long-lived assets, because the assets were

classified as held for sale or the carrying amount exceeded the estimated undiscounted future cash flows. In addition, write-downs of other long-lived assets in fiscal 2021 include a write-down of ¥1,099 million of three hotels. For further information, see Note 27 of “Item 18. Financial Statements.”

Write-downs of securities

Write-downs of securities in fiscal 2021 were mainly in connection with foreign

available-for-sale

debt securities and

non-marketable

equity securities. Write-downs of securities decreased to ¥5,935 million in fiscal 2021 compared to ¥11,969 million in fiscal 2020. For further information, see Note 12 of “Item 18. Financial Statements.”

Equity in net income of affiliates

Equity in net income of affiliates decreased in fiscal 2021 to ¥481 million compared to ¥67,924 million in fiscal 2020 due to decreases in the number of passengers and flights at our three airports in Kansai, and equity in net income of affiliates from Avolon. For further information, see Note 15 of “Item 18. Financial Statements.”

Gains on sales of subsidiaries and affiliates and liquidation losses, net

Gains on sales of subsidiaries and affiliates and liquidation losses, net decreased to ¥23,300 million in fiscal 2021 compared to ¥74,001 million in fiscal 2020, due to the favorable profit from sales in Japan, the Americas and the Europe in fiscal 2020. For further information, see Note 3 of “Item 18. Financial Statements.”

Bargain Purchase Gain

In fiscal 2021, we recognized bargain purchase gains of ¥4,966 million associated with two of the acquisitions executed in fiscal 2020 compared to bargain purchase gains of ¥955 million in fiscal 2020. For further information, see Note 3 of “Item 18. Financial Statements.”

Provision for income taxes

Provision for income taxes decreased to ¥90,747 million in fiscal 2021 compared to ¥105,837 million in fiscal 2020 primarily due to lower income before income taxes. For further information, see Note 19 of “Item 18. Financial Statements.”

Net income attributable to the noncontrolling interests

Net income attributable to the noncontrolling interests was recorded as a result of the noncontrolling interests in earnings of certain of our subsidiaries. Net income attributable to the noncontrolling interests in fiscal 2021 was ¥4,453 million, compared to ¥3,640 million in fiscal 2020.

Net income attributable to the redeemable noncontrolling interests

Net income attributable to the redeemable noncontrolling interests was recorded as a result of the noncontrolling interests in the earnings of our subsidiaries that issued redeemable stock. Net income attributable to the redeemable noncontrolling interests in fiscal 2020 was ¥384 million. Net loss attributable to the redeemable noncontrolling interests in fiscal 2021 was ¥23 million. For further information, see Note 21 of “Item 18. Financial Statements.”

Financial Results


	Year ended March 31,				Change
	2019		2020		Amount			Percent (%)
	(Millions of yen, except ratios, per Share data and percentages)
Total revenues	¥	2,434,864	¥	2,280,329	¥	(154,535	)		(6	)
Total expenses		2,105,426		2,010,648		(94,778	)		(5	)
Income before Income Taxes		395,730		412,561		16,831			4
Net Income Attributable to ORIX Corporation Shareholders		323,745		302,700		(21,045	)		(7	)
Earnings per Share (Basic)		252.92		237.38		(15.54	)		(6	)
(Diluted)		252.70		237.17		(15.53	)		(6	)
ROE* 1		11.6		10.3		(1.3	)		—
ROA* 2		2.74		2.40		(0.34	)		—

* 1	ROE is the ratio of Net Income Attributable to ORIX Corporation Shareholders for the period to average ORIX Corporation Shareholders’ Equity based on fiscal year beginning and ending balances.

* 2	ROA is the ratio of Net Income Attributable to ORIX Corporation Shareholders for the period to average Total Assets based on fiscal year beginning and ending balances.

Total revenues for fiscal 2020 decreased 6% to ¥2,280,329 million compared to fiscal 2019 as a result of a decrease in sales of goods and real estate due primarily to a decrease in related revenues from subsidiaries in the private equity business.

Total expenses for fiscal 2020 decreased 5% to ¥2,010,648 million compared to fiscal 2019 due primarily to a decrease in costs of goods and real estate sold in line with the aforementioned decrease in revenues.

Income before income taxes for fiscal 2020 increased 4% to ¥412,561 million compared to fiscal 2019 as a result of increases in equity in net income of affiliates and gains on sales of subsidiaries and affiliates and liquidation losses, net. On the other hand, net income attributable to ORIX Corporation shareholders decreased 7% to ¥302,700 million compared to fiscal 2019 as a result of a decrease in provision for income taxes during fiscal 2019 due to the reversal of the deferred tax liabilities previously recorded for undistributed earnings of DAIKYO.

There was no significant impact on the business performance for fiscal 2020 due to the spread of

COVID-19.

Balance Sheet data


	As of March 31,						Change
	2019			2020			Amount			Percent (%)
	(Millions of yen except ratios, per share and percentages)
Total Assets	¥	12,174,917		¥	13,067,528		¥	892,611			7
(Segment assets)		9,986,916			10,883,545			896,629			9
Total Liabilities		9,211,936			9,991,362			779,426			8
(Short-term and Long-term debt)		4,495,771			4,616,186			120,415			3
(Deposits)		1,927,741			2,231,703			303,962			16
ORIX Corporation Shareholders’ Equity		2,897,074			2,993,608			96,534			3
ORIX Corporation Shareholders’ Equity per share		2,263.41			2,386.35			122.94			5
ORIX Corporation Shareholders’ Equity ratio*		23.8	%		22.9	%		(0.9	)%		—
D/E ratio (Debt-to-equity ratio) (Short-term and Long-term debt (excluding deposits) / ORIX Corporation Shareholders’ Equity)		1.6	x		1.5	x		(0.1	)x		—

*	ORIX Corporation Shareholders’ Equity ratio is the ratio as of the period end of ORIX Corporation Shareholder’s Equity to total assets.

Total assets increased 7% to ¥13,067,528 million compared to the balance as of March 31, 2019 due primarily to not only increases in installment loans and investment in securities, but also increases in investment in operating leases, property under facility operations and office facilities as a result of our adoption of the New Lease Standard. In addition, segment assets increased 9% to ¥10,883,545 million compared to the balance as of March 31, 2019.

Total liabilities increased 8% to ¥9,991,362 million compared to the balance as of March 31, 2019 due primarily to not only increases in long-term debt and deposits, but also an increase in other liabilities as a result of our adoption of the New Lease Standard.

Shareholders’ equity increased 3% to ¥2,993,608 million compared to the balance as of March 31, 2019 due primarily to an increase in retained earnings.

Details of Operating Results

Segment Information

Our operating segments used by the chief operating decision maker to make decisions about resource allocations and assess performance are organized into ten 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 ten 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 for fiscal 2021, segment data as of the end of and for fiscal 2020 has been retrospectively restated.

income before income taxes, net income attributable to noncontrolling interests and net income attributable to redeemable noncontrolling interests before applicable tax effect. Tax expenses are excluded from the segment profits.

The New Lease Standard has been adopted since April 1, 2019. This adoption has resulted in a gross up of ROU assets of investment in operating leases and property under facility operations related to operating leases of land, office and equipment, where the Company is the lessee, as segment assets in all of our segments except for Insurance, Banking and Credit, and ORIX Europe. In addition, segment revenues and segment expenses mainly in Corporate Financial Service and Maintenance Leasing increased as a result of a gross up of revenues and expenses of certain lessor costs. For further information, see Note 1 of “Item 18. Financial Statements.”


	Year ended March 31,						Change
	2019			2020			Amount			Percent (%)
	(Millions of yen, except percentage data)
Segment Revenues:
Corporate Financial Services and Maintenance Leasing	¥	378,767		¥	428,036		¥	49,269			13
Real Estate		531,622			468,086			(63,536	)		(12	)
PE Investment and Concession		467,042			296,365			(170,677	)		(37	)
Environment and Energy		139,654			148,423			8,769			6
Insurance		350,954			371,387			20,433			6
Banking and Credit		78,904			84,355			5,451			7
Aircraft and Ships		71,062			64,650			(6,412	)		(9	)
ORIX USA		122,064			135,709			13,645			11
ORIX Europe		169,889			148,524			(21,365	)		(13	)
Asia and Australia		128,101			137,797			9,696			8

Segment Total		2,438,059			2,283,332			(154,727	)		(6	)

Difference between Segment Total and Consolidated Amounts		(3,195	)		(3,003	)		192			—

Consolidated Amounts	¥	2,434,864		¥	2,280,329		¥	(154,535	)		(6	)


	Year ended March 31,						Change
	2019			2020			Amount			Percent (%)
	(Millions of yen, except percentage data)
Segment Profits:
Corporate Financial Services and Maintenance Leasing	¥	78,310		¥	62,978		¥	(15,332	)		(20	)
Real Estate		93,748			80,182			(13,566	)		(14	)
PE Investment and Concession		23,061			44,110			21,049			91
Environment and Energy		12,144			11,625			(519	)		(4	)
Insurance		51,544			44,833			(6,711	)		(13	)
Banking and Credit		36,434			39,096			2,662			7
Aircraft and Ships		36,422			45,287			8,865			24
ORIX USA		50,056			56,690			6,634			13
ORIX Europe		35,629			43,778			8,149			23
Asia and Australia		7,521			14,673			7,152			95

Segment Total		424,869			443,252			18,383			4

Difference between Segment Total and Consolidated Amounts		(29,139	)		(30,691	)		(1,552	)		—

Consolidated Amounts	¥	395,730		¥	412,561		¥	16,831			4


	As of March 31,						Change
	2019			2020			Amount			Percent (%)
	(Millions of yen, except percentage data)
Segment Assets:
Corporate Financial Services and Maintenance Leasing	¥	1,841,791		¥	1,789,693		¥	(52,098	)		(3	)
Real Estate		759,466			821,194			61,728			8
PE Investment and Concession		279,915			322,522			42,607			15
Environment and Energy		395,606			478,796			83,190			21
Insurance		1,254,471			1,580,158			325,687			26
Banking and Credit		2,316,738			2,603,736			286,998			12
Aircraft and Ships		646,284			585,304			(60,980	)		(9	)
ORIX USA		1,152,891			1,374,027			221,136			19
ORIX Europe		343,080			317,847			(25,233	)		(7	)
Asia and Australia		996,674			1,010,268			13,594			1

Segment Total		9,986,916			10,883,545			896,629			9

Difference between Segment Total and Consolidated Amounts		2,188,001			2,183,983			(4,018	)		(0	)

Consolidated Amounts	¥	12,174,917		¥	13,067,528		¥	892,611			7

Corporate Financial Services and Maintenance Leasing

Segment revenues increased 13% to ¥428,036 million compared to fiscal 2019 due to increases in operating leases revenues and finance leases revenues in our automobile-related business as a result of the adoption of the New Lease Standard.

Segment profits decreased 20% to ¥62,978 million compared to fiscal 2019 due to an increase in the cost of operating leases and other expenses as a result of the adoption of the New Lease Standard mainly in our automobile-related business, as well as an increase in selling, general and administrative expenses resulting from both the adoption of the New Lease Standard which has changed the recognition of some lease related costs from

deferred amortization to expensing as they incurred in our automobile-related business and the acquisition of new investees in our corporate financial services business.

Despite an increase in investment in operating leases as a result of our adoption of the New Lease Standard, segment assets decreased 3% to ¥1,789,693 million compared to the end of fiscal 2019 due to decreases in installment loans and investment in securities.

Asset efficiency declined compared to fiscal 2019.


	Year ended March 31,					Change
	2019			2020		Amount			Percent (%)
	(Millions of yen, except percentage data)
Finance revenues	¥	46,564		¥	61,402	¥	14,838			32
Gains on investment securities and dividends		(744	)		111		855			—
Operating leases		213,403			243,977		30,574			14
Sales of goods and real estate		9,771			11,536		1,765			18
Services income		109,773			111,010		1,237			1

Total Segment Revenues		378,767			428,036		49,269			13

Interest expense		6,832			6,203		(629	)		(9	)
Costs of operating leases		161,539			194,162		32,623			20
Costs of goods and real estate sold		6,115			6,814		699			11
Services expense		47,977			53,020		5,043			11
Selling, general and administrative expenses		76,282			87,333		11,051			14
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities		1,760			1,189		(571	)		(32	)
Other		271			17,648		17,377			—

Total Segment Expenses		300,776			366,369		65,593			22

Segment Operating Income		77,991			61,667		(16,324	)		(21	)

Equity in Net income (Loss) of Affiliates, and others		319			1,311		992			311

Segment Profits	¥	78,310		¥	62,978	¥	(15,332	)		(20	)


	As of March 31,					Change
	2019			2020		Amount			Percent (%)
	(Millions of yen, except percentage data)
Investment in direct financing leases	¥	688,567		¥	0	¥	(688,567	)		—
Net investment in leases		0			648,627		648,627			—
Installment loans		412,363			379,541		(32,822	)		(8	)
Investment in operating leases		546,563			572,492		25,929			5
Investment in securities		38,935			28,616		(10,319	)		(27	)
Property under facility operations		17,974			19,992		2,018			11
Inventories		638			736		98			15
Advances for finance lease and operating lease		765			293		(472	)		(62	)
Investment in affiliates		16,536			18,347		1,811			11
Advances for property under facility operations		0			760		760			—
Goodwill, intangible assets acquired in business combinations		119,450			120,289		839			1

Total Segment Assets	¥	1,841,791		¥	1,789,693	¥	(52,098	)		(3	)

Real Estate

Segment revenues decreased 12% to ¥468,086 million compared to fiscal 2019 due to a decrease in services income, which is associated with sale of significant properties under facility operations during fiscal 2019, as well as a decrease in sales of real estate resulting from a decrease in condominium delivered by DAIKYO.

Although there was a recognition of gains on sales of shares of a subsidiary which operates senior housings, segment profits decreased 14% to ¥80,182 million compared to fiscal 2019 due to the above reasons.

Segment assets increased 8% to ¥821,194 million compared to the end of fiscal 2019 due to an increase in investment in operating leases resulting from the adoption of the New Lease Standard.

Asset efficiency declined compared to fiscal 2019.


	Year ended March 31,						Change
	2019			2020			Amount			Percent (%)
	(Millions of yen, except percentage data)
Finance revenues	¥	6,265		¥	6,723		¥	458			7
Operating leases		72,309			63,149			(9,160	)		(13	)
Sales of goods and real estate		141,489			122,230			(19,259	)		(14	)
Services income		311,590			276,123			(35,467	)		(11	)
Other		(31	)		(139	)		(108	)		—

Total Segment Revenues		531,622			468,086			(63,536	)		(12	)

Interest expense		2,633			1,849			(784	)		(30	)
Costs of operating leases		27,676			26,654			(1,022	)		(4	)
Costs of goods and real estate sold		121,414			108,637			(12,777	)		(11	)
Services expense		262,749			239,096			(23,653	)		(9	)
Selling, general and administrative expenses		38,367			38,590			223			1
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities		1,662			545			(1,117	)		(67	)
Other		723			1,267			544			75

Total Segment Expenses		455,224			416,638			(38,586	)		(8	)

Segment Operating Income		76,398			51,448			(24,950	)		(33	)

Equity in Net income (Loss) of Affiliates, and others		17,350			28,734			11,384			66

Segment Profits	¥	93,748		¥	80,182		¥	(13,566	)		(14	)

Asset efficiency improved compared to fiscal 2019.


	Year ended March 31,					Change
	2019			2020		Amount			Percent (%)
	(Millions of yen, except percentage data)
Finance revenues	¥	116		¥	124	¥	8			7
Gains on investment securities and dividends		850			585		(265	)		(31	)
Sales of goods and real estate		429,447			261,475		(167,972	)		(39	)
Services income		36,629			32,465		(4,164	)		(11	)
Other		0			1,716		1,716			—

Total Segment Revenues		467,042			296,365		(170,677	)		(37	)

Interest expense		1,235			1,187		(48	)		(4	)
Costs of goods and real estate sold		395,502			229,905		(165,597	)		(42	)
Services expense		25,183			22,021		(3,162	)		(13	)
Selling, general and administrative expenses		35,543			33,517		(2,026	)		(6	)
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities		154			98		(56	)		(36	)
Other		(163	)		802		965			—

Total Segment Expenses		457,454			287,530		(169,924	)		(37	)

Segment Operating Income		9,588			8,835		(753	)		(8	)

Equity in Net income (Loss) of Affiliates, and others		13,473			35,275		21,802			162

Segment Profits	¥	23,061		¥	44,110	¥	21,049			91


	As of March 31,					Change
	2019			2020		Amount			Percent (%)
	(Millions of yen, except percentage data)
Investment in direct financing leases	¥	163		¥	0	¥	(163	)		—
Net investment in leases		0			141		141			—
Installment loans		23			0		(23	)		—
Investment in operating leases		0			9,367		9,367			—
Investment in securities		17,798			17,916		118			1
Property under facility operations		25,568			43,735		18,167			71
Inventories		30,217			40,263		10,046			33
Investment in affiliates		59,913			68,603		8,690			15
Advances for property under facility operations		244			245		1			0
Goodwill, intangible assets acquired in business combinations		145,989			142,252		(3,737	)		(3	)

Total Segment Assets	¥	279,915		¥	322,522	¥	42,607			15

Environment and Energy

Segment revenues increased 6% to ¥148,423 million compared to fiscal 2019 due to an increase in services income.

Segment profits decreased 4% to ¥11,625 million compared to fiscal 2019 due to a decrease in equity in net income of affiliates, and others.

Segment assets increased 21% to ¥478,796 million compared to the end of fiscal 2019 due to an increase in property under facility operations resulted from the acquisition of wind power generation companies as wholly-owned subsidiaries and the adoption of the New Lease Standard.

Asset efficiency declined compared to fiscal 2019.


	Year ended March 31,					Change
	2019		2020			Amount			Percent (%)
	(Millions of yen, except percentage data)
Finance revenues	¥	1,362	¥	1,959		¥	597			44
Services income		132,108		141,714			9,606			7
Other		6,184		4,750			(1,434	)		(23	)

Total Segment Revenues		139,654		148,423			8,769			6

Interest expense		5,651		7,732			2,081			37
Services expense		106,264		111,143			4,879			5
Selling, general and administrative expenses		11,172		11,807			635			6
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities		162		2,081			1,919			—
Other		5,460		3,047			(2,413	)		(44	)

Total Segment Expenses		128,709		135,810			7,101			6

Segment Operating Income		10,945		12,613			1,668			15

Equity in Net income (Loss) of Affiliates, and others		1,199		(988	)		(2,187	)		—

Segment Profits	¥	12,144	¥	11,625		¥	(519	)		(4	)


	As of March 31,					Change
	2019		2020			Amount			Percent (%)
	(Millions of yen, except percentage data)
Investment in direct financing leases	¥	25,533	¥	0		¥	(25,533	)		—
Net investment in leases		0		25,355			25,355			—
Installment loans		5		0			(5	)		—
Investment in operating leases		2,030		1,958			(72	)		(4	)
Investment in securities		1,080		191			(889	)		(82	)
Property under facility operations		239,413		338,695			99,282			41
Inventories		559		394			(165	)		(30	)
Advances for finance lease and operating lease		1,340		1,861			521			39
Investment in affiliates		102,053		82,253			(19,800	)		(19	)
Advances for property under facility operations		11,047		12,229			1,182			11
Goodwill, intangible assets acquired in business combinations		12,546		15,860			3,314			26

Total Segment Assets	¥	395,606	¥	478,796		¥	83,190			21

Insurance

Segment revenues increased 6% to ¥371,387 million compared to fiscal 2019 due to an increase in life insurance premiums in line with an increase in new insurance contracts.

Segment profits decreased 13% to ¥44,833 million compared to fiscal 2019 due to an increase in life insurance costs, such as policy liability reserves and insurance payment, which are related to the increase in new insurance contracts, as well as a decrease in investment return, which is associated with significant gains recognized on a sale of real estate property during fiscal 2019.

Segment assets increased 26% to ¥1,580,158 million compared to the end of fiscal 2019 due to increases in investment in securities with the growth of the life insurance business.

Asset efficiency declined compared to fiscal 2019.


	Year ended March 31,					Change
	2019			2020		Amount			Percent (%)
	(Millions of yen, except percentage data)
Finance revenues	¥	221		¥	220	¥	(1	)		(0	)
Life insurance premiums and related investment income		349,207			370,144		20,937			6
Other		1,526			1,023		(503	)		(33	)

Total Segment Revenues		350,954			371,387		20,433			6

Interest expense		1			1		0			—
Life insurance costs		247,809			271,943		24,134			10
Selling, general and administrative expenses		51,985			54,216		2,231			4
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities		29			0		(29	)		—
Other		(414	)		408		822			—

Total Segment Expenses		299,410			326,568		27,158			9

Segment Operating Income		51,544			44,819		(6,725	)		(13	)

Equity in Net income (Loss) of Affiliates, and others		0			14		14			—

Segment Profits	¥	51,544		¥	44,833	¥	(6,711	)		(13	)


	As of March 31,					Change
	2019			2020		Amount			Percent (%)
	(Millions of yen, except percentage data)
Investment in direct financing leases	¥	42		¥	0	¥	(42	)		—
Installment loans		11,778			17,720		5,942			50
Investment in operating leases		29,810			29,271		(539	)		(2	)
Investment in securities		1,208,389			1,528,042		319,653			26
Goodwill, intangible assets acquired in business combinations		4,452			5,125		673			15

Total Segment Assets	¥	1,254,471		¥	1,580,158	¥	325,687			26

Banking and Credit

Segment revenues increased 7% to ¥84,355 million compared to fiscal 2019 due to an increase in finance revenues derived from real estate investment loans in the banking business, and an increase in other income primarily due to an increase in services income of the mortgage bank business.

Despite increases in expenses such as other expenses and selling, general and administrative expenses, due to the above reason, segment profits increased 7% to ¥39,096 million compared to fiscal 2019.

Segment assets increased 12% to ¥2,603,736 million compared to the end of fiscal 2019 primarily due to an increase in installment loans as a result of increasing new executions of real estate investment loans.

Asset efficiency declined compared to fiscal 2019.


	Year ended March 31,				Change
	2019		2020		Amount			Percent (%)
	(Millions of yen, except percentage data)
Finance revenues	¥	76,473	¥	80,868	¥	4,395			6
Other		2,431		3,487		1,056			43

Total Segment Revenues		78,904		84,355		5,451			7

Interest expense		4,078		4,488		410			10
Selling, general and administrative expenses		22,924		23,639		715			3
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities		11,512		11,971		459			4
Other		3,959		5,164		1,205			30

Total Segment Expenses		42,473		45,262		2,789			7

Segment Operating Income		36,431		39,093		2,662			7

Equity in Net income (Loss) of Affiliates, and others		3		3		0			—

Segment Profits	¥	36,434	¥	39,096	¥	2,662			7


	As of March 31,				Change
	2019		2020		Amount			Percent (%)
	(Millions of yen, except percentage data)
Installment loans	¥	2,038,202	¥	2,318,347	¥	280,145			14
Investment in securities		266,361		273,218		6,857			3
Investment in affiliates		404		400		(4	)		(1	)
Goodwill, intangible assets acquired in business combinations		11,771		11,771		0			—

Total Segment Assets	¥	2,316,738	¥	2,603,736	¥	286,998			12

Aircraft and Ships

Segment revenues decreased 9% to ¥64,650 million compared to fiscal 2019. This was primarily due to a decrease in operating leases revenues resulting from decreases in both the number of aircraft owned and the number of aircraft sold, and a decrease in fee income resulting from the decrease in the number of aircraft sold to investors in our aircraft leasing business, despite an increase in operating leases revenues resulting from an increase in the number of ships delivered in the ship-related business.

Segment profits increased 24% to ¥45,287 million compared to fiscal 2019 due to an increase in equity in net income of affiliates from Avolon, a leading global aircraft leasing company located in Ireland whose shares were acquired in fiscal 2019.

Segment assets decreased 9% to ¥585,304 million compared to the end of fiscal 2019. This is primarily due to a decrease in investment in operating leases resulting from the decrease in the number of aircraft owned.

Asset efficiency increased compared to fiscal 2019.


	Year ended March 31,					Change
	2019			2020		Amount			Percent (%)
	(Millions of yen, except percentage data)
Finance revenues	¥	3,095		¥	2,478	¥	(617	)		(20	)
Operating leases		52,625			49,271		(3,354	)		(6	)
Services income		12,406			10,216		(2,190	)		(18	)
Other		2,936			2,685		(251	)		(9	)

Total Segment Revenues		71,062			64,650		(6,412	)		(9	)

Interest expense		13,848			18,402		4,554			33
Costs of operating leases		13,511			15,070		1,559			12
Services expense		4,178			4,379		201			5
Selling, general and administrative expenses		10,246			9,399		(847	)		(8	)
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities		323			0		(323	)		—
Other		3,261			789		(2,472	)		(76	)

Total Segment Expenses		45,367			48,039		2,672			6

Segment Operating Income		25,695			16,611		(9,084	)		(35	)

Equity in Net income (Loss) of Affiliates, and others		10,727			28,676		17,949			167

Segment Profits	¥	36,422		¥	45,287	¥	8,865			24


	As of March 31,					Change
	2019			2020		Amount			Percent (%)
	(Millions of yen, except percentage data)
Investment in direct financing leases	¥	(1	)	¥	0	¥	1			—
Net investment in leases		0			1,839		1,839			—
Installment loans		33,868			24,088		(9,780	)		(29	)
Investment in operating leases		295,982			253,717		(42,265	)		(14	)
Investment in securities		134			0		(134	)		—
Inventories		558			0		(558	)		—
Advances for finance lease and operating lease		7,625			4,990		(2,635	)		(35	)
Investment in affiliates		285,896			284,453		(1,443	)		(1	)
Goodwill, intangible assets acquired in business combinations		22,222			16,217		(6,005	)		(27	)

Total Segment Assets	¥	646,284		¥	585,304	¥	(60,980	)		(9	)

ORIX USA

Segment revenues increased 11% to ¥135,709 million compared to fiscal 2019. This is primary due to an increase in finance revenues derived from NXT Capital Group, LLC (hereinafter, “NXT Capital”) acquired in the fiscal 2019 and Hunt Real Estate Capital (hereinafter, “HREC”) acquired in this fiscal 2020.

Segment profits increased 13% to ¥56,690 million compared to fiscal 2019 due to an increase in gains on sales of shares of subsidiaries and affiliates and a decrease in other expenses.

Segment assets increased 19% to ¥1,374,027 million compared to the end of fiscal 2019 due to an increase in installment loans in NXT Capital and HREC.

Asset efficiency declined compared to fiscal 2019.


	Year ended March 31,					Change
	2019		2020			Amount			Percent (%)
	(Millions of yen, except percentage data)
Finance revenues	¥	65,366	¥	79,973		¥	14,607			22
Gains on investment securities and dividends		16,013		15,956			(57	)		(0	)
Services income		33,895		37,116			3,221			10
Other		6,790		2,664			(4,126	)		(61	)

Total Segment Revenues		122,064		135,709			13,645			11

Interest expense		22,921		25,143			2,222			10
Services expense		6,156		3,235			(2,921	)		(47	)
Selling, general and administrative expenses		55,425		66,931			11,506			21
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities		5,761		8,251			2,490			43
Other		2,773		(219	)		(2,992	)		—

Total Segment Expenses		93,036		103,341			10,305			11

Segment Operating Income		29,028		32,368			3,340			12

Equity in Net income (Loss) of Affiliates, and others		21,028		24,322			3,294			16

Segment Profits	¥	50,056	¥	56,690		¥	6,634			13


	As of March 31,					Change
	2019		2020			Amount			Percent (%)
	(Millions of yen, except percentage data)
Investment in direct financing leases	¥	1,631	¥	0		¥	(1,631	)		—
Net investment in leases		0		1,172			1,172			—
Installment loans		594,264		778,249			183,985			31
Investment in operating leases		13,022		9,148			(3,874	)		(30	)
Investment in securities		305,294		320,217			14,923			5
Property under facility operations and servicing assets		40,539		66,416			25,877			64
Inventories		2,487		1,442			(1,045	)		(42	)
Advances for finance lease and operating lease		513		1,259			746			145
Investment in affiliates		69,750		52,361			(17,389	)		(25	)
Goodwill, intangible assets acquired in business combinations		125,391		143,763			18,372			15

Total Segment Assets	¥	1,152,891	¥	1,374,027		¥	221,136			19

ORIX Europe

Segment revenues decreased 13% to ¥148,524 million compared to fiscal 2019 due to a decrease in services income, which is associated with a decrease in the amount of assets under management, and a decrease in gains on investment securities and dividends due to the pervasive price decline in the equity market during the fourth quarter ended March 31, 2020.

Segment profits increased 23% to ¥43,778 million compared to fiscal 2019 due to the recognition of a gain of the sale of a portion of a business of Robeco, as well as a decrease in selling, general and administrative expenses.

Segment assets decreased 7% to ¥317,847 million compared to the end of fiscal 2019 due to the effect of changes in foreign exchange rates, as well as a decrease in goodwill, intangible assets acquired in business combinations due to the sale of a portion of a business of Robeco.

Asset efficiency increased compared to fiscal 2019.


	Year ended March 31,						Change
	2019			2020			Amount			Percent (%)
	(Millions of yen, except percentage data)
Finance revenues	¥	688		¥	559		¥	(129	)		(19	)
Gains on investment securities and dividends		1,636			(2,079	)		(3,715	)		—
Services income		167,565			150,044			(17,521	)		(10	)

Total Segment Revenues		169,889			148,524			(21,365	)		(13	)

Interest expense		2,046			1,136			(910	)		(44	)
Services expense		41,694			35,624			(6,070	)		(15	)
Selling, general and administrative expenses		87,845			81,383			(6,462	)		(7	)
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities		(93	)		(17	)		76			—
Other		2,380			(62	)		(2,442	)		—

Total Segment Expenses		133,872			118,064			(15,808	)		(12	)

Segment Operating Income		36,017			30,460			(5,557	)		(15	)

Equity in Net income (Loss) of Affiliates, and others		(388	)		13,318			13,706			—

Segment Profits	¥	35,629		¥	43,778		¥	8,149			23


	As of March 31,						Change
	2019			2020			Amount			Percent (%)
	(Millions of yen, except percentage data)
Investment in securities	¥	43,661		¥	38,057		¥	(5,604	)		(13	)
Investment in affiliates		1,636			1,495			(141	)		(9	)
Goodwill, intangible assets acquired in business combinations		297,783			278,295			(19,488	)		(7	)

Total Segment Assets	¥	343,080		¥	317,847		¥	(25,233	)		(7	)

Asia and Australia

Segment revenues increased 8% to ¥137,797 million compared to fiscal 2019 primarily due to gains on investment securities of an investee.

Despite an increase in provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities, segment profits increased 95% to ¥14,673 million compared to fiscal 2019 primarily due to an increase in equity in net income of affiliate of a subsidiary.

Segment assets increased 1% to ¥1,010,268 million compared to the end of fiscal 2019 due to an increase in investment in installment loans and investment in affiliates.

Asset efficiency increased compared to fiscal 2019.


	Year ended March 31,					Change
	2019			2020		Amount			Percent (%)
	(Millions of yen, except percentage data)
Finance revenues	¥	42,871		¥	43,694	¥	823			2
Gains on investment securities and dividends		(1,216	)		8,971		10,187			—
Operating leases		67,080			66,322		(758	)		(1	)
Services income		19,244			18,323		(921	)		(5	)
Other		122			487		365			299

Total Segment Revenues		128,101			137,797		9,696			8

Interest expense		24,007			23,329		(678	)		(3	)
Costs of operating leases		48,513			49,529		1,016			2
Services expense		14,620			13,082		(1,538	)		(11	)
Selling, general and administrative expenses		26,240			27,012		772			3
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities		4,913			15,318		10,405			212
Other		698			1,986		1,288			185

Total Segment Expenses		118,991			130,256		11,265			9

Segment Operating Income		9,110			7,541		(1,569	)		(17	)

Equity in Net income (Loss) of Affiliates, and others		(1,589	)		7,132		8,721			—

Segment Profits	¥	7,521		¥	14,673	¥	7,152			95


	As of March 31,					Change
	2019			2020		Amount			Percent (%)
	(Millions of yen, except percentage data)
Investment in direct financing leases	¥	360,761		¥	0	¥	(360,761	)		—
Net investment in leases		0			330,346		330,346			—
Installment loans		186,715			222,465		35,750			19
Investment in operating leases		200,114			195,660		(4,454	)		(2	)
Investment in securities		36,252			29,248		(7,004	)		(19	)
Property under facility operations		3,609			2,600		(1,009	)		(28	)
Inventories		116			242		126			109
Advances for finance lease and operating lease		2,794			1,742		(1,052	)		(38	)
Investment in affiliates		199,400			221,853		22,453			11
Goodwill, intangible assets acquired in business combinations		6,913			6,112		(801	)		(12	)

Total Segment Assets	¥	996,674		¥	1,010,268	¥	13,594			1

Revenues, New Business Volumes and Investments

Finance revenues


	Year ended March 31,				Change
	2019		2020		Amount		Percent (%)
	(Millions of yen, except percentage data)
Finance revenues:
Finance revenues	¥	242,893	¥	276,864	¥	33,971		14

Note:

New Lease Standard has been adopted since April 1, 2019. Certain lessor costs of finance lease, such as property taxes and insurance costs, previously had been deducted from “Finance revenues”, have changed to be included in “Other (income) and expense.”

Finance revenues increased 14% to ¥276,864 million for fiscal 2020 compared to fiscal 2019 primarily due to an increase in the average balance of installment loans and the above mentioned change in presentation.

Net investment in leases


	As of and for the year ended March 31,				Change
	2019		2020		Amount		Percent (%)
	(Millions of yen, except percentage data)
Net investment in leases:
New equipment acquisitions	¥	439,252	¥	444,841	¥	5,589		1
Japan		254,613		244,087		(10,526)		(4	)
Overseas		184,639		200,754		16,115		9
Net investment in leases		1,155,632		1,080,964		(74,668)		(6	)

Note:

New Lease Standard has been adopted since April 1, 2019, and the amounts of investment in direct financing leases have been reclassified to net investment in leases.

New equipment acquisitions related to net investment in leases increased 1% to ¥444,841 million compared to fiscal 2019. In Japan, new equipment acquisitions decreased 4% in fiscal 2020 compared to fiscal 2019 due to a decreasing trend in new acquisition including auto leases. In overseas, new equipment acquisitions increased 9% in fiscal 2020 compared to fiscal 2019 due to increases in Asia.

Net investment in leases as of March 31, 2020 decreased 6% to ¥1,080,964 million compared to March 31, 2019 mainly due to decreases in assets in Japan.

As of March 31, 2020, no single lessee represented more than 1% of the balance of net investment in leases. As of March 31, 2020, 69% of our net investment in leases were to lessees in Japan, while 31% were to overseas lessees. 6% of our net investment in leases were to lessees in Malaysia. No other overseas country represented more than 5% of our total portfolio of net investment in leases.


	As of March 31,				Change
	2019		2020		Amount			Percent (%)
	(Millions of yen, except percentage data)
Net investment in leases by category:
Transportation equipment	¥	495,605	¥	457,405	¥	(38,200	)		(8	)
Industrial equipment		222,049		210,248		(11,801	)		(5	)
Electronics		143,209		134,775		(8,434	)		(6	)
Information-related and office equipment		101,504		104,218		2,714			3
Commercial services equipment		51,671		45,062		(6,609	)		(13	)
Other		141,594		129,256		(12,338	)		(9	)

Total	¥	1,155,632	¥	1,080,964	¥	(74,668	)		(6	)

For further information, see Note 6 and 7 of “Item 18. Financial Statements.”

Installment loans


	As of and for the year ended March 31,				Change
	2019		2020		Amount			Percent (%)
	(Millions of yen, except percentage data)
Installment loans:
New loans added	¥	1,462,009	¥	1,529,175	¥	67,166			5
Japan		1,047,720		1,134,586		86,866			8
Overseas		414,289		394,589		(19,700	)		(5	)
Installment loans		3,277,670		3,740,486		462,816			14

Note:

New loans added increased 5% to ¥1,529,175 million compared to fiscal 2019. In Japan, new loans added increased 8% to ¥1,134,586 million in fiscal 2020 compared to fiscal 2019 mainly due to an increase in real estate loans for consumer. In Overseas, new loans added decreased 5% to ¥394,589 million compared to fiscal 2019 mainly due to decreased lending activity in Asia.

The balance of installment loans as of March 31, 2020 increased 14% to ¥3,740,486 million compared to March 31, 2019, mainly due to an increase of real estate loans in banking business and an increase in investment in installment loans in the United States by NXT Capital and HREC.


	As of March 31,				Change
	2019		2020		Amount			Percent (%)
	(Millions of yen, except percentage data)
Installment loans:
Consumer borrowers in Japan
Real estate loans	¥	1,560,832	¥	1,842,131	¥	281,299			18
Card loans		245,139		223,651		(21,488	)		(9	)
Other		32,962		32,618		(344	)		(1	)

Subtotal		1,838,933		2,098,400		259,467			14

Corporate borrowers in Japan
Real estate companies		288,851		300,984		12,133			4
Non-recourse loans		53,067		48,566		(4,501	)		(8	)
Commercial, industrial and other companies		266,675		255,309		(11,366	)		(4	)

Subtotal		608,593		604,859		(3,734	)		(1	)

Overseas
Real estate companies		104,883		250,195		145,312			139
Non-recourse loans		49,915		83,515		33,600			67
Commercial, industrial companies and other		658,930		690,299		31,369			5

Subtotal		813,728		1,024,009		210,281			26

Purchased loans*		16,416		13,218		(3,198	)		(19	)

Total	¥	3,277,670	¥	3,740,486	¥	462,816			14

*	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.

As of March 31, 2020, ¥17,720 million, or 0.7%, of our portfolio of installment loans to consumer and corporate borrowers in Japan related to our life insurance operations. We reflect income from these loans as life insurance premiums and related investment income in our consolidated statements of income.

As of March 31, 2020, ¥551,179 million, or 15%, of the balance of installment loans were to real estate companies in Japan and overseas. Among these amounts, ¥15,992 million, or 0.4% were loans individually evaluated for impairment. We recognized an allowance of ¥859 million on these impaired loans.

The balance of installment loans to consumer borrowers in Japan as of March 31, 2020 increased 14% to ¥2,098,400 million compared to the balance as of March 31, 2019, primarily due to an increase in the balance of real estate loans for consumer. The balance of installment loans to corporate borrowers in Japan as of March 31, 2020 decreased 1% to ¥604,859 million compared to the balance as of March 31, 2019. The balance of installment loans in Overseas as of March 31, 2020 increased 26% to ¥1,024,009 million compared to the balance as of March 31, 2019 in line with the aforementioned increase in the Americas.

For further information, see Note 9 of “Item 18. Financial Statements.”

Asset quality

Net investment in leases


	As of March 31,
	2019			2020
	(Millions of yen, except percentage data)
90+ days past-due net investment in leases and allowances for net investment in leases:
90+ days past-due net investment in leases	¥	14,807		¥	15,346
90+ days past-due net investment in leases as a percentage of the balance of net investment in leases		1.28	%		1.42	%
Provision as a percentage of average balance of net investment in leases*		0.37	%		0.29	%
Allowance for net investment leases	¥	12,049		¥	11,692
Allowance for net investment in leases as a percentage of the balance of net investment in leases		1.04	%		1.08	%
The ratio of charge-offs as a percentage of the average balance of net investment in leases*		0.19	%		0.25	%

Note:

New Lease Standard has been adopted since April 1, 2019, and the amounts of investment in direct financing leases have been reclassified to net investment in leases.

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

The balance of 90+ days

past-due

net investment in leases increased ¥539 million to ¥15,346 million as of March 31, 2020 compared to March 31, 2019. As a result, the ratio of 90+ days

past-due

net investment in leases increased 0.14% to 1.42% from March 31, 2019.

We believe that the ratio of allowance for doubtful receivables to the balance of investment in net investment in leases provides a reasonable indication that our allowance for doubtful receivables was appropriate as of March 31, 2020 for the following reasons:

•

lease receivables are generally diversified and the amount of realized loss on any particular contract is likely to be relatively small; and

•

all lease contracts are secured by collateral consisting of the underlying leased equipment, and we can expect to recover at least a portion of the outstanding lease receivables by selling the collateral.

Loans not individually evaluated for impairment


	As of March 31,
	2019			2020
	(Millions of yen, except percentage data)
90+ days past-due loans and allowance for installment loans:
90+ days past-due loans not individually evaluated for impairment	¥	12,412		¥	10,264
90+ days past-due loans not individually evaluated for impairment as a percentage of the balance of installment loans not individually evaluated for impairment		0.39	%		0.28	%
Provision as a percentage of average balance of installment loans not individually evaluated for impairment*		0.50	%		0.43	%
Allowance for probable loan losses on installment loans exclusive of those loans individually evaluated for impairment	¥	32,231		¥	31,697
Allowance for probable loan losses on installment loans exclusive of those loans individually evaluated for impairment as a percentage of the balance of installment loans not individually evaluated for impairment		1.00	%		0.87	%
The ratio of charge-offs as a percentage of the average balance of loans not individually evaluated for impairment*		0.44	%		0.43	%

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

The balance of 90+ days

past-due

loans not individually evaluated and evaluated as a homogeneous group for impairment due to their individual significance decreased ¥2,148 million to ¥10,264 million as of March 31, 2020 compared to March 31, 2019.


	As of March 31,
	2019		2020
	(Millions of yen)
90+ days past-due loans not individually evaluated for impairment:
Consumer borrowers in Japan
Real estate loans	¥	1,388	¥	1,370
Card loans		1,671		1,708
Other		8,993		7,025

Subtotal		12,052		10,103

Overseas
Other		360		161

Total	¥	12,412	¥	10,264

We recognize allowance for real estate loans, card loans and other loans in Japan after careful evaluation of the value of collateral underlying the loans, past loss experience and any economic conditions that we believe may affect the default rate. We determine the allowance for our other items on the basis of past loss experience, general economic conditions and the current portfolio composition.

Loans individually evaluated for impairment


	As of March 31,
	2019		2020
	(Millions of yen)
Loans individually evaluated for impairment:
Impaired loans	¥	58,827	¥	85,820
Impaired loans requiring an allowance		41,234		49,292
Allowance for loans individually evaluated for impairment*		13,731		13,447

*	The allowance 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.

New provision for probable loan losses was ¥3,201 million in fiscal 2019 and ¥6,201 million in fiscal 2020, and

charge-off

of impaired loans was ¥3,936 million in fiscal 2019 and ¥6,478 million in fiscal 2020. New provision for probable loan losses increased ¥3,000 million compared to fiscal 2019.

Charge-off

of impaired loans increased ¥2,542 million compared to fiscal 2019.

The table below sets forth the outstanding balance of impaired loans by region and type of borrower as of the dates indicated. Consumer loans in Japan primarily consist of restructured smaller-balance homogeneous loans individually evaluated for impairment. The balance of impaired loans of real estate companies and commercial, industrial companies and other in Overseas increased due to an increase in the United States.


	As of March 31,
	2019		2020
	(Millions of yen)
Impaired loans:
Consumer borrowers in Japan
Real estate loans	¥	4,378	¥	5,758
Card loans		3,945		3,932
Other		14,216		16,426

Subtotal		22,539		26,116

Corporate borrowers in Japan
Real estate companies		1,540		3,501
Non-recourse loans		232		0
Commercial, industrial and other companies		7,103		12,480

Subtotal		8,875		15,981

Overseas
Real estate companies		840		12,491
Non-recourse loans		4,216		2,466
Commercial, industrial companies and other		18,593		27,161

Subtotal		23,649		42,118

Purchased loans		3,764		1,605

Total	¥	58,827	¥	85,820

Troubled debt restructuring

There were certain payment deferral requests of financing receivables, which we accepted due to the spread of the

COVID-19.

A troubled debt restructuring is determined based on the definition of troubled debt

restructuring. 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. As of March 31, 2020, although we accepted payment deferral requests for financing receivables for which payment was deferral request for 3 to 6 months due to

COVID-19,

those receivables are not included in the troubled debt restructuring as we determined those receivables based on the definition of troubled debt restructuring.

For further information, see Note 10 of “Item 18. Financial Statements.”

Provision for doubtful receivables on net investment in leases and probable loan losses

We recognize provision for doubtful receivables on net investment in leases and probable loan losses for net investment in leases and installment loans.


	As of March 31,						Change
	2019			2020			Amount			Percent (%)
	(Millions of yen, except percentage data)
Provision for doubtful receivables on net investment in leases and probable loan losses:
Beginning balance	¥	54,672		¥	58,011		¥	3,339			6
Net investment in leases		10,089			12,049			1,960			19
Loans not individually evaluated for impairment		30,239			32,231			1,992			7
Loans individually evaluated for impairment		14,344			13,731			(613	)		(4	)
Provision (Reversal)		22,525			24,425			1,900			8
Net investment in leases		4,324			3,304			(1,020	)		(24	)
Loans not individually evaluated for impairment		15,000			14,920			(80	)		(1	)
Loans individually evaluated for impairment		3,201			6,201			3,000			94
Charge-offs (net)		(19,213	)		(24,132	)		(4,919	)		26
Net investment in leases		(2,255	)		(2,835	)		(580	)		26
Loans not individually evaluated for impairment		(13,022	)		(14,819	)		(1,797	)		14
Loans individually evaluated for impairment		(3,936	)		(6,478	)		(2,542	)		65
Other *		27			(1,468	)		(1,495	)		—
Net investment in leases		(109	)		(826	)		(717	)		658
Loans not individually evaluated for impairment		14			(635	)		(649	)		—
Loans individually evaluated for impairment		122			(7	)		(129	)		—
Ending balance		58,011			56,836			(1,175	)		(2	)
Net investment in leases		12,049			11,692			(357	)		(3	)
Loans not individually evaluated for impairment		32,231			31,697			(534	)		(2	)
Loans individually evaluated for impairment		13,731			13,447			(284	)		(2	)

*	Other mainly includes foreign currency translation adjustments and others.

For further information, see Note 10 of “Item 18. Financial Statements.”

Investment in Securities


	As of and for the year ended March 31,				Change
	2019		2020		Amount			Percent (%)
	(Millions of yen, except percentage data)
Investment in securities:
New securities added	¥	623,172	¥	765,589	¥	142,417			23
Japan		504,515		653,228		148,713			29
Overseas		118,657		112,361		(6,296	)		(5	)
Investment in securities		1,928,916		2,245,323		316,407			16

Note:

New securities added increased 23% to ¥765,589 million in fiscal 2020 compared to fiscal 2019. New securities added in Japan increased 29% in fiscal 2020 compared to fiscal 2019 primarily due to an increase in investments in government bond securities, municipal bond securities and corporate debt securities. New securities added overseas decreased 5% in fiscal 2020 compared to fiscal 2019.

The balance of our investment in securities as of March 31, 2020 increased 16% to ¥2,245,323 million compared to March 31, 2019.


	As of March 31,				Change
	2019		2020		Amount			Percent (%)
	(Millions of yen, except percentage data)
Investment in securities by security type:
Equity securities	¥	549,047	¥	492,902	¥	(56,145	)		(10	)
Trading debt securities		1,564		7,431		5,867			375
Available-for-sale debt securities		1,264,244		1,631,185		366,941			29
Held-to-maturity debt securities		114,061		113,805		(256	)		(0	)

Total	¥	1,928,916	¥	2,245,323	¥	316,407			16

Investments in equity securities as of March 31, 2020 decreased 10% to ¥492,902 million compared to March 31, 2019 primarily due to a decrease in the assets under management of variable annuity and variable life insurance contracts. Investments in trading debt securities as of March 31, 2020 increased to ¥7,431 million compared to March 31, 2019 due to an increase in investments in CMBS and RMBS in the Americas. Investments in

available-for-sale

debt securities as of March 31, 2020 increased 29% to ¥1,631,185 million compared to March 31, 2019 primarily due to an increase in investments in government bond securities, municipal bond securities and corporate debt securities in Japan.

Held-to-maturity

debt securities mainly consist of our life insurance business’s investment in Japanese government bonds.

For further information, see Note 12 of “Item 18. Financial Statements.”

Gains on investment securities and dividends


	Year ended March 31,				Change
	2019		2020		Amount		Percent (%)
	(Millions of yen, except percentage data)
Gains on investment securities and dividends:
Net gains on investment securities	¥	14,273	¥	20,204	¥	5,931		42
Dividends income		1,685		2,295		610		36

Total	¥	15,958	¥	22,499	¥	6,541		41


Notes:	1.	Income and losses on investment in securities related to our life insurance operations are recorded in life insurance premiums and related investment income in our consolidated statements of income.
	2.	Unrealized changes in fair value of investments in equity securities have been included in “Net gains on investment securities”.

Gains on investment securities and dividends increased 41% to ¥22,499 million in fiscal 2020 compared to fiscal 2019 mainly due to an increase in net gains on investment securities. Net gains on investment securities increased 42% to ¥20,204 million in fiscal 2020 compared to fiscal 2019 due to a decrease in net unrealized holding gains on equity securities caused by declines in market prices of stocks, but an increase in gains on sales of shares. Dividends income increased 36% to ¥2,295 million in fiscal 2020 compared to fiscal 2019.

As of March 31, 2020, gross unrealized gains on

available-for-sale

debt securities, including those held in connection with our life insurance operations, were ¥36,017 million, compared to ¥35,034 million as of March 31, 2019. As of March 31, 2020, gross unrealized losses on

available-for-sale

debt securities, including those held in connection with our life insurance operations, were ¥41,712 million, compared to ¥10,530 million as of March 31, 2019.

Operating leases


	As of and for the year ended March 31,				Change
	2019		2020		Amount			Percent (%)
	(Millions of yen, except percentage data)
Operating leases:
Operating lease revenues	¥	413,918	¥	430,665	¥	16,747			4
Costs of operating leases		257,321		289,604		32,283			13
New equipment acquisitions		544,715		493,666		(51,049	)		(9	)
Japan		233,721		234,188		467			0
Overseas		310,994		259,478		(51,516	)		(17	)
Investment in operating leases		1,335,959		1,400,001		64,042			5

Note:

New Lease Standard has been adopted since April 1, 2019. Certain lessor costs of operating lease, such as property taxes and insurance costs, previously had been deducted from “Operating lease revenues”, have changed to be included in “Costs of operating leases.”

Revenues from operating leases in fiscal 2020 increased 4% to ¥430,665 million compared to fiscal 2019 primarily due to an increase resulting from the adoption of New Lease Standard. In fiscal 2019 and 2020, gains from the disposition of operating lease assets were ¥62,883 million and ¥51,072 million, respectively.

Costs of operating leases increased 13% to ¥289,604 million in fiscal 2020 compared to fiscal 2019 primarily due to an increase resulting from the adoption of New Lease Standard.

New equipment acquisitions related to operating leases decreased 9% to ¥493,666 million in fiscal 2020 compared to fiscal 2019 primarily due to a decrease in purchases of aircraft overseas.

Investment in operating leases as of March 31, 2020 increased 5% to ¥1,400,001 million compared to March 31, 2019.


	As of March 31,				Change
	2019		2020		Amount			Percent (%)
	(Millions of yen, except percentage data)
Investment in operating leases by category:
Transportation equipment	¥	888,625	¥	847,376	¥	(41,249	)		(5	)
Measuring and information-related equipment		105,179		125,897		20,718			20
Real estate		297,343		269,483		(27,860	)		(9	)
Other		12,890		10,308		(2,582	)		(20	)
Right-of-use assets		0		121,553		121,553			—
Accrued rental receivables		31,922		25,384		(6,538	)		(20	)

Total	¥	1,335,959	¥	1,400,001	¥	64,042			5

Investment in transportation equipment operating leases as of March 31, 2020 decreased 5% to ¥847,376 million compared to March 31, 2019 primarily due to a decrease in new equipment acquisitions in the automobile leasing business and aircraft-related operations and depreciation of equipment held for operating leases. Investment in measuring and information-related equipment operating leases as of March 31, 2020 increased 20% to ¥125,897 million compared to March 31, 2019 primarily due to an increase in new equipment acquisitions in the rental business. Investment in real estate operating leases as of March 31, 2020 decreased 9% to ¥269,483 million compared to March 31, 2019 primarily due to sales of real estate in Japan. We recognized ¥121,553 million of ROU assets of operating leases resulting from the adoption of the New Lease Standard.

For further information, see Note 6 and 8 of “Item 18. Financial Statements.”

Life insurance

We reflect all income and losses (other than provision for doubtful receivables and probable loan losses) that we recognize on securities, installment loans, real estate under operating leases and other investments held in connection with our life insurance operations as life insurance premiums and related investment income in our consolidated statements of income.


	Year ended March 31,				Change
	2019		2020		Amount			Percent (%)
	(Millions of yen, except percentage data)
Life insurance premiums and related investment income and life insurance costs:
Life insurance premiums	¥	330,811	¥	360,583	¥	29,772			9
Life insurance-related investment income		16,325		7,195		(9,130	)		(56	)

Total	¥	347,136	¥	367,778	¥	20,642			6

Life insurance costs	¥	246,533	¥	269,425	¥	22,892			9


	Year ended March 31,						Change
	2019			2020			Amount			Percent (%)
	(Millions of yen, except percentage data)
Breakdown of life insurance-related investment income (loss):
Net income on investment securities	¥	10,756		¥	8,674		¥	(2,082	)		(19	)
Losses recognized in income on derivative		(1,348	)		(1,910	)		(562	)		42
Interest on loans, income on real estate under operating leases, and others		6,917			431			(6,486	)		(94	)

Total	¥	16,325		¥	7,195		¥	(9,130	)		(56	)

Life insurance premiums and related investment income increased 6% to ¥367,778 million in fiscal 2020 compared to fiscal 2019.

Life insurance premiums increased 9% to ¥360,583 million in fiscal 2020 compared to fiscal 2019 due to an increase in the number of policies in force.

Life insurance-related investment income decreased 56% to ¥7,195 million in fiscal 2020 compared to fiscal 2019. Net income on investment securities decreased due to a decrease in investment income from assets under variable annuity and variable life insurance contracts, caused by the deterioration in the markets, although gains on sales of government bonds increased. In addition, interest on loans, income on real estate under operating leases, and others decreased due to recognition of gains on sales of real estate under operating leases in fiscal 2019.

Life insurance costs increased 9% to ¥269,425 million in fiscal 2020 compared to fiscal 2019 due to the aforementioned increase in the number of policies in force.


	As of March 31,				Change
	2019		2020		Amount			Percent (%)
	(Millions of yen, except percentage data)
Investments by life insurance operations:
Equity securities	¥	327,497	¥	264,625	¥	(62,872	)		(19	)
Available-for-sale debt securities		766,830		1,149,612		382,782			50
Held-to-maturity debt securities		114,061		113,805		(256	)		(0	)

Total investment in securities		1,208,388		1,528,042		319,654			26

Installment loans, real estate under operating leases and other investments		41,630		46,991		5,361			13

Total	¥	1,250,018	¥	1,575,033	¥	325,015			26

Investment in securities as of March 31, 2020 increased 26% to ¥1,528,042 million compared to March 31, 2019 due to an increase in

available-for-sale

debt securities as a result of an increase in investments in government bond securities and corporate debt securities, although equity securities decreased due to a decrease in assets under variable annuity and variable life insurance contracts.

Installment loans, real estate under operating leases and other investments as of March 31, 2020 increased 13% to ¥46,991 million compared to March 31, 2019 due to an increase in investment in installment loans.

For further information, see Note 26 of “Item 18. Financial Statements.”

Sales of goods and real estate, Inventories


	Year ended March 31,				Change
	2019		2020		Amount			Percent (%)
	(Millions of yen, except percentage data)
Sales of goods and real estate, Inventories:
Sales of goods and real estate	¥	596,165	¥	406,511	¥	(189,654	)		(32	)
Costs of goods and real estate sold		535,261		354,006		(181,255	)		(34	)
New real estate added		97,397		82,442		(14,955	)		(15	)
Inventories		115,695		126,013		10,318			9

Sales of goods and real estate decreased 32% to ¥406,511 million compared to fiscal 2019 due to a decrease in sales of goods.

Costs of goods and real estate sold decreased 34% to ¥354,006 million compared to fiscal 2019 due to a decrease in costs of goods sold. We recognized ¥703 million and ¥863 million of write-downs for fiscal 2019 and 2020, respectively, which were included in costs of goods and real estate sold. Costs of goods and real estate sold include the upfront costs associated with advertising and creating model rooms.

New real estate added decreased 15% to ¥82,442 million in fiscal 2020 compared to fiscal 2019.

Inventories as of March 31, 2020 increased 9% to ¥126,013 million compared to March 31, 2019.

For further information, see Note 4 of “Item 18. Financial Statements.”

Services, Property under Facility Operations


	As of and for the year ended March 31,				Change
	2019		2020		Amount			Percent (%)
	(Millions of yen, except percentage data)
Services, Property under Facility Operations
Services income	¥	818,794	¥	776,012	¥	(42,782)			(5	)
Services expense		508,320		483,914		(24,406	)		(5	)
New assets added		104,839		34,181		(70,658	)		(67	)
Japan		103,939		33,312		(70,627	)		(68	)
Overseas		900		869		(31	)		(3	)
Property under Facility Operations		441,632		562,485		120,853			27

Services income decreased 5% to ¥776,012 million in fiscal 2020 compared to fiscal 2019 due to sales of subsidiaries and recognition of a significant gain on a sale of property under facility operations in fiscal 2019, although there was service expansion in the environment and energy business.

Services expense decreased 5% to ¥483,914 million in fiscal 2020 compared to fiscal 2019 due to sales of subsidiaries, despite an increase of expenses related to the environment and energy business, similar to the aforementioned decrease in services income.

New assets added for property under facility operations decreased 67% to ¥34,181 million in fiscal 2020 compared to fiscal 2019 due to a decrease in investments in electric power facilities.

Property under facility operations as of March 31, 2020 increased 27% to ¥562,485 million compared to March 31, 2019 due to making investees engaged in wind power generation into our subsidiaries and recognition

of ROU assets of property under facility operations resulting from the adoption of the New Lease Standard, despite a decrease in property under facility operations through a sale of a subsidiary which operated a facility operation business.

For further information, see Note 4 of “Item 18. Financial Statements.”

Expenses

Interest expense

Interest expense increased 6% to ¥99,138 million in fiscal 2020 compared to ¥93,337 million in fiscal 2019. Our total outstanding short-term debt, long-term debt and deposits as of March 31, 2020 increased 7% to ¥6,847,889 million compared to ¥6,423,512 million as of March 31, 2019.

The average interest rate on our short-term debt, long-term debt and deposits in domestic currency, calculated on the basis of average monthly balances, remained flat in fiscal 2020 at 0.4% compared to 0.4% in fiscal 2019. The average interest rate on our short-term debt, long-term debt and deposits in foreign currency, calculated on the basis of average monthly balances, remained flat in fiscal 2020 at 3.3% compared to 3.3% in fiscal 2019. For more information regarding our interest rate risk, see “Item 3. Key Information—Risk Factors.” For more information regarding our outstanding debt, see “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Short-term and long-term debt and deposits.”

Other (income) and expense

Other (income) and expense included a net expense of ¥1,301 million during fiscal 2019 and a net expense of ¥14,925 million during fiscal 2020. Foreign currency transaction losses (gains) included in other (income) and expense included losses of ¥1,679 million during fiscal 2020 compared to losses of ¥3,220 million during fiscal 2019. We recognized no impairment losses on goodwill and other intangible assets included in other (income) and expense during fiscal 2020 compared to ¥606 million of impairment losses on goodwill and other intangible assets during fiscal 2019. For further information on our goodwill and other intangible assets, see Note 16 of “Item 18. Financial Statements.”

In addition, New Lease Standard has been adopted since April 1, 2019, and expenses of ¥19,952 million are included in other (income) and expense during fiscal 2020. The certain lessor costs of finance lease, such as the property taxes and insurance costs previously had been deducted from “Finance revenues”, but they have changed to be included in “Other (income) and expense.”

Selling, general and administrative expenses


	Year ended March 31,				Change
	2019		2020		Amount			Percent (%)
	(Millions of yen, except percentage data)
Selling, general and administrative expenses:
Personnel expenses	¥	248,519	¥	256,931	¥	8,412			3
Selling expenses		79,015		75,860		(3,155	)		(4	)
Administrative expenses		104,582		119,694		15,112			14
Depreciation of office facilities		4,912		7,714		2,802			57

Total	¥	437,028	¥	460,199	¥	23,171			5

Employee salaries and other personnel expenses accounted for 56% of selling, general and administrative expenses in fiscal 2020, and the remaining portion consists of other expenses, such as rent for office space, communication expenses and travel expenses. Selling, general and administrative expenses in fiscal 2020 increased 5% year on year.

Write-downs of long-lived assets

As a result of impairment reviews we performed in fiscal 2020 for long-lived assets in Japan and overseas, such as office buildings, commercial facilities other than office buildings, condominiums, hotels, and land undeveloped or under construction, write-downs of long-lived assets increased 26% to ¥3,043 million in fiscal 2020 compared to ¥2,418 million in fiscal 2019. These write-downs, which are reflected as write-downs of long-lived assets, consisted of impairment losses of ¥529 million on two commercial facilities other than office buildings, ¥236 million on four condominiums, ¥2,083 million on two pieces of land undeveloped or under construction and ¥195 million on other long-lived assets, because the assets were classified as held for sale or the carrying amount exceeded the estimated undiscounted future cash flows. In addition, write-downs of other long-lived assets in fiscal 2020 include a write-down of ¥109 million of one hotel. For further information, see Note 27 of “Item 18. Financial Statements.”

Write-downs of securities

Write-downs of securities in fiscal 2020 were in connection with

non-marketable

equity securities. Write-downs of securities increased to ¥11,969 million in fiscal 2020 compared to ¥1,382 million in fiscal 2019. For further information, see Note 12 of “Item 18. Financial Statements.”

Equity in net income of affiliates

Equity in net income of affiliates increased in fiscal 2020 to ¥67,924 million compared to ¥32,978 million in fiscal 2019 primarily due to the favorable profit in overseas affiliates. For further information, see Note 15 of “Item 18. Financial Statements.”

Gains on sales of subsidiaries and affiliates and liquidation losses, net

Gains on sales of subsidiaries and affiliates and liquidation losses, net increased to ¥74,001 million in fiscal 2020 compared to ¥33,314 million in fiscal 2019, due to the favorable profit from sales in Japan, the Americas and the Europe. For further information, see Note 3 of “Item 18. Financial Statements.”

Bargain Purchase Gain

In fiscal 2020, we recognized bargain purchase gains of ¥955 million associated with two of the acquisitions executed in fiscal 2019 compared to no bargain purchase gain in fiscal 2019. For further information, see Note 3 of “Item 18. Financial Statements.”

Provision for income taxes

Provision for income taxes increased to ¥105,837 million in fiscal 2020 compared to ¥68,691 million in fiscal 2019 primarily due to the reversal of the deferred tax liabilities previously recorded for undistributed earnings of DAIKYO. For further information, see Note 19 of “Item 18. Financial Statements.”

Net income attributable to the noncontrolling interests

Net income attributable to the noncontrolling interests was recorded as a result of the noncontrolling interests in earnings of certain of our subsidiaries. Net income attributable to the noncontrolling interests in fiscal 2020 was ¥3,640 million, compared to ¥2,890 million in fiscal 2019.

Net income attributable to the redeemable noncontrolling interests

to the redeemable noncontrolling interests in fiscal 2020 was ¥384 million, compared to ¥404 million in fiscal 2019. For further information, see Note 21 of “Item 18. Financial Statements.”

LIQUIDITY AND CAPITAL RESOURCES

Funding Activities

ORIX Group formulates funding policies that are designed to maintain and improve procurement stability and reduce liquidity risk. As a concrete measure to maintain and improve procurement stability 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 procurement stability and financial efficiency and review the necessary levels accordingly. Also, ORIX Group considers reducing procurement costs to be an important issue. For this reason, we place great importance on ratings by rating agencies and strive to maintain a certain level of rating. Furthermore, we believe that maintaining our ratings are effective not only in terms of minimizing procurement costs, but also facilitating capital market procurement when in unstable financial market conditions.

The instability in the financial market conditions due to

COVID-19

has subsided to a degree recently. However, depending on the future situation, we expect an increase in liquidity risk, including higher procurement costs. Specifically, we may be unable to borrow new funds or roll-over existing funds; we may be unable to issue bonds, MTNs and CP in the capital markets; or there may be an increase in the amount of interest we need to pay if we are able to access such funding. Notwithstanding the current environment, the ORIX Group is working to maintain stable procurement and reduce liquidity risk in accordance with the above policy. In addition, with respect to rising costs, we are working to maintain a high rating from rating agencies and to maintain good communication with the market so that we can raise funds at reasonable interest rates when refinancing our existing funding.

ORIX, from the perspective of liquidity risk reduction and financial efficiency including procurement costs, is primarily responsible for accessing liquidity for the ORIX Group and for managing the allocation of liquidity to its subsidiaries. ORIX Bank and ORIX Life Insurance are regulated by Japanese financial authorities. They are our main regulated subsidiaries in terms of liquidity controls, although several other subsidiaries also operate under liquidity control related regulations. The impact of

COVID-19

will affect the funding of those group companies, but we believe that they are currently being managed properly.

For more information regarding our liquidity risk management, see “Risk Management” under this Item 5.

Group Liquidity Management

ORIX is primarily responsible for accessing liquidity for ORIX Group and for managing the allocation of liquidity to domestic and overseas subsidiaries. In managing our capital resources and controlling liquidity risk, we employ various measures, including a cash management system for supplying funds to, and receiving funds from, our major domestic subsidiaries, other than regulated subsidiaries like ORIX Bank and ORIX Life Insurance. Our overseas subsidiaries rely primarily on local funding sources such as borrowings from local financial institutions and issuing bonds in local capital markets, but they may also obtain loans from ORIX. We also support liquidity levels of overseas subsidiaries by establishing local commitment lines and maintaining multi-currency commitment lines available to ORIX and certain of its overseas subsidiaries.

ORIX Bank obtains most of the funds it needs to operate its business through deposit taking. Although ORIX Bank provides loans to several companies in the ordinary course of its business, such loans are subject to a

maximum limit set by the Japanese Banking Act. Under such regulations, ORIX Bank is restricted from making loans to other members of ORIX Group in an aggregate amount exceeding a regulatory limit. ORIX Life Insurance underwrites insurance, receives insurance premiums from policyholders, and conducts financing and investment activities, including lending. Lending from ORIX Life Insurance to other members of ORIX Group is subject to regulation, including under the Japanese Insurance Business Act. For these reasons, ORIX Group manages its liquidity separately from ORIX Bank and ORIX Life Insurance.

Sources of Liquidity

Borrowings from Financial Institutions

ORIX Group borrows from a variety of sources, including major banks, regional banks, foreign banks, life insurance companies, casualty insurance companies and financial institutions associated with agricultural cooperatives. As of March 31, 2021, the number of our lenders was about 200. We have promoted regular

face-to-face

communications and established positive working relationships with financial institutions in Japan and overseas. The majority of our loan balances consists of borrowings from Japanese financial institutions. As of March 31, 2020 and 2021, short-term debt from Japanese and foreign financial institutions were ¥319,122 million and ¥291,578 million, respectively, while long-term debt from financial institutions were ¥3,094,474 million and ¥3,189,083 million, respectively.

Committed Credit Facilities

We regularly enter into committed credit facilities agreements, including syndicated agreements, with financial institutions to secure liquidity. The maturity dates of these committed credit facilities are staggered to prevent an overlap of contract renewal periods. The total amount of our committed credit facilities as of March 31, 2020 and 2021 were ¥569,862 million and ¥612,737 million, respectively. Of these figures, the unused amount as of March 31, 2020 and 2021 were ¥427,564 million and ¥524,451 million, respectively. A portion of these facilities is arranged to be drawn down in foreign currencies by ORIX and certain of our overseas subsidiaries. The decision to enter into a committed credit facility is made based on factors including our balance of cash and cash equivalents and repayment schedules of short-term debt such as CP.

Debt from the Capital Markets

Our debt from capital markets is mainly composed of bonds, MTNs, CP, and securitization of loans receivables and other assets. In fiscal 2020 and 2021, we issued unsecured subordinated bonds with interest payment deferrable clauses and optional early redemption conditions (hybrid bonds) in Japan.

Bonds and MTNs

We regularly issue straight bonds and MTNs domestically and internationally and, in fiscal 2021, issued unsecured subordinated bonds with interest payment deferrable clauses and optional early redemption conditions (hybrid bonds), each to diversify our funding sources and maintain longer liability maturities.

The total balance of bonds and MTNs issued as of March 31, 2020 and 2021 were ¥1,022,740 million and ¥1,069,720 million, respectively, of which bonds and MTNs amounting to ¥53,428 million and ¥58,293 million, respectively, were issued by overseas subsidiaries.

As of March 31, 2020 and 2021, the balance of bonds issued by ORIX for domestic institutional investors were ¥293,941 million and ¥378,614 million, respectively, while the balance of bonds issued by ORIX for individual investors were ¥234,564 million and ¥159,747 million, respectively. The balances of bonds and MTNs issued outside Japan were ¥438,776 million and ¥462,883 million as of March 31, 2020 and 2021, respectively.

100

We plan to continue to issue bonds and MTNs in a balanced manner to institutional and individual investors both inside and outside Japan in line with our strategy of maintaining and improving procurement stability and reducing liquidity risk.

We offer CP as a direct financing source, and have successfully obtained a diverse range of investors such as financial institutions and investment trusts, as well as private corporations. We consider our liquidity levels and stagger the dates of issuance and maturity over time so as to avoid significant overlap. The balances of outstanding CP as of March 31, 2020 and 2021 were ¥17,710 million and ¥14,355 million, respectively.

Securitization

We securitize loan receivables and other assets. We recognize liabilities consolidated with such investments as our liabilities when required under applicable accounting standards. The total amounts of payables under securitized loan receivables and other assets as of March 31, 2020 and 2021 were ¥162,140 million and ¥159,366 million, respectively.

Deposits

ORIX Bank and ORIX Asia Limited each accept deposits from customers. These deposits taking subsidiaries are regulated institutions, and loans from these subsidiaries to ORIX Group entities are subject to maximum regulatory limits.

The majority of deposits are attributable to ORIX Bank, which attracts both corporate and retail deposits, and which has seen sustained growth in deposits outstanding. Deposit balances of ORIX Bank as of March 31, 2020 and 2021 were ¥2,221,930 million and ¥2,303,552 million, respectively.

Short-term and long-term debt and deposits

Short-term Debt


	As of March 31,				Change
	2020		2021		Amount			Percent (%)
	(Millions of yen, except percentage data)
Short-term debt :
Borrowings from financial institutions	¥	319,122	¥	291,578	¥	(27,544	)		(9	)
Medium-term notes		0		1,336		1,336			—
Commercial paper		17,710		14,355		(3,355	)		(19	)

Total short-term debt	¥	336,832	¥	307,269	¥	(29,563	)		(9	)

Note:

The total amount includes liabilities of consolidated VIEs, for which creditors (or beneficial interest holders) do not have recourse to the general credit of the Company and subsidiaries. Such liabilities as of March 31, 2020 and 2021 were ¥6,030 million and ¥500 million, respectively.

Short-term debt as of March 31, 2021 was ¥307,269 million. The ratio was 7% of total debt (excluding deposits) as of March 31, 2020 and 2021. As of March 31, 2021, 95% of short-term debt was borrowings from financial institutions.

101

Long-term debt


	As of March 31,				Change
	2020		2021		Amount			Percent (%)
	(Millions of yen, except percentage data)
Long-term debt :
Borrowings from financial institutions	¥	3,094,474	¥	3,189,083	¥	94,609			3
Bonds		845,938		927,088		81,150			10
Medium-term notes		176,802		141,296		(35,506	)		(20	)
Payable under securitized loan receivables and other assets		162,140		159,366		(2,774	)		(2	)

Total long-term debt	¥	4,279,354	¥	4,416,833	¥	137,479			3

Note:

Long-term debt as of March 31, 2021 was ¥4,416,833 million. The ratio was 93% of total debt (excluding deposits) as of March 31, 2020 and 2021. Borrowings from financial institutions comprised 72% of the long-term debt as of March 31, 2021.

44% of interest paid on long-term debt in fiscal 2021 was fixed rate interest, with the remainder being floating rate interest.

For information regarding the repayment schedule of our long-term debt and interest rates for short-term and long-term debt, see Note 17 of “Item 18. Financial Statements.”

We have entered into interest rate swaps and other derivative contracts to manage risk associated with fluctuations in interest rates. For information with respect to derivative financial instruments and hedging, see Note 29 of “Item 18. Financial Statements.”

Deposits


	As of March 31,				Change
	2020		2021		Amount		Percent (%)
	(Millions of yen, except percentage data)
Deposits	¥	2,231,703	¥	2,317,785	¥	86,082		4

Note:

VIEs did not have any deposits as of March 31, 2020 and 2021.

For further information with respect to deposits, see Note 18 of “Item 18. Financial Statements.”

CASH FLOWS

Our cash flows are primarily generated from the followings:

•

cash outflows and inflows which are generated primarily from principal payments received under net investment in lease, costs of inventories and sales of inventories, and services income and services expense classified as cash flows from operating activities;

•

cash outflows and inflows which are generated primarily from purchases of lease equipment and proceeds from sales of lease equipment, purchases of securities and proceeds from sales of securities, and execution of installment loans to customers and principal payments received under installment loans classified as cash flows from investing activities; and

102

•

cash outflows and inflows which are generated primarily from proceeds from short-term and long-term debt, repayment of short-term and long-term debt, and deposits due to customers classified as cash flows from financing activities.

The use of cash is heavily dependent on the volume of operating assets for new business. As new business volumes for assets such as leases and loans increase, we require more cash to meet the needs, while a decrease in new business volumes results in a less use of cash and an increase in debt repayment.

For cash flow information regarding interest and income tax payments, see Note 5 of “Item 18. Financial Statements.”

Year Ended March 31, 2021 Compared to Year Ended March 31, 2020

Cash, cash equivalents and restricted cash decreased by ¥55,709 million to ¥1,079,575 million compared to March 31, 2020.

Cash flows provided by operating activities were ¥1,095,676 million during fiscal 2021, up from ¥1,042,466 million during fiscal 2020. This change resulted primarily from an increase in life insurance premiums due to an increase in

in-force

life insurance contracts, partially offset by a decrease in services income.

Cash flows used in investing activities were ¥1,203,252 million during fiscal 2021, down from ¥1,470,486 million during fiscal 2020. This change resulted primarily from a decrease in installment loans made to customers, partially offset by a decrease in proceeds from sales of operating lease assets.

Cash flows provided by financing activities were ¥39,884 million during fiscal 2021, down from ¥288,703 million during fiscal 2020. This change resulted primarily from a decrease in deposits due to customers, partially offset by an increase in proceeds from debt with maturities longer than three months.

Year Ended March 31, 2020 Compared to Year Ended March 31, 2019

Cash, cash equivalents and restricted cash decreased by ¥148,296 million to ¥1,135,284 million compared to March 31, 2019. New Lease Standard has been adopted since April 1, 2019.

Cash flows provided by operating activities were ¥1,042,466 million during fiscal 2020, up from ¥587,678 million during fiscal 2019, primarily because the classification of cash flows from principal payments received under net investment in leases changed from cash flows from investing activities to cash flows from operating activities, starting from fiscal 2020.

Cash flows used in investing activities were ¥1,470,486 million during fiscal 2020, up from ¥873,951 million during fiscal 2019, primarily because the classification of cash flows from principal payments received under net investment in leases changed from cash flows from investing activities to cash flows from operating activities, starting from fiscal 2020.

Cash flows provided by financing activities were ¥288,703 million during fiscal 2020, up from ¥166,647 million during fiscal 2019. This change resulted primarily from an increase in deposit taking.

COMMITMENTS FOR CAPITAL EXPENDITURES

As of March 31, 2021, we had commitments for the purchase of equipment to be leased in the amount of ¥1,573 million. For information on commitments, guarantees and contingent liabilities, see Note 33 of “Item 18. Financial Statements.”

103

OFF—BALANCE SHEET ARRANGEMENTS

USE OF SPECIAL PURPOSE ENTITIES

We periodically securitize various financial assets such as lease receivables and loan receivables. These securitizations allow us to access the capital markets, provide us with alternative sources of funding and diversify our investor base and help us to mitigate, to some extent, credit risk associated with our customers and risk associated with fluctuations in interest rates.

In the securitization process, the assets for securitization are sold to special purpose entities (hereinafter, “SPEs”), which issue asset-backed securities to investors.

We expect to continue to utilize special purpose entity (hereinafter, “SPE”) structures for securitization of assets. For further information on our transfer of financial assets, see Note 13 of “Item 18. Financial Statements.”

Investment Products

We provide investment products to our customers that employ a contractual mechanism known in Japan as a

kumiai

, which is in effect a type of SPE. We arrange and market

kumiai

products to investors as a means to finance the purchase of aircraft, ships or other large-ticket items to be leased to third parties. A portion of the funds necessary to purchase the item is contributed by such investors, while the remainder is borrowed by the

kumiai

from one or more financial institutions in the form of a

non-recourse

loan. The

kumiai

investors (and any lenders to the

kumiai

) retain all of the economic risks and rewards in connection with the purchase and leasing activities of the

kumiai

, and all related gains or losses are recorded on the financial statements of investors in the

kumiai

. We are responsible for the arrangement and marketing of these products, and may act as servicer or administrator in

kumiai

transactions. Fee income for arranging and administering these transactions is recognized in our consolidated financial statements. In most

kumiai

transactions, excluding some

kumiai

and SPE, we do not guarantee or otherwise have any financial commitments or exposure with respect to the

kumiai

or its related SPE and, accordingly, their assets are not reflected on our consolidated balance sheet.

Other Financial Transactions

We occasionally enter into loans, equity or other investments in SPEs in connection with finance transactions related to aircraft, ships and real estate, as well as transactions involving investment funds, in addition to real estate purchases and development projects. All transactions involving use of SPE structures are evaluated to determine whether we hold a variable interest that would result in our being defined as the primary beneficiary of the SPE. When we are considered to own the primary beneficial interest in the SPEs, the SPEs are fully consolidated into our consolidated financial statements. In all other circumstances our loan, equity or other investments are recorded on our consolidated balance sheets as appropriate.

See Note 14 of “Item 18. Financial Statements” for further information concerning our SPEs.

RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.

Not applicable.

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TREND INFORMATION

See the discussion under “—Results of Operations” and “—Liquidity and Capital Resources.”

COMMITMENTS

The table below sets forth the maturities of guarantees and other commitments as of March 31, 2021.


	Amount of commitment expiration per period
	Total		Within 1 year		1-3 years		3-5 years		After 5 years
	(Millions of yen)
Commitments:
Guarantees	¥	809,227	¥	85,145	¥	205,864	¥	206,502	¥	311,716
Committed credit lines and other		462,869		172,701		72,548		23,714		193,906

Total commercial commitments	¥	1,272,096	¥	257,846	¥	278,412	¥	230,216	¥	505,622

A subsidiary in the United States is authorized to underwrite, originate, fund and service multi-family and senior housing loans without prior approval from Federal National Mortgage Association (“Fannie Mae”) under the Delegated Underwriting and Servicing program and Federal Home Loan Mortgage Corporation (“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 risks of the guarantees to absorb some of the losses when losses arise from the transferred loans. The amount attributable to the guarantee included in the table above is ¥365,546 million as of March 31, 2021.

The subsidiary makes certain representations and warranties in connection with the sale of loans through Fannie Mae and Freddie Mac, including among others, that: the mortgage meets Fannie Mae and Freddie Mac requirements; there is a valid lien on the property; the relevant transaction documents are valid and enforceable; and title insurance is maintained on the property. If it is determined that a representation and warranty has been breached, the subsidiary may be required to repurchase the related loans or indemnify Fannie Mae and Freddie Mac for any related losses incurred. The subsidiary had no such repurchase claims during fiscal 2021.

For a discussion of commitments, guarantee and contingent liabilities, see Note 33 of “Item 18. Financial Statements.”

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TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

The table below sets forth the maturities of contractual cash obligations as of March 31, 2021.


	Payments due by period
	Total		Within 1 year		1-3 years		3-5 years		After 5 years
	(Millions of yen)
Contractual cash obligations:
Deposits	¥	2,317,785	¥	1,130,583	¥	652,063	¥	535,139	¥	0
Long-term debt		4,416,833		704,742		1,300,987		884,985		1,526,119
Unconditional purchase obligations of lease equipment		1,573		0		1,573		0		0
Lease liabilities related to lessee leases		311,836		48,795		72,066		56,158		134,817
Unconditional noncancelable contracts for computer systems		7,788		3,806		3,652		330		0
Interest rate swaps:
Notional amount (floating to fixed)		538,380		49,866		125,434		88,505		274,575

Total contractual cash obligations	¥	7,594,195	¥	1,937,792	¥	2,155,775	¥	1,565,117	¥	1,935,511

Items excluded from the above table include short-term debt of ¥307,269 million, trade notes, accounts and other payable of ¥260,712 million and policy liabilities and policy account balances of ¥1,822,422 million as of March 31, 2021.

For information on pension plans and derivatives, see Notes 20 and 29 of “Item 18. Financial Statements.” We expect to fund commitments and contractual obligations from one, some or all of our diversified funding sources depending on the amount to be funded, the time to maturity and other characteristics of the commitments and contractual obligations.

For a discussion of debt and deposit-related obligations, see Notes 17 and 18 of “Item 18. Financial Statements.”

For information on lease liabilities, see Notes 6 of “Item 18. Financial Statements.”

RECENT DEVELOPMENTS

NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED

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

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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.

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 the 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, 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, as well as changes in disclosures required by this update.

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, and related amendments were issued thereafter. These updates provide 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. These updates are 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 these updates.

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RISK MANAGEMENT

Group-Wide Risk Management System

Risk Management System

The allocation of management resources within ORIX Group is conducted taking into account group-wide risk preferences determined by management strategies and the business strategies of individual business units. We have established our risk management system to appropriately recognize risks relating to Group businesses on a global basis in order to realize allocations of management resources that are appropriate for the risks we face and report such risks to the board of directors, Audit Committee of the board of directors, Executive Committee and Investment and Credit Committee as the situation warrants. The board of directors and executive bodies comprehensively evaluate the performance of business units and the characteristics of the risks they face and implement necessary measures in response thereto. Through this process, we are able to control our balance sheet and allocate additional management resources to business units with strong potential for growth. To adequately assess group-wide risk, we have established an Enterprise Risk Management Headquarters to control and manage risk throughout ORIX Group and facilitate centralized risk management, and the internal control-related functions work together to analyze and manage risks.

The risk management system has been adopted by the board of directors as a part of our internal control system. The status of the operation of such internal control system is examined and reported to the board of directors annually. For descriptions of our board of directors, Audit Committee, Investment and Credit Committee and other internal committees, see “Item 6. Directors, Senior Management and Employees—Corporate Governance System.”

Management of Principal Risks

We recognize that credit risk , business risk, market risk, liquidity risk (risk relating to funding), compliance risk, legal risk, information risk and operational risk external environment-related risk (risk relating to unpredictable events), are the principal risks we face, and we manage each of these risks according to its characteristics.

Credit Risk Management

We define credit risk as uncertainty regarding recovery of credit caused by the debtors’ default or deterioration in their credit standing.

To analyze credit risk, we evaluate factors such as the adequacy of collateral and guarantees, and diversification of the customer’s industry and business. A typical practice is to conduct a comprehensive customer credit evaluation based on the customer’s financial position, cash flow, underlying security interests, profitability and other factors of individual credit transactions.

Moreover, an analysis of our portfolio and measures to establish appropriate credit limits allow us to control exposure to potentially higher risk markets.

We recognize that certain assets require extra monitoring, including credit extended to debtors who have petitioned for bankruptcy, civil rehabilitation or other insolvency proceedings, or whose bank transactions have been suspended, bills have been dishonored, or debts have not been collected for three months or more. The relevant business units, in cooperation with the credit department, take steps to secure collateral or other guarantees and to begin the collection process. We consolidate accumulated collection knowhow ranging from sending an initial reminder to actively seizing collateral in the credit department and reflect it in our evaluation criteria for individual credit transactions and portfolio analysis.

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Business Risk Management

We define business risk as uncertainty regarding recovery of investments caused by businesses or investees, variability in market prices for the types of products or services we offer and potential degradation or obsolescence of the products or services we offer or a decline in their quality.

To address new businesses and investments, we monitor business plans and operations using scenario analyses and stress tests when we first begin the business or investment. In addition to

on-going

monitoring, we also evaluate and verify the cost of withdrawal from a business, business area or investment.

For products and services we offer, in addition to monitoring quality, we regularly review the content of our product and services line up in response to changes in the business environment and evolving customer needs and endeavor to maintain or improve their quality.

A principal risk relating to operating leases is fluctuation in the residual value of leased properties. To control this risk, we monitor our leased properties inventory, the relevant market environments and the overall business environment. We limit our operating leases to leased properties and other assets with high versatility, and evaluate the sale of such properties and other assets depending on changes in market conditions.

We endeavor to minimize the risk related to fluctuation in market prices for real estate by sufficiently taking into account declines in market prices based on

know-how

we have developed to date, including through our experiences during financial crises.

Market Risk Management

We define market risk as the risk of changes in the fair value of assets and liabilities caused by changes in market variables, such as interest rates, exchange rates and stock prices.

We endeavor to comprehensively verify and understand market risks and have established and maintain Group-wide ALM rules to address such risks.

Interest rate risk is comprehensively evaluated based on factors such as the expected impact of interest rate changes on periodic profit and loss and/or the balance sheet, the assets and liabilities positions and the funding environment. The analysis methods we use are modified, as required, depending on the situation.

We generally manage exchange rate risk by using means such as foreign currency-denominated loans, foreign exchange contracts and currency swaps to hedge exchange rate volatility in our business transactions in foreign currencies and overseas investments. We monitor and manage exchange rate risk relating to unhedged foreign currency-denominated assets and retained earnings of foreign subsidiaries using indicators such as VaR (value at risk) and adjusting hedge positions as needed based on changes in the market environment at any given time.

We manage counterparty credit risk and other risks involved in hedging derivative transactions in accordance with internal rules on derivative transaction management.

In response to the transition away from and discontinuation of LIBOR and other interest rate benchmarks, we have taken, and are continuing to take, necessary steps to proactively address the transition, including monitoring external developments, negotiating successor reference rates with relevant counterparties, planning for the circumstances where the transition results in a mismatch with the fallback reference rates used (particularly in the case of derivatives contracts used for hedging purposes), and evaluating the potential impact on our financial results and condition.

For quantitative and qualitative analysis information on market risk, please see “Item 11. Quantitative and Qualitative Disclosures about Market Risk.”

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Liquidity Risk Management

We define liquidity risk as the risk that we will be unable to obtain required funds or that we will be forced to procure funds at an unusually high rate of interest due to market turmoil, a sharp deterioration in the financial condition of ORIX Group or other reasons.

To reduce liquidity risk, we diversify fund procurement methods and sources and constantly monitor liquidity on hand. To manage liquidity on hand, we project future cash flows and analyze liquidity risk using hypothetical stress scenarios. We take necessary measures so that our businesses may withstand adverse market changes.

The effect on the business of each subsidiary is monitored by ascertaining liquidity risk in each subsidiary and in every country in which ORIX operates. We take appropriate measures to mitigate liquidity risk, including through such action as

parent-to-subsidiary

lending.

ORIX Bank and ORIX Life Insurance are regulated by Japanese financial authorities and are required to manage liquidity risk independently from other ORIX Group companies based on their internal regulations formulated according to the relevant regulations.

ORIX Bank maintains liquidity levels required by Japanese financial regulations by holding highly liquid assets such as cash and government and corporate bonds and by setting an upper limit for capital markets-based funding. In addition, ORIX Bank regularly monitors the status of its liquidity, estimates the tightness of cash flows under different scenarios and conducts

stage-by-stage

management of liquidity risk accordingly.

ORIX Life Insurance strives to maintain appropriate liquidity by setting standards for its holdings of cash and highly liquid governmental and corporate bonds. In addition to assessing current and future funding needs, ORIX Life Insurance has set categories corresponding to the urgency of such funding needs and established standards and contingency plans so that it can swiftly and appropriately respond to situations that take place within each category in times of stress.

Compliance Risk Management

We define compliance risk as the risk of financial loss, regulatory sanction, disadvantage or reputational damage resulting from a failure by ORIX Group to comply with laws and regulations applicable to ORIX Group’s business or company management and/or a failure to comply with ORIX Group’s corporate philosophy, internal rules and generally accepted standards of business conduct.

It is the policy of ORIX Group to promote a culture of compliance, emphasizing high standards of ethical behavior at all levels of the organization, and to comply fully with applicable laws and regulations as well as corporate policies through robust and comprehensive compliance programs developed and maintained across all business units, corporate departments and support areas of the organization.

In order to lower the level of compliance risk at the Group level, the compliance department requires each department of ORIX Group to formulate an annual compliance plan and monitors compliance risks within ORIX Group in order to reduce such risks. By implementing programs that sustain a culture of compliance, the compliance department seeks to mitigate compliance risk and to prevent the occurrence of serious incidents, and thereby contribute to the sound business and management of ORIX Group.

In addition, ORIX Group strives to raise awareness for compliance matters among its executives and employees by establishing and disseminating various regulations in accordance with ORIX Group Principles of Conduct, which sets forth ORIX Group’s principles of compliance. Progress in sustaining a culture of compliance through internal training and other activities is regularly reported to our Audit Committee.

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As part of our internal control system, we have established internal and external whistleblower systems and developed preventative systems for reducing compliance risk. We have also established a system whereby material matters that are reported through the internal and external whistleblower systems and those that relate to legal or other violations are promptly reported to the representative executive officer and appropriate actions are taken in response to instructions received from the representative executive officer. The statuses of responses to material matters are reported to our Audit Committee and information is appropriately shared.

Furthermore, from the perspective of compliance with applicable tax laws, we are committed to paying taxes in conformance with tax laws of relevant jurisdictions, tax treaties and guidelines, and internal rules, to managing our tax affairs in good faith and in compliance with applicable tax systems and to achieving tax transparency on a group-wide basis.

Legal Risk Management

We define legal risk as limitations or other negative effects on our businesses or company management that could result from the enactment of or change in relevant laws and regulations or from deficiencies in contracts.

In addition to establishing internal rules necessary for ensuring compliance with laws and regulations, in order to comply appropriately with revisions in laws and regulations, we have also taken measures to understand the applicability of such laws and regulations to each business in ORIX Group and provide instructions to business units to which such laws and regulations apply.

To avoid, reduce and prevent transactional legal risk, we generally require that the legal department, the compliance department and the credit department each be involved in evaluating and/or executing transactions.

For transactional agreements relating to business transactions, we have established a contract review and approval process involving the legal department in accordance with our prescribed internal rules.

To ensure that proper legal procedures are followed in connection with actual or potential disputes and litigation, we require that the legal department, the compliance department and the credit department each be involved in the management of such disputes and litigation, including lawsuits that have been, or are expected to be, brought against us and lawsuits that we bring, or expect to bring, against third parties. In addition, we have in place systems to prevent disputes and litigation such as a system for monitoring for trademark applications that could infringe on trademarks held by ORIX Group.

The legal department manages intellectual property rights and takes necessary protective measures immediately if an actual or potential infringement of ORIX Group’s intellectual property rights is discovered.

Information Risk Management

We define information risk as the risk of loss, damage or leakage of information or the failure of our information systems.

ORIX Group has established internal rules detailing the proper handling of information as well as the secure operation of information systems. These rules have been prepared for executive officers as well as employees. The scope of these documents includes, our information security management systems, basic policy as well as management standards. In addition, we have implemented technical and operational measures for our information systems to protect against or mitigate cyber-attacks. Such measures include vulnerability management countermeasures. We have also established internal rules concerning our information security management systems, including controls for protecting personal data, basic policy, management standards, education and audits.

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The information security department endeavors to reduce the risk of system failure within ORIX Group. The countermeasures are designed to strengthen the maintenance operation and management of internal systems in order to address risks from cyber-attack and damage to information security. We have also created a system for reporting and responding to information security incidents. Furthermore, in the event of a security incident, the information security department, legal department and compliance department work together to try to minimize damage and prevent secondary damage, while also reporting all materially significant matters to the representative executive officer. This ensures that we take appropriate action in response to instructions received. The Audit Committee is informed of these incidents and information is appropriately shared as well as the status of any relevant material matters.

Operational Risk Management

We define operational risk as the risk of loss resulting from damages, losses, adverse effects or damage to our reputation caused by inadequate or failed internal processes for business execution or failure to secure necessary human resources or prevention of human error or by a failure in operations due to external events such as natural disasters.

In order to clarify internal processes for business execution, we have established internal rules and conduct training to improve awareness of such rules. In addition, for compliance purpose, we are focused on developing and evaluating our internal control over financial reporting.

In order to reliably secure and retain diverse human resources, we promote diversity and inclusivity and strive to create a workplace of valuable for all of our employees so that each of them can fully utilize their various skills and specialized knowledge while engaging in their work in a manner that matches their life style. In addition to developing our human resource systems to take into account factors such as national and regional labor markets, market practices, compensation standards, laws and regulations, job duties and business characteristics, we have developed a work environment that respects human rights and seeks to ensure that employees can engage in meaningful work in a lively manner within a healthy and safe environment.

Additionally, we have established a system for teams to contact risk management departments swiftly in cases where an incident, customer claim or similar matter has arisen so that we can respond quickly and carefully and take measures to prevent reoccurrences.

The internal audit department conducts monitoring activities based on an annual internal audit plan that includes monitoring of material operational risks. The department endeavors to prevent the occurrence of events that could negatively affect Group management and seeks to strengthen the risk management function through monitoring activities.

External Environment-related Risk Management (Risk Related to Unpredictable Events)

Among the external environment-related risks that we face such as those relating to the business environment, we are particularly focused on addressing our systems to address and manage risks related to natural disasters and other unexpected risks. We have established internal rules to manage risks associated with disasters, and implemented a framework for organizational implementation of basic principles to manage risks arising from events such as natural disasters, terrorism and infectious diseases, as well as related activities.

For example, we have established systems for confirming the safety and status of all employees in the event our offices are closed due to an event such as a disaster or the spread of an infectious disease. To prepare for situations where employees working from our offices is impossible or inadvisable, we have also introduced systems to permit employee to work remotely so that our business operations are not disrupted.

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Individual Business Risk Management

We engage in a broad spectrum of businesses, including financial service operations. We seek to perform complete and transparent monitoring and risk management according to the characteristics of each business segment.

Corporate Financial Services and Maintenance Leasing

Legal risk and credit risk are the main risks of the corporate financial services business.

Due to the offering of various products and services by business units in our corporate financial services business, the enactment of or revisions or changes to related laws, regulations and accounting standards may adversely affect the products and services we offer and lead to a decline in fee income. In order to reduce such risk, business units conduct information gathering and coordinate with the legal department with regard to information on changes in relevant laws and regulation, as well as reassessing their business strategies as necessary.

With regard to credit transactions, the corporate financial services business regularly monitors the performance, related collateral, and collection status of customers whose balances exceed specified levels. The credit department regularly evaluates customers with large credit balances.

Within the corporate financial services business, we analyze current conditions and the outlook for specific business types and industries, including the potential impact on customers while making decisions about future transactions in that specific business type or industry.

For assets requiring extra monitoring, particularly in transactions secured by real estate, we take various measures such as capitalizing on our network of real estate-related departments to sell properties or introduce tenants.

Business risk and credit risk are the main risks of the maintenance leasing business.

To manage the risk of changes in the market value of property under operating leases, we continuously monitor market conditions and fluctuations in the value of leased property and reassess residual value estimates of leased property in new investment transactions accordingly.

Cost fluctuation is a risk when providing various services associated with operating leases. In response to this, we analyze initial cost planning and performance, monitor future forecasts and control costs at an appropriate level.

In addition, our services might fall short of customer expectations due to changes in the operating environment or changes in and diversification of client needs. We monitor our service quality quantitatively and qualitatively and continuously strive to provide services at a level that meets our clients’ expectations and to improve our services in line with the operating environment.

Furthermore, we not only conduct credit examinations of individual transactions to manage credit risk, but also conduct comprehensive assessments that take into account changes in, and our expectations regarding, the business environment.

Real Estate

Business risk and market risk are the main risks of the Real Estate segment.

With respect to our real estate investments, before making an investment decision we evaluate the actual cash flow performance of the target as against the initial plan and forecasts, and monitor investment strategies and schedules after execution. Upon a major divergence from the initial forecast, we reevaluate our strategy.

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Furthermore, when we invest in large scale or long-term projects, we consider diversifying risk by making joint investments with our partners.

In our development and leasing business, we monitor development and retention schedules and net operating income yield. We capitalize on the Group’s network to improve occupancy rates and promote sales.

In our facility operation business, we monitor performance indicators such as occupancy and utilization rates and profitability. We conduct market analysis and take initiatives to improve the desirability of our facilities, such as through renovations. To improve the quality of our services and facilities, we take into consideration customers’ feedback and also implement training programs for our employees.

In our condominium business (new and used), we monitor sales figures and profitability of individual businesses while keeping in mind the market environment, relevant interest rates and real estate-related taxation systems. Additionally, in our construction business, we seek to control costs such as those for materials, and construction periods, while also focusing on health and safety management.

PE Investment and Concession

Business risk, market risk and operation risk are the main risks of PE Investment and Concession segment.

When making investment decisions with regard to potential investees in the private equity business, we conduct a credit evaluation, analyzing the investee’s financial condition and assessing its cash flow, as is done for credit examinations. We also perform a multi-faceted evaluation of the characteristics of the business operation and investment scheme, in which administrative departments such as accounting and legal are also involved. In addition, after the initial investment, individual transactions are monitored for divergence from the initial scenario.

We emphasize monitoring financial condition of a company when increasing the corporate value of a company since cash flow is a key factor during such period. We also monitor market risk as the time for collection nears, measuring corporate value by referencing the corporate value of similar business types. The frequency of monitoring may increase based on changes in the business environment, and we simultaneously verify the adequacy of investment scenarios and take any necessary action. Furthermore, for investments that have a significant impact on the profitability of ORIX Group, we work to strengthen management through measures such as seconding of management personnel.

We conduct our concession business in public facilities such as airports, together with business partners.

The long-term nature of this business adds uncertainty and, therefore, we conduct stress tests in advance to evaluate the effect of disaster recovery or business withdrawal costs on operating revenue and cash flow based on demand forecasts and monitor business plans and operations on a regular basis and as the situation warrants. We also strive to train staff with expertise on the management of public facilities and reduce operational risk by establishing a management system with business partners and strengthening governance.

Environment and Energy

Business risk, legal risk and operation risk are the main risks of the Environment and Energy segment.

In the environment and energy business, we conduct various businesses in the renewable energy, energy conservation and resource recycling and waste processing operations sectors both in and outside of Japan. Because such business sectors are relatively new, they are easily impacted by factors such as the external environment, and changes in social trends and systems and legal regulations, so there are cases when it becomes necessary to change the revenue structure of individual businesses. However, we are able to use our experience

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from our existing businesses to quickly identify trends in changes in the external environment and seek to generate new opportunities for revenue through changing or business model, developing new businesses, and selling and exchanging existing businesses.

In each business, we operate facilities of various types, scales and structures and actively seek out investment opportunities, such as M&A and alliances with wide variety of companies, to further expand our businesses, but we also continue to strengthen internal governance by establishing internal control systems within each affiliate and having administrative departments within the segment conduct activities such as business management and audits. In addition, in order to develop business continuity plan structures that ensure safety and appropriateness of each facility and develop readiness for situations such as natural disasters, accidents, and epidemics, we work with specialist departments with technical knowledge to establish human resources and internal rules in an effort to optimize operations.

Insurance

Business risk and market risk are the main risks in the Insurance segment.

In insurance underwriting, we risk sustaining losses due to changes in the economic environment or insurance accident rates over time such that they differ significantly from the assumptions made when the insurance fees were set. Through monitoring of these factors that could cause losses, we

re-evaluate

underwriting standards, develop new products and improve existing products. Furthermore, we employ reinsurance as one means of ensuring payments of insurance fees and the stability of our business management. When utilizing reinsurance, we determine standards for reinsurance and maintenance according to the characteristic of the transferred risk and effect of reinsurance. When choosing a reinsurance company, we focus on ensuring that there is a high probability we can recover the fees paid for reinsurance by taking into account underwriting capacity and financial health.

In the case of market risk, to prepare for changes in the value of our assets and liabilities, we establish monitoring items for general account assets and conduct risk assessments and monitoring. Furthermore, from an asset liability management perspective we strive to limit interest rate risk through the purchase of policy reserve matching bonds.

Banking and Credit

Credit risk is the main risk of the Banking and Credit segment.

Regarding each real estate investment loan we extend for the purchase of condominiums and apartments for investment purposes, we conduct screenings through individual interviews, which consist of a comprehensive evaluation including not only the client’s real estate investment appetite, supporting documentation, and ability to repay but also the cash flows that can be derived from the property and its collateral value. Throughout this process, we carefully select partner realtors and utilize the real estate market information, industry

know-how

and network we have built over many years.

Decision making for corporate loans is based on an investigation of the client’s performance, business plan, intended use of proceeds, expected source of repayment and industry trends. We also reduce risk by avoiding overconcentration in any particular business type and product in our portfolio.

The card loan business uses a proprietary scoring system incorporating a credit model. We set interest rates and credit limits in line with each customer’s credit risk profile, after evaluating their creditworthiness based on an analysis of certain customer attributes or payment history, as well as other factors that might affect their ability to repay. Also, we undertake subsequent credit evaluations at regular intervals to monitor changes in the customer’s financial condition.

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Aircraft and Ships

In the aircraft business, we operate in the operating lease business and aircraft asset management business, where the main risks the businesses face are business risk, credit risk, market risk and operating risk. We generally limit the aircraft to those with high versatility that are comparatively easy to

re-lease

and evaluate sales depending on changes in market conditions. In addition, we conduct comprehensive assessments of the customers’ performance and related collateral at the time of financing. With regard to our affiliate, Avolon, we continuously monitor its business plan and operations. In addition, we support the sound management of Avolon by contributing to its management through the exercise of our rights as a shareholder and our members of its board of directors.

In the ships business, we operate in the financing business, including operating leases, where the main risks the business faces are business risk, market risk, operating risk and credit risk. We generally limit our financing to small and

medium-sized

ships with high versatility that are comparatively easy to

re-lease

and evaluate sales depending on changes in market conditions. Operational risk primarily arises from the risk of managing ships that we own, but we are able to substantially mitigate the possibility of unforeseen events by limiting the outsourcing of ship management to experienced and stable partners and conducting regular assessments. Credit risk is handled at the time of financing through comprehensive assessments of the borrower’s performance and related collateral. After conducting the financing, we continue to monitor borrowers and, for borrowers that require caution, our policy requires management to consider the collectability of the financing and to determine the necessity of an allowance for credit losses or an impairment.

ORIX USA

Credit risk and market risk related to lending and investment are the main risks facing the lending investment business and finance business in the ORIX USA segment.

Regarding credit risk, at the time an investment or loan is made, we assign an internal risk rating to such investment or loan taking into consideration various standard credit metrics, collateral value, and enterprise value. The loan or investment is continuously monitored and the risk rating is periodically reviewed and updated if necessary. For any investments and/or loans for which the rating of the customer has reached or exceeded the cautionary level, our policy requires management to determine the necessity of an allowance for credit losses or an impairment. Regarding market risk, we monitor market values while referring to credit risk information and manage risk by pursuing early sales as appropriate to secure profits or minimize losses.

Operational risk is the main risk for the agency lending business in the United States. We make and sell loans and mortgage backed securities and provide servicing and asset management services with regard to those loans and mortgage backed securities. The majority of those loans and mortgage backed securities are insured by the Federal Housing Administration or guaranteed by a government-sponsored financial institution such as Fannie Mae and Freddie Mac. We conduct our agency lending business in accordance with the designated procedures set forth by these government agencies and government-sponsored institutions; and monitor and manage loan servicing and asset management quality through internal auditing for compliance with the designated procedures and periodic reviews by these agencies and institutions.

Operational risk is the main risk for the asset management business.

We promote the standardization of business processes, regulations and manuals and seek to prevent omissions and mistakes in conducting business operations and to improve efficiency generally. In addition, we ensure proper risk management by clarifying operating procedures and the authority and the responsibilities of administrators and supervisors in business operations.

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In addition to monitoring to maintain and ensure satisfactory levels of credit, market, and operational risk, we review our products and services to constantly maintain and improve performance and quality in response to changes in the business environment and evolving customer needs.

ORIX Europe

Under the supervision of OCE, OCE group companies mainly operate in the asset management industry, where the main risks they face are operational risk and compliance risk.

To mitigate operational and compliance risks in the asset management business, particularly risks arising from acting as a fiduciary manager for customer and client property, we promote a transparent risk culture and the standardization of business processes, internal regulations and procedures. Some operational risk in the asset management business stems from changes in the highly regulated environment of jurisdictions in which the companies operate so OCE group companies actively monitor regulatory developments at an early stage to address these risks, both directly and through representative associations. OCE group companies further ensure proper risk management by implementing risk management policies and frameworks in compliance with applicable regulations, client demand, and sound risk management practices. OCE’s role within the OCE group is to oversee and monitor the risk management and internal control frameworks of each OCE group company.

Asia and Australia

Our local subsidiaries in the Asia, and Australia segment primarily operate leasing, loan, automobile leasing and investment businesses. The main risks those businesses face are credit risk, business risk and market risk.

In the leasing and loan businesses, comprehensive assessments of customers’ business performance and collateral are conducted. Regular monitoring is conducted for purposes such as tracking unpaid amounts and preventing deviations in portfolios at the local subsidiary level and corrective action is taken when necessary. In the automobile leasing business, risk management is conducted taking into account factors that vary from country to country like lease taxation systems and characteristics of the used automobile market.

In the investment business, investments are conducted in a manner similar to domestic investments, with an assessment of the transaction conducted initially and regular monitoring conducted after the transaction takes place. In cases where we have rights as a shareholder as a result of the transaction or have dispatched a director, we support sound management of the investee through our involvement in its board of directors.

Item 6. Directors, Senior Management and Employees

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

CORPORATE GOVERNANCE SYSTEM

We believe that a robust corporate governance system is a vital element of effective and enhanced management and have established sound and transparent corporate governance to carry out appropriate business activities in line with Management’s Basic Policy and to ensure objective management.

ORIX’s corporate governance system is characterized by:

•

separation of execution and supervision through a “Company with Nominating Committee, etc.” board model;

•

Nominating, Audit and Compensation Committees composed entirely of outside directors;

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•

all outside directors satisfying “Requirements for Independent Directors”; and

•

all outside directors being highly qualified in their respective fields.

Rationale behind adopting ORIX’s Corporate Governance System and history of the system

We believe that swift execution of operations is vital to effectively responding to changes in the business environment. Furthermore, we believe that ORIX promotes improved management transparency through a corporate governance system in which outside directors, who have expert knowledge in their respective fields, monitor and advise on the lawful and appropriate execution of operations with an independent view.

Based on these principles, our Board of Directors possesses an oversight function and, under the “Company with Nominating Committee, etc.” board model delegates certain responsibilities to the three board committees to carry out the role of effective governance.

All members of the three committees (Nominating, Audit and Compensation) are outside directors to separate the oversight function of the Board of Directors from the execution of operations and avoid conflicts of interest with our shareholders.

In addition, all outside directors meet objective and specific “Requirements for Independent Directors” stipulated by the Nominating Committee (described below under “Nominating Committee”).

Below is a summary of the history of ORIX’s corporate governance system:


June 1997		Established Advisory Board
June 1998		Introduced Corporate Executive Officer System
June 1999		Introduced Outside Director System
June 2003		Adopted the “Company with Committees” board model
May 2006		Adopted the new “Company with Committees” board model in line with the enactment of the Companies Act of Japan
May 2015		Adopted the new “Company with Nominating Committee, etc.” board model in line with the amendment of the Companies Act of Japan

The “Company with Nominating Committee, etc.” board model, as stipulated under the Companies Act of Japan, requires the establishment of three board of director committees: the Nominating, Audit and Compensation Committees. Each committee is required to consist of three or more directors, a majority of whom must be outside directors. Directors may serve on more than one committee. The term of office of committee members is not stipulated under the Companies Act of Japan. However, as a committee member must be a director of the Company, the term expires at the close of the first annual general meeting of shareholders after his or her election. Under the Companies Act of Japan, an outside director is defined as a director who does not have a role in executing the Company’s business, meaning an individual who has not assumed in the past ten years the position of a representative director or a director with the role of executing the business, executive officer (

shikkou-yaku

), manager or any other employee of the Company or any of its subsidiaries, and who does not currently assume such position of the Company or any of its subsidiaries. (See Item 16G “Corporate Governance”.)

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Board of Directors

The Board of Directors has ultimate decision-making authority for our important affairs. It also monitors the performance of the directors and executive officers and receives performance reports from the executive officers and others. Our Articles of Incorporation provide for no fewer than three directors. Directors are elected at general meetings of shareholders. The term of office for any director, as stipulated under the Companies Act of Japan, for companies that adopt a “Company with Nominating Committee, etc.” board model, expires at the close of the first annual general meeting of shareholders after his or her election or

re-election

as the case may be.

The Board of Directors carry out decisions related to items that, either as a matter of law or pursuant to our Articles of Incorporation cannot be delegated to executive officers, and other important items as determined by the regulations of the Board of Directors. It also monitors the execution of operations by the directors and executive officers. Regarding decisions on operational execution, the Board of Directors is primarily responsible for determining matters such as ORIX’s management plan, which is developed by taking into account ORIX’s basic policies on capital management, fund procurement, and personnel strategies, and basic policy on the internal control system, and monitoring them on a regular basis. Aside from such items, the Board of Directors delegates decision-making regarding operational execution to the representative executive officer to facilitate better efficiency and swiftness of such process. Furthermore, as for the monitoring of operational execution, the Board of Directors also receives reports from executive officers and the three committees regarding the status of business operations, collects information necessary for its monitoring activities, and monitors the appropriateness of operational execution based on such information.

With the exception of the aforementioned items, the Board of Directors may delegate substantial management authority to the representative executive officer. The representative executive officer makes decisions on management issues as delegated by the Board of Directors and executes the business of the Company. For example, the board may delegate to the representative executive officer the authority to approve issuances of shares of capital stock and bonds. In addition, the Companies Act of Japan permits an individual to simultaneously be a director and a representative executive officer of the Company.

From April 1, 2020 through March 31, 2021, the Board of Directors met eight times. The attendance rate of directors for these meetings was 100%.

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Composition and size of Board of Directors

The Board of Directors is composed of directors, including outside directors who possess broad knowledge and experience. The number of directors on the board is also maintained at the level we consider to be appropriate for effective and efficient board discussion.

The Board of Directors as of June 29, 2021 included 12 members, six of whom are outside directors.

Structure and Activities of the Three Committees

As of June 29, 2021, all three committees (Nominating, Audit and Compensation Committees) are composed entirely of outside directors. The members of each committee along with the number of committee meetings and attendance rates are shown below.


	Nominating Committee	Audit Committee	Compensation Committee
Members as of June 29, 2021	3 Members (Outside Directors: 3) Sakie Akiyama (Chairperson) Hiroshi Watanabe Aiko Sekine	3 Members (Outside Directors: 3) Aiko Sekine (Chairperson) Hiroshi Watanabe Chikatomo Hodo	3 Members (Outside Directors: 3) Heizo Takenaka (Chairperson) Michael Cusumano Chikatomo Hodo
Number of meetings held during fiscal 2021 (Attendance rate)	Five (5) meetings (100%)	Eleven (11) meetings (97%)	Four (4) meetings (100%)

Nominating Committee

The Nominating Committee is authorized to propose the slate of director appointments or dismissals to be submitted to the general meeting of shareholders. Directors are appointed and dismissed by a resolution of the general meeting of shareholders. In addition, the Nominating Committee deliberates on the agenda concerning the appointment or dismissal of our executive officers to be resolved at the Board of Directors meeting, although this is not required under the Companies Act of Japan.

Furthermore, the Nominating Committee ensures that the Board of Directors possesses the appropriate levels of and diversity in knowledge, experience, and expertise, through an established decision-making process for directors’ appointments. The Nominating Committee stipulates the “Requirements for Independent Directors” in accordance with the nomination criteria for director candidates described below. The Nominating Committee also nominates executive officer candidates to the Board of Directors following an assessment of candidates’ past experience, knowledge, and suitability for the position to execute business decisions in the Company’s existing and new businesses.

Nomination criteria for director candidates:

(Internal Director)

•

An individual with a high degree of expertise in ORIX Group’s business and excellent business judgment and business administration skills

(Outside Director)

•

An individual with a wealth of experience as a business administrator

•

An individual with professional knowledge in fields such as economics, business administration, law and accounting, as such relate to corporate management

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•

An individual with extensive knowledge in areas such as politics, society, culture and academics, as such relate to corporate management

The Nominating Committee determines whether the conditions for director independence have been met in accordance with the independence-related nomination criteria for outside directors, which are:

(1)

No individual may be a principal trading partner*, or an executive officer (including operating officer, hereinafter the same) or employee of a principal trading partner of ORIX Group. If such circumstances existed in the past, one year must have passed since that person’s departure from such office or employment.

* A “principal trading partner” refers to an entity with a business connection to ORIX Group with a transaction amount equivalent to more than the greater of 2% of such entity’s consolidated total sales (or consolidated total revenues) or one million U.S. dollars in any fiscal year during the preceding four fiscal years.

(2)

No individual may receive directly a large amount of compensation (10 million yen or higher in a fiscal year), excluding compensation as a director from ORIX Group in any fiscal year during the preceding four fiscal years. Further, any corporation or other entity in which such individual serves as a consultant, account specialist or legal expert may not receive a large amount of compensation (equivalent to more than the greater of 2% of such entity’s consolidated total sales (or consolidated total revenues of ORIX Group) or one million U.S. dollars) from ORIX Group. If such circumstances existed in the past, at least one year must have passed since that corporation or other entity received such compensation.

(3)

No individual may be a major shareholder of ORIX (10% or higher of issued shares) or a representative of the interests of a major shareholder.

(4)

No individual may have served as an executive officer of a company having a relationship of concurrent directorship* with ORIX in any fiscal year of the preceding four fiscal years.

* “Concurrent directorship” refers to a relationship in which an executive officer of ORIX or its subsidiaries also serves as a director of a company in which the individual has been an executive officer and an outside director of ORIX.

(5)

No individual may be a member of the executive board (limited to those who execute business) or be a person executing the business (including an officer, corporate member or employee who executes business of the organization) of any organization (including public interest incorporated associations, public interest incorporated foundations and

non-profit

corporations) that have received a large amount of donation or financial assistance (annual average of 10 million yen or higher over the past three fiscal years) from ORIX Group.

(6)

No individual may have served as an accounting auditor or an accounting advisor (

kaikei

san-yo

), a certified public accountant (or a tax accountant) or a corporate member, a partner or an employee of an audit firm (or a tax accounting firm) who personally performed the audit work (excluding engagement as a supporting role) for ORIX Group in any fiscal year during the preceding four fiscal years.

(7)

None of an individual’s family members* may fall under any of the following:

A person who was an executive officer or an important employee of ORIX Group during the past three years.

ii)

A person who falls under one of the criteria specified in (1) through (3), (5) and (6) above; provided, however, that criterion (1) is limited to an executive officer, criterion (2) is limited to a corporate member or a partner of the corporation or other entity and criterion (6) is limited to an executive officer or an employee who performs the audit on ORIX Group in person.

* Family members include a spouse, those related within the second degree by consanguinity or affinity, or other kin living with the outside director.

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(8)

There must be no material conflict of interest or any possible conflict of interest that might influence the individual’s judgment in performing their duties as an outside director.

Audit Committee

The Audit Committee monitors the operational execution of the directors and executive officers and prepares audit reports. In addition, the Audit Committee decides the content of proposals to appoint, dismiss or refuse the reappointment of the Company’s Independent Auditor, which are submitted to the general meeting of shareholders.

Under the “Company with Nominating Committee, etc.” board model, the directors who compose the Audit Committee are not permitted to be executive officers, executive directors of the Company or its subsidiaries, or managers, employees or accounting advisors (

kaikei

san-yo

) of the Company’s subsidiaries. Under the “Company with Nominating Committee, etc.” board model, the Audit Committee generally has powers and duties to monitor the performance of the directors and executive officers in the performance of their responsibilities, as well as the right to propose the appointment or dismissal of, or to pass resolutions for refusing reappointment of the Company’s independent certified public accountants at the annual general meeting of shareholders. Any proposal for appointment or dismissal of a certified public accountant needs to be submitted to a general meeting of shareholders for approval. In furtherance of its responsibilities, the Audit Committee also has the power to request a report of business operations from any director, executive officer, manager or other employee at any time, and to inspect for itself the details of the Company’s business operations and financial condition.

Compensation Committee

The Compensation Committee has the authority to set the policy for determining compensation for directors and executive officers in accordance with the Companies Act of Japan and to set the specific compensation for each individual director and executive officer. Director and executive officer compensation information is disclosed in accordance with the Companies Act and the Financial Instruments and Exchange Act.

Executive Officers

Under the “Company with Nominating Committee, etc.” board model, and within the scope of laws and ordinances, corporate decisions made at the Board of Directors are delegated to the representative executive officer (CEO) to accelerate and achieve efficiency in business operations. The representative executive officer makes important business execution decisions after deliberations by the Executive Committee (“EXCO”), the Investment and Credit Committee (“ICC”) or other appropriate committees in accordance with the Company’s internal policies. The business execution duties of executive officers are decided by the Board of Directors and the representative executive officer and these duties are carried out based upon the Company’s internal policies. Group executives are appointed by the Board of Directors from among directors and executive officers of Group companies.

Important decision-making related to business execution, monitoring, discussions, and information sharing is carried out by the following bodies:

Executive Committee

The EXCO discusses important matters related to the management of the Company. Matters considered crucial to our operations are reported to the Board of Directors as appropriate.

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Investment and Credit Committee

The ICC discusses regarding investments and credit transactions that exceed certain specified investment or credit amounts. Matters considered crucial to our operations are reported to the Board of Directors as appropriate after being discussed by the EXCO.

Group Executive Officer Committee

The Group Executive Officer Committee discusses important matters relating to the business execution of ORIX Group.

Business Unit Strategy Meeting

The Business Unit Strategy Meeting discusses matters such as the status of strategic target achievement and changes in the business environment. Matters of key importance discussed at the Business Unit Strategy Meeting are then deliberated on by the EXCO or the ICC and reported to the Board of Directors as necessary.

Information Technology Management Committee

The Information Technology Management Committee deliberates on important matters concerning fundamental policies for IT operations and IT systems. The committee discusses the needs of and priorities for IT investment based on ORIX Group’s fundamental IT strategies. This method enables ORIX to ensure that IT decisions are consistent with its business strategies and to make IT investments that contribute to business growth and help reduce risk.

Disclosure Committee

To ensure timely and appropriate disclosure of information material to ORIX Group, the Disclosure Committee receives reports on material

non-public

information from persons in charge of ORIX Group company departments, and takes steps necessary to determine whether or not timely disclosure of such information is necessary, and the appropriate means of disclosing such information. As part of ORIX Group’s corporate governance system, the Disclosure Committee plays a significant role in overseeing disclosure control and has a central role in the system for timely and appropriate disclosure of information to stakeholders.

Policies on Auditing and Auditing System

The Audit Committee has established the following five items as its fundamental policies:

•

The Committee shall always emphasize a consolidated management standpoint in auditing.

•

The Committee shall monitor and verify the formulation and status of operations of the Group’s internal control systems. In particular, it shall consider the validity and effectiveness of compliance systems, systems to ensure the credibility of financial reporting, and risk management systems.

•

The Committee shall monitor and verify whether directors, executive officers, and employees under the supervision of executive officers are complying with laws, ordinances, and the provisions of the Articles of Incorporation in fulfilling their obligations of loyalty and due diligence, as well as any other legal obligations to the Group.

•

The Committee shall monitor and verify whether executive officers are determining the execution of their duties and carrying out said duties appropriately and efficiently in accordance with basic management policies, medium-term management plans, and other plans and policies established by the Board of Directors.

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•

To ensure the fairness and credibility of audits, the Committee shall monitor and verify whether the independent certified public accountants are maintaining their independent position and conducting appropriate audits as a professional expert.

Based on these fundamental policies, the Audit Committee verifies the status of the performance of duties and the formulation and status of operations of internal control systems with the representative executive officer and the heads of internal control-related and accounting departments, and shares information with the executive officers responsible for the Group Internal Audit Department, the independent certified public accountants, and others as necessary. The Audit Committee also has access to external experts necessary to carry out its duties.

The Auditing functions of the Company are as follows.

Audit Committee

The Audit Committee which consists of three outside directors evaluates the Group’s internal control systems from an independent standpoint and may appoint outside experts to conduct its duties if necessary. Aiko Sekine, chairperson of the Audit Committee, is qualified as a certified public accountant and has extensive knowledge in finance and accounting as a professional accountant. The number of meetings of the Audit Committee held and the attendance of each member in Fiscal 2021 are as follows.


Name		Status of attendance at Audit Committee Meetings held in Fiscal 2021
Aiko Sekine		Attended nine of nine meetings of the Audit Committee
Heizo Takenaka		Attended ten of eleven meetings of the Audit Committee
Hiroshi Watanabe		Attended nine of nine meetings of the Audit Committee
Eiko Tsujiyama		Attended two of two meetings of the Audit Committee
Nobuaki Usui		Attended two of two meetings of the Audit Committee

In fiscal 2021, the main items examined by the Audit Committee were the receipt of regular activity reports on the status of business execution from executive officers, the exchange of opinions with the CEO, the approval of the audit plan of the Group Internal Audit Department, the evaluation of the independent certified public accountants, the agreement on audit fees in cooperation with the independent certified public accountants, the reporting to the Board of Directors on the contents of deliberation by the Audit Committee, and the specific examination of qualitative and quantitative enhancement of the Audit Committee. In addition, the members of the Audit Committee attended Audit Committee meetings and deliberated on the above mentioned matters, shared information necessary for audit activities such as the current status of each business of ORIX Group, business strategy, project progress, etc. through individual interviews with executive officers and briefing sessions.

Audit Committee Secretariat

The Audit Committee Secretariat which includes four staff members, supports the work of the Audit Committee under the Audit Committee’s instructions. The appointment and evaluation of, changes to, and disciplinary action toward the staff of the Audit Committee Secretariat are carried out by the executive officer responsible for the Group Internal Audit Department with the approval of the Audit Committee.

Operating Officer Responsible for Group Internal Audit Department

The Operating Officer Responsible for the Group Internal Audit Department supports the Audit Committee in collecting information. Such person is entrusted by the Audit Committee with attending important meetings within the ORIX Group and accurately reporting information essential to auditing activities to the Audit Committee in a timely manner.

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Reporting System to the Audit Committee

The following reporting system is in place to ensure that the information required by the Audit Committee is reported in a timely and accurate manner.

•

The directors, executive officers and employees of ORIX Group shall report information requested by the Appointed Audit Member to the Audit Committee of the Company (i.e., the member responsible for the collection of information regarding the performance of duties and investigation of operating assets, hereinafter the “Appointed Audit Member”) periodically or as appropriate.

•

The directors, executive officers and employees of ORIX Group shall report to the Audit Committee upon knowledge of any business activity by a group company that may constitute a serious breach of laws or regulations or a serious breach of the Articles of Incorporation of the relevant group company or serious misconduct, or any fact that could cause significant damage to such group company (hereinafter referred to as an incident of “corruption or scandal”).

•

Upon becoming aware that an incident of corruption or scandal is occurring, the directors, executive officers or employees of ORIX Group shall report to, consult with and provide the basis for such knowledge or suspicion to, the internal or external whistle-blower channels. If the head of whistleblower channels judges that such report or consultation is serious in nature, he / she shall report such information to the Audit Committee of the Company. In addition, the directors, executive officers and employees of ORIX may report concerns regarding accounting, internal controls or auditing matters to the Audit Committee or the Appointed Audit Member within the Audit Committee.

•

ORIX internal rules stipulate that any director, executive officer or employee of ORIX Group who has reported to or consulted with the whistle-blower channels and/or the Audit Committee shall not be treated adversely by reason of said report or consultation. ORIX has established and maintains a system in which persons who have so reported or consulted will not be subject to adverse treatment as a result of their reporting or consulting, including internal rules that stipulate that any person who engages in adverse treatment of an individual who so reports or consults shall be disciplined pursuant to the internal rules.

Group Internal Audit Department and Group Corporate Auditors

The Group Internal Audit Department, which includes 53 staff (as of the end of May 2021), performs internal audits on the effectiveness of internal control systems, and the efficiency and effectiveness of operations, compliance, and other factors pertaining to the management of the ORIX Group through a risk-based approach. It also jointly identifies and monitors critical risk through cooperation with corporate auditors and internal audit functions at group companies and works to maintain and enhance the ORIX Group’s internal auditing system.

Interactions among the Audit Committee, the Independent Certified Public Accountants and Others

In order to ensure the effectiveness of audits, the Audit Committee, the Audit Committee Secretariat, the internal audit department and the internal control-related functions (departments in charge of Group management), and the independent certified public accountants work together through the following procedures.

•

The Audit Committee reviews and approves the annual audit plan prepared by the internal audit department. In addition, the Audit Committee confirms the audit plan of the independent certified public accountants.

•

The Audit Committee receives reports on the results of internal audit department audits and the improvement status of the issues pointed out, and confirms problems in business execution.

•

The internal audit department always cooperates with the Audit Committee and fully cooperates with the Audit Committee’s request for investigation.

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•

The Audit Committee receives and discusses the status of internal control evaluation related to financial reporting by the internal audit department and reports on the evaluation results.

•

The Audit Committee hears and examines the audit opinion and recommendations of the independent certified public accountants for quarterly and

year-end

closing.

•

The Audit Committee receives and discusses important information on accounting audits and internal control audits conducted by the independent certified public accountants.

•

The Audit Committee exchanges views with the independent certified public accountants as necessary on important audit matters.

•

The internal audit department exchanges views with the independent certified public accountants on risk recognition regarding financial reporting as necessary, and works to strengthen collaboration in order to enhance the effectiveness and efficiency of the supervisory function.

•

The internal control-related functions regularly reports on the status of operation of the internal control system to the Audit Committee.

Interactions among outside director’s monitoring, internal audit, audit conducted by the Audit Committee and external audit, and with the internal control-related functions

•

Outside directors, as members of the Board of Directors, determine the company’s direction and strategy, establish basic policy on the internal control system and determine execution of important business affairs. They also demonstrate highly effective oversight functions through reporting about the status of the performance of duties by the Audit Committee and executive officers and reporting as to the status of operation of internal control systems within the internal control-related functions etc., separating from the execution of operations.

•

The Audit Committee is composed entirely of outside directors. The Committee conducts an audit regarding the status of the performance of directors’ and executive officers’ duties and an oversight of the Company’s independent certified public accountants in terms of its solid independent position.

•

The Audit Committee Secretariat provides an opportunity for an interview between members of the Audit Committee and executive officers of ORIX Group in order that members consisting of solely outside directors obtain further understanding of ORIX Group’s business.

•

After the closing of the Board of Directors meetings, debriefing sessions are held to report the current status of each business, business strategy, progress of projects, etc. and to share information necessary to enable appropriate oversight by the outside directors.

AUDITOR INDEPENDENCE

Presently, our independent certified public accountants are KPMG AZSA LLC. The independence of KPMG AZSA LLC has been evaluated by our Audit Committee. KPMG AZSA LLC has continuously audited ORIX Group since 1985.

ORIX Group prepares consolidated financial statements in accordance with U.S. GAAP. U.S. GAAP consolidated financial information is used by management for evaluating our performance and forms the basis for presentation of financial information to our shareholders. The consolidated financial statements prepared in accordance with U.S. GAAP that are included in this annual report filed with the SEC have been audited by KPMG AZSA LLC, which is registered with the PCAOB in the United States.

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We select the independent certified public accountants to conduct the Company’s audit or determine the reappointment thereof based on the external auditor basic appointment policy (“basic appointment policy”) defined by the Audit Committee, which takes into consideration their independence from the Company, as well as their expert knowledge, comprehensive ability to conduct audits, audit quality and the number of continuous audit years in the Company.

With regard to the independent certified public accountants, based on the basic appointment policy described above, if we deem that the independent certified public accountants do not demonstrate adequate expert knowledge, comprehensive ability to conduct audits, audit quality, or if they are in violation of laws or regulations, including the Companies Act and the Certified Public Accountants Act, if they are offensive to public order and morals, or if there are other suitable reasons, the Company’s Audit Committee shall submit a proposal to the General Meeting of Shareholders concerning the dismissal or

non-reappointment

of the independent certified public accountants.

In addition, if the Company’s Audit Committee deems that the independent certified public accountants’ circumstances qualify as a reason for dismissal provided for in Article 340, Paragraph (1) of the Companies Act, the Audit Committee shall dismiss the independent certified public accountants.

The independent certified public accountants are to be evaluated each year based on the basic appointment policy, and in the fiscal year under review, we performed a comprehensive evaluation based on audit performance, audit quality, and audit fees.

In the opinion of management, the provision of

non-audit

services did not impair the independence of KPMG AZSA LLC.

DIRECTORS

The Member of the Board of Directors of ORIX as of June 29, 2021 are as follows:


Name (Date of birth)	Current positions and principal outside positions (1)	Business experience		Number of shares held (of which number of shares scheduled to be issued by share-based compensation plans) in the Company as of June 29, 2021
Makoto Inoue (Oct. 2, 1952)	Member of the Board of Directors, Representative Executive Officer, President and Chief Executive Officer, Responsible for Group Strategy Business Unit	Apr. 1975	Joined the Company	91,799 (524,948)
		Mar. 2001	General Manager of Investment Banking Headquarters	91,799 (524,948)
		Jan. 2003	Deputy Head of Investment Banking Headquarters
		Feb. 2005	Assumed office of Executive Officer, the Company
			Head of Alternative Investment & Development Headquarters
		Jan. 2006	Assumed office of Managing Executive Officer, the Company
		Dec. 2006	Head of Alternative Investment & Development Headquarters,
			Responsible for IT Planning Office

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Name (Date of birth)	Current positions and principal outside positions (1)	Business experience		Number of shares held (of which number of shares scheduled to be issued by share-based compensation plans) in the Company as of June 29, 2021

Sakie Akiyama (Dec. 1, 1962)	Member of the Board of Directors (Outside Director) Founder, Saki Corporation Member of the Board of Directors (Outside Director), Sony Corporation Board of Directors (Outside Director), JAPAN POST HOLDINGS Co., Ltd. Member of the Board (Outside Director), Mitsubishi Corporation	Apr. 1987	Joined Arthur Andersen & Co. (retired on Mar. 1994)	0 (3,000)
		Apr. 1994	Founded Saki Corporation Assumed office of Representative Director and Chief Executive Officer, Saki Corporation (retired on Sep. 2018)	0 (3,000)
		Oct. 2018	Assumed office of Founder, Saki Corporation
		Jun. 2019	Assumed office of Member of the Board of Directors (Outside Director), the Company
			Assumed office of Member of the Board of Directors (Outside Director), Sony Corporation
			Assumed office of Board of Directors (Outside Director), JAPAN POST HOLDINGS Co., Ltd.
		Jun. 2020	Assumed office of Member of the Board (Outside Director), Mitsubishi Corporation

Hiroshi Watanabe (Jun. 26, 1949)	Member of the Board of Directors (Outside Director) President, Institute for International Monetary Affairs Director (Outside Director), Mitsubishi Materials Corporation	Apr. 1972	Joined the Ministry of Finance	0 (1,500)
		Jan. 2003	Director-General, International Bureau, Ministry of Finance	0 (1,500)
		Jul. 2004	Vice Minister of Finance for International Affairs, Ministry of Finance (retired on Jul. 2007)
		Oct. 2007	Special Advisor, Japan Center for International Finance (retired on Sep. 2008)
		Apr. 2008	Professor, Graduate School of Commerce and Management, Faculty of Commerce and Management at Hitotsubashi university (currently School of Business Administration at Hitosubashi University Business School) (retired on Sep. 2008)
		Oct. 2008	Assumed office of Deputy Governor, Japan Finance Corporation (retired on Mar. 2012)

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Name (Date of birth)	Current positions and principal outside positions (1)	Business experience		Number of shares held (of which number of shares scheduled to be issued by share-based compensation plans) in the Company as of June 29, 2021
		Apr. 2012	Assumed office of Deputy Governor, Japan Bank for International Cooperation
		Dec. 2013	Assumed office of Governor, Japan Bank for International Cooperation (retired on Jun. 2016)
		Oct. 2016	Assumed office of President, Institute for International Monetary Affairs
		Jun. 2017	Assumed office of Director (Outside Director), Mitsubishi Materials Corporation
		Jun. 2020	Assumed office of Member of the Board of Directors (Outside Director), the Company

Aiko Sekine (May 13, 1958)	Member of the Board of Directors (Outside Director) Professor, Faculty of Commerce at Waseda University Trustee, International Valuation Standards Council Advisor, Japanese Institute of Certified Public Accountants Audit & Supervisory Board Member (Outside), Sumitomo Riko Company Limited Audit & Supervisory Board Member (Outside), IHI Corporation	Apr. 1981	Joined Citibank, N.A., Tokyo Branch (retired on Jan. 1984)	0 (1,500)
		Oct. 1985	Joined Aoyama Audit Corporation
		Mar. 1989	Certified as Public Accountant, Japan
		Jul. 2001	Partner of Chuo Aoyama Audit Corporation (retired on Aug. 2006)
		Sep. 2006	Partner of Aarata Audit Corporation (currently PricewaterhouseCoopers Aarata LLC) (retired on Jul. 2016)
		Jul. 2007	Executive Board Member of Japanese Institute of Certified Public Accountants
		Jan. 2008	Board Member of International Ethics Standards Board for Accountants, International Federation of Accountants (retired on Dec. 2010)
		Jul. 2010	Assumed office of Deputy President of Japanese Institute of Certified Public Accountants
		Jul. 2016	Assumed office of Chairman and President of Japanese Institute of Certified Public Accountants (retired on Jul. 2019)

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Name (Date of birth)	Current positions and principal outside positions (1)	Business experience		Number of shares held (of which number of shares scheduled to be issued by share-based compensation plans) in the Company as of June 29, 2021
		Jan. 2019	Member of the Nominating Committee, International Federation of Accountants
		Jul. 2019	Advisor, Japanese Institute of Certified Public Accountants
		Jun. 2020	Assumed office of Member of the Board of Directors (Outside Director), the Company
			Assumed office of Audit & Supervisory Board Member (Outside), Sumitomo Riko Company Limited
			Assumed office of Audit & Supervisory Board Member (Outside), IHI Corporation
		Sep. 2020	Professor, Faculty of Commerce at Waseda University
		Oct. 2020	Trustee, International Valuation Standards Council

Chikatomo Hodo (Jul. 31, 1960)	Member of the Board of Directors (Outside Director) Senior Corporate Advisor, Accenture Japan Ltd. Outside Director, Konica Minolta Inc. Outside Director, Mitsubishi Chemical Holdings Corporation	Sep. 1982	Joined Accenture Japan Ltd.	0 (0)
		Sep. 2005	Assumed office of Representative Director, Accenture Japan Ltd.
		Apr. 2006	Assumed office of Representative Director and President, Accenture Japan Ltd.
		Sep. 2015	Assumed office of Director and Chairman, Accenture Japan Ltd. (retired on Aug. 2017)
		Sep. 2017	Assumed office of Director and Senior Corporate Advisor, Accenture Japan Ltd. (retired as a Director on Jun. 2018)
		Jun. 2018	Assumed office of Outside Director, Konica Minolta Inc.
		Jul. 2018	Senior Corporate Advisor, Accenture Japan Ltd.
		Jun. 2019	Assumed office of Outside Director, Mitsubishi Chemical Holdings Corporation
		Jun. 2021	Assumed office of Member of the Board of Directors (Outside Director), the Company


Notes:		1. All ORIX Member of the Board of Directors are engaged full-time except Heizo Takenaka, Michael Cusumano, Sakie Akiyama, Hiroshi Watanabe, Aiko Sekine and Chikatomo Hodo.
		2. Name on the family register of Aiko Sekine is Aiko Sano.

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EMPLOYEES

As of March 31, 2021, we had 33,153 full-time employees, compared to 31,233 as of March 31, 2020 and 32,411 as of March 31, 2019. We employ 5,933 staff in Corporate Financial Services and Maintenance Leasing, 8,586 staff in Real Estate, 4,831 staff in PE Investment and Concession, 673 staff in Environment and Energy, 2,437 staff in Insurance, 1,130 staff in Banking and Credit, 154 staff in Aircraft and Ships, 1,371 staff in ORIX USA, 1,356 staff in ORIX Europe, 4,554 staff in Asia and Australia, 2,128 staff as part of our headquarters function as of March 31, 2021. As of March 31, 2021, we had 19,187 temporary employees. Some of our employees are represented by a union. We consider our labor relations to be excellent.

The mandatory retirement age for our employees is 65, but for our subsidiaries and affiliates the retirement age varies. ORIX and major domestic subsidiaries introduced a system for retirement at age 65 from April 2014. By implementing the system alongside the current

re-employment

system at retirement age, the system will allow employees to choose how they will work from age 60 according to their lifestyles. In April 2010, ORIX introduced an early voluntary retirement program that is available to ORIX employees who are at least 45 years old. Employees who take advantage of this program receive their accrued retirement package plus an incentive premium.

ORIX and some of its subsidiaries have established contributory and noncontributory funded pension plans covering substantially all of their employees. The 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, if enrollment period requirements have been met, to pension payments. Defined benefit pension plans consist of a cash balance plan and a plan in which the amount of the payments are determined on the basis of length of service and remuneration at the time of termination. Our funding policy in respect of these plans is to contribute annually the amounts actuarially determined to be required. Assets of the plans are invested primarily in interest-bearing securities and marketable equity securities. In July 2004, ORIX introduced a defined contribution pension program. In November 2004, we received permission from the Japanese Ministry of Health, Labor and Welfare to transfer the substitutional portion of benefit obligation from our employer pension fund to the government and these assets were transferred back to the government in March 2005. Total costs (termination or pension plans for both employees and directors and corporate auditors) charged to income for all benefit plans (including defined benefit plans) were ¥8,733 million, ¥9,845 million and ¥11,018 million in fiscal 2019, 2020 and 2021, respectively.

SHARE OWNERSHIP

As of June 29, 2021, the directors, executive officers and group executives of the Company directly held an aggregate of 211,941 Shares, representing 0.01% of the total Shares issued as of such date.

COMPENSATION

To promote greater management transparency in our governance, we had established the Executive Nomination and Compensation Committee in June 1999. Its functions included recommending executive remuneration. In June 2003, we adopted a “Company with Committees” board model and replaced the Executive Nominating and Compensation Committee with separate Nominating and Compensation Committees. For discussion of these committees, see “Item 6. —Directors, Senior Management and Employees—Nominating Committee” and “—Compensation Committee.”

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Compensation for directors, executive officers and group executives in fiscal 2021 was as follows (in millions of yen);


	Fixed compensation (Number of people)			Performance- linked compensation (Number of people)			Share-based compensation (Number of people)			Total compensation
Non-Executive Director and Outside Director	¥	93 (8	)		— —		¥	13 (8	)	¥	106 (8	)
Executive Officer and Group Executive	¥	682 (25	)	¥	425 (25	)	¥	591 (25	)	¥	1,699 (25	)

Total	¥	775 (33	)	¥	425 (25	)	¥	604 (33	)	¥	1,805 (33	)

The above list is the amount paid in accordance with the policies for the compensation of directors and Executive Officers resolved by the Compensation Committee held on June 26, 2020.

The amount paid listed in the table above with regard to the share-based compensation is calculated by multiplying the number of points confirmed to be provided as the portion for the fiscal year ended in March 2021 by the stock market price paid by the trust when ORIX’s shares were acquired (¥1,479.87 per share).

The targets and results with regard to the KPIs of the performance-linked compensation listed in the table above are as follows:

Company-wide performance indicator

We targeted the milestone rate with regard to the consolidated net income growth set by the compensation committee towards the achievement of the Company’s

mid-term

strategic directions, and achieved 64%.

Division performance indicator

We set the performance target for each division based on the company-wide performance target, and achieved 50% to 150% (median: 95%) by 18 Executive Officers and 5 group executives (based on the total evaluation including qualitative assessment).

Compensation for Makoto Inoue, Member of the Board of Directors, Representative Executive Officer, President and Chief Executive Officer of ORIX, for fiscal 2021 was ¥117 million in fixed compensation, ¥75 million in performance-linked compensation and ¥111 million in share-based compensation.

Compensation for Shoji Taniguchi, Member of the Board of Directors, Senior Managing Executive Officer of ORIX, for fiscal 2021 was ¥41 million in fixed compensation, ¥34 million in performance-linked compensation and ¥34 million in share-based compensation.

Compensation for Satoru Matsuzaki, Member of the Board of Directors, Senior Managing Executive Officer of ORIX, for fiscal 2021 was ¥39 million in fixed compensation, ¥27 million in performance-linked compensation and ¥34 million in share-based compensation.

Compensation for Yoshiteru Suzuki, Member of the Board of Directors, Senior Managing Executive Officer of ORIX, for fiscal 2021 was ¥58 million (¥58 million from ORIX Corporation USA) in fixed compensation and ¥25 million in performance-linked compensation and ¥34 million in share-based compensation.

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The actual total amount of the share-based compensation paid in fiscal 2021 was ¥302 million paid to two directors and two executive officers (including those serving concurrently as directors and Executive Officers) who retired during fiscal 2021. The following individual retired during fiscal year 2021 and was paid share-based compensation totaling over ¥100 million. Compensation for Yuichi Nishigori, currently President of ORIX Bank Corporation, as Member of the Board of Directors, Senior Managing Executive Officer of ORIX, for fiscal 2021 was ¥9 million in fixed compensation, ¥3 million in performance-linked compensation and ¥105 million in share-based compensation.

The Compensation Committee sets the following “Policy of Determining Compensation of Directors and Executive Officers.”

Policy of Determining Compensation of Directors and Executive Officers

ORIX’s business objective is to increase shareholder value over the medium- to long-term. ORIX believes in the importance of each director and Executive Officer responsibly performing his or her duties, and cooperation among different business units in order to achieve continued growth of the ORIX Group. The Compensation Committee believes that in order to accomplish such business objectives, directors and Executive Officers should place emphasis not only on performance during the current fiscal year, but also on medium- to long-term results. Accordingly, under the basic policy that compensation should provide effective incentives, ORIX takes such factors into account when making decisions regarding the compensation system and compensation levels for directors and Executive Officers. Taking this basic policy into consideration, we have established separate policies for the compensation of directors and Executive Officers in accordance with their respective roles based on a decision of the compensation committee held on June 25, 2021.

Compensation Policy for Directors

The compensation policy for directors who are not also Executive Officers aims for compensation composed in a way that is effective in maintaining the supervisory and oversight functions of Executive Officers’ performance in business operations, which is the main duty of directors. Specifically, ORIX’s compensation structure for directors consists of fixed compensation and share-based compensation *. In addition, the Company strives to maintain a competitive level of compensation with director compensation according to the role fulfilled, and receives third-party research reports on director compensation for this purpose.

Fixed compensation is, in principal, a certain amount that is added to the compensation of the chairperson and member of each committee. For share-based compensation reflecting medium- to long-term performance, directors are granted a fixed amount of points on an annual basis for their period of service, and they are paid in ORIX shares corresponding to the amount of points they have accumulated at the time of retirement.

Compensation Policy for Executive Officers

The compensation policy for executive officers, including those who are also directors, aims for a level of compensation that is effective in maintaining business operation functions, while also incorporating a component that is linked to current period business performance. Specifically, ORIX’s compensation structure for executive officers consists of fixed compensation, performance-linked compensation, and share-based compensation **. In principle, the compensation mix for executive officers is to set the ratio fixed compensation, performance-linked compensation, and share-based compensation to 1:1:1. In addition, based on the outcome of a third-party compensation research agency investigation, the Company strives to maintain a competitive level of compensation with executive officer compensation functioning as an effective incentive.

Fixed compensation is decided for each individual based on a standard amount for each position. Compensation linked to business performance for the fiscal year ended March 2021 uses the level of achievement of the consolidated net income growth target as a company-wide performance indicator, adjusting

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50% of the position-based standard amount within the range of 0% to 200% while, at the same time, using the level of achievement of the target of the division for which the relevant executive officer was responsible *** as a division performance indicator, adjusting 50% of the position-based standard amount within the range of 0% to 300%. In the case of the representative executive officers, the consolidated net income growth target is used as a sole performance indicator, adjusting the standard amount within the range of 0% to 200%. These performance indicators are selected based on the Company’s

mid-term

strategic directions. For share-based compensation reflecting medium- to long-term performance, executive officers are granted a fixed amount of points based on their position, and they are paid in ORIX shares corresponding to the amount of points they have accumulated at the time of retirement.

Share-based compensation is the Board Incentive Plan Trust in which directors and Executive Officers are granted a fixed amount of points on an annual basis for their period of service, and at the time of retirement, ORIX’s shares are delivered through a trust to them in accordance with the number of points they have accumulated. The amount of points to be granted is determined in accordance with the guidelines adopted by the compensation committee. The compensation committee does not set a minimum ownership period for the shares delivered under the plan. The compensation committee can forfeit the share-based compensation from a recipient director or executive officer, if it finds he/she engaged in serious misconduct that could cause damage to the Company during his/her period of service.

**	Compensation for executive officers based on foreign branches or executive officers with special expertise is determined based on individual deliberation about foreign local compensation practices/levels or their special expertise, as the case may be.

***

The level of achievement of each division performance with regard to the performance-based compensation is measured based on a total evaluation focusing on the annual growth rate of each division and taking into account qualitative factors (such as target levels, details of achievement, future growth potential, effort status to ESG, etc.)

For the authority and discretion of Compensation Committee, refer to “Item 6. Directors, Senior Management and Employees—Structure and Activities of the Three Committees—

Compensation Committee

.”

The Compensation Committee during the current consolidated fiscal year were held 4 times in total in May (twice), June and November 2020 during fiscal 2021.

All members of the Compensation Committee attended all the meetings, and the attendance rate was 100%.

The main agenda items of the Compensation Committee were as follows:

•

Determination of performance evaluation and individual payment amount related to performance-linked compensation (annual bonus) for fiscal 2020

•

Examination of the compensation system for Directors and Executive Officers for fiscal 2021

•

Determination of the compensation system for Directors and Executive Officers for fiscal 2021

•

Examination of the compensation level for Directors and Executive Officers based on the outcome of a third-party compensation research agency investigation

•

Determination of the renewal of Board Incentive Plan Trust contract for share-based compensation

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The Compensation Committee conducts a comprehensive review, including confirming whether the specific compensation, etc. for individual Directors and Executive Directors is consistent with the compensation policies based on the resolution at the Compensation Committee meeting held on June 26, 2020, determines the compensation after verifying that the level of compensation is appropriate based on third-party research reports on Director compensation and other information, and judges whether the compensation is in line with the compensation policies.

In, addition, to further strengthen the sharing of profits with our shareholders and stakeholders, we have established shareholding guidelines to the Directors, Executive Officers and Group Executives to hold certain numbers of our shares in June 2005.

In June 2005, we introduced the share-based compensation, which is a program in which points are annually allocated to directors and executive officers based upon prescribed standards while in office, and the actual number of ORIX’s shares calculated based on the number of accumulated points is provided at the time of retirement. In July 2014, we started to provide these shares through a trust established by the Board Incentive Plan Trust. The Company entrusts money to the “Board Incentive Plan Trust”, which acquires ORIX’s shares from the stock market for directors and executive officers at the end of his or her tenure using money contributed in advance. The total number of points of the share-based compensation granted to directors, executive officers and group executives for fiscal 2021 is equivalent to 427,916 points. Under this system, ¥302 million, which is equivalent to 204,680 points accumulated up to the end of tenure, was paid to executive officers who left their positions during fiscal 2021. As a result, the balance to directors, executive officers and group executives as of March 31, 2021 was 1,612,840 points.

There are no service contracts between any of our directors, executive officers or group executives and the Company or any of its subsidiaries providing for benefits upon termination of employment.

No stock options were granted in any year since 2009. Each unit of the Shares has one vote. We have not issued any preferred shares.

STOCK OPTION PLAN

We have adopted various incentive plans including a stock option plan. The purpose of our stock option plan is to enhance the link between management, corporate performance and stock price, and, in this way, improve our business results. These plans are administered by ORIX’s Human Resources Department. For further discussion of stock-based compensation, see Note 22 of “Item 18. Financial Statements.”

At the annual general meetings of shareholders in the years from 1997 to 2000 inclusive, our shareholders approved stock option plans under which ORIX purchased shares from the open market and held them for transfer to ORIX’s directors and executive officers and some employees upon the exercise of their options. Shareholders also approved a stock subscription rights plan in 2001 and stock acquisition rights plans from 2002 to 2005. From 2006 to 2008, the Compensation Committee approved stock acquisition rights plans for our directors and executive officers, and shareholders approved similar plans for certain ORIX employees, as well as directors, executive officers and certain employees of our subsidiaries and affiliates. From 2009 to 2021, no stock option plans were adopted for our directors, executive officers, employees, or those of our subsidiaries and affiliates.

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Item 7. Major Shareholders and Related Party Transactions

MAJOR SHAREHOLDERS

The following table shows our major shareholders registered on our Register of Shareholders as of March 31, 2021.

Each unit of Shares (1 unit = 100 Shares) has one vote, and none of our major shareholders have different voting rights. We do not issue preferred shares.


Name	Number of Shares held		Percentage of Issued shares
	(Thousands)		(%)
The Master Trust Bank of Japan, Ltd. (Trust Account)		106,463		8.73
Custody Bank of Japan, Ltd. (Trust Account)		75,528		6.19
Custody Bank of Japan, Ltd. (Trust Account 9)		27,824		2.28
Custody Bank of Japan, Ltd. (Trust Account 7)		27,533		2.25
SSBTC CLIENT OMNIBUS ACCOUNT		25,626		2.10
CITIBANK, N.A. -N.Y , AS DEPOSITARY BANK FOR DEPOSITARY SHARE HOLDERS		23,308		1.91
SMBC Nikko Securities Inc.		21,428		1.75
STATE STREET BANK WEST CLIENT-TREATY 505234		20,699		1.69
NORTHERN TRUST CO. (AVFC) SUB A/C NON TREATY		18,965		1.55
Custody Bank of Japan, Ltd. (Trust Account 5)		18,354		1.50

ORIX is not directly or indirectly owned or controlled by any corporations, by any foreign government or by any natural or legal persons severally or jointly. As of March 31, 2021, the percentage of issued Shares held by overseas corporations and individuals was 44.05%. As of March 31, 2021, approximately 4,661,728 ADSs were outstanding (equivalent to 23,308,640 or approximately 1.81% of ORIX’s issued Shares as of that date). As of March 31, 2021, all our ADSs were held by one record holder in the United States.

On May 11, 2021, Sumitomo Mitsui Trust Bank, Limited submitted a filing to the Kanto Local Finance Bureau indicating that Sumitomo Mitsui Trust Holdings, Inc. held 62,963,100 Shares, representing 4.90% of ORIX’s outstanding Shares, as part of Sumitomo Mitsui Trust Bank, Limited’s assets under management.

On January 29, 2021, BlackRock Group submitted a filing to the Securities and Exchange Commission indicating that BlackRock Inc., primarily through BlackRock Japan Co., Ltd, held 76,063,556 Shares, representing 5.80% of ORIX’s outstanding Shares, as part of BlackRock Group’s assets under management.

RELATED PARTY TRANSACTIONS

To our knowledge, no individual beneficially owns 10% or more of any class of the Shares that might give that individual significant influence over us. In addition, we are not directly or indirectly owned or controlled by, or under common control with, any enterprise.

We may enter into transactions with shareholders or potential large investors in the ordinary course of our business. We may also enter into transactions in the ordinary course of our business with certain key management personnel or with certain companies over which we, or our key management personnel, may have a significant influence. Our business relationships with these companies and individuals cover many of the financial services we provide our clients generally. We believe that we conduct our business with these companies and individuals in the normal course and on terms equivalent to those that would exist if they did not have equity holdings in us, if they were not our key management personnel, or if we or our key management personnel did not have significant influence over them, as the case may be. None of these transactions is or was material to us or, to our knowledge, to the other party.

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Other than as outlined below, since the beginning of our last full fiscal year, there have been no transactions or outstanding loans, including guarantees of any kind, and there are none currently proposed, that are material to us, or to our knowledge, to the other party, between us and any (i) enterprises that directly or indirectly through one or more intermediaries, control or are controlled by, or are under common control with, us; (ii) associates; (iii) individuals owning, directly or indirectly, an interest in the voting power of us that gives them significant influence over us, and close members of any such individual’s family; (iv) key management personnel, including directors and senior management of companies and close members of such individuals’ families; or (v) enterprises in which a substantial interest in the voting power is owned, directly or indirectly, by any person described in (iii) or (iv) or over which such a person is able to exercise significant influence.

Since the beginning of our last full fiscal year, no loans to any of the persons listed in clause (iv) above were made other than those that were made in the ordinary course of business, on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons, and did not involve more than the normal risk of collectibility or present other unfavorable features.

There are no outstanding loans (including guarantees of any kind) made by us or any of our subsidiaries to or for the benefit of any of the persons listed in clauses (i) through (v) above other than those listed in the table below. Certain of our affiliates may fall within the meaning of a related party under clauses (i) or (ii) above. The amount of outstanding loans (including guarantees of any kind) made by us to or for the benefit of all our affiliates, including those which may fall within the meaning of a related party, totaled ¥34,102 million as of March 31, 2021 and did not exceed ¥38,000 million at any time during fiscal 2021.

Each of these loans was made in the ordinary course of business. The following table describes, for each related party borrower, the applicable interest rate (or range of interest rates), the largest aggregate amount outstanding during fiscal 2021 and the aggregate amount outstanding as of March 31, 2021.


Related Party	The largest aggregate amount outstanding during fiscal 2021		Aggregate amount outstanding as of March 31, 2021		Interest rate
	(Millions of yen)				(%)
Kansai Airports	¥	12,329	¥	12,002		6.5
SORA Airlease Designated Activity Company		8,780		8,780		6.0 – 9.5
Meritix Airlease Limited		3,126		3,126		6.0 – 9.5
IOS II, LLC		2,734		2,486		6.3
Medical Corporation DIC		2,110		2,110		1.2 – 5.0
Shinko Medical Support Corporation		1,760		1,760		5.0
California Proton Therapy Center, LLC		1,573		908		7.5 – 10.0
First Resort Co., Ltd		845		845		3.5
Wizard Acquistion		842		627		12.0
Timber Parent, LLC		690		577		14.0 – 16.0
ALLIANCE ENVIRONMENTAL GROUP, LLC		445		360		12.0
Junseikai Medical Corporation		230		230		5.0
YM LeaseCo., Ltd.		400		200		0.9
Tsubaki Marine S.A.		55		55		1.0
Medical Corporation NIDC		20		20		1.2 – 5.0
Pacific League Marketing Corporation		49		14		2.9
Kada Greenfarm Co., Ltd.		2		2		3.1
Meritix Airlease Dara Limited		1,508		0		6.0 – 9.5
Imation Company, LLC		1,479		0		7.5
RAM Industries Acquisitions, LLC		645		0		13.0
OCC-ART Investor Holdings, LLC		601		0		13.0
LCR Parent, LLC		444		0		12.0
Flexible Energy Service Co., Ltd.		1		0		3.2

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Item 8. Financial Information

All relevant financial statements are attached hereto. See “Item 18. Financial Statements.”

LEGAL PROCEEDINGS

See “Item 4. Information on the Company—Legal Proceedings.”

DIVIDEND POLICY AND DIVIDENDS

See “Item 10. Additional Information—Dividend Policy and Dividends.”

SIGNIFICANT CHANGES

None.

Item 9. The Offer and Listing

TOKYO STOCK EXCHANGE

The primary market for the Shares is the Tokyo Stock Exchange. The Shares have been traded on the First Section of the Tokyo Stock Exchange since 1973.

NEW YORK STOCK EXCHANGE

The ADS are listed on the New York Stock Exchange under the symbol “IX.”

One ADSs represents five Shares. On March 31, 2021, approximately 4,661,728 ADSs were outstanding. This is equivalent to 23,308,640 or approximately 1.81% of the total number of Shares outstanding on that date. On that date, all our ADSs were held by one record holder in the United States.

Item 10. Additional Information

MEMORANDUM AND ARTICLES OF INCORPORATION

Purposes

Our corporate purposes, as provided in Article 2 of our Articles of Incorporation, are to engage in the following businesses: (i) lease, purchase and sale (including purchase and sale on an installment basis), maintenance and management of movable property of all types; (ii) moneylending business, purchase and sale of claims of all types, payment on behalf of third parties, guarantee and assumption of obligations, agent for collection of money and other financial business; (iii) holding, investment in, management, purchase and sale of financial instruments such as securities and other investment business; (iv) advice, brokerage and agency relating to the merger, capital participation, business alliance and business succession and reorganization, etc.; (v) financial instruments and exchange business, financial instruments broker business, banking, trust and insurance business, advisory service business relating to investment in commodities, trust agreement agency business and credit management and collection business;

(vi) non-life

insurance agency business, insurance

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agency business under the Automobile Accident Compensation Security Law, and service related to soliciting life insurance; (vii) lease, purchase and sale, ground preparation, development, maintenance and management of real property and warehousing; (viii) contracting for construction, civil engineering, building utility and interior and exterior furnishing, and design and supervision thereof; (ix) management of various facilities for sports, lodging, restaurant, medical treatment, welfare and training and education, and conducting sports, etc.; (x) facility planning, development, maintenance, management and operation of airports, roads, other public facilities and similar kinds of aforementioned facilities and the assumption or undertaking of public works; (xi) production, processing, sale, purchase, research and development of agricultural products, food products and agriculture-related products and facilities; (xii) waste-disposal business; (xiii) trading of emission rights for greenhouse gases and other various subjects; (xiv) power generation business; (xv) supply of various energy resources and the products in relation thereto; (xvi) planning, developing, contracting for, lease and sale of, intangible property rights; (xvii) information processing and providing services, telecommunications business; (xviii) business of dispatching workers to enterprise and employment agency business; (xix) purchase and sale of antiques; (xx) transport business; (xxi) mining of various minerals, and the manufacture and sale of the products in relation thereto; (xxii) business support and consulting; (xxiii) brokerage, agency, investigation, manufacturing, processing, research and development for business relating to any of the preceding items, and other business; (xxiv) as a result of holding shares in a subsidiary company engaged in those activities, engaging in business relating to any of the preceding items and managing such company’s business activities; and (xxv) any and all businesses incidental or related to any of the preceding items.

Directors and Board of Directors, and Committees

There shall be no less than three directors of the Company (Article 16). The term of office of a director is for one (1) year and expires upon conclusion of the annual General Meeting of Shareholders relating to the last fiscal year ending within one year after election of director (Article 18). Resolutions of the Board of Directors are adopted by a majority vote of the directors present at a meeting attended by a majority of the directors who may participate in making resolutions (Article 21).

There is no provision in our Articles of Incorporation as to a director’s power to vote on a proposal or arrangement in which the director is materially interested, but, under the Companies Act or Regulations of the board of directors, the director must refrain from voting on such matters at meetings of the board of directors. Under the Companies Act, the board of directors may, by resolution, delegate to the executive officers its authority to make decisions with regard to certain important matters, including the incurrence by ORIX of a significant amount of loan, prescribed by law.

We are required to maintain a Nominating Committee, an Audit Committee and a Compensation Committee (Article 10). The Compensation Committee sets the specific compensation for each individual director and executive officer based on the policy for determining compensation for directors and executive officers (see Item 6). No member of the Compensation Committee may vote on a resolution with respect to his or her own compensation as a director.

Neither the Companies Act nor our Articles of Incorporation includes special provisions as to the retirement age of directors, or a requirement to hold any shares of capital stock of ORIX to qualify him or her as a director of ORIX.

Stock

Our authorized share capital is 2,590,000,000 shares. Currently our Articles of Incorporation provide only for the issuance of shares of common stock. All shares of capital stock of us have no par value. All issued shares are fully-paid and

non-assessable.

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Unless shareholders’ approval is required as described in “Voting Rights,” the shares will be issued under a resolution approved by the board of directors and a decision made by the executive officer under delegation by the board of directors.

For changes in the number of shares issued for the past three fiscal years, see Note 24 of “Item 18. Financial Statements.”

Under the Act on Book-Entry Transfer of Corporate Bonds, Shares, Etc. of Japan and regulations thereunder, or the Book-Entry Law, in Japan, every share which is listed on any of the stock exchanges in Japan shall be transferred and settled only by the central clearing system provided by Japan Securities Depository Center, Inc. (“JASDEC”) and all Japanese companies listed on any Japanese stock exchange no longer issue share certificates. Shareholders of listed shares must have accounts at account management institutions to hold their shares unless such shareholder has an account at JASDEC, and any transfer of shares is effected through book entry, and title to the shares passes to the transferee at the time when the transferred number of the shares is recorded in the transferee’s account at an account managing institution under the Book-Entry Law. The holder of an account at an account managing institution is presumed to be the legal owner of the shares recorded in such account. Under the Companies Act and the Book-Entry Law, in order to assert shareholders’ rights against us, the transferee must have his or her name and address registered on our Register of Shareholders, except in limited circumstances. Foreign shareholders may file specimen signatures in lieu of seals. Nonresident shareholders are required to appoint a standing proxy in Japan or designate a mailing address in Japan. The registration of transfer and the application for reduced withholding tax on dividends can usually be handled by a standing proxy. See “Taxation—Japanese Taxation.” Japanese securities companies and commercial banks customarily will act as standing proxies and provide related services for standard fees.

Our transfer agent is Mitsubishi UFJ Trust and Banking Corporation, located at

4-5,

Marunouchi

1-chome,

Chiyoda-ku,

Tokyo

100-8212,

Japan.

In general, there are no limitations on the right to own shares of our common stock, including the rights of nonresidents or foreign shareholders to hold or exercise voting rights on the securities imposed under Japanese law or by our Articles of Incorporation.

Settlement of transactions for shares listed on any of the stock exchanges in Japan will normally be effected on the fourth trading day from and including the transaction date. Settlement in Japan shall be made through JASDEC as described above.

Distributions of Surplus

Ordinary Dividends and Interim Dividends may be distributed by us in cash to shareholders or pledgees of record as of March 31 (in the case of Ordinary Dividends) or September 30 (in the case of Interim Dividends) of each year in proportion to the number of shares held by each shareholder or registered pledgee, as the case may be.

We may make distributions of surplus to the shareholders any number of times per fiscal year, subject to certain limitations as described below. Under our Articles of Incorporation, distributions of cash dividends need to be declared by a resolution of the board of directors. Distributions of surplus may be made in cash or in kind in proportion to the number of shares held by respective shareholders. A resolution of the board of directors authorizing a distribution of surplus must specify the kind and aggregate book value of the assets to be distributed, the manner of allocation of such assets to shareholders, and the effective date of the distribution. If a distribution of surplus is to be made in kind, we may, pursuant to a resolution of a general meeting of shareholders or the board of directors, as the case may be, grant a right to the shareholders to require us to make such distribution in cash instead of in kind. If no such right is granted to shareholders, the relevant distribution of surplus must be approved by a special resolution of a general meeting of shareholders.

149

Under our Articles of Incorporation, if Ordinary Dividends are distributed for common shares, we treat the shareholders or share pledgees registered or recorded on the Register of Shareholders as of March 31 of each year as the people having rights to receive such dividends. In case of the distribution of Interim Dividends, we distribute these to the shareholders or share pledgees registered or recorded on the Register of Shareholders as of September 30 each year. Dividends or other distributable assets shall not incur interest thereon. If the relevant distributed assets are not received within a full three years from the date on which the distribution of relevant distributed assets became effective, we may be released from its obligation to distribute such assets.

Under the Companies Act, when we make distributions of surplus, if the sum of our capital reserve (

shihonjunbikin

) and earned surplus reserve (

riekijunbikin

) is less than

one-quarter

of our stated capital, we must, until such sum reaches

one-quarter

of the stated capital, set aside in our capital reserve and/or earned surplus reserve an amount equal to

one-tenth

of the amount of surplus so distributed as required by ordinances of the Ministry of Justice.

The amount of surplus at any given time must be calculated in accordance with the following formula:

A + B + C + D – (E + F + G)

In the above formula:

“A” =

the total amount of other capital surplus and other earnings surplus, each such amount being that appearing on our nonconsolidated balance sheet as of the end of the last fiscal year;

“B” =

(if we have disposed of our treasury stock after the end of the last fiscal year) the amount of the consideration for such treasury stock received by us less the book value thereof;

“C” =

(if we have reduced our stated capital after the end of the last fiscal year) the amount of such reduction less the portion thereof that has been transferred to capital reserve or earned surplus reserve (if any);

“D” =

(if we have reduced our capital reserve or earned surplus reserve after the end of the last fiscal year) the amount of such reduction less the portion thereof that has been transferred to stated capital (if any);

“E” =

(if we have cancelled our treasury stock after the end of the last fiscal year) the book value of such treasury stock;

“F” =

(if we have distributed surplus to our shareholders after the end of the last fiscal year) the amount of the assets distributed to shareholders by way of such distribution of surplus;

“G” =

certain other amounts set forth in an ordinance of the Ministry of Justice, including (if we have reduced surplus and increased stated capital, capital reserve or earned surplus reserve after the end of the last fiscal year) the amount of such reduction and (if we have distributed surplus to our shareholders after the end of the last fiscal year) the amount set aside in capital reserve or earned surplus reserve (if any) as required by ordinances of the Ministry of Justice.

Under the Companies Act, the aggregate book value of surplus distributed by us may not exceed a prescribed distributable amount, as calculated on the effective date of such distribution. Our distributable amount at any given time shall be the amount of surplus less the aggregate of: (a) the book value of our treasury stock; (b) the amount of consideration for any of our treasury stock disposed of by us after the end of the last fiscal year; and (c) certain other amounts set forth in an ordinance of the Ministry of Justice, including (if the total of the

one-half

of goodwill and the deferred assets exceeds the total of stated capital, capital reserve and earned surplus reserve, each such amount being that appearing on our nonconsolidated balance sheet as of the end of the last fiscal year) all or certain part of such exceeding amount as calculated in accordance with the ordinances of the Ministry of Justice. If we have opted to become a company that applies the restriction on distributable amounts on a consolidated basis (

renketsu haito kisei tekiyo kaisha

), we will further deduct from the amount of surplus a certain amount which is calculated based on our nonconsolidated and consolidated balance sheets as of the end of the last fiscal year as provided in ordinances of the Ministry of Justice.

150

If we have prepared interim financial statements as described below after the end of the last fiscal year, and if such interim financial statements have been approved by our board of directors or (if so required) by a general meeting of our shareholders, then the distributable amount must be adjusted to take into account the amount of profit or loss as set forth in ordinances of the Ministry of Justice, and the amount of consideration for any of our treasury stock disposed of by us, during the period in respect of which such interim financial statements have been prepared. Under the Companies Act, we are permitted to prepare nonconsolidated interim financial statements consisting of a balance sheet as of any date subsequent to the end of the last fiscal year and an income statement for the period from the first day of the current fiscal year to the date of such balance sheet. Interim financial statements prepared by us must be reviewed by our accounting auditor, as required by an ordinance of the Ministry of Justice.

In Japan, the

ex-dividend

date and the record date for dividends precede the date of determination of the amount of the dividend to be paid. The price of the shares generally goes

ex-dividend

on the second business day prior to the record date.

Capital and Reserves

When we issue new shares, the amount of the cash or assets paid or contributed by subscribers for the new shares (with some exceptions) is required to be accounted for as stated capital, although we may account for an amount not exceeding

one-half

of the cash or assets as capital reserve by resolutions of the board of directors.

We may at any time transfer the whole or any part of our additional

paid-in

capital and legal reserve to stated capital by a resolution of a general meeting of shareholders. The whole or any part of surplus which may be distributed as Ordinary Dividends or Interim Dividends may also be transferred to stated capital by a resolution of a general meeting of shareholders. We may, by a resolution of a general meeting of shareholders (in the case of the reduction of stated capital, a special resolution of a general meeting of shareholders, see “Voting Rights”) reduce stated capital, additional

paid-in

capital and/or legal reserve.

Stock Splits

We may at any time split the shares into a greater number of shares by resolution of the board of directors. When the board of directors resolves on the split of shares, it may also amend the Articles of Incorporation to increase the number of authorized shares to be issued in proportion to the relevant stock split. We must give public notice of the stock split, specifying the record date therefore, not less than two weeks prior to such record date.

On October 26, 2012, the board of directors adopted a resolution on a

ten-for-one

stock split, effective as of April 1, 2013. The record date for the stock was one day prior to the effective date of the stock split. Our Articles of Incorporation were amended to increase the authorized share capital to cover the number of shares increased by the stock split, which amendment became effective simultaneously with the effectiveness of the stock split.

Unit Share System

Our Articles of Incorporation provides that one hundred shares constitute one “unit” of shares. The number of shares constituting a unit may be altered by amending our Articles of Incorporation. The number of shares constituting a unit is not permitted to exceed 1,000 shares.

A shareholder may not exercise shareholders’ rights in relation to any shares that it holds that are less than one unit other than the rights set forth below under the Companies Act and the Articles of Incorporation.

(i)

The right to receive the distribution of money, etc., when the Company distributes the money, etc. in exchange for acquiring one class of shares subject to terms under which the Company shall acquire all of such class shares;

151

(ii)

The right to receive the distribution of money, etc., in exchange for acquisition of shares subject to terms under which the Company shall acquire such shares;

(iii)

The right to receive allocation of shares when the Company allocates its shares without having a shareholder make new payment;

(iv)

The right to demand that the Company purchase shares that are less than one Unit held by the shareholder;

(v)

The right to receive distribution of remaining assets;

(vi)

The right to demand review of the Articles of Incorporation and the Register of Shareholders and delivery of their copies or a document describing registered matters, etc.;

(vii)

The right to demand registration or recordation of matters to be registered or recorded on the Register of Shareholders when the shareholder acquired the shares;

(viii)

The right to receive the distribution of money, etc. pursuant to reverse stock split, stock split, allocation of stock acquisition right for free (which means that the Company allocates its stock acquisition right without having a shareholder make new payment), distribution of dividends from retained earnings or change of corporate organization;

(ix)

The right to receive the distribution of money, etc. to be distributed pursuant to merger, share exchange or share-transfer effected by the Company;

(x)

The right to subscribe to Offering Shares and Offering Stock Acquisition Rights on a pro rata basis based upon the number of shares held by the shareholder; and

(xi)

The right to demand that the Company sell to the shareholder the number of additional shares necessary to make the number of shares of less than one Unit held by the shareholder, equal to one Unit.

Under the book-entry transfer system operated by JASDEC, shares constituting less than one unit are generally transferable. Under the rules of the Japanese stock exchanges, however, shares constituting less than one unit do not comprise a trading unit, except in limited circumstances, and accordingly may not be sold on the Japanese stock exchanges.

A holder of shares constituting less than one unit may require us to purchase such shares at their market value in accordance with the provisions of our Share Handling Regulations. In addition, our Articles of Incorporation provide that a holder of shares constituting less than one unit may request us to sell to such holder such amount of shares which will, when added together with the shares constituting less than one unit held by such holder, constitute one unit of shares, in accordance with the provisions of the Share Handling Regulations.

General Meetings of Shareholders

The ordinary general meeting of our shareholders is usually held in Tokyo in June of each year. In addition, we may hold an extraordinary general meeting of shareholders whenever necessary. Notice of a shareholders’ meeting stating the place, time and purpose thereof must be dispatched to each shareholder (or, in the case of a nonresident shareholder, to its resident proxy or mailing address in Japan) having voting rights at least two weeks prior to the date of such meeting. The record date for an ordinary general meeting of shareholders is March 31 of each year. General meetings of shareholders can be called by a director pursuant to a resolution of the board of directors.

Any shareholder or group of shareholders with at least 3.0% of the total number of voting rights for a period of six months or longer may require the convocation of a general meeting of shareholders for a particular purpose by showing such a purpose and reason for convocation to one of our directors. Unless such shareholders’ meeting is convened promptly or a convocation notice of a meeting which is to be held not later than eight weeks from the day of such demand is dispatched, the requiring shareholder may, upon obtaining a court approval, convene such shareholders’ meeting.

152

Any shareholder or group of shareholders holding at least 300 voting rights or 1.0% of the total number of voting rights for six months or longer may propose a matter to be considered at a general meeting of shareholders by submitting a written request to one of our directors at least eight weeks prior to the date of such meeting.

Under the Companies Act, any of minimum percentages, time periods and number of voting rights necessary for exercising the minority shareholder rights described above may be decreased or shortened if the articles of incorporation of a joint stock corporation so provide.

Voting Rights

A holder of shares constituting one or more units is entitled to one vote for each unit. However, we do not have voting rights with respect to our own shares and if we directly or indirectly own 25% or more of voting rights of a corporate or other entity which is a shareholder, such corporate shareholder cannot exercise its voting rights. Except as otherwise provided by law or in our Articles of Incorporation, a resolution can be adopted at a general meeting of shareholders by a majority of the number of voting rights represented at the meeting. The quorum for election of directors is

one-third

of the total number of voting rights. Our shareholders are not entitled to cumulative voting in the election of directors. Our shareholders may exercise their voting rights through proxies, provided that the proxies are also shareholders having voting rights.

Under the Companies Act and our Articles of Incorporation, any amendment to our Articles of Incorporation (except for certain amendments, see “Stock Splits”) and certain other instances require approval by a “special resolution” of shareholders, where the quorum is

one-third

of the total number of voting rights and the approval by at least

two-thirds

of the number of voting rights represented at the meeting is required. Other instances requiring such a “special resolution” include (i) the reduction of its stated capital, (ii) the removal of a director, (iii) the dissolution, liquidation, merger or consolidation, merger and corporate split or (iv) the formation of a parent company by way of share exchange or share transfer, (v) the transfer of the whole or a substantial part of its business, (vi) the acquisition of the whole business of another company, (vii) the issue to persons other than the shareholders of new shares at a “specially favorable” price or the issue or transfer to persons other than the shareholders of stock acquisition rights (including those incorporated in bonds with stock acquisition rights) under “specially favorable” conditions, (vii) consolidation of shares and (ix) acquisition of its own shares from a specific party other than its subsidiaries.

Subscription Right

Holders of the shares have no

pre-emptive

rights. The board of directors may, however, determine that shareholders be given subscription rights to new shares, in which case such rights must be given on uniform terms to all shareholders as of a record date of which not less than two weeks’ prior public notice must be given. The issue price of such new shares must be paid in full.

Stock Acquisition Rights

We may issue stock acquisition rights (

shinkabu yoyakuken

) and bonds with stock acquisition rights (

shinkabu yoyakuken-tsuki shasai

). Except where the issue would be on “specially favorable” conditions, the issue of stock acquisition rights or bonds with stock acquisition rights may be authorized by a resolution of the board of directors. Upon exercise of the stock acquisition rights, the holder of such rights may acquire shares by way of payment of the applicable exercise price or, if so determined by a resolution of the board of directors, by way of substitute payments in lieu of redemption of the bonds. If our Articles of Incorporation prohibit us from delivering shares, it will pay a cash payment equal to the market value of the shares.

Liquidation Rights

In the event of our liquidation, the assets remaining after payment of all debts, liquidation expenses and taxes will be distributed among shareholders in proportion to the respective number of shares which they hold.

153

Reports to Shareholders

We currently furnish to our shareholders notices of shareholders’ meetings, annual business reports, including financial statements, and notices of resolutions adopted at the shareholders’ meetings, all of which are in Japanese. Public notice shall be electronic public notice, provided, however, that if the Company is unable to give an electronic public notice due to an accident or any other unavoidable reason, public notices of the Company shall be given in the “Nihon Keizai Shinbun.”

Record Date of Register of Shareholders

As stated above, March 31 is the record date for the payment of Ordinary Dividends and the determination of shareholders entitled to vote at the ordinary general meeting of shareholders. In addition, we may set a record date for determining the shareholders entitled to other rights and for other purposes by giving at least two weeks’ prior public notice. Under the Book-Entry Law, JASDEC is required to give us a notice of the names and addresses of the shareholders, the number of shares held by them and other relevant information as of each such record date, and the register of our shareholders shall be updated accordingly.

Repurchase of Own Shares

We may acquire our shares, including shares of our common stock: (i) by way of purchase on any Japanese stock exchange or by way of tender offer (pursuant to a resolution of the board of directors); (ii) from a specific shareholder other than any of our subsidiaries (pursuant to a special resolution of a general meeting of shareholders); or (iii) from any of our subsidiaries (pursuant to a resolution of the board of directors).

In the case of (ii) above, any other shareholder of such class may make a request to a director, at least five days prior to the relevant shareholders’ meeting, to include such shareholder as a seller in the proposed purchase. However, no such right will be available if the relevant class of shares is listed on any Japanese stock exchange and the purchase price or any other consideration to be received by the relevant specific shareholder does not exceed the then market price of the shares calculated in a manner set forth in ordinances of the Ministry of Justice.

Any such acquisition of our shares must satisfy certain requirements that the total amount of the purchase price may not exceed the distributable amount, as described in “—Distributions of Surplus.” We may hold our shares acquired in compliance with the provisions of the Companies Act, and may generally cancel such shares by a resolution of the board of directors, although the disposal of such shares is subject to the same proceedings for the issuance of new shares, in general.

Stock Options

Under the Companies Act, a stock option plan is available by issuing stock acquisition rights.

Generally, a stock option plan may be adopted by a resolution of the board directors. However, if the conditions of such stock acquisition rights are “specially favorable,” a special resolution at a general meeting of shareholders is required. The special resolution must set forth the class and number of shares to be issued or transferred on exercise of the options, the exercise price, the exercise period and other terms of the options.

MATERIAL CONTRACTS

Not applicable.

154

FOREIGN EXCHANGE AND OTHER REGULATIONS

Foreign Exchange

The Foreign Exchange and Foreign Trade Law of Japan, as amended, and the cabinet orders and ministerial ordinances thereunder (the “Foreign Exchange Regulations”) govern the acquisition and holding of shares of capital stock of ORIX by “exchange nonresidents” and by “foreign investors” (as defined below). The Foreign Exchange Regulations currently in effect do not, however, regulate transactions between exchange nonresidents who purchase or sell shares outside Japan for

non-Japanese

currencies.

“Exchange nonresidents” are defined as individuals who are not resident in Japan and corporations whose principal offices are located outside Japan. Generally, the branch and other offices of nonresident corporations located within Japan are regarded as residents of Japan and branch and other offices of Japanese corporations located outside Japan are regarded as exchange nonresidents. “Foreign investors” are defined to be (i) individuals who are exchange nonresidents, (ii) corporations or other organizations that are established under the laws of foreign countries or whose principal offices are located outside Japan, (iii) corporations of which 50% or more of their voting rights are held, directly or indirectly, by (i) and/or (ii) above, (iv) partnerships or similar organizations of which 50% or more of total capital contributions are attributable to nonresident, or a majority of general partners are exchange nonresidents, and (v) corporations or other organizations of which a majority of the officers (or officers having the power of representation) are nonresident individuals.

In general, the acquisition of a Japanese company’s stock shares (such as the shares of capital stock of ORIX) by an exchange nonresident from a resident of Japan is not subject to any prior filing requirements. In certain limited circumstances, however, prior notification or report to the Minister of Finance and any other competent Ministers for an acquisition of this type may be required. In the case where a resident of Japan transfers shares of a Japanese company (such as the shares of capital stock of ORIX) for consideration exceeding ¥100 million to an exchange nonresident, the resident of Japan who transfers the shares is required to report the transfer to the Minister of Finance within 20 days from the date of the transfer, unless the transfer was made through a bank, securities company or financial future trader licensed under the Japanese laws.

If a foreign investor acquires shares of a Japanese company listed on a Japanese stock exchange (such as the shares of capital stock of ORIX) or that are traded on an

over-the-counter

market in Japan and as a result of the acquisition the foreign investor in combination with any existing holdings directly or indirectly holds 1% or more of the issued shares or voting rights of the relevant company, holds a certain percentage or more of the shares of such a company and consents to matters that could have a significant effect on the management of the business of the company, or acquires or succeeds to the business of a Japanese corporation by a business transfer, corporate split, or merger, the foreign investor is, in general, required to report such acquisition to the Minister of Finance and any other competent Ministers within 45 days following the date of such acquisition. In the case of certain designated types of business affecting Japan’s national security, etc., prior notification is required with respect to such an acquisition or other relevant actions. However, in certain cases it may be possible for a foreign investor to be exempted from the prior notification obligation for an acquisition.

The acquisition of shares by exchange nonresidents by way of stock split is not subject to the foregoing notification requirements.

Under the Foreign Exchange Regulations, dividends paid on, and the proceeds of sales in Japan of, shares held by nonresidents of Japan may in general be converted into any foreign currency and repatriated abroad.

Large Shareholdings Report

The Financial Instruments and Exchange Act requires any person who has become, beneficially and solely or jointly, a holder of more than 5% of the total issued shares of capital stock of a company listed on any

155

Japanese financial instruments exchange (such as the shares of capital stock of ORIX) or whose shares are traded on the

over-the-counter

markets in Japan, to file with the Prime Minister within five business days a report concerning such shareholdings. An alteration report must also be made in respect of any subsequent change of 1% or more in any such holding or any change in material matters set out in reports previously filed, with certain exceptions. For this purpose, shares issuable to such person upon exchange of exchangeable securities or exercise of stock acquisition rights are taken into account in determining both the size of such person’s holding and the issuer’s total issued share capital.

Filing of Share Acquisition Plan

The Act on Prohibition of Private Monopolization and Maintenance of Fair Trade requires any company (including a foreign company) which crosses certain domestic sales thresholds and newly acquires a holder of more than 20% or 50% of the total issued voting shares of capital stock (such as the shares of capital stock of ORIX) or the shares of a company (including a foreign company) which meets certain conditions, to file a share acquisition plan concerning such shares with the Fair Trade Commission at least 30 days prior to the closing or the acquisition.

DIVIDEND POLICY AND DIVIDENDS

The following table shows the amount of dividends applicable to fiscal year per share for each of the fiscal years indicated, which amounts are translated into dollars per ADS at the noon buying rate for Japanese yen in New York City for cable transfers in foreign currencies on the relevant dividend payment date as published by the Federal Reserve Bank.


Year ended	Dividends applicable to fiscal year per Share		Translated into dollar per ADS
March 31, 2017		52.25		2.39
March 31, 2018		66.00		3.01
March 31, 2019		76.00		3.45
March 31, 2020		76.00		3.53
March 31, 2021		78.00		3.65

ORIX aims to increase shareholder value by utilizing profits earned from business activities to strengthen its business foundation and make investments for future growth. At the same time, ORIX strives to make stable and sustainable distribution of dividends at a level in line with its business performance. In addition, with regards to the decision of whether to buy back shares, ORIX aims to act with flexibility and swiftness while considering various factors such as the soundness of its financial condition and external factors such as the business environment, share price and its trend and target performance indicators.

In the fiscal year ended March 31, 2021, business outlook was difficult to assess due to the impact of

COVID-19

and depending on the business environment there was a possibility that the Company’s performance could decline significantly. But in order to show ORIX’s stance of stable shareholder returns, we decided to set the dividend payout ratio at 50% for the fiscal year ended March 31, 2021. Therefore, the annual dividend for the fiscal year ended March 31, 2021 has been decided at 78.00 yen per share (interim dividend paid was 35.00 yen per share and

year-end

dividend has been decided at 43.00 yen per share).

The annual dividend for the next fiscal year ending March 31, 2022 is forecasted at 78.00 yen per share (forecasted interim dividend of 39.00 yen and

year-end

dividend of 39.00 yen) as well as 78.00 yen per share in the previous fiscal year ended March 31, 2021.

156

Pursuant to the amendment to the Act on Special Measures Concerning Taxation, dividends paid to U.S. Holders of Shares or ADSs are generally subject to a Japanese withholding tax. The tax rate can be found in “Item 10 TAXATION, JAPANESE TAXATION—

Shares.

”

TAXATION

JAPANESE TAXATION

The following is a summary of the principal Japanese tax consequences for owners of the Shares or ADSs who are nonresident individuals of Japan or

non-Japanese

corporations without a permanent establishment in Japan (“nonresident Holders”). The statements regarding Japanese tax laws set forth below are based on the laws in force and as interpreted by the Japanese taxation authorities as of the date hereof and are subject to changes in the applicable Japanese laws or conventions for the avoidance of double taxation occurring after that date. This summary is not exhaustive of all possible tax considerations that may apply to a particular investor and potential investors are advised to consult with their own tax advisors to satisfy themselves as to:

•

the overall tax consequences of the acquisition, ownership and disposition of Shares or ADSs, including specifically the tax consequences under Japanese law;

•

the laws of the jurisdiction of which they are resident; and

•

any tax treaty between Japan and their country of residence.

Generally, a nonresident Holder is subject to Japanese withholding tax on dividends on Shares or ADSs paid by us. Stock splits are not subject to Japanese income or corporation tax.

Pursuant to the Act on Special Measures Concerning Taxation and the Act on Special Measures Concerning the Securing of Financial Resources for Reconstruction Measures Involving the Great East Japan Earthquake, the Japanese withholding tax rate applicable to dividends on Shares or ADSs paid to nonresident Holders by us is 15.315% for dividends. However, where an individual nonresident Holder who holds 3% or more of the total number of shares issued by us, the withholding tax rate applicable will be 20.42% for dividends. Japan has entered into income tax treaties, conventions and agreements where this withholding tax rate is, in some cases, reduced to a lower percentage for portfolio investors. Nonresident Holders who are entitled under an applicable treaty, convention, or agreement to this reduced Japanese withholding tax rate are required to submit an Application Form for the Income Tax Convention regarding Relief from Japanese Income Tax on Dividends in advance through us to the relevant Japanese tax authority before the payment of dividends. A standing proxy for a nonresident Holder may provide such application service. Nonresident Holders who do not submit an application in advance will be entitled to claim the refund from the relevant Japanese tax authority of those withholding taxes withheld in excess of the rate of an applicable tax treaty.

The Convention between the United States and Japan for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (the “Tax Convention”) provides for a maximum rate of Japanese withholding tax which may be imposed on dividends paid to an eligible United States resident not having a permanent establishment in Japan. Under the Tax Convention, the maximum withholding rate is generally limited to 10% of the relevant dividends.

Gains derived from the sale outside Japan of Shares or ADSs by a nonresident Holder, are, in general, not subject to Japanese income or corporation taxes.

Japanese inheritance and gift taxes, at progressive rates, may be payable by an individual who has acquired Shares or ADSs as a legatee, heir or done.

157

UNITED STATES TAXATION

The following discussion describes the material U.S. federal income tax consequences of ownership and disposition of Shares or ADSs held as capital assets by U.S. Holders (described below).

This discussion does not describe all of the tax consequences that may be relevant to a U.S. holder in light of the holder’s particular circumstances (including the application of the provisions of the code known as the Medicare contribution tax) or to holders subject to special rules, such as:

•

certain financial institutions;

•

insurance companies;

•

dealers and traders in securities who use a

mark-to-market

method of tax accounting;

•

persons holding Shares or ADSs as part of a hedging transaction, straddle, conversion transaction or other integrated transaction;

•

persons whose functional currency for U.S. federal income tax purposes are not the U.S. dollar;

•

entities classified as partnerships for U.S. federal income tax purposes;

•

persons subject to the alternative minimum tax;

•

tax-exempt

entities, including “individual retirement accounts” and “Roth IRAs”;

•

regulated investment companies;

•

persons that own or are deemed to own 10% or more of the stock of the Company, by vote or value;

•

persons holding the shares or ADSs in connection with a trade or business carried on outside the United States; or

•

persons who acquired Shares or ADSs pursuant to the exercise of any employee stock option or otherwise as compensation.

If an entity that is classified as a partnership for U.S. federal income tax purposes holds Shares or ADSs, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. Partnerships holding Shares or ADSs and partners in such partnerships should consult their tax advisors as to the particular U.S. federal income tax consequences of holding and disposing of Shares or ADSs.

This summary is based on the Internal Revenue Code of 1986, as amended (the “Code”), administrative pronouncements, judicial decisions, final, temporary and proposed Treasury regulations, and the Tax Convention, changes to any of which subsequent to the date of this annual report may affect the tax consequences described herein. It is also based in part on representations by the depositary and assumes that each obligation under the deposit agreement and any related agreement will be performed in accordance with its terms.

As used herein, the term “U.S. Holder” means a beneficial owner of Shares or ADSs that is for U.S. federal income tax purposes:

•

a citizen or individual resident of the United States;

•

a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States or of any political subdivision thereof; or

•

an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.

We believe we may have been a passive foreign investment company (a “PFIC”) for the year to which this annual report relates. However, because of uncertainties in the manner of application of the PFIC rules, including uncertainties as to the valuation and proper characterization of certain of our assets as passive or active, our PFIC status is uncertain. In addition, we may be a PFIC in the foreseeable future.

158

Persons considering the purchase of Shares or ADSs should consult their tax advisors with regard to the PFIC rules described below as well as the application of other U.S. federal income tax laws relevant to their particular situations and any tax consequences arising under the laws of any state, local or foreign taxing jurisdiction.

In general, a U.S. Holder of ADSs will be treated as the owner of the underlying shares represented by those ADSs for U.S. federal income tax purposes. Accordingly, no gain or loss will be recognized if the U.S. Holder exchanges ADSs for the underlying shares represented by those ADSs.

Taxation of Distributions

Subject to the PFIC rules described below, distributions paid on Shares or ADSs, other than certain pro rata distributions of common shares, will generally be treated as dividends to the extent paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). Assuming that we are a PFIC, dividends paid by us will not be eligible for the preferential dividend tax rate otherwise available to certain

non-corporate

U.S. Holders. The amount of a dividend will include any amounts withheld by us or our paying agent in respect of Japanese taxes, as discussed above under “Taxation—Japanese Taxation—Shares” The amount of the dividend will be treated as foreign source dividend income to U.S. Holders and will not be eligible for the dividends received deduction generally allowed to U.S. corporations under the Code.

Dividends paid in yen will be included in the income of a U.S. Holder in a U.S. dollar amount calculated by reference to the exchange rate in effect on the date of the U.S. Holder’s (or, in the case of ADSs, the depositary’s) receipt of the dividend, regardless of whether the payment is in fact converted into U.S. dollars. If the dividend is converted into U.S. dollars on the date of receipt, a U.S. Holder generally should not be required to recognize a foreign currency gain or loss in respect of the dividend income. A U.S. Holder may have a foreign currency gain or loss if such holder does not convert the amount of such dividend into U.S. dollars on the date of its receipt. Any foreign currency gain or loss resulting from the conversion of the yen will generally be treated as U.S. source ordinary income or loss.

Subject to the PFIC rules described below and to applicable limitations that may vary depending upon the U.S. Holder’s circumstances, Japanese taxes withheld from dividends on Shares or ADSs at a rate not exceeding the applicable rate provided for by the Tax Convention will be creditable against the U.S. Holder’s U.S. federal income tax liability. The maximum rate of withholding tax on dividends paid to a U.S. Holder pursuant to the Tax Convention is 10%. As discussed under “Taxation—Japanese Taxation—Shares” above, under current Japanese law, the statutory rate is higher than the maximum Tax Convention rate. Japanese taxes withheld in excess of the rate applicable under the Tax Convention will not be eligible for credit against a U.S. Holder’s federal income tax liability. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. The rules governing foreign tax credits are complex and, therefore, U.S. Holders should consult their own tax advisors regarding the availability of foreign tax credits in their particular circumstances. Instead of claiming a credit, U.S. Holders may, upon election, deduct such otherwise creditable Japanese taxes in computing taxable income, subject to generally applicable limitations under U.S. law.

Passive Foreign Investment Company Rules

If we are a PFIC for any year during a U.S. Holder’s holding period of the Shares or ADSs, and the U.S. Holder has not made a

mark-to-market

election for the Shares or ADSs, as described below, the holder 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. Upon a disposition of Shares or ADSs (including under certain circumstances, a pledge, and under proposed Treasury regulations, a disposition pursuant to certain otherwise

tax-free

reorganizations) gain recognized by a U.S. Holder would be allocated ratably over its holding period for the Shares or ADSs. The amounts allocated to the taxable year of the sale or other exchange and to any year before the Company became a

159

PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest rate in effect for individuals or corporations for such year, as appropriate, and an interest charge would be imposed on the resulting tax liability. Similar rules would apply to any distribution in respect of Shares or ADSs to the extent it exceeds 125 percent of the average of the annual distributions on Shares or ADSs received during the preceding three years or the U.S. Holder’s holding period, whichever is shorter (any such distribution, an “excess distribution”). Any loss realized on a disposition of Shares or ADSs will be capital loss, and will be long-term capital loss if the U.S. Holder held the Shares or ADSs for more than one year. The amount of the loss will equal the difference between the U.S. Holder’s tax basis in the Shares or ADSs disposed of and the amount realized on the disposition, in each case as determined in U.S. dollars. Such loss will generally be U.S.-source loss for foreign tax credit purposes.

If we are a PFIC for any year during which a U.S. Holder holds Shares or ADSs, we generally will continue to be treated as a PFIC with respect to the U.S. Holder for all succeeding years during which the U.S. Holder holds Shares or ADSs, even if we cease to meet the threshold requirements for PFIC status. U.S. Holders should consult their tax advisers regarding the potential availability of a “deemed sale” election that would allow them to eliminate this continuing PFIC status.

If we are a PFIC, U.S. Holders will be deemed to own their proportionate shares of our subsidiaries that are PFICs and will be subject to U.S. federal income tax according to the rules described above on (i) certain distributions by subsidiary PFICs and (ii) a disposition of shares of a subsidiary PFIC, even though holders have not received the proceeds of those distributions or dispositions directly.

If the Shares or ADSs are “regularly traded” on a “qualified exchange,” a U.S. Holder of Shares or ADSs would be eligible to make a

mark-to-market

election that would result in tax treatment different from the general tax treatment for PFICs described above. The Shares or ADSs will be treated as “regularly traded” in any calendar year in which more than a

de minimis

quantity of the Shares or ADSs are traded on a qualified exchange for at least 15 days during each calendar quarter. A “qualified exchange” includes the NYSE, on which our ADSs are traded, and a foreign exchange that is regulated by a governmental authority in which the exchange is located and with respect to which certain other requirements are met. The Internal Revenue Service (“IRS”) has not yet identified specific foreign exchanges that are “qualified” for this purpose. Under current law, the

mark-to-market

election may be available to holders of ADSs because the ADSs will be listed on the NYSE, although there can be no assurance that the ADSs will be “regularly traded” for purposes of the

mark-to-market

election. However, even if a U.S. Holder makes a

mark-to-market

election with respect to our Shares or ADSs, a U.S. Holder will not be able to make a

mark-to-market

election with respect to any of our subsidiaries that are PFICs. U.S. Holders should consult their tax advisers regarding the availability and advisability of making a

mark-to-market

election in their particular circumstances. In particular, U.S. Holders should consider carefully the impact of a

mark-to-market

election with respect to their ADSs given that we may have subsidiary PFICs for which a

mark-to-market

election may not be available.

If a U.S. Holder is eligible and makes the

mark-to-market

election, the U.S. Holder will include each year, as ordinary income, the excess, if any, of the fair market value of the Shares or ADSs at the end of the taxable year over their adjusted basis, and will be permitted an ordinary loss in respect of the excess, if any, of the adjusted basis of the Shares or ADSs over their fair market value at the end of the taxable year (but only to the extent of the net amount of previously included income as a result of the

mark-to-market

election). If a U.S. Holder validly makes the election, the holder’s basis in the Shares or ADSs will be adjusted to reflect any such income or loss amounts. Any gain recognized on the sale or other disposition of Shares or ADSs in a year when the Company is a PFIC will be treated as ordinary income and any loss will be treated as an ordinary loss (but only to the extent of the net amount of income previously included as a result of the

mark-to-market

election).

We do not intend to comply with the requirements necessary for a U.S. Holder to make a “qualified electing fund” election, which is sometimes available to shareholders of a PFIC.

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Special rules apply to determine the foreign tax credit with respect to withholding taxes imposed on excess distributions on shares of a PFIC. These rules could limit the amount of the foreign tax credit that would otherwise have been available.

If a U.S. Holder owns Shares or ADSs during any year in which we are a PFIC, the U.S. Holder will generally be required to file IRS Form 8621 with its federal income tax return with respect to us and with respect to each of our subsidiaries that is a PFIC, subject to certain exceptions.

We urge U.S. Holders to consult their tax advisors concerning our status as a PFIC and the tax considerations relevant to an investment in a PFIC, including the availability and consequences of making the

mark-to-market

election discussed above.

Backup Withholding and Information Reporting

Payments of dividends and sales proceeds that are made within the United States or through certain

U.S.-related

financial intermediaries generally are subject to information reporting, and may be subject to backup withholding, unless (i) the U.S. Holder is an exempt recipient or (ii) in the case of backup withholding, the U.S. Holder provides a correct taxpayer identification number and certifies that it is not subject to backup withholding.

The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against such holder’s U.S. federal income tax liability and may entitle such holder to a refund, provided that the required information is timely furnished to the IRS.

Certain U.S. Holders who are individuals (and certain entities closely held by individuals) may be required to report information relating to their ownership of an interest in certain foreign financial assets, including stock of a

non-U.S.

person, generally on Form 8938, subject to exceptions (including an exception for financial assets held through a U.S. financial institution). U.S. Holders should consult their tax advisers regarding their reporting obligations with respect to the Shares or ADSs.

DOCUMENTS ON DISPLAY

We are subject to the reporting requirements of the Act. In accordance with these requirements, we file annual reports on Form

20-F

and furnish periodic reports on Form

6-K

with the Commission.

These materials, including this annual report and the exhibits thereto, may be inspected and copied at the Commission’s Public Reference Room at Room 1580, 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Commission’s Public Reference Room by calling the Commission in the United States at

1-800-SEC-0330.

The Commission also maintains a website at http://www.sec.gov that contains reports and proxy information regarding issuers that file electronically with the Commission via EDGAR.

We are currently exempt from the rules under the Act that prescribe the furnishing and content of proxy statements, and our officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Act. We are not required under the Act to publish financial statements as frequently or as promptly as are U.S. companies subject to the Act. We will, however, continue to furnish our shareholders with annual reports containing audited financial statements and will issue press releases containing unaudited interim financial information as well as such other reports as may from time to time be authorized by our board of directors or as may be otherwise required.

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Item 11. Quantitative and Qualitative Disclosures about Market Risk

MARKET RISKS

Our primary market risk exposures are interest rate risk, exchange rate risk and risk of market prices in stocks. We enter into derivative transactions to hedge interest rate risk and exchange rate risk. Our risk management for market risk exposure and derivative transactions is described under “Item 5. Operating and Financial Review and Prospects—Risk Management.”

The following quantitative information about the market risk of our financial instruments does not include information about financial instruments to which the requirements under ASC 825 (“Financial Instruments”) do not apply, such as net investment in leases, investment in operating leases, and insurance contracts. As a result, the following information does not present all the risks of our financial instruments. We omitted the disclosure of financial instruments for trading purposes because the amount is immaterial.

Interest Rate Risk

Many of our assets and liabilities are composed of floating and fixed rate assets and liabilities. Our floating rate assets and liabilities utilize various rates to determine interest amounts receivable and payable thereunder, including U.S. dollar and Japanese yen LIBOR, TIBOR and prime rates. Movements in market interest rates affect gains and losses in those assets and liabilities. Accordingly, we endeavor to reduce interest rate risk through techniques such as funding interest rate bearing assets through liabilities with similar interest rate characteristics, e.g., financing floating-rate assets with floating-rate liabilities and financing fixed-rate assets with fixed-rate liabilities.

In order to manage assets and liabilities in an appropriate risk position, we conduct various type of analysis for interest rate sensitivity including gains and losses impact analysis and fair value analysis of assets and liabilities.

The table below of interest rate sensitivity for financial instruments summarizes installment loans, investment in securities (floating and fixed rate) and short-term and long-term debt. These instruments are further classified under fixed or floating rates. For such items, the principal collection and repayment schedules and the weighted average interest rates for collected and repaid portions are disclosed. Concerning interest rate swaps, under derivative instruments, the estimated notional principal amount for each contract period and the weighted average of swap rates are disclosed. The average interest rates of financial instruments as of March 31, 2021 were 3.4% for installment loans, 1.6% for investment in securities (floating and fixed rate), 1.1% for short-term and long-term debt and 0.2% for deposits. As of March 31, 2021, the average payment rate of interest rate swaps was 1.7% and the average receipt rate was 0.0%. The average interest rates of financial instruments as of March 31, 2020 were: 3.6% for installment loans, 1.7% for investment in securities (floating and fixed rate), 1.6% for short-term and long-term debt and 0.3% for deposits. As of March 31, 2020, the average payment rate of interest rate swaps was 2.1% and the average receipt rate was (0.1%). As of March 31, 2021, there was no material change in the balance or in the average interest rate of financial instruments from March 31, 2020. The table below shows our interest rate risk exposure and the results of our interest rate sensitivity analysis.

162

INTEREST RATE SENSITIVITY

NONTRADING FINANCIAL INSTRUMENTS


	Expected Maturity Date																		Total			March 31, 2021 Estimated Fair Value
	Years ending March 31,
	2022			2023			2024			2025			2026			Thereafter
	(Millions of yen)
Assets:
Installment loans (fixed rate)	¥	246,996		¥	137,654		¥	93,640		¥	72,288		¥	52,875		¥	429,346		¥	1,032,799		¥	1,029,197
Average interest rate		4.3	%		6.5	%		7.6	%		8.4	%		6.7	%		4.1	%		5.2	%		—
Installment loans (floating rate)	¥	273,278		¥	261,049		¥	171,764		¥	173,402		¥	144,268		¥	1,601,873		¥	2,625,634		¥	2,603,815
Average interest rate		3.6	%		3.9	%		3.5	%		3.6	%		4.0	%		2.1	%		2.7	%		—
Investment in securities (fixed rate)	¥	31,845		¥	34,533		¥	50,020		¥	105,826		¥	79,944		¥	1,708,811		¥	2,010,979		¥	2,013,388
Average interest rate		1.3	%		3.4	%		1.1	%		1.2	%		2.1	%		1.4	%		1.4	%		—
Investment in securities (floating rate)	¥	5,412		¥	8,478		¥	3,732		¥	16,431		¥	4,287		¥	91,238		¥	129,578		¥	129,661
Average interest rate		6.0	%		5.2	%		4.9	%		4.8	%		4.1	%		3.5	%		4.0	%		—
Liabilities:
Short-term debt	¥	307,269		¥	0		¥	0		¥	0		¥	0		¥	0		¥	307,269		¥	307,269
Average interest rate		1.4	%		—			—			—			—			—			1.4	%		—
Deposits	¥	1,130,583		¥	306,890		¥	345,173		¥	281,527		¥	253,612		¥	0		¥	2,317,785		¥	2,319,941
Average interest rate		0.1	%		0.3	%		0.3	%		0.3	%		0.3	%		—			0.2	%		—
Long-term debt (fixed rate)	¥	358,882		¥	304,757		¥	315,078		¥	306,630		¥	128,713		¥	537,312		¥	1,951,372		¥	1,979,939
Average interest rate		1.9	%		1.5	%		1.4	%		1.5	%		0.8	%		1.1	%		1.4	%		—
Long-term debt (floating rate)	¥	345,860		¥	342,109		¥	339,043		¥	206,500		¥	243,142		¥	988,807		¥	2,465,461		¥	2,417,954
Average interest rate		1.0	%		1.0	%		0.7	%		0.6	%		0.6	%		1.1	%		0.9	%		—

NONTRADING DERIVATIVE FINANCIAL INSTRUMENTS


	Expected Maturity Date																		Total			March 31, 2021 Estimated Fair Value
	Years ending March 31,
	2022			2023			2024			2025			2026			Thereafter
	(Millions of yen)
Interest rate swaps:
Notional amount (floating to fixed)	¥	49,866		¥	60,595		¥	64,839		¥	40,067		¥	48,438		¥	274,575		¥	538,380		¥	(21,951	)
Average pay rate		2.4	%		2.1	%		1.1	%		1.8	%		0.9	%		1.8	%		1.7	%		—
Average receive rate		0.1	%		0.3	%		0.2	%		0.3	%		(0.0	%)		(0.1	%)		0.0	%		—

The above table excludes purchased loans, which are exposed to interest rate risk, because it is difficult to estimate the timing and extent of collection of such loans. Purchased loans are deteriorated credit loans which we acquire at a discount and for which full collection of all contractually required payments from the debtors is unlikely. The total book value of our purchased loans as of March 31, 2021 was ¥12,351 million.

Long-term debt (floating rate) in the table above includes the amount of ¥94,000 million subordinated syndicated loan (hybrid loan, whose maturity date is year 2076) conducted in fiscal 2017, of which ¥60,000 million and ¥34,000 million may be repaid after 5 years and 7 years, respectively.

Long-term debt (fixed rate) in the table above include the amount of ¥150,000 million of unsecured subordinated bonds with interest payment deferrable clauses and optional early redemption conditions (hybrid bonds). Out of this amount, ¥100,000 million was executed in fiscal 2020, and will mature in fiscal 2080, of which ¥60,000 million and ¥40,000 million may be redeemed after 5 years, and 10 years respectively.

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¥50,000 million was executed in fiscal 2021, and will mature in fiscal 2081, of which ¥29,000 million and ¥21,000 million may be redeemed after 5 years, and 10 years respectively.

We are also exposed to interest rate risks in our life insurance businesses because revenues from life insurance related investment income fluctuate based on changes in market interest rates, while life insurance premiums and costs do not.

Exchange Rate Risk

We hold foreign currency-denominated assets and liabilities and deal in foreign currencies. It is our policy to match balances of foreign currency-denominated assets and liabilities as a means of hedging exchange rate risk. There are, however, cases where a certain part of our foreign currency-denominated investments are not hedged for such risk.

We have identified all positions that are subject to exchange rate risk, including retained earnings accumulated in foreign currencies in our overseas subsidiaries, which is translated to Japanese yen upon consolidation. ORIX shareholders’ equity is subject to exchange rate risk arising from such translations. Other positions, such as potential losses in future earnings, are calculated using several hypothetical scenarios based on 10% changes in the relevant currencies. Based on these scenarios, exchange losses in future earnings were estimated to be ¥363 million and ¥54 million as of March 31, 2020 and 2021, respectively. The largest of such losses were estimated in scenarios where the U.S. dollar appreciated 10% against the Japanese yen from the rate in effect on March 31, 2020 and 2021.

Risk of Market Prices in Stocks

We have marketable stocks that are subject to price risk arising from changes in their market prices. Our shareholders’ equity and net income bear risks due to changes in the market prices of these securities. To manage these risk of market price fluctuations, we assume a scenario of a 10% uniform downward movement in stock prices compared with stock prices as of March 31, 2020 and 2021, respectively, and under such circumstances estimate ¥3,642 million and ¥5,487 million decrease in the fair value of our equity securities as of March 31, 2020 and 2021.

Item 12. Description of Securities Other than Equity Securities

FEES AND PAYMENTS RELATING TO OUR AMERICAN DEPOSITARY SHARES

SCHEDULE OF FEES AND CHARGES

Citibank N.A., or the Depositary, serves as the depositary for our ADSs. As an ADS holder, you will be required to pay the following service fees to the Depositary:


Service		Fee
Issuance of ADSs upon deposit of Shares		Up to 5¢ per ADS issued
Cancellation of ADSs and delivery of deposited securities		Up to 5¢ per ADS canceled
Exercise of rights to purchase additional ADSs		Up to 5¢ per ADS issued
Distribution of cash proceeds upon sale of rights and other entitlements		Up to 2¢ per ADS held

As an ADS holder you will also be responsible to pay various fees and expenses incurred by the Depositary and various taxes and governmental charges such as:

•

Taxes, including applicable interest and penalties, and other governmental charges;

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PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies

None.

Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds

In order to improve the convenience and liquidity of our securities on exchanges where our shares are listed, in accordance with “Action Plan for Consolidating Trading Units” issued in November 2007 by the securities exchanges in Japan, the Company implemented a

10-for-1

stock split of shares of its common stock on March 31, 2013, pursuant to which one hundred shares constitutes one unit as of April 1, 2013. The change resulted in no substantive change in trading unit price levels. As a result of the stock split, the ratio of ADSs to underlying shares changed from 0.5 underlying shares per one ADS to five underlying shares per one ADS. The change has not affected ADS unit price levels or other material ADS terms.

Item 15. Controls and Procedures

As of March 31, 2021, the ORIX Group, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the principal financial officer, performed an evaluation of the effectiveness of the ORIX Group’s disclosure controls and procedures (as defined in Rule

13a-15(e)

under the Securities Exchange Act of 1934, as amended). The Company’s management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures, which by their nature can provide only reasonable assurance regarding the achievement of management’s control objectives. Based on this evaluation, the Company’s Chief Executive Officer and principal financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level for gathering, analyzing and disclosing the information the Company is required to disclose in the reports it files under the Act, within the time periods specified in the SEC’s rules and forms. There has been no change in the ORIX Group’s internal control over financial reporting that occurred during the period covered by this annual report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Management’s report on internal control over financial reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule

13a-15(f)

under the Securities Exchange Act of 1934, as amended). The internal control over financial reporting process of the ORIX Group was designed by, or under the supervision of, the Company’s Chief Executive Officer and principal financial officer and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance to the Company’s management and board of directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States and includes those policies and procedures that:

•

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the ORIX Group;

•

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles in the United States, and that receipts and expenditures of the ORIX Group are being made only in accordance with authorizations of management and directors of the Company; and

•

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the ORIX Group’s assets that could have a material effect on the financial statements.

166

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Company’s management assessed the effectiveness of our internal control over financial reporting as of March 31, 2021 by using the criteria set forth in “Internal Control-Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, the Company’s management concluded that our internal control over financial reporting was effective as of March 31, 2021.

The effectiveness of our internal control over financial reporting has been audited by KPMG AZSA LLC, an independent registered public accounting firm, who also audited our consolidated financial statements as of and for each of the years in the three-year period ended March 31, 2021, as stated in their attestation report which is included in Item 18 (page

F-3).

Item 16A. Audit Committee Financial Expert

Our board of directors has determined that Aiko Sekine is an “audit committee financial expert,” within the meaning of the current rules of the U.S. Securities and Exchange Commission. Aiko Sekine is “independent” as required by Section 303A.06 of the New York Stock Exchange Listed Company Manual.

Name on the family register of Aiko Sekine is Aiko Sano.

Item 16B. Code of Ethics

We have adopted a code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. Pursuant to our Code of Ethics, last amended in April 2014, officers of ORIX covered by ORIX’s Code of Ethics are required to promptly bring to the attention of the Company’s Executive Officer of the Group Compliance Department any information concerning any violations of the Code of Ethics.

Item 16C. Principal Accountant Fees and Services

FEES PAID TO PRINCIPAL ACCOUNTANT

AUDIT FEES

In fiscal 2020 and 2021, KPMG (including Japanese and overseas affiliates of KPMG AZSA LLC) billed us ¥3,248 million and ¥3,008 million, respectively, for direct audit fees.

AUDIT-RELATED FEES

In fiscal 2020 and 2021, KPMG billed us ¥134 million and ¥176 million, respectively, for audit-related services, including attestation, assurance and related services that are not reported under audit fees.

TAX FEES

In fiscal 2020 and 2021, KPMG billed us ¥258 million and ¥142 million, respectively, for

tax-related

services.

ALL OTHER FEES

In fiscal 2020 and 2021, KPMG billed us ¥20 million and ¥19 million, respectively, for other products and services.

167

AUDIT COMMITTEE’S

PRE-APPROVAL

POLICIES AND PROCEDURES

In terms of audit services, every year the independent registered public accounting firm draws up its annual audit plan and annual budget, which is evaluated by ORIX’s Accounting Department. Subsequently,

pre-approval

is obtained from the Audit Committee.

Non-audit

services are generally not obtained from the independent registered public accounting firm or its affiliates. In situations where ORIX must engage the

non-audit

services of the independent registered public accounting firm, preapproval is obtained from the Audit Committee on a

case-by-case

basis only after the reason has been specified.

Item 16D. Exemptions from the Listing Standards for Audit Committees

Not applicable.

Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers


Year ended March 31, 2021	(a) Total number of Shares Purchased		(b) Average Price Paid per Share		(c) Total number of Shares Purchased as Part of Publicly Announced Plans or Programs* 1,2,3,4		(d) Maximum number (or Approximate Yen Value) of Shares that May Yet be Purchased Under the Plans or Programs* 1,2,3,4
April 2020		6,428,600	¥	1,223		6,428,600	¥	46,421,339,850
May 2020		1,796,300		1,241		1,796,300		0
June 2020		0		0		0		0
July 2020		100		1,380		0		0
August 2020		140		1,268		0		0
September 2020		50		1,326		0		0
October 2020		10		1,345		0		0
November 2020		16,296,170		1,533		16,296,100		19,210,697,400
December 2020		8,804,420		1,582		8,804,300		5,280,637,350
January 2021		3,130,170		1,687		3,130,100		0
February 2021		80		1,778		0		0
March 2021		30		1,807		0		0

Total		36,456,070	¥	1,489		36,455,400	¥	0

*1	The Company resolved the share repurchase as follows at a meeting of the Board of Directors held on October 28, 2019.


• Class of shares to be repurchased		Common shares
• Total number of shares to be repurchased		Up to 70,000,000 shares
(approx.5.5% of the total outstanding shares (excluding treasury shares))
• Total purchase price of shares to be repurchased		Up to 100 billion yen
• Repurchase period		From November 1, 2019 to May 8, 2020
• Method of share repurchase		Market purchases based on the discretionary dealing contract regarding repurchase of own shares

168

*2	The share repurchase based on the above resolution at the Board of Directors meeting was completed. The details of share repurchase are as follows.


• Class of shares repurchased		Common shares
• Total number of shares repurchased		8,224,900 shares
• Total purchase price of shares repurchased		10,088,218,300 yen
• Repurchase period		From April 1, 2020 to May 8, 2020
• Method of share repurchase		Market purchases based on the discretionary dealing contract regarding repurchase of own shares

*3	The Company resolved the share repurchase as follows at a meeting of the Board of Directors held on November 2, 2020.


• Class of shares to be repurchased		Common shares
• Total number of shares to be repurchased		Up to 50,000,000 shares
(approx.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		November 9, 2020 to March 31, 2021
• Method of share repurchase		Market purchases based on the discretionary dealing contract regarding repurchase of own shares

*4	The share repurchase based on the above resolution at the Board of Directors meeting was completed. The details of share repurchase are as follows.


• Class of shares repurchased		Common shares
• Total number of shares repurchased		28,230,500 shares
• Total purchase price of shares repurchased		44,199,883,050 yen
• Repurchase period		From November 9, 2020 to January 8, 2021
• Method of share repurchase		Market purchases based on the discretionary dealing contract regarding repurchase of own shares

*5	The Company resolved the share repurchase as follows at a meeting of the Board of Directors held on May 13, 2021.


• Class of shares to be repurchased		Common shares
• Total number of shares to be repurchased		Up to 50,000,000 shares
(approx.4.1% of the total outstanding shares (excluding treasury shares))
• Total purchase price of shares to be repurchased		Up to 50 billion yen
• Repurchase period		May 17, 2021 to March 31, 2022
• Method of share repurchase		Market purchases based on the discretionary dealing contract regarding repurchase of own shares

Item 16F. Change in Registrant’s Certifying Accountant.

Not applicable.

Item 16G. Corporate Governance

Our ADSs have been listed on the New York Stock Exchange, or NYSE, since 1998. As an NYSE-listed company, we are required to comply with certain corporate governance standards under Section 303A of the NYSE Listed Company Manual. However, as a foreign private issuer, we are permitted to follow home country practice in lieu of certain provisions of Section 303A.

169

Our corporate governance practices differ in certain significant respects from those that U.S. companies must adopt in order to maintain a NYSE listing and, in accordance with Section 303A.11 of the NYSE’s Listed Company Manual, we provide a brief, general summary of such differences.

The composition of our board of directors and its committees differs significantly in terms of independence from the composition requirements for boards and committees that U.S. companies must satisfy in order to maintain a NYSE listing. We are not required to meet the NYSE’s independence requirements for individuals on our board of directors or our Nominating, Audit, and Compensation Committees. Under Japanese law, a majority of the membership on the committees must be “outside directors”—a Japanese law concept that shares similarities with the U.S. concept of “independent director” where the company is a ““Company with Nominating Committee, etc.” However, we are not required to include on our board of directors a majority of outside directors, nor are we required to compose our committees exclusively from outside directors. Six out of our 12 directors are outside directors. Under the Companies Act, the directors who compose the Audit Committee are not permitted to be executive officers or executive directors of the Company or its subsidiaries, or managers, employees or accounting advisors of the Company’s subsidiaries. Our Audit Committee members meet this requirement. We have adopted a written charter for our Compensation Committee that addresses committee member appointment and removal, committee structure and operations, and reporting to the board. However, our Compensation Committee has not retained, or obtained the advice of, a compensation consultant, independent legal counsel or other advisor.

Under the Companies Act, an outside director is a director (i) who is not an executive director, executive officer

(shikko-yaku)

, manager or any other kind of employee (an “Executive Director, etc.”) of the Company or its subsidiaries and who has not been an Executive Director, etc. of the Company or its subsidiaries in the past 10 years; (ii) who has not been an Executive Director, etc. of the Company or its subsidiaries for the past 10 years from the assumptions of any of the position of director, accounting advisor, or auditor; (iii) who is not a person with a controlling stake in the management of the Company, such as a holder of more than 50 percent of the Company’s shares, etc., or has not been an Executive Director, etc. of the parent company of the Company; (iv) who has not been an Executive Director, etc. of any other company with same parent company; and (v) who has not been the spouse or the kin (within the second degree) of any director, manager or any other kind of important employee of the Company, or a person with a controlling stake in the management of the Company, such as a holder of more than 50 percent of the Company’s shares etc.

In addition to differences in composition requirements for our board of directors and its committees, we are not required to:

•

make publicly available one or more documents that summarize all aspects of our corporate governance guidelines or prepare a written code that states the objectives, responsibilities, and performance evaluation of our Nominating, Audit and Compensation Committees in a manner that satisfies the NYSE’s requirements;

•

adopt a code of business conduct and ethics for our directors, officers, and employees that addresses fully the topics necessary to satisfy the NYSE’s requirements;

•

hold regularly scheduled executive sessions for our outside directors;

•

obtain shareholder approval for all equity compensation plans for employees, directors or executive officers of ORIX or for material revisions to any such plans;

•

provide the compensation committee with authority to obtain or retain the advice of a compensation advisor only after taking into consideration all factors relevant to determining the advisor’s independence from management.

170

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors

ORIX Corporation

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of ORIX Corporation (a Japanese corporation) and its subsidiaries (the Group) as of March 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the years in the three-year period ended March 31, 2021, and the related notes and financial statement schedule II (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as of March 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended March 31, 2021, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Group’s internal control over financial reporting as of March 31, 2021, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated June 29, 2021 expressed an unqualified opinion on the effectiveness of the Group’s internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Group’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Assessment of the carrying value of the indefinite-lived intangible assets for asset management contract

As discussed in Notes 1 and 16 to the consolidated financial statements, the Group’s indefinite-lived intangible assets as of March 31, 2021 was ¥234,281 million, of which ¥161,081 million represents asset

F-2

management contracts. The Group performs an impairment test for indefinite-lived intangible assets at least annually and whenever events or changes in circumstances indicate that the asset might be impaired. As a result of the impairment test, if the carrying amount of an intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. The fair values of the asset management contracts are determined utilizing a discounted cash flow model and the key inputs and assumptions to the valuation include the forecasted balances of assets under management (AuM) used to estimate the future cash flows and the weighted average cost of capital (WACC) as a discount rate.

We identified the assessment of the carrying value of the indefinite-lived intangible asset for a certain asset management contract in the ORIX Europe segment as a critical audit matter. Changes in the key inputs and assumptions have a significant effect on the fair value of the asset management contract indicating a higher risk related to the impairment assessment and, therefore, required a high degree of auditor judgment. Specifically, the forecasted balances of AuM were challenging to test as there was a high degree of estimation uncertainty in forecasting future growth of AuM. Also, a high degree of auditor judgment, including specialized skills and knowledge, was required to test the WACC due to the subjectivity in determining its inputs.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Group’s impairment assessment process of the asset management contract, including controls over the development of the forecasted balances of AuM and the WACC. We evaluated the development of the forecasted balances of AuM by analyzing the actual AuM balances compared to those forecasted in the prior year and by considering the actual performance of the funds managed under the asset management contract. We performed a sensitivity analysis over the forecasted balances of AuM and the WACC to assess the impact to the Group’s determination that the fair value of the asset management contract exceeded its carrying amount. In addition, we involved valuation professionals with specialized skills and knowledge, who assisted in assessing the WACC used by management in the assessment, by comparing it against a WACC range that was developed using publicly available market data and independently developed assumptions.

Assessment of the fair value measurement of the investment funds categorized as Level 3 financial instruments in the fair value hierarchy

As discussed in Notes 1 and 2 to the consolidated financial statements, the Group’s financial assets measured at fair value on a recurring basis under Level 3 of the fair value hierarchy as of March 31, 2021 amounted to ¥244,987 million, which included ¥91,410 million of investment funds. Certain overseas subsidiaries are determined as investment companies under ASC 946 (“Financial Services—Investment Companies”) and hold investment funds measured at fair value with changes in fair value recognized in earnings on a recurring basis. These investment funds are classified as Level 3 in the fair value hierarchy, because the Group measures their fair value using valuation techniques with key inputs that are unobservable. The fair value measurement of the Level 3 investment funds held by a certain investment company in the ORIX USA segment is estimated based on the valuation methodology of the underlying equity investments by weighting the income approach technique using discounted cash flows and the market approach technique utilizing market multiples. Key inputs and assumptions used for the valuation include earnings before interest, taxes, depreciation and amortization (EBITDA) multiples, cash flow forecasts, weighted average cost of capital (WACC) and weighting of the techniques.

We identified the assessment of the fair value measurement of the Level 3 investment funds held by the certain investment company in the ORIX USA segment as a critical audit matter. Due to the significant measurement uncertainty associated with the fair value of such investment funds, a high degree of subjectivity was used in determining the methodology and the key inputs and assumptions, including EBITDA multiples, cash flow forecasts, WACC and weighting of the techniques. Minor changes in these key inputs and assumptions used for the valuation could have a significant effect on the Group’s net income. Therefore, a high degree of auditor judgment was required. Additionally, the audit effort associated with this estimate required specialized skills and knowledge.

F-3

•

evaluating appropriateness of the Group’s fair value measurement methodology in accordance with U.S. generally accepted accounting principles,

•

evaluating the reasonableness of the selected EBITDA multiples through the comparison to independently developed EBITDA multiples,

•

evaluating the reasonableness of the WACC assumptions through performing an assessment using publicly available market data and independently developed assumptions, and

•

evaluating the reasonableness of the weighting of the techniques applied to arrive at the fair value.

Assessment of the carrying value of aircraft for operating leases

As discussed in Notes 1, 6 and 34 to the consolidated financial statements, the Group’s Investment in Operating leases balance as of March 31, 2021 was ¥1,408,189 million, of which ¥262,019 million represents long-lived assets related to the Aircraft and Ships segment balance, which includes the aircraft balance for operating leases held by ORIX Aviation Systems Limited. The Group performs a recoverability test for long-lived assets to be held and used in operations, including the aircraft, whenever events or changes in circumstances indicate that the assets might be impaired. The assets are considered not recoverable when the undiscounted future cash flows that are expected 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 fair value of the assets is estimated using discounted cash flow model. The key inputs and assumptions to the undiscounted forecasted cash flows used in the recoverability test include the cash flows from operating leases and residual values of the aircraft which were estimated based on values obtained from independent third-party appraisers.

We identified the assessment of the carrying value of the aircraft for operating leases held by ORIX Aviation Systems Limited as a critical audit matter. There was a high degree of estimation uncertainty in estimating the forecasted cash flows from operating leases and residual values of the aircraft used in the recoverability test and, therefore, those were challenging to test.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Group’s recoverability test of the aircraft, including controls over the development of the forecasted cash flows from operating leases and residual values of the aircraft. We evaluated the development of the undiscounted forecasted cash flows used in the recoverability test by comparing the key inputs and assumptions to the performance of the Group’s aircraft portfolio, in-force contractual arrangements and externally available market value reports from independent third-party appraisers. In addition, we involved valuation professionals with specialized skills and knowledge, who assisted in assessing the relevance and reliability of the information from the independent third-party appraisers.

Assessment of recognition of basis difference adjustments within Equity in Net Income of Affiliates for aircraft for operating leases related to an equity method investment

As discussed in Notes 15 and 34 to the consolidated financial statements, the Group’s Investment in Affiliates balance as of March 31, 2021 was ¥887,764 million, of which ¥293,469 million related to the Aircraft

F-4

and Ships segment including the investment in an equity method affiliate, Avolon Holdings Limited, which holds aircraft for operating leases. The Group recognizes as part of its investment, basis differences related to the differences between the fair values and the carrying amounts of the investee’s assets and liabilities on acquisition. Such basis differences are adjusted for any impairment with such changes in the differences included in Equity in Net Income of Affiliates. As part of assessing Equity in Net Income of Affiliates for Avolon Holdings Limited due to any adjustments of the basis differences related to the underlying aircraft, the Group evaluates the investee’s impairment analysis of the underlying aircraft for operating leases. The investee analysis of the underlying aircraft contains evaluation of key inputs and assumptions including the forecasted cash flows from operating leases and residual values of the underlying aircraft.

We identified the assessment of the recognition of basis difference adjustments within Equity in Net Income of Affiliates for aircraft for operating leases related to the equity method investment in Avolon Holdings Limited, as a critical audit matter. There was a high degree of estimation uncertainty in reviewing the impact to such basis differences including evaluation of forecasted cash flows from operating leases and residual values of the aircraft held by Avolon Holdings Limited which was challenging to test.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Group’s review of the recognition of basis difference adjustments within Equity in Net Income of Affiliates, including controls over the evaluation of the investee impairment analysis for aircraft for operating leases. We evaluated the carrying amount of basis differences and recognition of any adjustments to such basis differences within Equity in Net Income of Affiliates by assessing the performance of the investee’s aircraft portfolio, in-force contractual arrangements and externally available market value reports from independent third-party appraisers. In addition, we involved valuation professionals with specialized skills and knowledge, who assisted in assessing the relevance and reliability of the information from the independent third-party appraisers.

KPMG AZSA LLC

We have served as the Group’s auditor since 1985.

Tokyo, Japan

June 29, 2021

F-5

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors

ORIX Corporation

Opinion on Internal Control Over Financial Reporting

We have audited ORIX Corporation (a Japanese corporation) and subsidiaries’ (the Group) internal control over financial reporting as of March 31, 2021, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Group maintained, in all material respects, effective internal control over financial reporting as of March 31, 2021, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Group as of March 31, 2021 and 2020, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the years in the three-year period ended March 31, 2021, and the related notes and financial statement schedule II (collectively, the consolidated financial statements), and our report dated June 29, 2021 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Group’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Groups internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

KPMG AZSA LLC

Tokyo, Japan

June 29, 2021

F-6

CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2020 AND 2021

ORIX Corporation and Subsidiaries


			Millions of yen
			2020			2021
ASSETS
Cash and Cash Equivalents			¥	982,666		¥	951,242
Restricted Cash				152,618			128,333
Net investment in Leases				1,080,964			1,029,518
Installment Loans				3,740,486			3,670,784
The amounts which are measured at fair value by electing the fair value option are as follows:
March 31, 2020	¥90,893	million
March 31, 2021	¥63,272	million
Allowance for Doubtful Receivables on Finance Leases and Probable Loan Losses				(56,836	)		0
Allowance for Credit Losses				0			(78,945	)
Investment in Operating Leases				1,400,001			1,408,189
Investment in Securities				2,245,323			2,660,443
The amounts which are measured at fair value by electing the fair value option are as follows:
March 31, 2020	¥25,295	million
March 31, 2021	¥9,384	million
The amounts which are associated to available-for-sale debt securities are as follows:
As of March 31, 2021
Amortized Cost	¥2,026,767	million
Allowance for Credit Losses	¥120	million
Property under Facility Operations				562,485			491,855
Investment in Affiliates				821,662			887,764
Trade Notes, Accounts and Other Receivable				312,744			354,334
Inventories				126,013			142,156
Office Facilities				203,930			246,399
Other Assets				1,495,472			1,671,010
The amounts which are measured at fair value by electing the fair value option are as follows:
March 31, 2020	¥18,206	million
March 31, 2021	¥6,297	million

Total Assets			¥	13,067,528		¥	13,563,082


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 1 “Significant Accounting and Reporting Policies (ai) New accounting pronouncements.”
		2. Allowance for credit losses on loans to affiliates are recorded in investment in affiliates since the second quarter of fiscal 2021. Before fiscal 2020, there were no allowance for probable loan losses on 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
	2020		2021
Cash and Cash Equivalents	¥	7,117	¥	4,305
Net Investment in Leases (Net of Allowance for Doubtful Receivables on Finance Leases and Probable Loan Losses / Allowance for Credit Losses)		3,377		0
Installment Loans (Net of Allowance for Doubtful Receivables on Finance Leases and Probable Loan Losses / Allowance for Credit Losses)		218,268		238,236
Investment in Operating Leases		75,904		78,633
Property under Facility Operations		296,208		230,216
Investment in Affiliates		51,456		51,226
Other		136,641		111,924

	¥	788,971	¥	714,540

F-7

CONSOLIDATED BALANCE SHEETS—(Continued)

AS OF MARCH 31, 2020 AND 2021

ORIX Corporation and Subsidiaries


			Millions of yen
			2020			2021
LIABILITIES AND EQUITY
Liabilities:
Short-term Debt			¥	336,832		¥	307,269
Deposits				2,231,703			2,317,785
Trade Notes, Accounts and Other Payable				282,727			260,712
Policy Liabilities and Policy Account Balances				1,591,475			1,822,422
The amounts which are measured at fair value by electing the fair value option are as follows:
March 31, 2020	¥300,739	million
March 31, 2021	¥266,422	million
Income Taxes:
Current				28,203			22,170
Deferred				328,147			341,290
Long-term Debt				4,279,354			4,416,833
Other Liabilities				912,921			971,457

Total Liabilities				9,991,362			10,459,938

Redeemable Noncontrolling Interests				10,331			0

Commitments and Contingent Liabilities
Equity:
Common stock:				221,111			221,111
Authorized:	2,590,000,000	shares
Issued:
March 31, 2020	1,324,629,128	shares
March 31, 2021	1,285,724,480	shares
Additional Paid-in Capital				257,638			259,361
Retained Earnings				2,754,461			2,744,588
Accumulated Other Comprehensive Income (Loss)				(118,532	)		(84,650	)
Treasury Stock, at Cost:				(121,070	)		(111,954	)
March 31, 2020	70,157,472	shares
March 31, 2021	68,386,164	shares

ORIX Corporation Shareholders’ Equity				2,993,608			3,028,456
Noncontrolling Interests				72,227			74,688

Total Equity				3,065,835			3,103,144

Total Liabilities and Equity			¥	13,067,528		¥	13,563,082


Notes:		1. The Company’s shares held through the Board Incentive Plan Trust (1,476,828 shares as of March 31, 2020 and 2,154,248 shares as of March 31, 2021) are included in the number of treasury stock as of March 31, 2020 and 2021.
		2. Credit Losses Standard has been adopted since April 1, 2020. For further information, see Note 1 “Significant Accounting and Reporting Policies (ai) New accounting pronouncements.”
		3. 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
	2020		2021
Short-Term Debt	¥	6,030	¥	500
Trade Notes, Accounts and Other Payable		3,140		2,390
Long-Term Debt		464,904		413,268
Other		45,671		42,024

	¥	519,745	¥	458,182

The accompanying notes to consolidated financial statements are an integral part of these statements.

F-8

CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED MARCH 31, 2019, 2020 AND 2021

ORIX Corporation and Subsidiaries


	Millions of yen
	2019		2020		2021
Revenues:
Finance revenues	¥	242,893	¥	276,864	¥	271,194
Gains on investment securities and dividends		15,958		22,499		46,097
Operating leases		413,918		430,665		397,065
Life insurance premiums and related investment income		347,136		367,778		487,550
Sales of goods and real estate		596,165		406,511		410,953
Services income		818,794		776,012		679,849

Total revenues		2,434,864		2,280,329		2,292,708

Expenses:
Interest expense		93,337		99,138		78,068
Costs of operating leases		257,321		289,604		295,628
Life insurance costs		246,533		269,425		374,348
Costs of goods and real estate sold		535,261		354,006		347,721
Services expense		508,320		483,914		439,233
Other (income) and expense		1,301		14,925		17,125
Selling, general and administrative expenses		437,028		460,199		456,795
Provision for doubtful receivables and probable loan losses		22,525		24,425		0
Provision for Credit Losses		0		0		16,021
Write-downs of long-lived assets		2,418		3,043		3,020
Write-downs of securities		1,382		11,969		5,935

Total expenses		2,105,426		2,010,648		2,033,894

Operating Income		329,438		269,681		258,814
Equity in Net Income of Affiliates		32,978		67,924		481
Gains on Sales of Subsidiaries and Affiliates and Liquidation Losses, net		33,314		74,001		23,300
Bargain Purchase Gain		0		955		4,966

Income before Income Taxes		395,730		412,561		287,561
Provision for Income Taxes		68,691		105,837		90,747

Net Income		327,039		306,724		196,814

Net Income Attributable to the Noncontrolling Interests		2,890		3,640		4,453

Net Income (Loss) Attributable to the Redeemable Noncontrolling Interests		404		384		(23	)

Net Income Attributable to ORIX Corporation Shareholders	¥	323,745	¥	302,700	¥	192,384


Notes:		1. Accounting Standards Update 2016-02 (ASC 842 (“Leases”)) (hereinafter, “New Lease Standard”) has been adopted since April 1, 2019, and the certain lessor costs of finance lease, such as the property taxes and insurance costs previously had been deducted from “Finance revenues”, but have changed to be included in “Other (income) and expense.” And the certain lessor costs of operating lease previously had been deducted from Revenue of “Operating leases”, but have changed to be included in “Costs of operating leases”. In addition, the presented amounts in the consolidated statements of income for the prior to fiscal 2019 have not been changed retrospectively to conform to the presentation for fiscal 2020 because of not applicable to the New Lease Standard.
		2. 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 1 “Significant Accounting and Reporting Policies (ai) New accounting pronouncements.”
		3. Provision for credit losses of loans to affiliates are recorded in equity in net income of affiliates since the second quarter of fiscal 2021.

F-9

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE YEARS ENDED MARCH 31, 2019, 2020 AND 2021

ORIX Corporation and Subsidiaries


	Millions of yen
	ORIX Corporation Shareholders’ Equity														Total ORIX Corporation Shareholders’ Equity			Noncontrolling Interests			Total 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, 2018	¥	220,961	¥	267,291		¥	2,315,283		¥	(45,566	)	¥	(75,545	)	¥	2,682,424		¥	116,450		¥	2,798,874

Cumulative effect of adopting Accounting Standards Update 2014-09							405									405			354			759
Cumulative effect of adopting Accounting Standards Update 2016-01							2,899			(2,899	)					0			0			0
Cumulative effect of adopting Accounting Standards Update 2016-16							3,772									3,772			0			3,772

Balance at April 1, 2018	¥	220,961	¥	267,291		¥	2,322,359		¥	(48,465	)	¥	(75,545	)	¥	2,686,601		¥	116,804		¥	2,803,405

Contribution to subsidiaries																0			7,680			7,680
Transaction with noncontrolling interests				(10,033	)					(103	)					(10,136	)		(60,347	)		(70,483	)
Comprehensive income, net of tax:
Net income							323,745									323,745			2,890			326,635
Other comprehensive income (loss)
Net change of unrealized gains on investment in securities										10,174						10,174			41			10,215
Net change of debt valuation adjustments										231						231			0			231
Net change of defined benefit pension plans										(7,289	)					(7,289	)		(57	)		(7,346	)
Net change of foreign currency translation adjustments										(11,775	)					(11,775	)		(88	)		(11,863	)
Net change of unrealized gains (losses) on derivative instruments										(4,116	)					(4,116	)		(2	)		(4,118	)

Total other comprehensive income (loss)																(12,775	)		(106	)		(12,881	)

Total comprehensive income																310,970			2,784			313,754

Cash dividends							(88,438	)								(88,438	)		(10,794	)		(99,232	)
Exercise of stock options		150		75												225			0			225
Acquisition of treasury stock													(707	)		(707	)		0			(707	)
Disposal of treasury stock				(233	)								348			115			0			115
Adjustment of redeemable noncontrolling interests to redemption value							(2,131	)								(2,131	)		0			(2,131	)
Other, net				525			50									575			0			575

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			17,047			17,047
Transaction with noncontrolling interests				241						2						243			1,340			1,583
Comprehensive income, net of tax:
Net income							302,700									302,700			3,640			306,340
Other comprehensive income (loss)
Net change of unrealized gains (losses) on investment in securities										(22,390	)					(22,390	)		(66	)		(22,456	)
Net change of debt valuation adjustments										875						875			0			875
Net change of defined benefit pension plans										1,527						1,527			2			1,529
Net change of foreign currency translation adjustments										(28,917	)					(28,917	)		(2,550	)		(31,467	)
Net change of unrealized gains (losses) on derivative instruments										(8,286	)					(8,286	)		(270	)		(8,556	)

Total other comprehensive income (loss)																(57,191	)		(2,884	)		(60,075	)

Total comprehensive income																245,509			756			246,265

Cash dividends							(103,824	)								(103,824	)		(3,043	)		(106,867	)
Acquisition of treasury stock													(45,720	)		(45,720	)		0			(45,720	)
Disposal of treasury stock				(334	)								554			220			0			220
Other, net				106												106			0			106

Balance at March 31, 2020	¥	221,111	¥	257,638		¥	2,754,461		¥	(118,532	)	¥	(121,070	)	¥	2,993,608		¥	72,227		¥	3,065,835

F-12

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY—(Continued)

FOR THE YEARS ENDED MARCH 31, 2019, 2020 AND 2021

ORIX Corporation and Subsidiaries


	Millions of yen
	ORIX Corporation Shareholders’ Equity														Total ORIX Corporation Shareholders’ Equity			Noncontrolling Interests			Total 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			18,225			18,225
Transaction with noncontrolling interests				1,700												1,700			(8,688	)		(6,988	)
Comprehensive income, net of tax:
Net income							192,384									192,384			4,453			196,837
Other comprehensive income
Net change of unrealized gains (losses) on investment in securities										(11,207	)					(11,207	)		25			(11,182	)
Net change of debt valuation adjustments										(899	)					(899	)		0			(899	)
Net change of defined benefit pension plans										5,302						5,302			28			5,330
Net change of foreign currency translation adjustments										36,015						36,015			511			36,526
Net change of unrealized gains on derivative instruments										4,671						4,671			111			4,782

Total other comprehensive income																33,882			675			34,557

Total comprehensive income																226,266			5,128			231,394

Cash dividends							(95,164	)								(95,164	)		(12,133	)		(107,297	)
Acquisition of treasury stock													(55,443	)		(55,443	)		0			(55,443	)
Disposal of treasury stock				(227	)		(0	)					322			95			0			95
Cancellation of treasury stock							(64,237	)					64,237			0			0			0
Other, net				250			(1	)								249			0			249

Balance at March 31, 2021	¥	221,111	¥	259,361		¥	2,744,588		¥	(84,650	)	¥	(111,954	)	¥	3,028,456		¥	74,688		¥	3,103,144


Notes:		Changes in the redeemable noncontrolling interests are not included in this table. For further information, see Note 21 “Redeemable Noncontrolling Interests.”

The accompanying notes to consolidated financial statements are an integral part of these statements.

F-13

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED MARCH 31, 2019, 2020 AND 2021

ORIX Corporation and Subsidiaries


	Millions of yen
	2019			2020			2021
Cash Flows from Operating Activities:
Net income	¥	327,039		¥	306,724		¥	196,814
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		295,589			304,204			315,955
Principal payments received under net investment in leases		0			474,110			419,907
Provision for doubtful receivables and probable loan losses		22,525			24,425			0
Provision for credit losses		0			0			16,021
Equity in net (income) loss of affiliates (excluding interest on loans)		(29,674	)		(65,764	)		837
Gains on sales of subsidiaries and affiliates and liquidation losses, net		(33,314	)		(74,001	)		(23,300	)
Bargain purchase gain		0			(955	)		(4,966	)
Gains on sales of securities other than trading		(10,182	)		(18,886	)		(15,228	)
Gains on sales of operating lease assets		(62,883	)		(51,072	)		(26,358	)
Write-downs of long-lived assets		2,418			3,043			3,020
Write-downs of securities		1,382			11,969			5,935
Deferred tax provision		(35,128	)		14,890			25,518
Decrease in trading securities		95,370			63,681			12,103
(Increase) Decrease in inventories		6,852			11,938			(12,061	)
(Increase) Decrease in trade notes, accounts and other receivable		(5,576	)		12,348			(12,657	)
Increase (Decrease) in trade notes, accounts and other payable		10,990			(3,853	)		(1,947	)
Increase in policy liabilities and policy account balances		10,109			70,120			230,947
Increase (Decrease) in income taxes payable		36,753			(33,318	)		(11,045	)
Other, net		(44,592	)		(7,137	)		(23,819	)

Net cash provided by operating activities		587,678			1,042,466			1,095,676

Cash Flows from Investing Activities:
Purchases of lease equipment		(998,073	)		(948,445	)		(709,999	)
Principal payments received under direct financing leases		469,262			0			0
Installment loans made to customers		(1,460,336	)		(1,527,000	)		(1,198,978	)
Principal collected on installment loans		1,239,385			1,134,142			1,139,608
Proceeds from sales of operating lease assets		429,295			339,504			138,912
Investment in affiliates, net		(278,027	)		(44,140	)		(112,922	)
Proceeds from sales of investment in affiliates		56,423			79,950			41,730
Purchases of available-for-sale debt securities		(556,213	)		(711,973	)		(709,349	)
Proceeds from sales of available-for-sale debt securities		221,824			249,427			285,836
Proceeds from redemption of available-for-sale debt securities		73,156			82,754			31,859
Purchases of equity securities other than trading		(66,959	)		(53,616	)		(56,314	)
Proceeds from sales of equity securities other than trading		83,261			34,145			30,532
Purchases of property under facility operations		(62,221	)		(44,466	)		(43,954	)
Acquisitions of subsidiaries, net of cash acquired		(119,105	)		(134,894	)		(82,163	)
Sales of subsidiaries, net of cash disposed		56,584			91,835			57,722
Other, net		37,793			(17,709	)		(15,772	)

Net cash used in investing activities		(873,951	)		(1,470,486	)		(1,203,252	)

Cash Flows from Financing Activities:
Net decrease (increase) in debt with maturities of three months or less		(50,881	)		16,182			(42,136	)
Proceeds from debt with maturities longer than three months		1,123,923			924,779			1,171,350
Repayment of debt with maturities longer than three months		(932,676	)		(832,881	)		(1,013,937	)
Net increase in deposits due to customers		169,830			304,182			85,737
Cash dividends paid to ORIX Corporation shareholders		(88,438	)		(103,824	)		(95,164	)
Acquisition of treasury stock		(707	)		(45,720	)		(55,443	)
Contribution from noncontrolling interests		22,760			23,994			24,487
Purchases of shares of subsidiaries from noncontrolling interests		(86,165	)		(4,501	)		(4,791	)
Net decrease (increase) in call money		20,000			10,000			(17,500	)
Other, net		(10,999	)		(3,508	)		(12,719	)

Net cash provided by financing activities		166,647			288,703			39,884

Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash		(1,911	)		(8,979	)		11,983

Net decrease in Cash, Cash Equivalents and Restricted Cash		(121,537	)		(148,296	)		(55,709	)

Cash, Cash Equivalents and Restricted Cash at Beginning of Year		1,405,117			1,283,580			1,135,284

Cash, Cash Equivalents and Restricted Cash at End of Year	¥	1,283,580		¥	1,135,284		¥	1,079,575


Notes: 1.		New Lease Standard has been adopted since April 1, 2019, and the amounts of investment in direct financing leases have been reclassified to net investment in leases.
Notes: 2.		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 1 “Significant Accounting and Reporting Policies (ai) New accounting pronouncements.”

The accompanying notes to consolidated financial statements are an integral part of these statements.

F-14

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ORIX Corporation and Subsidiaries

1. Significant Accounting and Reporting Policies

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. Significant accounting and reporting policies are summarized as follows:

(a) Basis of presenting financial statements

The Company and its subsidiaries in Japan maintain their books in conformity with Japanese accounting practices, which differ in certain respects from U.S. GAAP.

The accompanying consolidated financial statements have been prepared in conformity with U.S. GAAP and, therefore, reflect certain adjustments to the books and records of the Company and its subsidiaries. The principal adjustments relate to revenue recognition for revenue from contracts with customers, initial direct costs to originate leases and loans, accounting for allowance for credit losses, use of a straight-line basis of depreciation for operating lease assets, deferral of life insurance policy acquisition costs, calculation of insurance policy liabilities, accounting for goodwill and other intangible assets in business combinations, accounting for pension plans, accounting for sales of the parent’s ownership interest in subsidiaries, classification in the statements of cash flows, accounting for transfer of financial assets, accounting for investment in securities, accounting for fair value option, accounting for lessee’s lease and reflection of the income tax effect on such adjustments.

(b) 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.

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

F-1

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

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 March 31, 2021, 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.

(d) 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.

(e) 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

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.

F-1

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

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 and those costs are recognized in other (income) and expense. 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.

(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

F-1

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

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 and those costs are recognized in costs of operating leases. Investment in operating leases is recorded at cost less accumulated depreciation. In addition, operating lease assets are depreciated over their estimated useful lives mainly on a straight-line basis. The estimated average useful lives of principal operating lease assets classified as transportation equipment is 6 years, measuring and information-related equipment is 4 years, real estate (other than land) is 33 years and other is 8 years. Depreciation expenses are included in costs of operating leases. Gains or losses arising from dispositions 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.

(f) Insurance and reinsurance transactions

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

F-1

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

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.

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.

(g) 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

F-1

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

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.

(h) 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, if the entity has a present contractual obligation to extend the credit and the obligation is not unconditionally cancelable by the entity, 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. For the loan commitments of card loans and installment loans, credit losses are recognized on the loan commitments for the portion expected to be drawn. For financial guarantees, the allowance is recognized for the contingent obligation which generates credit risk exposures. These allowance for off-balance sheet credit exposures is measured using the same measurement objectives as the allowance for loans and net investment leases, considering quantitative and

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

qualitative factors including historical loss experience, current conditions and reasonable and supportable forecasts. The allowance for

off-balance

sheet credit exposure is accounted for in other liabilities on the consolidated balance sheets.

(i) 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, aircraft, ships, 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.

(j) 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 fair value 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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

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 (h) Allowance for credit losses.”

(k) Income taxes

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.

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 in Japan for National Corporation tax purposes.

(l) 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 special purpose entities (hereinafter, “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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

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.

(m) 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 derivatives are qualified for hedge accounting, 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.

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 net investment in a foreign operation, changes in the fair value of the derivative 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

(n) 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.

(o) 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.

(p) 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 March 31, 2021 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.

(q) 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.

(r) 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

(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 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. Depreciation expenses in fiscal 2019, 2020 and 2021 were ¥28,133 million, ¥27,147 million and ¥30,448 million, respectively. Accumulated depreciation was ¥105,433 million and ¥132,184 million as of March 31, 2020 and 2021, respectively. Estimated useful lives range up to 50 years for buildings, up to 60 years for structures and up to 30 years for others.

(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 2021, residential condominiums under development were ¥56,156 million and ¥57,502 million, respectively, and completed residential condominiums and merchandise for sale were ¥69,857 million and ¥84,654 million, respectively.

The Company and its subsidiaries recorded ¥703 million, ¥863 million and ¥2,510

million of write-downs principally on completed residential condominiums and merchandise for sale for fiscal 2019, 2020 and 2021, respectively, primarily resulting from a decrease in expected sales price. These write-downs were recorded in costs of goods and real estate sold and included mainly in PE Investment and Concession segment, Real Estate segment and Corporate Financial Services and Maintenance Leasing segment.

(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. Depreciation expenses in fiscal 2019, 2020 and 2021 were ¥4,912 million, ¥7,714 million and ¥8,269 million, respectively. Accumulated depreciation was ¥68,117 million and ¥68,524 million as of March 31, 2020 and 2021, respectively. Estimated useful lives range up to 62 years for buildings and structures and up to 20 years for machinery and equipment.

(w)

Right-of-use

assets

The Company and its subsidiaries record the Right-of-use assets (hereinafter, “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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

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) Business combinations

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.

(z) Goodwill and other intangible assets

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 whenever such events or changes occur.

Accounting Standards Update

2017-04

(“Simplifying the Test for Goodwill Impairment”—ASC 350 (“Intangible—Goodwill and Other”)) has been adopted since April 1, 2020. 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.

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

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.

(

) 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.

(

) 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, and derivative liabilities and allowance for credit losses on

off-balance

sheet credit exposures.

(

) Capitalization of interest costs

The Company and its subsidiaries capitalized interest costs of ¥940 million, ¥622 million and ¥858 million in fiscal 2019, 2020 and 2021, respectively, primarily related to assets under construction such as specific environmental assets, long-term real estate development and ship projects.

(

) Advertising

The costs of advertising are expensed as incurred. The total amounts charged to advertising expense in fiscal 2019, 2020 and 2021 were ¥20,650 million, ¥16,480 million and ¥17,313 million, respectively.

(

) 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.

(

) 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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

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.

(

) 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.

(

) 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.

(

) 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 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. The adoption of this update had no material impact on the Company and its subsidiaries’ results of operations or financial position.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

In August 2018, Accounting Standards Update

2018-12

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

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, 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 adoption of this update will not have a material impact 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 adoption of this update will not have a material effect 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, and related amendments were issued thereafter. These updates provide 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. These updates are effective as of March 12, 2020 through December 31, 2022. The Company and its subsidiaries did not adopt these updates as of March 31, 2021. The Company and its subsidiaries expect to adopt these updates during the reference rate transition period. 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 these updates.

2. 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

F-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

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.

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 2021:

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

F-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

March 31, 2021


	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	¥	63,272		¥	0	¥	63,272	¥	0
Trading debt securities		2,654			0		2,654		0
Available-for-sale debt securities:		2,003,917			6,012		1,864,448		133,457
Japanese and foreign government bond securities*2		821,158			3,105		818,053		0
Japanese prefectural and foreign municipal bond securities		276,276			0		273,515		2,761
Corporate debt securities*3		742,251			2,907		738,323		1,021
CMBS and RMBS in the Americas		34,457			0		34,457		0
Other asset-backed securities and debt securities		129,775			0		100		129,675
Equity securities45		396,465			82,039		223,016		91,410
Derivative assets:		22,696			352		8,521		13,823
Interest rate swap agreements		1,867			0		1,867		0
Options held/written and other		19,504			0		5,681		13,823
Futures, foreign exchange contracts		1,179			352		827		0
Foreign currency swap agreements		146			0		146		0
Netting*6		(1,944	)		0		0		0
Net derivative assets		20,752			0		0		0
Other assets:		6,297			0		0		6,297
Reinsurance recoverables*7		6,297			0		0		6,297

Total	¥	2,495,301		¥	88,403	¥	2,161,911	¥	244,987

Liabilities:
Derivative liabilities:	¥	71,034		¥	475	¥	70,526	¥	33
Interest rate swap agreements		23,818			0		23,818		0
Options held/written and other		17,009			0		16,976		33
Futures, foreign exchange contracts		25,739			475		25,264		0
Foreign currency swap agreements		4,459			0		4,459		0
Credit derivatives held		9			0		9		0
Netting*6		(1,944	)		0		0		0
Net derivative Liabilities		69,090			0		0		0
Policy Liabilities and Policy Account Balances:		266,422			0		0		266,422
Variable annuity and variable life insurance contracts*8		266,422			0		0		266,422

Total	¥	337,456		¥	475	¥	70,526	¥	266,455

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 ¥401 million, ¥5,220

million and a loss

F-3

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

of ¥3,260 million from the change in the fair value of the loans for fiscal 2019, 2020 and 2021, respectively.

No gains or losses were recognized in earnings during fiscal 2019, 2020 and 2021 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 March 31, 2021, were ¥60,556 million and ¥63,272 million, respectively, and the amount of the aggregate fair value exceeded the amount of aggregate unpaid principal balance by ¥2,716 million. As of March 31, 2020 and 2021, 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 ¥19 million, ¥8 million and ¥28 million from the change in the fair value of those investments for fiscal 2019, 2020 and 2021, respectively. The amounts of aggregate fair value elected the fair value option were ¥780 million and ¥1,537 million as of March 31, 2020 and 2021, 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 ¥784 million, ¥210 million and ¥1,080 million from the change in the fair value of those investments for fiscal 2019, 2020 and 2021, respectively. The amounts of aggregate fair value elected the fair value option were ¥18,189 million and ¥2,907 million as of March 31, 2020 and 2021, 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 ¥1,141 million, ¥1,225 million and ¥3,187 million

from the change in the fair value of those investments for fiscal 2019, 2020 and 2021, respectively. The amounts of aggregate fair value elected

the fair value option were ¥6,326 million and ¥4,940 million as of March 31, 2020 and 2021, 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 an d ¥ 13,737 million as of March 31, 2020 and 2021, 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 ¥6,297 million as of March 31, 2020 and 2021, respectively. For the effect of changes in the fair value of those reinsurance contracts on earnings for fiscal 2019, 2020 and 2021, see Note 26 “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 ¥266,422 million as of March 31, 2020 and 2021, respectively. For the effect of changes in the fair value of the variable annuity and variable life insurance contracts on earnings for fiscal 2019, 2020 and 2021, see Note 26 “Life Insurance Operations.”

F-33

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

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) in fiscal 2019, 2020 and 2021:

2019


	Millions of yen
	Balance at April 1, 2018		Gains or losses (realized/unrealized)								Purchases*3		Sales			Settlements*4			Transfers in and/ or out of Level 3 (net)			Balance at March 31, 2019		Change in unrealized gains or losses included in earnings for assets and liabilities still held at March 31, 2019*1
	Balance at April 1, 2018		Included in earnings*1			Included in other comprehensive income*2		Total			Purchases*3		Sales			Settlements*4			Transfers in and/ or out of Level 3 (net)			Balance at March 31, 2019
Available-for-sale debt securities	¥	120,917	¥	1,912		¥	2,020	¥	3,932		¥	44,163	¥	(23,241	)	¥	(27,221	)	¥	(18,103	)	¥	100,447	¥	268
Japanese prefectural and foreign municipal bond securities		0		(553	)		136		(417	)		0		0			0			3,305			2,888		0
Corporate debt securities		3,037		0			4		4			3,100		0			(981	)		1,998			7,158		0
CMBS and RMBS in the Americas		36,010		1,034			546		1,580			1,304		(6,711	)		(8,777	)		(23,406	)		0		0
Other asset-backed securities and debt securities		81,870		1,431			1,334		2,765			39,759		(16,530	)		(17,463	)		0			90,401		268
Equity securities		37,879		4,443			578		5,021			37,871		(1,080	)		(18,498	)		0			61,193		4,192
Investment funds		37,879		4,443			578		5,021			37,871		(1,080	)		(18,498	)		0			61,193		4,192
Derivative assets and liabilities (net)		2,291		2,981			0		2,981			0		0			0			0			5,272		2,981
Options held/written and other		2,291		2,981			0		2,981			0		0			0			0			5,272		2,981
Other asset		15,008		(5,483	)		0		(5,483	)		3,572		0			(648	)		0			12,449		(5,483	)
Reinsurance recoverables*5		15,008		(5,483	)		0		(5,483	)		3,572		0			(648	)		0			12,449		(5,483	)
Policy Liabilities and Policy Account Balances		444,010		7,874			321		8,195			0		0			(75,617	)		0			360,198		7,874
Variable annuity and variable life insurance contracts*6		444,010		7,874			321		8,195			0		0			(75,617	)		0			360,198		7,874

2020


	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 March 31, 20 20		Change in unrealized gains or losses included in earnings for assets and liabilities still held at March 31, 20 20 *1
	Balance at April 1, 2019		Included in earnings*1		Included in other comprehensive income*2			Total			Purchases*3		Sales			Settlements*4			Transfers in and/ or out of Level 3 (net)			Balance at March 31, 20 20
Available-for-sale debt securities	¥	100,447	¥	1,291	¥	(13,721	)	¥	(12,430	)	¥	41,270	¥	(3,925	)	¥	(34,018	)	¥	(2,991	)	¥	88,353	¥	131
Japanese prefectural and foreign municipal bond securities		2,888		0		(56	)		(56	)		0		0			0			0			2,832		0
Corporate debt securities		7,158		0		(8	)		(8	)		900		0			(1,065	)		(2,991	)		3,994		0
Other asset-backed securities and debt securities		90,401		1,291		(13,657	)		(12,366	)		40,370		(3,925	)		(32,953	)		0			81,527		131
Equity securities		61,193		8,197		(1,641	)		6,556			31,725		(10,108	)		(5,465	)		0			83,901		8,033
Investment funds		61,193		8,197		(1,641	)		6,556			31,725		(10,108	)		(5,465	)		0			83,901		8,033
Derivative assets and liabilities (net)		5,272		10,402		(192	)		10,210			3,748		0			0			0			19,230		10,402
Options held/written and other		5,272		10,402		(192	)		10,210			3,748		0			0			0			19,230		10,402
Other asset		12,449		2,937		0			2,937			3,053		0			(233	)		0			18,206		2,937
Reinsurance recoverables*5		12,449		2,937		0			2,937			3,053		0			(233	)		0			18,206		2,937
Policy Liabilities and Policy Account Balances		360,198		4,802		1,215			6,017			0		0			(53,442	)		0			300,739		4,802
Variable annuity and variable life insurance contracts*6		360,198		4,802		1,215			6,017			0		0			(53,442	)		0			300,739		4,802

F-34

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NOTES TO CONSOLIDATED FINANCIAL STATEMENT

—(Continued)

ORIX Corporation and Subsidiaries

2021


	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 March 31, 202 1		Change in unrealized gains or losses included in earnings for assets and liabilities still held at March 31, 202 1 *1			Change in unrealized gains or losses included in other comprehensive income for assets and liabilities still held at March 31, 202 1 *2
	Balance at April 1, 2020		Included in earnings*1			Included in other comprehensive income*2			Total			Purchases*3		Sales			Settlements*4			Transfers in and/ or out of Level 3 (net)			Balance at March 31, 202 1
Available-for-sale debt securities	¥	88,353	¥	(1,065	)	¥	14,870		¥	13,805		¥	51,270	¥	(12,890	)	¥	(5,187	)	¥	(1,894	)	¥	133,457	¥	(1,228	)	¥	14,729
Japanese prefectural and foreign municipal bond securities		2,832		(115	)		44			(71	)		0		0			0			0			2,761		(115	)		44
Corporate debt securities		3,994		0			1			1			0		0			(974	)		(2,000	)		1,021		0			1
Other asset-backed securities and debt securities		81,527		(950	)		14,825			13,875			51,270		(12,890	)		(4,213	)		106			129,675		(1,113	)		14,684
Equity securities		83,901		14,304			1,765			16,069			2,001		(4,718	)		(5,518	)		(325	)		91,410		14,042			1,769
Investment funds		83,901		14,304			1,765			16,069			2,001		(4,718	)		(5,518	)		(325	)		91,410		14,042			1,769
Derivative assets and liabilities (net)		19,230		(5,474	)		34			(5,440	)		0		0			0			0			13,790		(5,474	)		34
Options held/written and other		19,230		(5,474	)		34			(5,440	)		0		0			0			0			13,790		(5,474	)		34
Other asset		18,206		(14,201	)		0			(14,201	)		2,713		0			(421	)		0			6,297		(14,201	)		0
Reinsurance recoverables*5		18,206		(14,201	)		0			(14,201	)		2,713		0			(421	)		0			6,297		(14,201	)		0
Policy Liabilities and Policy Account Balances		300,739		(42,066	)		(1,248	)		(43,314	)		0		0			(77,631	)		0			266,422		(42,066	)		(1,248	)
Variable annuity and variable life insurance contracts*6		300,739		(42,066	)		(1,248	)		(43,314	)		0		0			(77,631	)		0			266,422		(42,066	)		(1,248	)

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 fiscal 2019, Japanese prefectural and foreign municipal bond securities totaling ¥3,305

million were transferred from Level 2 to Level 3, since the valuation techniques to measure fair value of a certain foreign municipal bond security has been changed to discounted cash flows methodologies using unobservable inputs. The change of the valuation techniques is due to judgement that the Company and its subsidiaries cannot rely on price quotations from independent pricing service vendors and brokers considering deterioration of estimated cash flows from the security. In addition, CMBS and RMBS in the Americas totaling

¥23,406 million were transferred from Level 3 to Level 2, since the inputs such as trading price and/or bid price became observable due to the market returning to active.

F-35

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

In fiscal 2020, corporate debt securities totaling ¥2,991 million were transferred from Level 3 to Level 2, since the inputs became observable.

In fiscal 2021, 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. In addition, other asset-backed securities and debt securities totaling ¥106 million were transferred from Level 2 to Level 3, since the inputs became unobservable.

The following tables present recorded amounts of assets measured at fair value on a nonrecurring basis during fiscal 2020 and 2021. These assets are measured at fair value on a nonrecurring basis mainly to recognize impairment:

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

2021
	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	¥	238	¥	0	¥	238	¥	0
Real estate collateral-dependent loans (net of allowance for credit losses)		10,679		0		0		10,679
Investment in operating leases and property under facility operations		6,740		0		1,806		4,934
Certain equity securities		10,486		0		6,909		3,577
Certain investments in affiliates		11,413		8,799		0		2,614
Certain goodwill		775		0		0		775

	¥	40,331	¥	8,799	¥	8,953	¥	22,579

F-36

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

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.

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 the assets as Level 3 because such appraisals involve unobservable

F-37

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

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

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. If market prices are not available and there are no observable inputs, then fair value is estimated by using valuation models such as discounted cash flow methodologies and broker quotes. Such securities are classified as Level 3, as the valuation models and broker quotes are based on inputs that are unobservable in the market. If fair value is based on broker quotes, the Company and its subsidiaries check the validity of received prices based on comparison to prices of other similar assets and market data such as relevant benchmark indices.

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.

Equity securities and investment in affiliates

F-38

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

These investment funds, certain equity securities 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, or 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, or broker quotes.

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.

Goodwill

For the information about the valuation methodologies, see Note 16 “Goodwill and Other Intangible Assets”.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

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 2021.


	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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

March 31, 2021

Millions of
yen

Valuation technique(s)

Significant

unobservable inputs

Range

(Weighted average)

Fair value

Assets:

Available-for-sale

debt securities:

Japanese prefectural and foreign municipal bond securities

2,761

Appraisals/Broker quotes

—

Corporate debt securities

1,021

Discounted cash flows

Discount rate

0.3% – 1.8%

(0.7%)

Other asset-backed securities and debt securities

25,891

Discounted cash flows

Discount rate

1.0% – 51.2%

(11.1%)

Probability of default

1.9%

(1.9%)

103,784

Appraisals/Broker quotes

—

Equity securities:

Investment funds

78,134

Discounted cash flows

WACC

13.1% – 18.7%

(16.8%)

EV/Terminal EBITDA multiple

7.3x – 10.5x

(8.6x)

Market multiples

EV/Last twelve months EBITDA multiple

6.8x – 9.5x

(7.8x)

EV/Forward EBITDA multiple

7.6x – 11.6x

(9.0x)

EV/Precedent transaction last twelve months EBITDA multiple

7.7x – 10.9x

(9.1x)

13,276

Appraisals/Broker quotes

—

Derivative assets:

Options held/written and other

13,762

Discounted cash flows

Discount rate

12.0% – 33.0%

(14.3%)

Appraisals/Broker quotes

—

Other assets:

Reinsurance recoverables

6,297

Discounted cash flows

Discount rate

0.0% – 0.4%

(0.1%)

Mortality rate

0.0% – 100.0%

(1.6%)

Lapse rate

1.5% – 14.0%

(6.7%)

Annuitization rate

(guaranteed minimum annuity benefit)

0.0% – 100.0%

(100.0%)

Total

244,987

Liabilities:

Derivative liabilities:

Options held/written and other

Appraisals/Broker quotes

—

Policy liabilities and Policy Account Balances:

Variable annuity and variable life insurance contracts

266,422

Discounted cash flows

Discount rate

0.0% – 0.4%

(0.1%)

Mortality rate

0.0% – 100.0%

(1.6%)

Lapse rate

1.5% – 30.0%

(6.9%)

Annuitization rate

(guaranteed minimum annuity benefit)

0.0% – 100.0%

(76.7%)

Total

266,455

F-41

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

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 fiscal 2020 and 2021.


	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


	2021
	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)	¥	1,953	Direct capitalization	Capitalization rate		5.1% – 7.0%
						(5.9%)
		8,726	Appraisals	—		—
Investment in operating leases and property under facility operations		4,934	Appraisals	—		—
Certain equity securities		3,577	Appraisals	—		—
Certain investments in affiliates		2,614	Appraisals	—		—
Certain goodwill		775	Market multiples	EV/Precedent transaction last twelve months EBITDA multiple		5.5x
						(5.5x)

	¥	22,579

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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

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.

3. Acquisitions and Divestitures

(1) Acquisitions

During fiscal 2019, the Company and its subsidiaries acquired entities for a total cost of the acquisition consideration of ¥148,483 million, which was paid mainly in cash. Goodwill initially recognized in these transactions amounted to ¥72,466 million and the goodwill is not deductible for income tax purposes. The amount of acquired intangible assets other than goodwill recognized in these transactions was ¥15,991 million.

During fiscal 2020, the Company and its subsidiaries acquired entities for a total cost of the acquisition consideration of ¥190,119 million, which was paid mainly in cash. Goodwill initially recognized in these transactions amounted to ¥46,522 million and the goodwill is not deductible for income tax purposes. The amount of acquired intangible assets other than goodwill recognized in these transactions was ¥20,437 million.

During fiscal 2021, the Company and its subsidiaries acquired entities for a total cost of the acquisition consideration of ¥104,197 million, which was paid mainly in cash. Goodwill initially recognized in these transactions amounted to ¥59,186 million and the goodwill is not deductible for income tax purposes. The amount of acquired intangible assets other than goodwill recognized in these transactions was ¥30,595

million. The Company reflected certain preliminary estimates with respect to the fair value of certain components of the underlying net assets of these entities in determining amounts of the goodwill. The amount of the goodwill and intangible assets could possibly be adjusted because certain of these acquisitions were made near the fiscal

year-end

and the purchase price allocations have not been completed yet with respect to the final valuation of acquired intangible assets among others. The acquisitions were mainly included in PE Investment and Concession segment and ORIX Europe segment.

The

Company

did not recognize any bargain purchase gain during fiscal 2019. As a result of the reassessment of the provisional purchase price allocation during fiscal 2020, the Company recognized bargain purchase gains of ¥955

million associated with two of its acquisitions executed during fiscal 2019. The bargain purchase gains were included in Corporate Financial Services and Maintenance Leasing segment. As a result of the reassessment of the provisional purchase price allocation of wind power generation subsidiaries in India and another acquisition executed during fiscal 2020, the Company recognized bargain purchase gains of

¥4,966 million during fiscal 2021. The bargain purchase gains consisted of ¥4,365

million in Environment and Energy segment and

¥601

million in PE Investment and Concession segment.

The segment in which goodwill is allocated is disclosed in Note 16 “Goodwill and Other Intangible Assets.”

F-43

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

(2) Divestitures

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

The following table provides information about costs of goods sold and real estate sold and services expense in fiscal 2019, 2020 and 2021.


	Millions of yen
	2019		2020		2021
Goods or services category
Costs of goods sold	¥	419,001	¥	247,036	¥	272,657
Costs of real estate sold		116,260		106,970		75,064
Asset management and servicing		44,107		37,808		42,145
Automobile related services		47,859		48,579		45,734
Facilities operation		95,207		66,163		41,461
Environment and energy services		105,414		110,899		105,246
Real estate management and brokerage		94,869		94,119		89,685
Real estate contract work		71,958		76,983		69,815
Other		48,906		49,363		45,147

Total expenses of costs of goods and real estate sold and services expenses	¥	1,043,581	¥	837,920	¥	786,954

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 3

“Segment Information.”

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

F-45

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

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

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Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

with customers, since customers simultaneously receive and consume 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.

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 others, 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.

F-47

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

The following table provides information about balances from contracts with customers as of March 31, 2020 and 2021.


	Millions of yen
	March 31, 2020		March 31, 2021
Trade Notes, Accounts and Other Receivable	¥	165,676	¥	180,828
Contract assets (Included in Other Assets)		3,811		6,558
Contract liabilities (Included in Other Liabilities)		32,805		40,436

For fiscal 2020 and 2021, there were no significant changes in contract assets. For fiscal 2020, contract liabilities decreased due to deconsolidation of contract liabilities of ¥14,342 million related to facilities operation caused by the sale of ORIX Living. For fiscal 2021, there were no significant changes in contract liabilities.

For fiscal 2020, revenue amounted to ¥31,908

million was included in contract liabilities as of March 31, 2019. For fiscal 2021, revenue amounted to

¥30,367

million was included in contract liabilities as of March 31, 2020.

As of March 31, 2021, 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 ¥140,885 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.

As of March 31, 2020 and 2021, assets recognized from the costs to obtain or fulfill contracts with customers were not material.

5. Cash Flow Information

The following table provides information about Cash, Cash Equivalents and Restricted Cash which are included in the Company’s consolidated balance sheets as of March 31, 2020 and 2021, respectively.


	Millions of yen
	2020		2021
Cash and Cash Equivalents	¥	982,666	¥	951,242
Restricted Cash		152,618		128,333

Cash, Cash Equivalents and Restricted Cash	¥	1,135,284	¥	1,079,575

Cash payments during fiscal 2019, 2020 and 2021 are as follows:


	Millions of yen
	2019		2020		2021
Cash payments:
Interest	¥	92,424	¥	99,788	¥	80,313
Income taxes, net		67,065		124,236		76,292

F-48

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

The main

non-cash

activities in fiscal 2019, 2020 and 2021 are as follows.

In fiscal 2019 and 2021, real estate under operating leases of ¥1,373 million and ¥75 million, respectively, were recognized with the corresponding amounts of installment loans being derecognized as a result of acquiring real estate collateral. In fiscal 2019, property under facility operations of ¥28 million was recognized with the corresponding amounts of installment loans being derecognized as a result of acquiring real estate collateral. In fiscal 2019, 2020 and 2021, other assets of ¥320 million, ¥29 million and ¥1 million, respectively, were recognized with the corresponding amounts of installment loans being derecognized as a result of acquiring real estate collateral.

In fiscal 2019, assets and liabilities decreased by ¥12,805 million and ¥12,265

million in the Company’s consolidated balance sheet due to deconsolidation of a subsidiary and certain VIEs which had been consolidated by certain subsidiaries. The derecognized assets mainly consist of installment loans and property under facility operations, and the derecognized liabilities mainly consist of long-term debt. In fiscal 2020, assets and liabilities decreased by

¥1,281 million and ¥33 million, in the Company’s consolidated balance sheet due to deconsolidation of a subsidiary and certain VIEs which had been consolidated by certain subsidiaries. The derecognized assets mainly consist of investment in securities, and the derecognized liabilities mainly consist of other liabilities. In fiscal 2021, assets and liabilities decreased by ¥5,218 million and ¥18 million in the Company’s consolidated balance sheet due to deconsolidation of a subsidiary and certain VIEs which had been consolidated by certain subsidiaries. The derecognized assets mainly consist of investment in securities, and the derecognized liabilities mainly consist of other liabilities. Derecognition of these assets and liabilities were not included in cash flows from investing activities or financing activities in the consolidated statements of cash flows because they did not involve cash transactions.

On April 1, 2019, the Company and its subsidiaries adopted New Lease Standard, which resulted in a gross up of ROU assets and corresponding lease liabilities. ROU assets obtained in exchange for lease liabilities were not included in cash flows from investing activities or financing activities because they did not involve cash transactions. For further information, see Note 6 “Leases.”

6. Leases

(1) Lessor

Some of the contracts include options to extend or to terminate the lease. The Company and its subsidiaries determine the lease term while taking such periods covered by options into account when determined the lease term when it is reasonably certain that it will exercise these options. The majority of the lease contracts do not contain bargain purchase options for customers.

The estimated unguaranteed residual value represents estimated proceeds from the disposition of equipment at the time the lease is terminated. The estimated unguaranteed residual value is determined based on market value of used equipment, estimates of when and how much equipment will become obsolete, and actual recovery being experienced for similar used equipment. The Company and its subsidiaries may incur losses if the estimated residual amounts are unable to collect or need to recognize valuation losses when the estimates differ from actual trends in equipment valuation and the secondhand market. The risk of loss on leased assets relating to the estimated unguaranteed residual value of the leased assets is monitored through projections of the estimated unguaranteed residual value at lease origination and periodic review of estimated unguaranteed residual value.

F-49

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

When auto leases are bundled with maintenance contracts, considerations on contracts are allocated based upon the estimated standalone selling prices of the lease and

non-lease

components. Lease components generally include product and financing cost, and

non-lease

components generally consist of maintenance contracts.

A certain subsidiary is providing automobile related services, and applying practical expedients, to not separate

non-lease

components from the associated lease components. In this service, ASC 606 is applied to the entire contract because the consideration related to

non-lease

components accounts for the majority of contract consideration. Revenues from these operations are recognized over the customers’ usage period of the services, since customers simultaneously receive and consume the benefits when the performance obligations are satisfied. The value transferred to customers is directly measured based on the usage period.

Lease income for fiscal 2020 and 2021 are as follows:


	Millions of yen
	Fiscal Year ended March 31, 2020		Fiscal Year ended March 31, 2021
Lease income – net investment in leases
Interest income	¥	72,663	¥	69,718
Other		2,412		2,113
Lease income – operating leases*		430,665		397,065

Total lease income	¥	505,740	¥	468,896

Gains from the disposition of real estate under operating leases included in operating lease revenues were ¥30,154 million and ¥15,459 million, and gains from the disposition of operating lease assets other than real estate included in operating lease revenues were ¥20,918 million and ¥10,899 million for fiscal year 2020 and 2021, 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 fiscal 2020 and 2021.

Net investment in leases at March 31, 2020 and 2021 consists of the following:


	Millions of yen		Millions of yen
	March 31, 2020		March 31, 2021
Lease receivables	¥	1,049,409	¥	998,050
Unguaranteed residual value		27,868		29,245
Initial direct costs		3,687		2,223

Total	¥	1,080,964	¥	1,029,518

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

Investment in operating leases at March 31, 2020 and 2021 consists of the following:


	Millions of yen
	2020			2021
Transportation equipment	¥	1,305,908		¥	1,364,559
Measuring and information-related equipment		287,301			307,010
Real estate		305,981			291,917
Other		32,119			43,507

		1,931,309			2,006,993
Accumulated depreciation		(678,245	)		(741,022	)

Net		1,253,064			1,265,971
Right-of-use assets		121,553			114,268
Accrued rental receivables		25,384			28,259
Allowance for doubtful receivables on operating leases*		0			(309	)

Total	¥	1,400,001		¥	1,408,189

Costs of operating leases include depreciation and various expenses (insurance, property tax and other). Depreciation and various expenses for fiscal 2020 and 2021 are as follows:


	Millions of yen
	2020		2021
Depreciation expenses	¥	209,586	¥	217,212
Various expenses		80,018		78,416

Total	¥	289,604	¥	295,628

Remaining lease receivables of net investment in leases (including residual value guarantees) range up to 28 years at March 31, 2021. Remaining lease receivables of the operating lease contracts range up to 60 years at March 31, 2021. At March 31, 2021, the amounts due in each of the next five years and thereafter are as follows:


	Millions of yen
Years ending March 31,	Net investment in leases			Operating leases
2022	¥	422,309		¥	309,912
2023		275,941			197,837
2024		179,308			131,063
2025		108,799			80,549
2026		61,469			43,921
Thereafter		70,851			117,232

Total lease payments		1,118,677		¥	880,514

Less imputed interest		(120,627	)

Total lease receivables	¥	998,050

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

(2) Lessee

The Company and its subsidiaries determine if an arrangement is a lease at inception of each contract. The Company and its subsidiaries have operating and finance leases for various assets including lands, office buildings, employees’ accommodations, and vehicles. Some of the lease arrangements include options to extend or terminate lease term. The Company and its subsidiaries determine the lease term while taking such options into account when determined the lease term when it is reasonably certain that it will exercise these options. The Company and its subsidiaries’ lease arrangements do not contain material residual value guarantees or material restrictive covenants. As a rate implicit in most of the leases cannot be readily determinable, the Company and its subsidiaries use incremental borrowing rate based on the information available at commencement to determine the present values of lease payments.

The component of lease expense for fiscal 2020 and 2021 are as follows:


	Millions of yen			Millions of yen
	Year ended March 31, 2020			Year ended March 31, 2021
Finance lease cost
Depreciation expenses of right-of-use assets	¥	743		¥	359
Interest expenses of lease liabilities		302			131

		1,045			490

Operating lease cost		42,427			42,964
Short-term lease cost		2,633			3,347
Variable lease cost		948			230
Sublease income		(3,688	)		(4,142	)

Total	¥	43,365		¥	42,889

Supplemental cash flow information related to leases for fiscal 2020 and 2021 are as follows:


	Millions of yen
	Year Ended March 31, 2020
	Finance leases		Operating leases
Cash paid for amounts included in the measurements of lease liabilities:
Cash flows from operating activities	¥	302	¥	44,610
Cash flows from financing activities		494		0

Right-of-use assets obtained in exchange for lease liabilities:	¥	531	¥	39,775


	Millions of yen
	Year Ended March 31, 2021
	Finance leases		Operating leases
Cash paid for amounts included in the measurements of lease liabilities:
Cash flows from operating activities	¥	131	¥	41,680
Cash flows from financing activities		674		0

Right-of-use assets obtained in exchange for lease liabilities:	¥	228	¥	55,344

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

Supplemental balance sheet information related to lessee leases at March 31, 2020 and 2021 are as follows:


	Millions of yen, except lease term and discount rate
	March 31, 2020
	Finance leases			Operating leases
Investment in Operating Leases	¥	0		¥	121,553
Property under Facility Operations		2,241			73,226
Office Facilities		8			75,381

Total right-of-use assets		2,249			270,160

Other Liabilities		2,840			266,790

Total lease liabilities	¥	2,840		¥	266,790

Weighted average remaining lease term		9years			13years

Weighted average discount rate		3.0	%		1.1	%


	Millions of yen, except lease term and discount rate
	March 31, 2021
	Finance leases			Operating leases
Investment in Operating Leases	¥	257		¥	114,011
Property under Facility Operations		1,990			69,291
Office Facilities		487			108,717

Total right-of-use assets		2,734			292,019

Other Liabilities		3,417			289,890

Total lease liabilities	¥	3,417		¥	289,890

Weighted average remaining lease term		7years			12years

Weighted average discount rate		4.4	%		1.1	%

At March 31, 2021, the amounts of lease liabilities related to lessee leases due in each of the next five years and thereafter are as follows:


	Millions of yen
Years ending March 31,	Finance leases			Operating leases
2022	¥	869		¥	47,926
2023		676			38,281
2024		596			32,513
2025		540			29,881
2026		254			25,483
Thereafter		698			134,119

Total lease payments		3,633			308,203

Less imputed interest		(216	)		(18,313	)

Total lease liabilities	¥	3,417		¥	289,890

7. Investment in Direct Financing Leases

Included in finance revenues in the consolidated statements of income is direct financing leases revenues of ¥58,246 million for fiscal 2019.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

Gains and losses from the disposition of direct financing lease assets, which were included in finance revenues, were not material for fiscal 2019.

For further information about net investment in leases for fiscal 2020 and 2021, see Note 6 of “Leases.”

8. Investment in Operating Leases

For fiscal 2019, gains from the disposition of real estate under operating leases included in operating lease revenues are ¥36,763 million, and gains from the disposition of operating lease assets other than real estate included in operating lease revenues are ¥26,120 million.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

Generally, installment loans are made under agreements that require the borrower to provide collateral or guarantors.

At March 31, 2021, the contractual maturities of installment loans (except purchased loans) for each of the next five years and thereafter are as follows:


Years ending March 31,	Millions of yen
2022	¥	520,274
2023		398,703
2024		265,404
2025		245,690
2026		197,143
Thereafter		2,031,219

Total	¥	3,658,433

Revenues from installment loans which are included in finance revenues in the consolidated statements of income are ¥148,863 million, ¥166,966 million and ¥169,401 million for fiscal 2019, 2020 and 2021, respectively.

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 2021 were ¥127,194 million and ¥72,658 million, respectively. There were ¥90,893 million and ¥63,272 million of loans held for sale as of March 31, 2020 and 2021, respectively, measured at fair value by electing the fair value option.

Purchased loans acquired by the Company and its subsidiaries are generally 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 and characterized by extended period of

non-performance

by the borrower, and it is difficult to reliably estimate the amount, timing, or nature of collections. Because such loans are commonly collateralized by real estate, the Company and its subsidiaries may pursue various approaches to maximizing the return from the collateral, including arrangement of borrower’s negotiated transaction of such collateral before foreclosure, the renovation, refurbishment or the sale of such loans to third parties. Accordingly, 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. The total carrying amounts of these purchased loans were ¥13,218 million and ¥12,351 million as of March 31, 2020 and 2021, respectively, and the fair value at the acquisition date of purchased loans acquired during fiscal 2020 and 2021 were ¥2,983 million and ¥2,704 million, respectively.

F-55

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

When it is probable that the Company and its subsidiaries will be unable to collect all book value, the Company and its subsidiaries consider purchased loans impaired, and a valuation allowance for the excess amount of the book value over the estimated recoverable amount of the loans is provided. For most cases, the recoverable amount is estimated based on the collateral value. Purchased loans for which valuation allowances were provided amounted to ¥1,497 million as of March 31, 2020.

Changes in the allowance for uncollectible accounts relating to the purchased loans for fiscal 2019 and 2020 are as follows:


	Millions of yen
	2019			2020
Beginning balance	¥	4,292		¥	3,186
Provision (Reversal)		(331	)		(24	)
Charge-offs		(822	)		(1,789	)
Recoveries		126			77
Other*		(79	)		8

Ending balance	¥	3,186		¥	1,458

*	Other includes foreign currency translation adjustments.

For further information about allowance for credit losses for fiscal 2021, see Note 11 of “ Credit Quality of Financial Assets and the Allowance for Credit Losses”.

10. 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.

F-5

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

The following table provides information about the allowance for credit losses for fiscal 2019 and 2020:


	March 31, 2019
	Millions of yen
	Loans											Direct financing leases			Total
	Consumer			Corporate					Purchased loans*1
	Consumer			Non-recourse loans		Other			Purchased loans*1
Allowance for credit losses:
Beginning balance	¥	21,196		¥	688	¥	18,407		¥	4,292		¥	10,089		¥	54,672
Provision (Reversal)		12,400			213		5,919			(331	)		4,324			22,525
Charge-offs		(13,115	)		0		(4,080	)		(822	)		(2,413	)		(20,430	)
Recoveries		687			0		246			126			158			1,217
Other*2		27			18		170			(79	)		(109	)		27

Ending balance	¥	21,195		¥	919	¥	20,662		¥	3,186		¥	12,049		¥	58,011

Individually evaluated for impairment		3,372			166		8,276			1,917			0			13,731
Not individually evaluated for impairment		17,823			753		12,386			1,269			12,049			44,280
Financing receivables:
Ending balance	¥	1,906,022		¥	99,028	¥	1,201,893		¥	16,416		¥	1,155,632		¥	4,378,991

Individually evaluated for impairment		23,163			4,448		27,452			3,764			0			58,827
Not individually evaluated for impairment		1,882,859			94,580		1,174,441			12,652			1,155,632			4,320,164


	March 31, 2020
	Millions of yen
	Loans												Direct financing 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)		12,254			903			7,988			(24	)		3,304			24,425
Charge-offs		(13,723	)		(1	)		(6,548	)		(1,789	)		(2,859	)		(24,920	)
Recoveries		554			0			133			77			24			788
Other*3		262			(35	)		(877	)		8			(826	)		(1,468	)

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

Notes 1: Loans held for sale are not included in the table above.

F-5

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

2:	New Lease Standard has been adopted since April 1, 2019, and the amounts of investment in direct financing leases have been reclassified to net investment in leases.

*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 decrease in allowance related to sales of loans.

*3	Other mainly includes foreign currency translation adjustments.

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.

F-5

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

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.

F-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

*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.

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.

F-6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

The following table provides information about the average recorded investments in impaired loans and interest income on impaired loans for fiscal 2019 and 2020:


	March 31, 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		¥	20,601	¥	392	¥	356
	Real estate loans		4,099		133		129
	Card loans		4,020		59		52
	Other		12,482		200		175
Corporate borrowers			25,381		289		276
Non-recourse loans	Japan		247		7		7
	The Americas		2,851		0		0
Other than Non-recourse loans	Real estate companies in Japan		1,606		38		38
	Real estate companies in overseas		876		0		0
	Commercial, industrial and other companies in Japan		5,943		106		95
	Commercial, industrial and other companies in overseas		13,858		138		136
Purchased loans			4,678		88		87

Total		¥	50,660	¥	769	¥	719


	March 31, 2020
		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		¥	24,721	¥	446	¥	403
	Real estate loans		5,077		141		137
	Card loans		3,926		57		50
	Other		15,718		248		216
Corporate borrowers			37,103		121		119
Non-recourse loans	Japan		137		2		2
	The Americas		2,954		0		0
Other than Non-recourse loans	Real estate companies in Japan		1,621		30		30
	Real estate companies in overseas		5,785		0		0
	Commercial, industrial and other companies in Japan		6,754		76		75
	Commercial, industrial and other companies in overseas		19,852		13		12
Purchased loans			3,108		139		139

Total		¥	64,932	¥	706	¥	661

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.

F-6

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

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


Notes		1: Loans held for sale are not included in the table above.
		2: New Lease Standard has been adopted since April 1, 2019, and the amounts of investment in direct financing leases have been reclassified to net investment in leases.

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 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 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.

F-6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

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


Notes		1: Loans held for sale are not included in the table above.
		2: New Lease Standard has been adopted since April 1, 2019, and the amounts of investment in direct financing leases have been reclassified to net investment in leases.

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 debtor’s 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.

F-6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

The following table provides information about troubled debt restructurings of financing receivables that occurred during fiscal 2019 and 2020:


	March 31, 2019
		Millions of yen
Portfolio segment	Class	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment
Consumer borrowers		¥	13,280	¥	9,294
	Real estate loans		222		105
	Card loans		2,106		1,393
	Other		10,952		7,796
Corporate borrowers			6,002		6,001
Other than Non-recourse loans	Commercial, industrial and other companies in overseas		6,002		6,001

Total		¥	19,282	¥	15,295


	March 31, 2020
		Millions of yen
Portfolio segment	Class	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment
Consumer borrowers		¥	12,041	¥	9,025
	Real estate loans		19		17
	Card loans		1,899		1,396
	Other		10,123		7,612
Corporate borrowers			4,785		4,779
Non-recourse loans	The Americas		751		751
Other than Non-recourse loans	Commercial, industrial and other companies in overseas		4,034		4,028

Total		¥	16,826	¥	13,804

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.

F-6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

As of March 31, 2020, due to the spread of the

COVID-19,

although the Company and its subsidiaries accepted payment deferral requests other than the above mentioned troubled debt restructuring, those financing receivables are not included in the above mentioned troubled debt restructuring as the Company and its subsidiaries determined those receivables based on the definition of troubled debt restructuring

The following table provides information about financing receivables modified as troubled debt restructurings within the previous 12 months from March 31, 2019 and for which there was a payment default during fiscal 2019:


	March 31, 2019
		Millions of yen
Portfolio segment	Class	Recorded investment
Consumer borrowers		¥	2,013
	Card loans		22
	Other		1,991

Total		¥	2,013

The following table provides information about financing receivables modified as troubled debt restructurings within the previous 12 months from March 31, 2020 and for which there was a payment default during fiscal 2020:


	March 31, 2020
		Millions of yen
Portfolio segment	Class	Recorded investment
Consumer borrowers		¥	1,687
	Card loans		22
	Other		1,665
Corporate borrowers			25
Other than Non-recourse loans	Commercial, industrial other companies in overseas		25

Total		¥	1,712

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.

11. 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

F-6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

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 fiscal 2021:


	Fiscal Year ended March 31, 2021
	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)		6,614			38		8,823			353			3,285			4,483			23,596
Allowance of purchased loans during the reporting period		0			0		0			3,899			0			0			3,899
Charge-offs*4		(13,695	)		0		(16,685	)		(4,040	)		(2,668	)		(344	)		(37,432	)
Recoveries		651			0		87			46			10			11			805
Other* 5		398			57		(18	)		119			653			(351	)		858

Ending balance	¥	29,010		¥	3,482	¥	23,141		¥	1,835		¥	16,522		¥	6,005		¥	79,995

Collective (pool) assessment		24,761			3,250		15,372			681			13,267			810			58,141
Individual assessment		4,249			232		7,769			1,154			3,255			5,195			21,854

Notes 1:

Loans held for sale and policy loan receivables of an insurance entity are not scope to allowance for credit losses.

Held-to-maturity

debt securities held by the Company and subsidiaries consist of Japanese government bonds (JGBs) and other securities secured by JGBs. There was no allowance for credit losses on these held-to-maturity debt securities. And there is no delinquency or on

non-accrual

status on

held-to-maturity

debt securities

F-6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

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 Credit Losses Standard, 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

charged-off.

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 ¥255 million was recorded in equity in net income of affiliates. And the allowance for credit losses on loans to affiliates of ¥1,050 million was recorded as a reduction in investment in affiliates.

*3	The allowance for accrued lease payments for receivable from operating leases was reclassified to the investment in operating leases balance on April 1, 2020, due to the application of the Credit Losses Standard.

*4	Charge-off include the amount of ¥3,899 million for write-offs of purchased loans.

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

The following table provides information about purchased loans which were acquired for fiscal 2021:


	Millions of yen
	Fiscal Year ended March 31, 2021
Purchase price	¥	2,705
Allowance for credit losses at acquisition date		3,899
Discount or premium attributable to other factors		254

Par value	¥	6,858

The Company and its subsidiaries estimate an allowance for credit losses for all credit losses expected to occur in future over the remaining life of financial assets, and recognize the allowance adequately based on 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.

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

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 it is probable that the acquisition cost of purchased loans cannot be collected, while all the other purchased loans are included in the category of performing assets.

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.

F-6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

Loans to consumer borrowers

Loans to consumer borrowers mainly consist of real estate loans and card loans.

The credit quality of real estate loans is affected by the cash flows derived from the property and its collateral value.

The credit quality of card loans is affected by the repayment ability of customers such as customer credit standing or payment history.

The Company and its subsidiaries use these factors to estimate the allowance for credit losses because they are reflected in the probability of default and loss given default in each portfolio.

Loans to corporate borrowers

Loans to corporate borrowers are classified into

non-recourse

loans and loans other than

non-recourse

loans.

The credit quality of

non-recourse

loans for which cash flows from real estate are the source of repayment depends mainly on the real estate collateral value.

Loans other than

non-recourse

loans are classified into either real estate companies or commercial, industrial and other companies, each of which are further divided into Japan and overseas.

The credit quality of real estate companies is affected by mainly Japanese and Americas real estate markets and trends.

The credit quality of commercial, industrial and other companies, which consist of various industries, is affected mainly by broader financial and economic conditions and trends in Japan, the Americas and Asian countries.

The allowance for credit losses for loans to corporate borrowers is estimated by considering, among others, debtors’ situation, as well as 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

Net investment in leases consists of leases 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 leased assets, debtors’ situation, economic conditions and trends in its industries, and probability of default and loss given default.

In common with portfolio segments, 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 rates, consumer price indices, unemployment rates, 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, the Bank of Japan and third-party information providers as economic indicators. For the impact of the spread of

COVID-19,

the Company and its subsidiaries revise forward-looking scenarios, as necessary, with a quantitative adjustment based on the analysis of impact to the portfolios and the referenced economic indicators.

F-6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

On the other hand, for periods beyond which the Company and its subsidiaries are able to make or obtain reasonable and supportable forecasts of future economic indicators of the entire life of the financial asset, expected credit losses are estimated for the remaining life mainly using an appropriate reversion approach, mainly immediate reversion to historical credit loss information.

There have been no significant changes during the fiscal year to methodologies and economic indicators used to estimate the allowance for Credit Losses Standard adopted at the beginning of fiscal 2021

When

non-performing

financial assets with deteriorated credit quality have similar risk characteristics to other financial assets, the allowance for credit losses is collectively evaluated based on mainly loss given default. 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.

In the individual assessment the allowance for credit losses is estimated individually based on the present value of expected future cash flows, 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 in financial difficulty and the collection significantly depend on the collateral. These financial receivables are mainly

non-recourse

loans and purchased loans for which cash flows from underlying real estate is the source of repayment.

For

non-recourse

loans, their collection depends on the real estate collateral value, which may decline as a result of a decrease in liquidity of the real estate market, a rise in vacancy rate of rental properties, a 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 in these risks affect the amount of the allowance for credit losses.

F-

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

The following table provides information about the origination years of financial assets as of March 31, 2021. The card loans to consumer borrowers with a revolving repayment feature that cannot be classified into the origination year are excluded from the table.


		March 31, 2021
		Millions of yen
Portfolio segment		Origination year (years ended March 31)
Class
	Credit Quality	2021		2020		2019		2018		2017		Prior		Total
Consumer borrowers:
	Performing	¥	371,914	¥	443,079	¥	332,461	¥	220,035	¥	223,814	¥	498,350	¥	2,089,653
	Non-Performing		11,041		7,854		5,132		3,176		2,612		3,609		33,424

Real estate loans
	Performing		362,832		431,483		327,967		217,380		223,540		498,080		2,061,282
	Non-Performing		96		735		1,598		1,683		2,068		3,459		9,639
Other*
	Performing		9,082		11,596		4,494		2,655		274		270		28,371
	Non-Performing		10,945		7,119		3,534		1,493		544		150		23,785
Corporate borrowers:
	Performing		341,346		378,732		207,214		124,889		71,400		97,113		1,220,694
	Non-Performing		6,972		12,215		6,594		7,266		4,110		10,709		47,866

Non-recourse loans
Japan
	Performing		6,637		24,428		5,283		2,802		0		8,806		47,956
The Americas
	Performing		1,349		52,413		28,291		15,817		5,178		8,764		111,812
	Non-Performing		58		0		0		0		0		1,259		1,317
Other than non-recourse loans
Real estate companies in Japan
	Performing		103,982		62,274		35,065		28,743		25,487		21,753		277,304
	Non-Performing		70		252		192		0		690		538		1,742
Real estate companies in overseas
	Performing		42,980		55,678		10,695		4,992		1,976		2,976		119,297
	Non-Performing		0		3,049		2,057		4,946		1,056		3,397		14,505
Commercial, industrial and other companies in Japan
	Performing		78,281		41,166		30,116		12,746		11,798		18,664		192,771
	Non-Performing		1,210		3,865		205		878		82		1,022		7,262
Commercial, industrial and other companies in overseas
	Performing		108,117		142,773		97,764		59,789		26,961		36,150		471,554
	Non-Performing		5,634		5,049		4,140		1,442		2,282		4,493		23,040
Purchased loans:
	Performing		527		0		0		168		119		9,714		10,528
	Non-Performing		0		0		0		15		0		1,808		1,823

Net investment in leases:
	Performing		333,190		268,966		171,040		105,708		62,977		68,712		1,010,593
	Non-Performing		1,366		3,057		3,441		3,151		2,980		4,930		18,925

-70

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries


		December 31, 2020
		Millions of yen
Portfolio segment		Origination year (years ended March 31)
Class
	Credit Quality	2021		2020		2019		2018		2017		Prior		Total
Japan
	Performing		184,342		165,580		121,072		84,928		57,393		67,040		680,355
	Non-Performing		151		776		1,194		1,512		1,261		2,213		7,107
Overseas
	Performing		148,848		103,386		49,968		20,780		5,584		1,672		330,238
	Non-Performing		1,215		2,281		2,247		1,639		1,719		2,717		11,818
Other financial assets measured at amortized cost
	Performing		14,882		1,045		67		938		2,502		13,762		33,196
	Non-Performing		0		0		0		908		0		0		908

Total (excluding revolving repayment card loans)
	Performing	¥	1,061,859	¥	1,091,822	¥	710,782	¥	451,738	¥	360,812	¥	687,651	¥	4,364,664
	Non-Performing	¥	19,379	¥	23,126	¥	15,167	¥	14,516	¥	9,702	¥	21,056	¥	102,946

Note:

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

*	Other in loans to consumer borrowers includes claims receivable arising from payments on guarantee of consumer loans. For further information, see Note 33 “Commitments, Guarantees and Contingent Liabilities”

The information about card loans to consumer borrowers with a revolving repayment feature that cannot be classified into the origination year as of March 31, 2021 are as follows:


	March 31, 202 1
	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	¥	183,722	¥	0	¥	183,722	¥	4,364,664	¥	4,548,386

Non-Performing		1,132		3,693		4,825		102,946	¥	107,771

non-performing

assets, the Company and its subsidiaries consider smaller balance homogeneous loans (including real estate loans and card loans, among others, which are not restructured) and net investment in leases as the 90 days or more

past-due

financing receivables not individually evaluated, and consider all others as the loans individually evaluated. After the Company and its subsidiaries have set aside a 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

The following table provides information about the

past-due

financial assets as of March 31, 2021:


	March 31, 2021
		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		¥	4,553	¥	10,257	¥	14,810	¥	2,311,624
	Real estate loans		1,375		2,515		3,890		2,070,921
	Card loans		371		1,105		1,476		188,547
	Other		2,807		6,637		9,444		52,156
Corporate borrowers			8,296		24,443		32,739		1,268,560
Non-recourse loans	Japan		0		0		0		47,956
	The Americas		5,193		1,316		6,509		113,129
Other than Non-recourse loans	Real estate companies in Japan		144		778		922		279,046
	Real estate companies in overseas		0		14,505		14,505		133,802
	Commercial, industrial and other companies in Japan		592		1,993		2,585		200,033
	Commercial, industrial and other companies in overseas		2,367		5,851		8,218		494,594
Net investment in leases			9,332		17,128		26,460		1,029,518
	Japan		2,257		6,347		8,604		687,462
	Overseas		7,075		10,781		17,856		342,056

Total		¥	22,181	¥	51,828	¥	74,009	¥	4,609,702

Note:

Loans held for sale, policy loans receivable of an insurance entity and purchased loans are not included in the table above.

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 March 31, 2021:


	March 31, 2021
	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		10,322		10,148		43,672		17,166	¥	81,308
Interest income recognized during the reporting period		519		0		229		0	¥	748
Balance not associated allowance for credit losses among financial assets measured at amortized cost, which is suspending recognition of income		736		0		10,572		0	¥	11,308

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

The Company and its subsidiaries suspend accruing interest 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 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 are considered 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.

The following table provides information about troubled debt restructurings of financing receivables that occurred during the fiscal year ended March 31, 2021:


	Fiscal Year ended March 31, 2021
		Millions of yen
Portfolio segment	Class	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment
Consumer borrowers		¥	9,279	¥	6,727
	Real estate loans		34		23
	Card loans		1,677		1,261
	Other		7,568		5,443
Corporate borrowers			14,723		13,049
Other than Non-recourse loans	Real estate companies in overseas		111		111
	Commercial, industrial and other companies in Japan		38		38
	Commercial, industrial and other companies in overseas		14,574		12,900

Total		¥	24,002	¥	19,776

The Company and its subsidiaries offer various types of concessions to our debtors to protect as much of the investment as possible in troubled debt restructurings. For the debtors of

non-recourse

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

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.

For fiscal 2021, while there are financial assets for which the payments were deferred other than those in the troubled debt restructuring stated above due to the spread of

COVID-19,

the payment deferrals, which are determined not to meet the definition of a 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 March 31, 2021 and for which there was a payment default during the fiscal year ended March 31, 2021:


	Fiscal Year ended March 31, 2021
		Millions of yen
Portfolio segment	Class	Recorded investment
Consumer borrowers		¥	387
	Card loans		36
	Other		351
Corporate borrowers			752
Other than Non-recourse loans	Commercial, industrial and other companies in overseas		752

Total		¥	1,139

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 interest and may recognize additional allowance for credit losses as necessary for the defaulted financing receivables.

As of March 31, 2021, 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 ¥70 million as of March 31, 2021.

12. Investment in Securities

Investment in securities as of March 31, 2020 and 2021 consists of the following:


	Millions of yen
	2020		2021
Equity securities*	¥	492,902	¥	540,082
Trading debt securities		7,431		2,654
Available-for-sale debt securities		1,631,185		2,003,917
Held-to-maturity debt securities		113,805		113,790

Total	¥	2,245,323	¥	2,660,443

*	The amount of assets under management of variable annuity and variable life insurance contracts included in equity securities were ¥254,853 million and ¥249,830 million as of March 31, 2020 and 2021, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

The amount of investment funds that are accounted for under the equity method included in equity securities were ¥70,129 million and ¥82,420 million as of March 31, 2020 and 2021, respectively. The amount of investment funds elected for the fair value option included in equity securities were ¥6,326 million and ¥4,940 million as of March 31, 2020 and 2021, 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 25 “Gains on Investment Securities and Dividends” and Note 26 “Life Insurance Operations.” Net unrealized holding gains (losses) on equity securities held as of March 31, 2019, 2020 and 2021 were losses of ¥56 million and

¥19,910

million and a gain of

¥83,643

million for fiscal 2019, 2020 and 2021, respectively, 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 2021, and for fiscal 2020 and 2021.


	Millions of yen
	March 31, 2020							2020
	Carrying value		Accumulated impairments and downward adjustments			Accumulated upward adjustments		Impairments and downward adjustments			Upward adjustments
Equity securities measured using the measurement alternative	¥	35,968	¥	(13,428	)	¥	112	¥	(11,971	)	¥	94

	Millions of yen
	March 31, 2021							2021
	Carrying value		Accumulated impairments and downward adjustments			Accumulated upward adjustments		Impairments and downward adjustments			Upward adjustments
Equity securities measured using the measurement alternative	¥	47,460	¥	(13,474	)	¥	350	¥	(1,479	)	¥	232

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 March 31, 2019, 2020 and 2021 were gains of ¥156 million, ¥

491 million and ¥120

million for fiscal 2019, 2020 and 2021, respectively.

During fiscal 2019, 2020 and 2021, the Company and its subsidiaries sold

available-for-sale

debt securities for aggregate proceeds of ¥221,824 million, ¥

249,427

million and ¥

285,836

million, respectively, resulting in gross realized gains of ¥5,134 million, ¥

9,274

million and ¥

8,854

million, respectively, and gross realized losses of

¥101 million,

264

million and ¥

1,918

million, respectively. The cost of the

available-for-sale

securities or the debt securities sold was based on the average cost of each issue of securities held at the time of the sale.

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

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 2021, these investments were fair valued at ¥6,326 million and ¥4,940 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 2021, these investments were fair valued at ¥780 million and ¥1,537 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 2021, these investments were fair valued at ¥18,189 million and ¥2,907 million, respectively.

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 2021 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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

March 31, 2021


	Millions of yen
	Amortized cost		Allowance for credit losses			Gross unrealized gains		Gross unrealized losses			Fair value
Available-for-sale debt securities:
Japanese and foreign government bond securities	¥	846,736	¥	0		¥	6,071	¥	(31,649	)	¥	821,158
Japanese prefectural and foreign municipal bond securities		274,770		(120	)		4,238		(2,612	)		276,276
Corporate debt securities		742,862		0			10,125		(10,736	)		742,251
CMBS and RMBS in the Americas		35,668		0			549		(1,760	)		34,457
Other asset-backed securities and debt securities		126,731		0			4,308		(1,264	)		129,775

		2,026,767		(120	)		25,291		(48,021	)		2,003,917

Held-to-maturity debt securities:
Japanese government bond securities and other		113,790		0			25,342		0			139,132

	¥	2,140,557	¥	(120	)	¥	50,633	¥	(48,021	)	¥	2,143,049

The following table presents a rollforward of the allowance for credit losses for fiscal 2021.


	Millions of yen
	Fiscal Year ended March 31, 2021
	Foreign municipal bond securities		Total
Beginning	¥	0	¥	0
Additions to the allowance for credit losses on available-for-sale debt securities for which credit losses were not previously recorded		120		120

Ending	¥	120	¥	120

The following tables provide information about

available-for-sale

debt securities with gross unrealized losses (including allowance for credit losses) and the length of time that individual securities have been in a continuous unrealized loss position as of March 31, 2020 and 2021, respectively:

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ORIX Corporation and Subsidiaries

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	)

March 31, 2021


	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	¥	475,023	¥	(21,472	)	¥	264,105	¥	(10,177	)	¥	739,128	¥	(31,649	)
Japanese prefectural and foreign municipal bond securities		48,367		(519	)		63,316		(2,213	)		111,683		(2,732	)
Corporate debt securities		231,552		(5,798	)		141,559		(4,938	)		373,111		(10,736	)
CMBS and RMBS in the Americas		345		(6	)		24,782		(1,754	)		25,127		(1,760	)
Other asset-backed securities and debt securities		4,296		(112	)		29,750		(1,152	)		34,046		(1,264	)

	¥	759,583	¥	(27,907	)	¥	523,512	¥	(20,234	)	¥	1,283,095	¥	(48,141	)

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ORIX Corporation and Subsidiaries

The following table provides information about

available-for-sale

debt securities with gross unrealized losses for which allowance for credit losses were not recorded and the length of time that individual securities have been in a continuous unrealized loss position as of March 31, 2021:

March 31, 2021


	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	¥	475,023	¥	(21,472	)	¥	264,105	¥	(10,177	)	¥	739,128	¥	(31,649	)
Japanese prefectural and foreign municipal bond securities		45,486		(399	)		63,316		(2,213	)		108,802		(2,612	)
Corporate debt securities		231,552		(5,798	)		141,559		(4,938	)		373,111		(10,736	)
CMBS and RMBS in the Americas		345		(6	)		24,782		(1,754	)		25,127		(1,760	)
Other asset-backed securities and debt securities		4,296		(112	)		29,750		(1,152	)		34,046		(1,264	)

	¥	756,702	¥	(27,787	)	¥	523,512	¥	(20,234	)	¥	1,280,214	¥	(48,021	)

The number of investment securities that were in an unrealized loss position as of March 31, 2020 and 2021 were 678 and 638, 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 March 31, 2021, the amount of accrued revenues on

available-for-sale

debt securities was ¥7,374 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 March 31, 2021.

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.

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

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ORIX Corporation and Subsidiaries

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.

Credit losses related to

available-for-sale

debt securities recognized for fiscal 2021 were resulting from foreign municipal bond securities due to a decrease in the occupancy rate of the underlying assets. The evaluation of credit losses with

available-for-sale

debt securities is compared to the amortized cost of debt securities with the present value of cash flows estimated based on a number of overall conditions, including estimated fair value of the underlying receivables and the repayment priority of the securities. Because the Company and its subsidiaries do not intend to sell the debt security or it is more likely than not that the Company and its subsidiaries will be required to sell the debt security before recovery of its amortized cost basis, the Company and its subsidiaries recognized the allowance for credit losses.

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.

The other-than-temporary impairment losses recognized in other comprehensive income (loss) and earnings for fiscal 2019 and 2020 are as follows:


	Millions of yen
	2019			2020
Total other-than-temporary impairment losses	¥	1,359		¥	0
Portion of loss recognized in other comprehensive income (before taxes)		(136	)		0

Net Impairment losses recognized in earnings	¥	1,223		¥	0

During fiscal 2019, other-than-temporary impairment losses related to debt securities are recognized mainly on certain foreign municipal bond securities and certain other asset-backed securities. These securities have experienced credit losses due to deterioration in utilization rates and a decline in value of the underlying assets. The credit loss assessment is made by comparing the securities’ amortized cost basis with the portion of the estimated fair value of the underlying assets available to repay the specified bonds, or with the present value of the expected cash flows from the mortgage-backed securities, that were estimated based on a number o

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ORIX Corporation and Subsidiaries

assumptions such as seniority of the security. Because the Company and its subsidiaries do not intend to sell the investments and it is not more likely than not that the Company and its subsidiaries will be required to sell the investments before recovery of their amortized cost basis, the credit loss component is recognized in earnings, and the non-credit loss component is recognized in other comprehensive income (loss), net of applicable income taxes.

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.

During fiscal 2019, 2020 and 2021, the amount of installment loans that has been derecognized due to new securitization and transfer of loans were ¥475,904 million, ¥643,422 million and ¥1,306,495 million, respectively. For fiscal 2019, 2020 and 2021, gains (losses) from the securitization and transfer of loans were ¥16,342 million, ¥20,635 million and ¥36,624 million, respectively, which is included in finance revenues in the consolidated

statements of income.

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ORIX Corporation and Subsidiaries

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 during fiscal 2020 and 2021 are as follows:


	Millions of yen
	2020			2021
Beginning balance	¥	31,572		¥	57,705
Increase mainly from loans sold with servicing retained ?		33,061			17,434
Decrease mainly from amortization		(6,229	)		(12,597	)
Increase (Decrease) from the effects of changes in foreign exchange rates		(699	)		1,212

Ending balance	¥	57,705		¥	63,754

*	Increase mainly from loans sold with servicing retained includes increases in connection with acquisitions of subsidiaries.

The fair value of the servicing assets as of March 31, 2020 and 2021 are as follows:


	Millions of yen
	March 31, 2020		March 31, 2021
Beginning balance	¥	39,846	¥	60,419
Ending balance	¥	60,419	¥	74,135

14. 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.

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ORIX Corporation and Subsidiaries

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.

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

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ORIX Corporation and Subsidiaries

March 31, 2021


	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		1,996		0		0		0
(c) VIEs for acquisition of real estate for the Company and its subsidiaries’ real estate-related business		63,935		12,977		17,923		3,720
(d) VIEs for corporate rehabilitation support business		431		158		0		0
(e) VIEs for investment in securities		104,364		316		35		0
(f) VIEs for securitizing financial assets such as finance lease receivable and loan receivable		266,662		158,620		266,662		828
(g) VIEs for securitization of loan receivable originated by third parties		511		992		511		0
(h) VIEs for power generation projects		304,064		226,224		285,149		35,194
(i) Other VIEs		171,344		67,346		144,260		0

Total	¥	913,307	¥	466,633	¥	714,540	¥	39,742

*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.

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

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ORIX Corporation and Subsidiaries

March 31, 2021


	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	¥	27,273	¥	1,255	¥	991	¥	2,246
(b) VIEs for acquisition of real estate and real estate development projects for customers		317,027		6,905		4,884		11,789
(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		4,108,847		0		56,818		75,607
(f) VIEs for securitizing financial assets such as finance lease receivable and loan receivable		709		0		2		2
(g) VIEs for securitization of loan receivable originated by third parties		1,485,653		0		18,268		18,271
(h) VIEs for power generation projects		10,103		0		442		442
(i) Other VIEs		370,516		2,845		10,101		12,946

Total	¥	6,320,128	¥	11,005	¥	91,506	¥	121,303

*	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.

(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.

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 other assets in the Company’s consolidated balance sheets.

(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.

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ORIX Corporation and Subsidiaries

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.

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.

(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.

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ORIX Corporation and Subsidiaries

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. 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 and its subsidiaries have, are included in restricted cash in the Company’s consolidated balance sheets.

(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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

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.

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ORIX Corporation and Subsidiaries

15. Investment in Affiliates

Investment in affiliates at March 31, 2020 and 2021 consists of the following:


	Millions of yen
	2020		2021
Shares	¥	770,750	¥	853,937
Loans and others		50,912		33,827

	¥	821,662	¥	887,764

Certain affiliates are listed on stock exchanges. The aggregate investment in and quoted market value of those affiliates amounted to ¥153,868 million and ¥166,296 million, respectively, as of March 31, 2020 and ¥136,755 million and ¥169,928 million, respectively, as of March 31, 2021.

In fiscal 2019, 2020 and 2021, the Company and its subsidiaries received dividends from affiliates of ¥17,334 million, ¥38,372 million and ¥15,416 million, respectively.

In the Company’s consolidated balance sheets, the book value of investment in affiliates over the underlying equity in the net assets of such affiliates as of date of the most recent available financial statements of the investees were ¥81,182 million and ¥131,600 million as of March 31, 2020 and 2021, respectively.

The basis differences mainly consist of goodwill and fair value adjustments for fixed assets. The basis differences would be amortized and adjusted for impairment, if any, and the changes in the differences are included in equity in net income of affiliates.

Companies comprising a significant portion of investment in affiliates were Avolon Holdings Limited (30% of equity share) and Kansai Airports (40% of equity share) as of March 31, 2020 and 2021.

Combined and condensed information relating to the affiliates for fiscal 2019, 2020 and 2021 are as follows (some operation data for entities reflect only the period since the Company and its subsidiaries made the investment and on a lag basis):


	Millions of yen
	2019		2020		2021
Operations:
Total revenues	¥	1,606,565	¥	1,674,184	¥	1,155,974
Income before income taxes		187,203		206,637		85,667
Net income		114,271		140,540		74,008

Financial position:
Total assets	¥	11,473,689	¥	12,499,794	¥	12,858,129
Total liabilities		7,542,997		8,428,007		9,203,980
Total equity		3,930,692		4,071,787		3,654,149

The Company and its subsidiaries had no significant transactions with these companies except as described above.

F-9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries


	Millions of yen
	Aircraft and Ships			ORIX USA			ORIX Europe			Asia and Australia			Total
Balance at March 31, 2018
Goodwill	¥	587		¥	65,692		¥	132,166		¥	8,033		¥	381,581
Accumulated impairment losses		(587	)		0			0			(2,785	)		(12,956	)
		0			65,692			132,166			5,248			368,625
Acquired		0			44,897			0			0			72,466
Impairment		0			0			0			0			0
Other (net)*		0			3,212			(6,035	)		(122	)		(10,412	)

Balance at March 31, 2019
Goodwill		587			113,801			126,131			7,911			434,927
Accumulated impairment losses		(587	)		0			0			(2,785	)		(4,248	)
		0			113,801			126,131			5,126			430,679
Acquired		0			17,846			0			0			46,522
Impairment		0			0			0			0			0
Other (net)*		0			(2,401	)		(8,178	)		(521	)		(33,383	)

Balance at March 31, 2020
Goodwill		587			129,246			117,953			7,390			448,066
Accumulated impairment losses		(587	)		0			0			(2,785	)		(4,248	)
		0			129,246			117,953			4,605			443,818
Acquired		0			0			11,697			0			59,186
Impairment		0			(1,494	)		0			0			(1,506	)
Other (net)*		0			566			10,847			402			(6,222	)

Balance at March 31, 2021
Goodwill		587			129,812			140,497			7,792			501,030
Accumulated impairment losses		(587	)		(1,494	)		0			(2,785	)		(5,754	)

	¥	0		¥	128,318		¥	140,497		¥	5,007		¥	495,276

Note:

Since April 1, 2020, our reportable segments have been reorganized and the amounts for the previous fiscal years have been retrospectively reclassified. For further information about the reorganization, see Note 34 “Segment Information.”

*	Other includes foreign currency translation adjustments, decreases due to sale of ownership interest in subsidiaries and certain other reclassifications.

As a result of the impairment test, the Company and its subsidiaries recognized no impairment losses on goodwill during fiscal 2019 and 2020. The Company and its subsidiaries recognized impairment losses on goodwill of ¥12 million in Corporate Financial Services and Maintenance Leasing segment, and ¥1,494 million in ORIX USA segment during fiscal 2021. These impairment losses are accounted in other (income) and expense. The fair values of these reporting units were measured using mainly discounted cash flow methodologies and business enterprise value multiples methodologies.

F-9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

Other intangible assets at March 31, 2020 and 2021 consist of the following:


	Millions of yen
	2020			2021
Indefinite-lived intangible assets:
Trade names	¥	69,321		¥	67,888
Asset management contracts		141,069			161,081
Others		4,192			5,312

		214,582			234,281

Intangible assets subject to amortization:
Software		119,666			129,695
Customer relationships		137,923			155,807
Others		88,189			90,354

		345,778			375,856
Accumulated amortization		(155,868	)		(184,589	)

Net		189,910			191,267

	¥	404,492		¥	425,548

The aggregate amortization expenses for intangible assets are ¥31,752 million, ¥32,189 million and ¥28,748 million in fiscal 2019, 2020 and 2021, respectively.

The estimated amortization expenses for each of five succeeding fiscal years are ¥30,129 million in fiscal 2022, ¥25,434 million in fiscal 2023, ¥21,525 million in fiscal 2024, ¥17,983 million in fiscal 2025 and ¥14,747 million in fiscal 2026, respectively.

Intangible assets subject to amortization increased during fiscal 2021 are ¥38,325 million. They mainly consist of ¥13,693 million of software and ¥19,304 million of customer relationships recognized in acquisitions. The weighted average amortization periods for the software and the customer relationships recognized in acquisitions are 5 years and 17 years, respectively.

As a result of the impairment test, the Company and its subsidiaries recognized impairment losses of ¥606 million on intangible assets included in Aircraft and Ships segment during fiscal 2019. The Company and its subsidiaries recognized impairment losses of ¥329 million on intangible assets included in Corporate Financial Services and Maintenance Leasing segment during fiscal 2020. The Company and its subsidiaries recognized impairment losses of ¥2 million on intangible assets included in Corporate Financial Services and Maintenance Leasing segment, ¥217 million on intangible assets included in Real Estate segment, ¥4 million on intangible assets included in PE Investment and Concession segment, ¥2 million on intangible assets included in Environment and Energy segment, ¥505 million on intangible assets included in Aircraft and Ships segment, and ¥414 million on intangible assets included in ORIX USA segment during fiscal 2021. The impairment losses for fiscal 2019 and 2021 are included in other (income) and expense in the consolidated statements of income, and the impairment losses for fiscal 2020 are included in selling, general and administrative expenses in the consolidated statements of income. These impairment losses are recognized due to the reduction in the estimated future cash flow, which brought the fair values of the intangible assets below its carrying amount. The fair values of these intangible assets were measured using mainly discounted cash flow methodologies.

F-9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

17. Short-Term and Long-Term Debt

Short-term debt consists of borrowings from financial institutions and commercial paper.

The composition of short-term debt and the weighted average contract interest rate on short-term debt at March 31, 2020 and 2021 are as follows:

March 31, 2020


	Millions of yen		Weighted average rate
Short-term debt in Japan, mainly from banks	¥	131,822		1.0	%
Short-term debt outside Japan, mainly from banks		187,300		2.2
Commercial paper in Japan		12,998		0.1
Commercial paper outside Japan		4,712		2.6

	¥	336,832		1.7

March 31, 2021


	Millions of yen		Weighted average rate
Short-term debt in Japan, mainly from banks	¥	81,726		0.3	%
Short-term debt outside Japan, mainly from banks		209,852		1.9
Medium-term note outside Japan		1,336		3.0
Commercial paper in Japan		12,999		0.0
Commercial paper outside Japan		1,356		1.0

	¥	307,269		1.4

The composition of long-term debt, the weighted average contract interest rate on long-term debt and the repayment due dates at March 31, 2020 and 2021 are as follows:

March 31, 2020


	Due (Fiscal Year)		Millions of yen		Weighted average rate
Banks:
Fixed rate		2021~2037	¥	463,599		1.2	%
Floating rate		2021~2077		1,957,105		1.5
Insurance companies and others:
Fixed rate		2022~2037		336,821		1.2
Floating rate		2021~2077		336,949		1.8
Unsecured bonds		2022~2080		845,938		1.7
Unsecured notes under medium-term note program		2021~2027		176,802		3.1
Payables under securitized lease receivables		2021~2021		4,322		0.2
Payables under securitized loan receivables and investment in securities		2022~2039		157,818		2.2

			¥	4,279,354		1.6

F-9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

March 31, 2021


	Due (Fiscal Year)		Millions of yen		Weighted average rate
Banks:
Fixed rate		2022~2037	¥	519,858		1.2	%
Floating rate		2022~2077		2,038,098		0.8
Insurance companies and others:
Fixed rate		2023~2039		328,790		0.8
Floating rate		2023~2077		302,337		0.6
Unsecured bonds		2023~2081		927,088		1.5
Unsecured notes under medium-term note program		2023~2027		141,296		3.1
Payables under securitized loan receivables and investment in securities		2022~2043		159,366		3.2

			¥	4,416,833		1.1

The repayment schedule for the next five years and thereafter for long-term debt at March 31, 2021 is as follows:


Years ending March 31,	Millions of yen
2022	¥	704,742
2023		646,866
2024		654,121
2025		513,130
2026		371,855
Thereafter		1,526,119

Total	¥	4,416,833

Borrowings with floating rate from banks, insurance companies and others include the amount of ¥94,000 million of subordinated syndicated loan (hybrid loan executed in fiscal 2017, whose maturity date is fiscal 2077), of which ¥60,000 million and ¥34,000 million may be repaid after 5 years, and 7 years respectively.

Unsecured bonds include the amount of ¥150,000 million of unsecured subordinated bonds with interest payment deferrable clauses and optional early redemption conditions (hybrid bonds). Out of this amount, ¥100,000 million was executed in fiscal 2020, and will mature in fiscal 2080, of which ¥60,000 million and ¥40,000 million may be redeemed after 5 years, and 10 years respectively. ¥

50,000

million was executed in fiscal 2021, and will mature in fiscal 2081, of which

¥29,000 million and ¥21,000 million may be redeemed after 5 years, and 10 years respectively.

For borrowings from banks, insurance companies and other financial institutions, for bonds, and for medium-term notes, principal repayments are made upon maturity of the loan contracts and interest payments are usually paid semi-annually.

During fiscal 2019, 2020 and 2021, the Company and certain subsidiaries recognized net amortization expenses of premiums and discounts of bonds and medium-term notes, and deferred issuance costs of bonds and medium-term notes in the amount of ¥1,005 million, ¥989 million and ¥1,010 million, respectively.

F-9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

Total committed credit lines for the Company and its subsidiaries were ¥569,862 million and ¥612,737 million at March 31, 2020 and 2021, respectively, and, of these lines, ¥427,564 million and ¥524,451 million were available at March 31, 2020 and 2021, respectively. Of the available committed credit lines, ¥293,424 million and ¥465,104 million were long-term committed credit lines at March 31, 2020 and 2021, respectively.

The agreements related to debt payable to banks provide that the banks under certain circumstances may request additional security for loans and have the right to offset cash deposited against any short-term or long-term debt that becomes due and, in case of default and certain other specified events, against all other debt payable to the banks.

Other than the assets of the consolidated VIEs pledged as collateral for financing (see Note 14 “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, 2021:


	Millions of yen
Lease payments, loans and investment in operating leases	¥	125,196
Investment in securities		172,503
Property under facility operations		27,125
Other assets and other		14,026

	¥	338,850

As of March 31, 2021, debt liabilities w

secured by shares of subsidiaries of ¥226,987 million, which were eliminated through consolidation adjustment, and debt liabilities of affiliates were secured by investment in affiliates of ¥50,538 million. As of March 31, 2021, debt liabilities were secured by loans to subsidiaries, which were eliminated through consolidation adjustment, of ¥10,101 million. In addition, ¥73,191 million was pledged primarily by investment in securities for collateral deposits and deposit for real estate transaction as of March 31, 2021.

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 March 31, 2021.

18. Deposits

Deposits at March 31, 2020 and 2021 consist of the following:


	Millions of yen
	2020		2021
Time deposits	¥	1,752,755	¥	1,860,253
Other deposits		478,948		457,532

Total	¥	2,231,703	¥	2,317,785

The balances of time deposits and certificates of deposit issued in amounts of ¥10 million or more were ¥1,064,398 million and ¥1,012,834 million at March 31, 2020 and 2021, respectively.

F-9

Reconciliations of the differences between the tax provision computed at the statutory rate and the consolidated provision for income taxes in fiscal 2019, 2020 and 2021 are as follows:


	Millions of yen
	2019			2020			2021
Income before income taxes	¥	395,730		¥	412,561		¥	287,561

Tax provision computed at statutory rate	¥	124,655		¥	129,957		¥	90,582
Increases (reductions) in taxes due to:
Change in valuation allowance		(329	)		2,505			6,808
Nondeductible expenses		4,431			4,319			2,751
Nontaxable income		(15,176	)		(3,612	)		(1,629	)
Effect of lower tax rates on certain subsidiaries		(17,950	)		(24,862	)		(12,895	)
Effect of investor taxes on earnings of subsidiaries		(26,756	)		3,039			4,590
Effect of the tax law and rate changes		(1,264	)		(6,642	)		1,158
Other, net		1,080			1,133			(618	)

Provision for income taxes	¥	68,691		¥	105,837		¥	90,747

The effective income tax rate is different from the statutory tax rate primarily because of certain nondeductible expenses, nontaxable income, changes in valuation allowance, the effect of lower tax rates on certain subsidiaries, effect of investor taxes on earnings of subsidiaries, and the effect of tax law changes.

On October 26, 2018, the Company decided to acquire common shares of its domestic subsidiary, DAIKYO through a tender offer (hereinafter, “the Tender Offer”), and with the establishment of the Tender Offer, the Company decided to change the method of collecting undistributed earnings of DAIKYO from collection through a taxable transaction to collection through a tax free transaction. On December 10, 2018, the Tender Offer was concluded. Along with the establishment of the event, the Company completely reversed the deferred tax liabilities previously recorded for undistributed earnings of DAIKYO. As a result of this reversal of deferred tax liabilities, income taxes decreased by ¥27,376 million in the consolidated statement of income in fiscal 2019.

Total income tax expense recognized in fiscal 2019, 2020 and 2021 was allocated as follows:


	Millions of yen
	2019			2020			2021
Provision for income taxes	¥	68,691		¥	105,837		¥	90,747
Income tax expense (benefit) allocated to other comprehensive income (loss):
Net change of unrealized gains (losses) on investment in securities		4,013			(7,016	)		(6,212	)
Net change of debt valuation adjustments		90			340			(349	)
Net change of defined benefit pension plans		(2,864	)		448			2,615
Net change of foreign currency translation adjustments		729			10,276			(13,958	)
Net change of unrealized gains (losses) on derivative instruments		(1,258	)		(2,163	)		1,883
Adjustments to retained earnings for changes in accounting principles *		(967	)		0			(17,113	)
Other direct adjustments to shareholders’ equity		0			0			1,521

Total income tax expense	¥	68,434		¥	107,722		¥	59,134

*	The amount for fiscal 2019 reflects the tax effect of the adoption of Accounting Standards Update 2014-09 (“Revenue from Contracts with Customers”—ASC 606 (“Revenue from Contracts with Customers”)),

F-9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

Accounting Standards Update 2016-01 (“Recognition and Measurement of Financial Assets and Financial Liabilities”—ASC 825-10 (“Financial Instruments—Overall”)), and Accounting Standards Update 2016-16 (“Intra-Entity Transfers of Assets Other Than Inventory”—ASC 740 (“Income Taxes”)). The amount for fiscal 2021 reflects the tax effect of the adoption of Credit Losses Standard. For further information about Credit Losses Standard, see Note 1 “Significant Accounting and Reporting Policies (ai) New accounting pronouncements.”

The tax effects of temporary differences and carryforwards giving rise to the deferred tax assets and liabilities at March 31, 2020 and 2021 are as follows:


	Millions of yen
	2020			2021
Assets:
Net operating loss carryforwards	¥	22,471		¥	25,083
Allowance for doubtful receivables on finance leases and probable loan losses		14,557			0
Allowance for credit losses		0			25,322
Investment in securities		11,305			9,983
Accrued expenses		18,978			24,393
Investment in operating leases		11,654			12,911
Property under facility operations		8,091			8,480
Installment loans		4,353			4,392
Unrealized losses on investment in securities		4,877			7,859
Lease liabilities		78,697			85,422
Other		56,169			61,002

		231,152			264,847
Less: valuation allowance		(15,369	)		(21,560	)

		215,783			243,287
Liabilities:
Net investment in Leases		8,594			9,705
Investment in operating leases		105,667			111,102
Unrealized gains on investment in securities		4,687			2,502
Deferred insurance policy acquisition costs		62,321			69,249
Policy liabilities and policy account balances		42,949			62,274
Property under facility operations		17,352			10,183
Other intangible assets		97,383			112,234
Undistributed earnings		47,878			38,408
Prepaid benefit cost		8,837			12,187
Advances paid		10,218			11,742
Right-of-use assets		79,642			86,064
Other		31,318			19,973

		516,846			545,623

Net deferred tax liabilit y	¥	301,063		¥	302,336

Net deferred tax assets and liabilities at March 31, 2020 and 2021 are reflected in the accompanying consolidated balance sheets under the following captions:


	Millions of yen
	2020		2021
Other assets	¥	27,084	¥	38,954
Income taxes: Deferred		328,147		341,290

Net deferred tax liability	¥	301,063	¥	302,336

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

The valuation allowance is primarily recognized for deferred tax assets of consolidated subsidiaries with operating loss carryforwards. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible and operating loss carryforwards are utilizable. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax-planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company and its subsidiaries will realize the benefits of these deductible temporary differences and operating loss carryforwards, net of the existing valuation allowances at March 31, 2021. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. The net changes in the total valuation allowance were decreases of

¥1,520

million in fiscal 2019, increases of

¥2,213 million in fiscal 2020, and increases of ¥6,191

million in fiscal 2021. The decrease in the total valuation allowance recognized in earnings due to the utilization of net operating loss carryforwards were

¥2,648

million in fiscal 2019

¥890

million in fiscal 2020 and ¥553 million in fiscal 2021. The adjustments to the beginning-of-the-year amount in the total valuation allowance resulting from changes in judgment about the realizability of deferred tax assets in future years were net increases of

¥728

million in fiscal 2019 (increases of

¥1,044

million and decreases of

¥316

million on a gross basis), net decreases of

¥576

million in fiscal 2020 (increases of

¥942 million and decreases of ¥1,518

million on a gross basis), and net decreases of

¥743

million in fiscal 2021 (increases of ¥

1,032

million and decreases of ¥

1,775

million on a gross basis), respectively.

The Company and certain subsidiaries have net operating loss carryforwards of ¥226,385 million at March 31, 2021, which expire as follows:


Years ending March 31,	Millions of yen
2022	¥	7,307
2023		8,757
2024		17,895
2025		10,279
2026		24,346
Thereafter		121,639
Indefinite period		36,162

Total	¥	226,385

The unrecognized tax benefits as of March 31, 2020 and 2021 were not material. The Company and its subsidiaries do not believe that it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within 12 months of March 31, 2021.

The total amounts of penalties and interest expense related to income taxes recognized in the consolidated balance sheets as of March 31, 2020 and 2021, and in the consolidated statements of income for the fiscal 2019, 2020 and 2021 were not material.

The Company and its subsidiaries file tax returns in Japan and certain foreign tax jurisdictions. The Company is no longer subject to ordinary tax examination in Japan for the tax years prior to fiscal 2019, and its major domestic subsidiaries are no longer subject to ordinary tax examination for the tax years prior to fiscal 2016, respectively.

Subsidiaries in the United States remain subject to a tax examination for the tax years after fiscal 2016. Subsidiaries in the Netherlands remain subject to a tax examination for the tax years after fiscal 2015.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

20. 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.

The funded status of the defined benefit pension plans, which consists of Japanese plans and overseas plans, as of March 31, 2020 and 2021 are as follows:


	Millions of yen
	Japanese plans						Overseas plans
	2020			2021			2020			2021
Change in benefit obligation:
Benefit obligation at beginning of year	¥	110,661		¥	110,467		¥	107,812		¥	103,616
Service cost		5,879			5,831			3,566			3,288
Interest cost		585			698			1,634			1,711
Actuarial loss (income)		(3,935	)		(1,550	)		(2,465	)		12,550
Plan participant’s contributions		0			0			392			0
Benefits paid		(4,111	)		(4,379	)		(1,788	)		(2,013	)
Business combinations		1,399			3,087			0			0
Divestitures		—			0			(237	)		0
Plan amendments		(11	)		402			(1,126	)		121
Foreign currency exchange rate change		0			0			(4,172	)		9,300

Benefit obligation at end of year		110,467			114,556			103,616			128,573

Change in plan assets:
Fair value of plan assets at beginning of year		123,628			122,780			96,837			96,994
Actual return on plan assets		(2,790	)		11,301			3,114			13,913
Employer contribution		3,821			3,876			2,333			2,027
Plan participant’s contributions		0			0			392			0
Benefits paid		(3,429	)		(3,565	)		(1,683	)		(1,835	)
Business combinations		1,550			0			0			0
Divestitures		0			0			(187	)		0
Foreign currency exchange rate change		0			0			(3,812	)		8,759

Fair value of plan assets at end of year		122,780			134,392			96,994			119,858

The funded status of the plans	¥	12,313		¥	19,836		¥	(6,622	)	¥	(8,715	)

Amount recognized in the consolidated balance sheets consists of:
Prepaid benefit cost included in other assets	¥	24,521		¥	34,940		¥	11		¥	28
Accrued benefit liability included in other liabilities		(12,208	)		(15,104	)		(6,633	)		(8,743	)

Net amount recognize d	¥	12,313		¥	19,836		¥	(6,622	)	¥	(8,715	)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

Net pension cost of the plans for fiscal 2019, 2020 and 2021 consists of the following:


	Millions of yen
	2019			2020			2021
Japanese plans:
Service cost	¥	5,526		¥	5,879		¥	5,831
Interest cost		721			585			698
Expected return on plan assets		(2,723	)		(2,806	)		(2,427	)
Amortization of prior service credit		(897	)		(820	)		(178	)
Amortization of net actuarial loss		844			1,156			1,320
Amortization of transition obligation		—			0			0

Net periodic pension cost	¥	3,471		¥	3,994		¥	5,244

Overseas plans:
Service cost	¥	3,186		¥	3,566		¥	3,288
Interest cost		2,002			1,634			1,711
Expected return on plan assets		(4,407	)		(4,262	)		(3,618	)
Amortization of prior service credit		(174	)		(208	)		(269	)
Amortization of net actuarial loss		75			739			313
Amortization of transition obligation		7			1			1

Net periodic pension cost	¥	689		¥	1,470		¥	1,426


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.

Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss) for fiscal 2019, 2020 and 2021 are summarized as follows:


	Millions of yen
	2019			2020			2021
Japanese plans:
Current year actuarial gain (loss)	¥	(5,078	)	¥	(1,629	)	¥	10,424
Amortization of net actuarial loss		844			1,156			1,320
Prior service credit due to amendments		20			0			(402	)
Amortization of prior service credit		(897	)		(820	)		(178	)
Amortization of transition obligation		—			0			0

Total recognized in other comprehensive income (loss), pre-tax	¥	(5,111	)	¥	(1,293	)	¥	11,164

Overseas plans:
Current year actuarial gain (loss)	¥	(5,553	)	¥	1,117		¥	(2,308	)
Amortization of net actuarial loss		75			739			313
Prior service credit due to amendments		50			1,097			(10	)
Amortization of prior service credit		(174	)		(208	)		(269	)
Amortization of transition obligation		7			1			1
Foreign currency exchange rate change		496			524			(946	)

Total recognized in other comprehensive income (loss), pre-tax	¥	(5,099	)	¥	3,270		¥	(3,219	)

F-10

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

The Company and certain subsidiaries use March 31 as a measurement date for all of our material plans.

Significant assumptions of Japanese pension plans and overseas pension plans used to determine these amounts are as follows:


Japanese plans	2019			2020			2021
Weighted-average assumptions used to determine benefit obligations at March 31:
Discount rate		0.5	%		0.6	%		0.7	%
Rate of increase in compensation levels		4.4	%		4.0	%		4.0	%
Interest crediting rate for cash balance plans		1.5	%		1.5	%		1.5	%
Weighted-average assumptions used to determine net periodic pension cost for years ended March 31:
Discount rate		0.7	%		0.5	%		0.6	%
Rate of increase in compensation levels		4.6	%		4.4	%		4.0	%
Expected long-term rate of return on plan assets		2.2	%		2.2	%		2.0	%
Interest crediting rate for cash balance plans		1.5	%		1.5	%		1.5	%

Overseas plans	2019			2020			2021
Weighted-average assumptions used to determine benefit obligations at March 31:
Discount rate		1.7	%		1.7	%		1.0	%
Rate of increase in compensation levels		2.4	%		2.2	%		2.2	%
Interest crediting rate for cash balance plans		—			—			—
Weighted-average assumptions used to determine net periodic pension cost for years ended March 31:
Discount rate		2.0	%		1.7	%		1.7	%
Rate of increase in compensation levels		2.4	%		2.4	%		2.2	%
Expected long-term rate of return on plan assets		4.7	%		3.7	%		3.3	%
Interest crediting rate for cash balance plans		—			—			—

The Company and certain subsidiaries determine the expected long-term rate of return on plan assets annually based on the composition of the pension asset portfolios and the expected long-term rate of return on these portfolios. The expected long-term rate of return is designed to approximate the long-term rate of return actually earned on the plans’ assets over time to ensure that funds are available to meet the pension obligations that result from the services provided by employees. The Company and certain subsidiaries use a number of factors to determine the expected rate of return, including actual historical returns on the asset classes of the plans’ portfolios and independent projections of returns of the various asset classes.

The Company and certain subsidiaries’ investment policies are designed to ensure adequate plan assets are available to provide future payments of pension benefits to eligible participants. The Company and certain subsidiaries formulate a policy portfolio appropriate to produce the expected long-term rate of return on plan assets and to ensure that plan assets are allocated under this policy portfolio. The Company and certain subsidiaries periodically have an external consulting firm monitor the results of actual return and revise the policy portfolio if necessary.

F-10

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

The fair value of Japanese pension plan assets at March 31, 2020 and 2021, by asset category, are as follows. The three levels of input used to measure fair value are described in Note 2 “Fair Value Measurements.”


	Millions of yen
	March 31, 2020
	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)
Equity securities:
Japan
Pooled funds*1	¥	14,434	¥	0	¥	0	¥	0
Other than Japan
Pooled funds*2		15,207		0		0		0
Debt securities:
Japan
Pooled funds*3		26,133		0		0		0
Other than Japan
Pooled funds*4		33,930		0		0		0
Other assets:
Life insurance company general accounts*5		28,591		0		28,591		0
Others*6		4,485		0		4,485		0

	¥	122,780	¥	0	¥	33,076	¥	0

*1	These funds invest in listed shares including shares of ORIX Corporation in the amounts of ¥17 million at March 31, 2020.

*2	These funds invest in listed shares.

*3	These funds invest approximately 70% in Japanese government bonds, approximately 10% in Japanese municipal bonds, and approximately 20% in Japanese corporate bonds. These funds include corporate bonds of ORIX Corporation in the amounts of ¥1,192 million at March 31, 2020.

*4	These funds invest entirely in foreign government bonds.

*5	Life insurance company general accounts are accounts with guaranteed capital and minimum interest rate, in which life insurance companies manage funds on several contracts.

*6	Others include derivative instruments held for hedging change in the fair value of equity securities, and short-term instruments.

At March 31, 2020, our policy for the portfolio of plans consists of three major components: approximately 20% is invested in equity securities, approximately 50% is invested in debt securities and approximately 30% is invested in other assets, primarily consisting of investments in life insurance company general accounts.

F-10

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

Level 2 assets are comprised principally of investments in life insurance company general accounts. Investments in life insurance company general accounts are valued at conversion value. Pooled funds are valued at the net asset value per share at the measurement date and they have not been classified in the fair value hierarchy.


	Millions of yen
	March 31, 2021
	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)
Equity securities:
Japan
Pooled funds*1	¥	17,823	¥	0	¥	0	¥	0
Other than Japan
Pooled funds*2		22,231		0		0		0
Debt securities:
Japan
Pooled funds*3		24,127		0		0		0
Other than Japan
Pooled funds*4		36,386		0		0		0
Other assets:
Life insurance company general accounts*5		28,977		0		28,977		0
Others*6		4,848		0		4,848		0

	¥	134,392	¥	0	¥	33,825	¥	0

*1	These funds invest in listed shares including shares of ORIX Corporation in the amounts of ¥22 million at March 31, 2021.

*2	These funds invest in listed shares.

*3	These funds invest approximately 70% in Japanese government bonds, approximately 10% in Japanese municipal bonds, and approximately 20% in Japanese corporate bonds. These funds include corporate bonds of ORIX Corporation in the amounts of ¥51 million at March 31, 2021.

*4	These funds invest approximately 90% in foreign government bonds and approximately 10% in foreign corporate bonds.

*5	Life insurance company general accounts are accounts with guaranteed capital and minimum interest rate, in which life insurance companies manage funds on several contracts.

*6	Others include derivative instruments held for hedging change in the fair value of equity securities, and short-term instruments.

At March 31, 2021, our policy for the portfolio of plans consists of three major components: approximately 30% is invested in equity securities, approximately 50% is invested in debt securities and approximately 20% is invested in other assets, primarily consisting of investments in life insurance company general accounts.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

Each level into which assets are categorized is based on inputs used to measure the fair value of the assets. Level 1 assets are comprised principally of equity securities and debt securities, which are valued using unadjusted quoted market prices in active markets with sufficient volume and frequency of transactions. Level 2 assets are comprised principally of debt securities and investments in life insurance company general accounts. Investments in life insurance company general accounts are valued at conversion value. Pooled funds are valued at the net asset value per share at the measurement date and they have not been classified in the fair value hierarchy


	Millions of yen
	March 31, 2021
	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)
Equity securities:
Other than Japan
Shares	¥	58,483	¥	58,483	¥	0	¥	0
Pooled funds*1		617		0		0		0
Debt securities:
Other than Japan
Government bonds		52,245		52,245		0		0
Municipal bonds		4,589		0		4,589		0
Other assets:
Life insurance company general accounts*2		325		0		325		0
Others*3		3,599		0		3,599		0

	¥	119,858	¥	110,728	¥	8,513	¥	0

*1	These funds invest in listed shares.

*2	Life insurance company general accounts are accounts with guaranteed capital and minimum interest rate, in which life insurance companies manage funds on several contracts.

*3	Others include derivative instruments held for hedging change in the fair value of equity securities, and short-term instruments.

At March 31, 2021, our policy for the portfolio of plans consists of two major components: approximately

% is invested in equity securities and approximately

% is invested in debt securities.

The Company and certain subsidiaries expect to contribute ¥3,897 million to its Japanese pension plans and ¥2,170 million to its overseas pension plans during the year ending March 31, 2022.

F-10

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

At March 31, 2021, the benefits expected to be paid in each of the next five fiscal years, and in the aggregate for the five years thereafter are as follows:


	Millions of yen
Years ending March 31,	Japanese plans		Overseas plans
2022	¥	3,436	¥	1,670
2023		3,237		1,754
2024		3,486		1,801
2025		3,705		1,841
2026		3,875		1,891
2027-2031		21,927		11,572

Total	¥	39,666	¥	20,529

The cost recognized for Japanese defined contribution pension plans of the Company and certain of its subsidiaries for fiscal 2019, 2020 and 2021 were ¥1,728 million, ¥1,779 million and ¥1,873 million, respectively. The cost recognized for overseas defined contribution pension plans of the Company and certain of its subsidiaries for fiscal 2019, 2020 and 2021 were ¥2,504 million, ¥2,320 million and ¥2,446 million, respectively.

21. Redeemable Noncontrolling Interests

Changes in redeemable noncontrolling interests in fiscal 2019, 2020 and 2021 are as follows:


	Millions of yen
	2019			2020			2021
Beginning Balance	¥	7,420		¥	9,780		¥	10,331
Adjustment of redeemable noncontrolling interests to redemption value		2,131			0			0
Transaction with noncontrolling interests		0			653			(10,028	)
Comprehensive income (loss)
Net Income (loss)		404			384			(23	)
Other comprehensive income (loss)
Net change of foreign currency translation adjustments		326			(197	)		(280	)
Total other comprehensive income (loss)		326			(197	)		(280	)
Comprehensive income (loss)		730			187			(303	)
Dividends		(501	)		(289	)		0

Ending Balance	¥	9,780		¥	10,331		¥	0

22. Stock-Based Compensation

The Company has a number of stock-based compensation plans as incentive plans for directors, executive officers, corporate auditors and selected employees.

Stock-option program

Since fiscal 2010, the Company has not granted stock options, and there are no outstanding stock options and exercisable stock options as of March 31, 2020 and 2021.

F-1

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

In fiscal 2019, 2020 and 2021, the Company did

t recognize any stock-based compensation costs of its stock-option program. As of March 31, 2021, the Company had no unrecognized compensation costs.

The Company received ¥225 million in cash from the exercise of stock options during fiscal 2019.

The total intrinsic value of options exercised during fiscal 2019 was ¥25 million.

There are no stock options exercised during fiscal 2020 and 2021.

Stock compensation program

The Company maintains a stock compensation program for directors, executive officers and group executives of the Company. In July 2014, the Company changed the way of provision of the compensation for retiree to provide these shares through the Board Incentive Plan Trust by a resolution of the Compensation Committee. The Board Incentive Plan Trust purchases the Company’s common shares including future granting shares by an entrusted fund which the Company set in advance. The Company holds those shares as entrusted assets, separately from other treasury stock which the Company holds.

Under the program, points are granted annually to directors, executive officers and group executives of the Company based upon the prescribed standards of the Company. Upon retirement, eligible directors, executive officers and group executives receive a certain number of the Company’s common shares calculated by translating each point earned by that retiree to one common share.

In fiscal 2021, the Company granted 427,916 points, and 204,680 points were settled for individuals who retired during fiscal 2021. Total points outstanding under the stock compensation program as of March 31, 2021 were 1,612,840 points. The points were adjusted for the

10-for-1

stock split implemented on April 1, 2013.

During fiscal 2019, 2020 and 2021, the Company recognized stock-based compensation costs of its stock compensation program in the amount of ¥413 million, ¥417 million and ¥885 million, respectively.

F-11

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

23. Accumulated Other Comprehensive Income (Loss)

Changes in each component of accumulated other comprehensive income (loss) attributable to ORIX Corporation Shareholders in fiscal 2019, 2020 and 2021 are as follows:


	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, 2018	¥	10,465		¥	0		¥	(20,487	)	¥	(31,806	)	¥	(3,738	)	¥	(45,566	)

Cumulative effect of adopting Accounting Standards Update 2016-01		(3,250	)		351			0			0			0			(2,899	)

Balance at April 1, 2018		7,215			351			(20,487	)		(31,806	)		(3,738	)		(48,465	)

Net unrealized gains (losses) on investment in securities, net of tax of ¥(4,693) million		12,169															12,169
Reclassification adjustment included in net income, net of tax of ¥680 million		(1,954	)														(1,954	)
Debt valuation adjustments, net of tax of ¥(101) million					258												258
Reclassification adjustment included in net income, net of tax of ¥11 million					(27	)											(27	)
Defined benefit pension plans, net of tax of ¥2,821 million								(7,244	)								(7,244	)
Reclassification adjustment included in net income, net of tax of ¥43 million								(102	)								(102	)
Foreign currency translation adjustments, net of tax of ¥(729) million											(11,540	)					(11,540	)
Reclassification adjustment included in net income, net of tax of ¥0 million											3						3
Net unrealized gains (losses) on derivative instruments, net of tax of ¥1,393 million														(4,621	)		(4,621	)
Reclassification adjustment included in net income, net of tax of ¥(135) million														503			503

Total other comprehensive income (loss)		10,215			231			(7,346	)		(11,537	)		(4,118	)		(12,555	)

Transaction with noncontrolling interests		0			0			(126	)		23			0			(103	)

Less: Other Comprehensive Income (Loss) Attributable to the Noncontrolling Interest		41			0			(57	)		(88	)		(2	)		(106	)

Less: Other Comprehensive Income Attributable to the Redeemable Noncontrolling Interests		0			0			0			326			0			326

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 ¥5,078 million		(17,637	)														(17,637	)
Reclassification adjustment included in net income, net of tax of ¥1,938 million		(4,819	)														(4,819	)
Debt valuation adjustments, net of tax of ¥(357) million					920												920
Reclassification adjustment included in net income, net of tax of ¥17 million					(45	)											(45	)
Defined benefit pension plans, net of tax of ¥(223) million								886									886
Reclassification adjustment included in net income, net of tax of ¥(225) million								643									643
Foreign currency translation adjustments, net of tax of ¥(6,212) million											(40,605	)					(40,605	)
Reclassification adjustment included in net income, net of tax of ¥(4,064) million											8,941						8,941
Net unrealized gains (losses) on derivative instruments, net of tax of ¥1,511 million														(6,385	)		(6,385	)
Reclassification adjustment included in net income, net of tax of ¥652 million														(2,171	)		(2,171	)

Total other comprehensive income (loss)		(22,456	)		875			1,529			(31,664	)		(8,556	)		(60,272	)

Transaction with noncontrolling interests		0			0			0			4			(2	)		2

Less: Other Comprehensive Income (Loss) Attributable to the Noncontrolling Interests		(66	)		0			2			(2,550	)		(270	)		(2,884	)

Less: Other Comprehensive Income (Loss) Attributable to the Redeemable Noncontrolling Interests		0			0			0			(197	)		0			(197	)

Balance at March 31, 2020	¥	(5,001	)	¥	1,457		¥	(26,375	)	¥	(72,471	)	¥	(16,142	)	¥	(118,532	)

F-11

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries


	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 ¥5,702 million		(11,188	)														(11,188	)
Reclassification adjustment included in net income, net of tax of ¥510 million		6															6
Debt valuation adjustments, net of tax of ¥321 million					(826	)											(826	)
Reclassification adjustment included in net income, net of tax of ¥28 million					(73	)											(73	)
Defined benefit pension plans, net of tax of ¥(2,247) million								4,511									4,511
Reclassification adjustment included in net income, net of tax of ¥(368) million								819									819
Foreign currency translation adjustments, net of tax of ¥14,709 million											32,180						32,180
Reclassification adjustment included in net income, net of tax of ¥(751) million											4,066						4,066
Net unrealized gains (losses) on derivative instruments, net of tax of ¥40 million														(997	)		(997	)
Reclassification adjustment included in net income, net of tax of ¥(1,923) million														5,779			5,779

Total other comprehensive income (loss)		(11,182	)		(899	)		5,330			36,246			4,782			34,277

Less: Other Comprehensive Income Attributable to the Noncontrolling Interests		25			0			28			511			111			675

Less: Other Comprehensive Income (Loss) Attributable to the Redeemable Noncontrolling Interests		0			0			0			(280	)		0			(280	)

Balance at March 31, 2021*	¥	(16,208	)	¥	558		¥	(21,073	)	¥	(36,456	)	¥	(11,471	)	¥	(84,650	)

*	As of March 31, 2021, there were no net unrealized gains (losses) on investment in securities related to available-for-sale debt securities with allowance for credit losses.

F-11

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

Amounts reclassified to net income from accumulated other comprehensive income (loss) for fiscal 2019, 2020 and 2021 are as follows:


	March 31, 2019
Details about accumulated other comprehensive income components	Reclassification adjustment included in net income			Consolidated statements of income caption
	Millions of yen
Net unrealized gains (losses) on investment in securities
Sales of debt securities	¥	3,460		Gains on investment securities and dividends
Sales of debt securities		1,573		Life insurance premiums and related investment income
Amortization of debt securities		(1,030	)	Finance revenues
Amortization of debt securities		(146	)	Life insurance premiums and related investment income
Others		(1,223	)	Write-downs of securities and other

		2,634		Total before income tax
		(680	)	Income tax (expense) or benefit

	¥	1,954		Net of tax

Debt valuation adjustments
Fulfillment of policy liabilities and amortization of policy account balances	¥	38		Life insurance costs

		38		Total before income tax
		(11	)	Income tax (expense) or benefit

	¥	27		Net of tax

Defined benefit pension plans
Amortization of prior service credit	¥	1,071		See Note 20 “Pension Plans”
Amortization of net actuarial loss		(919	)	See Note 20 “Pension Plans”
Amortization of transition obligation		(7	)	See Note 20 “Pension Plans”

		145		Total before income tax
		(43	)	Income tax (expense) or benefit

	¥	102		Net of tax

Foreign currency translation adjustments
Sales or liquidation	¥	(3	)	Gains on sales of subsidiaries and affiliates and liquidation losses, net

		(3	)	Total before income tax
		0		Income tax (expense) or benefit

	¥	(3	)	Net of tax

Net unrealized gains (losses) on derivative instruments
Interest rate swap agreements	¥	157		Finance revenues/Interest expense
Foreign exchange contracts		(156	)	Other (income) and expense
Foreign currency swap agreements		(639	)	Finance revenues/Interest expense/ Other (income) and expense

		(638	)	Total before income tax
		135		Income tax (expense) or benefit

	¥	(503	)	Net of tax

F-11

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries


	March 31, 2020
Details about accumulated other comprehensive income components	Reclassification adjustment included in net income			Consolidated statements of income caption
	Millions of yen
Net unrealized gains (losses) on investment in securities
Sales of debt securities	¥	2,366		Gains on investment securities and dividends
Sales of debt securities		6,710		Life insurance premiums and related investment income
Amortization of debt securities		(1,425	)	Finance revenues
Amortization of debt securities		(894	)	Life insurance premiums and related investment income

		6,757		Total before income tax
		(1,938	)	Income tax (expense) or benefit

	¥	4,819		Net of tax

Debt valuation adjustments
Fulfillment of policy liabilities and amortization of policy account balances	¥	62		Life insurance costs

		62		Total before income tax
		(17	)	Income tax (expense) or benefit

	¥	45		Net of tax

Defined benefit pension plans
Amortization of prior service credit	¥	1,028		See Note 20 “Pension Plans”
Amortization of net actuarial loss		(1,895	)	See Note 20 “Pension Plans”
Amortization of transition obligation		(1	)	See Note 20 “Pension Plans”

		(868	)	Total before income tax
		225		Income tax (expense) or benefit

	¥	(643	)	Net of tax

Foreign currency translation adjustments
Foreign exchange contracts	¥	(5,760	)	Gains on sales of subsidiaries and affiliates and liquidation losses, net/Interest expense/Write-downs of securities
Sales or liquidation, other		(7,245	)	Gains on sales of subsidiaries and affiliates and liquidation losses, net/Write-downs of securities

		(13,005	)	Total before income tax
		4,064		Income tax (expense) or benefit

	¥	(8,941	)	Net of tax

Net unrealized gains (losses) on derivative instruments
Interest rate swap agreements	¥	(775	)	Interest expense
Foreign exchange contracts		(338	)	Interest expense/Other (income) and expense
Foreign currency swap agreements		3,936		Interest expense/Other (income) and expense

		2,823		Total before income tax
		(652	)	Income tax (expense) or benefit

	¥	2,171		Net of tax

F-11

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries


	March 31, 2021
Details about accumulated other comprehensive income components	Reclassification adjustment included in net income			Consolidated statements of income caption
	Millions of yen
Net unrealized gains (losses) on investment in securities
Sales of debt securities	¥	2,473		Gains on investment securities and dividends
Sales of debt securities		5,433		Life insurance premiums and related investment income
Amortization of debt securities		(1,468	)	Finance revenues
Amortization of debt securities		(1,340	)	Life insurance premiums and related investment income
Others		(4,594	)	Write-downs of securities

		504		Total before income tax
		(510	)	Income tax (expense) or benefit

	¥	(6	)	Net of tax

Debt valuation adjustments
Fulfillment of policy liabilities and amortization of policy account balances	¥	101		Life insurance costs

		101		Total before income tax
		(28	)	Income tax (expense) or benefit

	¥	73		Net of tax

Defined benefit pension plans
Amortization of prior service credit	¥	447		See Note 20 “Pension Plans”
Amortization of net actuarial loss		(1,633	)	See Note 20 “Pension Plans”
Amortization of transition obligation		(1	)	See Note 20 “Pension Plans”

		(1,187	)	Total before income tax
		368		Income tax (expense) or benefit

	¥	(819	)	Net of tax

Foreign currency translation adjustments
Foreign exchange contracts	¥	(2,057	)	Gains on sales of subsidiaries and affiliates and liquidation losses, net/Interest expense/Other (income) and expense
Sales or liquidation		(2,760	)	Gains on sales of subsidiaries and affiliates and liquidation losses, net

		(4,817	)	Total before income tax
		751		Income tax (expense) or benefit

	¥	(4,066	)	Net of tax

Net unrealized gains (losses) on derivative instruments
Interest rate swap agreements	¥	(1,522	)	Interest expense
Foreign exchange contracts		(242	)	Interest expense/Other (income) and expense
Foreign currency swap agreements		(5,938	)	Interest expense/Other (income) and expense

		(7,702	)	Total before income tax
		1,923		Income tax (expense) or benefit

	¥	(5,779	)	Net of tax

F-1

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

Comprehensive income (loss) and its components attributable to ORIX Corporation and noncontrolling interests have been reported, net of tax, in the consolidated statements of changes in equity, and information about comprehensive income (loss) and its components attributable to redeemable noncontrolling interests is provided in Note 21 “Redeemable Noncontrolling Interests.” Total comprehensive income (loss) and its components have been reported, net of tax, in the consolidated statements of comprehensive income.

24. ORIX Corporation Shareholders’ Equity

Changes in the number of shares issued in fiscal 2019, 2020 and 2021 are as follows:


	Number of shares
	2019		2020		2021
Beginning balance		1,324,495,728		1,324,629,128		1,324,629,128
Exercise of stock options		133,400		0		0
Cancellation of treasury stock		0		0		(38,904,648	)

Ending balance		1,324,629,128		1,324,629,128		1,285,724,480

The Japanese Companies Act (the “Act”) provides that an amount equivalent to 10% of any dividends resulting from appropriation of retained earnings be appropriated to the legal reserve until the aggregate amount of the additional

paid-in

capital and the legal reserve equals 25% of the issued capital. The Act also provides that both additional

paid-in

capital and the legal reserve are not available for dividends but may be capitalized or may be reduced by resolution of the general meeting of shareholders. However, if specified in the Company’s articles of incorporation, dividends can be declared by the Board of Directors instead of the general meeting of shareholders. In accordance with this, the Board of Directors of the Company resolved in May 2021 that a total of ¥52,438 million dividends shall be distributed to the shareholders of record as of March 31, 2021. The liability for declared dividends and related impact on total equity is accounted for in the period of such Board of Directors’ resolution.

The Act provides that at least

one-half

of amounts paid for new shares are included in common stock when they are issued. In conformity therewith, the Company has divided the principal amount of bonds converted into common stock and proceeds received from the issuance of common stock, including the exercise of warrants and stock acquisition rights, equally between common stock and additional

paid-in

capital, and set off expenses related to the issuance from the additional

paid-in

capital.

The amount available for dividends under the Act is calculated based on the amount recorded in the Company’s

non-consolidated

financial statements prepared in accordance with accounting principles generally accepted in Japan. As a result, the amount available for dividends is ¥754,973 million as of March 31, 2021.

Retained earnings at March 31, 2021 include ¥108,176 million relating to equity in undistributed earnings of the companies accounted for by the equity method.

As of March 31, 2021, the restricted net assets of certain subsidiaries include regulatory capital requirements mainly for banking and life insurance operations of ¥12,792 million.

F-11

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

25. Gains on Investment Securities and Dividends

Gains on investment securities and dividends in fiscal 2019, 2020 and 2021 consist of the following:


	Millions of yen
	2019		2020		2021
Net gains on investment securities	¥	14,273	¥	20,204	¥	44,622
Dividends income		1,685		2,295		1,475

	¥	15,958	¥	22,499	¥	46,097

*	Unrealized changes in fair value of investments in equity securities have been included in “Net gains on investment securities.”

26. Life Insurance Operations

Life insurance premiums and related investment income in fiscal 2019, 2020 and 2021 consist of the following:


	Millions of yen
	2019		2020		2021
Life insurance premiums	¥	330,811	¥	360,583	¥	403,799
Life insurance related investment income*		16,325		7,195		83,751

	¥	347,136	¥	367,778	¥	487,550

*	Life insurance related investment income in fiscal 2019, 2020 and 2021 include net unrealized holding losses of ¥217 million and ¥13,122 million and a gain of ¥61,351 million on equity securities held as of March 31, 2019, 2020 and 2021, respectively.

Life insurance premiums include reinsurance benefits, net of reinsurance premiums. For fiscal 2019, 2020 and 2021, reinsurance benefits and reinsurance premiums included in life insurance premiums are as follows:


	Millions of yen
	2019			2020			2021
Reinsurance benefits	¥	2,849		¥	3,268		¥	2,333
Reinsurance premiums		(5,546	)		(5,395	)		(5,196	)

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 fiscal 2019, 2020 and 2021 amounted to ¥19,592 million, ¥20,611 million and ¥21,928 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

F-11

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

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.

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 fiscal 2019, 2020 and 2021 are mainly as follows:


	Millions of yen
	2019			2020			2021
Life insurance premiums and related investment income :
Net realized and unrealized gains or losses from investment assets	¥	879		¥	(10,798	)	¥	76,470
Net gains or losses from derivative contracts :		(1,348	)		1,667			(10,271	)
Futures		(374	)		1,257			(9,412	)
Foreign exchange contracts		(350	)		8			(261	)
Options held		(624	)		402			(598	)
Life insurance costs :
Changes in the fair value of the policy liabilities and policy account balances	¥	(83,491	)	¥	(58,244	)	¥	(35,565	)
Insurance costs recognized for insurance and annuity payouts as a result of insured events		75,617			53,442			77,631
Changes in the fair value of the reinsurance contracts		2,559			(5,757	)		11,909

27. 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 2021, the long-lived assets classified as held for sale in the accompanying consolidated balance sheets are as follows.


	Millions of yen
	2020		2021
Investment in operating leases	¥	5,208	¥	8,055
Property under facility operations		436		0

F-11

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

The long-lived assets classified as held for sale as of March 31, 2020 are included in Real Estate segment and Environment and Energy segment. The long-lived assets classified as held for sale as of March 31, 2021 are included in Real Estate segment and ORIX USA segment.

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.

During fiscal 2019, 2020 and 2021, the Company and its subsidiaries recognized impairment losses for the difference between carrying amounts and fair values in the amount of ¥2,418 million, ¥3,043 million and ¥3,020 million, respectively, which are reflected as write-downs of long-lived assets. Breakdowns of these amounts are as follows.


Fiscal Year ended March 31, 2019	Write-downs of the assets held for sale				Write-downs due to decline in estimated future cash flows
Fiscal Year ended March 31, 2019	Amount (Millions of yen)		The number of properties		Amount (Millions of yen)		The number of properties
Commercial facilities other than office buildings	¥	712		1	¥	16		1
Others*		0		—		1,690		—

Total	¥	712		—	¥	1,706		—


Fiscal Year ended March 31, 2020	Write-downs of the assets held for sale				Write-downs due to decline in estimated future cash flows
Fiscal Year ended March 31, 2020	Amount (Millions of yen)		The number of properties		Amount (Millions of yen)		The number of properties
Commercial facilities other than office buildings	¥	0		—	¥	529		2
Condominiums		159		1		77		3
Land undeveloped or under construction		0		—		2,083		2
Others*		0		—		195		—

Total	¥	159		—	¥	2,884		—


Fiscal Year ended March 31, 2021	Write-downs of the assets held for sale				Write-downs due to decline in estimated future cash flows
Fiscal Year ended March 31, 2021	Amount (Millions of yen)		The number of properties		Amount (Millions of yen)		The number of properties
Office buildings	¥	0		—	¥	331		1
Commercial facilities other than office buildings		1,067		5		189		1
Condominiums		0		—		64		2
Land undeveloped or under construction		0		—		98		2
Others*		0		—		1,271		—

Total	¥	1,067		—	¥	1,953		—

*	For the “Others”, the number of properties are omitted. Write-downs of long-lived assets for fiscal 2019, 2020 and 2021 include write-downs of ¥825 million, ¥109 million and ¥1,099 million of hotels, respectively.

Breakdowns of these amounts by segment are provided in Note 34 “Segment Information.”

F-1

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

28. Per Share Data

Reconciliation of the differences between basic and diluted earnings per share (EPS) in fiscal 2019, 2020 and 2021 is as follows:

In fiscal 2019, 2020 and 2021, there

was no stock compensation which was antidilutive.


	Millions of yen
	2019		2020		2021
Net Income attributable to ORIX Corporation shareholders	¥	323,745	¥	302,700	¥	192,384


	Thousands of shares
	2019		2020		2021
Weighted-average shares		1,280,020		1,275,166		1,236,897
Effect of dilutive securities
Stock compensation		1,107		1,153		1,197

Weighted-average shares for diluted EPS computation		1,281,127		1,276,319		1,238,094


	Yen
	2019		2020		2021
Earnings per share for net income attributable to ORIX Corporation shareholders:
Basic	¥	252.92	¥	237.38	¥	155.54
Diluted		252.70		237.17		155.39


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 ( 1,740,314 shares, 1,735,570 shares and 1,897,979 shares in fiscal 2019, 2020 and 2021).

29. 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 fluctuation 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.

F-12

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

By using derivative instruments, the Company and its subsidiaries are exposed to credit risk in the event of nonperformance 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 2021.

(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. Net gains (losses) before deducting applicable taxes on derivative contracts were reclassified from other comprehensive income (loss) into earnings when earnings were affected by the variability in cash flows of the designated hedged item. The amounts of these net gains (losses) after deducting applicable taxes were net losses of ¥503 million, gains of ¥2,171 million and losses of ¥5,779 million during fiscal 2019, 2020 and 2021, respectively. The amount of net derivative losses, ¥44 million, included in other comprehensive income (loss), net of applicable income taxes at March 31, 2021 will be reclassified into earnings within fiscal 2022.

(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.

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.

F-12

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

The effect of derivative instruments on the consolidated statements of income,

pre-tax,

for fiscal 2019 is as follows.

(1) Cash flow hedges


	Gains (losses) recognized in other comprehensive income on derivative (effective portion)			Gains (losses) reclassified from other comprehensive income (loss) into income (effective portion)				Gains (losses) recognized in income on derivative (ineffective portion and amount excluded from effectiveness testing)
	Millions of yen			Consolidated statements of income location	Millions of yen			Consolidated statements of income location	Millions of yen
Interest rate swap agreements	¥	(4,313	)	Finance revenues/Interest expense	¥	157		—	¥	0
Foreign exchange contracts		115		Other (income) and expense		(156	)	—		0
Foreign currency swap agreements		(1,816	)	Finance revenues/Interest expense/Other (income) and expense		(639	)	—		0

(2) Fair value hedges


	Gains (losses) recognized in income on derivative and other				Gains (losses) recognized in income on hedged item
	Millions of yen			Consolidated statements of income location	Millions of yen		Consolidated statements of income location

Interest rate swap agreements	¥	(8,448	)	Finance revenues/Interest expense	¥	8,448	Finance revenues/Interest expense

Foreign exchange contracts		(5,538	)	Other (income) and expense		5,403	Other (income) and expense

(3) Hedges of net investment in foreign operations


	Gains (losses) recognized in other comprehensive income on derivative and others (effective portion)			Gains (losses) reclassified from other comprehensive income (loss) into income (effective portion)				Gains (losses) recognized in income on derivative and others (ineffective portion and amount excluded from effectiveness testing)
	Millions of yen			Consolidated statements of income location	Millions of yen			Consolidated statements of income location	Millions of yen
Foreign exchange contracts	¥	4,850		Gains on sales of subsidiaries and affiliates and liquidation losses, net	¥	(2,540	)	—	¥	0
Borrowings and bonds in foreign currencies		(5,963	)	—		0		—		0

F-12

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

(4) Derivatives not designated as hedging instruments


	Gains (losses) recognized in income on derivative
	Millions of yen			Consolidated statements of income location
Interest rate swap agreements	¥	832		Other (income) and expense
Futures		(912	)	Gains on investment securities and dividends Life insurance premiums and related investment income*
Foreign exchange contracts		(6,589	)	Gains on investment securities and dividends Life insurance premiums and related investment income* Other (income) and expense
Credit derivatives held		105		Other (income) and expense
Options held/written and other		710		Other (income) and expense Life insurance premiums and related investment income*

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 fiscal 2019 (see Note 26 “Life Insurance Operations”).

The effect of derivative instruments on the consolidated statements of income,

pre-tax,

for fiscal 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	¥	(11,506	)	¥	775		¥	0
Foreign exchange contracts		(241	)		(119	)		457
Foreign currency swap agreements		3,851			413			(4,349	)

(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	¥	(19,805	)	¥	0		¥	18,955		¥	0
Foreign exchange contracts		3,656			(187	)		(3,294	)		244

(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
			Gains on sales of subsidiaries and affiliates and liquidation losses, net		Interest expense		Write-downs of securities
Foreign exchange contracts	¥	15,273	¥	1,594	¥	4,595	¥	2,759
Borrowings and bonds in foreign currencies		13,489		0		0		0

F-12

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

(4) Derivatives not designated as hedging instruments


	Millions of yen
	Gains (losses) recognized in income on derivative
	Life insurance premiums and related investment income*		Interest expense		Other (income) and expense
Interest rate swap agreements	¥	0	¥	7	¥	159
Futures		1,257		0		(1,843	)
Foreign exchange contracts		204		4,803		(1,840	)
Credit derivatives held		0		0		(6	)
Options held/written and other		402		0		4,481

The effect of derivative instruments on the consolidated statements of income,

pre-tax,

for fiscal 2021 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	¥	5,051		¥	1,522	¥	0
Foreign exchange contracts		(45	)		827		(585	)
Foreign currency swap agreements		(6,043	)		553		5,385

(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	¥	9,533		¥	0	¥	(8,990	)	¥	0
Foreign exchange contracts		(5,032	)		438		3,591			(356	)

(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
				Gains on sales of subsidiaries and affiliates and liquidation losses, net		Interest expense		Other (income) and expense
Foreign exchange contracts	¥	(27,128	)	¥	1,145	¥	3,181	¥	21
Borrowings and bonds in foreign currencies		(15,840	)		0		0		0

F-12

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

(4) Derivatives not designated as hedging instruments


	Millions of yen
	Gains (losses) recognized in income on derivative
	Life insurance premiums and related investment income*			Interest expense		Other (income) and expense
Interest rate swap agreements	¥	0		¥	7	¥	(13	)
Futures		(9,412	)		0		6,980
Foreign exchange contracts		(215	)		2,085		12,814
Credit derivatives held		0			0		1
Options held/written and other		(598	)		0		(2,419	)

The effect of the components excluded from the assessment of hedge effectiveness on the consolidated statements of income,

pre-tax,

for fiscal 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	¥	(3,020	)	¥	3	¥	0
Options held/written and other		0			0		29

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.

The effect of the components excluded from the assessment of hedge effectiveness on the consolidated statements of income,

pre-tax,

for fiscal 2021 is as follows.

F-12

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

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	¥	(1,249	)	¥	6	¥	0
Options held/written and other		0			0		32


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	¥	314,248	¥	12,764		—	¥	0	¥	0
Installment Loans		17,942		43		—		0		0

Notional amounts of derivative instruments and other, fair values of derivative instruments and other before offsetting at March 31, 2020 and 2021 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		Consolidated balance sheets location		Millions of yen		Consolidated balance sheets location
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.

F-12

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

March 31, 2021


			Derivative assets				Derivative liabilities
	Notional amount		Fair value		Consolidated balance sheets location		Fair value		Consolidated balance sheets location
	Millions of yen		Millions of yen		Consolidated balance sheets location		Millions of yen		Consolidated balance sheets location
Derivatives designated as hedging instruments and other:
Interest rate swap agreements	¥	531,971	¥	1,867		Other Assets	¥	23,751		Other Liabilities
Options held/written and other		840		26		Other Assets		0		—
Futures, foreign exchange contracts		657,411		437		Other Assets		18,941		Other Liabilities
Foreign currency swap agreements		76,023		146		Other Assets		4,459		Other Liabilities
Foreign currency long-term debt		582,174		0		—		0		—
Derivatives not designated as hedging instruments:
Interest rate swap agreements	¥	6,409	¥	0		—	¥	67		Other Liabilities
Options held/written and other		746,058		19,478		Other Assets		17,009		Other Liabilities
Futures, foreign exchange contracts*		320,908		742		Other Assets		6,798		Other Liabilities
Credit derivatives held		171		0		—		9		Other Liabilities

The notional amounts of futures and foreign exchange contracts in the above table include futures contracts of ¥19,127 million and foreign exchange contracts of ¥7,245 million to economically hedge the minimum guarantee risk of variable annuity and variable life insurance contracts at March 31, 2021, respectively. Derivative assets in the above table include fair value of the futures and foreign exchange contracts before offsetting of ¥41 million and ¥24 million and derivative liabilities include fair value of the futures and foreign exchange contracts before offsetting of ¥438 million and ¥302 million at March 31, 2021, respectively.

30. 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 2021 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		Gross amounts offset in the consolidated balance sheets			Net amounts presented in the consolidated balance sheets		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

F-12

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

March 31, 2021


	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		Gross amounts offset in the consolidated balance sheets			Net amounts presented in the consolidated balance sheets		Financial instruments			Collateral received/ pledged			Net amount
Derivative assets	¥	22,696	¥	(1,944	)	¥	20,752	¥	0		¥	0		¥	20,752

Total assets	¥	22,696	¥	(1,944	)	¥	20,752	¥	0		¥	0		¥	20,752

Derivative liabilities	¥	71,034	¥	(1,944	)	¥	69,090	¥	(18,913	)	¥	(147	)	¥	50,030

Total liabilities	¥	71,034	¥	(1,944	)	¥	69,090	¥	(18,913	)	¥	(147	)	¥	50,030

*	The balances related to enforceable master netting agreements or similar agreements which were not offset in the consolidated balance sheets.

31. Significant Concentrations of Credit Risk

The Company and its subsidiaries have established various policies and procedures to manage credit exposure, including initial credit approval, credit limits, collateral and guarantee requirements, obtaining rights of offset and continuous oversight. The Company and its subsidiaries’ principal financial instrument portfolio consists of investment in net investment in leases which are secured by title to the leased assets and installment loans which are secured by assets specifically collateralized in relation to loan agreements. When deemed necessary, guarantees are also obtained. The value and adequacy of the collateral are continually monitored. Consequently, the risk of credit loss from counterparties’ failure to perform in connection with collateralized financing activities is believed to be minimal. The Company and its subsidiaries have access to collateral in case of bankruptcy and other losses. However, a significant decline in real estate markets could result in a decline in fair value of the collateral real estate below the mortgage setting amount, which would expose the Company and certain subsidiaries to unsecured credit risk.

At March 31, 2020 and 2021, no concentration with a single obligor exceeded 1% of the Company’s consolidated total assets. With respect to the Company and its subsidiaries’ credit exposures on a geographic basis, ¥6,995 billion, or 73%, at March 31, 2020 and ¥7,112 billion, or 73%, at March 31, 2021 of the credit risks arising from all financial instruments are attributable to customers located in Japan. The largest concentration of credit risk outside of Japan is exposure attributable to obligors located in the Americas. The gross amount of such exposure is ¥1,374 billion and ¥1,180 billion as of March 31, 2020 and 2021, respectively.

The Company and its subsidiaries have transportation equipment such as automobile operations and aircraft. Transportation equipment is mainly recorded in investment in net investment in leases and operating leases. In connection with investment in net investment in leases and operating leases, the percentage of investment in transportation equipment to consolidated total assets is 10.0.% and 9.7% as of March 31, 2020 and 2021, respectively.

The Company and its subsidiaries provide consumers with real estate loans. In connection with installment loans, the percentage of real estate loans for consumers to consolidated total assets is 14.4% and 15.3% as of March 31, 2020 and 2021, respectively.

F-12

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

32. Estimated Fair Value of Financial Instruments

The following information is provided to help readers gain an understanding of the relationship between carrying amount 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 2 “Fair Value Measurements.”

F-1

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Su

sidiaries

March 31, 2021


	Millions of yen
	Carrying amount		Estimated fair value		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	¥	951,242	¥	951,242	¥	951,242	¥	0	¥	0
Restricted cash		128,333		128,333		128,333		0		0
Installment loans (net of allowance for credit losses)		3,613,316		3,631,561		0		166,410		3,465,151
Equity securities*1		396,465		396,465		82,039		223,016		91,410
Trading debt securities		2,654		2,654		0		2,654		0
Available-for-sale debt securities		2,003,917		2,003,917		6,012		1,864,448		133,457
Held-to-maturity debt securities		113,790		139,132		0		115,893		23,239
Other Assets:
Time deposits		4,146		4,146		0		4,146		0
Derivative assets*2		20,752		20,752		0		0		0
Reinsurance recoverables (Investment contracts)		7,299		7,507		0		0		7,507
Liabilities:
Short-term debt	¥	307,269	¥	307,269	¥	0	¥	307,269	¥	0
Deposits		2,165,293		2,167,449		0		2,167,449		0
Policy liabilities and Policy account balances (Investment contracts)		196,549		196,624		0		0		196,624
Long-term debt		4,416,833		4,442,351		0		1,286,463		3,155,888
Other Liabilities:
Derivative liabilities*2		69,090		69,090		0		0		0

*1	The amount of ¥13,737 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 2 “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.

33. Commitments, Guarantees and Contingent Liabilities

Commitments

—As of March 31, 2021, the Company and certain subsidiaries have commitments for the purchase of equipment to be leased, having a cost of ¥1,573 million.

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 ¥7,355 million, ¥7,139 million and ¥6,486 million in fiscal 2019, 2020 and

F-13

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

2021, respectively. The longest contract of them will mature in fiscal 202

. As of March 31, 2021, the amounts due are as follows:


Years ending March 31,	Millions of yen
2022	¥	3,806
2023		2,567
2024		1,085
2025		320
2026		10
Thereafter		0

Total	¥	7,788

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 ¥69,235 million as of March 31, 2021.

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. As of March 31, 2021, the total unused credit and capital amount available is ¥393,634 million.

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

that is within the scope of ASC 460 (“Guarantees”).

Some of these guarantees, whose contractual obligations cannot be unconditionally cancelled , are in the scope of the Credit Loss Standard and are recognized as other liabilities in the consolidated balance sheets.

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 2021:


	2020						2021
	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	¥	469,377	¥	4,768		2028
Transferred loans		355,452		2,371		2060		365,546		5,827		2061
Consumer loans		341,466		41,019		2031		294,250		49,025		2032
Real estate loans		29,235		4,422		2048		17,621		4,119		2048
Other		130		0		2024		598		104		2035

Total	¥	1,217,122	¥	53,877		—	¥	1,147,392	¥	63,843		—

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 2021, total notional amount of the loans subject to such guarantees are ¥715,000 million and ¥690,000 million, respectively, and book value of guarantee

F-13

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

liabilities are ¥2,498 million and ¥1,998 million, respectively. The potential future payment a

ounts 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. 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 in fiscal 2021.

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 in fiscal 2021.

As of March 31, 2020 and 2021, 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 ¥1,857,499 million, respectively.

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 in fiscal 2021.

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

F-13

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

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

—Since April 1, 2020, Credit Losses Standard has been adopted. If the entity has a present contractual obligation to extend the credit and the obligation is not unconditionally cancelable by the entity, 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. For the loan commitments of card loans and installment loans, credit losses are recognized on the loan commitments for the portion expected to be drawn. For financial guarantees, the allowance is recognized for the contingent obligation which generates credit risk exposures. These allowance for off-balance sheet credit exposures is measured using the same measurement objectives as the allowance for loans and net investment leases, considering quantitative and qualitative factors including historical loss experience, current conditions and reasonable and supportable forecasts. The allowance for

off-balance

sheet credit exposure is accounted for in other liabilities on the consolidated balance sheets and the amount was

¥26,094 million as of March 31, 2021.

Contingencies

—Among some of our private equity investees, which are consolidated subsidiaries, manufacturing defects have been found in certain parts of their products. The Company recognizes the allowances for losses, when the losses are highly probable that an outflow of resources embodying economic benefits will occur in relation to this matter and the amount of such losses can be reasonably estimated. It is possible that additional write-downs or allowances for losses may be recorded due to the occurrence of new events, however at this time, the amount and timing of the potential losses cannot be reasonably estimated.

In addition, 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.

34. Segment Information

Based on our business management organization which is classified by the nature of major products and services, customer base, regulations, and business areas, our business is organized into 10 operating segments: 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.

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.

F-13

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries


	Millions of yen
	Fiscal Year ended March 31, 2021
	ORIX USA		ORIX Europe		Asia and Australia			Total
Revenues	¥	138,017	¥	160,798	¥	128,309		¥	2,298,365
Finance revenues		87,172		171		39,931			273,428
Interest expense		16,280		1,125		18,043			74,871
Depreciation and amortization		2,474		962		50,837			304,980
Other significant non-cash items:
Provision for credit losses		6,221		34		3,424			16,017
Write-downs of long-lived assets		1,458		0		90			3,019
Increase in policy liabilities and policy account balances		0		0		0			230,947
Equity in net income (loss) of affiliates and gains (losses) on sales of subsidiaries and affiliates and liquidation losses, net		8,423		245		(5,200	)		23,780
Bargain Purchase Gain		0		0		0			4,966
Segment profits		43,614		37,886		14,660			318,891
Segment assets		1,220,081		369,546		1,084,222			11,341,789
Long-lived assets		13,656		0		231,307			1,981,321
Expenditures for long-lived assets		592		0		87,327			406,853
Investment in affiliates		43,816		1,770		195,413			887,735

The accounting policies of the segments are almost the same as those described in Note 1 “Signi

icant 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. 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.

F-1

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ORIX Corporation and Subsidiaries

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 previous fiscal year has 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 1 “Significant Accounting and Reporting Policies (ai) New accounting pronouncements.”

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
	2019			2020			2021
Segment revenues:
Total revenues for segments	¥	2,438,059		¥	2,283,332		¥	2,298,365
Revenues related to corporate assets		16,538			16,273			12,010
Revenues from inter-segment transactions		(19,733	)		(19,276	)		(17,667	)

Total consolidated revenues	¥	2,434,864		¥	2,280,329		¥	2,292,708

Segment profits:
Total segment profits	¥	424,869		¥	443,252		¥	318,891
Corporate losses		(33,307	)		(35,733	)		(35,939	)
Net income attributable to the noncontrolling interests and net income attributable to the redeemable noncontrolling interests		4,168			5,042			4,609

Total consolidated income before income taxes	¥	395,730		¥	412,561		¥	287,561

Segment assets:
Total segment assets	¥	9,986,916		¥	10,883,545		¥	11,341,789
Cash and cash equivalents, restricted cash		1,283,580			1,135,284			1,079,575
Allowance for doubtful receivables on finance leases and probable loan losses		(58,011	)		(56,836	)		0
Allowance for credit losses		0			0			(78,945	)
Trade notes, accounts and other receivable		280,590			312,744			354,334
Other corporate assets		681,842			792,791			866,329

Total consolidated assets	¥	12,174,917		¥	13,067,528		¥	13,563,082

F-14

Table of Contents

Schedule II.—Valuation and Qualifying Accounts and Reserves

ORIX Corporation and Subsidiaries


	Millions of yen
	Year Ended March 31, 2019
Description	Balance at beginning of period		Acquisitions		Addition: Charged to costs and expenses		Deduction			Translation adjustment			Balance at end of period
Restructuring cost:
Severance and other benefits to terminated employees	¥	2,151	¥	0	¥	0	¥	(3	)	¥	(99	)	¥	2,049

Total	¥	2,151	¥	0	¥	0	¥	(3	)	¥	(99	)	¥	2,049


	Millions of yen
	Year Ended March 31, 2020
Description	Balance at beginning of period		Acquisitions		Addition: Charged to costs and expenses		Deduction			Translation adjustment			Balance at end of period
Restructuring cost:
Severance and other benefits to terminated employees	¥	2,049	¥	0	¥	73	¥	(1,365	)	¥	(67	)	¥	690

Total	¥	2,049	¥	0	¥	73	¥	(1,365	)	¥	(67	)	¥	690


	Millions of yen
	Year Ended March 31, 2021
Description	Balance at beginning of period		Acquisitions		Addition: Charged to costs and expenses		Deduction			Translation adjustment			Balance at end of period
Restructuring cost:
Severance and other benefits to terminated employees	¥	690	¥	0	¥	0	¥	(474	)	¥	36		¥	252

Total	¥	690	¥	0	¥	0	¥	(474	)	¥	36		¥	252


	Millions of yen

Description	Balance at beginning of period		Acquisitions		Addition: Charged to costs and expenses		Deduction*1			Other*2			Balance at end of period
Deferred tax assets:
Valuation allowance
Year ended March 31, 2019	¥	14,676	¥	0	¥	2,376	¥	(3,717	)	¥	(179	)	¥	13,156
Year ended March 31, 2020	¥	13,156	¥	522	¥	3,401	¥	(1,677	)	¥	(33	)	¥	15,369
Year ended March 31, 2021	¥	15,369	¥	805	¥	7,458	¥	(2,487	)	¥	415		¥	21,560

*1	The amount of deduction includes benefits recognized in earnings, expiration of loss carryforwards and sales of subsidiaries. The amounts of expiration of loss carryforwards were ¥1,012 million in fiscal 2019, ¥782 million in fiscal 2020 and ¥1,129 million in fiscal 2021.

*2	The amount of other includes translation adjustment and the effect of changes in statutory tax rate.

F-15


		Page
Certain Defined Terms, Conventions and Presentation of Financial Information			ii

Forward-Looking Statements			ii

PART I			1
Item 1.	Identity of Directors, Senior Management and Advisers		1
Item 2.	Offer Statistics and Expected Timetable		1
Item 3.	Key Information		1
Item 4.	Information on the Company		14
Item 4A.	Unresolved Staff Comments		27
Item 5.	Operating and Financial Review and Prospects		28
Item 6.	Directors, Senior Management and Employees		117
Item 7.	Major Shareholders and Related Party Transactions		145
Item 8.	Financial Information		147
Item 9.	The Offer and Listing		147
Item 10.	Additional Information		147
Item 11.	Quantitative and Qualitative Disclosures about Market Risk		162
Item 12.	Description of Securities Other than Equity Securities		164

PART II			166
Item 13.	Defaults, Dividend Arrearages and Delinquencies		166
Item 14.	Material Modifications to the Rights of Security Holders and Use of Proceeds		166
Item 15.	Controls and Procedures		166
Item 16A.	Audit Committee Financial Expert		167
Item 16B.	Code of Ethics		167
Item 16C.	Principal Accountant Fees and Services		167
Item 16D.	Exemptions from the Listing Standards for Audit Committees		168
Item 16E.	Purchases of Equity Securities by the Issuer and Affiliated Purchasers		168
Item 16F.	Change in Registrant’s Certifying Accountant		169
Item 16G.	Corporate Governance		169

PART III			171
Item 17.	Financial Statements		171
Item 18.	Financial Statements		171
Item 19.	Exhibits		172

SIGNATURES			173

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS			F-1


Name	Title	Areas of duties	Number of shares held (of which number of shares scheduled to be issued by share-based compensation plans) in the Company as of June 29, 2021
Kiyoshi Fushitani	Senior Managing Executive Officer	East Asia Business Headquarters Global Transportations Services Headquarters		1,500 (106,550	)
Yasuaki Mikami	Managing Executive Officer	Group Human Resources and Corporate Administration Headquarters Secretariat of The Board of Directors Work Style Reform Project		1,880 (50,680	)
Hitomaro Yano	Executive Officer	Treasury and Accounting Headquarters		5,100 (39,930	)
Toyonori Takahashi	Executive Officer	Group Kansai Representative MICE-IR Office Real Estate Sales Department Senior Managing Executive Officer, ORIX Real Estate Corporation		7,302 (45,830	)
Yasuhiro Tsuboi	Executive Officer	Credit and Investment Management Headquarters		1,908 (26,750	)
Michio Minato	Executive Officer	Group Strategy Business Unit President, ORIX Baseball Club Co., Ltd.		400 (26,750	)
Tetsuya Kotera	Executive Officer	Corporate Business Headquarters		1,402 (12,750	)
Eiji Arita	Executive Officer	Corporate Business Headquarters		1,600 (12,750	)
Seiichi Miyake	Executive Officer	Investment and Operation Headquarters		3,202 (12,750	)
Hidetake Takahashi	Executive Officer	Energy and Eco Services Business Headquarters Member of the Board of Directors, Ubiteq, INC.		7,100 (17,750	)
Tomoko Kageura	Executive Officer	Enterprise Risk Management Headquarters Global General Counsel Office		5,475 (12,750	)


Notes:		1. Name on the family register of Tomoko Kageura is Tomoko Kanda.
		2. Name on the family register of Hiroko Yamashina is Hiroko Arai.


Exhibit Number		Description
Exhibit 1.1		Articles of Incorporation of ORIX Corporation, as amended on June 25, 2021 (Incorporated by reference from the annual report on Form 20-F filed on June 29, 2021, commission file number 001-14856).

Exhibit 1.2		Regulations of the Board of Directors of ORIX Corporation, as amended on July 21, 2017 (Incorporated by reference from the annual report on Form 20-F filed on June 28, 2018, commission file number 001-14856).

Exhibit 1.3		Share Handling Regulations of ORIX Corporation, as amended on March 1, 2021.

Exhibit 2.1		Description of American Depositary Shares of ORIX Corporation, (Incorporated by reference from the registration statement on Form F-3 ASR filed on July 2, 2009, commission file number 333-160410).

Exhibit 2.2		Deposit Agreement, dated September 14, 1998, by and among ORIX Corporation, Citibank, N.A., as Depositary, and the Holders and Beneficial Owners of American Depositary Shares Evidenced by American Depositary Receipts (Incorporated by reference from the registration statement on Form F-3 ASR filed on July 2, 2009, commission file number 333-160410).

Exhibit 8.1		List of subsidiaries and affiliates.

Exhibit 11.1		Code of Ethics, as amended on April 18, 2014 (Incorporated by reference from the annual report on Form 20-F filed on June 25, 2019, commission file number 001-14856).

Exhibit 12.1		Certifications required by Rule 13a-14 (a) (17 CFR 240.13a-14 (a)) or Rule 15d-14 (a) (17 CFR 240.15d 14(a)).

Exhibit 13.1		Certifications required by Rule 13a-14 (b) (17 CFR 240.13a-14 (b)) or Rule 15d-14 (b) (17 CFR 240.15d 14 (b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).

Exhibit 15.1		Consent of independent registered public accounting firm.

Exhibit 101		Inline XBRL Instance Document—the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

Exhibit 101		Inline XBRL Schema Document.

Exhibit 101		Inline XBRL Calculation Linkbase Document.

Exhibit 101		Inline XBRL Definition Linkbase Document.

Exhibit 101		Inline XBRL Labels Linkbase Document.

Exhibit 101		Inline XBRL Presentation Linkbase Document.

Exhibit 104		The cover page for the Company’s Annual Report on Form 20-F for the year ended March 31, 2021, has been formatted as Inline XBRL and contained in Exhibit 101


By:		/s/ S HOJI T ANIGUCHI
Name:		Shoji Taniguchi
Title:		Senior Managing Executive Officer


	Page

Reports of Independent Registered Public Accounting Firm		F-2

Consolidated Balance Sheets as of March 31, 2020 and 2021		F-7

Consolidated Statements of Income For the Years Ended March 31, 2019, 2020 and 2021		F-9

Consolidated Statements of Comprehensive Income For the Years Ended March 31, 2019, 2020 and 2021		F-11

Consolidated Statements of Changes in Equity For the Years Ended March 31, 2019, 2020 and 2021		F-12

Consolidated Statements of Cash Flows For the Years Ended March 31, 2019, 2020 and 2021		F-14

Notes to Consolidated Financial Statements		F-15

Schedule II.—Valuation and Qualifying Accounts and Reserves		F-150


	Millions of yen
	Corporate Financial Services and Maintenance Leasing			Real Estate			PE Investment and Concession			Environment and Energy			Insurance			Banking and Credit
Balance at March 31, 2018
Goodwill	¥	65,836		¥	32,409		¥	61,252		¥	183		¥	4,452		¥	10,971
Accumulated impairment losses		(837	)		(8,708	)		0			(39	)		0			0
		64,999			23,701			61,252			144			4,452			10,971
Acquired		0			0			27,569			0			0			0
Impairment		0			0			0			0			0			0
Other (net)*		(270	)		(7,231	)		34			0			0			0

Balance at March 31, 2019
Goodwill		65,566			16,470			88,855			183			4,452			10,971
Accumulated impairment losses		(837	)		0			0			(39	)		0			0
		64,729			16,470			88,855			144			4,452			10,971
Acquired		1,299			0			22,772			3,933			672			0
Impairment		0			0			0			0			0			0
Other (net)*		0			(111	)		(22,172	)		0			0			0

Balance at March 31, 2020
Goodwill		66,865			16,359			89,455			4,116			5,124			10,971
Accumulated impairment losses		(837	)		0			0			(39	)		0			0
		66,028			16,359			89,455			4,077			5,124			10,971
Acquired		478			0			47,011			0			0			0
Impairment		(12	)		0			0			0			0			0
Other (net)*		7			0			(14,002	)		(3,933	)		(109	)		0

Balance at March 31, 2021
Goodwill		67,350			16,359			122,464			183			5,015			10,971
Accumulated impairment losses		(849	)		0			0			(39	)		0			0

	¥	66,501		¥	16,359		¥	122,464		¥	144		¥	5,015		¥	10,971


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


	Millions of yen
	Fiscal Year ended March 31, 2019
	Corporate Financial Services and Maintenance Leasing		Real Estate		PE Investment and Concession		Environment and Energy		Insurance		Banking and Credit		Aircraft and Ships
Revenues	¥	378,767	¥	531,622	¥	467,042	¥	139,654	¥	350,954	¥	78,904	¥	71,062
Finance revenues		46,564		6,265		116		1,362		221		76,473		3,095
Interest expense		6,832		2,633		1,235		5,651		1		4,078		13,848
Depreciation and amortization		150,925		16,714		7,556		13,587		24,339		1,436		15,720
Other significant non-cash items:
Provision for doubtful receivables and probable loan losses		1,048		109		109		12		29		11,512		256
Write-downs of long-lived assets		712		1,553		43		0		0		0		67
Increase in policy liabilities and policy account balances		0		0		0		0		10,109		0		0
Equity in net income (loss) of affiliates and gains (losses) on sales of subsidiaries and affiliates and liquidation losses, net		893		16,845		13,592		2,115		0		3		11,236
Segment profits		78,310		93,748		23,061		12,144		51,544		36,434		36,422
Segment assets		1,841,791		759,466		279,915		395,606		1,254,471		2,316,738		646,284
Long-lived assets		537,314		420,661		25,813		253,623		29,406		0		303,606
Expenditures for long-lived assets		198,350		71,804		1,842		40,172		2		0		222,373
Investment in affiliates		16,536		107,072		59,913		102,053		0		404		285,896


	Millions of yen
	Fiscal Year ended March 31, 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	¥	9,771	¥	8,063	¥	429,447	¥	6,597	¥	0	¥	0	¥	2,803
Real estate sales		0		133,426		0		0		0		0		0
Asset management and servicing		382		5,523		72		0		0		163		16
Automobile related services		61,469		0		0		204		0		0		0
Facilities operation		0		99,334		0		0		0		0		0
Environment and energy services		2,815		188		0		129,166		0		0		0
Real estate management and brokerage		0		105,397		0		0		0		0		0
Real estate contract work		0		83,182		0		0		0		0		0
Other		45,108		4,531		36,556		2,504		1,526		1,922		12,390

Total revenues from contracts with customers		119,545		439,644		466,075		138,471		1,526		2,085		15,209

Geographical location
Japan		119,212		439,644		466,075		137,479		1,526		2,085		6,748
The Americas		0		0		0		0		0		0		0
Other		333		0		0		992		0		0		8,461

Total revenues from contracts with customers		119,545		439,644		466,075		138,471		1,526		2,085		15,209

Other revenues *		259,222		91,978		967		1,183		349,428		76,819		55,853

Segment revenues/Total revenues	¥	378,767	¥	531,622	¥	467,042	¥	139,654	¥	350,954	¥	78,904	¥	71,062