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 |
OR
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended March 31, |
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to |
OR
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, 2-4-1 Hamamatsu-cho, Minato-ku
Tokyo 105-6135, Japan
(Address of principal executive offices)
Yukio Uchimura
World Trade Center Building, 2-4-1 Hamamatsu-cho, Minato-ku
Tokyo 105-6135, Japan
Telephone: +81-3-3435-1273
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 | Name of each exchange on which registered | |||
(1) | Common stock without par value (the “Shares”) | New York Stock Exchange* | ||
(2) | American depository shares (the “ADSs”), each of which represents five shares | New York Stock Exchange |
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, 2016, 1,324,058,8282018, 1,324,495,728 Shares were outstanding, including Shares that were represented by 5,021,8835,380,864 ADSs.
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
x☒ 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 x☒ 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.
x☒ Yes ¨☐ No
Indicate by check mark whether the Registrant submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
x☒ Yes ¨☐ No
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.filer, or an emerging growth company. See definition of “accelerated filer and large“large accelerated filer” , “accelerated filer”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
x☒ Large accelerated filer ☐ Accelerated Filer ¨ Accelerated Filer ¨ Non-Accelerated Filerfiler ☐ 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 which basis of accounting the Registrant has used to prepare the financial statements included in this filing.
x☒ 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 x☒ 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. |
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Certain Defined Terms, Conventions and Presentation of Financial Information | ii | |||||
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1 | ||||||
Item 1. | 1 | |||||
Item 2. | 1 | |||||
Item 3. | 1 | |||||
Item 4. | 12 | |||||
Item 4A. | 30 | |||||
Item 5. | 30 | |||||
Item 6. | ||||||
Item 7. | 128 | |||||
Item 8. | 130 | |||||
Item 9. | 131 | |||||
Item | ||||||
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Item 11. | ||||||
Item 12. | ||||||
Item 13. | ||||||
Item 14. | Material Modifications to the Rights of Security Holders and Use of Proceeds | 152 | ||||
Item 15. | 152 | |||||
Item 16A. | 153 | |||||
Item 16B. | 153 | |||||
Item 16C. | 153 | |||||
Item 16D. | 154 | |||||
Item | ||||||
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| Purchases of Equity Securities by the Issuer and Affiliated Purchasers | 154 | ||||
Item 16F. | 154 | |||||
Item 16G. | 155 | |||||
156 | ||||||
Item |
| 156 | ||||
Item | 156 | |||||
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Item 19. | ||||||
F-1 | ||||||
i
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 of20-50% 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 of America (“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 pursuant to FASB Accounting Standards Codification (“ASC”) 810-10-25-2 to 14 (“Consolidation—The Effect of Noncontrolling Rights on Consolidation”).applied. In addition, the consolidated financial statements also include variable interest entities (“VIEs”) of which the Company and its subsidiaries are primary beneficiaries pursuant to ASC 810 (“Consolidation”).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, 20162018 is referred to throughout this annual report as “fiscal 2016,2018,” and other fiscal years are referred to in a corresponding manner. References to years not specified as being fiscal years are to calendar years.
Effective April 1, 2013, the Company implemented a 10-for-1 stock split of shares of its common stock and amended its unit share system such that one hundred shares constitute one unit. The total number of authorized shares of ORIX’s common stock increased from 259,000,000 shares to 2,590,000,000 shares, and the total number of shares of ORIX’s common stock issued increased from 124,871,476 shares to 1,248,714,760 shares. As a result of the stock split, the ratio of ADSs (which may be evidenced by one or more American Depositary Receipts or “ADRs”) to underlying shares changed from 0.5 underlying shares per 1 ADS to 5 underlying shares per 1 ADS. Unless indicated otherwise, numbers of Shares of ORIX’s common stock, per Share information for ORIX’s common stock, for example historical dividend information, and ORIX’s ADS information in this annual report have been retroactively adjusted to reflect the 10-for-1 stock split effective on April 1, 2013.
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
ii
“Item “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.
iiiii
Item 1. Identity of Directors, Senior Management and Advisers
Not applicable.
Item 2. Offer Statistics and Expected Timetable
Not applicable.
SELECTED FINANCIAL DATA
The following selected consolidated financial information has been derived from our consolidated financial statements as of each of the dates and for each of the periods indicated below except for “Number of employees.” This information should be read in conjunction with and is qualified in its entirety by reference to our consolidated financial statements, including the notes thereto, included in this annual report in Item 18, which have been audited by KPMG AZSA LLC.
Year ended March 31, | Year ended March 31, | |||||||||||||||||||||||||||||||||||||||
2012 | 2013 | 2014 | 2015 | 2016 | 2014 | 2015 | 2016 | 2017 | 2018 | |||||||||||||||||||||||||||||||
(Millions of yen) | (Millions of yen) | |||||||||||||||||||||||||||||||||||||||
Income statement data*1*2: | ||||||||||||||||||||||||||||||||||||||||
Total revenues | ¥ | 963,721 | ¥ | 1,052,477 | ¥ | 1,375,292 | ¥ | 2,174,283 | ¥ | 2,369,202 | ¥ | 1,375,292 | ¥ | 2,174,283 | ¥ | 2,369,202 | ¥ | 2,678,659 | ¥ | 2,862,771 | ||||||||||||||||||||
Total expenses | 841,506 | 901,624 | 1,172,244 | 1,917,454 | 2,081,461 | 1,172,244 | 1,917,454 | 2,081,461 | 2,349,435 | 2,526,576 | ||||||||||||||||||||||||||||||
Operating income | 122,215 | 150,853 | 203,048 | 256,829 | 287,741 | 203,048 | 256,829 | 287,741 | 329,224 | 336,195 | ||||||||||||||||||||||||||||||
Equity in net income of affiliates | 1,983 | 13,836 | 18,368 | 30,531 | 45,694 | 18,368 | 30,531 | 45,694 | 26,520 | 50,103 | ||||||||||||||||||||||||||||||
Gains on sales of subsidiaries and affiliates and liquidation losses, net | 3,317 | 7,883 | 64,923 | 20,575 | 57,867 | 64,923 | 20,575 | 57,867 | 63,419 | 49,203 | ||||||||||||||||||||||||||||||
Bargain purchase gain | 0 | 0 | 0 | 36,082 | 0 | 0 | 36,082 | 0 | 5,802 | 0 | ||||||||||||||||||||||||||||||
Income before income taxes and discontinued operations | 127,515 | 172,572 | 286,339 | 344,017 | 391,302 | 286,339 | 344,017 | 391,302 | 424,965 | 435,501 | ||||||||||||||||||||||||||||||
Income from continuing operations | 82,907 | 118,890 | 187,786 | 254,960 | 270,990 | 187,786 | 254,960 | 270,990 | 280,926 | 321,589 | ||||||||||||||||||||||||||||||
Net income (loss) attributable to the noncontrolling interests | (332 | ) | 3,164 | 3,815 | 15,339 | 10,002 | ||||||||||||||||||||||||||||||||||
Net income attributable to the noncontrolling interests | 3,815 | 15,339 | 10,002 | 7,255 | 8,002 | |||||||||||||||||||||||||||||||||||
Net income attributable to the redeemable noncontrolling interests | 2,724 | 3,985 | 4,108 | 4,970 | 819 | 4,108 | 4,970 | 819 | 432 | 452 | ||||||||||||||||||||||||||||||
Net income attributable to ORIX Corporation shareholders | 83,509 | 111,909 | 187,364 | 234,948 | 260,169 | 187,364 | 234,948 | 260,169 | 273,239 | 313,135 |
Balance sheet data*2: Investment in Direct Financing Leases*3 Installment Loans*3 Allowance for Doubtful Receivables on Direct Financing Leases and Probable Loan Losses Investment in Operating Leases Investment in Securities Property under Facility Operations Others Total Assets Short-term Debt, Long-term Debt and Deposits Policy Liabilities and Policy Account Balances Common Stock Additional Paid-in Capital ORIX Corporation Shareholders’ Equity Number of Issued Shares Number of Outstanding Shares*4 As of March 31, 2012 2013 2014 2015 2016 (Millions of yen, except number of shares) ¥ 900,886 ¥ 989,380 ¥ 1,094,073 ¥ 1,216,454 ¥ 1,190,136 2,769,898 2,691,171 2,315,555 2,478,054 2,592,233 (136,588 ) (104,264 ) (84,796 ) (72,326 ) (60,071 ) 1,309,998 1,395,533 1,379,741 1,296,220 1,349,199 1,147,390 1,093,668 1,214,452 2,846,257 2,344,792 194,576 218,697 295,863 278,100 327,016 2,146,670 2,155,525 2,852,073 3,400,869 3,253,601 ¥ 8,332,830 ¥ 8,439,710 ¥ 9,066,961 ¥ 11,443,628 ¥ 10,996,906 ¥ 5,828,967 ¥ 5,560,847 ¥ 5,367,412 ¥ 5,705,110 ¥ 5,689,002 405,017 426,007 454,436 2,073,650 1,668,636 144,026 194,039 219,546 220,056 220,469 179,223 229,600 255,449 255,595 257,629 1,380,736 1,643,596 1,919,346 2,152,198 2,310,431 1,102,544,220 1,248,714,760 1,322,777,628 1,323,644,528 1,324,058,828 1,075,217,210 1,221,433,050 1,309,444,294 1,308,642,971 1,309,514,020
As of March 31, | ||||||||||||||||||||
2014 | 2015 | 2016 | 2017 | 2018 | ||||||||||||||||
(Millions of yen, except number of shares) | ||||||||||||||||||||
Balance sheet data*2: | ||||||||||||||||||||
Investment in Direct Financing Leases*3 | ¥ | 1,094,073 | ¥ | 1,216,454 | ¥ | 1,190,136 | ¥ | 1,204,024 | ¥ | 1,194,888 | ||||||||||
Installment Loans*3 | 2,315,555 | 2,478,054 | 2,592,233 | 2,815,706 | 2,823,769 | |||||||||||||||
Allowance for Doubtful Receivables on Direct Financing Leases and Probable Loan Losses | (84,796 | ) | (72,326 | ) | (60,071 | ) | (59,227 | ) | (54,672 | ) | ||||||||||
Investment in Operating Leases | 1,379,741 | 1,296,220 | 1,349,199 | 1,313,164 | 1,344,926 | |||||||||||||||
Investment in Securities | 1,214,452 | 2,846,257 | 2,344,792 | 2,026,512 | 1,729,455 | |||||||||||||||
Property under Facility Operations | 295,863 | 278,100 | 327,016 | 398,936 | 434,786 | |||||||||||||||
Others*4 | 2,848,629 | 3,397,115 | 3,249,613 | 3,532,780 | 3,952,830 | |||||||||||||||
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Total Assets*4 | ¥ | 9,063,517 | ¥ | 11,439,874 | ¥ | 10,992,918 | ¥ | 11,231,895 | ¥ | 11,425,982 | ||||||||||
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Short-term Debt, Long-term Debt and Deposits*4 | ¥ | 5,363,968 | ¥ | 5,701,356 | ¥ | 5,685,014 | ¥ | 5,753,059 | ¥ | 5,890,720 | ||||||||||
Policy Liabilities and Policy Account Balances | 454,436 | 2,073,650 | 1,668,636 | 1,564,758 | 1,511,246 | |||||||||||||||
Common Stock | 219,546 | 220,056 | 220,469 | 220,524 | 220,961 | |||||||||||||||
AdditionalPaid-in Capital | 255,449 | 255,595 | 257,629 | 268,138 | 267,291 | |||||||||||||||
ORIX Corporation Shareholders’ Equity | 1,919,346 | 2,152,198 | 2,310,431 | 2,507,698 | 2,682,424 | |||||||||||||||
Number of Issued Shares | 1,322,777,628 | 1,323,644,528 | 1,324,058,828 | 1,324,107,328 | 1,324,495,728 | |||||||||||||||
Number of Outstanding Shares*5 | 1,309,444,294 | 1,308,642,971 | 1,309,514,020 | 1,302,587,061 | 1,280,000,872 |
As of and for the Year Ended March 31, | As of and for the Year Ended March 31, | |||||||||||||||||||||||||||||||||||||||
2012 | 2013 | 2014 | 2015 | 2016 | 2014 | 2015 | 2016 | 2017 | 2018 | |||||||||||||||||||||||||||||||
(Yen and dollars, except ratios and number of employees) | (Yen and dollars, except ratios and number of employees) | |||||||||||||||||||||||||||||||||||||||
Key ratios (%)*5: | ||||||||||||||||||||||||||||||||||||||||
Key ratios (%)*6: | ||||||||||||||||||||||||||||||||||||||||
Return on ORIX Corporation shareholders’ equity (“ROE”) | 6.2 | 7.4 | 10.5 | 11.5 | 11.7 | 10.5 | 11.5 | 11.7 | 11.3 | 12.1 | ||||||||||||||||||||||||||||||
Return on assets (“ROA”) | 0.99 | 1.33 | 2.14 | 2.29 | 2.32 | 2.14 | 2.29 | 2.32 | 2.46 | 2.76 | ||||||||||||||||||||||||||||||
ORIX Corporation shareholders’ equity ratio | 16.6 | 19.5 | 21.2 | 18.8 | 21.0 | 21.2 | 18.8 | 21.0 | 22.3 | 23.5 | ||||||||||||||||||||||||||||||
Allowance/investment in direct financing leases and installment loans | 3.7 | 2.8 | 2.5 | 2.0 | 1.6 | 2.5 | 2.0 | 1.6 | 1.5 | 1.4 | ||||||||||||||||||||||||||||||
Per share data and employees: | ||||||||||||||||||||||||||||||||||||||||
ORIX Corporation shareholders’ equity per share*6 | ¥ | 1,284.15 | ¥ | 1,345.63 | ¥ | 1,465.77 | ¥ | 1,644.60 | ¥ | 1,764.34 | ||||||||||||||||||||||||||||||
Basic earnings per share for income attributable to ORIX Corporation shareholders from continuing operations*7 | 74.24 | 103.09 | 142.00 | 179.24 | 198.73 | |||||||||||||||||||||||||||||||||||
ORIX Corporation shareholders’ equity per share*7 | ¥ | 1,465.77 | ¥ | 1,644.60 | ¥ | 1,764.34 | ¥ | 1,925.17 | ¥ | 2,095.64 | ||||||||||||||||||||||||||||||
Basic earnings per share for income attributable to ORIX Corporation shareholders from continuing operations*8 | 142.00 | 179.24 | 198.73 | 208.88 | 244.40 | |||||||||||||||||||||||||||||||||||
Basic earnings per share for net income attributable to ORIX Corporation shareholders | 77.68 | 102.87 | 147.75 | 179.47 | 198.73 | 147.75 | 179.47 | 198.73 | 208.88 | 244.40 | ||||||||||||||||||||||||||||||
Diluted earnings per share for net income attributable to ORIX Corporation shareholders | 65.03 | 87.37 | 143.20 | 179.21 | 198.52 | 143.20 | 179.21 | 198.52 | 208.68 | 244.15 | ||||||||||||||||||||||||||||||
Dividends applicable to fiscal year per share | 9.00 | 13.00 | 23.00 | 36.00 | 45.75 | 23.00 | 36.00 | 45.75 | 52.25 | 66.00 | ||||||||||||||||||||||||||||||
Dividends applicable to fiscal year per share*8 | $ | 0.12 | $ | 0.13 | $ | 0.22 | $ | 0.29 | $ | 0.40 | ||||||||||||||||||||||||||||||
Dividends applicable to fiscal year per share*9 | $ | 0.22 | $ | 0.29 | $ | 0.40 | $ | 0.48 | $ | 0.60 | ||||||||||||||||||||||||||||||
Number of employees | 17,488 | 19,043 | 25,977 | 31,035 | 33,333 | 25,977 | 31,035 | 33,333 | 34,835 | 31,890 |
*1 | Certain line items presented in the consolidated statements of income have been |
*2 | Prior-year amounts have been adjusted retrospectively to eliminate a lag period that previously existed between DAIKYO INCORPORATED (“DAIKYO”) and ORIX in fiscal 2015. |
*3 | The sum of assets considered 90 days or more past due and loans individually evaluated for impairment amounted to |
¥80,347 million and ¥71,974 million as of March 31, |
¥11,600 million and |
*4 | Prior-year amounts have been adjusted for the retrospective application of Accounting Standards Update2015-03 (“Simplifying the Presentation of Debt Issuance Costs”—ASC835-30 (“Interest—Imputation of Interest”)) in fiscal 2017. |
*5 | 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 shares and excluded from the number of outstanding shares. The trust held 2,153,800 shares, 1,696,217 shares, 2,126,076 shares and |
* | 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. |
* | ORIX Corporation shareholders’ equity per share is the amount derived by dividing ORIX Corporation shareholders’ equity by the number of outstanding shares. |
* | Basic earnings per share for income attributable to ORIX Corporation shareholders from continuing operations is the amount derived by dividing income attributable to ORIX Corporation shareholders from continuing operations by the weighted-average number of shares outstanding based onmonth-end balances during the fiscal year. The term basic earnings per share for income attributable to ORIX Corporation shareholders from continuing operations as used throughout this annual report has the meaning described above. |
* | 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. |
EXCHANGE RATES
The following table provides the noon buying rates for Japanese yen, expressed in Japanese yen per $1.00 in New York City for cable transfers in foreign currencies. As of June 17, 2016,22, 2018, the noon buying rate for Japanese yen was ¥104.20¥109.98 = $1.00. No representation is made that the yen or dollar amounts referred to herein could have been or could be converted into dollars or yen, as the case may be, at any particular rate or at all.
Year Ended March 31, | ||||||||||||||||||||
2012 | 2013 | 2014 | 2015 | 2016 | ||||||||||||||||
(Yen per dollar) | ||||||||||||||||||||
Yen per dollar exchange rates: | ||||||||||||||||||||
High | ¥ | 85.26 | ¥ | 96.16 | ¥ | 105.25 | ¥ | 121.50 | ¥ | 125.58 | ||||||||||
Low | 75.72 | 77.41 | 92.96 | 101.26 | 111.30 | |||||||||||||||
Average of the last days of the months | 78.86 | 83.26 | 100.46 | 110.78 | 120.13 | |||||||||||||||
At period-end | 82.41 | 94.16 | 102.98 | 119.96 | 112.42 |
Year Ended March 31, | ||||||||||||||||||||
2014 | 2015 | 2016 | 2017 | 2018 | ||||||||||||||||
(Yen per dollar) | ||||||||||||||||||||
Yen per dollar exchange rates: | ||||||||||||||||||||
High | ¥ | 105.25 | ¥ | 121.50 | ¥ | 125.58 | ¥ | 118.32 | ¥ | 114.25 | ||||||||||
Low | 92.96 | 101.26 | 111.30 | 100.07 | 104.83 | |||||||||||||||
Average of the last days of the months | 100.46 | 110.78 | 120.13 | 108.31 | 110.70 | |||||||||||||||
Atperiod-end | 102.98 | 119.96 | 112.42 | 111.41 | 106.20 |
The following table provides the high and low noon buying rates for yen, expressed in yen per $1.00, during the months indicated.
High | Low | High | Low | |||||||||||||
2015 | ||||||||||||||||
2017 | ||||||||||||||||
December | ¥ | 123.52 | ¥ | 120.27 | ¥ | 113.62 | ¥ | 111.88 | ||||||||
2016 | ||||||||||||||||
2018 | ||||||||||||||||
January | ¥ | 121.05 | ¥ | 116.38 | ¥ | 113.18 | ¥ | 108.38 | ||||||||
February | 121.06 | 111.36 | 110.40 | 106.10 | ||||||||||||
March | 113.94 | 111.30 | 106.91 | 104.83 | ||||||||||||
April | 112.06 | 106.90 | 109.33 | 105.99 | ||||||||||||
May | 110.75 | 106.34 | 111.08 | 108.62 |
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 pecuniary 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.
1. Risks Related to our External Environment
(1) Global economic weakness and instability could adversely affect our business activities, financial condition and results of operations
Our business is affected by general economic conditions and financial conditions in Japan and in foreign countries.
The worldU.S. economy has remained steady with improvements in employment and income environments over the past eight years. Stable growth has also been suppressed withobserved in other regions. Although interest rates remain low level
worldwide, rate increases in the U.S. and the scaling back of growth due primarily to falling commodity prices such as the price of crude oil and fluctuationsquantitative easing policies in financial markets. Moderate economic growth is expected
among developed countries. Meanwhile, economic growth in emerging and developing countries is expected to be weak overall and disparity in economic growth among such countries continues to widen.Europe are expected. In addition, there are political and geopolitical tensions in certain regions that need to be monitored carefully.
The Japanese economic outlookeconomy, as a whole, is becoming increasingly unclear due primarilycontinuing to economic slowdown in emerging countries and the adoption of negative interest rate policy by the Bank of Japan in the second half of the fiscal year despite positive corporate earnings during the first half.
experience moderate recovery.
Despite our attempts to minimize our exposure tothe adverse effect of an unstable economic climate on our overall business through, for example, improving our risk management procedures, future instability in the global economy could adversely affect our business activities, financial condition and results of operations.
(2) We may lose market share or suffer reduced profitability as a result of competition based on pricing and other terms
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 rumors 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 rumors 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 may be adversely affected by economic fluctuations and political disturbances
We conduct business operations in Japan as well as in the United States, other areas of Asia, excluding Japan, Oceania, the Middle East and Europe. Outside Japan, we have large operations in the United States, Asia, Oceania and Europe. ShiftsRecessions, fluctuations or shifts in commodity market prices and consumer demand, political, social or economic instability or religious strifeacts of violence or war in these and other regions could adversely affect our business activities, financial condition and results of operations.
(5) Our business activities, financial condition and results of operations may be adversely affected by 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 includeman-made events, such as accidents, war, terrorism and insurgency, and natural events, such as earthquakes, storms, tsunamis, fires and outbreaks of infectious diseases. If any such event occurs, it may, among other things, cause unexpectedly large market price movements or an unexpectedunanticipated deterioration of economic conditions in a country or region. If such a suddenregion, or cause major injuries to our personnel or damage to our facilities, equipment and unpredictable event occurs,other property, which could adversely affect our business activities, financial condition and results of operations may be adversely affected.operations.
(6) Dispositions of Shares may adversely affect market prices for our Shares
As ofBetween June 21, 2016, four28, 2017, and June 28, 2018, one of our shareholders have filed a large shareholder reportsreport 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 theeach relevant
reporting shareholder. Additionally,This 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 the global economyor domestic economic or political conditions, market prices for our share priceShares could be adversely affected because a large percentage of our sharesShares are owned by investors outside of Japan.
2. Credit Risk
Our credit-related costs might increase
We maintain an allowance for doubtful receivables on direct financing 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, or deterioration in the conditions of specific customers, industries or markets.
We While we constantly strive to improve our portfolio management, however, we may be required to make additional provisions in the future depending on the economic trends.
trends and other factors.
Furthermore, if adverse economic or market conditions affect the value of underlying collateral, andsecondhand equipment, or guarantees, our credit-related costs other than the allowance might increase. If we need to increase our allowance for doubtful receivables on direct financing leases and probable loan losses, or our credit-related costs other than the allowance increase as a result of these changes or events,any such event occurs, our business activities, financial condition and results of operations could be adversely affected.
3. Business Risk
(1) We are exposed to risks from our diverse and expanding range of products and services, acquisitions of companies and assets, and entry into joint ventures and alliances
We continue to expand theare engaged in a broad range of our businesses in Japan and overseas and continue to expand such range, including through acquisitions of companies and businesses. SuchThe 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. In addition, we may not achieve targeted results if our business or business opportunities do not develop or increase as expected or if competitive pressures undermine profitability.
As Furthermore, as part of our business expansion, we may acquire companies or businesses. If the results of operations of an acquired company or business are lower than what we expected at the time we made such acquisition, we could be required to make large write-downs of goodwill or other assets.
Our subsidiaries and affiliatesWe 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 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 and results of operations may be adversely affected.
(2) We are exposed to risks related to asset value volatility
We invest inIn the management of our businesses, we hold various classes of assets and investments, including ships, aircraft, real estate, equipment and other assets in Japan and overseas. The market values of our assets and investments are volatile and may decline substantially in the future.
Valuation
Asset valuation losses of our assets 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, 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.
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 diversified businesses in Japan and overseas, including financial services business.
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.
4. 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 fund procurement 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 increased prepayments of loans and a decrease in our assets.
Though 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 use of derivatives may adversely affect our business activities, financial condition and results of operations
We may use derivative instruments mainly to reduce fluctuations in the value of our investment portfolioinvestments 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 operations failingfailure to grasp theirappraise the value of assets being hedged or executing themexecute such derivative instruments properly or at all, or our failure to achieve the intended results of such hedging results due to the
unavailability of offsetting or roll-over transactions underin the event of sudden turbulence in the market.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 in case our credit ratings are downgraded.
Our use of derivatives may adversely affectIn such instances, our business activities, financial condition and results of operations.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 declinefluctuate 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.
5. Liquidity Risk (Risk Relating to Fund Procurement)
Our access to liquidity and capital may be restricted by economic conditions, instability in the financial markets or changes in our credit ratings
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”) and securitization of leases, 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 or credit market volatility. 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 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, decreasing investor demand for our securities, increasing our bank borrowing costs, or reducing the amount of bank credit available to us.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.
6. Compliance Risk
6. Legal Risk
(1) A failure to maintain adequate internal controls to comply with regulations may harm our reputation and adversely affect our business activities, financial condition and results of operations
Our efforts to implement and maintain thorough internal controls for compliance and legal risk management, as well as compliance education programs for our staff, and 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 cease to function adequately. If we are unable to implement and maintain robust internal controls to prevent any such violations, we may be subject to sanctions or penalties, which could apply to our officers or employees. Such events could adversely affect our business activities, financial condition, results of operations and reputation.
7. Legal Risk
(1) We are subject to various laws and regulations in Japan and overseas which may restrict our business activities, subject us to legal liability or otherwise put us at a disadvantage
Our businesses and employees in Japan are subject to laws, as well as regulatory oversight by government authorities who implement those laws, relating to the various sectors in which we operate. These include laws and regulations applicable to specific industries, such as the Moneylending Business Act, the Installment Sales
Act, the Insurance Business Act, the Banking Act, the Trust Business Act, the Building Lots and Buildings Transaction Business Act and the Building Standards Act, as well as laws applicable to our business activities, such as the Companies Act, the Financial Instruments and Exchange Act, the Act on Prohibition of Private Monopolization and Maintenance of Fair Trade and the Act on the Protection of Personal Information.
Our businesses outside of Japan are also subject to the laws and regulations of the jurisdictions in which they operate and are subject to oversight by the regulatory authorities of those jurisdictions. For example, in addition to being subject to U.S. securities laws, we are also subject to the USA PatriotPATRIOT Act, which prohibits us from entering into any transactions with countries listed as state sponsors of terrorism, and the U.S. Foreign Corrupt Practices Act, which prohibits us from offering bribes to foreign public servants.
In addition, certain of our businesses are subject to industry-specific laws and regulations requiring, among other things, that each company conduct independent operationsin Japan and maintain financial soundnessoverseas, including requirements to obtain appropriate licenses and appropriateness of business activities.permits to operate. A total or partial suspension of operations, whether due to an actual or the revocationalleged violation of oneapplicable law or more of ourregulation, failure to obtain or maintain necessary licenses or permits or otherwise, may adversely affect our business activities, financial condition and results of operations.
Our efforts to implement thorough internal controls for compliance and legal risk management to prevent violations of applicable laws and regulations, 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 require us to revise or cause our current internal controls to cease to function adequately. In such cases, we may be subject to sanctions or penalties, which could apply to our officers or employees, if we fail to revise them properly or at all. Such events could adversely affect our business activities, financial condition, results of operations and reputation.
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.
(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 our customers, borrowers, invested companies and funding sources. Such enactment or changes may causeincrease our costs to increase, or if relating tocompliance costs. If accounting standards may significantly affect how we record and report our financial condition and results of operations,are changed, even if such changes do not directly affect our underlying business fundamentals remainprofitability or financial soundness, industries related to our businesses, our clients or the same.financial market may be negatively affected. As a result of such enactmentenactments or changes, our business activities, financial condition and results of operations could be adversely affected.
8. Information Asset Risk
7. Operational Risk
(1) Risks relating to loss, alteration, falsification or leakage of information
We maintain various information assets 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 assets. We also implement technical measures such as maintaining various network security 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 assets may be lost, damaged or leaked.
In such event, we may be penalized for violating applicable laws and regulations and may be sued for damages. In addition, our operations, financial standing and performance may be adversely affected due to, but not limited to, loss of customer and market confidence in us and deterioration of our reputation.
(2) Failures in our computer and other information systems could interfere with our operations and damage our business activities, financial condition and resultsresults 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, or infectionattack by a computer virus, hacking, unauthorized access 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 leakleakage, loss or destruction 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, or the suspension of certain products or services we provide to our customers.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.
Our information system equipment could suffer damage from a large-scale natural disaster or from terrorism, such as hacking or other unauthorized access. If networks or information systems fail, we could experience interruption of business activity, delay in the receipt and payment of funds, or We may also incur substantial costs to recover our business functionality or be penalized for recovery of functionality. violating applicable laws and regulations and may be sued for damages.
As a result of the above, our business activities,operations, financial conditionstanding and results of operationsperformance may be adversely affected.
9. Operational Risk
(2)(1) 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, our business activities, financial condition and results of operations may be adversely affected.
(3)(2) If our internal control over financial reporting is 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 we or our independent registered public accounting firm may identify material weaknesses in our internal control over financial reporting, and such finding may cause us orand our accountants to disclose that our internal control over financial reporting are 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 and results of operations may be adversely affected.
(4)(3) 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 be effective. As a result, our business activities, financial condition and results of operations couldmay be adversely affected.
(5)(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 are unable to do so 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 controlmanage 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 and results of operations may be adversely affected at any time due to this risk. Even if we do not incur direct pecuniary loss, our reputation may be adversely affected.
8.10. 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 affect 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. Most or 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 affect 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 certainnon-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
GENERAL
ORIX is a joint stock corporation(kabushiki kaisha) formed under Japanese law. Our principal place of business is at World Trade Center Building,2-4-1Hamamatsu-cho,Minato-ku, Tokyo105-6135, 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: http:https://www.orix.co.jp/grp/en. The information on our website is not incorporated by reference into this annual report. ORIX USA Corporation (“(hereinafter, “ORIX USA,” one of the Company’s subsidiaries, has changed its name to ORIX USA”)Corporation USA on June 1, 2018) 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 Tokyo-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 Sri Lanka (1980), the United States (1981), Australia (1986), Pakistan (1986) and Taiwan (1991). The Japanese company BudgetRent-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 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) and Kazakhstan (2005).
In 2006, we entered the investment banking field in the United States with the acquisition of Houlihan Lokey, Inc. (“Houlihan Lokey”) (whose shares we partially sold through our wholly-owned subsidiary ORIX USA in August 2015). In 2010, we acquired RED Capital Group, 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 independentSEC-registered hedge fund manager.
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. (“Robeco”(presently ORIX Corporation Europe N.V.), a holding company of global asset management companycompanies 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.
STRATEGY
STRATEGYOperating Environment
The U.S. economy has remained steady with improvements in employment and income environments. Stable growth has also been observed in other regions. Although interest rates remain low worldwide, rate increases in the U.S. and the scaling back of quantitative easing policies in Europe are expected. The market has become more conscious about increasing market volatility. In addition, there are political and geopolitical tensions in certain regions that need to be monitored carefully.
The Japanese economy, as a whole, is continuing to experience moderate recovery.
Target Performance Indicators
FY2019-2021
In its pursuit of sustainable growth, ORIX Group will useuses the following performance indicators: Net income attributable to ORIX Corporation shareholders to indicate profitability, ROE to indicate capital efficiency and ROA to indicate asset efficiency. In line with themid-term strategic directions announced in May 2015, ORIX aimsGroup aimed to achieve a mid-term net income attributable to ORIX Corporation shareholders target of ¥300 billion for the fiscal year endingended March 31, 2018, and to maintain ROE around 11% to 12% with a focus on the growth of existing businesses and the expansion ofnon-finance businesses through new investment in key areas.
In the last three fiscal years ended March 31, 2018, in the domestic market, ORIX Group steadily developed its auto related business through its solid customer base, increased the number of life insurance policies through products that meet customer needs as well as enhanced sales channels and expanded the renewable energy business and electric power retailing business in the environment and energy business. In the overseas business, ORIX Group developed its fee businesses in the Americas, increased profit and assets under management in ORIX Corporation Europe N.V. and increased assets in the aircraft related business.
Regarding new investment in key areas, ORIX Group set a precedent for its overseas development through its investments in the environment and energy business in the Americas and Asia, and expanded its fee businesses through several M&A transactions mainly in the Americas. Regarding the private equity businesses, ORIX Group built up a track record of investment and sales in Japan and also made several new investments in the Americas and Asia.
Furthermore, ORIX Group launched its concession business and joint airport operation business which is a first for a private operator.
As a result of above-mentioned measures, as of March 31, 2018, ORIX Group achieved a net income attributable to ORIX Corporation shareholders of ¥313.1 billion and ROE of 12.1% meeting its targets of net income attributable to ORIX Corporation shareholders of ¥300 billion and ROE around 11% to 12%.
From the fiscal year ending March 31, 2019, ORIX Group aims to achieve annual net income attributable to ORIX Corporation shareholders growth of between 4% to 8%, and to maintain ROE above 11% by striving to increaseincreasing asset efficiency through quality asset expansion in order to capture business opportunities along with increasedand increasing capital efficiency by strengthening profit-earning opportunities such asfee-based businesses.
Although forward-looking statements in this document are attributable to current information available to ORIX Corporation and are based on assumptions deemed reasonable by ORIX Corporation, actual financial results may differ materially due to various factors. Readers are urged not to place undue reliance on such forward-looking statements.
Three-year trends in performance indicators are as follows.
As of March 31, | As of March 31, | |||||||||||||||||||||||||||
2014 | 2015 | 2016 | 2016 | 2017 | 2018 | |||||||||||||||||||||||
Net income attributable to ORIX Corporation shareholders | (Millions of yen) | ¥ | 187,364 | ¥ | 234,948 | ¥ | 260,169 | (Millions of yen) | ¥ | 260,169 | ¥ | 273,239 | ¥ | 313,135 | ||||||||||||||
ROE(1) | (%) | 10.5 | 11.5 | 11.7 | (%) | 11.7 | 11.3 | 12.1 | ||||||||||||||||||||
ROA | (%) | 2.14 | 2.29 | 2.32 | (%) | 2.32 | 2.46 | 2.76 |
(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. |
(3) | Prior-year amounts have been adjusted for the retrospective application of Accounting Standards Update2015-03 (“Simplifying the Presentation of Debt Issuance Costs”—ASC835-30 (“Interest—Imputation of Interest”)) in fiscal 2017. |
Medium- Term Management Targets
Strategic Directions FY2019-2021
ORIX Group continues to provide innovative and flexible solutions to address changes in the market environment and customer needs. ORIX Group’s diversifiedmanages its business portfolio consists ofby dividing it into six business segments: Corporate Financial Services, Maintenance Leasing, Real Estate, Investment and Operation, Retail, and Overseas Business. These business segments are closely integrated with each other to create greater value through sharing know-how
Furthermore, taking risk and expertise.
capital requirements into account, ORIX Group usingcategorizes these six segments into three categories: “Finance,” “Operation” and “Investment” to describe its diversifiedmid-term strategic directions. The “Finance” business portfolio as basis, intends to capitalize on its business foundation, clientis ORIX Group’s customer base industry know-how and accumulated expertise, to continuously improve profitability by providing high value-added services tosource of information. However, given that the market. Furthermore, under our mid-term strategy of “Expansionlow interest rate environment makes growth difficult in Non-Finance Business,”financial businesses, ORIX Group aimswill continue to achieve sustainable profit growth.focus on “Operation” and “Investment” to grow stable earnings and will proactively enter new markets to nurture its next core businesses.
Our strategy of “ExpansionThe “Operation” business for which operational risk is taken by ORIX Group is positioned as ORIX Group’s growth driver and source for new and stable earnings. ORIX Group will engage in Non-Finance Business” consists of “Organic growth”M&A and “Newexpand new investment in key areas.” With these principles, we will pursue newwith a focus on the environment and energy business, arising from the changingasset management business, environment.
“Organic growth”: Deepen our strengths and expertise to further expand our existing operations both in Japan and abroad. Those in Japan include fee business, automobile-related business, facility operationconcession business and life insurance business. Those abroad include automobile-related business as well as other new business areas coming from the change in society and further diversification towards non-finance business.
“New investment in key areas”: ContinueThe “Investment” business provides ORIX Group with opportunities to pursuedevelop new investment opportunities in key areas identified as the environment and energy-related business and principal investmentbusinesses. ORIX Group focuses mainly on private equity businesses in Japan and abroad,overseas, aircraft and ship-related operations and will expand the network in Asia, global asset management, and concession business.scale of those businesses.
Development of business structure toward the realization of management strategies
It is vital for ORIX Group to continue to maintain and develop a business structure that can be flexibly and swiftly adapted to the changing business environment. ORIX Group will take the following three steps in order to achieve the aforementioned Medium-Term Management Targets.mid-term strategic directions.
Further advancement of risk management: Fortify ORIX Group’s growth-supportingRecognizing that business expansion and growth has diversified and globalized our risk, strengthen the business foundation with support our growth by readily and continuously utilizing our risk management foundation by enhancing the expertise necessary to manage risk,structure and further refining theour ability to discern good risks from bad ones.assess risks.
Pursue transactions that are both socially responsible and economically viable: Pursue transactions that are socially responsible from a social and environmental standpoint while providing products and services that are valued by clients and improve ORIX Group’s overall profitability.
Create a fulfilling workplace: Focus on ORIX Group’s strengths as a global organization to create a fulfilling work environment for all employees regardless of nationality, age, gender, background or position.
PROFILE OF BUSINESS BY SEGMENT
Our reportable segments are based on ASC 280 (“Segment Reporting”). For a discussion of the basis for the breakdown of segments, see Note 32 in33 of “Item 18. Financial Statements.” The following table shows a breakdown of profits by segment for fiscal 2014, 20152016, 2017 and 2016.2018.
Years ended March 31, | ||||||||||||
2014 | 2015 | 2016 | ||||||||||
(Millions of yen) | ||||||||||||
Corporate Financial Services | ¥ | 24,874 | ¥ | 25,519 | ¥ | 42,418 | ||||||
Maintenance Leasing | 37,062 | 40,366 | 42,935 | |||||||||
Real Estate | 17,956 | 3,484 | 42,902 | |||||||||
Investment and Operation | 95,786 | 42,414 | 57,220 | |||||||||
Retail | 49,871 | 120,616 | 51,756 | |||||||||
Overseas Business | 69,688 | 104,143 | 142,879 | |||||||||
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Total segment profits | 295,237 | 336,542 | 380,110 | |||||||||
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Difference between segment total and consolidated amounts | (8,898 | ) | 7,475 | 11,192 | ||||||||
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Total Consolidated Amounts | ¥ | 286,339 | ¥ | 344,017 | ¥ | 391,302 | ||||||
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Years ended March 31, | ||||||||||||
2016 | 2017 | 2018 | ||||||||||
(Millions of yen) | ||||||||||||
Corporate Financial Services | ¥ | 42,418 | ¥ | 38,032 | ¥ | 49,275 | ||||||
Maintenance Leasing | 42,935 | 39,787 | 40,162 | |||||||||
Real Estate | 42,902 | 72,841 | 62,372 | |||||||||
Investment and Operation | 57,220 | 85,000 | 96,120 | |||||||||
Retail | 51,756 | 72,865 | 74,527 | |||||||||
Overseas Business | 142,879 | 112,312 | 106,602 | |||||||||
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Total segment profits | 380,110 | 420,837 | 429,058 | |||||||||
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Difference between segment total and consolidated amounts | 11,192 | 4,128 | 6,443 | |||||||||
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Total Consolidated Amounts | ¥ | 391,302 | ¥ | 424,965 | ¥ | 435,501 | ||||||
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Each of our segments is briefly described below.
BUSINESS SEGMENTS
ORIX organizes its businesses into six segments to facilitate strategy formulation, resource allocation and portfolio balancing at the segment level. These six business segments are: Corporate Financial Services,
Maintenance Leasing, Real Estate, Investment and Operation, Retail and Overseas Business. 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.advantage overall.
An overview of operations, operating environment and operating strategy for each of the six segments follows.
Corporate Financial Services Segment
Overview of Operation
This segment has its origin in the leasing business developed at the time of ORIX’s establishment in 1964. Even today, this segment serves as the foundation for the entire ORIX Group’s sales activities.
Operating through a nationwide network, ORIX provides leasing and loans and engages in various other fee businesses by providing products and services aligned with customer needs to its core customer base of domestic small andmedium-sized enterprises (“SMEs”). The Corporate Financial Services segment functions as the central point of contact for the entire ORIX Group by gathering information on customers and products/services and responding to customer needs, including in connection with business succession and overseas expansion.
This segment has its origin in the leasing business developed at the time of ORIX’s establishment in 1964. Even today, this segment serves as the foundation for the entire ORIX Group’s sales activities.
This segment promotes consolidated management by target sharingcollaborating with other business segments and Group companies, both domestic and foreign. In this way, this segment creates cross-functional tie upstie-ups with Group customers in order to swiftly provide wide-ranging services backed by expertise.
Operating Environment
See Segment Information of “Item 5. Operating and Financial Review and Prospects—Results of operations.”
Despite the good earnings environment in corporate sector with some exceptions, the economy as a whole has been in an economic slowdown phase. The slowing of economic development mainly in emerging countries also has been growing uncertainty about the future of the world economy. Although we see rising stock prices with weak yen supported by the Bank of Japan’s monetary easing measures introduced in 2013, volatility of stock market has been rising impacted by the introduction of negative interest rate policy.
While we see an upward trend of loans by financial institutions, not only for large enterprises but medium-sized enterprises, the competition due to the low interest rates on loans is continuing.
Mid-term Strategic Directions
Shift from finance revenues toDiversify the source of services income
Maximize synergy potential with Yayoi
Utilize domestic network to target growth areas
Operating Strategy
Through various transactions, sales personnel in the Corporate Financial Services segment deepen their understanding of the segment’s customers, including their specific needs and management issues. With this segment constituting ORIX’s sales platform, sales personnel develop and deliver optimum solutions to customers by leveraging the high-level expertise of the Group’s business segments to expand the Group’s business opportunities. We seek to enhance the profitability of the Group as a whole by expanding the customer base through stronger cooperation with Group companies. Moreover, we seek to increase revenues from fee business by providing products and services aligned with customer needs.
ThisSpecifically, we provide a wide range of product and services such as life insurance, environment and energy service, auto lease related services and also strengthen our business to provide solutions against diversified business challenges which customers face such as business succession. Moreover, the segment promotes consolidated management by sharing business targets with other business segments and Group companies, both domestic and foreign, particularly ORIX Auto Corporation and ORIX Rentec Corporation. By promoting consolidated management, we seek to strengthen customer relations so that the customers of our Group companies including the customers of ORIX Auto Corporation will also become customers for other productsfocus on new areas such as IT, healthcare and services offered by the Group.
The launch of solar panel sales has enabled the Corporate Financial Services segment to generate new customer relationships. This segment endeavors to expand transactions not only with customers who actually purchased solar panels but with all potential customers to whom it marketed solar panels by continuing to offer solutions to management issues, which lead to sales of the Group’s products and services. This segment seeks to develop new businesses and services in order to expand the Group’s customer base and build a more stable revenue base.
Maintenance Leasing Segment
Overview of Operation
The Maintenance Leasing segment consists of ORIX’s automobile and rental operations, both of which possess a high level of expertise.
In its automobile leasing business, ORIX engages in leasing, automobile rental and car sharing businesses. Automobile leasing operations began by offering leases including maintenance to corporate clients. Today, the segment’s services include a complete range of vehicle maintenance outsourcing services requiring high-level expertise that encompasses solutions that meet clients’ compliance, environmental and safety management needs. This segment also offers a broad spectrum of tailor-made services that address both corporate and individual client needs.
Having initially specialized in precision measuring equipment rentals for corporate customers, the rental business has greatly expanded the range of offered products it offers and currently includesIT-related equipment and medical equipment, environmental analysis equipment as well as tablet computers. The rental business also offers a diverse range of services such as technical support, sales of software packages, equipment calibration and asset management.
Operating Environment
See Segment Information of “Item 5. Operating and Financial Review and Prospects—Results of operations.”
Despite the good earnings environment in corporate sector with some exceptions, the economy as a whole has been in an economic slowdown phase. The slowing of economic development mainly in emerging countries also has been growing uncertainty about the future of the world economy. Demand for automobile leasing and truck rentals is expected to rise due to earthquake reconstruction, infrastructure and toughening plan, and an increase of the public works investment for the 2020 Tokyo Olympics and Paralympics.
Companies’ needs for services related to compliance, safety management, and reduction of environmental impact are increasing together with a continued emphasis on reducing vehicle maintenance and administrative costs. Reflecting the change in individuals’ perception of vehicles, there is a shift in consumption behavior from ownership to usage and sharing, and as a result, demand for car rental and car sharing services is rising.
The precision measuring equipment rental market in Japan is not expected to expand substantially, although there have been signs of a return of domestic manufacturing capacity in the manufacturing sector. On the other hand, the competitive landscape remains relatively stable owing to the high barriers to entry arising from substantial up-front investment and the difficulty of securing specialist personnel with the requisite expertise.
In the IT-related equipment field, the market for cloud computing services continues to grow, and there are signs of a shift in corporate IT investment from hardware ownership to service use. Whereas the PC market will likely remain flat over the medium term, the tablet market is expected to grow significantly.
Mid-term Strategic Directions
Further expansion of the business while maintaining high profitability
Capitalize on competitive advantage to increase market shares
Deepen expertise and develop
Operating Strategy
The automobile business aims to increase its leased assets to reinforce and expand its customer base. In Japan, while the leasing rate of vehicle fleets for enterprises that own more than 30 vehicles is relatively high, it is very low for enterprises and individuals that own 30 vehicles or fewer. On the other hand,Instead, these smaller enterprises and individuals account for a large proportion of the vehicles owned in Japan. Therefore, the automobile business will strive to increase the proportion of the customer base consisting of smaller enterprises and individuals while continuing to grow the large-enterpriseslarge-enterprise customer base. Moreover, we will strive to reinforce relationships with customers through cross-functional marketing activities with corporate sales departments in Japan that cut across the Group.
The automobile business is strengthening the provision of high value-added services. Seeking to ensure a stable revenue stream and differentiate itself from competitors, the automobile business leverages its consulting capabilities to select and offer optimum services to the customercustomers, including from a wide range of vehicle management services. While continually reviewing theline-up of products and services in response to changes in the business environment and evolving customer needs, the automobile business develops new products and services to create new market segments. In addition, to promotedevelop the retail business for individuals, we will propose a wide range of approaches to car use, such as car rental and car sharing, to meet individual customer’s diverse needs and provide elaborate services.
In the equipment rental business, while working to maintain our high market share, we intend to expand and strengthen our revenue base by increasing the number of new customers by focusing on growth areas, increasing
rental of high margin products and introducing new rental items. We will also expand our customer base and range of products in the fields of environment and energy, environmental analysis, electronic components and next-generation automobile development and promote medical equipment rentals that require a high level of expertise and other high value-added rentals by providing applications and cloud services designed to meet the needs of customers renting tablets.tablet computers. We will seektie-ups with manufacturers and system companies in order to expand our products and services.
All of our businesses in the Maintenance Leasing segment will seek to continue to strengthenstrengthening business management and cost control to maintain their high profitability and competitiveness.
Real Estate Segment
Overview of Operation
The Real Estate segment is mainly comprised of the real estate development and rental, business, the facilities operating businessfacility operation, REIT asset management, and real estate investment advisory business.
services.
In the real estate development and rental business, ORIX Group is involved not only in developing and leasing properties such as office buildings, commercial properties, logistics centers and residences but also in asset management, and real estate finance, where ORIX Group has a high level of expertise.
The facilities operations business handles hotels, Japanese inns,accommodations, aquariums, golf courses, training facilities, senior housings, baseball stadiums, and theaters.
Operating Environment
See Segment Information of “Item 5. Operating and Financial Review and Prospects—Results of operations.”
Since the Bank of Japanintroduced negative interest rates as part of its monetary easing measures, the Japanese real estate market has been energized.
In the J-REIT market, property acquisitions have been increasing through initial public offerings, and public offerings by existing J-REITs. The market has shown rising sales prices with increased competition to acquire
properties, and has produced several large-scale real estate deals. In the office building market, there is a decline in the vacancy rate. Rental prices are trending upward, but their rates of increase are shrinking. With the upcoming 2020 Tokyo Olympics and Paralympics, Japanese real estate market has gained attention again. Active investments in tourism-related properties such as hotels and Japanese inns are now seen not only in urban areas but provincial areas as well.
We expect the facilities operation business to remain solid due to the increasing number of elderly persons traveling domestically and foreign tourists visiting Japan.
Mid-term Strategic Directions
Continue to shiftExpand asset management business model towards one with higher stability and profitability
Develop new value-added services
Capitalize facility operation expertise in markets abroad
Operating Strategy
In the real estate rental business, we will enhance our portfolio by mainly keeping selling less liquid and economically sensitive properties and by promoting new investments in blue-chip properties.
In the real estate development business, we will promote the development of complex facilities based on accommodations not only in major urban areas but also in provincial areas abundant in tourism resources.
resources with the knowledge and experience acquired through the various real estate development and rental businesses and facility operation businesses. And we also develop the most advanced logistic facilities which is adopted to online shopping market by utilizing the land information acquired through the sales network and grasping customers’ needs. In the real estate rental business, we will enhance our portfolio by selling properties at appropriate times and by promoting new investments in properties continuously.
In the feeasset management business, we will makeincrease the most of customer baseassets under management in ORIX Asset Management Corporation and value-chain functions in the real estate business, that is, the real estate segment’s strong points such as asset management, value-adding, leasing and finance.
ORIX Real Estate Investment Advisors Corporation to expand our fee business. In the facilities operation business, we will boost selective investmentscontinue to invest in hotels and Japanese inns.inns by selecting those locations carefully. In operating our existing facilities, we will add value which we believe ORIX can generate and make them moreadd value through providing attractive soaccommodations that our customers can be fullyare satisfied with and want to visit them several more times.revisit.
Through these measures,As mentioned above, we will turn thismake stable profit through the asset management business into aand facility operating business generating highwhile developing new businesses by making best use of our broad expertise in real estate business and stable revenue.group network.
Investment and Operation Segment
Overview of Operation
In the Investment and Operation business segment, ORIX is engaged in three core business activities: environment and energy-relatedenergy business, principal investments and loan servicing.
concession.
For more than ten years, ORIX has been actively involved in the environment and energy-relatedenergy business through the collection and disposal of waste generated fromend-of-lease assets. In fiscal 2016,addition to waste processing, recycling and energy-saving services our environment and energy business includes renewable energy such as mega-solar and electric power retailing. Overseas, we made decision to investhave invested in projects including a large scale wind power projectgeneration business in India withand in the infrastructure development and investmentlarge private hydropower company “INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED”in Vietnam to further strengthen energy-relatedthe energy business in Asia.
The principal investment business invests in private equity both in Japan and overseas and capitalizes on the expertise and collective strength of the Group to increase the corporate value of investees.
The loan servicing business invests in non-performing loansOn April 1, 2016, Kansai Airports, established by a consortium anchored by ORIX and engages in joint operations of business rehabilitation support companies through capital alliances with financial institutions.
In addition, in April 2016 weVINCI Airports, a French company, commenced operation of the Kansai International Airport and Osaka International Airport as a concession business.concession. Balancing the ingenuity, dynamism, and the social responsibilities for managing public infrastructure as the first airport operator managed by private company in our country, Kansai Airports will contribute to the ongoing development.
Operating Environment
See Segment Information of “Item 5. Operating and Financial Review and Prospects—Results of operations.”
In Japan, in the environment and energy-related business, despite signs that the feed-in tariff program for renewable energy may be revamped, renewable energy will be important in the medium to long term, and the scope of our domestic environment and energy-related business continues to expand to areas outside of solar power, including wind power and geothermal power generation. Other industries are entering into this field ahead of the full deregulation of the retail electricity market, which was implemented in April 2016 under the Amended Electricity Business Act, and there has been a sharp rise in power producers and suppliers (PPS) in the past few years. Overseas, especially in Asia, economic growth is accelerating demand for energy. We expect this increase to continue.
In the M&A market, we expect increased demand for investment, finance and advisory services in line with increases in cross-border transactions by Japanese businesses, as well as corporate restructuring, privatization of subsidiaries and business succession planning in SMEs.
In the non-performing loan market, domestic financial institutions were expected to liquidate their non-performing loans following the expiration of the SME Finance Facilitation Act at the end of March 2013. However, these financial institutions have not taken such liquidation measures to date, and there have been only a few investment opportunities.
Mid-term Strategic Directions
Target growth opportunities with stable revenue streams
PushDiversify the environmentmethods and energy-relatedexpand the target zone in the business forward to the next stage
InvestmentExpand the scope in newconcession business fields
Operating Strategy
In our environment and energy-relatedenergy business, we will increase investment in renewable energy. In Japan, we will focus on the development of energy sources other than solar power, such as wind power, geothermal power and biomass, and will work together with our domestic sales and marketing divisions. We aimdivisions to become one of Japan’s leading renewable energy power companies. We also seek to expand the business ahead of the deregulation of the electricity retail market. Overseas,As for overseas, we will focus onalso use the experience and expertise cultivated in Japan to strengthen its electric power generation businessesand renewable energy business in Asia.
emerging countries, in which energy demand is expected to expand. As part of this strategy, we invested in Ormat Technologies, Inc., (“Ormat”) the U.S. listed geothermal energy company in July 2017.
In the principal investment business, we will leverage our track record to carefully select and actively invest in foreign and domestic business operations. After investing, we will providehands-on support backed by
specialists, use our business platform of the Group to develop a base of customers and business partners and implement other measures to improve the corporate value of investees in a manner unique to ORIX. We will seek opportunistic investments without limiting the industries we invest in. In Japan, we emphasize domestic investment in medical-related fields, IT services and the food industry.
InAs for concession business, we commenced to operate Kobe Airport with VINCI Airports and Kansai Airports in April 2018 and will integrate the areasoperation of loan servicingKansai International Airport, Osaka International Airport, and non-performing loan investment, we will perform service contractKobe Airport. We also took part in the operation of wastewater treatment plant in Hamamatsu City and debt acquisition to capture each financial institution’s unique needs and circumstances, such as industry realignment. In addition, we will continue to pursue profit-generating opportunities, leveragingexpand our loan servicing experience and expertise in the areas of management support (e.g., business succession, business rehabilitation), operation of corporate rehabilitation funds together with financial institution. We also enter into joint operations with business rehabilitation support companies through capital alliances.
Retail Segment
Overview of Operation
The Retail business segment consists of life insurance business, banking business and card loan business.
ORIX Life Insurance Corporation (“ORIX Life Insurance”) was founded in 1991 and operates mainly through agencies and mail order sales. On July 1, 2014, ORIX Life Insurance Corporation (“ORIX Life Insurance”) acquired HLIKK, and the two companies merged on July 1, 2015. Regarding the banking business, ORIX Bank Corporation (“ORIX Bank”) inherited the housing loan business ORIX began handling in 1980 and is now involved in corporate lending and other services. ORIX Bank began card loan operations in March 2012.
ORIX Credit is a card loan provider established in 1979. For approximately three years from July 2009, ORIX Credit was managed as a joint venture with Sumitomo Mitsui Banking Corporation before beingre-consolidated as a wholly owned subsidiary of ORIX Group following the purchase of all of ORIX Credit’s shares in June 2012.
ORIX Bank and ORIX Credit have been consolidating management to actively expand their card loan operations.
Operating Environment
See Segment Information of “Item 5. Operating and Financial Review and Prospects—Results of operations.”
In the domestic life insurance market, while demand for death benefits is showing little growth, demand for so-called third-sector insurance—medical insurance and cancer insurance, among others—is increasing. Meanwhile, the sales channels for insurance products continue to diversify to include bank, internet and direct shop sales. In the investment environment, along with the negative interest introduced, also observed the movement of the price increase of insurance premiums stop selling and new contracts of some products.
In the banking industry, loan balances and the types of borrowers are increasing. Meanwhile, loan interest rates are declining due to intensified competition. Furthermore, financing demand by individual investors investing in rental condominiums continues to grow.
In the card loan market, due to a reduction of the maximum permissible interest rates under the Act of Regulation of Receiving of Capital Subscription, Debt and Interest Rates, etc. and the introduction of restrictions on the allowable volume of loans under the Money Lending Business Act, there has been a rapid decrease in loan balances and the number of loan providers. However, there are signs that the reduction in loan balances has bottomed out, and that banks are beginning to expand their individual unsecured loan lending activities.
Mid-term Strategic Directions
Grow from mid sizemid-size insurer to a major insurer
Expand card loanDevelop new business via integrated managementfields of ORIX Bank and ORIX Credit
Operating Strategy
In this segment, as an overall strategy, we will continue to provide products with a high level of customer satisfaction and seek to develop a new market aimed at individual customers while continuing to enhance our efficiency and unique expertise in niche markets.
ORIX Life Insurance will continue to enhance its productsproduct lineup with new insurance products developed to meet customer needs. In addition to third-sector insurance such as cancer and medical treatment insurance, the company will focus on first-sector insurance such as life insurance and increasing the number of contracts.
Regarding sales channel,channels, while supporting continuous growth in the existing agency channel, we intend to expand our direct distribution channels. We will also seek to improve our financial strength by improving overall business efficiency.
ORIX Bank will keep manipulatingoperating and raising funds efficiently with high loan-deposit-ratio in order to meet active demand for money. In the housing-loan business, the company will increase its loan balance by making full use of its networks andknow-how accumulated over many years.
ORIX Bank will also enter new business fields such as the investment trust business.
The card loan business plans to expand in two ways to acquire potential demand in the shrinking market. The first is to increase card loan balance through the collaboration of ORIX Bank and ORIX Credit by taking advantage of their human-andhuman and knowledge resources. The second is to expand card loan guarantee to other financial institutions by utilizing ORIX Credit’sknow-how of credit screening.
Overseas Business Segment
Overview of Operation
Since first expanding into Hong Kong in 1971, ORIX Group has established an overseas network spanning 716 bases in 38 countries and regions.
In the Overseas Business segment, in the United States, asset management is at the heart of efforts to expandnon-finance business boastingand boasts a high level of expertise in the fields of corporate finance, securities investment, M&A advisory,principal investment, loan origination and servicing and also fund management.
Since first expanding into Hong Kong in 1971, ORIX Group has established an overseas network spanning 544 bases in 36 countries and regions. Underpinned by a leasing, automobile leasing and corporate finance operating base that is aligned with the conditions of each country in Asia, the Overseas Business segment engages in principal investment activities, real estate-related investments, principal investment and non-performing loan investment activities,businesses, as well as aircraft and shipping businessesship-related operations that includesinclude leasing, financing, management, investment, intermediary and sales activities.
activities in the field of aircraft and ship.
Furthermore, in Europe, the Overseas Business segment conducts asset management operations for individual and corporate clients through Robeco,ORIX Corporation Europe N.V., a Dutch holding company of global asset managermanagement companies that became a consolidated subsidiary of ORIX Group in July 2013. In 2014, ORIX launched a private equity fund with2013 (hereinafter, “ORIX Europe,” one of the Company’s subsidiaries, has changed its name from Robeco and the Asian Development Bank for the purpose of investing in environment and energy-related projects and low-carbon projects in Asia. We are steadily pursuing collaboration within the Group to expand this business.Groep N.V. on January 1, 2018).
Operating Environment
See Segment Information of “Item 5. Operating and Financial Review and Prospects—Results of operations.”
Mid-term Strategic Directions
Operating Strategy
In the United States, the Federal Reserve ended the quantitative easing program and made a decision to discontinue negative interest rate policy. The United States economy continues to show steady growth, supported by a recovery in the job market, solid housing demand and higher personal spending. Going forward, we expect the United States economy to drive the global economy.
In Asia, while China is in the process of shifting the emphasis of its economic policy away from high growth and toward stable growth, other emerging economies are expected to see increases in investments with a focus on high growth, due in part to economic resurgence among developed countries.
In the airline industry, despite lingering uncertainty within the global economy, the travel market continues to grow. Although in Europe the airline industry performance is still struggling, in Asia and the United States the industry has gradually recovered. The flow of capital into the aircraft leasing market is continuing.
In the shipping industry, there are still no signs of recovery.
Mid-term Strategic Directions
Position as the driver for Group’s growth and profitability
Expansion of asset management business
Aggressively develop aircraft and shipping business
Operating Strategy
In the United States, in addition to maintainingmaintain a stable presence in our traditional business of investing in municipal bonds, CMBS and other fixed-income securities and providing corporate finance services, we seek toservices. We also enhance the fee business through Red Capital Group’s loan structuring and servicing services and Mariner Investment Group’s fund management services. In addition, we endeavor to investSince the acquisition of Boston Financial Investment Management LP, a syndicator in the fieldLow Income Housing Tax Credit industry in July 2016 and Lancaster Pollard Holdings, LLC, which provides integrated investment banking, mortgage banking, balance sheet lending and private equity services focused on the full continuum of healthcare and using our local subsidiarysenior living in Brazil as baseSeptember 2017, we continue to expand into fields such as asset management, structured finance and investment banking through M&A and capital participation in South America.
fee businesses.
In Asia Oceania, the Middle East and Europe,Oceania, while seeking to maintain stable profits from the financial services business platform of our existing local subsidiaries, which offer locally based lending and leasing, we plan to diversify our business into related fields. We will promote new investment activities inas-yet unexplored areas.
In the aircraft business,aircraft-related operations, we will proceed tomake new investments by carefully select the type ofselecting aircraft types, age and other important factors for our portfolio and make new investments.portfolio. In addition to pursuing opportunities to profit from Company-owned assets, we will seek to generate fees sellingfrom our services relating to the management of the aircraft to investors and retainingfinancial institutions. In the ship-related operations, we will accelerate investment in shipping loans particularly in Europe with the cultivated expertise ranging from ship finance, ownership, management of the aircraft.and operations to ship purchases, sales and brokerage.
In addition to the sustained growth of Robeco,ORIX Europe, we will endeavor to expand the asset management business and also consider new investments.
DIVISIONS, MAJOR SUBSIDIARIES AND AFFILIATES
A list of major subsidiaries 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
Because our mainprimary 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, one hotelthermal power station, two solar power stations and one solar power station.hotel.
As of March 31, 2016 | As of March 31, 2018 | |||||||||||||||
Book Value | Land Space(1) | Book Value | Land Space(1) | |||||||||||||
(Millions of yen) | (Thousands of m²) | (Millions of yen) | (Thousands of m²) | |||||||||||||
Office building (Tachikawa, Tokyo) | ¥ | 13,941 | 3 | ¥ | 13,572 | 3 | ||||||||||
Office building (Shiba, Minato-ku, Tokyo) | 30,805 | 2 | 30,803 | 2 | ||||||||||||
Office building (Osaka, Osaka) | 10,519 | 2 | 10,270 | 2 | ||||||||||||
Thermal power station (Soma, Fukushima) | 30,573 | 63 | ||||||||||||||
Solar power station (Tsu, Mie) | 15,479 | 1,193 | ||||||||||||||
Solar power station (Tomakomai, Hokkaido) | 12,030 | — | ||||||||||||||
Hotel (Beppu, Oita) | 11,068 | 159 | 10,803 | 159 | ||||||||||||
Solar power station (Tomakomai, Hokkaido) | 13,596 | — |
(1) | Land space is provided only for those facilities where we own the land. |
The office building (Roppongi, Minato-ku, Tokyo) reported as of March 31, 2015 has changed to an operating lease property as of March 31, 2016.
We plan to make capital expenditures totaling approximately ¥486,000¥563,000 million to support the growth and development of our operating lease business and power generation business during fiscal 2017.2019. The following table shows a breakdown of planned capital expenditures and includes the estimated investment amounts and expected methods of financing the expenditures.
Fiscal | ||||||
Estimated investment amounts | Expected methods of financing | |||||
(Millions of yen) | ||||||
Operating lease equipment and property | ¥ | Funds on hand, bank borrowings, etc. | ||||
Power generation equipment | Funds on hand, bank borrowings, etc. | |||||
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Total | ¥ | — | ||||
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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 ¥120,173¥112,962 million as of March 31, 2016.
2018.
As of March 31, 2016,2018, the acquisition cost of equipment we held for operating leases amounted to ¥1,868,457¥1,919,826 million, consisting of ¥1,076,697¥1,249,683 million of transportation equipment, ¥239,262¥245,492 million of measuring and information-related equipment, ¥531,155¥395,533 million of real estate and ¥21,343¥29,118 million of others, before accumulated depreciation. Accumulated depreciation on equipment held for operating leases was ¥542,868¥605,415 million 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 governed by, the Companies Act. However, ORIX and its group companies are involved in diverse businesses in overseas jurisdictions, including in Asia, North America, the Middle East and Europe, and are therefore subject to various regulations and supervision in each jurisdiction in which they operate, including, but not limited to, regulations relating to business and investment approvals, antitrust, anti-bribery, consumer and business taxation, foreign exchange controls, intellectual property and personal information protection.
The next section describes the laws and regulations of our business in Japan and the United States and Europe, our major areaareas of operation outside Japan.
JAPAN
There is no general regulatory regime which governs the conduct of our direct financing lease and operating lease businesses in Japan, although various laws regulate certain aspects of particular lease transactions, depending on the type of leased property.
The major regulations that govern our businesses are as follows:
Moneylending Business
ORIX and certain of our group companies are engaged in the moneylending business in Japan. The moneylending business is regulated by the Interest Rate Restriction Act, the Act Regulating the Receipt of Contributions, the Receipt of Deposits and Interest Rates and the Moneylending Business Act. The Moneylending Business Act requires that all companies engaged in moneylending business register with the Prime Minister and the relevant prefectural governors. Registered moneylenders are regulated by the Financial Services Agency (“FSA”), and are required to report to or notify the FSA, providing specified documents such as their annual business reports. Accordingly, pursuant to the Moneylending Business Act, ORIX and certain of our group companies registerhave registered with the Prime Minister and various prefectural governors and provide the necessary reporting and notification to the FSA. The FSA has the power to issue business improvement orders to suspend all or part of a business’smoney lender’s activities, or to revoke the registration of a moneylender that has violated the law.
Real Estate Business
ORIX and certain of our group companies, including ORIX Real Estate Corporation and DAIKYO, are engaged in the real estate business in Japan, including buying and selling land and buildings. Companies engaged
in such operations are required to be licensed by the Ministry of Land, Infrastructure and Transport (“MoLIT”) and relevant prefectural governors under the Building Lots and Buildings Transaction Business Act, and their operations are regulated by such laws, including the maintenance of registered real estate transaction managers on staff and the provision and delivery of material information to counterparties. DAIKYO has thea Construction Business License from MoLIT.
Inns and hotels operated by ORIX Real Estate CorporationGroup have the licenselicenses from relevant prefectural governors under the Inns and Hotels Act.Act, etc.
Car Rental Business
ORIX Auto Corporation (“OAC”) is registered with the MoLIT under the Road Transportation Law to engage in the car rental business in Japan and is subject to the requirements of this law and is licensed by the Minister of MoLIT.
Insurance Business
ORIX Life Insurance is engaged in the life insurance business and has a license from the Prime Minister under the Insurance Business Act. The FSA has broad regulatory powers over the life insurance business of ORIX Life Insurance, including the authority to grant or, under certain conditions, revoke its operating license, to request information regarding its business or financial condition and to conducton-site inspections. ORIX Life Insurance generally must also receive FSA approval for the sale of new products and to set new pricing terms. In addition, under the Insurance Business Act regulations, any party attempting to acquire voting rights in an insurance company at or above a specified threshold must receive approval from the Prime Minister. We have received such approval as a major shareholder inof ORIX Life Insurance. Insurance solicitation, which we and our group companies conduct, is also governed by the Insurance Business Act. We and certain of our group companies, such as OAC, are registered as life insurance agents with the Prime Minister.
Financial Instruments Exchange Business
Certain businesses conducted by ORIX and our group companies in Japan are governed by the Financial Instruments and Exchange Act, the main purpose of which is to establish comprehensive and cross-sectional protection for investors. “The financial instruments business” as defined in the Financial Instruments and Exchange Act has four classifications, depending on the type of business;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. All companies engaged in such businesses are required to register with the Prime Minister, and thereby areafter which they designated “registered financial instruments traders.” Along with registered financial instruments traders, companies engaged in the financial instruments intermediary business, which is also governed by the Financial Instruments and Exchange Act, are regulated by the FSA and are required to file certain reports or notifications with the FSA. 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 such a trader that has violated the law. Business regulations applicable to ORIX and our group companies are as follows:
(1) First Class Financial Instruments Exchange Business
ORIX Whole Sale Securities Corporation (“ORIX Whole Sale”) is registered with the Prime Minister under the Financial Instruments and Exchange Act. In addition, under the Financial Instruments and Exchange Act, any entity possessing voting rights in a securities company (first class financial instruments trader) or its parent company at or above a specified threshold is considered a major shareholder and must report its shareholding to the Prime Minister. ORIX has filed such a report as a major shareholder of ORIX Whole Sale.
(2) Second Class Financial Instruments Exchange Business
ORIX and certain of our group companies are registered with the Prime Minister under the Financial Instruments and Exchange Act to conduct the second class financial instruments exchange business.
(3) Investment Management Business
ORIX Asset Management Corporation (“OAM”), aORIX Real Estate Investment Advisors Corporation (“ORIA”), wholly owned subsidiaries, and Robeco Japan Company Limited (“Robeco Japan”), a subsidiary isof ORIX Europe, are each registered with the Prime Minister under the Financial Instruments and Exchange Act as an investment manager. OAM is responsible for the asset management of a real estate investment corporation, ORIX JREIT Inc., which is listed on the Tokyo Stock Exchange. In addition, ORIX Real Estate Investment Advisory Corporation (“ORIA”) is registered with the Prime Minister to engage in the investment management business. 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 a report as a major shareholder with regard to OAM.of OAM, ORIA and Robeco Japan.
(4) Investment Advisory and Agency Business
ORIA and Mariner Japan Ltd.Inc., a subsidiaryan affiliate of Mariner Investment Group LLC, and Robeco Japan Company Ltd., a subsidiary of Robeco, are 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.
(5) Financial Instruments Intermediary Business
The financial instruments intermediary business that we conduct is also regulated by the Financial Instruments and Exchange Act. ORIX is registered with the Prime Minister under the Financial Instruments and Exchange Act to conduct business as a financial instruments intermediary.
Banking and Trust Business
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. Our trust contract agency business is also governed by the Trust Business Act, and we are registered with the Prime Minister to engage in the trust contract agency business. In addition, under the Banking Act, any entity that attempts to obtain voting rights in a bank at or above a specified threshold must receive permission from the Prime Minister. ORIX has received such permission as a major shareholder of ORIX Bank.
Debt Management and Collection Business
ORIX Asset Management & Loan Services Corporation (“OAMLS”) is engaged in the loan servicing business and the business of managing and collecting certain assets. Consequently, OAMLS is regulated under the Act on Special Measures Concerning Business of Management and Collection of Claims. OAMLS is licensed by the Minister of Justice under such law to engage in the loan servicing business.
Waste Management
ORIX Environmental Resources Management Corporation and ORIX Eco Services Corporation provide waste management services regulated by the Waste Management and Public Cleansing Act and have the permission from the relevant prefectural governors.
Regulation on Share Acquisitions
Certain activities of ORIX and our group companies are regulated by the Foreign Exchange and Foreign Trade Law of Japan and regulations promulgated thereunder (the “Foreign Exchange Regulations”).
Under the Foreign Exchange Regulations, ORIX and certain of our group companies in Japan are regulated as “residents” conducting “capital transactions” or “foreign direct investments.”
To conduct such activities under the Foreign Exchange Regulations, notices or reports are required to be filed with the Minister of Finance through the Bank of Japan.
OUTSIDE JAPAN
ORIX USA is incorporated under the laws of the state of Delaware, and its corporate activities are governed by the Delaware General Corporation Law.
The SEC, the Financial Industry Regulation Authority (“FINRA”) and various state agencies regulate the issuance and sale of securities and the activities of broker-dealers, investment companies and investment advisers in the United States. ORIX USA’s majority-owned subsidiary, Mariner Investment Group, LLC (“Mariner”), is a registered investment adviser and has an affiliated limited purpose broker-dealer,regulated by the SEC. ORIX USA’s wholly-owned subsidiary Mariner Group Capital Markets, Inc.LLC (“MGCM”). Both Mariner and MGCM are is a registered andlimited purpose broker-dealer regulated by the SEC.SEC and FINRA. ORIX USA’s wholly-owned subsidiary RED Capital Group, LLC has a subsidiary called RED Capital Markets, LLC that is registered as a broker-dealer and regulated by the SEC. All of our SEC-registered broker dealers areSEC and FINRA. ORIX USA’s wholly-owned subsidiary Lancaster Pollard Holdings, LLC has a subsidiary called Lancaster Pollard & Co., LLC that is also registered as a broker-dealer and regulated by the SEC and FINRA. ORIX USA and its other subsidiaries are not subject to these regulations but must comply with U.S. federal and state securities laws.
ORIX USA’s corporate finance, real estate finance and development, equipment finance, public finance and special servicing businesses are subject to numerous state and federal laws and regulations. Commercial and real estate loans may be governed by the USA PatriotPATRIOT Act, the Equal Credit Opportunity Act and Regulation B thereunder, the Flood Disaster Protection Act, the National Flood Insurance Reform Act of 1994 and state usury laws. Real estate transactions are also governed by state real property and foreclosure laws. ORIX USA’s secured finance transactions are governed by the Uniform Commercial Code, as adopted by the various states. ORIX USA is registered with or has obtained licenses from the various state agencies that regulate the activity of commercial lenders in such states. For example, its consolidated subsidiary, ORIX Corporate Capital Inc., is a Delaware Licensed Lender, and its consolidated subsidiary, ORIX Ventures,Growth Capital, LLC, is licensed as a California Finance Lender.
In May 2010, ORIX USA acquired RED Capital Group LLC a(“RED”), and in September 2017, ORIX USA acquired Lancaster Pollard Holdings, LLC (“LPH”). Each of RED and LPH is based in Columbus, Ohio-headquartered provider ofOhio and provides debt and equity capital, as well as advisory services, to the housing, health care, and real estate industries. RED Capital Group, LLC, and itsLPH and their respective 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 and the Federal Housing Administration. RED must also comply with the rules and regulations of The Federal Home Loan Mortgage Corporation. RED Mortgage Capital, LLC and RED Capital Partners, LLC are licensed California Finance Lenders.
In December 2010, ORIX USA acquired MIG Holdings, LLC, the parent company of Mariner. Mariner is registered with the SEC as an investment advisor and is headquartered in Harrison, New York, with additionalaffiliated offices in the New York City, Boston, London, and Tokyo. In addition, Mariner is registered as a commodity pool operator with the U.S. Commodity Futures Trading Commission and a member of the National Futures Association. ORIX USA’s wholly owned subsidiary and private equity platform, ORIX Capital Partners, LLC, is an affiliated relying adviser to Mariner and registered with the SEC.
In July 2016, ORIX USA acquired Boston Financial Investment Management, LP (“BFIM”), a Boston, Massachusetts based syndicator and portfolio and asset manager of low income apartment properties that benefit from the Federal Low Income Housing Tax Credit (LIHTC). As the beneficiary of tax credits and often other subsidy and loan programs, a typical LIHTC property is typically regulated at the Federal, state and local levels. As a passive limited partner investor, BFIM does not manage the property day to day. Rather, a third party general partner manages the property and has responsibility for compliance with applicable laws and regulations. As the investor, BFIM monitors such compliance.
Disruptions in the U.S. financial markets starting in 2007 caused lawmakers and regulators to evaluate the effectiveness of their oversight of the financial services industry, and eventually resulted in the adoption of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) by the U.S. Congress in
January 2010. Certain regulations promulgated under the Dodd-Frank Act may affect our business operations. For example, the Dodd-Frank Act establishes the Financial Stability Oversight Counsel (“FSOC”) charged with, among other things, designating systemically important nonbank financial institutions for heightened supervisory requirements and prudential standards, supervision and regulation. In April 2012, the FSOC adopted its final rule and issued interpretive guidelines on criteria for designating systemically important nonbank financial institutions. The FSOC has not as of this date designated ORIX as a systemically important nonbank financial institution.
Outside of the United States, Mariner Europe Ltd.Investment (Europe) LLP is an affiliated relying adviser to Mariner that is headquartered in London and authorized and regulated by the Financial Conduct Authority (“FCA”) in the UK and as such is subject to minimum regulatory capital requirements. Mariner Europe Ltd.Investment (Europe) LLP is categorized as a “BIPRU €50k limited license firm by the FCA for capital purposes.license” firm. It is an investment management firm. Other majority-owned subsidiaries include Mariner Investment Group, LLC,Also outside of the United States, in December 2016 ORIX USA, through its Brazilian subsidiary, acquired a controlling interest in RB Capital S.A. (“RB Capital”), a Brazilian capital markets and asset management platform. RB Capital controls two publicly held companies, RB Capital Companhia de Securitização and Salus Infraestrutura Portuária S.A, registered before the Securities and Exchange Commission of Brazil (“CVM”). RB Capital Companhia de Securitização is also a securitization company and regulated by the CVM. In addition, RB Capital controls an asset management company, RB Capital Asset Management Ltda., which has a Korean representative officeis registered withand authorized by the Korean Ministry of Strategy and Finance.
CVM to manage assets in Brazil.
On July 1, 2013, ORIX acquired approximately 90.01% (90% plus one share) of the total voting shares (equity interests) of Robeco,ORIX Europe, the ultimate holding company of the RobecoORIX Europe Group. On October 2016, ORIX acquired the remaining 9.99% (10% minus one share) of the total voting shares (equity interests) of ORIX Europe. The RobecoORIX Europe Group consists of the following regulated entities:entities.
Robeco Institutional Asset Management B.V. (“RIAM”), a subsidiary of Robeco,ORIX Europe, is authorized and regulated byThe Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten (“AFM”)) andThe Dutch Central Bank (De Nederlandsche Bank(“DNB”)) in the Netherlands,inter alia, to offer certain investment services. RIAM has branches and representative offices worldwide, including in China, Dubai, Germany, Korea, Spain, Italy and the United Kingdom, each of which either benefits from RIAM’s European passport or is subject to local regulatory supervision.
Transtrend B.V., a subsidiary of RobecoORIX Europe that offers asset management and commodity trading advisory services, is also authorized and regulated by AFM and DNB, and is also registered with the National Futures
Association in the United States (“NFA”) and regulated by the NFA and the Commodity Futures Trading Commission in the United States (“CFTC”).
Harbor Capital Advisors, Inc., Robeco Investment Management,Boston Partners Global Investors, Inc., RobecoSAM US, Inc. and Robeco Institutional Asset Management US, Inc. are registered with and regulated by the SEC to provide investment advisory services in the United States. RobecoHarbor Capital Advisors, Inc. is also registered with and regulated by the NFA and the CFTC.
Harbor Services Group, Inc. acts as transfer agent and is registered with the SEC.
Boston Partners Global Investors, Inc. is also registered with theFinancial Services Commission (“FSC”) in Korea. Furthermore, Boston Partners Global Investors, Inc. is registered as a commodity trading adviser and a commodity pool operator with the CFTC and is a member of the NFA.
Boston Partners Securities L.L.C. and Harbor Funds Distributors Inc. are investment advisors (broker-dealers) registered with the SEC and members of the FINRA.
Boston Partners UK Ltd is a wholly owned subsidiary of Boston Partners Global Investors, Inc and is registered as an investment adviser with the FCA.
Boston Partners Trust Company is a wholly owned subsidiary of Boston Partners Global Investors, Inc. and is registered with theNew Hampshire Banking Commission(“NHBC”).
RobecoSAM AG, a subsidiary of Robeco,ORIX Europe, is authorized and regulated by theSwiss Financial Market Supervisory Authority (“FINMA”).
Robeco Luxembourg S.A., a subsidiary of Robeco,ORIX Europe, is authorized and regulated by theCommission de Surveillance du Secteur Financier in Luxembourg (“CSSF”).
Robeco Hong Kong Ltd. (“RHK”), a subsidiary of Robeco,ORIX Europe, is licensed by theSecurities & Futures Commission of Hong Kong(“SFC”) to offer asset management and investment advisory services. RHK has a branch in Australia which has been approved by theAustralian Securities and Investments Commission (“ASIC”).
Robeco France S.A.S., a subsidiary of ORIX Europe, is authorized and regulated by theAuthorité de controle prudential et de resolution (“ACPR”) in France and theAutorité des Marchés Financiers (“AMF”) in France.
Robeco Singapore Private Limited, a subsidiary of ORIX Europe, is licensed by theMonetary Authority of Singapore (“MAS”).
Robeco Switzerland A.G., a subsidiary of ORIX Europe, is licensed by the Swiss Financial Market Supervisory Authority (“FINMA”).
Corestone Investment Managers AG, a subsidiary of ORIX Europe, is admitted to theFinancial Services Standards Association (“VQF”).
Robeco Miami B.V. a subsidiary of ORIX Europe, is registered with and regulated by the SEC and member of the FINRA.
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
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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.
Results Overview
Market Environment
The world economyFiscal 2018 was the last fiscal year of our medium-term strategy announced in May 2015. Despite increasing market volatility, stable growth has been suppressed with low level of growth due primarily to falling commodity prices such as the price of crude oil and fluctuationsobserved in financial markets. Moderate economic growth is expected among developed countries. Meanwhile, economic growth in emerging and developing countries is expected to be weak overall and disparity in economic growth among such countries continues to widen. In addition, political and geopolitical tensions in certainmany regions need to be monitored carefully.
The Japanese economic outlook is becoming increasingly unclear due primarily to economic slowdown in emerging countries and the adoption of negative interest rate policy by the Bank of Japanworldwide particularly in the second halfUnited States. Our group company in the United States recorded a decrease in deferred tax liabilities due to the U.S. tax reform measured enacted in December 2017. Under the aforementioned circumstances, ORIX strived to manage its businesses based on the performance indicators of profitability, capital efficiency and asset efficiency. Due to the impact of U.S. tax reform measures on ORIX Group companies, as well as growth of the existing businesses, and profit contribution from new businesses, for fiscal 2016 despite positive corporate earnings during2018 ORIX recorded tall-time high net income for the first half.fourth consecutive years and net income growth for the ninth consecutive years achieved net income attributable to ORIX Corporation shareholders of ¥313.1 billion and ROE of 12.1%, exceeding its target net income attributable to ORIX Corporation shareholders of ¥300 billion and target ROE around 11% to 12%.
Results Overview
Net Income Attributable to ORIX Corporation Shareholders for fiscal 20162018 increased 11%15 % to ¥260,169¥313,135 million compared to fiscal 2015, primary2017, primarily due to a significant increaseincreases in profits from the Corporate Financial Services segment, the Maintenance Leasing segment, the Investment and Operation segment and Retail segment, although profits from the Real Estate segment and the Overseas Business segment Corporate Financial Services segment, Investment and Operation segment, and a robust performance from Maintenance Leasing segment, although the Retail segment’s profits decreased.
The main factors underlying our performance in fiscal 20162018 are outlined below.
below
The Corporate Financial Services segment’s profits increased due primarily to an increaseincreases in services income, sales of goods and gains on sales of securities and services income despite a decrease in finance revenues from a decrease in average investment securities.
balance.
The Maintenance Leasing segment’s profits increased due primarily to increases in finance revenues and operating leases revenues in line with an increased average segment asset balance and an increase in operating leases revenues.
services income.
The Real Estate segment’s profits increaseddecreased due primarily to a decrease in gains on sales of rental property, despite an increase in services income and a decrease in write-downs of long-lived assets.
from facilities operations.
The Investment and Operation segment’s profits increased due primarily to an increaseincreases in sales of goods from subsidiaries in the principal investment business, services income from the environment and the recognitionenergy business and equity in net income of gains on sales of shares of subsidiaries.
affiliates.
The Retail segment’s profits decreasedincreased due primarily to the recognition of a bargain purchase gain from the acquisition of HLIKK during fiscal 2015. HLIKK was merged into ORIX Life Insurance on July 1, 2015.
an increase in life insurance premiums and related investment income.
The Overseas Business segment’s profits increaseddecreased due primarily to the recognitiondecreases in equity in net income of a gainaffiliates and gains on the partial divestmentsales of Houlihan Lokey sharessubsidiaries and affiliates and liquidation losses, net, despite increases in connection with its initial public offeringservices income in the United Statesasset management business and an increase in incomeoperating leases revenues from affiliates in the Americas.our aircraft-related operations including gains on sales of aircraft.
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.
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 intangible assets that have indefinite useful lives, measurement of impairment of long-lived assets and recurring measurements of loans held for sale, investments in securities and derivative instruments.
ASC 820 classifiesThe Company and prioritizesits 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.
ASC 820 differentiatesThe 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 loans held for sale, trading securities,available-for-sale securities, other securities, derivatives, 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 bonds, foreign corporate debt securities and equity securities inavailable-for-sale securities, certain fund investments in other securities, certain reinsurance recoverables, and variable annuity and variable life insurance contracts at fair value on a recurring basis as they elected the fair value option under ASC 825 (“Financial Instruments”).
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, 2016:2018:
March 31, 2016 | ||||||||||||||||
Total Carrying Value in Consolidated Balance Sheets | Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
(Millions of yen) | ||||||||||||||||
Financial Assets: | ||||||||||||||||
Loans held for sale | ¥ | 20,673 | ¥ | 0 | ¥ | 20,673 | ¥ | 0 | ||||||||
Trading securities | 725,821 | 37,592 | 688,229 | 0 | ||||||||||||
Available-for-sale securities | 1,347,890 | 99,347 | 1,149,021 | 99,522 | ||||||||||||
Other securities | 17,751 | 0 | 0 | 17,751 | ||||||||||||
Derivative assets | 33,747 | 48 | 25,491 | 8,208 | ||||||||||||
Other assets | 37,855 | 0 | 0 | 37,855 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | ¥ | 2,183,737 | ¥ | 136,987 | ¥ | 1,883,414 | ¥ | 163,336 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Financial Liabilities: | ||||||||||||||||
Derivative liabilities | ¥ | 19,870 | ¥ | 533 | ¥ | 19,337 | ¥ | 0 | ||||||||
Policy Liabilities and Policy Account Balances | 795,001 | 0 | 0 | 795,001 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | ¥ | 814,871 | ¥ | 533 | ¥ | 19,337 | ¥ | 795,001 | ||||||||
|
|
|
|
|
|
|
|
March 31, 2018 | ||||||||||||||||
Total Carrying Value in Consolidated Balance Sheets | Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
(Millions of yen) | ||||||||||||||||
Financial Assets: | ||||||||||||||||
Loans held for sale | ¥ | 17,260 | ¥ | 0 | ¥ | 17,260 | ¥ | 0 | ||||||||
Trading securities | 422,053 | 35,766 | 386,287 | 0 | ||||||||||||
Available-for-sale securities | 1,015,477 | 65,716 | 828,844 | 120,917 | ||||||||||||
Other securities | 37,879 | 0 | 0 | 37,879 | ||||||||||||
Derivative assets | 21,831 | 507 | 19,033 | 2,291 | ||||||||||||
Other assets | 15,008 | 0 | 0 | 15,008 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | ¥ | 1,529,508 | ¥ | 101,989 | ¥ | 1,251,424 | ¥ | 176,095 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Financial Liabilities: | ||||||||||||||||
Derivative liabilities | ¥ | 12,400 | ¥ | 318 | ¥ | 12,082 | ¥ | 0 | ||||||||
Policy Liabilities and Policy Account Balances | 444,010 | 0 | 0 | 444,010 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | ¥ | 456,410 | ¥ | 318 | ¥ | 12,082 | ¥ | 444,010 | ||||||||
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|
|
|
|
|
|
|
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, 2016,2018, financial assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) and the percentages of total assets were as follows:
March 31, 2016 | ||||||||
Significant Unobservable Inputs (Level 3) | Percentage of Total Assets (%) | |||||||
(Millions of yen, except percentage data) | ||||||||
Level 3 Assets: | ||||||||
Available-for-sale securities | ¥ | 99,522 | 1 | |||||
Corporate debt securities | 5 | 0 | ||||||
Specified bonds issued by SPEs in Japan | 3,461 | 0 | ||||||
CMBS and RMBS in the Americas | 38,493 | 0 | ||||||
Other asset-backed securities and debt securities | 57,563 | 1 | ||||||
|
| |||||||
Other securities | 17,751 | 0 | ||||||
Investment funds | 17,751 | 0 | ||||||
|
| |||||||
Derivative assets | 8,208 | 0 | ||||||
Options held/written and other | 8,208 | 0 | ||||||
|
| |||||||
Other assets | 37,855 | 0 | ||||||
Reinsurance recoverables | 37,855 | 0 | ||||||
|
| |||||||
Total Level 3 financial assets | ¥ | 163,336 | 1 | |||||
|
| |||||||
Total assets | ¥ | 10,996,906 | 100 |
March 31, 2018 | ||||||||
Significant Unobservable Inputs (Level 3) | Percentage of Total Assets (%) | |||||||
(Millions of yen, except percentage data) | ||||||||
Level 3 Assets: | ||||||||
Available-for-sale securities | ¥ | 120,917 | 1 | |||||
Corporate debt securities | 3,037 | 0 | ||||||
Specified bonds issued by SPEs in Japan | 861 | 0 | ||||||
CMBS and RMBS in the Americas | 36,010 | 0 | ||||||
Other asset-backed securities and debt securities | 81,009 | 1 | ||||||
|
| |||||||
Other securities | 37,879 | 0 | ||||||
Investment funds | 37,879 | 0 | ||||||
|
| |||||||
Derivative assets | 2,291 | 0 | ||||||
Options held/written and other | 2,291 | 0 | ||||||
|
| |||||||
Other assets | 15,008 | 0 | ||||||
Reinsurance recoverables | 15,008 | 0 | ||||||
|
| |||||||
Total Level 3 financial assets | ¥ | 176,095 | 2 | |||||
|
| |||||||
Total assets | ¥ | 11,425,982 | 100 |
As of March 31, 2016,2018, the amount of financial assets classified as Level 3 was ¥163,336¥176,095 million, financial assets that we measured at fair value on a recurring basis. Level 3 assets represent 1%2% of our total assets.
Available-for-sale securities classified as Level 3 are mainly CMBS and RMBS in the Americas and other asset-backed securities and debt securities. CMBS and RMBS in the Americas and other asset-backed securities and debt securities classified as Level 3available-for-sale securities were ¥38,493¥36,010 million and ¥57,563¥81,009 million as of March 31, 2016,2018, which are 39%30% and 58%67% of total Level 3available-for-sale securities, respectively.
When evaluating the specified bonds issued by SPEs in Japan, we estimate the fair value by discounting future cash flows using a discount rate based on market interest rates and a risk premium. The future cash flows for the specified bonds issued by the SPEs in Japan are estimated based on contractual principal and interest repayment schedules on each of the specified bonds issued by the SPEs. Since the discount rate is not observable for the specified bonds, we use an internally developed model to estimate a risk premium considering the value of the real estate collateral (which also involves unobservable inputs in many cases when using valuation techniques such as discounted cash flow methodologies) and the seniority of the bonds. Under the model, we consider the loan-to-value ratio and other relevant available information to reflect both the credit risk and the liquidity risk in our own estimate of the risk premium. Generally, the higher the loan-to-value ratio, the larger the risk premium we estimate under the model. The fair value of the specified bonds issued by SPEs in Japan rises when the fair value of the collateral real estate rises and the discount rate declines. The fair value of the specified bonds issued by SPEs in Japan declines when the fair value of the collateral real estate declines and the discount rate rises.
With respect to the CMBS and RMBS in the Americas and 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 (Level 3 inputs) using valuation techniques such as discounted cash flow methodologies in order to estimate fair value of these 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 CMBS and RMBS in the Americas and other asset-backed securities.
In determining whether a market is active or inactive, 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 widebid-ask spread, significant decline in new issuances, little or no public information (e.g., aprincipal-to-principal market) and other factors.
For more discussion, see Note 2 of “Item 18. Financial Statements.”
ALLOWANCE FOR DOUBTFUL RECEIVABLES ON DIRECT FINANCING LEASES AND
PROBABLE LOAN LOSSES
The allowance for doubtful receivables on direct financing leases and probable loan losses represents management’s estimate of probable losses inherent in the portfolio. This evaluation process is subject to numerous estimates and judgments. The estimate made in determining the allowance for doubtful receivables on direct financing leases and probable loan losses is a critical accounting estimate for all of our segments.
In developing the allowance for doubtful receivables on direct financing leases and probable loan losses, we consider, among other things, the following factors:
business characteristics and financial condition of the obligors;
current economic conditions and trends;
priorcharge-off experience;
current delinquencies and delinquency trends; and
value of underlying collateral and guarantees.
We individually develop the allowance for credit losses for impaired loans. Fornon-impaired loans, including loans that are not individually evaluated for impairment, and direct financing leases, we evaluate priorcharge-off experience, segmented by industry of the debtor and the purpose of the loans, and develop the allowance for credit losses based on such priorcharge-off experiences as well as current economic conditions.
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, if the loan is collateral-dependent, the fair value of the collateral securing the loan. For anon-recourse loan, in principle, the estimated collectible amount is determined based on the fair value of the collateral securing the loan, as such loan is collateral-dependent. Further, for certainnon-recourse loans, the estimated collectible amount is determined based on the present value of expected future cash flows from each loan. 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 that may materially affect its fair value. For impaired purchased loans, we develop the allowance for credit losses based on the difference between the book value and the estimated collectible amount of such loans.
We charge off doubtful receivables when the likelihood of any future collection is believed to be minimal based upon an evaluation of the relevant debtors’ creditworthiness and recoverability from the collateral.
IMPAIRMENT OF INVESTMENT IN SECURITIES
The company and its subsidiariesWe recognize impairment of investment in securities (except trading securities) as follows.
Foravailable-for-sale securities, the Company and its subsidiarieswe generally recognize losses related to equity securities for which the fair value has been significantly below the acquisition cost (or current carrying value if an adjustment has been made in the past) for more than six months. Also, the Company and its subsidiarieswe charge against income losses related to equity securities in situations where, even though the fair value has not remained significantly below the carrying value for six months, the decline in the fair value of an equity security is based on the issuer’s specific economic conditions and not just general declines in the related market and where it is considered unlikely that the fair value of the equity security will recover within six months.
For debt securities, where the fair value is less than the amortized cost, the Company and its subsidiarieswe consider whether those securities are other-than-temporarily impaired using all available information about their collectability. The Company and its subsidiariesWe do not consider a debt security to be other-than-temporarily impaired if (1) the Company and its subsidiarieswe do not intend to sell the debt security, (2) it is not more likely than not that the Company and its subsidiarieswe will be required to sell the debt security before recovery of its amortized cost basis and (3) the present value of estimated cash flows will fully cover the amortized cost of the security. On the other hand, the Company and its subsidiarieswe consider a debt security to be other-than-temporarily impaired if any of the above mentioned three conditions are not met. When the Company and its subsidiarieswe deem a debt security to be other-than-temporarily impaired, the Company and its subsidiarieswe recognize the entire difference between the amortized cost and the fair value of the debt securities in earnings if the Company and its subsidiarieswe intend to sell the debt security or it is more likely than not that the Company and its subsidiarieswe will be required to sell the debt security before recovery of its amortized cost basis less any current-period credit loss. However, if the Company and its subsidiarieswe do not intend to sell the debt security and it is not more likely than not that the Company and its subsidiarieswe will be required to sell the debt security before recovery of its amortized cost basis less any current-period credit loss, the Company and its subsidiarieswe separate the difference between the amortized cost and the fair value of the debt securities into the credit loss component and thenon-credit loss component. The credit loss component is recognized in earnings, and thenon-credit loss component is recognized in other comprehensive income (loss), net of applicable income taxes.
In assessing whetheravailable-for-sale debt securities are other-than-temporarily impaired, the Company and its subsidiarieswe consider all available information relevant to the collectability of the security, including but not limited to the following factors:
duration and the extent to which the fair value has been less than the amortized cost basis;
continuing analysis of the underlying collateral, age of the collateral, business climate, economic conditions and geographical considerations;
historical loss rates and past performance of similar assets;
trends in delinquencies and charge-offs;
payment structure and subordination levels of the debt security;
changes to the rating of the security by a rating agency; and
subsequent changes in the fair value of the security after the balance sheet date.
For other securities, when the Company and its subsidiarieswe determine the decline in value is other than temporary, the Company and its subsidiarieswe reduce the carrying value of the security to the fair value and charge against income losses related to these other securities in situations.
Determinations of whether a decline in value is other than temporary often involve estimating the outcome of future events that are highly uncertain at the time the estimates are made. Management’s judgment, mainly based on objective factors, is required in determining whether there are any fact that an impairment loss should be recognized at the balance sheet date. In view of the diversity and volume of our shareholdings, the highly volatile equity markets make it difficult to determine whether the declines are other than temporary.
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, the Company and its subsidiarieswe 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 INTANGIBLE ASSETS THAT HAVE INDEFINITE USEFUL LIVES
We perform an impairment test for impairment of goodwill and any intangible assets that have indefinite useful lives at least annually. Additionally, if events or changes in circumstances indicate that the asset might be impaired, we test for impairment when such events or changes occur.
We have the option to perform a qualitative assessment to determine whether to calculate the fair value of a reporting unit under the first step of thetwo-step goodwill impairment test. 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 thetwo-step impairment test. However, if we conclude otherwise, we proceed to perform the first step of thetwo-step impairment test. The first step of goodwill impairment test, used to identify potential impairment, 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, the second step of the goodwill impairment test is performed to measure the amount of impairment loss. The second step of the goodwill impairment test compares implied fair value of goodwill with its carrying amount. If the carrying amount of goodwill exceeds its implied fair value, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner used to determine the amount of goodwill recognized in a business combination. We test the goodwill either at the operating segment level or one level below the operating segments. We perform the qualitative assessment for some goodwill but bypass the qualitative assessment and proceed directly to the first step of thetwo-step impairment test for other goodwill.
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. If, after assessing the totality of events and circumstances, we conclude that it is not more likely than not that the indefinite-lived 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 first step and the second step 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 intangible asset that have indefinite useful lives. 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 rate. 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, we may charge additional losses to income.
The accounting estimates relating to impairment of goodwill and any intangible assets that have indefinite useful lives 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, intangible assets being amortized and real estate development projects. 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;
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. 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. 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 DIRECT FINANCING LEASES AND OPERATING LEASES
We estimate unguaranteed residual values of leased equipment except real estate, which is explained in “Impairment of Long-lived Assets” described above, when we calculate unearned lease income to be recognized as income over the lease term for direct financing 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 forre-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 direct financing leases and operating leases affect mainly the Corporate Financial Services, Maintenance Leasing and Overseas Business segments.
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 in accordance with ASC 825 (“Financial Instruments”) 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 under ASC 825 (“Financial Instruments”) 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.
ASC 944 (“Financial Services—Insurance”) requires insurance companies to defer certainCertain costs related directly to the successful acquisition of new or renewal insurance contracts, or deferred policy acquisition costs, are deferred and amortize themamortized 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, expense margins and surrender charges, 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 the Retail segment.
ASSESSING HEDGE EFFECTIVENESS AND MEASURING INEFFECTIVENESS
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. Ineffectiveness is also measured quarterly, with the results recognized in earnings. 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 and measure ineffectiveness, we use techniques including regression analysis and the cumulative dollar offset method.
The accounting estimates used to assess hedge effectiveness and measure ineffectiveness could affect our primarily Overseas Business 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. In accordance with ASC 715 (“Compensation—Retirement Benefits”), actualActual 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 20162018 would decrease or increase, respectively, by approximately ¥1,982¥2,146 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 20162018 would decrease by approximately ¥2,479¥2,232 million. If we were to assume a 1% decrease in the discount rate, and keep other assumptions constant, pension expense for fiscal 20162018 would increase by approximately ¥2,654¥2,243 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 net operating loss carryforwards, before they expire. Although utilization of the net operating loss carryforwards is not assured, 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 in June 2016.
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 2016,2018, as well as the fair value as of the end of fiscal 2016.2018.
Year ended March 31, | ||||||
Carrying amount*1 | ||||||
Balance at April 1, | Change amount | Balance at March 31, | Fair value at March 31, | |||
(Millions of yen) | ||||||
¥ | ¥ | ¥ | ¥ | |||
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|
|
|
*1 | Carrying amounts are stated as cost less accumulated depreciation. |
*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 20162018 were as follows:
Year | ||||
Revenue*1 | Expense*2 | Net | ||
(Millions of yen) | ||||
¥ | ¥ | ¥ | ||
|
|
|
*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 depreciation expense, repair cost, insurance cost, tax and duty which are included in “Costs of operating leases,” and “Write-downs of long-lived assets.” |
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 withsub-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 housing loans, loans secured by real estate, unsecured loans andnon-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. The 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 direct financing 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.
Securities investment activities originated by the Company were extended to certain group companies, including our subsidiaries operating in the Americas. As a result, gains on investment securities
Sales of goods and dividends have grownreal estate consists of revenues from sales of real estate and become onevarious types of our major revenue sources.
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, real estate management and contract work, facilities management related business, commissions for advisory services, automobile related business, and environment and energy related 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 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, 20162018 Compared to Year Ended March 31, 2015”2017” and “Year Ended March 31, 20152017 Compared to Year Ended March 31, 2014.2016.”
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, 20162018 COMPARED TO YEAR ENDED MARCH 31, 20152017
Performance Summary
Financial Results
Year ended March 31, | Change | Year ended March 31, | Change | |||||||||||||||||||||||||||||||||
2015 | 2016 | Amount | Percent (%) | 2017 | 2018 | Amount | Percent (%) | |||||||||||||||||||||||||||||
(Millions of yen, except ratios, per Share data and percentages) | (Millions of yen, except ratios, per Share data and percentages) | |||||||||||||||||||||||||||||||||||
Total revenues | Total revenues | ¥ | 2,174,283 | ¥ | 2,369,202 | ¥ | 194,919 | 9 | Total revenues | ¥ | 2,678,659 | ¥ | 2,862,771 | ¥ | 184,112 | 7 | ||||||||||||||||||||
Total expenses | Total expenses | 1,917,454 | 2,081,461 | 164,007 | 9 | Total expenses | 2,349,435 | 2,526,576 | 177,141 | 8 | ||||||||||||||||||||||||||
Income before Income Taxes and Discontinued Operations | 344,017 | 391,302 | 47,285 | 14 | ||||||||||||||||||||||||||||||||
Income before Income Taxes | Income before Income Taxes | 424,965 | 435,501 | 10,536 | 2 | |||||||||||||||||||||||||||||||
Net Income Attributable to ORIX Corporation Shareholders | Net Income Attributable to ORIX Corporation Shareholders | 234,948 | 260,169 | 25,221 | 11 | Net Income Attributable to ORIX Corporation Shareholders | 273,239 | 313,135 | 39,896 | 15 | ||||||||||||||||||||||||||
Earnings per Share | (Basic) | 179.47 | 198.73 | 19.26 | 11 | (Basic) | 208.88 | 244.40 | 35.52 | 17 | ||||||||||||||||||||||||||
(Diluted) | 179.21 | 198.52 | 19.31 | 11 | (Diluted) | 208.68 | 244.15 | 35.47 | 17 | |||||||||||||||||||||||||||
ROE*1 | ROE*1 | 11.5 | 11.7 | 0.2 | — | ROE*1 | 11.3 | 12.1 | 0.8 | — | ||||||||||||||||||||||||||
ROA*2 | ROA*2 | 2.29 | 2.32 | 0.03 | — | ROA*2 | 2.46 | 2.76 | 0.30 | — |
*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 20162018 increased 9%7% to ¥2,369,202¥2,862,771 million compared to ¥2,174,283¥2,678,659 million during fiscal 2015. Finance revenues2017. Life insurance premiums and related investment income in the life insurance business increased due primarily to an increase in life insurance premiums from an increase inin-force policies, and an increase in investment income from assets under variable annuity and variable life insurance contracts following the average balance of installment loans.market’s recovery. In addition, sales of goods and real estate increased due primarily to revenues generated by subsidiaries acquired during fiscal 2015. Meanwhile, givenin the significant market improvement during fiscal 2015, life insurance premiumsprincipal investment business, and related investmentservices income for fiscal 2016 decreased on a year-on-year basis,increased due primarily to a significant decreaseservice expansion in investment income from variable annuitythe asset management business and variable life insurance contracts held by HLIKK. HLIKK was merged into ORIX Life Insurance on July 1, 2015.
the environment and energy business.
Total expenses for fiscal 2018 increased 9%8% to ¥2,081,461¥2,526,576 million compared to ¥1,917,454¥2,349,435 million during fiscal 2015. Costs of goods and real estate sold increased in line with the aforementioned revenue increases. On the other hand, life2017. Life insurance costs decreasedincreased due to an increase in a reversalprovision of liability reserve in line with the aforementioned decreaseincrease inin-force policies and an increase in investment income from variable annuity and variable life insurance contracts held by HLIKK.income. In addition, write-downscosts of long-lived assets decreased compared to fiscal 2015 in which an impairment of large-scale properties under facility operationgoods and leased real estate was recorded.
sold and services expense increased in line with the aforementioned increased revenues.
Equity in net income of affiliates for fiscal 2018 increased due primarily to an increase in the income from the affiliates in the Americas. Gains on sales of subsidiaries and affiliates and liquidation losses, net increased compared to fiscal 2015 due primarilymainly to the recognition of a gainsignificant gains on the partial divestmentsales of shares of Houlihan Lokey,investments in connection with its initial public offering in the United States and its becoming an equity method affiliate.real estate joint ventures compared to fiscal 2017.
As a result of the foregoing, income before income taxes and discontinued operations for fiscal 20162018 increased 14%2% to ¥391,302¥435,501 million compared to ¥344,017¥424,965 million during fiscal 2015, and2017. In addition, due to the impact from tax reform in the United States, net income attributable to ORIX Corporation shareholders increased 11%15% to ¥260,169¥313,135 million compared to ¥234,948¥273,239 million during fiscal 2015.2017.
Balance Sheet data
As of March 31, | Change | As of March 31, | Change | |||||||||||||||||||||||||||||
2015 | 2016 | Amount | Percent (%) | 2017 | 2018 | Amount | Percent (%) | |||||||||||||||||||||||||
(Millions of yen except ratios, per share and percentages) | (Millions of yen except ratios, per share and percentages) | |||||||||||||||||||||||||||||||
Total Assets | ¥ | 11,443,628 | ¥ | 10,996,906 | ¥ | (446,722 | ) | (4 | ) | ¥ | 11,231,895 | ¥ | 11,425,982 | ¥ | 194,087 | 2 | ||||||||||||||||
(Segment assets) | 9,170,249 | 8,972,449 | (197,800 | ) | (2 | ) | 8,956,872 | 9,017,250 | 60,378 | 1 | ||||||||||||||||||||||
Total Liabilities | 9,058,656 | 8,516,620 | (542,036 | ) | (6 | ) | 8,577,722 | 8,619,688 | 41,966 | 0 | ||||||||||||||||||||||
(Long- and Short-term debt) | 4,417,730 | 4,290,530 | (127,200 | ) | (3 | ) | 4,138,451 | 4,133,258 | (5,193 | ) | (0 | ) | ||||||||||||||||||||
(Deposits) | 1,287,380 | 1,398,472 | 111,092 | 9 | 1,614,608 | 1,757,462 | 142,854 | 9 | ||||||||||||||||||||||||
ORIX Corporation Shareholders’ Equity | 2,152,198 | 2,310,431 | 158,233 | 7 | 2,507,698 | 2,682,424 | 174,726 | 7 | ||||||||||||||||||||||||
ORIX Corporation Shareholders’ Equity per share | 1,644.60 | 1,764.34 | 119.74 | 7 | 1,925.17 | 2,095.64 | 170.47 | 9 | ||||||||||||||||||||||||
ORIX Corporation Shareholders’ Equity ratio*1 | 18.8 | % | 21.0 | % | 2.2 | % | — | |||||||||||||||||||||||||
Adjusted ORIX Corporation Shareholders’ Equity ratio*2 | 19.3 | % | 21.6 | % | 2.3 | % | — | |||||||||||||||||||||||||
ORIX Corporation Shareholders’ Equity ratio* | 22.3 | % | 23.5 | % | 1.2 | % | — | |||||||||||||||||||||||||
D/E ratio (Debt-to-equity ratio) (Long- and Short-term debt (excluding deposits) / ORIX Corporation Shareholders’ Equity) | 2.1 | x | 1.9 | x | (0.2 | )x | — | 1.7 | x | 1.5 | x | (0.2 | )x | — | ||||||||||||||||||
Adjusted D/E ratio*2 | 1.9 | x | 1.7 | x | (0.2 | )x | — |
* | ORIX Corporation Shareholders’ Equity ratio is the ratio as of the period end of ORIX Corporation Shareholder’s Equity to total assets. |
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Total assets decreased 4%increased 2% to ¥10,996,906¥11,425,982 million compared to ¥11,443,628¥11,231,895 million as of March 31, 2015. Installment loans increased due primarily to an increase in the banking business in Japan and an increase in corporate lending in the Americas and installment loans resulted from the acquisition of an auto loan company in Asia. In addition, investment in operating leases increased due primarily to purchases of aircraft in the Overseas Business segment. Meanwhile, investment2017. Investment in securities decreased due primarily to sales of investment in securities as well as the surrender of variable annuity and variable life insurance contracts held by HLIKKin the life insurance business. On the other hand, property under facility operations and a decreaseinvestment in investment income from these contracts. Segmentaffiliates increased due primarily to the new large-scale investments in the environment and energy business. In addition, segment assets decreased 2%increased 1% to ¥8,972,449¥9,017,250 million compared to the balance as of March 31, 2015.2017.
We manage ourthe balance of our interest-bearing liabilities at an appropriate level taking into account the condition of our assets ourand liquidity on handon-hand as well as the domestic and overseas financial environments. As a result, long-long-term debt decreased, and short-term debt decreased and deposits increased compared to the balance as of March 31, 2015.2017. In addition, policy liabilities and policy account balances decreased compareddue primarily to the balance as of March 31, 2015 due to theaforementioned surrender of variable annuity and variable life insurance contracts held by HLIKK and a reversal of liability reserve in line with the decrease in investment income as mentioned above.
contracts.
Shareholders’ equity increased 7% to ¥2,310,431¥2,682,424 million compared to the balance as of March 31, 20152017 due primarily to an increase in retained earnings.
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
Our business is organized into six segments that are based on major products, nature of services, customer base, and management organizations to facilitate strategy formulation, resource allocation and portfolio rebalancing at the segment level. Our six business segments are: Corporate Financial Services, Maintenance Leasing, Real Estate, Investment and Operation, Retail and Overseas Business.
Financial information about our operating segments reported below is separately available to, and evaluated regularly by, management in deciding how to allocate resources and in assessing performance. We evaluate the performance of these segments based on income before income taxes, net income attributable to the noncontrolling interests and net income attributable to the redeemable noncontrolling interests before applicable tax effect. Tax expenses are not included in segment profits.
For a description of the business activities of our segments, see “Item 4. Information on the Company—Business Segments.” See Note 33 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 | |||||||||||||||
2017 | 2018 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Segment Revenues: | ||||||||||||||||
Corporate Financial Services | ¥ | 102,979 | ¥ | 115,712 | ¥ | 12,733 | 12 | |||||||||
Maintenance Leasing | 270,615 | 275,740 | 5,125 | 2 | ||||||||||||
Real Estate | 212,050 | 172,948 | (39,102 | ) | (18 | ) | ||||||||||
Investment and Operation | 1,271,973 | 1,402,313 | 130,340 | 10 | ||||||||||||
Retail | 368,665 | 428,697 | 60,032 | 16 | ||||||||||||
Overseas Business | 458,912 | 477,420 | 18,508 | 4 | ||||||||||||
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Segment Total | 2,685,194 | 2,872,830 | 187,636 | 7 | ||||||||||||
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Difference between Segment Total and Consolidated Amounts | (6,535 | ) | (10,059 | ) | (3,524 | ) | — | |||||||||
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Consolidated Amounts | ¥ | 2,678,659 | ¥ | 2,862,771 | ¥ | 184,112 | 7 | |||||||||
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Year ended March 31, | Change | |||||||||||||||
2017 | 2018 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Segment Profits: | ||||||||||||||||
Corporate Financial Services | ¥ | 38,032 | ¥ | 49,275 | ¥ | 11,243 | 30 | |||||||||
Maintenance Leasing | 39,787 | 40,162 | 375 | 1 | ||||||||||||
Real Estate | 72,841 | 62,372 | (10,469 | ) | (14 | ) | ||||||||||
Investment and Operation | 85,000 | 96,120 | 11,120 | 13 | ||||||||||||
Retail | 72,865 | 74,527 | 1,662 | 2 | ||||||||||||
Overseas Business | 112,312 | 106,602 | (5,710 | ) | (5 | ) | ||||||||||
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Segment Total | 420,837 | 429,058 | 8,221 | 2 | ||||||||||||
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Difference between Segment Total and Consolidated Amounts | 4,128 | 6,443 | 2,315 | 56 | ||||||||||||
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Consolidated Amounts | ¥ | 424,965 | ¥ | 435,501 | ¥ | 10,536 | 2 | |||||||||
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As of March 31, | Change | |||||||||||||||
2017 | 2018 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Segment Assets: | ||||||||||||||||
Corporate Financial Services | ¥ | 1,032,152 | ¥ | 961,901 | ¥ | (70,251 | ) | (7 | ) | |||||||
Maintenance Leasing | 752,513 | 818,201 | 65,688 | 9 | ||||||||||||
Real Estate | 657,701 | 620,238 | (37,463 | ) | (6 | ) | ||||||||||
Investment and Operation | 768,675 | 847,677 | 79,002 | 10 | ||||||||||||
Retail | 3,291,631 | 3,174,505 | (117,126 | ) | (4 | ) | ||||||||||
Overseas Business | 2,454,200 | 2,594,728 | 140,528 | 6 | ||||||||||||
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Segment Total | 8,956,872 | 9,017,250 | 60,378 | 1 | ||||||||||||
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Difference between Segment Total and Consolidated Amounts | 2,275,023 | 2,408,732 | 133,709 | 6 | ||||||||||||
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Consolidated Amounts | ¥ | 11,231,895 | ¥ | 11,425,982 | ¥ | 194,087 | 2 | |||||||||
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Corporate Financial Services Segment
This segment is involved in loan, leasing and fee business.
In this segment, we are focusing on fee businesses related to life insurance, environment and energy, auto leasing related products and services provided to domestic small- andmedium-sized enterprise customers while engaging in highly competitive businesses such as leasing and lending with a focus on profitability. We also aim to grow our profit by maximizing synergy potential with Yayoi, the software service provider in the group, and by utilizing domestic network to create new businesses.
Based on the aforementioned strategy, segment revenues increased 12% to ¥115,712 million compared to ¥102,979 million during the previous fiscal year due to an increase in gains on sales of securities, an increase in services income resulting from our stable fee businesses provided to domestic small- andmedium-sized enterprise customers and from revenue in line with an increase in contracts of Yayoi, despite a decrease in finance revenues from decreases in average investment balance in direct financing leases and installment loans.
Segment expenses remained at the same level as the previous fiscal year.
As a result of the foregoing, segment profits increased 30% to ¥49,275 million compared to ¥38,032 million during the previous fiscal year.
Segment assets decreased 7% to ¥961,901 million compared to the end of the previous fiscal year due to decreases in investment in direct financing leases, installment loans and investment in securities.
Asset efficiency improved compared to the previous fiscal year due to an increase of stable profit from fee businesses with more variety of services and an increase in gains on sales of securities. Furthermore, we started to build a new domestic distribution network of fruits and vegetables and commenced an online lending service for small businesses to explore new business areas.
Year ended March 31, | Change | |||||||||||||||
2017 | 2018 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Finance revenues | ¥ | 30,153 | ¥ | 28,390 | ¥ | (1,763 | ) | (6 | ) | |||||||
Operating leases | 25,626 | 23,355 | (2,271 | ) | (9 | ) | ||||||||||
Services income | 40,595 | 42,503 | 1,908 | 5 | ||||||||||||
Gains on investment securities and dividends, and other | 6,605 | 21,464 | 14,859 | 225 | ||||||||||||
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Total Segment Revenues | 102,979 | 115,712 | 12,733 | 12 | ||||||||||||
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Interest expense | 6,032 | 4,893 | (1,139 | ) | (19 | ) | ||||||||||
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities | (76 | ) | 1,218 | 1,294 | — | |||||||||||
Other | 62,057 | 62,612 | 555 | 1 | ||||||||||||
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Total Segment Expenses | 68,013 | 68,723 | 710 | 1 | ||||||||||||
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Segment Operating Income | 34,966 | 46,989 | 12,023 | 34 | ||||||||||||
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Equity in Net income (Loss) of Affiliates, and others | 3,066 | 2,286 | (780 | ) | (25 | ) | ||||||||||
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Segment Profits | ¥ | 38,032 | ¥ | 49,275 | ¥ | 11,243 | 30 | |||||||||
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As of March 31, | Change | |||||||||||||||
2017 | 2018 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Investment in direct financing leases | ¥ | 433,929 | ¥ | 415,301 | ¥ | (18,628 | ) | (4 | ) | |||||||
Installment loans | 398,558 | 363,993 | (34,565 | ) | (9 | ) | ||||||||||
Investment in operating leases | 30,114 | 26,350 | (3,764 | ) | (12 | ) | ||||||||||
Investment in securities | 34,773 | 19,208 | (15,565 | ) | (45 | ) | ||||||||||
Property under facility operations | 13,034 | 15,075 | 2,041 | 16 | ||||||||||||
Inventories | 51 | 49 | (2 | ) | (4 | ) | ||||||||||
Advances for investment in operating leases | 80 | 203 | 123 | 154 | ||||||||||||
Investment in affiliates | 18,392 | 16,845 | (1,547 | ) | (8 | ) | ||||||||||
Advances for property under facility operations | 139 | 720 | 581 | 418 | ||||||||||||
Goodwill and other intangible assets acquired in business combinations | 103,082 | 104,157 | 1,075 | 1 | ||||||||||||
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Total Segment Assets | ¥ | 1,032,152 | ¥ | 961,901 | ¥ | (70,251 | ) | (7 | ) | |||||||
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Maintenance Leasing Segment
This segment consists of automobile leasing and rentals,car-sharing, and test and measurement instruments andIT-related equipment rentals and leasing.
In the automobile related businesses which cover a large part of this segment, we aim to increase market share by targeting small- andmedium-sized enterprises and individuals as well as large corporate customers by leveraging our industry-leading number of fleets under management and our competitive advantages to provideone-stop automobile-related services. Furthermore, we will also develop new products and services to make the change of industrial structure into new business opportunities. In the rental business, we strengthened our engineering solution businesses by developing new services for robots and three-dimensional (3D) printing.
Based on the aforementioned strategy, segment revenues increased 2% to ¥275,740 million compared to ¥270,615 million during the previous fiscal year due to increases in finance revenues and operating leases revenues in line with an increased average segment asset balance in the automobile leasing business and an increase in services income.
Segment expenses increased in line with the aforementioned revenue increases.
As a result of the foregoing, segment profits increased 1% to ¥40,162 million compared to ¥39,787 million during the previous fiscal year.
Segment assets increased 9% to ¥818,201 million compared to the end of the previous fiscal year due to an acquisition of Yodogawa Transformer Co. Ltd., the largest renter of power receiving and transforming facilities and equipment, and an increase in new auto-leases in the automobile leasing business.
In auto-related business, the gain on sales of used cars decreased while assets of new auto-leases increased. Although asset efficiency decreased compared to the previous fiscal year due to the aforementioned reason, we have continuously maintained stable profitability. In rental business, we plan to continue to expand our product lineups through the aforementioned acquisition and pursue business synergies.
Year ended March 31, | Change | |||||||||||||||
2017 | 2018 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Finance revenues | ¥ | 13,029 | ¥ | 14,059 | ¥ | 1,030 | 8 | |||||||||
Operating leases | 187,219 | 189,592 | 2,373 | 1 | ||||||||||||
Services income | 66,314 | 67,810 | 1,496 | 2 | ||||||||||||
Sales of goods and real estate, and other | 4,053 | 4,279 | 226 | 6 | ||||||||||||
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Total Segment Revenues | 270,615 | 275,740 | 5,125 | 2 | ||||||||||||
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Interest expense | 3,360 | 3,049 | (311 | ) | (9 | ) | ||||||||||
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities | 258 | 222 | (36 | ) | (14 | ) | ||||||||||
Other | 227,178 | 232,104 | 4,926 | 2 | ||||||||||||
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Total Segment Expenses | 230,796 | 235,375 | 4,579 | 2 | ||||||||||||
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Segment Operating Income | 39,819 | 40,365 | 546 | 1 | ||||||||||||
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Equity in Net income (Loss) of Affiliates, and others | (32 | ) | (203 | ) | (171 | ) | — | |||||||||
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Segment Profits | ¥ | 39,787 | ¥ | 40,162 | ¥ | 375 | 1 | |||||||||
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As of March 31, | Change | |||||||||||||||
2017 | 2018 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Investment in direct financing leases | ¥ | 277,480 | ¥ | 305,041 | ¥ | 27,561 | 10 | |||||||||
Investment in operating leases | 469,824 | 491,369 | 21,545 | 5 | ||||||||||||
Investment in securities | 1,322 | 560 | (762 | ) | (58 | ) | ||||||||||
Property under facility operations | 803 | 904 | 101 | 13 | ||||||||||||
Inventories | 445 | 461 | 16 | 4 | ||||||||||||
Advances for investment in operating leases | 335 | 197 | (138 | ) | (41 | ) | ||||||||||
Investment in affiliates | 1,880 | 1,996 | 116 | 6 | ||||||||||||
Goodwill and other intangible assets acquired in business combinations | 424 | 17,673 | 17,249 | — | ||||||||||||
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Total Segment Assets | ¥ | 752,513 | ¥ | 818,201 | ¥ | 65,688 | 9 | |||||||||
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|
|
|
|
|
Real Estate Segment
This segment consists of real estate development and rental, facility operation, REIT asset management, and real estate investment and advisory services.
In this segment, we aim to promote portfolio rebalancing by selling rental properties into favorable markets and also to expand the scale of our asset management business such as REIT and real estate investment advisory services to construct a portfolio that is less affected by changes in the real estate market. We also aim to gain stable profits by accumulating expertise through the operation of various facilities such as hotels and Japanese inns and to develop new businesses by taking advantage of the value chain to the extent of real estate development and rental, asset management and facility operations.
Based on the aforementioned strategy, segment revenues decreased 18% to ¥172,948 million compared to ¥212,050 million during the previous fiscal year due primarily to a decrease in operating leases revenues in line with a decrease in gains on sales of rental property and a decrease in average asset balance in operating leases, despite an increase in services income from facilities operations.
Segment expenses remained at the same level as the previous fiscal year due to a decrease in costs of operating leases despite an increase in services expense from facilities operations.
As a result of the foregoing, segment profits decreased 14% to ¥62,372 million compared to ¥72,841 million during the previous fiscal year, despite an increase in equity in net income of affiliates in line with the recognition of significant gains on sales of investments in real estate joint ventures.
Segment assets decreased 6% to ¥620,238 million compared to the end of the previous fiscal year due primarily to a decrease in investment in operating leases, which resulted from sales of rental properties.
Asset efficiency decreased compared to the previous fiscal year due to the absence of large capital gain as recorded in the previous fiscal year, despite the increased profit in asset management business and the gain on sales as a result of portfolio rebalance as a market remained favorable.
Year ended March 31, | Change | |||||||||||||||
2017 | 2018 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Finance revenues | ¥ | 2,319 | ¥ | 2,055 | ¥ | (264 | ) | (11 | ) | |||||||
Operating leases | 88,153 | 46,938 | (41,215 | ) | (47 | ) | ||||||||||
Services income | 112,624 | 116,064 | 3,440 | 3 | ||||||||||||
Sales of goods and real estate, and other | 8,954 | 7,891 | (1,063 | ) | (12 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Total Segment Revenues | 212,050 | 172,948 | (39,102 | ) | (18 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Interest expense | 3,085 | 2,224 | (861 | ) | (28 | ) | ||||||||||
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities | 3,386 | 4,180 | 794 | 23 | ||||||||||||
Other | 136,629 | 136,775 | 146 | 0 | ||||||||||||
|
|
|
|
|
| |||||||||||
Total Segment Expenses | 143,100 | 143,179 | 79 | 0 | ||||||||||||
|
|
|
|
|
| |||||||||||
Segment Operating Income | 68,950 | 29,769 | (39,181 | ) | (57 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Equity in Net income (Loss) of Affiliates, and others | 3,891 | 32,603 | 28,712 | 738 | ||||||||||||
|
|
|
|
|
| |||||||||||
Segment Profits | ¥ | 72,841 | ¥ | 62,372 | ¥ | (10,469 | ) | (14 | ) | |||||||
|
|
|
|
|
|
As of March 31, | Change | |||||||||||||||
2017 | 2018 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Investment in direct financing leases | ¥ | 27,523 | ¥ | 33,589 | ¥ | 6,066 | 22 | |||||||||
Installment loans | 0 | 312 | 312 | — | ||||||||||||
Investment in operating leases | 298,184 | 247,001 | (51,183 | ) | (17 | ) | ||||||||||
Investment in securities | 3,552 | 2,988 | (564 | ) | (16 | ) | ||||||||||
Property under facility operations | 185,023 | 195,463 | 10,440 | 6 | ||||||||||||
Inventories | 2,567 | 2,850 | 283 | 11 | ||||||||||||
Advances for investment in operating leases | 18,634 | 20,524 | 1,890 | 10 | ||||||||||||
Investment in affiliates | 99,347 | 86,666 | (12,681 | ) | (13 | ) | ||||||||||
Advances for property under facility operations | 11,196 | 19,351 | 8,155 | 73 | ||||||||||||
Goodwill and other intangible assets acquired in business combinations | 11,675 | 11,494 | (181 | ) | (2 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Total Segment Assets | ¥ | 657,701 | ¥ | 620,238 | ¥ | (37,463 | ) | (6 | ) | |||||||
|
|
|
|
|
|
Investment and Operation Segment
This segment consists of environment and energy business, principal investment, loan servicing (asset recovery), and concession.
In environment and energy-related business, we aim to increase services revenue by promoting renewable energy business and electric power retailing business as a comprehensive energy service provider. In our solar power business, we have a secured one gigawatt of solar power capacity and are operating projects that generate approximately 670 megawatts of electricity as of March 31, 2018, making us one of the largest solar power producers in Japan. We will accelerate renewable energy business overseas by utilizing the expertise gained in the domestic market. In the principal investment business, we aim to earn stable profits from investees and sustainable gains on sales through rebalancing our portfolio. We will diversify our investment methods and
expand our target zone. Regarding concession business, we will strengthen the operations of three airports, Kansai International Airport, Osaka International Airport and Kobe Airport, and will also proactively engage in the operation of public infrastructures other than airports.
Based on the aforementioned strategy, segment revenues increased 10% to ¥1,402,313 million compared to ¥1,271,973 million during the previous fiscal year due to increases in sales of goods from subsidiaries in the principal investment business and services income from the environment and energy business.
Segment expenses increased compared to the previous fiscal year in line with the aforementioned revenues expansion.
As a result of the foregoing and due to an increase in equity in net income of affiliates, segment profits increased 13% to ¥96,120 million compared to ¥85,000 million during the previous fiscal year.
Segment assets increased 10% to ¥847,677 million compared to the end of the previous fiscal year due primarily to an investment to Ormat, the U.S. geothermal energy company in the environment and energy business.
Although the gain on sales in private equity investment decreased because of the absence of large gain on sales as recorded in the previous fiscal year, the operation rate of solar power generation projects has improved and profit from concession business has steadily increased. As a result, asset efficiency improved compared to the previous fiscal year. Furthermore, we will engage in geothermal energy projects in Japan and other countries in Asia with Ormat in which we have newly invested.
Year ended March 31, | Change | |||||||||||||||
2017 | 2018 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Finance revenues | ¥ | 10,680 | ¥ | 8,982 | ¥ | (1,698 | ) | (16 | ) | |||||||
Gains on investment securities and dividends | 12,961 | 7,630 | (5,331 | ) | (41 | ) | ||||||||||
Sales of goods and real estate | 938,438 | 1,048,684 | 110,246 | 12 | ||||||||||||
Services income | 299,709 | 326,526 | 26,817 | 9 | ||||||||||||
Operating leases, and other | 10,185 | 10,491 | 306 | 3 | ||||||||||||
|
|
|
|
|
| |||||||||||
Total Segment Revenues | 1,271,973 | 1,402,313 | 130,340 | 10 | ||||||||||||
|
|
|
|
|
| |||||||||||
Interest expense | 4,870 | 5,632 | 762 | 16 | ||||||||||||
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities | 6,760 | (836 | ) | (7,596 | ) | — | ||||||||||
Other | 1,212,681 | 1,345,318 | 132,637 | 11 | ||||||||||||
|
|
|
|
|
| |||||||||||
Total Segment Expenses | 1,224,311 | 1,350,114 | 125,803 | 10 | ||||||||||||
|
|
|
|
|
| |||||||||||
Segment Operating Income | 47,662 | 52,199 | 4,537 | 10 | ||||||||||||
|
|
|
|
|
| |||||||||||
Equity in Net income (Loss) of Affiliates, and others | 37,338 | 43,921 | 6,583 | 18 | ||||||||||||
|
|
|
|
|
| |||||||||||
Segment Profits | ¥ | 85,000 | ¥ | 96,120 | ¥ | 11,120 | 13 | |||||||||
|
|
|
|
|
|
As of March 31, | Change | |||||||||||||||
2017 | 2018 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Investment in direct financing leases | ¥ | 26,016 | ¥ | 25,497 | ¥ | (519 | ) | (2 | ) | |||||||
Installment loans | 56,435 | 48,131 | (8,304 | ) | (15 | ) | ||||||||||
Investment in operating leases | 25,434 | 30,158 | 4,724 | 19 | ||||||||||||
Investment in securities | 51,474 | 32,563 | (18,911 | ) | (37 | ) | ||||||||||
Property under facility operations | 187,674 | 208,106 | 20,432 | 11 | ||||||||||||
Inventories | 112,798 | 101,518 | (11,280 | ) | (10 | ) | ||||||||||
Advances for investment in operating leases | 1,237 | 1,261 | 24 | 2 | ||||||||||||
Investment in affiliates | 71,481 | 170,449 | 98,968 | 138 | ||||||||||||
Advances for property under facility operations | 55,180 | 44,901 | (10,279 | ) | (19 | ) | ||||||||||
Goodwill and other intangible assets acquired in business combinations | 180,946 | 185,093 | 4,147 | 2 | ||||||||||||
|
|
|
|
|
| |||||||||||
Total Segment Assets | ¥ | 768,675 | ¥ | 847,677 | ¥ | 79,002 | 10 | |||||||||
|
|
|
|
|
|
Retail Segment
This segment consists of life insurance, banking and card loan.
In life insurance business, we aim to increase the number of policiesin-force and revenues from insurance premiums by offeringsimple-to-understand products through sales agencies and online. In the banking business, we aim to increase finance revenues by increasing balance of outstanding housing loans which is a core of our banking business. In card loan business, we aim to increase revenues from guarantee fees by expanding guarantees against loans disbursed by other financial institutions in addition to increase finance revenues by making loans directly by utilizing our experience and expertise in credit screening while taking into account the amendments to the Money Lending Business Act for the purpose of reducing over-indebtedness.
Based on the aforementioned strategy, segment revenues increased 16% to ¥428,697 million compared to ¥368,665 million during the previous fiscal year due mainly to an increase in life insurance premiums in line with an increase inin-force policies, and an increase in investment income from assets under variable annuity and variable life insurance contracts in the life insurance business due to the market’s recovery.
Segment expenses increased compared to the previous fiscal year due to an increase in a provision of liability reserve in line with the aforementioned increase inin-force policies and an increase in investment income.
As a result of the foregoing, segment profits increased 2% to ¥74,527 million compared to ¥72,865 million during the previous fiscal year.
Segment assets decreased 4% to ¥3,174,505 million compared to the end of the previous fiscal year due primarily to sales of investment in securities as well as the surrender of variable annuity and variable life insurance contracts in the life insurance business, despite an increase in installment loans in the banking business.
Asset efficiency improved compared to the previous fiscal year due to the increase in life insurance premiums and financial revenues in addition to the decrease in assets by cancellation of variable annuity and variable life insurance contracts.
Year ended March 31, | Change | |||||||||||||||
2017 | 2018 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Finance revenues | ¥ | 59,177 | ¥ | 61,222 | ¥ | 2,045 | 3 | |||||||||
Life insurance premiums and related investment income | 297,886 | 352,974 | 55,088 | 18 | ||||||||||||
Services income, and other | 11,602 | 14,501 | 2,899 | 25 | ||||||||||||
|
|
|
|
|
| |||||||||||
Total Segment Revenues | 368,665 | 428,697 | 60,032 | 16 | ||||||||||||
|
|
|
|
|
| |||||||||||
Interest expense | 4,041 | 4,026 | (15 | ) | (0 | ) | ||||||||||
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities | 10,109 | 11,245 | 1,136 | 11 | ||||||||||||
Other | 281,663 | 338,906 | 57,243 | 20 | ||||||||||||
|
|
|
|
|
| |||||||||||
Total Segment Expenses | 295,813 | 354,177 | 58,364 | 20 | ||||||||||||
|
|
|
|
|
| |||||||||||
Segment Operating Income | 72,852 | 74,520 | 1,668 | 2 | ||||||||||||
|
|
|
|
|
| |||||||||||
Equity in Net income (Loss) of Affiliates, and others | 13 | 7 | (6 | ) | (46 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Segment Profits | ¥ | 72,865 | ¥ | 74,527 | ¥ | 1,662 | 2 | |||||||||
|
|
|
|
|
| |||||||||||
As of March 31, | Change | |||||||||||||||
2017 | 2018 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Investment in direct financing leases | ¥ | 518 | ¥ | 208 | ¥ | (310 | ) | (60 | ) | |||||||
Installment loans | 1,718,655 | 1,852,761 | 134,106 | 8 | ||||||||||||
Investment in operating leases | 46,243 | 44,319 | (1,924 | ) | (4 | ) | ||||||||||
Investment in securities | 1,509,180 | 1,260,291 | (248,889 | ) | (16 | ) | ||||||||||
Investment in affiliates | 810 | 702 | (108 | ) | (13 | ) | ||||||||||
Goodwill and other intangible assets acquired in business combinations | 16,225 | 16,224 | (1 | ) | (0 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Total Segment Assets | ¥ | 3,291,631 | ¥ | 3,174,505 | ¥ | (117,126 | ) | (4 | ) | |||||||
|
|
|
|
|
|
Overseas Business Segment
This segment consists of leasing, loan, bond investment, asset management and aircraft- and ship-related operations.
In the Americas, we aim to expand our business areas by engaging in fee business such as equity investment, fund management in addition to corporate finance and investment in bonds. In our aircraft-related operations, we are focusing on the profit opportunities within operating lease, sales of used aircraft to domestic and overseas investors, asset management services for the aircrafts owned by others, backed by the growing demand of passengers and aircrafts. We will also aim to promote the expansion of functionality and diversification in our overseas group companies.
Based on the aforementioned strategy, segment revenues increased 4% to ¥477,420 million compared to ¥458,912 million during the previous fiscal year due to increases in services income in the asset management business, operating leases revenues in our aircraft-related operations including gains on sales of aircraft and finance revenues in the Americas, despite a decrease in sales of goods resulting from the sale of a subsidiary during the previous fiscal year.
Segment expenses decreased compared to the previous fiscal year due primarily to a decrease in costs of goods sold resulting from the aforementioned sale of a subsidiary.
As a result of the foregoing and due to decreases in equity in net income of affiliates and gains on sales of subsidiaries and affiliates and liquidation losses, net, segment profits decreased 5% to ¥106,602 million compared to ¥112,312 million in the previous fiscal year.
Segment assets increased 6% to ¥2,594,728 million compared to the end of the previous fiscal year due to increases in investment in operating leases in our aircraft-related operations, installment loans in the Americas and Asia, and the recognition of goodwill and other intangible assets in line with the acquisition of a new subsidiary, despite a decrease in investment in securities.
Asset efficiency decreased compared to the previous fiscal year due to the loss on sales of affiliates and impairment loss in investee. Furthermore, we have expanded our fee businesses through the acquisition of mortgage servicing company in the Americas. We have also made several investments in infrastructure related businesses in Americas as well as fintech companies in China.
Year ended March 31, | Change | |||||||||||||||
2017 | 2018 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Finance revenues | ¥ | 81,251 | ¥ | 96,368 | ¥ | 15,117 | 19 | |||||||||
Gains on investment securities and dividends | 13,334 | 17,513 | 4,179 | 31 | ||||||||||||
Operating leases | 88,474 | 111,367 | 22,893 | 26 | ||||||||||||
Services income | 216,720 | 238,615 | 21,895 | 10 | ||||||||||||
Sales of goods and real estate, and other | 59,133 | 13,557 | (45,576 | ) | (77 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Total Segment Revenues | 458,912 | 477,420 | 18,508 | 4 | ||||||||||||
|
|
|
|
|
| |||||||||||
Interest expense | 36,535 | 49,477 | 12,942 | 35 | ||||||||||||
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities | 18,215 | 8,149 | (10,066 | ) | (55 | ) | ||||||||||
Other | 332,024 | 323,141 | (8,883 | ) | (3 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Total Segment Expenses | 386,774 | 380,767 | (6,007 | ) | (2 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Segment Operating Income | 72,138 | 96,653 | 24,515 | 34 | ||||||||||||
|
|
|
|
|
| |||||||||||
Equity in Net income (Loss) of Affiliates, and others | 40,174 | 9,949 | (30,225 | ) | (75 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Segment Profits | ¥ | 112,312 | ¥ | 106,602 | ¥ | (5,710 | ) | (5 | ) | |||||||
|
|
|
|
|
| |||||||||||
As of March 31, | Change | |||||||||||||||
2017 | 2018 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Investment in direct financing leases | ¥ | 357,732 | ¥ | 368,721 | ¥ | 10,989 | �� | 3 | ||||||||
Installment loans | 457,393 | 520,137 | 62,744 | 14 | ||||||||||||
Investment in operating leases | 420,207 | 490,953 | 70,746 | 17 | ||||||||||||
Investment in securities | 465,899 | 413,977 | (51,922 | ) | (11 | ) | ||||||||||
Property under facility operations and servicing assets | 29,705 | 43,995 | 14,290 | 48 | ||||||||||||
Inventories | 1,811 | 5,923 | 4,112 | 227 | ||||||||||||
Advances for investment in operating leases | 9,024 | 9,487 | 463 | 5 | ||||||||||||
Investment in affiliates | 332,154 | 314,569 | (17,585 | ) | (5 | ) | ||||||||||
Advances for property under facility operations | 39 | 0 | (39 | ) | 0 | |||||||||||
Goodwill and other intangible assets acquired in business combinations | 380,236 | 426,966 | 46,730 | 12 | ||||||||||||
|
|
|
|
|
| |||||||||||
Total Segment Assets | ¥ | 2,454,200 | ¥ | 2,594,728 | ¥ | 140,528 | 6 | |||||||||
|
|
|
|
|
|
Revenues, New Business Volumes and Investments
Finance revenues
Year ended March 31, | Change | |||||||||||||||
2017 | 2018 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Finance revenues: | ||||||||||||||||
Finance revenues | ¥ | 200,584 | ¥ | 214,104 | ¥ | 13,520 | 7 |
Finance revenues increased 7% to ¥214,104 million for fiscal 2018 compared to fiscal 2017 primarily due to an increase in average balance of installment loans.
Direct financing leases
As of and for the year ended March 31, | Change | |||||||||||||||
2017 | 2018 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Direct financing leases: | ||||||||||||||||
New equipment acquisitions | ¥ | 512,740 | ¥ | 472,070 | ¥ | (40,670 | ) | (8 | ) | |||||||
Japan | 312,788 | 264,953 | (47,835 | ) | (15 | ) | ||||||||||
Overseas | 199,952 | 207,117 | 7,165 | 4 | ||||||||||||
Investment in direct financing leases | 1,204,024 | 1,194,888 | (9,136 | ) | (1 | ) |
New equipment acquisitions related to direct financing leases decreased 8% to ¥472,070 million compared to fiscal 2017. In Japan, new equipment acquisitions decreased 15% in fiscal 2018 compared to fiscal 2017 due to a decreasing trend. In overseas, new equipment acquisitions increased 4% in fiscal 2018 compared to fiscal 2017.
Investment in direct financing leases as of March 31, 2018 decreased 1% to ¥1,194,888 million compared to March 31, 2017 due to decreases in new equipment acquisitions described above.
As of March 31, 2018, no single lessee represented more than 1% of the balance of direct financing leases. As of March 31, 2018, 69% of our direct financing leases were to lessees in Japan, while 31% were to overseas lessees. Approximately 6% of our direct financing leases were to lessees in Hong Kong and Malaysia. No other overseas country represented more than 5% of our total portfolio of direct financing leases.
As of March 31, | Change | |||||||||||||||
2017 | 2018 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Investment in direct financing leases by category: | ||||||||||||||||
Transportation equipment | ¥ | 496,335 | ¥ | 489,687 | ¥ | (6,648 | ) | (1 | ) | |||||||
Industrial equipment | 244,606 | 240,646 | (3,960 | ) | (2 | ) | ||||||||||
Electronics | 158,726 | 154,522 | (4,204 | ) | (3 | ) | ||||||||||
Information-related and office equipment | 102,078 | 105,040 | 2,962 | 3 | ||||||||||||
Commercial services equipment | 54,389 | 53,065 | (1,324 | ) | (2 | ) | ||||||||||
Other | 147,890 | 151,928 | 4,038 | 3 | ||||||||||||
|
|
|
|
|
| |||||||||||
Total | ¥ | 1,204,024 | ¥ | 1,194,888 | ¥ | (9,136 | ) | (1 | ) | |||||||
|
|
|
|
|
|
For further information, see Note 5 of “Item 18. Financial Statements.”
Installment loans
As of and for the year ended March 31, | Change | |||||||||||||||
2017 | 2018 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Installment loans: | ||||||||||||||||
New loans added | ¥ | 1,309,488 | ¥ | 1,397,467 | ¥ | 87,979 | 7 | |||||||||
Japan | 972,361 | 945,436 | (26,925 | ) | (3 | ) | ||||||||||
Overseas | 337,127 | 452,031 | 114,904 | 34 | ||||||||||||
Installment loans | 2,815,706 | 2,823,769 | 8,063 | 0 |
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 increased 7% to ¥1,397,467 million compared to fiscal 2017. In Japan, new loans added have shown a downward trend, and decreased 3% to ¥945,436 million in fiscal 2018 compared to fiscal 2017. In overseas, new loans added increased 34% to ¥452,031 million compared to fiscal 2017 due to increased lending activity in the Americas and Asia.
The balance of installment loans as of March 31, 2018 remained flat at ¥2,823,769 million compared to March 31, 2017, primarily due to a decrease in loans for entertainment companies which are included in commercial, industrial and other companies, offsetting an increase of housing loans.
As of March 31, | Change | |||||||||||||||
2017 | 2018 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Installment loans: | ||||||||||||||||
Consumer borrowers in Japan | ||||||||||||||||
Housing loans | ¥ | 1,261,571 | ¥ | 1,375,380 | ¥ | 113,809 | 9 | |||||||||
Card loans | 270,007 | 264,323 | (5,684 | ) | (2 | ) | ||||||||||
Other | 28,668 | 34,333 | 5,665 | 20 | ||||||||||||
|
|
|
|
|
| |||||||||||
Subtotal | 1,560,246 | 1,674,036 | 113,790 | 7 | ||||||||||||
|
|
|
|
|
| |||||||||||
Corporate borrowers in Japan | ||||||||||||||||
Real estate companies | 270,965 | 278,076 | 7,111 | 3 | ||||||||||||
Non-recourse loans | 12,758 | 18,318 | 5,560 | 44 | ||||||||||||
Commercial, industrial and other companies | 340,050 | 301,083 | (38,967 | ) | (11 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Subtotal | 623,773 | 597,477 | (26,296 | ) | (4 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Overseas | ||||||||||||||||
Non-recourse loans | 75,968 | 54,987 | (20,981 | ) | (28 | ) | ||||||||||
Commercial, industrial companies and other | 530,924 | 478,336 | (52,588 | ) | (10 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Subtotal | 606,892 | 533,323 | (73,569 | ) | (12 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Purchased loans* | 24,795 | 18,933 | (5,862 | ) | (24 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Total | ¥ | 2,815,706 | ¥ | 2,823,769 | ¥ | 8,063 | 0 | |||||||||
|
|
|
|
|
|
* | 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, 2018, ¥7,554 million, or 0.3%, 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, 2018, ¥345,977 million, or 12%, of the balance of installment loans were to real estate companies in Japan and overseas. Among these amounts, ¥2,547 million, or 0.1% were loans individually evaluated for impairment. We recognized an allowance of ¥543 million on these impaired loans. As of March 31, 2018, we had installment loans outstanding in the amount of ¥83,314 million, or 3% of the balance of installment loans, to companies in the entertainment industry. Among these amounts, ¥1,588 million, or 0.1% were loans individually evaluated for impairment. We recognized an allowance of ¥576 million on these impaired loans.
The balance of installment loans to consumer borrowers in Japan as of March 31, 2018 increased 7% to ¥1,674,036 million compared to the balance as of March 31, 2017, primarily due to an increase in the balance of housing loans. The balance of installment loans to corporate borrowers in Japan as of March 31, 2018 decreased 4%, to ¥597,477 million, compared to the balance as of March 31, 2017, primarily due to a decrease in loans for entertainment companies which are included in commercial, industrial and other companies. The balance of installment loans overseas, as of March 31, 2018 decreased 12%, to ¥533,323 million, compared to the balance as of March 31, 2017, primarily due to sales of loans in the Americas.
For further information, see Note 7 of “Item 18. Financial Statements.”
Asset quality
Direct financing leases
As of March 31, | ||||||||
2017 | 2018 | |||||||
(Millions of yen, except percentage data) | ||||||||
90+ dayspast-due direct financing leases and allowances for direct financing leases: | ||||||||
90+ dayspast-due direct financing leases | ¥ | 11,600 | ¥ | 12,084 | ||||
90+ dayspast-due direct financing leases as a percentage of the balance of investment in direct financing leases | 0.96 | % | 1.01 | % | ||||
Provision as a percentage of average balance of investment in direct financing leases* | 0.12 | % | 0.19 | % | ||||
Allowance for direct financing leases | ¥ | 10,537 | ¥ | 10,089 | ||||
Allowance for direct financing leases as a percentage of the balance of investment in direct financing leases | 0.88 | % | 0.84 | % | ||||
The ratio of charge-offs as a percentage of the average balance of investment in direct financing leases | 0.34 | % | 0.22 | % |
* | Average balances are calculated on the basis of fiscal year’s beginning balance and fiscalquarter-end balances. |
The balance of 90+ dayspast-due direct financing leases increased ¥484 million to ¥12,084 million as of March 31, 2018 compared to March 31, 2017. As a result, the ratio of 90+ dayspast-due direct financing leases increased 0.05% from March 31, 2017 to 1.01%.
We believe that the ratio of allowance for doubtful receivables to the balance of investment in direct financing leases provides a reasonable indication that our allowance for doubtful receivables was appropriate as of March 31, 2018 for the following reasons:
Loans not individually evaluated for impairment
As of March 31, | ||||||||
2017 | 2018 | |||||||
(Millions of yen, except percentage data) | ||||||||
90+ dayspast-due loans and allowance for installment loans: | ||||||||
90+ dayspast-due loans not individually evaluated for impairment | ¥ | 9,722 | ¥ | 12,748 | ||||
90+ dayspast-due loans not individually evaluated for impairment as a percentage of the balance of installment loans not individually evaluated for impairment | 0.35 | % | 0.46 | % | ||||
Provision as a percentage of average balance of installment loans not individually evaluated for impairment* | 0.78 | % | 0.48 | % | ||||
Allowance for probable loan losses on installment loans exclusive of those loans individually evaluated for impairment | ¥ | 28,622 | ¥ | 30,239 | ||||
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 | 1.04 | % | 1.09 | % | ||||
The ratio of charge-offs as a percentage of the average balance of loans not individually evaluated for impairment | 0.54 | % | 0.36 | % |
* | Average balances are calculated on the basis of fiscal year’s beginning balance and fiscalquarter-end balances. |
The balance of 90+ dayspast-due loans not individually evaluated and evaluated as a homogeneous group for impairment due to their individual significancy increased ¥3,026 million to ¥12,748 million as of March 31, 2018 compared to March 31, 2017.
As of March 31, | ||||||||
2017 | 2018 | |||||||
(Millions of yen) | ||||||||
90+ dayspast-due loans not individually evaluated for impairment: | ||||||||
Consumer borrowers in Japan | ||||||||
Housing loans | ¥ | 1,685 | ¥ | 2,077 | ||||
Card loans | 1,346 | 1,785 | ||||||
Other | 6,160 | 8,464 | ||||||
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| |||||
Subtotal | 9,191 | 12,326 | ||||||
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| |||||
Overseas | ||||||||
Housing loans | 531 | 422 | ||||||
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| |||||
Total | ¥ | 9,722 | ¥ | 12,748 | ||||
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We recognize allowance for housing 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, | ||||||||
2017 | 2018 | |||||||
(Millions of yen) | ||||||||
Loans individually evaluated for impairment: | ||||||||
Impaired loans | ¥ | 59,025 | ¥ | 47,142 | ||||
Impaired loans requiring an allowance | 52,501 | 39,329 | ||||||
Allowance for loans individually evaluated for impairment* | 20,068 | 14,344 |
* | 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 ¥879 million in fiscal 2017 and ¥1,498 million in fiscal 2018, andcharge-off of impaired loans was ¥3,508 million in fiscal 2017 and ¥6,785 million in fiscal 2018. New provision for probable loan losses increased ¥619 million compared to fiscal 2017.Charge-off of impaired loans increased ¥3,277 million compared to fiscal 2017.
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.
As of March 31, | ||||||||
2017 | 2018 | |||||||
(Millions of yen) | ||||||||
Impaired loans: | ||||||||
Consumer borrowers in Japan | ||||||||
Housing loans | ¥ | 4,243 | ¥ | 3,544 | ||||
Card loans | 4,102 | 4,060 | ||||||
Other | 7,903 | 11,082 | ||||||
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Subtotal | 16,248 | 18,686 | ||||||
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Corporate borrowers in Japan | ||||||||
Real estate companies | 7,212 | 1,598 | ||||||
Non-recourse loans | 203 | 254 | ||||||
Commercial, industrial and other companies | 11,467 | 9,174 | ||||||
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Subtotal | 18,882 | 11,026 | ||||||
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Overseas | ||||||||
Non-recourse loans | 5,829 | 3,491 | ||||||
Commercial, industrial companies and other | 10,623 | 8,838 | ||||||
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Subtotal | 16,452 | 12,329 | ||||||
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Purchased loans | 7,443 | 5,101 | ||||||
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Total | ¥ | 59,025 | ¥ | 47,142 | ||||
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For further information, see Note 8 of “Item 18. Financial Statements.”
Provision for doubtful receivables and probable loan losses
We recognize provision for doubtful receivables and probable loan losses for direct financing leases and installment loans.
As of March 31, | Change | |||||||||||||||
2017 | 2018 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Provision for doubtful receivables on direct financing leases and probable loan losses: | ||||||||||||||||
Beginning balance | ¥ | 60,071 | ¥ | 59,227 | ¥ | (844 | ) | (1 | ) | |||||||
Direct financing leases | 13,380 | 10,537 | (2,843 | ) | (21 | ) | ||||||||||
Loans not individually evaluated for impairment | 24,158 | 28,622 | 4,464 | 18 | ||||||||||||
Loans individually evaluated for impairment | 22,533 | 20,068 | (2,465 | ) | (11 | ) | ||||||||||
Provision (Reversal) | 22,667 | 17,265 | (5,402 | ) | (24 | ) | ||||||||||
Direct financing leases | 1,372 | 2,241 | 869 | 63 | ||||||||||||
Loans not individually evaluated for impairment | 20,416 | 13,526 | (6,890 | ) | (34 | ) | ||||||||||
Loans individually evaluated for impairment | 879 | 1,498 | 619 | 70 | ||||||||||||
Charge-offs (net) | (21,822 | ) | (19,465 | ) | 2,357 | (11 | ) | |||||||||
Direct financing leases | (4,056 | ) | (2,701 | ) | 1,355 | (33 | ) | |||||||||
Loans not individually evaluated for impairment | (14,258 | ) | (9,979 | ) | 4,279 | (30 | ) | |||||||||
Loans individually evaluated for impairment | (3,508 | ) | (6,785 | ) | (3,277 | ) | 93 | |||||||||
Other * | (1,689 | ) | (2,355 | ) | (666 | ) | 39 | |||||||||
Direct financing leases | (159 | ) | 12 | 171 | — | |||||||||||
Loans not individually evaluated for impairment | (1,694 | ) | (1,930 | ) | (236 | ) | 14 | |||||||||
Loans individually evaluated for impairment | 164 | (437 | ) | (601 | ) | — | ||||||||||
Ending balance | 59,227 | 54,672 | (4,555 | ) | (8 | ) | ||||||||||
Direct financing leases | 10,537 | 10,089 | (448 | ) | (4 | ) | ||||||||||
Loans not individually evaluated for impairment | 28,622 | 30,239 | 1,617 | 6 | ||||||||||||
Loans individually evaluated for impairment | 20,068 | 14,344 | (5,724 | ) | (29 | ) |
* | Other mainly includes foreign currency translation adjustments and others. |
For further information, see Note 8 of “Item 18. Financial Statements.”
Investment in Securities
As of and for the year ended March 31, | Change | |||||||||||||||
2017 | 2018 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Investment in securities: | ||||||||||||||||
New securities added | ¥ | 489,357 | ¥ | 439,383 | ¥ | (49,974 | ) | (10 | ) | |||||||
Japan | 354,120 | 300,406 | (53,714 | ) | (15 | ) | ||||||||||
Overseas | 135,237 | 138,977 | 3,740 | 3 | ||||||||||||
Investment in securities | 2,026,512 | 1,729,455 | (297,057 | ) | (15 | ) |
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 decreased 10% to ¥439,383 million in fiscal 2018 compared to fiscal 2017. New securities added in Japan decreased 15% in fiscal 2018 compared to fiscal 2017 primarily due to a decrease in
investments in corporate debt securities. New securities added overseas increased 3% in fiscal 2018 compared to fiscal 2017.
The balance of our investment in securities as of March 31, 2018 decreased 15% to ¥1,729,455 million compared to March 31, 2017.
As of March 31, | Change | |||||||||||||||
2017 | 2018 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Investment in securities by security type: | ||||||||||||||||
Trading securities | ¥ | 569,074 | ¥ | 422,053 | ¥ | (147,021 | ) | (26 | ) | |||||||
Available-for-sale securities | 1,165,417 | 1,015,477 | (149,940 | ) | (13 | ) | ||||||||||
Held-to-maturity securities | 114,400 | 113,891 | (509 | ) | (0 | ) | ||||||||||
Other securities | 177,621 | 178,034 | 413 | 0 | ||||||||||||
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Total | ¥ | 2,026,512 | ¥ | 1,729,455 | ¥ | (297,057 | ) | (15 | ) | |||||||
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Investments in trading securities as of March 31, 2018 decreased 26% compared to March 31, 2017 primarily due to a decrease in the assets under management of variable annuity and variable life insurance contracts. Investments inavailable-for-sale securities as of March 31, 2018 decreased 13% compared to March 31, 2017 primarily due to sale of government bond securities and marketable equity securities.Held-to-maturity securities mainly consist of our life insurance business’s investment in Japanese government bonds. Other securities consist mainly ofnon-marketable equity securities and preferred equity securities carried at cost, and investment funds carried at an amount that reflects equity income and loss based on the investor’s share.
For further information, see Note 9 of “Item 18. Financial Statements.”
Gains on investment securities and dividends
Year ended March 31, | Change | |||||||||||||||
2017 | 2018 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Gains on investment securities and dividends: | ||||||||||||||||
Net gains on investment securities | ¥ | 27,233 | ¥ | 39,139 | ¥ | 11,906 | 44 | |||||||||
Dividends income, other | 3,095 | 4,163 | 1,068 | 35 | ||||||||||||
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| |||||||||||
Total | ¥ | 30,328 | ¥ | 43,302 | ¥ | 12,974 | 43 | |||||||||
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Note: | 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. |
Gains on investment securities and dividends increased 43% to ¥43,302 million in fiscal 2018 compared to fiscal 2017 due to increases in net gains on investment securities and dividends income. Net gains on investment securities increased 44% to ¥39,139 million in fiscal 2018 compared to fiscal 2017 mainly due to an increase in gains on sales of securities. Dividends income, other increased 35% to ¥4,163 million in fiscal 2018 compared to fiscal 2017.
As of March 31, 2018, gross unrealized gains onavailable-for-sale securities, including those held in connection with our life insurance operations, were ¥29,220 million, compared to ¥51,905 million as of March 31, 2017. As of March 31, 2018, gross unrealized losses onavailable-for-sale securities, including those held in connection with our life insurance operations, were ¥15,856 million, compared to ¥6,244 million as of March 31, 2017.
For further information, see Note 22 of “Item 18. Financial Statements.”
Operating leases
As of and for the year ended March 31, | Change | |||||||||||||||
2017 | 2018 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Operating leases: | ||||||||||||||||
Operating lease revenues | ¥ | 398,655 | ¥ | 379,665 | ¥ | (18,990 | ) | (5 | ) | |||||||
Costs of operating leases | 243,537 | 252,327 | 8,790 | 4 | ||||||||||||
New equipment acquisitions | 401,913 | 495,609 | 93,696 | 23 | ||||||||||||
Japan | 207,759 | 215,832 | 8,073 | 4 | ||||||||||||
Overseas | 194,154 | 279,777 | 85,623 | 44 | ||||||||||||
Investment in operating leases | 1,313,164 | 1,344,926 | 31,762 | 2 |
Revenues from operating leases in fiscal 2018 decreased 5% to ¥379,665 million compared to fiscal 2017 primarily due to decreases in gains on sales of automobiles in the automobile leasing business and sales of rental property, partially offset by an increase in gains on sales of aircraft in aircraft-related operations. In fiscal 2017 and 2018, gains from the disposition of operating lease assets were ¥69,265 million and ¥35,291 million, respectively.
Costs of operating leases increased 4% to ¥252,327 million in fiscal 2018 compared to fiscal 2017 primarily due to an increase in depreciation expenses resulting from a year on year increase in the average balance of investment in the automobile leasing business, despite a decrease in costs from rental property.
New equipment acquisitions related to operating leases increased 23% to ¥495,609 million in fiscal 2018 compared to fiscal 2017 primarily due to an increase in purchases of aircraft overseas.
Investment in operating leases as of March 31, 2018 increased 2% to ¥1,344,926 million compared to March 31, 2017.
As of March 31, | Change | |||||||||||||||
2017 | 2018 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Investment in operating leases by category: | ||||||||||||||||
Transportation equipment | ¥ | 788,676 | ¥ | 864,008 | ¥ | 75,332 | 10 | |||||||||
Measuring and information-related equipment | 86,682 | 89,326 | 2,644 | 3 | ||||||||||||
Real estate | 404,427 | 348,867 | (55,560 | ) | (14 | ) | ||||||||||
Other | 10,158 | 12,210 | 2,052 | 20 | ||||||||||||
Accrued rental receivables | 23,221 | 30,515 | 7,294 | 31 | ||||||||||||
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Total | ¥ | 1,313,164 | ¥ | 1,344,926 | ¥ | 31,762 | 2 | |||||||||
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Investment in transportation equipment operating leases as of March 31, 2018 increased 10% to ¥864,008 million compared to March 31, 2017 primarily due to an increase in new equipment acquisitions in the automobile leasing business. Investment in real estate operating leases as of March 31, 2018 decreased 14% to ¥348,867 million compared to March 31, 2017, primarily due to sales of real estate in Japan.
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) 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 | |||||||||||||||
2017 | 2018 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Life insurance premiums and related investment income and life insurance costs: | ||||||||||||||||
Life insurance premiums | ¥ | 247,427 | ¥ | 299,320 | ¥ | 51,893 | 21 | |||||||||
Life insurance-related investment income | 48,513 | 52,270 | 3,757 | 8 | ||||||||||||
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Total | ¥ | 295,940 | ¥ | 351,590 | ¥ | 55,650 | 19 | |||||||||
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Life insurance costs | ¥ | 200,158 | ¥ | 255,070 | ¥ | 54,912 | 27 | |||||||||
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Year ended March 31, | Change | |||||||||||||||
2017 | 2018 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Breakdown of life insurance-related investment income (loss): | ||||||||||||||||
Net income on investment securities | ¥ | 57,715 | ¥ | 58,921 | ¥ | 1,206 | 2 | |||||||||
Losses recognized in income on derivative | (10,568 | ) | (7,332 | ) | 3,236 | (31 | ) | |||||||||
Interest on loans, income on real estate under operating leases, and others | 1,366 | 681 | (685 | ) | (50 | ) | ||||||||||
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Total | ¥ | 48,513 | ¥ | 52,270 | ¥ | 3,757 | 8 | |||||||||
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Life insurance premiums and related investment income increased 19% to ¥351,590 million in fiscal 2018 compared to fiscal 2017.
Life insurance premiums increased 21% to ¥299,320 million in fiscal 2018 compared to fiscal 2017 due to an increase in the number of policies in force.
Life insurance-related investment income increased 8% to ¥52,270 million in fiscal 2018 compared to fiscal 2017. Net income on investment securities increased due primarily to gains on sales of government bonds and a significant increase in investment income from variable annuity and variable life insurance contracts, caused by the significant market improvement in fiscal 2018. Losses from derivative contracts held to economically hedge the minimum guarantee risk relating to these variable annuity and variable life insurance contracts decreased. On the other hand, interest on loans, income on real estate under operating leases, and others decreased.
Life insurance costs increased 27% to ¥255,070 million in fiscal 2018 compared to fiscal 2017 due to an increase in the number of policies in force and a provision of liability reserve in line with the aforementioned increase in investment income from variable annuity and variable life insurance contracts.
As of March 31, | Change | |||||||||||||||
2017 | 2018 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Investments by life insurance operations: | ||||||||||||||||
Trading securities | ¥ | 547,850 | ¥ | 403,797 | ¥ | (144,053 | ) | (26 | ) | |||||||
Available-for-sale debt securities | 567,741 | 470,634 | (97,107 | ) | (17 | ) | ||||||||||
Available-for-sale equity securities | 13,341 | 8,916 | (4,425 | ) | (33 | ) | ||||||||||
Held-to-maturity securities | 114,400 | 113,891 | (509 | ) | (0 | ) | ||||||||||
Other securities | 438 | 1,617 | 1,179 | 269 | ||||||||||||
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Total investment in securities | 1,243,770 | 998,855 | (244,915 | ) | (20 | ) | ||||||||||
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Installment loans, real estate under operating leases and other investments | 58,215 | 52,080 | (6,135 | ) | (11 | ) | ||||||||||
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Total | ¥ | 1,301,985 | ¥ | 1,050,935 | ¥ | (251,050 | ) | (19 | ) | |||||||
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Investment in securities as of March 31, 2018 decreased 20% to ¥998,855 million compared to March 31, 2017 due to a decrease in trading securities as a result of surrender of variable annuity and variable life insurance contracts, andavailable-for-sale debt securities decreased due to sales of national government bonds.
For further information, see Note 23 of “Item 18. Financial Statements.”
Sales of goods and real estate, Inventories
Year ended March 31, | Change | |||||||||||||||
2017 | 2018 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Sales of goods and real estate, Inventories: | ||||||||||||||||
Sales of goods and real estate | ¥ | 1,015,249 | ¥ | 1,079,052 | ¥ | 63,803 | 6 | |||||||||
Costs of goods and real estate sold | 928,794 | 1,003,509 | 74,715 | 8 | ||||||||||||
New real estate added | 93,905 | 83,120 | (10,785 | ) | (11 | ) | ||||||||||
Inventories | 117,863 | 111,001 | (6,862 | ) | (6 | ) |
Sales of goods and real estate increased 6% to ¥1,079,052 million compared to fiscal 2017 mainly due to an increase in gains on sales of goods.
Costs of goods and real estate sold increased 8% to ¥1,003,509 million compared to fiscal 2017 mainly due to an increase in expenses in costs of goods. We recorded ¥916 million and ¥936 million of write-downs for fiscal 2017 and 2018, respectively. Costs of goods and real estate sold include the upfront costs associated with advertising and creating model rooms.
New real estate added decreased 11% to ¥83,120 million in fiscal 2018 compared to fiscal 2017.
Inventories as of March 31, 2018 decreased 6% to ¥111,001 million compared to March 31, 2017.
For further information, see Note 24 of “Item 18. Financial Statements.”
Services, Property under Facility Operations
As of and for the year ended March 31, | Change | |||||||||||||||
2017 | 2018 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Services, Property under Facility Operations | ||||||||||||||||
Services income | ¥ | 737,903 | ¥ | 795,058 | ¥ | 57,155 | 8 | |||||||||
Services expense | 451,277 | 482,796 | 31,519 | 7 | ||||||||||||
New assets added | 68,571 | 82,206 | 13,635 | 20 | ||||||||||||
Japan | 61,275 | 76,206 | 14,931 | 24 | ||||||||||||
Overseas | 7,296 | 6,000 | (1,296 | ) | (18 | ) | ||||||||||
Property under Facility Operations | 398,936 | 434,786 | 35,850 | 9 |
Services income increased 8% to ¥795,058 million in fiscal 2018 compared to fiscal 2017 primarily due to service expansion in the asset management business and the environment and energy business.
Services expense increased 7% to ¥482,796 million in fiscal 2018 compared to fiscal 2017 mainly resulted from the recognition of expenses from the environment and energy business.
New assets added for property under facility operations increased 20% to ¥82,206 million in fiscal 2018 compared to fiscal 2017 due to investment in electric power facilities and completion of property under facility operations.
Property under facility operations as of March 31, 2018 increased 9% to ¥434,786 million compared to March 31, 2017 primarily due to investment in electric power facilities.
For further information, see Note 25 of “Item 18. Financial Statements.”
Expenses
Interest expense
Interest expense increased 5 % to ¥76,815 million in fiscal 2018 compared to ¥72,910 million in fiscal 2017. Our total outstanding short-term debt, long-term debt and deposits as of March 31, 2018 increased 2 % to ¥5,890,720 million compared to ¥5,753,059 million as of March 31, 2017.
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, decreased to 0.4 % in fiscal 2018, from 0.5 % in fiscal 2017. 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 2018 at 2.8% compared to 2.8% in fiscal 2017. 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, net
Other (income) and expense, net included a net income of ¥4,396 million during fiscal 2017 and a net expense of ¥429 million during fiscal 2018. Foreign currency transaction losses (gains) included in other (income) and expense, net included gains of ¥2,764 million in fiscal 2018 compared to losses of ¥1,850 million in fiscal 2017. We recognized impairment losses on goodwill and other intangible assets included in other (income) and expense, net in the amount of ¥194 million in fiscal 2018 compared to ¥3,196 million of impairment losses on goodwill and other intangible assets during fiscal 2017. For further information on our goodwill and other intangible assets, see Note 13 of “Item 18. Financial Statements.”
Selling, general and administrative expenses
Year ended March 31, | Change | |||||||||||||||
2017 | 2018 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Selling, general and administrative expenses: | ||||||||||||||||
Personnel expenses | ¥ | 236,818 | ¥ | 241,508 | ¥ | 4,690 | 2 | |||||||||
Selling expenses | 76,729 | 82,850 | 6,121 | 8 | ||||||||||||
Administrative expenses | 99,819 | 102,105 | 2,286 | 2 | ||||||||||||
Depreciation of office facilities | 5,380 | 5,131 | (249 | ) | (5 | ) | ||||||||||
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Total | ¥ | 418,746 | ¥ | 431,594 | ¥ | 12,848 | 3 | |||||||||
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Employee salaries and other personnel expenses accounted for 56% of selling, general and administrative expenses in fiscal 2018, 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 2018 increased 3% year on year.
Write-downs of long-lived assets
As a result of impairment reviews we performed in fiscal 2018 for long-lived assets in Japan and overseas, such as golf courses, office buildings, commercial facilities other than office buildings, condominiums, hotels, and land undeveloped or under construction, write-downs of long-lived assets decreased 40% to ¥5,525 million in fiscal 2018 compared to ¥9,134 million in fiscal 2017. These write-downs, which are reflected as write-downs of long-lived assets, consisted of impairment losses of ¥190 million on two office buildings, ¥1,431 million on five commercial facilities other than office buildings, and ¥3,904 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 2018 include write-downs of ¥2,138 million of four hotels. For further information, see Note 26 of “Item 18. Financial Statements.”
Write-downs of securities
Write-downs of securities in fiscal 2018 were mainly for marketable equity securities andnon-marketable equity securities. In fiscal 2018, write-downs of securities decreased 81% to ¥1,246 million in fiscal 2018 compared to ¥6,608 million in fiscal 2017. For further information, see Note 9 of “Item 18. Financial Statements.”
Equity in net income of affiliates
Equity in net income of affiliates increased in fiscal 2018 to ¥50,103 million compared to ¥26,520 million in fiscal 2017 primarily due to the recognition of significant gains on sales of investments in real estate joint ventures. For further information, see Note 12 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 ¥49,203 million in fiscal 2018 compared to ¥63,419 million in fiscal 2017, due to the favorable profit from sales in the Americas and Japan in fiscal 2017. For further information, see Note 3 of “Item 18. Financial Statements.”
Bargain Purchase Gain
There was no bargain purchase gain recognized in fiscal 2018 compared to a bargain purchase gain of ¥5,802 million associated with one of the acquisitions in fiscal 2017. For further information, see Note 3 of “Item 18. Financial Statements.”
Provision for income taxes
Provision for income taxes decreased to ¥113,912 million in fiscal 2018 compared to ¥144,039 million in fiscal 2017 primarily due to decreases in the deferred tax assets and liabilities in line with the Tax Cuts and Jobs Act in the United States. For further information, see Note 16 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 2018 was ¥8,002 million, compared to ¥7,255 million in fiscal 2017.
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 2018 was ¥452 million, compared to ¥432 million in fiscal 2017. For further information, see Note 18 of “Item 18. Financial Statements.”
YEAR ENDED MARCH 31, 2017 COMPARED TO YEAR ENDED MARCH 31, 2016
Performance Summary
Financial Results
Year ended March 31, | Change | |||||||||||||||
2016 | 2017 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except ratios, per Share data and percentages) | ||||||||||||||||
Total revenues | ¥ | 2,369,202 | ¥ | 2,678,659 | ¥ | 309,457 | 13 | |||||||||
Total expenses | 2,081,461 | 2,349,435 | 267,974 | 13 | ||||||||||||
Income before Income Taxes | 391,302 | 424,965 | 33,663 | 9 | ||||||||||||
Net Income Attributable to ORIX Corporation Shareholders | 260,169 | 273,239 | 13,070 | 5 | ||||||||||||
Earnings per Share (Basic) | 198.73 | 208.88 | 10.15 | 5 | ||||||||||||
(Diluted) | 198.52 | 208.68 | 10.16 | 5 | ||||||||||||
ROE*1 | 11.7 | 11.3 | (0.4 | ) | — | |||||||||||
ROA*2,3 | 2.32 | 2.46 | 0.14 | — |
*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. |
*3 | Prior-year amounts have been adjusted for the retrospective application of Accounting Standards Update2015-03 (“Simplifying the Presentation of Debt Issuance Costs”—ASC835-30 (“Interest—Imputation of Interest”)) in fiscal 2017. |
Total revenues for fiscal 2017 increased 13% to ¥2,678,659 million compared to ¥2,369,202 million during fiscal 2016. Operating leases revenues increased mainly due to an increase in gains on sales of real estate under operating leases, and sales of goods and real estate increased due to an increase in revenues generated by subsidiaries in the principal investment business. In addition, life insurance premiums and related investment income increased due to increases in insurance premiums in line with an increase in new insurance contracts and investment income in ORIX Life Insurance, and an improvement in investment income from assets under variable annuity and variable life insurance contracts originally held by HLIKK compared to fiscal 2016 during which investment income decreased due to deterioration of the market environment.
Total expenses for fiscal 2017 increased 13% to ¥2,349,435 million compared to ¥2,081,461 million during fiscal 2016. Costs of goods and real estate sold increased in line with the aforementioned increased revenues. In addition, life insurance costs increased due to an increase in a provision of liability reserve in line with the aforementioned increase in new insurance contracts and the improvement in investment income from assets under variable annuity and variable life insurance contracts.
Equity in net income of affiliates for fiscal 2017 decreased due to an impact from an increase in income from the affiliates in the Americas during fiscal 2016.
As a result of the foregoing, income before income taxes for fiscal 2017 increased 9% to ¥424,965 million compared to ¥391,302 million during fiscal 2016, and net income attributable to ORIX Corporation shareholders increased 5% to ¥273,239 million compared to ¥260,169 million during fiscal 2016.
Balance Sheet data
As of March 31, | Change | |||||||||||||||
2016 | 2017 | Amount | Percent (%) | |||||||||||||
(Millions of yen except ratios, per share and percentages) | ||||||||||||||||
Total Assets*1 | ¥ | 10,992,918 | ¥ | 11,231,895 | ¥ | 238,977 | 2 | |||||||||
(Segment assets) | 8,972,449 | 8,956,872 | (15,577 | ) | (0 | ) | ||||||||||
Total Liabilities | 8,512,632 | 8,577,722 | 65,090 | 1 | ||||||||||||
(Long- and Short-term debt)*1 | 4,286,542 | 4,138,451 | (148,091 | ) | (3 | ) | ||||||||||
(Deposits) | 1,398,472 | 1,614,608 | 216,136 | 15 | ||||||||||||
ORIX Corporation Shareholders’ Equity | 2,310,431 | 2,507,698 | 197,267 | 9 | ||||||||||||
ORIX Corporation Shareholders’ Equity per share | 1,764.34 | 1,925.17 | 160.83 | 9 | ||||||||||||
ORIX Corporation Shareholders’ Equity ratio*2 | 21.0 | % | 22.3 | % | 1.3 | % | — | |||||||||
D/E ratio(Debt-to-equity ratio) (Long- and Short-term debt (excluding deposits) / ORIX Corporation Shareholders’ Equity)*1 | 1.9 | x | 1.7 | x | (0.2 | )x | — |
*1 | Prior-year amounts have been adjusted for the retrospective application of Accounting Standards Update2015-03 (“Simplifying the Presentation of Debt Issuance Costs”—ASC835-30 (“Interest—Imputation of Interest”)) on April 1, 2016. |
*2 | 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 2% to ¥11,231,895 million compared to ¥10,992,918 million as of March 31, 2016. Installment loans increased due primarily to an increase of assets in the banking business. On the other hand, investment in operating leases decreased due primarily to sales of rental properties and investment in securities decreased due primarily to sales of investment in securities in ORIX Life Insurance as well as the surrender of contracts originally held by HLIKK. In addition, segment assets remained flat at ¥8,956,872 million compared to the balance as of March 31, 2016.
We manage the balance of interest-bearing liabilities at an appropriate level taking into account the condition of assets and liquidityon-hand as well as the domestic and overseas financial environments. As a result, long- and short-term debt decreased and deposits increased compared to the balance as of March 31, 2016. In addition, policy liabilities and policy account balances decreased due primarily to the aforementioned surrender of contracts.
Shareholders’ equity increased 9% to ¥2,507,698 million compared to the balance as of March 31, 2016 due primarily to an increase in retained earnings.
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
Our business is organized into six segments that are based on major products, nature of services, customer base, and management organizations to facilitate strategy formulation, resource allocation and portfolio rebalancing at the segment level. Our six business segments are: Corporate Financial Services, Maintenance Leasing, Real Estate, Investment and Operation, Retail and Overseas Business.
Financial information about our operating segments reported below is separately available to, and evaluated regularly by, management in deciding how to allocate resources and in assessing performance. We evaluate the performance of these segments based on income before income taxes and discontinued operations, adjusted for results of discontinued operations, net income attributable to the noncontrolling interests and net income attributable to the redeemable noncontrolling interests before applicable tax effect. Tax expenses are not included in segment profits.
For a description of the business activities of our segments, see “Item 4. Information on the Company—Business Segments.” See Note 3433 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 | |||||||||||||||
2015 | 2016 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Segment Revenues: | ||||||||||||||||
Corporate Financial Services | ¥ | 85,502 | ¥ | 107,150 | ¥ | 21,648 | 25 | |||||||||
Maintenance Leasing | 263,499 | 271,662 | 8,163 | 3 | ||||||||||||
Real Estate | 182,321 | 191,540 | 9,219 | 5 | ||||||||||||
Investment and Operation | 666,120 | 1,028,355 | 362,235 | 54 | ||||||||||||
Retail | 425,977 | 254,289 | (171,688 | ) | (40 | ) | ||||||||||
Overseas Business | 561,893 | 526,008 | (35,885 | ) | (6 | ) | ||||||||||
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Segment Total | 2,185,312 | 2,379,004 | 193,692 | 9 | ||||||||||||
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Difference between Segment Total and Consolidated Amounts | (11,029 | ) | (9,802 | ) | 1,227 | — | ||||||||||
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Consolidated Amounts | ¥ | 2,174,283 | ¥ | 2,369,202 | ¥ | 194,919 | 9 | |||||||||
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Year ended March 31, | Change | |||||||||||||||
2016 | 2017 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Segment Revenues: | ||||||||||||||||
Corporate Financial Services | ¥ | 107,150 | ¥ | 102,979 | ¥ | (4,171 | ) | (4 | ) | |||||||
Maintenance Leasing | 271,662 | 270,615 | (1,047 | ) | (0 | ) | ||||||||||
Real Estate | 191,540 | 212,050 | 20,510 | 11 | ||||||||||||
Investment and Operation | 1,028,355 | 1,271,973 | 243,618 | 24 | ||||||||||||
Retail | 254,289 | 368,665 | 114,376 | 45 | ||||||||||||
Overseas Business | 526,008 | 458,912 | (67,096 | ) | (13 | ) | ||||||||||
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Segment Total | 2,379,004 | 2,685,194 | 306,190 | 13 | ||||||||||||
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Difference between Segment Total and Consolidated Amounts | (9,802 | ) | (6,535 | ) | 3,267 | — | ||||||||||
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Consolidated Amounts | ¥ | 2,369,202 | ¥ | 2,678,659 | ¥ | 309,457 | 13 | |||||||||
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Segment Profits: Corporate Financial Services Maintenance Leasing Real Estate Investment and Operation Retail Overseas Business Segment Total Difference between Segment Total and Consolidated Amounts Consolidated Amounts Year ended March 31, Change 2015 2016 Amount Percent (%) (Millions of yen, except percentage data) ¥ 25,519 ¥ 42,418 ¥ 16,899 66 40,366 42,935 2,569 6 3,484 42,902 39,418 — 42,414 57,220 14,806 35 120,616 51,756 (68,860 ) (57 ) 104,143 142,879 38,736 37 336,542 380,110 43,568 13 7,475 11,192 3,717 50 ¥ 344,017 ¥ 391,302 ¥ 47,285 14
Year ended March 31, | Change | |||||||||||||||
2016 | 2017 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Segment Profits: | ||||||||||||||||
Corporate Financial Services | ¥ | 42,418 | ¥ | 38,032 | ¥ | (4,386 | ) | (10 | ) | |||||||
Maintenance Leasing | 42,935 | 39,787 | (3,148 | ) | (7 | ) | ||||||||||
Real Estate | 42,902 | 72,841 | 29,939 | 70 | ||||||||||||
Investment and Operation | 57,220 | 85,000 | 27,780 | 49 | ||||||||||||
Retail | 51,756 | 72,865 | 21,109 | 41 | ||||||||||||
Overseas Business | 142,879 | 112,312 | (30,567 | ) | (21 | ) | ||||||||||
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Segment Total | 380,110 | 420,837 | 40,727 | 11 | ||||||||||||
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Difference between Segment Total and Consolidated Amounts | 11,192 | 4,128 | (7,064 | ) | (63 | ) | ||||||||||
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Consolidated Amounts | ¥ | 391,302 | ¥ | 424,965 | ¥ | 33,663 | 9 | |||||||||
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Note: | Segment profit is calculated based on |
As of March 31, | Change | As of March 31, | Change | |||||||||||||||||||||||||||||
2015 | 2016 | Amount | Percent (%) | 2016 | 2017 | Amount | Percent (%) | |||||||||||||||||||||||||
(Millions of yen, except percentage data) | (Millions of yen, except percentage data) | |||||||||||||||||||||||||||||||
Segment Assets: | ||||||||||||||||||||||||||||||||
Corporate Financial Services | ¥ | 1,132,468 | ¥ | 1,049,867 | ¥ | (82,601 | ) | (7 | ) | ¥ | 1,049,867 | ¥ | 1,032,152 | ¥ | (17,715 | ) | (2 | ) | ||||||||||||||
Maintenance Leasing | 662,851 | 731,329 | 68,478 | 10 | 731,329 | 752,513 | 21,184 | 3 | ||||||||||||||||||||||||
Real Estate | 835,386 | 739,592 | (95,794 | ) | (11 | ) | 739,592 | 657,701 | (81,891 | ) | (11 | ) | ||||||||||||||||||||
Investment and Operation | 660,014 | 704,156 | 44,142 | 7 | 704,156 | 768,675 | 64,519 | 9 | ||||||||||||||||||||||||
Retail | 3,700,635 | 3,462,772 | (237,863 | ) | (6 | ) | 3,462,772 | 3,291,631 | (171,141 | ) | (5 | ) | ||||||||||||||||||||
Overseas Business | 2,178,895 | 2,284,733 | 105,838 | 5 | 2,284,733 | 2,454,200 | 169,467 | 7 | ||||||||||||||||||||||||
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Segment Total | 9,170,249 | 8,972,449 | (197,800 | ) | (2 | ) | 8,972,449 | 8,956,872 | (15,577 | ) | (0 | ) | ||||||||||||||||||||
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Difference between Segment Total and Consolidated Amounts | 2,273,379 | 2,024,457 | (248,922 | ) | (11 | ) | 2,020,469 | 2,275,023 | 254,554 | 13 | ||||||||||||||||||||||
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Consolidated Amounts | ¥ | 11,443,628 | ¥ | 10,996,906 | ¥ | (446,722 | ) | (4 | ) | ¥ | 10,992,918 | ¥ | 11,231,895 | ¥ | 238,977 | 2 | ||||||||||||||||
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Corporate Financial Services Segment
This segment is involved in lending, leasing and fee business.
The Japanese economic outlook is becoming increasingly unclear due primarily to economic slowdown in emerging countries andeconomy on the adoptionwhole entered a moderate recovery phase despite some areas of negativeweakness. While interest rate policy byrates overall increased along with the Bank of Japan inUnited States economy, the second half of fiscal 2016 despite positive corporate earnings during the first half. The balance of outstanding loans at financial institutions continues to increase and interest rates on loans remain at low levels.
Segment revenues increased 25%decreased 4% to ¥102,979 million during fiscal 2017 compared to ¥107,150 million during fiscal 2016 compared to ¥85,502 million during fiscal 2015 due to increases in services income and sales of goods primarily from revenue generated by Yayoi, which we acquired on December 22, 2014, and a robust fee business that serves domestic small- and medium-sized enterprise customers. In addition, gains on sales of investment securities were recognized during fiscal 2016, which offset a decrease in finance revenues in line with the decreased average investment balance and a decrease in gains on sales of installment loans.
While segmentSegment expenses increased compared to fiscal 2015 due primarily to an increase in selling, general and administrative expenses following the consolidation of Yayoi,expenses. As a result, segment profits increased 66%decreased 10% to ¥38,032 million during fiscal 2017 compared to ¥42,418 million during fiscal 2016 compared to ¥25,519 million during fiscal 2015.2016.
Segment assets decreased 7%2% to ¥1,049,867¥1,032,152 million as of March 31, 20162017 compared to March 31, 20152016 due primarily to decreasesa decrease in installment loans and investment in direct financing leases.loans.
Year ended March 31, | Change | Year ended March 31, | Change | |||||||||||||||||||||||||||||
2015 | 2016 | Amount | Percent (%) | 2016 | 2017 | Amount | Percent (%) | |||||||||||||||||||||||||
(Millions of yen, except percentage data) | (Millions of yen, except percentage data) | |||||||||||||||||||||||||||||||
Finance revenues | ¥ | 35,624 | ¥ | 34,215 | ¥(1,409 | ) | (4 | ) | ¥ | 34,215 | ¥ | 30,153 | ¥ | (4,062 | ) | (12 | ) | |||||||||||||||
Operating leases | 24,473 | 25,461 | 988 | 4 | 25,461 | 25,626 | 165 | 1 | ||||||||||||||||||||||||
Services income | 21,997 | 35,744 | 13,747 | 62 | 35,744 | 40,595 | 4,851 | 14 | ||||||||||||||||||||||||
Gains on investment securities and dividends, and other | 3,408 | 11,730 | 8,322 | 244 | ||||||||||||||||||||||||||||
Sales of goods and real estate, and other | 11,730 | 6,605 | (5,125 | ) | (44 | ) | ||||||||||||||||||||||||||
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Total Segment Revenues | 85,502 | 107,150 | 21,648 | 25 | 107,150 | 102,979 | (4,171 | ) | (4 | ) | ||||||||||||||||||||||
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Interest expense | 8,627 | 7,214 | (1,413 | ) | (16 | ) | 7,214 | 6,032 | (1,182 | ) | (16 | ) | ||||||||||||||||||||
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities | 1,252 | (676 | ) | (1,928 | ) | — | (676 | ) | (76 | ) | 600 | — | ||||||||||||||||||||
Other than the above | 50,691 | 58,968 | 8,277 | 16 | ||||||||||||||||||||||||||||
Other | 58,968 | 62,057 | 3,089 | 5 | ||||||||||||||||||||||||||||
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Total Segment Expenses | 60,570 | 65,506 | 4,936 | 8 | 65,506 | 68,013 | 2,507 | 4 | ||||||||||||||||||||||||
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Segment Operating Income | 24,932 | 41,644 | 16,712 | 67 | 41,644 | 34,966 | (6,678 | ) | (16 | ) | ||||||||||||||||||||||
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Equity in Net income (Loss) of Affiliates, and others | 587 | 774 | 187 | 32 | 774 | 3,066 | 2,292 | 296 | ||||||||||||||||||||||||
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Segment Profits | ¥ | 25,519 | ¥ | 42,418 | ¥ | 16,899 | 66 | ¥ | 42,418 | ¥ | 38,032 | ¥ | (4,386 | ) | (10 | ) | ||||||||||||||||
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As of March 31, | Change | As of March 31, | Change | |||||||||||||||||||||||||||||
2015 | 2016 | Amount | Percent (%) | 2016 | 2017 | Amount | Percent (%) | |||||||||||||||||||||||||
(Millions of yen, except percentage data) | (Millions of yen, except percentage data) | |||||||||||||||||||||||||||||||
Investment in direct financing leases | ¥ | 461,704 | ¥ | 431,603 | ¥ | (30,101 | ) | (7 | ) | ¥ | 431,603 | ¥ | 433,929 | ¥ | 2,326 | 1 | ||||||||||||||||
Installment loans | 461,277 | 411,824 | (49,453 | ) | (11 | ) | 411,824 | 398,558 | (13,266 | ) | (3 | ) | ||||||||||||||||||||
Investment in operating leases | 30,329 | 28,695 | (1,634 | ) | (5 | ) | 28,695 | 30,114 | 1,419 | 5 | ||||||||||||||||||||||
Investment in securities | 45,415 | 36,542 | (8,873 | ) | (20 | ) | 36,542 | 34,773 | (1,769 | ) | (5 | ) | ||||||||||||||||||||
Property under facility operations | 5,930 | 11,294 | 5,364 | 90 | 11,294 | 13,034 | 1,740 | 15 | ||||||||||||||||||||||||
Inventories | 55 | 53 | (2 | ) | (4 | ) | 53 | 51 | (2 | ) | (4 | ) | ||||||||||||||||||||
Advances for investment in operating leases | 202 | 1,737 | 1,535 | 760 | 1,737 | 80 | (1,657 | ) | (95 | ) | ||||||||||||||||||||||
Investment in affiliates | 20,875 | 22,755 | 1,880 | 9 | 22,755 | 18,392 | (4,363 | ) | (19 | ) | ||||||||||||||||||||||
Advances for property under facility operations | 772 | 304 | (468 | ) | (61 | ) | 304 | 139 | (165 | ) | (54 | ) | ||||||||||||||||||||
Goodwill and other intangible assets acquired in business combinations | 105,909 | 105,060 | (849 | ) | (1 | ) | 105,060 | 103,082 | (1,978 | ) | (2 | ) | ||||||||||||||||||||
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Total Segment Assets | ¥ | 1,132,468 | ¥ | 1,049,867 | ¥ | (82,601 | ) | (7 | ) | ¥ | 1,049,867 | ¥ | 1,032,152 | �� | ¥ | (17,715 | ) | (2 | ) | |||||||||||||
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Maintenance Leasing Segment
This segment consists of automobile leasing and rentals, car sharing, and test and measurement instruments andIT-related equipment rentals and leasing.
Revenues have been growing through the high value-added services provided towards the demandsWhile demand in capital investment for boosting competitiveness and further cost reduction while corporate capital investment in general has been decreasing.gradually increasing, concerns about uncertainty in the domestic and overseas economic outlook has deterred new investment. The volume of new auto leasesauto-leases in Japan increased slightly compared to fiscal 2016.
Segment revenues remained flat at ¥270,615 million during fiscal 2017 compared to during fiscal 2016 was similardue to the level of fiscal 2015.
less gains on sales in operating leases revenues, offsetting an increase in finance revenues.
Segment revenuesexpenses increased 3% to ¥271,662 million during fiscal 2016 compared to ¥263,499 million during fiscal 2015 due primarily to increases in operating leases revenues and finance revenues resulting from the steady expansion of assets in the automobile business and in services income derived from value-added services such as maintenance.
Despite an increase in segment expenses due primarily to increases in the costs of operating leases services expense,in line with increased average investment asset balance in the auto-business and selling, general and administrative expenses, which were in line with revenue growth,expenses. As a result, segment profits increased 6%decreased 7% to ¥39,787 million during fiscal 2017 compared to ¥42,935 million during fiscal 2016 compared to ¥40,366 million during fiscal 2015.2016.
Segment assets increased 10%3% to ¥731,329¥752,513 million as of March 31, 20162017 compared to March 31, 20152016 due primarily to an increase in leasing assets, mainlynew auto-leases in the automobile business.auto-business.
Year ended March 31, | Change | |||||||||||||||
2015 | 2016 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Finance revenues | ¥ | 11,103 | ¥ | 12,067 | ¥ | 964 | 9 | |||||||||
Operating leases | 185,699 | 188,815 | 3,116 | 2 | ||||||||||||
Services income | 62,535 | 66,841 | 4,306 | 7 | ||||||||||||
Sales of goods and real estate, and other | 4,162 | 3,939 | (223 | ) | (5 | ) | ||||||||||
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Total Segment Revenues | 263,499 | 271,662 | 8,163 | 3 | ||||||||||||
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Interest expense | 3,690 | 3,545 | (145 | ) | (4 | ) | ||||||||||
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities | 374 | 27 | (347 | ) | (93 | ) | ||||||||||
Other than the above | 218,982 | 225,148 | 6,166 | 3 | ||||||||||||
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Total Segment Expenses | 223,046 | 228,720 | 5,674 | 3 | ||||||||||||
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Segment Operating Income | 40,453 | 42,942 | 2,489 | 6 | ||||||||||||
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Equity in Net income (Loss) of Affiliates, and others | (87 | ) | (7 | ) | 80 | — | ||||||||||
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|
| |||||||||||
Segment Profits | ¥ | 40,366 | ¥ | 42,935 | ¥ | 2,569 | 6 | |||||||||
|
|
|
|
|
| |||||||||||
As of March 31, | Change | |||||||||||||||
2015 | 2016 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Investment in direct financing leases | ¥ | 184,907 | ¥ | 245,257 | ¥ | 60,350 | 33 | |||||||||
Investment in operating leases | 473,035 | 481,031 | 7,996 | 2 | ||||||||||||
Investment in securities | 1,130 | 1,214 | 84 | 7 | ||||||||||||
Property under facility operations | 576 | 718 | 142 | 25 | ||||||||||||
Inventories | 463 | 374 | (89 | ) | (19 | ) | ||||||||||
Advances for investment in operating leases | 241 | 314 | 73 | 30 | ||||||||||||
Investment in affiliates | 2,074 | 1,996 | (78 | ) | (4 | ) | ||||||||||
Goodwill and other intangible assets acquired in business combinations | 425 | 425 | — | — | ||||||||||||
|
|
|
|
|
| |||||||||||
Total Segment Assets | ¥ | 662,851 | ¥ | 731,329 | ¥ | 68,478 | 10 | |||||||||
|
|
|
|
|
|
Year ended March 31, | Change | |||||||||||||||
2016 | 2017 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Finance revenues | ¥ | 12,067 | ¥ | 13,029 | ¥ | 962 | 8 | |||||||||
Operating leases | 188,815 | 187,219 | (1,596 | ) | (1 | ) | ||||||||||
Services income | 66,841 | 66,314 | (527 | ) | (1 | ) | ||||||||||
Sales of goods and real estate, and other | 3,939 | 4,053 | 114 | 3 | ||||||||||||
|
|
|
|
|
| |||||||||||
Total Segment Revenues | 271,662 | 270,615 | (1,047 | ) | (0 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Interest expense | 3,545 | 3,360 | (185 | ) | (5 | ) | ||||||||||
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities | 27 | 258 | 231 | 856 | ||||||||||||
Other | 225,148 | 227,178 | 2,030 | 1 | ||||||||||||
|
|
|
|
|
| |||||||||||
Total Segment Expenses | 228,720 | 230,796 | 2,076 | 1 | ||||||||||||
|
|
|
|
|
| |||||||||||
Segment Operating Income | 42,942 | 39,819 | (3,123 | ) | (7 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Equity in Net income (Loss) of Affiliates, and others | (7 | ) | (32 | ) | (25 | ) | — | |||||||||
|
|
|
|
|
| |||||||||||
Segment Profits | ¥ | 42,935 | ¥ | 39,787 | ¥ | (3,148 | ) | (7 | ) | |||||||
|
|
|
|
|
| |||||||||||
As of March 31, | Change | |||||||||||||||
2016 | 2017 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Investment in direct financing leases | ¥ | 245,257 | ¥ | 277,480 | ¥ | 32,223 | 13 | |||||||||
Investment in operating leases | 481,031 | 469,824 | (11,207 | ) | (2 | ) | ||||||||||
Investment in securities | 1,214 | 1,322 | 108 | 9 | ||||||||||||
Property under facility operations | 718 | 803 | 85 | 12 | ||||||||||||
Inventories | 374 | 445 | 71 | 19 | ||||||||||||
Advances for investment in operating leases | 314 | 335 | 21 | 7 | ||||||||||||
Investment in affiliates | 1,996 | 1,880 | (116 | ) | (6 | ) | ||||||||||
Goodwill and other intangible assets acquired in business combinations | 425 | 424 | (1 | ) | (0 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Total Segment Assets | ¥ | 731,329 | ¥ | 752,513 | ¥ | 21,184 | 3 | |||||||||
|
|
|
|
|
|
Real Estate Segment
This segment consists of real estate development and rental, facility operation, REIT asset management, and real estate investment advisory services.
The real estate market has remained active due primarily to the quantitative easing policy of the Bank of Japan, including the adoption of negative interest rates. Land prices have beenremain high and office rents and vacancy rates in the Japanese office building market continue to show signs of improvementimprovements, especially in the Greater Tokyo area. Furthermore,Area due primarily to an increase in the numberquantitative easing policies implemented by the Bank of tourists from abroad, we are seeing increases inJapan, including the occupancy rates and average daily rates of hotels and Japanese inns. Meanwhile,low interest rate. However, we are also seeing a trend where sales prices of condominiums stopped risingare no longer increasing. Changes in tourism style such as uses of vacation rentals are affecting hotels and domestic property acquisitions by foreign funds decreasing.
Japanese inns’ operation.
Segment revenues increased 5%11% to ¥212,050 million during fiscal 2017 compared to ¥191,540 million during fiscal 2016 compared to ¥182,321 million during fiscal 2015 due primarily to an increase in services income from the facility operation business, despite a decrease ingains on sales of rental revenues,properties, which are included in operating leases revenues, in line with a decrease in the balance of real estate assets.revenues.
Segment expenses decreased compared to fiscal 20152016 due primarily to a decrease in write-downs of long-lived assets and decreases in interest expense and costs of operating leases in line with decreased asset balance.
a decrease in assets and write-downs of long-lived assets.
As a result of the foregoing, segment profits increased significantly by approximately twelve times70% to ¥72,841 million during fiscal 2017 compared to ¥42,902 million during fiscal 2016 compared to ¥3,484 million during fiscal 2015.
2016.
Segment assets decreased 11% to ¥739,592¥657,701 million as of March 31, 20162017 compared to March 31, 20152016 due primarily to a decrease in investment in operating leases, which resulted from sales of rental properties, and a decrease in installment loans and investment in securities.properties.
Year ended March 31, | Change | |||||||||||||||
2015 | 2016 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Finance revenues | ¥ | 4,057 | ¥ | 6,720 | ¥ | 2,663 | 66 | |||||||||
Operating leases | 63,765 | 60,253 | (3,512 | ) | (6 | ) | ||||||||||
Services income | 104,115 | 110,630 | 6,515 | 6 | ||||||||||||
Sales of goods and real estate, and other | 10,384 | 13,937 | 3,553 | 34 | ||||||||||||
|
|
|
|
|
| |||||||||||
Total Segment Revenues | 182,321 | 191,540 | 9,219 | 5 | ||||||||||||
|
|
|
|
|
| |||||||||||
Interest expense | 6,968 | 4,676 | (2,292 | ) | (33 | ) | ||||||||||
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities | 29,714 | 8,338 | (21,376 | ) | (72 | ) | ||||||||||
Other than the above | 151,385 | 141,609 | (9,776 | ) | (6 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Total Segment Expenses | 188,067 | 154,623 | (33,444 | ) | (18 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Segment Operating Income | (5,746 | ) | 36,917 | 42,663 | — | |||||||||||
|
|
|
|
|
| |||||||||||
Equity in Net income (Loss) of Affiliates, and others | 9,230 | 5,985 | (3,245 | ) | (35 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Segment Profits | ¥ | 3,484 | ¥ | 42,902 | ¥ | 39,418 | — | |||||||||
|
|
|
|
|
|
Year ended March 31, | Change | |||||||||||||||
2016 | 2017 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Finance revenues | ¥ | 6,720 | ¥ | 2,319 | ¥ | (4,401 | ) | (65 | ) | |||||||
Operating leases | 60,253 | 88,153 | 27,900 | 46 | ||||||||||||
Services income | 110,630 | 112,624 | 1,994 | 2 | ||||||||||||
Sales of goods and real estate, and other | 13,937 | 8,954 | (4,983 | ) | (36 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Total Segment Revenues | 191,540 | 212,050 | 20,510 | 11 | ||||||||||||
|
|
|
|
|
| |||||||||||
Interest expense | 4,676 | 3,085 | (1,591 | ) | (34 | ) | ||||||||||
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities | 8,338 | 3,386 | (4,952 | ) | (59 | ) | ||||||||||
Other | 141,609 | 136,629 | (4,980 | ) | (4 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Total Segment Expenses | 154,623 | 143,100 | (11,523 | ) | (7 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Segment Operating Income | 36,917 | 68,950 | 32,033 | 87 | ||||||||||||
|
|
|
|
|
| |||||||||||
Equity in Net income (Loss) of Affiliates, and others | 5,985 | 3,891 | (2,094 | ) | (35 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Segment Profits | ¥ | 42,902 | ¥ | 72,841 | ¥ | 29,939 | 70 | |||||||||
|
|
|
|
|
| |||||||||||
As of March 31, | Change | |||||||||||||||
2016 | 2017 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Investment in direct financing leases | ¥ | 21,541 | ¥ | 27,523 | ¥ | 5,982 | 28 | |||||||||
Installment loans | 5,821 | 0 | (5,821 | ) | — | |||||||||||
Investment in operating leases | 375,050 | 298,184 | (76,866 | ) | (20 | ) | ||||||||||
Investment in securities | 5,861 | 3,552 | (2,309 | ) | (39 | ) | ||||||||||
Property under facility operations | 177,510 | 185,023 | 7,513 | 4 | ||||||||||||
Inventories | 3,597 | 2,567 | (1,030 | ) | (29 | ) | ||||||||||
Advances for investment in operating leases | 38,486 | 18,634 | (19,852 | ) | (52 | ) | ||||||||||
Investment in affiliates | 91,010 | 99,347 | 8,337 | 9 | ||||||||||||
Advances for property under facility operations | 8,829 | 11,196 | 2,367 | 27 | ||||||||||||
Goodwill and other intangible assets acquired in business combinations | 11,887 | 11,675 | (212 | ) | (2 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Total Segment Assets | ¥ | 739,592 | ¥ | 657,701 | ¥ | (81,891 | ) | (11 | ) | |||||||
|
|
|
|
|
|
Investment in direct financing leases Installment loans Investment in operating leases Investment in securities Property under facility operations Inventories Advances for investment in operating leases Investment in affiliates Advances for property under facility operations Goodwill and other intangible assets acquired in business combinations Total Segment Assets As of March 31, Change 2015 2016 Amount Percent (%) (Millions of yen, except percentage data) ¥ 22,277 ¥ 21,541 ¥ (736 ) (3 ) 22,811 5,821 (16,990 ) (74 ) 423,825 375,050 (48,775 ) (12 ) 21,718 5,861 (15,857 ) (73 ) 172,207 177,510 5,303 3 12,484 3,597 (8,887 ) (71 ) 44,666 38,486 (6,180 ) (14 ) 91,275 91,010 (265 ) (0 ) 12,055 8,829 (3,226 ) (27 ) 12,068 11,887 (181 ) (1 ) ¥ 835,386 ¥ 739,592 ¥ (95,794 ) (11 )
Investment and Operation Segment
This segment consists of environment and energy-relatedenergy business, principal investment, and loan servicing (asset recovery)., and concession business.
Investment in infrastructure, especially energy infrastructure, is diversifying in Japan. In Japan, while the government is reassessing itsenergy business, among renewable energy, purchase program, the significance of renewable energy in the mid- to long-terminvestment is on the rise with investment targets expanding beyond solar power generation projects to include wind and geothermal power generation projects.power.
In addition, business structures are also diversifying. In infrastructure investment markets, the use of private funds is expanding in the public facilities management. In emerging countries, infrastructure demand is growing rapidly with economic growth, and Japanese companies are expected to increase infrastructure investment. In the capital market, since January 2016, size of M&A transactions appear to have decreased despite an increase inmarkets, the total number of M&A transactions closed during fiscal 2016 compared to fiscal 2015 in which several large cross-border M&A transactions took place.
mergers and acquisitions by Japanese companies has remained high.
Segment revenues increased 54%24% to ¥1,271,973 million during fiscal 2017 compared to ¥1,028,355 million during fiscal 2016 compareddue to ¥666,120 million during fiscal 2015 due primarily to a significant increaseincreases in sales of goods and real estate contributed by subsidiaries acquired during fiscal 2015 and an increase in gains on sale of condominium by DAIKYO. An increase in the amount of services income from the environment and energy-relatedenergy business also contributed.
and subsidiaries in the principal investment business.
Segment expenses also increased compared to fiscal 20152016 due to an increase in expenses in connection with subsidiaries including DAIKYO and the environment and energy-related business, each of which increased in line with segmentthe aforementioned revenues expansion.
expansion and recognition of write-downs of securities.
As a result of the foregoing and the recognition of gains on sales of shares of subsidiaries and affiliates, and the recognition of a bargain purchase gain from the acquisition of a subsidiary, segment profits increased 35%49% to ¥85,000 million during fiscal 2017 compared to ¥57,220 million during fiscal 2016 compared to ¥42,414 million during fiscal 2015.
2016.
Segment assets increased 7%9% to ¥704,156¥768,675 million as of March 31, 20162017 compared to March 31, 20152016 due primarily to an increase in property under facility operations in the environment and energy-related business and investment in affiliates resulting from the investment in the facility operation business of the Kansai and Osaka International Airports. Meanwhile, installment loans, investment in securities and inventories decreased.energy business.
Finance revenues Gains on investment securities and dividends Sales of goods and real estate Services income Operating leases, and other Total Segment Revenues Interest expense Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities Other than the above Total Segment Expenses Segment Operating Income Gains on Sales of Subsidiaries and Affiliates and Liquidation Losses, net, and others Segment Profits Investment in direct financing leases Installment loans Investment in operating leases Investment in securities Property under facility operations Inventories Advances for investment in operating leases Investment in affiliates Advances for property under facility operations Goodwill and other intangible assets acquired in business combinations Total Segment Assets Year ended March 31, Change 2015 2016 Amount Percent (%) (Millions of yen, except percentage data) ¥ 15,650 ¥ 12,625 ¥ (3,025 ) (19 ) 9,309 10,270 961 10 371,402 718,902 347,500 94 260,360 277,163 16,803 6 9,399 9,395 (4 ) (0 ) 666,120 1,028,355 362,235 54 3,609 3,539 (70 ) (2 ) 1,297 (424 ) (1,721 ) — 627,411 980,121 352,710 56 632,317 983,236 350,919 55 33,803 45,119 11,316 33 8,611 12,101 3,490 41 ¥ 42,414 ¥ 57,220 ¥ 14,806 35 As of March 31, Change 2015 2016 Amount Percent (%) (Millions of yen, except percentage data) ¥ 15,092 ¥ 21,133 ¥ 6,041 40 93,196 75,996 (17,200 ) (18 ) 23,388 24,378 990 4 112,896 71,705 (41,191 ) (36 ) 90,895 130,568 39,673 44 116,549 98,016 (18,533 ) (16 ) 16 404 388 — 51,108 108,237 57,129 112 30,861 38,628 7,767 25 126,013 135,091 9,078 7 ¥ 660,014 ¥ 704,156 ¥ 44,142 7
Year ended March 31, | Change | |||||||||||||||
2016 | 2017 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Finance revenues | ¥ | 12,625 | ¥ | 10,680 | ¥ | (1,945 | ) | (15 | ) | |||||||
Gains on investment securities and dividends | 10,270 | 12,961 | 2,691 | 26 | ||||||||||||
Sales of goods and real estate | 718,902 | 938,438 | 219,536 | 31 | ||||||||||||
Services income | 277,163 | 299,709 | 22,546 | 8 | ||||||||||||
Operating leases, and other | 9,395 | 10,185 | 790 | 8 | ||||||||||||
|
|
|
|
|
| |||||||||||
Total Segment Revenues | 1,028,355 | 1,271,973 | 243,618 | 24 | ||||||||||||
|
|
|
|
|
| |||||||||||
Interest expense | 3,539 | 4,870 | 1,331 | 38 | ||||||||||||
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities | (424 | ) | 6,760 | 7,184 | — | |||||||||||
Other | 980,121 | 1,212,681 | 232,560 | 24 | ||||||||||||
|
|
|
|
|
| |||||||||||
Total Segment Expenses | 983,236 | 1,224,311 | 241,075 | 25 | ||||||||||||
|
|
|
|
|
| |||||||||||
Segment Operating Income | 45,119 | 47,662 | 2,543 | 6 | ||||||||||||
|
|
|
|
|
| |||||||||||
Equity in Net income (Loss) of Affiliates, and others | 12,101 | 37,338 | 25,237 | 209 | ||||||||||||
|
|
|
|
|
| |||||||||||
Segment Profits | ¥ | 57,220 | ¥ | 85,000 | ¥ | 27,780 | 49 | |||||||||
|
|
|
|
|
|
As of March 31, | Change | |||||||||||||||
2016 | 2017 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Investment in direct financing leases | ¥ | 21,133 | ¥ | 26,016 | ¥ | 4,883 | 23 | |||||||||
Installment loans | 75,996 | 56,435 | (19,561 | ) | (26 | ) | ||||||||||
Investment in operating leases | 24,378 | 25,434 | 1,056 | 4 | ||||||||||||
Investment in securities | 71,705 | 51,474 | (20,231 | ) | (28 | ) | ||||||||||
Property under facility operations | 130,568 | 187,674 | 57,106 | 44 | ||||||||||||
Inventories | 98,016 | 112,798 | 14,782 | 15 | ||||||||||||
Advances for investment in operating leases | 404 | 1,237 | 833 | 206 | ||||||||||||
Investment in affiliates | 108,237 | 71,481 | (36,756 | ) | (34 | ) | ||||||||||
Advances for property under facility operations | 38,628 | 55,180 | 16,552 | 43 | ||||||||||||
Goodwill and other intangible assets acquired in business combinations | 135,091 | 180,946 | 45,855 | 34 | ||||||||||||
|
|
|
|
|
| |||||||||||
Total Segment Assets | ¥ | 704,156 | ¥ | 768,675 | ¥ | 64,519 | 9 | |||||||||
|
|
|
|
|
|
Retail Segment
This segment consists of life insurance, banking and card loan business.
Although theThe life insurance business in Japan is currently affected by macroeconomic factors such as domestic population decline,decline. However, we are seeing a rise in demand for medical insurance and an increasing number of companies launchingdeveloping new insurance products in response to the rising demand for medical insurance.response. On the other hand, with the introduction of negative interest rate policy, we are also seeing suspensions of the sales of certain discontinued products and increasedan increase in insurance premium forpremiums on new contract.contracts due primarily to the Bank of Japan’s negative interest rate policy. In the consumer finance sector,card loan business for individuals, banks and other lenders are expanding their assets to further secure new revenue streams, and competition in the lending business continues to intensify on the back ofin the current low interest rate environment.
Segment revenues decreased 40%increased 45% to ¥368,665 million during fiscal 2017 compared to ¥254,289 million during fiscal 2016 compared to ¥425,977 million during fiscal 2015mainly due to a significant decreaseincreases in insurance premiums in line with an increase in new insurance contracts and investment income in ORIX Life Insurance, and an improvement in investment income from assets under variable annuity and variable life insurance contracts originally held by HLIKK offsetting a steady increase in life insurance revenue generated by ORIX Life Insurance andcompared to fiscal 2016 year during which investment income decreased due to deterioration of the market environment.
Segment expenses increased compared to fiscal 2016 due to an increase in finance revenues in the banking business.
Segment expenses decreased compared to fiscal 2015 due primarily to a reversalprovision of liability reserve forin line with the aforementioned decreaseincrease in new insurance contracts and the improvement in investment income of HLIKK.
from assets under variable annuity and variable life insurance contracts.
As a result of the foregoing, and the recognition of a bargain purchase gain from the acquisition of HLIKKsegment profits increased 41% to ¥72,865 million during fiscal 2015, segment profits decreased 57%2017 compared to ¥51,756 million during fiscal 2016 compared to ¥120,616 million during fiscal 2015.2016.
Segment assets decreased 6%5% to ¥3,462,772¥3,291,631 million as of March 31, 20162017 compared to March 31, 20152016 due primarily to a substantial decrease insales of investment in securities at ORIX Life Insurance as well as the surrender of variable annuity and variable life insurance contracts originally held by HLIKK, offsetting an increase in installment loans in the banking business.
Year ended March 31, | Change | Year ended March 31, | Change | |||||||||||||||||||||||||||||
2015 | 2016 | Amount | Percent (%) | 2016 | 2017 | Amount | Percent (%) | |||||||||||||||||||||||||
(Millions of yen, except percentage data) | (Millions of yen, except percentage data) | |||||||||||||||||||||||||||||||
Finance revenues | ¥ | 52,510 | ¥ | 55,318 | ¥ | 2,808 | 5 | ¥ | 55,318 | ¥ | 59,177 | ¥ | 3,859 | 7 | ||||||||||||||||||
Life insurance premiums and related investment income | 352,537 | 190,805 | (161,732 | ) | (46 | ) | 190,805 | 297,886 | 107,081 | 56 | ||||||||||||||||||||||
Services income, and other | 20,930 | 8,166 | (12,764 | ) | (61 | ) | 8,166 | 11,602 | 3,436 | 42 | ||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
Total Segment Revenues | 425,977 | 254,289 | (171,688 | ) | (40 | ) | 254,289 | 368,665 | 114,376 | 45 | ||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
Interest expense | 5,669 | 4,654 | (1,015 | ) | (18 | ) | 4,654 | 4,041 | (613 | ) | (13 | ) | ||||||||||||||||||||
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities | 3,975 | 7,370 | 3,395 | 85 | 7,370 | 10,109 | 2,739 | 37 | ||||||||||||||||||||||||
Other than the above | 332,432 | 191,304 | (141,128 | ) | (42 | ) | ||||||||||||||||||||||||||
Other | 191,304 | 281,663 | 90,359 | 47 | ||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
Total Segment Expenses | 342,076 | 203,328 | (138,748 | ) | (41 | ) | 203,328 | 295,813 | 92,485 | 45 | ||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
Segment Operating Income | 83,901 | 50,961 | (32,940 | ) | (39 | ) | 50,961 | 72,852 | 21,891 | 43 | ||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
Bargain Purchase Gain, and others | 36,715 | 795 | (35,920 | ) | (98 | ) | ||||||||||||||||||||||||||
Equity in Net income (Loss) of Affiliates, and others | 795 | 13 | (782 | ) | (98 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
Segment Profits | ¥ | 120,616 | ¥ | 51,756 | ¥ | (68,860 | ) | (57 | ) | ¥ | 51,756 | ¥ | 72,865 | ¥ | 21,109 | 41 | ||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
As of March 31, | Change | |||||||||||||||||||||||||||||||
2015 | 2016 | Amount | Percent (%) | |||||||||||||||||||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||||||||||||||||||
Investment in direct financing leases | ¥ | 2,740 | ¥ | 1,198 | ¥ | (1,542 | ) | (56 | ) | |||||||||||||||||||||||
Installment loans | 1,376,710 | 1,496,407 | 119,697 | 9 | ||||||||||||||||||||||||||||
Investment in operating leases | 50,587 | 52,359 | 1,772 | 4 | ||||||||||||||||||||||||||||
Investment in securities | 2,246,912 | 1,893,631 | (353,281 | ) | (16 | ) | ||||||||||||||||||||||||||
Investment in affiliates | 3,785 | 911 | (2,874 | ) | (76 | ) | ||||||||||||||||||||||||||
Goodwill and other intangible assets acquired in business combinations | 19,901 | 18,266 | (1,635 | ) | (8 | ) | ||||||||||||||||||||||||||
|
|
| ||||||||||||||||||||||||||||||
Total Segment Assets | ¥ | 3,700,635 | ¥ | 3,462,772 | ¥ | (237,863 | ) | (6 | ) | |||||||||||||||||||||||
|
|
|
As of March 31, | Change | |||||||||||||||
2016 | 2017 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Investment in direct financing leases | ¥ | 1,198 | ¥ | 518 | ¥ | (680 | ) | (57 | ) | |||||||
Installment loans | 1,496,407 | 1,718,655 | 222,248 | 15 | ||||||||||||
Investment in operating leases | 52,359 | 46,243 | (6,116 | ) | (12 | ) | ||||||||||
Investment in securities | 1,893,631 | 1,509,180 | (384,451 | ) | (20 | ) | ||||||||||
Investment in affiliates | 911 | 810 | (101 | ) | (11 | ) | ||||||||||
Goodwill and other intangible assets acquired in business combinations | 18,266 | 16,225 | (2,041 | ) | (11 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Total Segment Assets | ¥ | 3,462,772 | ¥ | 3,291,631 | ¥ | (171,141 | ) | (5 | ) | |||||||
|
|
|
|
|
|
Overseas Business Segment
This segment consists of leasing, lending, investment in bonds, asset management and ship- andaircraft-related operations.
The world economy of the United States has been suppressedon a continuing trend of recovery with low levelimprovements in employment and income. The economy of growth due primarily to falling commodity prices such asEurope has picked up moderately, the priceChinese economy is still in a correction phase and the economies of crude oil and fluctuations in financial markets. While moderate economic growth is expected among developed countries, economic growth in emerging and developingresource-rich countries have bottomed out. Although interest rates remain low worldwide, the prospect of rising interest rates has been strong in the United States. The asset management industry is expected to be weak overallincrease AuM due to the increase in pension assets and disparitythe high-income class population over themid- and long-term. Also, the aviation industry is expected to continue to expand its market size against the backdrop of increasing passenger demand mainly in economic growth among such countries continues to widen.emerging countries. In addition, there are political and geopolitical tensions in certain regions that need to be monitored carefully.
Segment revenues decreased 6%13% to ¥458,912 million during fiscal 2017 compared to ¥526,008 million during fiscal 2016 compared to ¥561,893 million during fiscal 2015 due to a decreasedecreases in gains on sales of investment securities andservices income resulting primarily from the deconsolidation of Houlihan Lokey despite increasesin line with the partial divestment of its shares in fiscal 2016, and decreases in sales of goods anddue to a sale of a subsidiary during fiscal 2017, despite an increase in finance revenues infrom the Americas and increases in operating leases revenues in Asia.
Segment expenses decreased compared to fiscal 20152016 due primarily to the deconsolidation of Houlihan Lokey, despite an increase in costsLokey.
As a result of operating leases.
Segment profits increased 37% to ¥142,879 million during fiscal 2016 compared to ¥104,143 million during fiscal 2015the foregoing and due primarily to the recognition of a gain on the partial divestment of Houlihan Lokey shares in connection with its initial public offering infiscal 2016 and the United Statesimpact from strong yen, despite gains on sales of subsidiaries and an increase in income from affiliates in the Americas.
Americas, segment profits decreased 21% to ¥112,312 million during fiscal 2017 compared to ¥142,879 million during fiscal 2016.
Segment assets increased 5%7% to ¥2,284,733¥2,454,200 million as of March 31, 20162017 compared to March 31, 20152016 due primarily to increases in installment loans in Asia and the Americas and investment in securities in the Americas as well as an increase in investment in operating leases by theof aircraft-related operations and an increase in corporate lending in the Americas and an increase in installment loans resulted from the acquisition of an auto loan company in Asia.operations.
Year ended March 31, | Change | |||||||||||||||
2015 | 2016 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Finance revenues | ¥ | 63,259 | ¥ | 75,004 | ¥ | 11,745 | 19 | |||||||||
Gains on investment securities and dividends | 30,466 | 16,113 | (14,353 | ) | (47 | ) | ||||||||||
Operating leases | 82,113 | 91,973 | 9,860 | 12 | ||||||||||||
Services income | 321,527 | 250,085 | (71,442 | ) | (22 | ) | ||||||||||
Sales of goods and real estate, and other | 64,528 | 92,833 | 28,305 | 44 | ||||||||||||
|
|
|
|
|
| |||||||||||
Total Segment Revenues | 561,893 | 526,008 | (35,885 | ) | (6 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Interest expense | 29,989 | 33,356 | 3,367 | 11 | ||||||||||||
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities | 19,921 | 16,226 | (3,695 | ) | (19 | ) | ||||||||||
Other than the above | 413,180 | 402,568 | (10,612 | ) | (3 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Total Segment Expenses | 463,090 | 452,150 | (10,940 | ) | (2 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Segment Operating Income | 98,803 | 73,858 | (24,945 | ) | (25 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Gains on Sales of Subsidiaries and Affiliates and Liquidation Losses, net, and others | 5,340 | 69,021 | 63,681 | — | ||||||||||||
|
|
|
|
|
| |||||||||||
Segment Profits | ¥ | 104,143 | ¥ | 142,879 | ¥ | 38,736 | 37 | |||||||||
|
|
|
|
|
| |||||||||||
As of March 31, | Change | |||||||||||||||
2015 | 2016 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Investment in direct financing leases | ¥ | 386,567 | ¥ | 351,010 | ¥ | (35,557 | ) | (9 | ) | |||||||
Installment loans | 344,108 | 407,870 | 63,762 | 19 | ||||||||||||
Investment in operating leases | 278,665 | 375,401 | 96,736 | 35 | ||||||||||||
Investment in securities | 404,322 | 383,227 | (21,095 | ) | (5 | ) | ||||||||||
Property under facility operations | 26,867 | 23,762 | (3,105 | ) | (12 | ) | ||||||||||
Inventories | 35,925 | 37,782 | 1,857 | 5 | ||||||||||||
Advances for investment in operating leases | 4,434 | 5,302 | 868 | 20 | ||||||||||||
Investment in affiliates | 209,027 | 305,674 | 96,647 | 46 | ||||||||||||
Advances for property under facility operations | — | 39 | 39 | — | ||||||||||||
Goodwill and other intangible assets acquired in business combinations | 488,980 | 394,666 | (94,314 | ) | (19 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Total Segment Assets | ¥ | 2,178,895 | ¥ | 2,284,733 | ¥ | 105,838 | 5 | |||||||||
|
|
|
|
|
|
Year ended March 31, | Change | |||||||||||||||
2016 | 2017 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Finance revenues | ¥ | 75,004 | ¥ | 81,251 | ¥ | 6,247 | 8 | |||||||||
Gains on investment securities and dividends | 16,113 | 13,334 | (2,779 | ) | (17 | ) | ||||||||||
Operating leases | 91,973 | 88,474 | (3,499 | ) | (4 | ) | ||||||||||
Services income | 250,085 | 216,720 | (33,365 | ) | (13 | ) | ||||||||||
Sales of goods and real estate, and other | 92,833 | 59,133 | (33,700 | ) | (36 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Total Segment Revenues | 526,008 | 458,912 | (67,096 | ) | (13 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Interest expense | 33,356 | 36,535 | 3,179 | 10 | ||||||||||||
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities | 16,226 | 18,215 | 1,989 | 12 | ||||||||||||
Other | 402,568 | 332,024 | (70,544 | ) | (18 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Total Segment Expenses | 452,150 | 386,774 | (65,376 | ) | (14 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Segment Operating Income | 73,858 | 72,138 | (1,720 | ) | (2 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Equity in Net income (Loss) of Affiliates, and others | 69,021 | 40,174 | (28,847 | ) | (42 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Segment Profits | ¥ | 142,879 | ¥ | 112,312 | ¥ | (30,567 | ) | (21 | ) | |||||||
|
|
|
|
|
|
As of March 31, | Change | |||||||||||||||
2016 | 2017 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Investment in direct financing leases | ¥ | 351,010 | ¥ | 357,732 | ¥ | 6,722 | 2 | |||||||||
Installment loans | 407,870 | 457,393 | 49,523 | 12 | ||||||||||||
Investment in operating leases | 375,401 | 420,207 | 44,806 | 12 | ||||||||||||
Investment in securities | 383,227 | 465,899 | 82,672 | 22 | ||||||||||||
Property under facility operations | 23,762 | 29,705 | 5,943 | 25 | ||||||||||||
Inventories | 37,782 | 1,811 | (35,971 | ) | (95 | ) | ||||||||||
Advances for investment in operating leases | 5,302 | 9,024 | 3,722 | 70 | ||||||||||||
Investment in affiliates | 305,674 | 332,154 | 26,480 | 9 | ||||||||||||
Advances for property under facility operations | 39 | 39 | 0 | 0 | ||||||||||||
Goodwill and other intangible assets acquired in business combinations | 394,666 | 380,236 | (14,430 | ) | (4 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Total Segment Assets | ¥ | 2,284,733 | ¥ | 2,454,200 | ¥ | 169,467 | 7 | |||||||||
|
|
|
|
|
|
Revenues, New Business Volumes and Investments
Finance revenues
Year ended March 31, | Change | |||||||||||||||
2015 | 2016 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Finance revenues: | ||||||||||||||||
Finance revenues | ¥ | 186,883 | ¥ | 200,889 | ¥ | 14,006 | 7 |
Year ended March 31, | Change | |||||||||||||||
2016 | 2017 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Finance revenues: | ||||||||||||||||
Finance revenues | ¥ | 200,889 | ¥ | 200,584 | ¥ | (305 | ) | (0 | ) |
Finance revenues increased 7% from fiscal 2015 to ¥200,889remained flat at ¥200,584 million for fiscal 2017 from fiscal 2016 primarily due to an impact from strong yen and recognition of a gain on sales of assets under financing leases during the previous fiscal year, offset an increase in revenues from installment loans due to an increase in the average balance of installment loans in the Americas.loans.
Direct financing leases
As of and for the year ended March 31, | Change | |||||||||||||||
2015 | 2016 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Direct financing leases: | ||||||||||||||||
New equipment acquisitions | ¥ | 595,351 | ¥ | 527,575 | ¥ | (67,776 | ) | (11 | ) | |||||||
Japan | 376,249 | 329,691 | (46,558 | ) | (12 | ) | ||||||||||
Overseas | 219,102 | 197,884 | (21,218 | ) | (10 | ) | ||||||||||
Investment in direct financing leases | 1,216,454 | 1,190,136 | (26,318 | ) | (2 | ) |
As of and for the year ended March 31, | Change | |||||||||||||||
2016 | 2017 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Direct financing leases: | ||||||||||||||||
New equipment acquisitions | ¥ | 527,575 | ¥ | 512,740 | ¥ | (14,835 | ) | (3 | ) | |||||||
Japan | 329,691 | 312,788 | (16,903 | ) | (5 | ) | ||||||||||
Overseas | 197,884 | 199,952 | 2,068 | 1 | ||||||||||||
Investment in direct financing leases | 1,190,136 | 1,204,024 | 13,888 | 1 |
New equipment acquisitions related to direct financing leases decreased 11%3% to ¥527,575¥512,740 million compared to fiscal 2015.2016. In Japan, new equipment acquisitions decreased 12%5% in fiscal 2016 as2017 compared to fiscal 2015,2016, and overseas, new equipment acquisitions decreased 10%increased 1% in fiscal 20162017 compared to fiscal 2015.
2016.
Investment in direct financing leases as of March 31, 2016 decreased 2%2017 increased 1% to ¥1,190,136¥1,204,024 million compared to March 31, 20152016 due to the effect of yen appreciation and decreasesincreases in new equipment acquisitions described above.
in the auto-business and overseas subsidiaries.
As of March 31, 2016,2017, no single lessee represented more than 1% of the balance of direct financing leases. As of March 31, 2016, 71%2017, 70% of our direct financing leases were to lessees in Japan, while 29%30% were to overseas lessees. Approximately 7% of our direct financing leases were to lessees in MalaysiaHong Kong and approximately 6%5% of our direct financing leases were to lessees in Hong Kong.Malaysia. No other overseas country represented more than 5% of our total portfolio of direct financing leases.
As of March 31, | Change | |||||||||||||||
2015 | 2016 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Investment in direct financing leases by category: | ||||||||||||||||
Transportation equipment | ¥ | 432,313 | ¥ | 455,556 | ¥ | 23,243 | 5 | |||||||||
Industrial equipment | 245,032 | 268,208 | 23,176 | 9 | ||||||||||||
Electronics | 158,289 | 159,991 | 1,702 | 1 | ||||||||||||
Information-related and office equipment | 103,580 | 102,161 | (1,419 | ) | (1 | ) | ||||||||||
Commercial services equipment | 67,805 | 54,090 | (13,715 | ) | (20 | ) | ||||||||||
Other | 209,435 | 150,130 | (59,305 | ) | (28 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Total | ¥ | 1,216,454 | ¥ | 1,190,136 | ¥ | (26,318 | ) | (2 | ) | |||||||
|
|
|
|
|
|
As of March 31, | Change | |||||||||||||||
2016 | 2017 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Investment in direct financing leases by category: | ||||||||||||||||
Transportation equipment | ¥ | 455,556 | ¥ | 496,335 | ¥ | 40,779 | 9 | |||||||||
Industrial equipment | 268,208 | 244,606 | (23,602 | ) | (9 | ) | ||||||||||
Electronics | 159,991 | 158,726 | (1,265 | ) | (1 | ) | ||||||||||
Information-related and office equipment | 102,161 | 102,078 | (83 | ) | (0 | ) | ||||||||||
Commercial services equipment | 54,090 | 54,389 | 299 | 1 | ||||||||||||
Other | 150,130 | 147,890 | (2,240 | ) | (1 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Total | ¥ | 1,190,136 | ¥ | 1,204,024 | ¥ | 13,888 | 1 | |||||||||
|
|
|
|
|
|
For further information, see Note 5 of “Item 18. Financial Statements.”
Installment loans
As of and for the year ended March 31, | Change | As of and for the year ended March 31, | Change | |||||||||||||||||||||||||||||
2015 | 2016 | Amount | Percent (%) | 2016 | 2017 | Amount | Percent (%) | |||||||||||||||||||||||||
(Millions of yen, except percentage data) | (Millions of yen, except percentage data) | |||||||||||||||||||||||||||||||
Installment loans: | ||||||||||||||||||||||||||||||||
New loans added | ¥ | 1,110,054 | ¥ | 1,102,279 | ¥ | (7,775 | ) | (1 | ) | ¥ | 1,102,279 | ¥ | 1,309,488 | ¥ | 207,209 | 19 | ||||||||||||||||
Japan | 843,149 | 808,075 | (35,074 | ) | (4 | ) | 808,075 | 972,361 | 164,286 | 20 | ||||||||||||||||||||||
Overseas | 266,905 | 294,204 | 27,299 | 10 | 294,204 | 337,127 | 42,923 | 15 | ||||||||||||||||||||||||
Installment loans | 2,478,054 | 2,592,233 | 114,179 | 5 | 2,592,233 | 2,815,706 | 223,473 | 9 |
Note: | The balance of installment loans related to our life insurance operations |
New loans added decreased 1%increased 19% to ¥1,102,279¥1,309,488 million compared to fiscal 2015.2016. In Japan, new loans added decreased 4%increased 20% to ¥808,075¥972,361 million in fiscal 2016 as2017 compared to fiscal 2015,2016 due to an increase in housing loans, and overseas, new loans added increased 10%15% to ¥294,204¥337,127 million compared to fiscal 20152016 due to increased lending activity in the Americas and Asia.
The balance of installment loans as of March 31, 20162017 increased 5%9% to ¥2,592,233¥2,815,706 million compared to March 31, 20152016 due to increase of housing loans and card loans.
As of March 31, | Change | As of March 31, | Change | |||||||||||||||||||||||||||||
2015 | 2016 | Amount | Percent (%) | 2016 | 2017 | Amount | Percent (%) | |||||||||||||||||||||||||
(Millions of yen, except percentage data) | (Millions of yen, except percentage data) | |||||||||||||||||||||||||||||||
Installment loans: | ||||||||||||||||||||||||||||||||
Consumer borrowers in Japan | ||||||||||||||||||||||||||||||||
Housing loans | ¥ | 1,048,216 | ¥ | 1,122,088 | ¥ | 73,872 | 7 | ¥ | 1,122,088 | ¥ | 1,261,571 | ¥ | 139,483 | 12 | ||||||||||||||||||
Card loans | 243,225 | 260,533 | 17,308 | 7 | 260,533 | 270,007 | 9,474 | 4 | ||||||||||||||||||||||||
Other | 22,866 | 23,466 | 600 | 3 | 23,466 | 28,668 | 5,202 | 22 | ||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
Subtotal | 1,314,307 | 1,406,087 | 91,780 | 7 | 1,406,087 | 1,560,246 | 154,159 | 11 | ||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
Corporate borrowers in Japan | ||||||||||||||||||||||||||||||||
Real estate companies | 227,568 | 230,001 | 2,433 | 1 | 230,001 | 270,965 | 40,964 | 18 | ||||||||||||||||||||||||
Non-recourse loans | 41,535 | 19,951 | (21,584 | ) | (52 | ) | 19,951 | 12,758 | (7,193 | ) | (36 | ) | ||||||||||||||||||||
Commercial, industrial and other companies | 401,718 | 365,371 | (36,347 | ) | (9 | ) | 365,371 | 340,050 | (25,321 | ) | (7 | ) | ||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
Subtotal | 670,821 | 615,323 | (55,498 | ) | (8 | ) | 615,323 | 623,773 | 8,450 | 1 | ||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
Overseas | ||||||||||||||||||||||||||||||||
Non-recourse loans | 83,233 | 61,260 | (21,973 | ) | (26 | ) | 61,260 | 75,968 | 14,708 | 24 | ||||||||||||||||||||||
Commercial, industrial companies and other | 367,401 | 479,039 | 111,638 | 30 | 479,039 | 530,924 | 51,885 | 11 | ||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
Subtotal | 450,634 | 540,299 | 89,665 | 20 | 540,299 | 606,892 | 66,593 | 12 | ||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
Purchased loans* | 42,292 | 30,524 | (11,768 | ) | (28 | ) | 30,524 | 24,795 | (5,729 | ) | (19 | ) | ||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
Total | ¥ | 2,478,054 | ¥ | 2,592,233 | ¥ | 114,179 | 5 | ¥ | 2,592,233 | ¥ | 2,815,706 | ¥ | 223,473 | 9 | ||||||||||||||||||
|
|
|
|
|
|
* | 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 |
As of March 31, 2016, ¥15,9172017, ¥11,524 million, or 1%, 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, 2016, ¥290,8482017, ¥340,398 million, or 11%12%, of the balance of installment loans were outstanding to real estate companies in Japan and overseas. Of this amount, ¥8,612Among these amounts, ¥7,212 million, or 0.3% of the balance of installment loans, were loans individually evaluated for impairment. We recognized an allowance of ¥2,140¥1,638 million on these impaired loans. As of March 31, 2016,2017, we had installment loans outstanding in the amount of ¥101,281¥95,926 million, or 4%3% of the balance of installment loans, to companies in the entertainment industry. Of this amount, ¥2,429Among these amounts, ¥1,736 million, or 0.1% of the balance of installment loans, were loans individually evaluated for impairment. We recognized an allowance of ¥840¥637 million on these impaired loans.
The balance of installment loans to consumer borrowers in Japan as of March 31, 20162017 increased 7%11% to ¥1,406,087¥1,560,246 million compared to the balance as of March 31, 2015,2016, primarily due to an increase in the balance of housing loans. The balance of installment loans to corporate borrowers in Japan as of March 31, 2016 decreased 8%2017 increased 1%, to ¥615,323¥623,773 million, compared to the balance as of March 31, 2015,2016, primarily due to a decreasean increase in the balance of non-recourse loans.loans to real estate companies. The balance of installment loans overseas, excluding purchased loans, as of March 31, 20162017 increased 20%12%, to ¥540,299¥606,892 million, compared to the balance as of March 31, 2015,2016, primarily due to increased lending activity in the Americas.
For further information, see Note 7 of “Item 18. Financial Statements.”
Asset quality
Direct financing leases
As of March 31, | ||||||||
2015 | 2016 | |||||||
(Millions of yen, except percentage data) | ||||||||
90+ days past-due direct financing leases and allowances for direct financing leases: | ||||||||
90+ days past-due direct financing leases | ¥ | 15,373 | ¥ | 12,556 | ||||
90+ days past-due direct financing leases as a percentage of the balance of investment in direct financing leases | 1.26 | % | 1.06 | % | ||||
Provision as a percentage of average balance of investment in direct financing leases* | 0.27 | % | 0.23 | % | ||||
Allowance for direct financing leases | ¥ | 15,204 | ¥ | 13,380 | ||||
Allowance for direct financing leases as a percentage of the balance of investment in direct financing leases | 1.25 | % | 1.12 | % | ||||
The ratio of charge-offs as a percentage of the average balance of investment in direct financing leases | 0.33 | % | 0.34 | % |
As of March 31, | ||||||||
2016 | 2017 | |||||||
(Millions of yen, except percentage data) | ||||||||
90+ dayspast-due direct financing leases and allowances for direct financing leases: | ||||||||
90+ dayspast-due direct financing leases | ¥ | 12,556 | ¥ | 11,600 | ||||
90+ dayspast-due direct financing leases as a percentage of the balance of investment in direct financing leases | 1.06 | % | 0.96 | % | ||||
Provision as a percentage of average balance of investment in direct financing leases * | 0.23 | % | 0.12 | % | ||||
Allowance for direct financing leases | ¥ | 13,380 | ¥ | 10,537 | ||||
Allowance for direct financing leases as a percentage of the balance of investment in direct financing leases | 1.12 | % | 0.88 | % | ||||
The ratio of charge-offs as a percentage of the average balance of investment in direct financing leases | 0.34 | % | 0.34 | % |
* | Average balances are calculated on the basis of fiscal year’s beginning balance and fiscalquarter-end balances. |
The balance of 90+ dayspast-due direct financing leases decreased ¥2,817¥956 million to ¥12,556¥11,600 million as of March 31, 20162017 compared to March 31, 2015.2016. As a result, the ratio of 90+ dayspast-due direct financing leases decreased 0.2%0.10% from March 31, 20152016 to 1.06%0.96%.
We believe that the ratio of allowance for doubtful receivables as a percentage ofto the balance of investment in direct financing leases provides a reasonable indication that our allowance for doubtful receivables was appropriate as of March 31, 20162017 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, | ||||||||
2015 | 2016 | |||||||
(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 | ¥ | 6,635 | ¥ | 8,178 | ||||
90+ days past-due loans not individually evaluated for impairment as a percentage of the balance of installment loans not individually evaluated for impairment | 0.28 | % | 0.32 | % | ||||
Provision as a percentage of average balance of installment loans not individually evaluated for impairment* | 0.36 | % | 0.42 | % | ||||
Allowance for probable loan losses on installment loans exclusive of those loans individually evaluated for impairment | ¥ | 22,743 | ¥ | 24,158 | ||||
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 | 0.96 | % | 0.96 | % | ||||
The ratio of charge-offs as a percentage of the average balance of loans not individually evaluated for impairment | 0.29 | % | 0.37 | % |
As of March 31, | ||||||||
2016 | 2017 | |||||||
(Millions of yen, except percentage data) | ||||||||
90+ dayspast-due loans and allowance for installment loans: | ||||||||
90+ dayspast-due loans not individually evaluated for impairment | ¥ | 8,178 | ¥ | 9,722 | ||||
90+ dayspast-due loans not individually evaluated for impairment as a percentage of the balance of installment loans not individually evaluated for impairment | 0.32 | % | 0.35 | % | ||||
Provision as a percentage of average balance of installment loans not individually evaluated for impairment * | 0.42 | % | 0.78 | % | ||||
Allowance for probable loan losses on installment loans exclusive of those loans individually evaluated for impairment | ¥ | 24,158 | ¥ | 28,622 | ||||
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 | 0.96 | % | 1.04 | % | ||||
The ratio of charge-offs as a percentage of the average balance of loans not individually evaluated for impairment | 0.37 | % | 0.54 | % |
* | Average balances are calculated on the basis of fiscal year’s beginning balance and fiscalquarter-end balances. |
The balance of 90+ dayspast-due loans not individually evaluated for impairment that are not individually significant and accordingly are evaluated for impairment as a homogeneous group for impairment due to their individual significancy increased ¥1,543¥1,544 million to ¥8,178¥9,722 million as of March 31, 20162017 compared to March 31, 2015.2016.
As of March 31, | ||||||||
2015 | 2016 | |||||||
(Millions of yen) | ||||||||
90+ days past-due loans not individually evaluated for impairment: | ||||||||
Consumer borrowers in Japan | ||||||||
Housing loans | ¥ | 3,877 | ¥ | 2,267 | ||||
Card loans | 824 | 657 | ||||||
Other | 1,913 | 3,452 | ||||||
|
|
|
| |||||
Subtotal | 6,614 | 6,376 | ||||||
|
|
|
| |||||
Overseas | ||||||||
Housing loans | 21 | 1,802 | ||||||
|
|
|
| |||||
Total | ¥ | 6,635 | ¥ | 8,178 | ||||
|
|
|
|
As of March 31, | ||||||||
2016 | 2017 | |||||||
(Millions of yen) | ||||||||
90+ dayspast-due loans not individually evaluated for impairment: | ||||||||
Consumer borrowers in Japan | ||||||||
Housing loans | ¥ | 2,267 | ¥ | 1,685 | ||||
Card loans | 657 | 1,346 | ||||||
Other | 3,452 | 6,160 | ||||||
|
|
|
| |||||
Subtotal | 6,376 | 9,191 | ||||||
|
|
|
| |||||
Overseas | ||||||||
Housing loans | 1,802 | 531 | ||||||
|
|
|
| |||||
Total | ¥ | 8,178 | ¥ | 9,722 | ||||
|
|
|
|
We makerecognize allowance for housing 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, | ||||||||
2015 | 2016 | |||||||
(Millions of yen) | ||||||||
Loans individually evaluated for impairment: | ||||||||
Impaired loans | ¥ | 101,034 | ¥ | 73,593 | ||||
Effect of the application of the accounting standards for the consolidation of VIEs*1 | 11,877 | 1,296 | ||||||
Impaired loans requiring an allowance | 82,630 | 58,992 | ||||||
Effect of the application of the accounting standards for the consolidation of VIEs*1 | 11,877 | 1,296 | ||||||
Allowance for loans individually evaluated for impairment*2 | 34,379 | 22,533 | ||||||
Effect of the application of the accounting standards for the consolidation of VIEs*1 | 6,930 | 541 |
As of March 31, | ||||||||
2016 | 2017 | |||||||
(Millions of yen) | ||||||||
Loans individually evaluated for impairment: | ||||||||
Impaired loans | ¥ | 73,593 | ¥ | 59,025 | ||||
Impaired loans requiring an allowance | 58,992 | 52,501 | ||||||
Allowance for loans individually evaluated for impairment * | 22,533 | 20,068 |
* |
|
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 ¥258 million in fiscal 2015 and ¥1,369 million of reversal in fiscal 2016 and ¥879 million in fiscal 2017, andcharge-off of impaired loans was ¥15,346 million in fiscal 2015 and ¥4,527 million in fiscal 2016.2016 and ¥3,508 million in fiscal 2017. New provision for probable loan losses decreased ¥1,627increased ¥2,248 million compared to fiscal 2015. 2016.Charge-off of impaired loans decreased ¥10,819¥1,019 million compared to fiscal 2015.
2016.
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.
As of March 31, | ||||||||
2015 | 2016 | |||||||
(Millions of yen) | ||||||||
Impaired loans: | ||||||||
Consumer borrowers in Japan | ||||||||
Housing loans | ¥ | 5,354 | ¥ | 4,511 | ||||
Card loans | 3,741 | 4,123 | ||||||
Other | 2,895 | 4,916 | ||||||
|
|
|
| |||||
Subtotal | 11,990 | 13,550 | ||||||
|
|
|
| |||||
Corporate borrowers in Japan | ||||||||
Real estate companies | 15,951 | 8,612 | ||||||
Non-recourse loans | 5,285 | 5,068 | ||||||
Commercial, industrial and other companies | 23,475 | 17,477 | ||||||
|
|
|
| |||||
Subtotal | 44,711 | 31,157 | ||||||
|
|
|
| |||||
Overseas | ||||||||
Non-recourse loans | 16,747 | 5,989 | ||||||
Commercial, industrial companies and other | 12,370 | 11,884 | ||||||
|
|
|
| |||||
Subtotal | 29,117 | 17,873 | ||||||
|
|
|
| |||||
Purchased loans | 15,216 | 11,013 | ||||||
|
|
|
| |||||
Total | ¥ | 101,034 | ¥ | 73,593 | ||||
|
|
|
|
As of March 31, | ||||||||
2016 | 2017 | |||||||
(Millions of yen) | ||||||||
Impaired loans: | ||||||||
Consumer borrowers in Japan | ||||||||
Housing loans | ¥ | 4,511 | ¥ | 4,243 | ||||
Card loans | 4,123 | 4,102 | ||||||
Other | 4,916 | 7,903 | ||||||
|
|
|
| |||||
Subtotal | 13,550 | 16,248 | ||||||
|
|
|
| |||||
Corporate borrowers in Japan | ||||||||
Real estate companies | 8,612 | 7,212 | ||||||
Non-recourse loans | 5,068 | 203 | ||||||
Commercial, industrial and other companies | 17,477 | 11,467 | ||||||
|
|
|
| |||||
Subtotal | 31,157 | 18,882 | ||||||
|
|
|
| |||||
Overseas | ||||||||
Non-recourse loans | 5,989 | 5,829 | ||||||
Commercial, industrial companies and other | 11,884 | 10,623 | ||||||
|
|
|
| |||||
Subtotal | 17,873 | 16,452 | ||||||
|
|
|
| |||||
Purchased loans | 11,013 | 7,443 | ||||||
|
|
|
| |||||
Total | ¥ | 73,593 | ¥ | 59,025 | ||||
|
|
|
|
For further information, see Note 8 of “Item 18. Financial Statements.”
Provision for doubtful receivables and probable loan losses
We recognize provision for doubtful receivables and probable loan losses for direct financing leases and installment loans.
As of March 31, | Change | As of March 31, | Change | |||||||||||||||||||||||||||||
2015 | 2016 | Amount | Percent (%) | 2016 | 2017 | Amount | Percent (%) | |||||||||||||||||||||||||
(Millions of yen, except percentage data) | (Millions of yen, except percentage data) | |||||||||||||||||||||||||||||||
Provision for doubtful receivables on direct financing leases and probable loan losses: | ||||||||||||||||||||||||||||||||
Beginning balance | ¥ | 84,796 | ¥ | 72,326 | ¥ | (12,470 | ) | (15 | ) | ¥ | 72,326 | ¥ | 60,071 | ¥ | (12,255 | ) | (17 | ) | ||||||||||||||
Direct financing leases | 15,384 | 15,204 | (180 | ) | (1 | ) | 15,204 | 13,380 | (1,824 | ) | (12 | ) | ||||||||||||||||||||
Loans not individually evaluated for impairment | 20,257 | 22,743 | 2,486 | 12 | 22,743 | 24,158 | 1,415 | 6 | ||||||||||||||||||||||||
Loans individually evaluated for impairment | 49,155 | 34,379 | (14,776 | ) | (30 | ) | 34,379 | 22,533 | (11,846 | ) | (34 | ) | ||||||||||||||||||||
Provision (reversal) | 11,631 | 11,717 | 86 | 1 | 11,717 | 22,667 | 10,950 | 93 | ||||||||||||||||||||||||
Direct financing leases | 3,145 | 2,787 | (358 | ) | (11 | ) | 2,787 | 1,372 | (1,415 | ) | (51 | ) | ||||||||||||||||||||
Loans not individually evaluated for impairment | 8,228 | 10,299 | 2,071 | 25 | 10,299 | 20,416 | 10,117 | 98 | ||||||||||||||||||||||||
Loans individually evaluated for impairment | 258 | (1,369 | ) | (1,627 | ) | — | (1,369 | ) | 879 | 2,248 | — | |||||||||||||||||||||
Charge-offs (net) | (25,793 | ) | (17,504 | ) | 8,289 | (32 | ) | (17,504 | ) | (21,822 | ) | (4,318 | ) | 25 | ||||||||||||||||||
Direct financing leases | (3,774 | ) | (4,062 | ) | (288 | ) | 8 | (4,062 | ) | (4,056 | ) | 6 | (0 | ) | ||||||||||||||||||
Loans not individually evaluated for impairment | (6,673 | ) | (8,915 | ) | (2,242 | ) | 34 | (8,915 | ) | (14,258 | ) | (5,343 | ) | 60 | ||||||||||||||||||
Loans individually evaluated for impairment | (15,346 | ) | (4,527 | ) | 10,819 | (71 | ) | (4,527 | ) | (3,508 | ) | 1,019 | (23 | ) | ||||||||||||||||||
Other* | 1,692 | (6,468 | ) | (8,160 | ) | — | (6,468 | ) | (1,689 | ) | 4,779 | (74 | ) | |||||||||||||||||||
Direct financing leases | 449 | (549 | ) | (998 | ) | (222 | ) | (549 | ) | (159 | ) | 390 | (71 | ) | ||||||||||||||||||
Loans not individually evaluated for impairment | 931 | 31 | (900 | ) | (97 | ) | 31 | (1,694 | ) | (1,725 | ) | — | ||||||||||||||||||||
Loans individually evaluated for impairment | 312 | (5,950 | ) | (6,262 | ) | — | (5,950 | ) | 164 | 6,114 | — | |||||||||||||||||||||
Ending balance | 72,326 | 60,071 | (12,255 | ) | (17 | ) | 60,071 | 59,227 | (844 | ) | (1 | ) | ||||||||||||||||||||
Direct financing leases | 15,204 | 13,380 | (1,824 | ) | (12 | ) | 13,380 | 10,537 | (2,843 | ) | (21 | ) | ||||||||||||||||||||
Loans not individually evaluated for impairment | 22,743 | 24,158 | 1,415 | 6 | 24,158 | 28,622 | 4,464 | 18 | ||||||||||||||||||||||||
Loans individually evaluated for impairment | 34,379 | 22,533 | (11,846 | ) | (34 | ) | 22,533 | 20,068 | (2,465 | ) | (11 | ) |
* | Other mainly includes foreign currency translation adjustments and others. |
For further information, see Note 8 of “Item 18. Financial Statements.”
Investment in Securities
As of and for the year ended March 31, | Change | As of and for the year ended March 31, | Change | |||||||||||||||||||||||||||||
2015 | 2016 | Amount | Percent (%) | 2016 | 2017 | Amount | Percent (%) | |||||||||||||||||||||||||
(Millions of yen, except percentage data) | (Millions of yen, except percentage data) | |||||||||||||||||||||||||||||||
Investment in securities: | ||||||||||||||||||||||||||||||||
New securities added | ¥ | 1,030,426 | ¥ | 898,230 | ¥ | (132,196 | ) | (13 | ) | ¥ | 898,230 | ¥ | 489,357 | ¥ | (408,873 | ) | (46 | ) | ||||||||||||||
Japan | 899,144 | 766,016 | (133,128 | ) | (15 | ) | 766,016 | 354,120 | (411,896 | ) | (54 | ) | ||||||||||||||||||||
Overseas | 131,282 | 132,214 | 932 | �� | 1 | 132,214 | 135,237 | 3,023 | 2 | |||||||||||||||||||||||
Investment in securities | 2,846,257 | 2,344,792 | (501,465 | ) | (18 | ) | 2,344,792 | 2,026,512 | (318,280 | ) | (14 | ) |
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 decreased 13%46% to ¥898,230¥489,357 million in fiscal 20162017 compared to fiscal 2015.2016. New securities added in Japan decreased 15%54% in fiscal 20162017 compared to fiscal 20152016 primarily due to a decrease in
investments in Japanese government bondcorporate debt securities. New securities added overseas increased 1%2% in fiscal 20162017 compared to fiscal 2015.
2016.
The balance of our investment in securities as of March 31, 20162017 decreased 18%14% to ¥2,344,792¥2,026,512 million compared to March 31, 2015.2016.
As of March 31, | Change | As of March 31, | Change | |||||||||||||||||||||||||||||
2015 | 2016 | Amount | Percent (%) | 2016 | 2017 | Amount | Percent (%) | |||||||||||||||||||||||||
(Millions of yen, except percentage data) | (Millions of yen, except percentage data) | |||||||||||||||||||||||||||||||
Investment in securities by security type: | ||||||||||||||||||||||||||||||||
Trading securities | ¥ | 1,190,131 | ¥ | 725,821 | ¥ | (464,310 | ) | (39 | ) | ¥ | 725,821 | ¥ | 569,074 | ¥ | (156,747 | ) | (22 | ) | ||||||||||||||
Available-for-sale securities | 1,356,840 | 1,347,890 | (8,950 | ) | (1 | ) | 1,347,890 | 1,165,417 | (182,473 | ) | (14 | ) | ||||||||||||||||||||
Held-to-maturity securities | 115,599 | 114,858 | (741 | ) | (1 | ) | 114,858 | 114,400 | (458 | ) | 0 | |||||||||||||||||||||
Other securities | 183,687 | 156,223 | (27,464 | ) | (15 | ) | 156,223 | 177,621 | 21,398 | 14 | ||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
Total | ¥ | 2,846,257 | ¥ | 2,344,792 | ¥ | (501,465 | ) | (18 | ) | ¥ | 2,344,792 | ¥ | 2,026,512 | ¥ | (318,280 | ) | (14 | ) | ||||||||||||||
|
|
|
|
|
|
Investments in trading securities decreased 39% inas of March 31, 20162017 decreased 22% compared to March 31, 20152016 primarily due to a decrease in the assets under management of variable annuity and variable life insurance contracts. Investments inavailable-for-sale securities decreased 1% inas of March 31, 20162017 decreased 14% compared to March 31, 2015.2016.Held-to-maturity securities mainly consist of our life insurance business’s investment in Japanese government bonds. Other securities decreased 15% inas of March 31, 20162017 increased 14% compared to March 31, 20152016 mainly due to sale of non-marketable equity securities.
an increase in investment funds.
For further information, see Note 9 of “Item 18. Financial Statements.”
Gains on investment securities and dividends
Year ended March 31, | Change | Year ended March 31, | Change | |||||||||||||||||||||||||||||
2015 | 2016 | Amount | Percent (%) | 2016 | 2017 | Amount | Percent (%) | |||||||||||||||||||||||||
(Millions of yen, except percentage data) | (Millions of yen, except percentage data) | |||||||||||||||||||||||||||||||
Gains on investment securities and dividends: | ||||||||||||||||||||||||||||||||
Net gains on investment securities | ¥ | 50,617 | ¥ | 31,134 | ¥ | (19,483 | ) | (38 | ) | ¥ | 31,134 | ¥ | 27,233 | ¥ | (3,901 | ) | (13 | ) | ||||||||||||||
Dividends income, other | 5,778 | 4,652 | (1,126 | ) | (19 | ) | 4,652 | 3,095 | (1,557 | ) | (33 | ) | ||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
Total | ¥ | 56,395 | ¥ | 35,786 | ¥ | (20,609 | ) | (37 | ) | ¥ | 35,786 | ¥ | 30,328 | ¥ | (5,458 | ) | (15 | ) | ||||||||||||||
|
|
|
|
|
|
Note: | 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. |
Gains on investment securities and dividends decreased 37%15% to ¥35,786¥30,328 million in fiscal 20162017 compared to fiscal 20152016 mainly due to a decrease in net gains on investment securities. Net gains on investment securities decreased 38%13% to ¥31,134¥27,233 million in fiscal 20162017 compared to fiscal 2015 primarily2016 mainly due to the gaina decrease in gains on the salesales of shares in Monex Group Inc., recorded in fiscal 2015. Dividendsecurities. Dividends income, other decreased 19%33% to ¥4,652¥3,095 million in fiscal 20162017 compared to fiscal 2015.
2016.
As of March 31, 2016,2017, gross unrealized gains onavailable-for-sale securities, including those held in connection with our life insurance operations, were ¥81,231¥51,905 million, compared to ¥76,643¥81,231 million as of March 31, 2015.2016. As of March 31, 2016,2017, gross unrealized losses onavailable-for-sale securities, including those held in connection with our life insurance operations, were ¥16,654¥6,244 million, compared to ¥2,815¥16,654 million as of March 31, 2015.
2016.
For further information, see Note 22 of “Item 18. Financial Statements.”
Operating leases
As of and for the year ended March 31, | Change | |||||||||||||||
2015 | 2016 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Operating leases: | ||||||||||||||||
Operating lease revenues | ¥ | 363,095 | ¥ | 373,910 | ¥ | 10,815 | 3 | |||||||||
Costs of operating leases | 238,157 | 245,069 | 6,912 | 3 | ||||||||||||
New equipment acquisitions | 313,996 | 463,770 | 149,774 | 48 | ||||||||||||
Japan | 210,703 | 195,170 | (15,533 | ) | (7 | ) | ||||||||||
Overseas | 103,293 | 268,600 | 165,307 | 160 | ||||||||||||
Investment in operating leases | 1,296,220 | 1,349,199 | 52,979 | 4 |
As of and for the year ended March 31, | Change | |||||||||||||||
2016 | 2017 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Operating leases: | ||||||||||||||||
Operating lease revenues | ¥ | 373,910 | ¥ | 398,655 | ¥ | 24,745 | 7 | |||||||||
Costs of operating leases | 245,069 | 243,537 | (1,532 | ) | (1 | ) | ||||||||||
New equipment acquisitions | 463,770 | 401,913 | (61,857 | ) | (13 | ) | ||||||||||
Japan | 195,170 | 207,759 | 12,589 | 6 | ||||||||||||
Overseas | 268,600 | 194,154 | (74,446 | ) | (28 | ) | ||||||||||
Investment in operating leases | 1,349,199 | 1,313,164 | (36,035 | ) | (3 | ) |
Revenues from operating leases in fiscal 20162017 increased 3%7% to ¥373,910¥398,655 million compared to fiscal 20152016 primarily due to an increase in revenue from automobile operationsgains on sales of real estate leasing, which are included in Japan and other Asian markets, and an increase in aircraft leasing overseas, despiteoperating leases revenues, partially offset by a decrease in revenue from real estate leasing.gains on sales in operating leases revenues in the auto-business. In fiscal 20152016 and 2016,2017, gains from the disposition of operating lease assets that were included in operating lease revenues, were ¥34,425¥38,340 million and ¥38,340¥69,265 million, respectively.
Costs of operating leases increased 3%decreased 1% to ¥245,069¥243,537 million in fiscal 20162017 compared to fiscal 20152016 primarily due to a decrease in costs from real estate leasing, despite an increase in depreciation expenses resulting from a year on year increase in the average balance of investment in transportation equipment operating leases, despite a decrease in costs from real estate leasing.
the auto-business.
New equipment acquisitions related to operating leases increased 48%decreased 13% to ¥463,770¥401,913 million in fiscal 20162017 compared to fiscal 20152016 primarily due to an increasea decrease in purchases of aircraft overseas.
Investment in operating leases as of March 31, 2016 increased 4%2017 decreased 3% to ¥1,349,199¥1,313,164 million compared to as of March 31, 2015.2016.
As of March 31, | Change | |||||||||||||||
2015 | 2016 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Investment in operating leases by category: | ||||||||||||||||
Transportation equipment | ¥ | 644,840 | ¥ | 755,425 | ¥ | 110,585 | 17 | |||||||||
Measuring and information-related equipment | 95,652 | 90,208 | (5,444 | ) | (6 | ) | ||||||||||
Real estate | 528,159 | 472,021 | (56,138 | ) | (11 | ) | ||||||||||
Other | 6,055 | 7,935 | 1,880 | 31 | ||||||||||||
Accrued rental receivables | 21,514 | 23,610 | 2,096 | 10 | ||||||||||||
|
|
|
|
|
| |||||||||||
Total | ¥ | 1,296,220 | ¥ | 1,349,199 | ¥ | 52,979 | 4 | |||||||||
|
|
|
|
|
|
As of March 31, | Change | |||||||||||||||
2016 | 2017 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Investment in operating leases by category: | ||||||||||||||||
Transportation equipment | ¥ | 755,425 | ¥ | 788,676 | ¥ | 33,251 | 4 | |||||||||
Measuring and information-related equipment | 90,208 | 86,682 | (3,526 | ) | (4 | ) | ||||||||||
Real estate | 472,021 | 404,427 | (67,594 | ) | (14 | ) | ||||||||||
Other | 7,935 | 10,158 | 2,223 | 28 | ||||||||||||
Accrued rental receivables | 23,610 | 23,221 | (389 | ) | (2 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Total | ¥ | 1,349,199 | ¥ | 1,313,164 | ¥ | (36,035 | ) | (3 | ) | |||||||
|
|
|
|
|
|
Investment in transportation equipment operating leases as of March 31, 20162017 increased 17%4% to ¥755,425¥788,676 million compared to as of March 31, 20152016 primarily due to an increase in new equipment acquisitions in aircraft and automobile operations.the auto-business. Investment in real estate operating leases as of March 31, 20162017 decreased 11%14% to ¥472,021¥404,427 million compared to as of March 31, 2015,2016, primarily due to sales of real estate in Japan.
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) 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 | |||||||||||||||
2015 | 2016 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Life insurance premiums and related investment income and life insurance costs: | ||||||||||||||||
Life insurance premiums | ¥ | 186,547 | ¥ | 209,120 | ¥ | 22,573 | 12 | |||||||||
Life insurance-related investment income (loss) | 164,946 | (19,699 | ) | (184,645 | ) | — | ||||||||||
|
|
|
|
|
| |||||||||||
Total | ¥ | 351,493 | ¥ | 189,421 | ¥ | (162,072 | ) | (46 | ) | |||||||
|
|
|
|
|
| |||||||||||
Life insurance costs | ¥ | 271,948 | ¥ | 121,282 | ¥ | (150,666 | ) | (55 | ) | |||||||
|
|
|
|
|
| |||||||||||
Year ended March 31, | Change | |||||||||||||||
2015 | 2016 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Breakdown of life insurance-related investment income (loss): | ||||||||||||||||
Net income on investment securities | ¥ | 184,681 | ¥ | (22,003 | ) | ¥ | (206,684 | ) | — | |||||||
Gains (losses) recognized in income on derivative | (28,227 | ) | 1,633 | 29,860 | — | |||||||||||
Interest on loans, income on real estate under operating leases, and others | 8,492 | 671 | (7,821 | ) | (92 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Total | ¥ | 164,946 | ¥ | (19,699 | ) | ¥ | (184,645 | ) | — | |||||||
|
|
|
|
|
|
Year ended March 31, | Change | |||||||||||||||
2016 | 2017 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Life insurance premiums and related investment income and life insurance costs: | ||||||||||||||||
Life insurance premiums | ¥ | 209,120 | ¥ | 247,427 | ¥ | 38,307 | 18 | |||||||||
Life insurance-related investment income (loss) | (19,699 | ) | 48,513 | 68,212 | — | |||||||||||
|
|
|
|
|
| |||||||||||
Total | ¥ | 189,421 | ¥ | 295,940 | ¥ | 106,519 | 56 | |||||||||
|
|
|
|
|
| |||||||||||
Life insurance costs | ¥ | 121,282 | ¥ | 200,158 | ¥ | 78,876 | 65 | |||||||||
|
|
|
|
|
| |||||||||||
Year ended March 31, | Change | |||||||||||||||
2016 | 2017 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Breakdown of life insurance-related investment income (loss): | ||||||||||||||||
Net income (loss) on investment securities | ¥ | (22,003 | ) | ¥ | 57,715 | ¥ | 79,718 | — | ||||||||
Gains (losses) recognized in income on derivative | 1,633 | (10,568 | ) | (12,201 | ) | — | ||||||||||
Interest on loans, income on real estate under operating leases, and others | 671 | 1,366 | 695 | 104 | ||||||||||||
|
|
|
|
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| |||||||||||
Total | ¥ | (19,699 | ) | ¥ | 48,513 | ¥ | 68,212 | — | ||||||||
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Life insurance premiums and related investment income decreased 46%increased 56% to ¥189,421¥295,940 million in fiscal 20162017 compared to fiscal 2015.
2016.
Life insurance premiums increased 12%18% to ¥209,120¥247,427 million in fiscal 20162017 compared to fiscal 20152016 due to an increase in the number of policies in force.
Life insurance-related investment income was gains of ¥48,513 million in fiscal 2017 compared to losses of ¥19,699 million in fiscal 2016 compared to gains of ¥164,946 million in fiscal 2015 due to a decreasean increase in net income on investment securities. Net income on investment securities decreasedincreased due to gains on sales of JGBs and a significant decreaseincrease in investment income from variable annuity and variable life insurance contracts held by HLIKK, caused by the significant market improvement in fiscal 2015.2017. On the other hand, net gains or losses from derivative contracts held to economically hedge the minimum guarantee risk relating to these variable annuity and variable life insurance contracts increased.decreased. 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 2015.
increased.
Life insurance costs decreased 55%increased 65% to ¥121,282¥200,158 million in fiscal 20162017 compared to fiscal 20152016 due to an increase in the number of policies in force and a reversalprovision of liability reserve in line with the aforementioned decreaseincrease in investment income from variable annuity and variable life insurance contracts held by HLIKK.
Investments by life insurance operations: Trading securities Available-for-sale debt securities Available-for-sale equity securities Held-to-maturity securities Other securities Total investment in securities Installment loans, real estate under operating leases and other investments Total As of March 31, Change 2015 2016 Amount Percent (%) (Millions of yen, except percentage data) ¥ 1,165,347 ¥ 704,313 ¥ (461,034 ) (40 ) 617,094 711,303 94,209 15 12,232 18,873 6,641 54 115,160 114,564 (596 ) (1 ) 6 6 0 0 1,909,839 1,549,059 (360,780 ) (19 ) 68,139 69,020 881 1 ¥ 1,977,978 ¥ 1,618,079 ¥ (359,899 ) (18 )
As of March 31, | Change | |||||||||||||||
2016 | 2017 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Investments by life insurance operations: | ||||||||||||||||
Trading securities | ¥ | 704,313 | ¥ | 547,850 | ¥ | (156,463 | ) | (22 | ) | |||||||
Available-for-sale debt securities | 711,303 | 567,741 | (143,562 | ) | (20 | ) | ||||||||||
Available-for-sale equity securities | 18,873 | 13,341 | (5,532 | ) | (29 | ) | ||||||||||
Held-to-maturity securities | 114,564 | 114,400 | (164 | ) | (0 | ) | ||||||||||
Other securities | 6 | 438 | 432 | — | ||||||||||||
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Total investment in securities | 1,549,059 | 1,243,770 | (305,289 | ) | (20 | ) | ||||||||||
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Installment loans, real estate under operating leases and other investments | 69,020 | 58,215 | (10,805 | ) | (16 | ) | ||||||||||
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Total | ¥ | 1,618,079 | ¥ | 1,301,985 | ¥ | (316,094 | ) | (20 | ) | |||||||
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Investment in securities as of March 31, 20162017 decreased 19%20% to ¥1,549,059¥1,243,770 million compared to as of March 31, 20152016 due to a decrease in trading securities as a result of surrender of variable annuity and variable life insurance contracts held by HLIKK, while andavailable-for-sale debt securities increased.
decreased due to sales of JGBs.
For further information, see Note 23 of “Item 18. Financial Statements.”
Sales of goods and real estate, Inventories
Year ended March 31, | Change | |||||||||||||||
2015 | 2016 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Sales of goods and real estate, Inventories: | ||||||||||||||||
Sales of goods and real estate | ¥ | 450,869 | ¥ | 834,010 | ¥ | 383,141 | 85 | |||||||||
Costs of goods and real estate sold | 402,021 | 748,259 | 346,238 | 86 | ||||||||||||
Inventories | 165,540 | 139,950 | (25,590 | ) | (15 | ) |
Year ended March 31, | Change | |||||||||||||||
2016 | 2017 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Sales of goods and real estate, Inventories: | ||||||||||||||||
Sales of goods and real estate | ¥ | 834,010 | ¥ | 1,015,249 | ¥ | 181,239 | 22 | |||||||||
Costs of goods and real estate sold | 748,259 | 928,794 | 180,535 | 24 | ||||||||||||
New real estate added | 85,087 | 93,905 | 8,818 | 10 | ||||||||||||
Inventories | 139,950 | 117,863 | (22,087 | ) | (16 | ) |
Sales of goods and real estate increased 85%22% to ¥834,010¥1,015,249 million compared to fiscal 20152016 due to contributions from the subsidiaries acquired during fiscal 2015 and an increase in gains on sales of condominiums by DAIKYO.
goods.
Costs of goods and real estate sold increased 86%24% to ¥748,259¥928,794 million compared to fiscal 20152016 due to an increase in expenses in connection with acquired subsidiaries and DAIKYO as described above.costs of goods. We recorded ¥5,241¥168 million and ¥168¥916 million of write-downs for fiscal 20152016 and 2016,2017, respectively. Costs of goods and real estate sold include the upfront costs associated with advertising and creating model rooms.
New real estate added increased 10% to ¥93,905 million in fiscal 2017 compared to fiscal 2016.
Inventories as of March 31, 20162017 decreased 15%16% to ¥139,950¥117,863 million compared to as of March 31, 2015.
2016.
For further information, see Note 24 of “Item 18. Financial Statements.”
Services, Property under Facility Operations
As of and for the year ended March 31, | Change | |||||||||||||||
2015 | 2016 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Services, Property under Facility Operations | ||||||||||||||||
Services income | ¥ | 765,548 | ¥ | 735,186 | ¥ | (30,362 | ) | (4 | ) | |||||||
Services expense | 425,676 | 445,387 | 19,711 | 5 | ||||||||||||
New assets added | 148,071 | 164,500 | 16,429 | 11 | ||||||||||||
Japan | 147,348 | 163,932 | 16,584 | 11 | ||||||||||||
Overseas | 723 | 568 | (155 | ) | (21 | ) | ||||||||||
Property under Facility Operations | 278,100 | 327,016 | 48,916 | 18 |
Services, Property under Facility Operations Services income Services expense New assets added Japan Overseas Property under Facility Operations As of and for the year ended
March 31, Change 2016 2017 Amount Percent (%) (Millions of yen, except percentage data) ¥ 735,186 ¥ 737,903 ¥ 2,717 0 445,387 451,277 5,890 1 79,413 68,571 (10,842 ) (14 ) 78,845 61,275 (17,570 ) (22 ) 568 7,296 6,728 — 327,016 398,936 71,920 22
Services income decreased 4% to ¥735,186remained flat at ¥737,903 million in fiscal 2016 as2017 compared to fiscal 20152016 primarily due to sales of subsidiaries, in spite of solid contributions of the environment and energy-related business.
energy business, in spite of sales of subsidiaries.
Services expense increased 5%1% to ¥445,387¥451,277 million in fiscal 2016 as2017 compared to fiscal 20152016 mainly resulting from the recognition of expenses from the environment and energy-relatedenergy business.
New assets added for other operating transactions include property under facility operations and real estate for sale, such as residential condominiums. New assets added for other operating transactions were up 11%decreased 14% to ¥164,500¥68,571 million in fiscal 2016 as2017 compared to fiscal 2015 due to purchases of2016 despite investment in electric power facilities and completion of property under facility operations.
Property under facility operations as of March 31, 20162017 increased 18%22% to ¥327,016¥398,936 million compared to as of March 31, 20152016 due to purchases ofinvestment in electric power facilities and the newly acquired subsidiaries.
For further information, see Note 25 of “Item 18. Financial Statements.”
Expenses
Interest expense
Interest expense remained relatively flat in fiscal 20162017 at ¥72,821¥72,910 million as compared to ¥72,647¥72,821 million in fiscal 2015.2016. Our total outstanding short-term debt, long-term debt and deposits as of March 31, 2016 at ¥5,689,0022017 increased 1 % to ¥5,753,059 million remained relatively flat compared to ¥5,705,110¥5,685,014 million as of March 31, 2015.
2016.
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, decreased to 0.5 % in fiscal 2017, from 0.6 % in fiscal 2016, from 0.8% in fiscal 2015.2016. 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, decreasedincreased to 2.8% in fiscal 2017, from 2.7% in fiscal 2016, from 2.9% in fiscal 2015.2016. 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, net
Other (income) and expense, net included a net expense of ¥23,674 million during fiscal 2015 and a net income of ¥3,729 million during fiscal 2016.2016 and a net income of ¥4,396 million during fiscal 2017. Foreign currency transaction losses (gains) included in other (income) and expense, net included losses of ¥1,850 million in fiscal 2017 compared to gains of ¥27 million in fiscal 2016 as compared to losses of ¥6,129 million in fiscal 2015.2016. We recognized impairment losses on goodwill and other intangible assets included in other (income) and expense, net in the amount of ¥325¥3,196 million in fiscal 20162017 compared to ¥9,845¥325 million of impairment losses on goodwill and other intangible assets during fiscal 2015.2016. For further information on our goodwill and other intangible assets, see Note 13 of “Item 18. Financial Statements.”
Selling, general and administrative expenses
Year ended March 31, | Change | |||||||||||||||
2015 | 2016 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Selling, general and administrative expenses: | ||||||||||||||||
Personnel expenses | ¥ | 265,159 | ¥ | 246,909 | ¥ | (18,250 | ) | (7 | ) | |||||||
Selling expenses | 62,997 | 70,379 | 7,382 | 12 | ||||||||||||
Administrative expenses | 94,949 | 100,294 | 5,345 | 6 | ||||||||||||
Depreciation of office facilities | 4,711 | 5,110 | 399 | 8 | ||||||||||||
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Total | ¥ | 427,816 | ¥ | 422,692 | ¥ | (5,124 | ) | (1 | ) | |||||||
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Selling, general and administrative expenses: Personnel expenses Selling expenses Administrative expenses Depreciation of office facilities Total Year ended March 31, Change 2016 2017 Amount Percent (%) (Millions of yen, except percentage data) ¥ 246,909 ¥ 236,818 ¥ (10,091 ) (4 ) 70,379 76,729 6,350 9 100,294 99,819 (475 ) (0 ) 5,110 5,380 270 5 ¥ 422,692 ¥ 418,746 ¥ (3,946 ) (1 )
Employee salaries and other personnel expenses accounted for 58%57% of selling, general and administrative expenses in fiscal 2016,2017, 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 20162017 decreased 1% year on year mainly due to the deconsolidation of Houlihan Lokey, despite an increase in the number of consolidated subsidiaries.
Write-downs of long-lived assets
As a result of impairment reviews we performed in fiscal 20162017 for long-lived assets in Japan and overseas, such as golf courses, office buildings, commercial facilities other than office buildings, condominiums, and land undeveloped or under construction, write-downs of long-lived assets decreased 61%32% to ¥13,448¥9,134 million in fiscal 20162017 compared to fiscal 2015.2016. These write-downs, which are reflected as write-downs of long-lived assets, consistconsisted of impairment losses of ¥8,038¥1,307 million on elevensix office buildings, ¥2,061¥3,398 million on fiveeight commercial facilities other than office buildings, ¥780¥386 million on one condominium, ¥22two condominiums, ¥786 million on one parcelfive parcels of lands undeveloped or under construction, and ¥2,547¥3,257 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 20162017 include write-downs of ¥2,338¥1,156 million of two aircraft. For further information, see Note 26 of “Item 18. Financial Statements.”
Write-downs of securities
Write-downs of securities in fiscal 20162017 were mainly for marketable equity securities. In fiscal 2016,2017, write-downs of securities decreased 50%increased 46% to ¥6,608 million in fiscal 2017 compared to ¥4,515 million in fiscal 2016 compared to ¥8,997 million in fiscal 2015.2016. For further information, see Note 9 of “Item 18. Financial Statements.”
Equity in net income of affiliates
Equity in net income of affiliates increaseddecreased in fiscal 2017 to ¥26,520 million compared to ¥45,694 million in fiscal 2016 to ¥45,694 million compared to ¥30,531 million in fiscal 2015 primarily due to less contributions from investment in affiliates in the Americas.Americas compared to fiscal 2016. For further information, see Note 12 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 ¥63,419 million in fiscal 2017 compared to ¥57,867 million in fiscal 2016, as compared to ¥20,575 million in fiscal 2015 due to the recognition of a gain on the partial divestment of shares of Houlihan Lokey, in connection with its initial public offeringfavorable profit from sales in the United StatesAmericas in fiscal 2016 and its becoming an equity method affiliate2017 and the favorable profit from sales in Japan in fiscal 2017. For further information, see Note 3 of “Item 18. Financial Statements.”
Bargain Purchase Gain
We recognized a bargain purchase gain of ¥5,802 million associated with one of the acquisitions in fiscal 2017 compared to no bargain purchase gain in fiscal 2016. For further information, see Note 3 of “Item 18. Financial Statements.”
Bargain Purchase Gain
We recognized no bargain purchase gain in fiscal 2016 compared to ¥36,082 million in fiscal 2015 due to the acquisition of HLIKK. For further information, see Note 3 of “Item 18. Financial Statements.”
Provision for income taxes
Provision for income taxes in fiscal 2016 was ¥120,312 million, comparedincreased to ¥89,057¥144,039 million in fiscal 2015. The increase of ¥31,2552017 compared to ¥120,312 million wasin fiscal 2016 primarily due to higher income before income taxes and discontinued operations. For discussion of income taxes, and the details of the new Japanese tax law, see Note 16 of “Item 18. Financial Statements.”
Discontinued operations
In fiscal 2016, there was no income or loss from discontinued operations. For further information, see Note 27 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 20162017 was ¥10,002¥7,255 million, compared to ¥15,339¥10,002 million in fiscal 2015.2016.
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 20162017 was ¥819¥432 million, compared to ¥4,970¥819 million in fiscal 2015.2016. For further information, see Note 18 of “Item 18. Financial Statements.”
YEAR ENDED MARCH 31, 2015 COMPARED TO YEAR ENDED MARCH 31, 2014
Performance Summary
Financial Results
Year ended March 31, | Change | |||||||||||||||||
2014 | 2015 | Amount | Percent (%) | |||||||||||||||
(Millions of yen, except ratios, per share data and percentages) | ||||||||||||||||||
Total revenues | ¥ | 1,375,292 | ¥ | 2,174,283 | ¥ | 798,991 | 58 | |||||||||||
Total expenses | 1,172,244 | 1,917,454 | 745,210 | 64 | ||||||||||||||
Income before Income Taxes and Discontinued Operations | 286,339 | 344,017 | 57,678 | 20 | ||||||||||||||
Net Income Attributable to ORIX Corporation Shareholders | 187,364 | 234,948 | 47,584 | 25 | ||||||||||||||
Earnings per share | (Basic) | 147.75 | 179.47 | 31.72 | 21 | |||||||||||||
(Diluted) | 143.20 | 179.21 | 36.01 | 25 | ||||||||||||||
ROE*1 | 10.5 | 11.5 | 1.0 | — | ||||||||||||||
ROA*2 | 2.14 | 2.29 | 0.15 | — |
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Total revenues for fiscal 2015 increased 58% to ¥2,174,283 million compared to ¥1,375,292 million during fiscal 2014. Life insurance premiums and related investment income increased as a result of the recognition of investment income from underlying investments related to variable annuity and variable life insurance contracts in connection with the consolidation of HLIKK, which we acquired on July 1, 2014. In addition, services income increased due to contributions from DAIKYO, which became a consolidated subsidiary on February 27, 2014, from Robeco, which was acquired on July 1, 2013, and from other newly consolidated subsidiaries acquired, as well as expansion of our environment and energy-related business. Sales of goods and real estate increased primarily due to contributions from newly acquired and consolidated subsidiaries and DAIKYO.
Total expenses for fiscal 2015 increased 64% to ¥1,917,454 million compared to ¥1,172,244 million during fiscal 2014. In line with the abovementioned revenue increases, life insurance costs, services expense, and costs of goods and real estate sold also increased. Selling, general and administrative expenses also increased due in part to an increase in the number of consolidated subsidiaries and strong performance of fee business in the Americas.
Meanwhile, HLIKK consolidation resulted in a bargain purchase gain in fiscal 2015 in an amount representing the excess of fair value of the net assets acquired over the fair value of the consideration transferred.
As a result of the foregoing, income before income taxes and discontinued operations for fiscal 2015 increased 20% to ¥344,017 million compared to ¥286,339 million during fiscal 2014, and net income attributable to ORIX Corporation shareholders during fiscal 2015 increased 25% to ¥234,948 million compared to ¥187,364 million during fiscal 2014.
Starting from fiscal 2015 we made changes to line items presented in the consolidated balance sheets, the consolidated statements of income, and the consolidated statements of cash flows. These changes aim to reflect fairly the changing revenues structure of ORIX Group, namely the increasing proportion of revenues from non-finance businesses, which has resulted from continued diversification of our business activities and also an increase in the number of subsidiaries acquired and consolidated in recent years. For instance, in the consolidated statements of income, revenues from transactions previously classified under “other operating revenues” and “revenues from asset management and servicing” have been reclassified into “services income,” a new line item that reflects actual business transactions more accurately. In the consolidated balance sheets, while there are no major changes, “other operating assets” has been changed to “property under facility operations.” The consolidated financial statements in fiscal 2014 have been adjusted retrospectively to reflect these changes. For details of the changes made to the consolidated financial statements, refer to Note 1 of “Item 18. Financial Statements.”
Since its acquisition on February 27, 2014, the Company had been consolidating DAIKYO on a lag basis. In order to reflect DAIKYO’s financial position and results of operations and cash flows in the Company’s consolidated financial statements in a concurrent manner, the Company eliminated the lag period and has aligned DAIKYO’s fiscal year end with the Company’s fiscal year end of March 31 during fiscal 2015. Because the elimination of a lag period represents a change in accounting principle, the Company retrospectively adjusted the consolidated financial statements of fiscal 2014.
Balance Sheet data
As of March 31, | Change | |||||||||||||||
2014 | 2015 | Amount | Percent (%) | |||||||||||||
(Millions of yen except ratios, per share and percentages) | ||||||||||||||||
Total Assets*1*2 | ¥ | 9,066,961 | ¥ | 11,443,628 | ¥ | 2,376,667 | 26 | |||||||||
(Segment assets) | 7,267,798 | 9,170,249 | 1,902,451 | 26 | ||||||||||||
Total Liabilities*1*2 | 6,917,419 | 9,058,656 | 2,141,237 | 31 | ||||||||||||
(Long- and Short-term debt) | 4,160,999 | 4,417,730 | 256,731 | 6 | ||||||||||||
(Deposits) | 1,206,413 | 1,287,380 | 80,967 | 7 | ||||||||||||
ORIX Corporation Shareholders’ Equity | 1,919,346 | 2,152,198 | 232,852 | 12 | ||||||||||||
ORIX Corporation Shareholders’ Equity per share | 1,465.77 | 1,644.60 | 178.83 | 12 | ||||||||||||
ORIX Corporation Shareholders’ Equity ratio*3 | 21.2 | % | 18.8 | % | (2.4 | )% | — | |||||||||
Adjusted ORIX Corporation Shareholders’ Equity ratio*4 | 21.8 | % | 19.3 | % | (2.5 | )% | — | |||||||||
D/E ratio (Debt-to-equity ratio) (Long- and Short-term debt (excluding deposits) / ORIX Corporation Shareholders’ Equity) | 2.2 | x | 2.1 | x | (0.1 | )x | — | |||||||||
Adjusted D/E ratio*4 | 2.0 | x | 1.9 | x | (0.1 | )x | — |
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Total assets as of March 31, 2015 increased 26% to ¥11,443,628 million compared to ¥9,066,961 million on March 31, 2014. Investment in securities and other assets increased primarily in conjunction with the acquisition of HLIKK. In addition, installment loans increased primarily in the Americas. Meanwhile, investment in operating leases decreased due to sales of rental properties and aircraft. Segment assets increased 26% compared to March 31, 2014, to ¥9,170,249 million.
We manage the balance of interest-bearing liabilities at an appropriate level taking into account the condition of assets and liquidity on-hand as well as the domestic and overseas financial environments. As a result, short-term debt decreased, and long-term debt and deposits increased compared to fiscal 2014. In addition, policy liabilities and policy account balances for variable annuity and variable life insurance contracts increased in connection with the consolidation of HLIKK.
ORIX Corporation Shareholders’ Equity as of March 31, 2015 increased 12% to ¥2,152,198 million compared to March 31, 2014, primarily due to an increase in retained earnings.
Details of Operating Results
The following is a discussion of items in the consolidated statements of income, operating assets in the consolidated balance sheets and other selected financial information. See “Item 4. Information on the Company—Profile of Business by Segment.”
Segment Information
Our business is organized into six segments that are based on major products, nature of services, customer base, and management organizations to facilitate strategy formulation, resource allocation and portfolio rebalancing at the segment level. Our six business segments are: Corporate Financial Services, Maintenance Leasing, Real Estate, Investment and Operation, Retail and Overseas Business.
Financial information about our operating segments reported below is separately available to, and evaluated regularly by, management in deciding how to allocate resources and in assessing performance. We evaluate the performance of these segments based on income before income taxes and discontinued operations, adjusted for results of discontinued operations, net income attributable to the noncontrolling interests and net income attributable to the redeemable noncontrolling interests before applicable tax effect. Tax expenses are not included in segment profits.
Historically, when presenting operating results of segments, revenues from inter-segment transactions have not been included in the revenues of each segment. However, due to the increasing number of inter-segment transactions, we decided to include revenues from inter-segment transactions into the revenues of each segment starting from fiscal 2015. As a result of this change, segment revenues for fiscal 2014 have been adjusted accordingly. Nevertheless, the impact of this change on segment revenues was insignificant in amount for all periods presented.
In addition, during fiscal 2015, the closing date of the accounting period of DAIKYO, which is included in Investment and Operation segment has been changed in order to eliminate a lag period that previously existed between DAIKYO and ORIX. Based on this change, the financial statements for fiscal 2014 have been adjusted retrospectively.
For a description of the business activities of our segments, see “Item 4. Information on the Company— Business Segments.” See Note 32 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 | |||||||||||||||
2014 | 2015 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Segment Revenues: | ||||||||||||||||
Corporate Financial Services | ¥ | 78,825 | ¥ | 85,502 | ¥ | 6,677 | 8 | |||||||||
Maintenance Leasing | 251,328 | 263,499 | 12,171 | 5 | ||||||||||||
Real Estate | 203,382 | 182,321 | (21,061 | ) | (10 | ) | ||||||||||
Investment and Operation | 236,879 | 666,120 | 429,241 | 181 | ||||||||||||
Retail | 211,612 | 425,977 | 214,365 | 101 | ||||||||||||
Overseas Business | 412,157 | 561,893 | 149,736 | 36 | ||||||||||||
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Segment Total | 1,394,183 | 2,185,312 | 791,129 | 57 | ||||||||||||
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Difference between Segment Total and Consolidated Amounts | (18,891 | ) | (11,029 | ) | 7,862 | — | ||||||||||
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Consolidated Amounts | ¥ | 1,375,292 | ¥ | 2,174,283 | ¥ | 798,991 | 58 | |||||||||
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Year ended March 31, | Change | |||||||||||||||
2014 | 2015 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Segment Profits: | ||||||||||||||||
Corporate Financial Services | ¥ | 24,874 | ¥ | 25,519 | ¥ | 645 | 3 | |||||||||
Maintenance Leasing | 37,062 | 40,366 | 3,304 | 9 | ||||||||||||
Real Estate | 17,956 | 3,484 | (14,472 | ) | (81 | ) | ||||||||||
Investment and Operation | 95,786 | 42,414 | (53,372 | ) | (56 | ) | ||||||||||
Retail | 49,871 | 120,616 | 70,745 | 142 | ||||||||||||
Overseas Business | 69,688 | 104,143 | 34,455 | 49 | ||||||||||||
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Segment Total | 295,237 | 336,542 | 41,305 | 14 | ||||||||||||
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Difference between Segment Total and Consolidated Amounts | (8,898 | ) | 7,475 | 16,373 | — | |||||||||||
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Consolidated Amounts | ¥ | 286,339 | ¥ | 344,017 | ¥ | 57,678 | 20 | |||||||||
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Segment Assets: Corporate Financial Services Maintenance Leasing Real Estate Investment and Operation Retail Overseas Business Segment Total Difference between Segment Total and Consolidated Amounts Consolidated Amounts As of March 31, Change 2014 2015 Amount Percent (%) (Millions of yen, except percentage data) ¥ 992,078 ¥ 1,132,468 ¥ 140,390 14 622,009 662,851 40,842 7 962,404 835,386 (127,018 ) (13 ) 552,183 660,014 107,831 20 2,166,986 3,700,635 1,533,649 71 1,972,138 2,178,895 206,757 10 7,267,798 9,170,249 1,902,451 26 1,799,163 2,273,379 474,216 26 ¥ 9,066,961 ¥ 11,443,628 ¥ 2,376,667 26
Corporate Financial Services Segment
This segment is involved in lending, leasing and fee business.
In Japan, despite the negative impact on consumer spending and housing investment from the consumption tax hike that went into effect in April 2014, capital expenditures are expected to increase due to continued improvement in corporate revenues. We are also seeing an increase in lending by financial institutions to SMEs in addition to large corporations, while the competition in the lending business continues to intensify.
Segment revenues increased 8% to ¥85,502 million compared to ¥78,825 million during fiscal 2014 due to an increase in sales of goods and services income resulting primarily from revenue contribution from Yayoi, which we acquired on December 22, 2014, and robust fee business including solar panel and life insurance sales to domestic SMEs, offsetting a decrease in finance revenues in line with the decreased average installment loan balances.
Segment expenses increased compared to fiscal 2014, but overall, segment profits increased 3% to ¥25,519 million during fiscal 2015 compared to ¥24,874 million during fiscal 2014.
Segment assets increased 14% to ¥1,132,468 million as of March 31, 2015 compared to March 31, 2014 due primarily to the inclusion of goodwill and other intangible assets recorded following the consolidation of Yayoi, offsetting a decrease in installment loans.
Year ended March 31, | Change | |||||||||||||||
2014 | 2015 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Finance revenues | ¥ | 37,235 | ¥ | 35,624 | ¥ | (1,611 | ) | (4 | ) | |||||||
Operating leases | 25,627 | 24,473 | (1,154 | ) | (5 | ) | ||||||||||
Services income | 14,858 | 21,997 | 7,139 | 48 | ||||||||||||
Sales of goods and real estate, and other | 1,105 | 3,408 | 2,303 | 208 | ||||||||||||
|
|
|
|
|
| |||||||||||
Total Segment Revenues | 78,825 | 85,502 | 6,677 | 8 | ||||||||||||
|
|
|
|
|
| |||||||||||
Interest expense | 8,594 | 8,627 | 33 | 0 | ||||||||||||
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities | (822 | ) | 1,252 | 2,074 | — | |||||||||||
Other than the above | 46,814 | 50,691 | 3,877 | 8 | ||||||||||||
|
|
|
|
|
| |||||||||||
Total Segment Expenses | 54,586 | 60,570 | 5,984 | 11 | ||||||||||||
|
|
|
|
|
| |||||||||||
Segment Operating Income | 24,239 | 24,932 | 693 | 3 | ||||||||||||
|
|
|
|
|
| |||||||||||
Equity in Net income (Loss) of Affiliates, and others | 635 | 587 | (48 | ) | (8 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Segment Profits | ¥ | 24,874 | ¥ | 25,519 | ¥ | 645 | 3 | |||||||||
|
|
|
|
|
| |||||||||||
As of March 31, | Change | |||||||||||||||
2014 | 2015 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Investment in direct financing leases | ¥ | 450,295 | ¥ | 461,704 | ¥ | 11,409 | 3 | |||||||||
Installment loans | 470,684 | 461,277 | (9,407 | ) | (2 | ) | ||||||||||
Investment in operating leases | 26,184 | 30,329 | 4,145 | 16 | ||||||||||||
Investment in securities | 21,337 | 45,415 | 24,078 | 113 | ||||||||||||
Property under facility operations | 2,524 | 5,930 | 3,406 | 135 | ||||||||||||
Inventories | 667 | 55 | (612 | ) | (92 | ) | ||||||||||
Advances for investment in operating leases | 41 | 202 | 161 | 393 | ||||||||||||
Investment in affiliates | 18,909 | 20,875 | 1,966 | 10 | ||||||||||||
Advances for property under facility operations | 40 | 772 | 732 | — | ||||||||||||
Goodwill and other intangible assets acquired in business combinations | 1,397 | 105,909 | 104,512 | — | ||||||||||||
|
|
|
|
|
| |||||||||||
Total Segment Assets | ¥ | 992,078 | ¥ | 1,132,468 | ¥ | 140,390 | 14 | |||||||||
|
|
|
|
|
|
Maintenance Leasing Segment
This segment consists of automobile leasing and rentals, and car sharing and test and measurement instruments and IT-related equipment rentals and leasing.
The Japanese automobile leasing industry has been experiencing steady recovery in the number of new auto leases in line with Japan’s gradual economic recovery, despite the temporary negative impact of the consumption tax hike that went into effect in April 2014.
Segment revenues increased 5% to ¥263,499 million during fiscal 2015 from ¥251,328 million during fiscal 2014 due primarily to an increase in operating leases revenues and finance revenues resulting from the steady expansion of assets in the automobile-related business, and an increase in services income derived from value-added services.
Meanwhile segment expenses increased due primarily to an increase in the costs of operating leases which was in line with revenues growth. As a result of the foregoing, segment profits increased 9% to ¥40,366 million during fiscal 2015 compared to ¥37,062 million during fiscal 2014.
Segment assets increased 7% to ¥662,851 million as of March 31, 2015 compared to March 31, 2014 due primarily to steady increases in investment in operating leases and investment in direct financing leases.
Year ended March 31, | Change | |||||||||||||||
2014 | 2015 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Finance revenues | ¥ | 9,472 | ¥ | 11,103 | ¥ | 1,631 | 17 | |||||||||
Operating leases | 177,103 | 185,699 | 8,596 | 5 | ||||||||||||
Services income | 60,275 | 62,535 | 2,260 | 4 | ||||||||||||
Sales of goods and real estate, and other | 4,478 | �� | 4,162 | (316 | ) | (7 | ) | |||||||||
|
|
|
|
|
| |||||||||||
Total Segment Revenues | 251,328 | 263,499 | 12,171 | 5 | ||||||||||||
|
|
|
|
|
| |||||||||||
Interest expense | 3,687 | 3,690 | 3 | 0 | ||||||||||||
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities | 1,654 | 374 | (1,280 | ) | (77 | ) | ||||||||||
Other than the above | 208,982 | 218,982 | 10,000 | 5 | ||||||||||||
|
|
|
|
|
| |||||||||||
Total Segment Expenses | 214,323 | 223,046 | 8,723 | 4 | ||||||||||||
|
|
|
|
|
| |||||||||||
Segment Operating Income | 37,005 | 40,453 | 3,448 | 9 | ||||||||||||
|
|
|
|
|
| |||||||||||
Equity in Net income (Loss) of Affiliates, and others | 57 | (87 | ) | (144 | ) | — | ||||||||||
|
|
|
|
|
| |||||||||||
Segment Profits | ¥ | 37,062 | ¥ | 40,366 | ¥ | 3,304 | 9 | |||||||||
|
|
|
|
|
| |||||||||||
As of March 31, | Change | |||||||||||||||
2014 | 2015 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Investment in direct financing leases | ¥ | 149,965 | ¥ | 184,907 | ¥ | 34,942 | 23 | |||||||||
Investment in operating leases | 467,983 | 473,035 | 5,052 | 1 | ||||||||||||
Investment in securities | 892 | 1,130 | 238 | 27 | ||||||||||||
Property under facility operations | 443 | 576 | 133 | 30 | ||||||||||||
Inventories | 340 | 463 | 123 | 36 | ||||||||||||
Advances for investment in operating leases | 383 | 241 | (142 | ) | (37 | ) | ||||||||||
Investment in affiliates | 1,718 | 2,074 | 356 | 21 | ||||||||||||
Goodwill and other intangible assets acquired in business combinations | 285 | 425 | 140 | 49 | ||||||||||||
|
|
|
|
|
| |||||||||||
Total Segment Assets | ¥ | 622,009 | ¥ | 662,851 | ¥ | 40,842 | 7 | |||||||||
|
|
|
|
|
|
Real Estate Segment
This segment consists of real estate development, rental and financing, facility operation, REIT asset management, and real estate investment advisory services.
Office rents and vacancy rates in the Japanese office building market are continuing to show signs of improvement. J-REIT and foreign investors are becoming more active in property acquisitions, and we are also seeing increased sales of large-scale real estate and rising sales prices due to increased competition among buyers. Furthermore, with increasing number of tourists from abroad, we are seeing improvement in the occupancy rate and average daily rate of hotels and Japanese inns. In the condominium market, we are seeing signs of weakening sales of new condominium units following the consumption tax hike that went into effect in April 2014.
Segment revenues decreased 10% to ¥182,321 million in fiscal 2015 compared to ¥203,382 million in fiscal 2014 due primarily to decrease in rental revenues, which are included in operating leases revenues and finance revenues. The revenue decrease is in line with the decreased asset balance and decrease in sales of real estate due to fewer condominiums sold. On the other hand, gains on sales of real estate under operating leases, which are included in operating leases revenues, and services income both increased. The increase in services income was due primarily to solid performance by the facility operation business and increased fees from asset management.
Segment expenses remained at almost the same level compared to fiscal 2014 with a decrease in the cost of real estate sold offset by an increase in write-downs of long-lived assets.
As a result of the foregoing, segment profits decreased 81% to ¥3,484 million during fiscal 2015 compared to ¥17,956 million during fiscal 2014.
Segment assets decreased 13% to ¥835,386 million as of March 31, 2015 compared to March 31, 2014 due primarily to a decrease in investment in operating leases which resulted from sales of rental properties.
Year ended March 31, | Change | |||||||||||||||
2014 | 2015 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Finance revenues | ¥ | 6,132 | ¥ | 4,057 | ¥ | (2,075 | ) | (34 | ) | |||||||
Operating leases | 66,624 | 63,765 | (2,859 | ) | (4 | ) | ||||||||||
Services income | 101,836 | 104,115 | 2,279 | 2 | ||||||||||||
Sales of goods and real estate, and other | 28,790 | 10,384 | (18,406 | ) | (64 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Total Segment Revenues | 203,382 | 182,321 | (21,061 | ) | (10 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Interest expense | 9,018 | 6,968 | (2,050 | ) | (23 | ) | ||||||||||
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities | 21,819 | 29,714 | 7,895 | 36 | ||||||||||||
Other than the above | 159,483 | 151,385 | (8,098 | ) | (5 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Total Segment Expenses | 190,320 | 188,067 | (2,253 | ) | (1 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Segment Operating Income | 13,062 | (5,746 | ) | (18,808 | ) | — | ||||||||||
|
|
|
|
|
| |||||||||||
Equity in Net income (Loss) of Affiliates, and others | 4,894 | 9,230 | 4,336 | 89 | ||||||||||||
|
|
|
|
|
| |||||||||||
Segment Profits | ¥ | 17,956 | ¥ | 3,484 | ¥ | (14,472 | ) | (81 | ) | |||||||
|
|
|
|
|
| |||||||||||
As of March 31, | Change | |||||||||||||||
2014 | 2015 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Investment in direct financing leases | ¥ | 17,541 | ¥ | 22,277 | ¥ | 4,736 | 27 | |||||||||
Installment loans | 42,757 | 22,811 | (19,946 | ) | (47 | ) | ||||||||||
Investment in operating leases | 527,065 | 423,825 | (103,240 | ) | (20 | ) | ||||||||||
Investment in securities | 25,074 | 21,718 | (3,356 | ) | (13 | ) | ||||||||||
Property under facility operations | 166,646 | 172,207 | 5,561 | 3 | ||||||||||||
Inventories | 19,418 | 12,484 | (6,934 | ) | (36 | ) | ||||||||||
Advances for investment in operating leases | 61,575 | 44,666 | (16,909 | ) | (27 | ) | ||||||||||
Investment in affiliates | 62,504 | 91,275 | 28,771 | 46 | ||||||||||||
Advances for property under facility operations | 18,732 | 12,055 | (6,677 | )�� | (36 | ) | ||||||||||
Goodwill and other intangible assets acquired in business combinations | 21,092 | 12,068 | (9,024 | ) | (43 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Total Segment Assets | ¥ | 962,404 | ¥ | 835,386 | ¥ | (127,018 | ) | (13 | ) | |||||||
|
|
|
|
|
|
Investment and Operation Segment
This segment consists of environment and energy-related business, principal investment, and loan servicing (asset recovery).
In the Japanese environment and energy-related business, even though the government is reassessing the feed-in tariff program for renewable energy, the significance of renewable energy in the mid-long term is on the rise, with investment targets expanding beyond solar power generation projects to include wind and geothermal power generation projects. In the capital markets, the fiscal year ended March 31, 2015 marked the fifth consecutive year of increase in the number of initial public offerings. This favorable capital markets environment has continued into fiscal 2015.
Segment revenues increased 181% to ¥666,120 million during fiscal 2015 compared to ¥236,879 million during fiscal 2014 due to increases in services income and sales of goods and real estate contributed by newly acquired subsidiaries, environment and energy-related business, and consolidation of DAIKYO.
Segment expenses also increased compared to fiscal 2014 due to increase in expenses in connection with newly acquired subsidiaries, DAIKYO, and the environment and energy-related business.
Meanwhile, because we recognized a valuation gain in connection with DAIKYO becoming a consolidated subsidiary from an equity method affiliate during fiscal 2014, segment profits decreased 56% to ¥42,414 million during fiscal 2015 from ¥95,786 million during fiscal 2014.
Segment assets increased 20% to ¥660,014 million as of March 31, 2015 compared to March 31, 2014 due primarily to an increase in property under facility operations contributed by the newly acquired subsidiaries and environment and energy-related business, and an increase in inventories of DAIKYO, which offset a decrease in installment loans in the loan servicing business.
Year ended March 31, | Change | |||||||||||||||
2014 | 2015 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Finance revenues | ¥ | 18,350 | ¥ | 15,650 | ¥ | (2,700 | ) | (15 | ) | |||||||
Gains on investment securities and dividends | 9,732 | 9,309 | (423 | ) | (4 | ) | ||||||||||
Sales of goods and real estate | 120,596 | 371,402 | 250,806 | 208 | ||||||||||||
Services income | 86,062 | 260,360 | 174,298 | 203 | ||||||||||||
Operating leases, and other | 2,139 | 9,399 | 7,260 | 339 | ||||||||||||
|
|
|
|
|
| |||||||||||
Total Segment Revenues | 236,879 | 666,120 | 429,241 | 181 | ||||||||||||
|
|
|
|
|
| |||||||||||
Interest expense | 4,077 | 3,609 | (468 | ) | (11 | ) | ||||||||||
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities | 4,402 | 1,297 | (3,105 | ) | (71 | ) | ||||||||||
Other than the above | 200,428 | 627,411 | 426,983 | 213 | ||||||||||||
|
|
|
|
|
| |||||||||||
Total Segment Expenses | 208,907 | 632,317 | 423,410 | 203 | ||||||||||||
|
|
|
|
|
| |||||||||||
Segment Operating Income | 27,972 | 33,803 | 5,831 | 21 | ||||||||||||
|
|
|
|
|
| |||||||||||
Equity in Net income (Loss) of Affiliates, and others | 67,814 | 8,611 | (59,203 | ) | (87 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Segment Profits | ¥ | 95,786 | ¥ | 42,414 | ¥ | (53,372 | ) | (56 | ) | |||||||
|
|
|
|
|
|
Investment in direct financing leases Installment loans Investment in operating leases Investment in securities Property under facility operations Inventories Advances for investment in operating leases Investment in affiliates Advances for property under facility operations Goodwill and other intangible assets acquired in business combinations Total Segment Assets As of March 31, Change 2014 2015 Amount Percent (%) (Millions of yen, except percentage data) ¥ 14,702 ¥ 15,092 ¥ 390 3 118,848 93,196 (25,652 ) (22 ) 16,811 23,388 6,577 39 95,072 112,896 17,824 19 53,589 90,895 37,306 70 81,661 116,549 34,888 43 378 16 (362 ) (96 ) 59,759 51,108 (8,651 ) (14 ) 4,693 30,861 26,168 558 106,670 126,013 19,343 18 ¥ 552,183 ¥ 660,014 ¥ 107,831 20
Retail Segment
This segment consists of life insurance, banking and card loan business.
Although the life insurance business is being affected by macroeconomic factors such as domestic population decline, we are seeing increasing numbers of companies developing new products in response to the rising demand for medical insurance. In the consumer finance sector, loan demand is increasing due to improved consumer confidence resulting from Japan’s economic recovery, and consumer finance providers are enhancing their marketing activities accordingly.
Segment revenues increased 101% to ¥425,977 million during fiscal 2015 compared to ¥211,612 million during fiscal 2014 due to recognition of a gain on sale of shares of Monex Group Inc. and an increase in revenues resulting from the acquisition of HLIKK on July 1, 2014. In addition, an increase in finance revenues in the banking business and an increase in revenues driven by growth in the number of policies in force in the life insurance business also contributed to higher segment revenues.
Segment expenses increased compared to fiscal 2014 due primarily to an increase in insurance related expenses in connection with the consolidation of HLIKK, in addition to an increase in selling, general, and administrative expenses.
In addition to the foregoing, with a bargain purchase gain resulting from the acquisition of HLIKK, segment profits increased 142% to ¥120,616 million compared to ¥49,871 million during fiscal 2014.
Segment assets increased 71% to ¥3,700,635 million compared to March 31, 2014 as a result of an increase in investment in securities being held by HLIKK, in addition to an increase in assets in the banking business.
HLIKK has discontinued selling insurance products since June 2009. ORIX Life Insurance plans to merge with HLIKK on July 1, 2015.
Year ended March 31, | Change | |||||||||||||||
2014 | 2015 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Finance revenues | ¥ | 50,406 | ¥ | 52,510 | ¥ | 2,104 | 4 | |||||||||
Life insurance premiums and related investment income | 155,822 | 352,537 | 196,715 | 126 | ||||||||||||
Gains on investment securities and dividends, and other | 5,384 | 20,930 | 15,546 | 289 | ||||||||||||
|
|
|
|
|
| |||||||||||
Total Segment Revenues | 211,612 | 425,977 | 214,365 | 101 | ||||||||||||
|
|
|
|
|
| |||||||||||
Interest expense | 5,593 | 5,669 | 76 | 1 | ||||||||||||
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities | 3,485 | 3,975 | 490 | 14 | ||||||||||||
Other than the above | 156,582 | 332,432 | 175,850 | 112 | ||||||||||||
|
|
|
|
|
| |||||||||||
Total Segment Expenses | 165,660 | 342,076 | 176,416 | 106 | ||||||||||||
|
|
|
|
|
| |||||||||||
Segment Operating Income | 45,952 | 83,901 | 37,949 | 83 | ||||||||||||
|
|
|
|
|
| |||||||||||
Bargain Purchase Gain, and others | 3,919 | 36,715 | 32,796 | 837 | ||||||||||||
|
|
|
|
|
| |||||||||||
Segment Profits | ¥ | 49,871 | ¥ | 120,616 | ¥ | 70,745 | 142 | |||||||||
|
|
|
|
|
| |||||||||||
As of March 31, | Change | |||||||||||||||
2014 | 2015 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Investment in direct financing leases | ¥ | 4,679 | ¥ | 2,740 | ¥ | (1,939 | ) | (41 | ) | |||||||
Installment loans | 1,276,837 | 1,376,710 | 99,873 | 8 | ||||||||||||
Investment in operating leases | 76,873 | 50,587 | (26,286 | ) | (34 | ) | ||||||||||
Investment in securities | 776,091 | 2,246,912 | 1,470,821 | 190 | ||||||||||||
Investment in affiliates | 10,971 | 3,785 | (7,186 | ) | (65 | ) | ||||||||||
Goodwill and other intangible assets acquired in business combinations | 21,535 | 19,901 | (1,634 | ) | (8 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Total Segment Assets | ¥ | 2,166,986 | ¥ | 3,700,635 | ¥ | 1,533,649 | 71 | |||||||||
|
|
|
|
|
|
Overseas Business Segment
This segment consists of leasing, lending, investment in bonds, investment banking, asset management, and ship- and aircraft-related operations.
While the world economy is now on the course of recovery, thanks to solid economic growth in the Americas and other countries, protracted low growth rate of European economies, economic deterioration of resource exporting countries due to the sharp decline of oil prices, and downward revision of China’s economic growth rate target are continuing to create uneven economic landscapes among different economies.
Segment revenues increased 36% to ¥561,893 million during fiscal 2015 compared to ¥412,157 million during fiscal 2014 due primarily to an increase in services income resulting from greater fee revenues contributed by business operations in the United States and by the asset management business of Robeco, which we acquired on July 1, 2013.
Segment expenses increased compared to fiscal 2014 due primarily to an increase in expenses from asset management business of Robeco, in addition to an increase in selling, general, and administrative expenses.
In addition to the foregoing, we recognized a gain on partial sale of shares of STX Energy Co., Ltd. (presently GS E&R Corp., hereinafter, “STX Energy”), which as a result of the sale changed from a consolidated subsidiary to an equity method affiliate. Segment profits increased 49% to ¥104,143 million compared to ¥69,688 million during fiscal 2014.
Segment assets increased 10% to ¥2,178,895 million compared to March 31, 2014 due primarily to increases in installment loans and investment in securities in the Americas offsetting a decrease in property under facility operations due to sale of partial shares of STX Energy.
Year ended March 31, | Change | |||||||||||||||
2014 | 2015 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Finance revenues | ¥ | 57,328 | ¥ | 63,259 | ¥ | 5,931 | 10 | |||||||||
Gains on investment securities and dividends | 15,813 | 30,466 | 14,653 | 93 | ||||||||||||
Operating leases | 76,591 | 82,113 | 5,522 | 7 | ||||||||||||
Services income | 228,827 | 321,527 | 92,700 | 41 | ||||||||||||
Sales of goods and real estate, and other | 33,598 | 64,528 | 30,930 | 92 | ||||||||||||
|
|
|
|
|
| |||||||||||
Total Segment Revenues | 412,157 | 561,893 | 149,736 | 36 | ||||||||||||
|
|
|
|
|
| |||||||||||
Interest expense | 28,087 | 29,989 | 1,902 | 7 | ||||||||||||
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities | 13,132 | 19,921 | 6,789 | 52 | ||||||||||||
Other than the above | 296,640 | 413,180 | 116,540 | 39 | ||||||||||||
|
|
|
|
|
| |||||||||||
Total Segment Expenses | 337,859 | 463,090 | 125,231 | 37 | ||||||||||||
|
|
|
|
|
| |||||||||||
Segment Operating Income | 74,298 | 98,803 | 24,505 | 33 | ||||||||||||
|
|
|
|
|
| |||||||||||
Equity in Net income (Loss) of Affiliates, and others | (4,610 | ) | 5,340 | 9,950 | — | |||||||||||
|
|
|
|
|
| |||||||||||
Segment Profits | ¥ | 69,688 | ¥ | 104,143 | ¥ | 34,455 | 49 | |||||||||
|
|
|
|
|
| |||||||||||
As of March 31, | Change | |||||||||||||||
2014 | 2015 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Investment in direct financing leases | ¥ | 332,635 | ¥ | 386,567 | ¥ | 53,932 | 16 | |||||||||
Installment loans | 246,845 | 344,108 | 97,263 | 39 | ||||||||||||
Investment in operating leases | 263,978 | 278,665 | 14,687 | 6 | ||||||||||||
Investment in securities | 323,288 | 404,322 | 81,034 | 25 | ||||||||||||
Property under facility operations | 89,570 | 26,867 | (62,703 | ) | (70 | ) | ||||||||||
Inventories | 3,888 | 35,925 | 32,037 | 824 | ||||||||||||
Advances for investment in operating leases | 17,541 | 4,434 | (13,107 | ) | (75 | ) | ||||||||||
Investment in affiliates | 143,454 | 209,027 | 65,573 | 46 | ||||||||||||
Advances for property under facility operations | 27,066 | 0 | (27,066 | ) | (100 | ) | ||||||||||
Goodwill and other intangible assets acquired in business combinations | 523,873 | 488,980 | (34,893 | ) | (7 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Total Segment Assets | ¥ | 1,972,138 | ¥ | 2,178,895 | ¥ | 206,757 | 10 | |||||||||
|
|
|
|
|
|
Revenues, New Business Volumes and Investments
Finance revenues
For the year ended March 31, | Change | |||||||||||||||
2014 | 2015 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Finance revenues: | ||||||||||||||||
Finance revenues | ¥ | 191,700 | ¥ | 186,883 | ¥ | (4,817 | ) | (3 | ) |
Finance revenues decreased 3% from fiscal 2014 to ¥186,883 million for fiscal 2015 primarily due to a decrease in the average balance of installment loans of VIEs in the Americas.
Direct financing leases
As of and for the year ended March 31, | Change | |||||||||||||||
2014 | 2015 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Direct financing leases: | ||||||||||||||||
New equipment acquisitions | ¥ | 560,665 | ¥ | 595,351 | ¥ | 34,686 | 6 | |||||||||
Japan | 366,177 | 376,249 | 10,072 | 3 | ||||||||||||
Overseas | 194,488 | 219,102 | 24,614 | 13 | ||||||||||||
Investment in direct financing leases | 1,094,073 | 1,216,454 | 122,381 | 11 |
The balance of direct financing leases increased in fiscal 2015 compared to fiscal 2014 primarily due to an increase in new equipment acquisitions overseas, particularly in Asia.
New equipment acquisitions related to direct financing leases increased 6% to ¥595,351 million compared to fiscal 2014. New equipment acquisitions for operations in Japan increased 3% in fiscal 2015, and new equipment acquisition for overseas operations increased 13% in fiscal 2015, as compared to fiscal 2014.
Investment in direct financing leases as of March 31, 2015 increased 11% to ¥1,216,454 million compared to March 31, 2014 due to the effect of yen depreciation and the increases in new equipment described above.
As of March 31, 2015, no single lessee represented more than 2% of our total portfolio of direct financing leases. As of March 31, 2015, 68% of our direct financing leases were to lessees in Japan, while 32% were to overseas lessees. Approximately 8% of our direct financing leases were to lessees in Malaysia and approximately 5% of our direct financing leases were to lessees in Indonesia. No other overseas country represented more than 5% of our total portfolio of direct financing leases.
As of March 31, | Change | |||||||||||||||
2014 | 2015 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Investment in direct financing leases by category: | ||||||||||||||||
Transportation equipment | ¥ | 386,913 | ¥ | 432,313 | ¥ | 45,400 | 12 | |||||||||
Industrial equipment | 199,731 | 245,032 | 45,301 | 23 | ||||||||||||
Electronics | 151,885 | 158,289 | 6,404 | 4 | ||||||||||||
Information-related and office equipment | 95,719 | 103,580 | 7,861 | 8 | ||||||||||||
Commercial services equipment | 70,781 | 67,805 | (2,976 | ) | (4 | ) | ||||||||||
Other | 189,044 | 209,435 | 20,391 | 11 | ||||||||||||
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|
|
|
|
| |||||||||||
Total | ¥ | 1,094,073 | ¥ | 1,216,454 | ¥ | 122,381 | 11 | |||||||||
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|
|
|
|
|
Installment loans
As of and for the year ended March 31, | Change | |||||||||||||||
2014 | 2015 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Installment loans: | ||||||||||||||||
New loans added | ¥ | 1,034,726 | ¥ | 1,110,054 | ¥ | 75,328 | 7 | |||||||||
Japan | 813,327 | 843,149 | 29,822 | 4 | ||||||||||||
Overseas | 221,399 | 266,905 | 45,506 | 21 | ||||||||||||
Installment loans | 2,315,555 | 2,478,054 | 162,499 | 7 |
New loans added increased 7% to ¥1,110,054 million compared to fiscal 2014. In Japan, new loans added increased 4% to ¥843,149 million in fiscal 2015 as compared to fiscal 2014 due to an increase in housing loans in Japan, and overseas, new loans added increased 21% to ¥266,905 million compared to fiscal 2014 due to increased lending activity in the Americas and Asia.
The balance of installment loans as of March 31, 2015 increased 7% to ¥2,478,054 million compared to March 31, 2014 due to the effect of yen depreciation and increased lending activity in the Americas and Asia.
The following table sets forth the balance of our installment loans to borrowers in Japan and overseas as of March 31, 2014 and 2015, further categorized by the type of borrower (i.e., consumer or corporate) for borrowers in Japan. As of March 31, 2015, ¥13,933 million, or 1%, 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, | Change | |||||||||||||||
2014 | 2015 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Installment loans: | ||||||||||||||||
Consumer borrowers in Japan | ||||||||||||||||
Housing loans | ¥ | 973,439 | ¥ | 1,048,216 | ¥ | 74,777 | 8 | |||||||||
Card loans | 228,868 | 243,225 | 14,357 | 6 | ||||||||||||
Other | 24,875 | 22,866 | (2,009 | ) | (8 | ) | ||||||||||
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|
|
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| |||||||||||
Subtotal | 1,227,182 | 1,314,307 | 87,125 | 7 | ||||||||||||
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| |||||||||||
Corporate borrowers in Japan | ||||||||||||||||
Real estate companies | 228,062 | 227,568 | (494 | ) | (0 | ) | ||||||||||
Non-recourse loans | 72,625 | 41,535 | (31,090 | ) | (43 | ) | ||||||||||
Commercial, industrial and other companies | 409,846 | 401,718 | (8,128 | ) | (2 | ) | ||||||||||
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|
|
| |||||||||||
Subtotal | 710,533 | 670,821 | (39,712 | ) | (6 | ) | ||||||||||
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| |||||||||||
Overseas | ||||||||||||||||
Non-recourse loans | 101,579 | 83,233 | (18,346 | ) | (18 | ) | ||||||||||
Commercial, industrial companies and other | 222,920 | 367,401 | 144,481 | 65 | ||||||||||||
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| |||||||||||
Subtotal | 324,499 | 450,634 | 126,135 | 39 | ||||||||||||
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| |||||||||||
Purchased loans* | 53,341 | 42,292 | (11,049 | ) | (21 | ) | ||||||||||
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|
| |||||||||||
Total | ¥ | 2,315,555 | ¥ | 2,478,054 | ¥ | 162,499 | 7 | |||||||||
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|
As of March 31, 2015, ¥271,966 million, or 11%, of all installment loans were outstanding to real estate companies in Japan and overseas. Of this amount, ¥21,107 million, or 0.9% of all installment loans, were loans individually evaluated for impairment. We recognized an allowance of ¥5,099 million on these impaired loans. As of March 31, 2015, we had installment loans outstanding in the amount of ¥106,173 million, or 4% of all installment loans, to companies in the entertainment industry. Of this amount, ¥4,472 million, or 0.2% of all installment loans, were loans individually evaluated for impairment. We recognized an allowance of ¥1,429 million on these impaired loans.
The balance of loans to consumer borrowers in Japan as of March 31, 2015 increased 7% to ¥1,314,307 million compared to the balance as of March 31, 2014. The balance of loans to corporate borrowers in Japan as of March 31, 2015 decreased 6%, to ¥670,821 million, compared to the balance as of March 31, 2014, primarily due to a decrease in the balance of non-recourse loans. The balance of loans overseas, excluding purchased loans, as of March 31, 2015 increased 39%, to ¥450,634 million, compared to the balance as of March 31, 2014, primarily due to increased lending activity in the Americas.
Asset quality
Direct financing leases
As of March 31, | ||||||||
2014 | 2015 | |||||||
(Millions of yen, except percentage data) | ||||||||
90+ days past-due direct financing leases and allowances for direct financing leases: | ||||||||
90+ days past-due direct financing leases | ¥ | 13,887 | ¥ | 15,373 | ||||
90+ days past-due direct financing leases as a percentage of the balance of investment in direct financing leases | 1.27 | % | 1.26 | % | ||||
Provision as a percentage of average balance of investment in direct financing leases* | 0.35 | % | 0.27 | % | ||||
Allowance for direct financing leases | ¥ | 15,384 | ¥ | 15,204 | ||||
Allowance for direct financing leases as a percentage of the balance of investment in direct financing leases | 1.41 | % | 1.25 | % | ||||
The ratio of charge-offs as a percentage of the average balance of investment in direct financing leases | 0.42 | % | 0.33 | % |
The balance of 90+ days past-due direct financing leases increased ¥1,486 million to ¥15,373 million compared to March 31, 2014. As a result, the ratio of 90+ days past-due direct financing leases decreased 0.01% from March 31, 2014 to 1.26%.
We believe that the ratio of allowance for doubtful receivables as a percentage of the balance of investment in direct financing leases provides a reasonable indication that our allowance for doubtful receivables was appropriate as of March 31, 2015 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, | ||||||||
2014 | 2015 | |||||||
(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 | ¥ | 6,149 | ¥ | 6,635 | ||||
90+ days past-due loans not individually evaluated for impairment as a percentage of the balance of installment loans not individually evaluated for impairment | 0.28 | % | 0.28 | % | ||||
Provision as a percentage of average balance of installment loans not individually evaluated for impairment* | 0.10 | % | 0.36 | % | ||||
Allowance for probable loan losses on installment loans exclusive of those loans individually evaluated for impairment | ¥ | 20,257 | ¥ | 22,743 | ||||
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 | 0.93 | % | 0.96 | % | ||||
The ratio of charge-offs as a percentage of the average balance of loans not individually evaluated for impairment | 0.24 | % | 0.29 | % |
The balance of 90+ days past-due loans not individually evaluated for impairment that are not individually significant and accordingly are evaluated for impairment as a homogeneous group increased 8% to ¥6,635 million as of March 31 2015 compared to March 31, 2014.
As of March 31, | ||||||||
2014 | 2015 | |||||||
(Millions of yen) | ||||||||
90+ days past-due loans not individually evaluated for impairment: | ||||||||
Consumer borrowers in Japan | ||||||||
Housing loans | ¥ | 4,148 | ¥ | 3,877 | ||||
Card loans | 720 | 824 | ||||||
Other | 1,218 | 1,913 | ||||||
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|
|
| |||||
Subtotal | 6,086 | 6,614 | ||||||
|
|
|
| |||||
Overseas | ||||||||
Housing loans | 63 | 21 | ||||||
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|
|
| |||||
Total | ¥ | 6,149 | ¥ | 6,635 | ||||
|
|
|
|
We make allowance for housing 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, | ||||||||
2014 | 2015 | |||||||
(Millions of yen) | ||||||||
Loans individually evaluated for impairment: | ||||||||
Impaired loans | ¥ | 135,824 | ¥ | 101,034 | ||||
Effect of the application of the accounting standards for the consolidation of VIEs*1 | 15,776 | 11,877 | ||||||
Impaired loans requiring an allowance | 110,775 | 82,630 | ||||||
Effect of the application of the accounting standards for the consolidation of VIEs*1 | 12,718 | 11,877 | ||||||
Allowance for loans individually evaluated for impairment*2 | 49,155 | 34,379 | ||||||
Effect of the application of the accounting standards for the consolidation of VIEs*1 | 6,827 | 6,930 |
New provision for probable loan losses was ¥7,839 million in fiscal 2014 and ¥258 million in fiscal 2015, and charge-off of impaired loans was ¥18,296 million in fiscal 2014 and ¥15,346 million in fiscal 2015. New provision for probable loan losses decreased ¥7,581 million compared to fiscal 2014 due to a decrease in the amount of non-performing loan. Charge-off of impaired loans decreased ¥2,950 million compared to fiscal 2014.
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.
As of March 31, | ||||||||
2014 | 2015 | |||||||
(Millions of yen) | ||||||||
Impaired loans: | ||||||||
Consumer borrowers in Japan | ||||||||
Housing loans | ¥ | 7,312 | ¥ | 5,354 | ||||
Card loans | 2,950 | 3,741 | ||||||
Other | 1,529 | 2,895 | ||||||
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|
|
| |||||
Subtotal | 11,791 | 11,990 | ||||||
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|
| |||||
Corporate borrowers in Japan | ||||||||
Real estate companies | 28,869 | 15,951 | ||||||
Non-recourse loans | 7,868 | 5,285 | ||||||
Commercial, industrial and other companies | 35,810 | 23,475 | ||||||
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|
|
| |||||
Subtotal | 72,547 | 44,711 | ||||||
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| |||||
Overseas | ||||||||
Non-recourse loans | 17,034 | 16,747 | ||||||
Commercial, industrial companies and other | 11,377 | 12,370 | ||||||
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|
| |||||
Subtotal | 28,411 | 29,117 | ||||||
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|
|
| |||||
Purchased loans | 23,075 | 15,216 | ||||||
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|
|
| |||||
Total | ¥ | 135,824 | ¥ | 101,034 | ||||
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|
|
Provision for doubtful receivables and probable loan losses
We recognize provision for doubtful receivables and probable loan losses for direct financing leases and installment loans.
As of and for the year ended March 31, | Change | |||||||||||||||
2014 | 2015 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Provision for doubtful receivables on direct financing leases and probable loan losses: | ||||||||||||||||
Beginning balance | ¥ | 104,264 | ¥ | 84,796 | ¥ | (19,468 | ) | (19 | ) | |||||||
Direct financing leases | 15,830 | 15,384 | (446 | ) | (3 | ) | ||||||||||
Loans not individually evaluated for impairment | 23,283 | 20,257 | (3,026 | ) | (13 | ) | ||||||||||
Loans individually evaluated for impairment | 65,151 | 49,155 | (15,996 | ) | (25 | ) | ||||||||||
Provision | 13,838 | 11,631 | (2,207 | ) | (16 | ) | ||||||||||
Direct financing leases | 3,651 | 3,145 | (506 | ) | (14 | ) | ||||||||||
Loans not individually evaluated for impairment | 2,348 | 8,228 | 5,880 | 250 | ||||||||||||
Loans individually evaluated for impairment | 7,839 | 258 | (7,581 | ) | (97 | ) | ||||||||||
Charge-offs (net) | (28,116 | ) | (25,793 | ) | 2,323 | (8 | ) | |||||||||
Direct financing leases | (4,351 | ) | (3,774 | ) | 577 | (13 | ) | |||||||||
Loans not individually evaluated for impairment | (5,469 | ) | (6,673 | ) | (1,204 | ) | 22 | |||||||||
Loans individually evaluated for impairment | (18,296 | ) | (15,346 | ) | 2,950 | (16 | ) | |||||||||
Other* | (5,190 | ) | 1,692 | 6,882 | — | |||||||||||
Direct financing leases | 254 | 449 | 195 | 77 | ||||||||||||
Loans not individually evaluated for impairment | 95 | 931 | 836 | 880 | ||||||||||||
Loans individually evaluated for impairment | (5,539 | ) | 312 | 5,851 | — | |||||||||||
Ending balance | 84,796 | 72,326 | (12,470 | ) | (15 | ) | ||||||||||
Direct financing leases | 15,384 | 15,204 | (180 | ) | (1 | ) | ||||||||||
Loans not individually evaluated for impairment | 20,257 | 22,743 | 2,486 | 12 | ||||||||||||
Loans individually evaluated for impairment | 49,155 | 34,379 | (14,776 | ) | (30 | ) |
Investment in Securities
As of and for the year ended March 31, | Change | |||||||||||||||
2014 | 2015 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Investment in securities: | ||||||||||||||||
New securities added | ¥ | 930,526 | ¥ | 1,030,426 | ¥ | 99,900 | 11 | |||||||||
Japan | 855,100 | 899,144 | 44,044 | 5 | ||||||||||||
Overseas | 75,426 | 131,282 | 55,856 | 74 | ||||||||||||
Investment in securities | 1,214,452 | 2,846,257 | 1,631,805 | 134 |
New securities added increased 11% to ¥1,030,426 million in fiscal 2015 compared to fiscal 2014. New securities added in Japan increased 5% in fiscal 2015 compared to fiscal 2014 primarily due to an increase in investments in municipal bonds and corporate debt securities. New securities added overseas increased 74% in fiscal 2015 compared to fiscal 2014 primarily due to an increase in investments in CMBS and RMBS in the Americas.
The balance of our investment in securities as of March 31, 2015 increased 134% to ¥2,846,257 million compared to March 31, 2014.
As of March 31, | Change | |||||||||||||||
2014 | 2015 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Investment in securities by security type: | ||||||||||||||||
Trading securities | ¥ | 16,079 | ¥ | 1,190,131 | ¥ | 1,174,052 | — | |||||||||
Available-for-sale securities | 881,493 | 1,356,840 | 475,347 | 54 | ||||||||||||
Held-to-maturity securities | 96,731 | 115,599 | 18,868 | 20 | ||||||||||||
Other securities | 220,149 | 183,687 | (36,462 | ) | (17 | ) | ||||||||||
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|
|
|
|
| |||||||||||
Total | ¥ | 1,214,452 | ¥ | 2,846,257 | ¥ | 1,631,805 | 134 | |||||||||
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|
|
|
|
Investments in trading securities increased to ¥1,190,131 million in March 31, 2015 compared to March 31, 2014 primarily due to the consolidation of HLIKK. Investments in available-for-sale securities increased 54% to ¥1,356,840 million in March 31, 2015 compared to March 31, 2014 primarily due to increased balances of municipal bonds and corporate debt securities. Held-to-maturity securities increased mainly as a result of our life insurance business’s investment in Japanese government bonds. Other securities decreased 17% to ¥183,687 million in March 31, 2015 compared to March 31, 2014 mainly due to sale of non-marketable equity securities.
For further information on investment in securities, see Note 9 of “Item 18. Financial Statements.”
Gains on investment securities and dividends
Year ended March 31, | Change | |||||||||||||||
2014 | 2015 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Gains on investment securities and dividends: | ||||||||||||||||
Net gains on investment securities | ¥ | 19,412 | ¥ | 50,617 | ¥ | 31,205 | 161 | |||||||||
Dividends income, other | 7,769 | 5,778 | (1,991) | (26 | ) | |||||||||||
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|
|
|
|
| |||||||||||
Total | ¥ | 27,181 | ¥ | 56,395 | ¥ | 29,214 | 107 | |||||||||
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|
|
|
|
|
Gains on investment securities and dividends increased 107% to ¥56,395 million in fiscal 2015 compared to fiscal 2014 due to an increase in net gains on investment securities. Net gains on investment securities increased 161% to ¥50,617 million in fiscal 2015 compared to fiscal 2014 primarily due to the gain on the sale of shares in Monex Group Inc., recorded in fiscal 2015. Dividend income, other decreased 26% to ¥5,778 million in fiscal 2015 compared to fiscal 2014.
As of March 31, 2015, gross unrealized gains on available-for-sale securities, including those held in connection with our life insurance operations, were ¥76,643 million, compared to ¥62,522 million as of March 31, 2014. As of March 31, 2015, gross unrealized losses on available-for-sale securities, including those held in connection with our life insurance operations, were ¥2,815 million, compared to ¥2,466 million as of March 31, 2014.
Operating leases
As of and for the year ended March 31, | Change | |||||||||||||||
2014 | 2015 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Operating leases: | ||||||||||||||||
Operating lease revenues | ¥ | 330,606 | ¥ | 363,095 | ¥ | 32,489 | 10 | |||||||||
Costs of operating leases | 216,568 | 238,157 | 21,589 | 10 | ||||||||||||
New equipment acquisitions | 326,329 | 313,996 | (12,333 | ) | (4 | ) | ||||||||||
Japan | 223,952 | 210,703 | (13,249 | ) | (6 | ) | ||||||||||
Overseas | 102,377 | 103,293 | 916 | 1 | ||||||||||||
Investment in operating leases | 1,379,741 | 1,296,220 | (83,521 | ) | (6 | ) |
Revenues from operating leases in fiscal 2015 increased 10% to ¥363,095 million compared to fiscal 2014 mainly due to an increase in revenue from automobile operations and rental operations such as measuring and information-related equipment in Japan and other Asian markets, and the contribution of revenues by the consolidation of DAIKYO. In fiscal 2014 and 2015, gains from the disposition of operating lease assets that were included in operating lease revenues, were ¥23,692 million and ¥34,425 million, respectively.
Costs of operating leases increased 10% to ¥238,157 million in fiscal 2015 compared to fiscal 2014 mainly due to an increase in depreciation expenses resulting from a year on year increase in the average balance of investment in transportation equipment operating leases and the consolidation of DAIKYO.
New equipment acquisitions related to operating leases decreased 4% to ¥313,996 million in fiscal 2015 compared to fiscal 2014 mainly due to a decrease in purchases of measuring and information-related equipment in Japan.
Investment in operating leases as of March 31, 2015 decreased 6% to ¥1,296,220 million compared to March 31, 2014 due to continuous sales of large amounts of real estate.
As of March 31, | Change | |||||||||||||||
2014 | 2015 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Investment in operating leases by category: | ||||||||||||||||
Transportation equipment | ¥ | 605,064 | ¥ | 644,840 | ¥ | 39,776 | 7 | |||||||||
Measuring and information-related equipment | 96,914 | 95,652 | (1,262 | ) | (1 | ) | ||||||||||
Real estate | 653,422 | 528,159 | (125,263 | ) | (19 | ) | ||||||||||
Other | 4,053 | 6,055 | 2,002 | 49 | ||||||||||||
Accrued rental receivables | 20,288 | 21,514 | 1,226 | 6 | ||||||||||||
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| |||||||||||
Total | ¥ | 1,379,741 | ¥ | 1,296,220 | ¥ | (83,521 | ) | (6 | ) | |||||||
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|
|
Investment in operating leases as of March 31, 2015 decreased 6% compared to March 31, 2014, mainly due to the effect of sales of large amounts of real estate, despite an increase in investment in automobile operations and the effect of yen depreciation. Investment in transportation equipment operating leases as of March 31, 2015 increased 7% compared to March 31, 2014 mainly due to an increase in new equipment acquisitions in Japan and other Asian markets. Investment in real estate operating leases as of March 31, 2015 decreased 19% compared to March 31, 2014, mainly due to continuous sales of real estate in Japan.
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 | |||||||||||||||
2014 | 2015 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Life insurance premiums and related investment income and life insurance costs: | ||||||||||||||||
Life insurance premiums | ¥ | 145,464 | ¥ | 186,547 | ¥ | 41,083 | 28 | |||||||||
Life insurance-related investment income | 9,942 | 164,946 | 155,004 | — | ||||||||||||
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|
|
|
|
| |||||||||||
Total | ¥ | 155,406 | ¥ | 351,493 | ¥ | 196,087 | 126 | |||||||||
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|
|
|
| |||||||||||
Life insurance costs | ¥ | 108,343 | ¥ | 271,948 | ¥ | 163,605 | 151 | |||||||||
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|
| |||||||||||
Year ended March 31, | Change | |||||||||||||||
2014 | 2015 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Breakdown of life insurance-related investment income: | ||||||||||||||||
Net income on investment securities | ¥ | 6,421 | ¥ | 184,681 | ¥ | 178,260 | — | |||||||||
Gains (losses) recognized in income on derivative | 0 | (28,227 | ) | (28,227 | ) | — | ||||||||||
Interest on loans, income on real estate under operating leases, and others | 3,521 | 8,492 | 4,971 | 141 | ||||||||||||
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|
|
|
|
| |||||||||||
Total | ¥ | 9,942 | ¥ | 164,946 | ¥ | 155,004 | — | |||||||||
|
|
|
|
|
|
Life insurance premiums and related investment income increased 126% to ¥351,493 million in fiscal 2015 compared to fiscal 2014.
Life insurance premiums increased 28% to ¥186,547 million in fiscal 2015 compared to fiscal 2014 due to an increase in the number of policies in force and the consolidation of HLIKK.
With respect to life insurance-related investment income, net income on investment securities increased due to the consolidation of investment assets for variable annuity and variable life insurance contracts managed by HLIKK. On the other hand, losses recognized in income on derivative were recorded due to economic hedging a portion of the minimum guarantee risk relating to these variable annuity and variable life insurance contracts. As a result, life insurance-related investment income increased to ¥164,946 million in fiscal 2015 compared to fiscal 2014.
Life insurance costs increased 151% to ¥271,948 million in fiscal 2015 compared to fiscal 2014 due to the consolidation of HLIKK along with the increase in life insurance-related investment income described above.
As of March 31, | Change | |||||||||||||||
2014 | 2015 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Investments by life insurance operations: | ||||||||||||||||
Trading securities | ¥ | 0 | ¥ | 1,165,347 | ¥ | 1,165,347 | — | |||||||||
Available-for-sale debt securities | 363,108 | 617,094 | 253,986 | 70 | ||||||||||||
Available-for-sale equity securities | 7,612 | 12,232 | 4,620 | 61 | ||||||||||||
Held-to-maturity securities | 95,304 | 115,160 | 19,856 | 21 | ||||||||||||
Other securities | 6 | 6 | 0 | 0 | ||||||||||||
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|
|
|
| |||||||||||
Total investment in securities | 466,030 | 1,909,839 | 1,443,809 | 310 | ||||||||||||
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|
|
|
| |||||||||||
Installment loans, real estate under operating leases and other investments | 116,175 | 68,139 | (48,036 | ) | (41 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Total | ¥ | 582,205 | ¥ | 1,977,978 | ¥ | 1,395,773 | 240 | |||||||||
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|
|
|
|
|
Investment in securities as of March 31, 2015 increased 310% to ¥1,909,839 million compared to as of March 31, 2014 as a result of increases in trading securities and available-for-sale debt securities due to the consolidation of HLIKK.
Installment loans, real estate under operating leases and other investments as of March 31, 2015 decreased 41% to ¥68,139 million compared to as of March 31, 2014 as a result of sales of real estate under operating leases and increased principal collected on installment loans.
Sales of goods and real estate, Inventories
Year ended March 31, | Change | |||||||||||||||
2014 | 2015 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Sales of goods and real estate, Inventories: | ||||||||||||||||
Sales of goods and real estate | ¥ | 179,884 | ¥ | 450,869 | ¥ | 270,985 | 151 | |||||||||
Costs of goods and real estate sold | 162,989 | 402,021 | 239,032 | 147 | ||||||||||||
Inventories | 106,031 | 165,540 | 59,509 | 56 |
Sales of goods and real estate increased 151% to ¥450,869 million compared to fiscal 2014 due to contributions from newly acquired subsidiaries and an increase in the number of condominium units delivered in Japan by consolidation of DAIKYO.
Costs of goods and real estate sold increased 147% to ¥402,021 million compared to fiscal 2014 due to contributions from newly acquired subsidiaries and an increase in the number of condominium units delivered as described above, despite a decrease in write-downs recorded on some projects under development. We recorded ¥5,650 million and ¥5,241 million of write-downs for fiscal 2014 and 2015, respectively. Costs of goods and real estate sold include the upfront costs associated with advertising and creating model rooms.
Inventories as of March 31, 2015 increased 56% to ¥165,540 million compared to as of March 31, 2014.
Services, Property under Facility Operations
As of and for the year ended March 31, | Change | |||||||||||||||
2014 | 2015 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Services, Property under Facility Operations | ||||||||||||||||
Services income | ¥ | 490,515 | ¥ | 765,548 | ¥ | 275,033 | 56 | |||||||||
Services expense | 260,278 | 425,676 | 165,398 | 64 | ||||||||||||
New assets added | 50,455 | 148,071 | 97,616 | 193 | ||||||||||||
Japan | 41,792 | 147,348 | 105,556 | 253 | ||||||||||||
Overseas | 8,663 | 723 | (7,940 | ) | (92 | ) | ||||||||||
Property under Facility Operations | 295,863 | 278,100 | (17,763 | ) | (6 | ) |
Services income increased 56% to ¥765,548 million compared to fiscal 2014 due to solid contributions from the newly acquired subsidiaries, the environment and energy-related business, consolidation of DAIKYO and fee revenues contributed by business operations in the Americas and by the asset management business of Robeco.
Services expense increased 64% to ¥425,676 million compared to fiscal 2014 resulting from the recognition of expenses from the newly acquired subsidiaries, the environment and energy-related business, consolidation of DAIKYO and the recognition of fee expenses from the asset management business of Robeco, along with the increase in services income.
New assets added for other operating transactions include property under facility operations and real estate for sale, such as residential condominiums. New assets added for other operating transactions were up 193% to ¥148,071 million in fiscal 2015 as compared to fiscal 2014 due to purchases of electric power facilities and our consolidation of DAIKYO.
Property under facility operations as of March 31, 2015 decreased 6% to ¥278,100 million compared to March 31, 2014 due to deconsolidation of STX Energy, which changed from a consolidated subsidiary to an equity method affiliate as a result of partial sale of shares.
Expenses
Interest expense
Interest expense decreased 12% to ¥72,647 million in fiscal 2015 compared to fiscal 2014. Our total outstanding short-term debt, long-term debt and deposits as of March 31, 2015 increased 6% to ¥5,705,110 million compared to March 31, 2014.
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, decreased to 0.8% in fiscal 2015, compared to 0.9% in fiscal 2014. 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 to 2.9% in fiscal 2015, compared to 3.4% in fiscal 2014. 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, net
Other (income) and expense, net included a net income of ¥21,001 million during fiscal 2014 and a net expense of ¥23,674 million during fiscal 2015. Foreign currency transaction losses included in other (income) and expense, net increased to ¥6,129 million in fiscal 2015 as compared to ¥747 million in fiscal 2014. We
recognized impairment losses on goodwill included in other (income) and expense, net in the amount of ¥9,845 million due to reduction in the estimated future cash flow in fiscal 2015 compared to no impairment losses on goodwill during fiscal 2014. For further information on our goodwill, see Note 13 of “Item 18. Financial Statements.”
Selling, general and administrative expenses
Year ended March 31, | Change | |||||||||||||||
2014 | 2015 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Selling, general and administrative expenses: | ||||||||||||||||
Personnel expenses | ¥ | 198,290 | ¥ | 265,159 | ¥ | 66,869 | 34 | |||||||||
Selling expenses | 44,731 | 62,997 | 18,266 | 41 | ||||||||||||
Administrative expenses | 70,306 | 94,949 | 24,643 | 35 | ||||||||||||
Depreciation of office facilities | 3,524 | 4,711 | 1,187 | 34 | ||||||||||||
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Total | ¥ | 316,851 | ¥ | 427,816 | ¥ | 110,965 | 35 | |||||||||
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Employee salaries and other personnel expenses account for 62% of selling, general and administrative expenses in fiscal 2015, 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 2015 increased 35% year on year mainly due to an increase in the number of consolidated subsidiaries and strong performance of fee business in the Americas.
Write-downs of long-lived assets
As a result of impairment reviews we performed in fiscal 2015 for long-lived assets in Japan and overseas, such as golf courses, office buildings, commercial facilities other than office buildings, condominiums, and land undeveloped or under construction, write-downs of long-lived assets increased 30% to ¥34,887 million in fiscal 2015 compared to fiscal 2014. These write-downs, which are reflected as write-downs of long-lived assets, consist of impairment losses of ¥13,977 million on nine office buildings, ¥3,832 million on three commercial facilities other than office buildings, ¥621 million on one condominium, ¥3,383 million on eight parcels of lands undeveloped or under construction, and ¥13,074 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 2015 include write-downs of ¥7,737 million of four golf courses.
For a breakdown of long-lived assets by segment, see Note 34 of “Item 18. Financial Statements.”
Write-downs of securities
Write-downs of securities in fiscal 2015 mainly resulted from non-marketable equity securities. In fiscal 2015, write-downs of securities increased 13% from ¥7,989 million in fiscal 2014 to ¥8,997 million in fiscal 2015. For information regarding the impairment of investments in securities, see “Item 5. Operating and Financial Review and Prospects—Critical Accounting Policies and Estimates” and Note 9 of “Item 18. Financial Statements.”
Equity in net income of affiliates
Equity in net income of affiliates increased in fiscal 2015 to ¥30,531 million compared to ¥18,368 million in fiscal 2014 primarily due to contributions from real estate joint ventures in Japan. For discussion of investment in affiliates, see Note 12 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 ¥20,575 million in fiscal 2015 as compared to ¥64,923 million in fiscal 2014 due to gain of ¥58,435 million in earnings recorded in fiscal 2014 from the remeasurement to fair value of the previously held equity interest as a result of our consolidation of DAIKYO. For discussion of divestitures, see Note 3 of “Item 18. Financial Statements.”
Bargain Purchase Gain
We recognized ¥36,082 million in fiscal 2015 due to the acquisition of HLIKK compared to no bargain purchase gain in fiscal 2014. For discussion of acquisitions, see Note 3 of “Item 18. Financial Statements.”
Provision for income taxes
Provision for income taxes in fiscal 2015 was ¥89,057 million, compared to ¥98,553 million in fiscal 2014. The decrease of ¥9,496 million was primarily due to effect of the new Japanese tax law. For discussion of income taxes and the details of the new Japanese tax law, see Note 16 of “Item 18. Financial Statements.”
Discontinued operations
Discontinued operations, net of applicable tax effect, was ¥297 million in fiscal 2015. For discussion of discontinued operations, see Note 27 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. In fiscal 2015, net income attributable to the noncontrolling interests was ¥15,339 million.
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. In fiscal 2015, net income attributable to the redeemable noncontrolling interests increased 21% year on year to ¥4,970 million.
LIQUIDITY AND CAPITAL RESOURCES
Funding Activities
We prioritize funding stability, maintaining adequate liquidity, and reducing capital costs. We formulate and execute on funding policies that are designed to be resilient to sudden deterioration in financial markets conditions, and then conductexecute our funding activities in accordance with such policies and the actual transitions incircumstances of our assets and changes in financial markets. In preparing our management plan, we project funding activities to maintain a balanced capital structure based on projected cash flows, asset liquidity and our liquidity on hand. In implementation, we adjust our funding plan based on changes in the external funding environment and our funding needs in light of our business activities, and endeavor to maintain flexibility in our funding activities.
InAs part of our funding activities during fiscal 2016,2018, we have tried to reinforce our funding structure by diversifying our funding resources, promoting longer maturities, staggering redemption dates and maintaining sufficient liquidity. In fiscal 2016, weWe also undertook various international funding activities, such as international bond offerings outside Japan. We also have enhanced our use of longer maturities, employed staggered interest and principal repayment dates and endeavored to reduce refinancing risk in refinancing by leveling out annual redemption
amounts both in borrowing from financial institutions and bonds. As of March 31, 2016, the2018, our total balance of cash and cash equivalents and unused committed credit facilities was ¥1,120,323¥1,653,911 million. We maintain adequate levels of liquidity and monitor liquidity risk to minimize the effect a sudden market deterioration may have on us and to enable us to sustain our operations.
Our ratio of long-term debt to total debt (excluding deposits) reached 94% as of March 31, 2015 and 92% as of March 31, 2016. On an adjusted basis, our ratio of long-term debt to total debt (excluding deposits) was 93% as of March 31, 20152017 and 91% as of March 31, 2016. This ratio is a non-GAAP financial measure presented on an adjusted basis, which excludes payables under securitized leases, loan receivables and other assets. For a discussion of this and other non-GAAP financial measures, including a quantitative reconciliation to the most directly comparable GAAP measure, see “Non-GAAP Financial Measures” under this Item 5.
2018.
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 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 a multi-currency commitment line available to ORIX and certain of its overseas 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. Under such regulations.regulations, ORIX Bank and ORIX Life Insurance are regulated by Japanese financial authorities. Under relevant regulations, each of them employsemploy prescribed measures to monitor liquidity risk at the entity level and maintainsmaintain internal policies to manage itstheir portfolios and capital resources on a standalone basis. Each of these subsidiaries met the relevant regulatory threshold relating to measures for monitoring its liquidity risk as of March 31, 2016.
2018.
ORIX Bank obtains most of the funds it needs to operate its business through deposit taking. Although ORIX Bank provides loans to several of our domestic subsidiaries 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 may not make 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.
Ratings
As of the date of this filing, Standard & Poor’s has assigned an “A-“A-” as our counterparty credit rating, Fitch has assigned a “A-“A-” as our long-term issuer rating, Moody’s has assigned a “Baa1”“A3” as our long-term issuer rating, and Rating and Investment Information, Inc. (R&I) has assigned an “A+” as our issuer rating.
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, 2016,2018, the number of our lenders exceeded 200. We have promoted regularface-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. We procured financing through a subordinated syndicated loan (hybrid loan) which has similar characteristics to capital as of March 31, 2017. As of March 31, 20152017 and 2016,2018, short-term debt from Japanese and foreign financial institutions was ¥195,164were ¥233,371 million and ¥247,263¥251,860 million, respectively, while long-term debt from financial institutions was ¥2,687,434were ¥2,724,856 million and ¥2,724,695¥2,804,357 million, respectively.
As is typical in Japan, loan agreements from Japanese banks and insurance companies contain clauses that require us to pledge assets upon request by the lenders when they consider it to be reasonably necessary to preserve their claims. In addition, in certain bank loan agreements the bank is not prohibited from offsetting deposits with any debt for which payment is due, and, under certain conditions, such as default, the bank is not prohibited from offsetting all our debt with deposits. Whether or not such provision is applied depends upon the circumstances at that time. As of the time of filing we have not received any such demand from any lender.
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, 20152017 and 2016 was ¥475,5532018 were ¥463,643 million and ¥464,677¥466,164 million, respectively. Of these figures, the unused amount as of March 31, 20152017 and 2016 was ¥419,3562018 were ¥393,968 million and ¥389,903¥332,670 million, respectively. A part of the facilities areis arranged to be drawn down in foreign currencies by ORIX and certain of our 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.
Some of these committed credit facility agreements include financial covenants, such as the maintenance of a minimum ORIX Corporation shareholders’ equity ratio. In addition, the majority of our committed credit facilities require the relevant obligor to represent and warrant that there has been, among other things, no material negative change in its financial condition since the date of the relevant agreement. As of March 31, 2016, we were in compliance with all of our financial covenants and have been able to make the necessary representations and warranties concerning our financial condition.
Debt from the Capital Markets
Our debt from capital markets is mainly composed of bonds, MTNs, CP, and securitization of leases, loans receivables and other assets.
Bonds and MTNs
We regularly issue straight bonds and MTNs domestically and internationally to diversify our funding sources and maintain longer liability maturities. In fiscal 2016,2018, we issued ¥75,000¥72,000 million bonds in Japan. We also issued US$300 million, Thai baht 2,000 million, Korean won 110,000 million and Malaysian ringgit 150amounts equal to ¥237,140 million of bonds and MTNs outside Japan.
The total balance of straight bonds and MTNs issued as of March 31, 2017 and 2018 were ¥885,058 million and ¥940,089 million, respectively, of which straight bonds and MTNs amounting to ¥55,845 million and ¥71,524 million, respectively, were issued by foreign subsidiaries.
Domestic straight bond issuances are divided mainly into bonds for institutional investors and bonds for individual investors. As of March 31, 20152017 and 2016,2018, the balance of straight bonds issued by ORIX for domestic institutional investors was ¥323,100were ¥254,440 million and ¥254,900¥204,517 million, respectively, while the balance of straight bonds issued by ORIX for individual investors was ¥534,943were ¥379,166 million and ¥530,860¥279,221 million, respectively. The balance of straight bonds and MTNs issued outside Japan which includes SEC-registered U.S. dollar-denominated straight bonds, was ¥229,340were ¥193,744 million and ¥56,330¥382,827 million as of March 31, 20152017 and 2016,2018, respectively. The balance of bonds issued by subsidiaries as of March 31, 2015 and 2016 was ¥31,383 million and ¥35,414 million, respectively.
The total balance of MTNs issued as of March 31, 2015 and 2016 was ¥35,110 million and ¥62,653 million, respectively, of which MTNs amounting to ¥9,386 million and ¥9,293 million, respectively, were issued by foreign subsidiaries.
We plan to continue to issue straight bonds and MTNs in a balanced manner to institutional and individual investors both inside and outside Japan in line with our strategy of maintaining longer maturities and diversified funding sources.
CP
We offer CP in the form of direct paper as a direct financing source, and have successfully obtained a diverse range of investors such as investment trusts, life insurance companies, casualty insurance companies and other financial institutions, as well as private corporations. We consider our liquidity levels and stagger the dates of issuance and the maturity over time so as to avoid significant overlap. The balance of outstanding CP as of March 31, 20152017 and 2016 was ¥89,6212018 were ¥50,096 million and ¥102,361¥54,894 million, respectively.
Securitization
We securitize leases and loan receivables and other assets in Japan and securitize loan receivables outside Japan. We recognize liabilities consolidated with such investments as our liabilities when required under applicable accounting standards. The total amount of payables under securitized lease and loan receivables and other assets as of March 31, 20152017 and 2016 was ¥291,6352018 were ¥245,070 million and ¥276,054¥82,058 million, respectively.
Deposits
ORIX Bank and ORIX Asia Limited each accept deposits from customers. These depositdeposits 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, 20152017 and 20162018 were ¥1,287,057¥1,611,759 million and ¥1,396,547¥1,747,485 million, respectively.
Short-term and long-term debt and deposits
Short-term Debt
As of March 31, | Change | As of March 31, | Change | |||||||||||||||||||||||||||||
2015 | 2016 | Amount | Percent (%) | 2017 | 2018 | Amount | Percent (%) | |||||||||||||||||||||||||
(Millions of yen, except percentage data) | (Millions of yen, except percentage data) | |||||||||||||||||||||||||||||||
Short-term debt(1): | ||||||||||||||||||||||||||||||||
Short-term debt: | ||||||||||||||||||||||||||||||||
Borrowings from financial institutions | ¥ | 195,164 | ¥ | 247,263 | ¥ | 52,099 | 27 | ¥ | 233,371 | ¥ | 251,860 | ¥ | 18,489 | 8 | ||||||||||||||||||
Commercial paper | 89,621 | 102,361 | 12,740 | 14 | 50,096 | 54,894 | 4,798 | 10 | ||||||||||||||||||||||||
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Total short-term debt | ¥ | 284,785 | ¥ | 349,624 | ¥ | 64,839 | 23 | ¥ | 283,467 | ¥ | 306,754 | ¥ | 23,287 | 8 | ||||||||||||||||||
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Short-term debt as of March 31, 20162018 was ¥349,624¥306,754 million, representing 8%7% of total debt (excluding deposits) as of March 31, 2016,2018, while the ratio was 6%7% of total debt excluding deposits as of March 31, 2015.2017. As of March 31, 2016, 71%2018, 82% of short-term debt was borrowings from financial institutions.
Long-term debt
As of March 31, | Change | As of March 31, | Change | |||||||||||||||||||||||||||||
2015 | 2016 | Amount | Percent (%) | 2017 | 2018 | Amount | Percent (%) | |||||||||||||||||||||||||
(Millions of yen, except percentage data) | (Millions of yen, except percentage data) | |||||||||||||||||||||||||||||||
Long-term debt(2): | ||||||||||||||||||||||||||||||||
Long-term debt: | ||||||||||||||||||||||||||||||||
Borrowings from financial institutions | ¥ | 2,687,434 | ¥ | 2,724,695 | ¥ | 37,261 | 1 | ¥ | 2,724,856 | ¥ | 2,804,357 | ¥ | 79,501 | 3 | ||||||||||||||||||
Bonds | 1,118,766 | 877,504 | (241,262 | ) | (22 | ) | 688,488 | 756,865 | 68,377 | 10 | ||||||||||||||||||||||
Medium-term notes | 35,110 | 62,653 | 27,543 | 78 | 196,570 | 183,224 | (13,346 | ) | (7 | ) | ||||||||||||||||||||||
Payable under securitized lease, loan receivables and investment in securities | 291,635 | 276,054 | (15,581 | ) | (5 | ) | 245,070 | 82,058 | (163,012 | ) | (67 | ) | ||||||||||||||||||||
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Total long-term debt | ¥ | 4,132,945 | ¥ | 3,940,906 | ¥ | (192,039 | ) | (5 | ) | ¥ | 3,854,984 | ¥ | 3,826,504 | ¥ | (28,480 | ) | (1 | ) | ||||||||||||||
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The |
As of March 31, | ||||||||
2015 | 2016 | |||||||
(Millions of yen) | ||||||||
Long-term debt(2): | ||||||||
Borrowings from financial institutions | ¥ | 160,594 | ¥ | 201,098 | ||||
Bonds | 1,985 | 2,000 | ||||||
Payable under securitized lease, loan receivables and investment in securities | 291,637 | 276,054 |
Long-term debt as of March 31, 20162018 was ¥3,940,906¥3,826,504 million, representing 92%93% of total debt (excluding deposits) as of March 31, 2016,2018, while the ratio was 94%93% of total debt excluding deposits as of March 31, 2015.2017. Borrowings from financial institutions comprised 69%73% of the long-term debt as of March 31, 2016.
2018.
Approximately 50%48% of interest paid on long-term debt in fiscal 20162018 was fixed rate interest, with the remainder being floating rate interest based mainly on TIBOR or LIBOR.
For information regarding the repayment schedule of our long-term debt and interest rates for long and short-term debt, see Note 14 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 | |||||||||||||||
2015 | 2016 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Deposits(3) | ¥ | 1,287,380 | ¥ | 1,398,472 | ¥ | 111,092 | 9 |
As of March 31, | Change | |||||||||||||||
2017 | 2018 | Amount | Percent (%) | |||||||||||||
(Millions of yen, except percentage data) | ||||||||||||||||
Deposits | ¥ | 1,614,608 | ¥ | 1,757,462 | ¥ | 142,854 | 9 |
VIEs did not have any deposits as of March 31, |
For further information with respect to deposits, see Note 15 of “Item 18. Financial Statements.”
In addition toOur cash flows are primarily generated from the payment of operating expenses, such as selling, general and administrative expenses, as a financial services company our primary uses of cash are for:followings:
paymentcash outflows and repaymentinflows which are generated primarily from costs of interest oninventories, sales of inventories, services income and principal of short-term and long-term debt; and
cash outflows and inflows which are generated primarily from purchases of lease equipment, makingprincipal payments received under direct financing leases, execution of installment loans to customers purchases of investment in securities and principal payments received under installment loans classified as cash outlays for real estate development projects.
The use of cash therefore, is heavily dependent on the volume of operating assets for new business. As new business volumes for our operating assets. When new business volumes forassets such assets as leases and loans increase, we require more cash to meet these requirements,the needs, while a decrease in new business volumes results in a reducedless use of cash for new assets and an increase in debt repayment.
We have cash inflows from the principal payments received under direct financing leases and installment loans, and proceeds from sales of investment securities and operating lease assets. For cash flow information regarding interest and income tax payments, see Note 4 of “Item 18. Financial Statements.”
Year Ended March 31, 20162018 Compared to Year Ended March 31, 2015
2017
Cash and cash equivalents decreasedincreased by ¥97,098¥281,371 million to ¥730,420¥1,321,241 million compared to March 31, 2015.
2017.
Cash flows provided by operating activities were ¥510,562¥546,624 million during fiscal 2016, up2018, down from ¥257,611¥583,955 million during fiscal 2015 due2017. This change resulted primarily tofrom an increase in netpayment of income a decrease in a previous decrease in policy liabilities and policy account balances and an increase in income taxes payable, net.
taxes.
Cash flows used in investing activities were ¥552,529¥411,578 million during fiscal 2016,2018, up from ¥467,801¥237,608 million during fiscal 2015.2017. This change wasresulted primarily due tofrom increases in purchases of lease equipment and investment in affiliates, in additionaffiliates.
Cash flows provided by financing activities were ¥143,582 million during fiscal 2018, compared to decreasesthe outflow of ¥33,459 million during fiscal 2017. This change resulted primarily from an increase in proceeds from sales of operating lease assetsdebt with maturities longer than three months and principal collected on installment loans.
Cash flows used in financing activities were ¥48,001 million during fiscal 2016 compared to the inflow of ¥213,432 million during fiscal 2015. This change was primarily due to an increasea decrease in repayment of debt with maturities longer than three months.
Year Ended March 31, 20152017 Compared to Year Ended March 31, 2014
2016
Cash and cash equivalents increased by ¥9,479¥309,450 million to ¥827,518¥1,039,870 million compared to March 31, 2014.
2016.
Cash flows provided by operating activities were ¥257,611¥583,955 million during fiscal 2015, down2017, up from ¥478,006¥510,562 million during fiscal 2014 due2016, primarily resulting from a change from an increase to a net decrease in policy liabilitiestrade notes, accounts and policy account balances resulting from the consolidation of HLIKK, which was partially offset byother receivable and a higher net income recordeddecrease in fiscal 2015 compared to fiscal 2014.
a decrease in trade notes, accounts and other payable.
Cash flows used in investing activities were ¥467,801¥237,608 million during fiscal 2015, up2017, down from ¥215,314¥552,529 million during fiscal 2014. This change was2016, primarily due toresulting from a decrease in purchases ofavailable-for-sale securities.
Cash flows used in financing activities were ¥33,459 million during fiscal 2017, down from ¥48,001 million during fiscal 2016, primarily resulting from an increase in installment loans made to customers, purchases of property under facility operations, and a decrease in principal collected on installment loans.
Cash flows provided by financing activities were ¥213,432 million during fiscal 2015 compared to the outflow of ¥277,704 million during fiscal 2014. This change was primarilydeposits due to an increase in long-term debt funding which also resulted in a decrease in debt repayment.
COMMITMENTS FOR CAPITAL EXPENDITURES
As of March 31, 2016,2018, we had commitments for the purchase of equipment to be leased in the amount of ¥1,033¥341 million. For information on commitments, guarantees and contingent liabilities, see Note 3332 of “Item 18. Financial Statements.”
OFF-BALANCEOFF—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 SPEs, which issue asset-backed securities to investors. SPEs can be structured to be bankruptcy-remote, and, if structured in this manner (and subject to certain other conditions) the assigned assets previously were removed from the balance sheet. However, from April 1, 2010, we started applying Accounting Standards Update 2009-16 (ASC 860 (“Transfers and Servicing”)) and Accounting Standards Update 2009-17 (ASC 810 (“Consolidation”)), which require us to consolidate many SPEs that had not been consolidated under the previous standards. In managing our business, we assume that if we conduct securitization we will be required to consolidate almost all of our SPEs based on the accounting standards.
We expect to continue to utilize SPE structures for securitization of assets. For further information on our securitization transactions,transfer of financial assets, see Note 10 of “Item 18. Financial Statements.”
Investment Products
We provide investment products to our customers that employ a contractual mechanism known in Japan as akumiai, which is in effect a type of SPE. We arrange and marketkumiai 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 thekumiai from one or more financial institutions in the form of anon-recourse loan. Thekumiai investors (and any lenders to thekumiai) retain all of the economic risks and rewards in connection with the purchase and leasing activities of thekumiai, and all related gains or losses are recorded on the financial statements of investors in thekumiai. We are responsible for the arrangement and marketing of these products, and may act as servicer or administrator inkumiai transactions. Fee income for arranging and administering these transactions is recognized in our consolidated financial statements. In mostkumiai transactions, excluding somekumiai and SPE, we do not guarantee or otherwise have any financial commitments or exposure with respect to thekumiai 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 pursuant to ASC 810 (“Consolidation”).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 11 of “Item 18. Financial Statements” for further information concerning our SPEs and the effect of ASC 810 on our results of operations or financial position.SPEs.
RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.
Not applicable.
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, 2016.2018.
Amount of commitment expiration per period | ||||||||||||||||||||
Total | Within 1 year | 1-3 years | 3-5 years | After 5 years | ||||||||||||||||
(Millions of yen) | ||||||||||||||||||||
Commitments: | ||||||||||||||||||||
Guarantees | ¥ | 493,125 | ¥ | 72,518 | ¥ | 122,553 | ¥ | 142,863 | ¥ | 155,191 | ||||||||||
Committed credit lines and other | 436,331 | 122,818 | 56,338 | 25,739 | 231,436 | |||||||||||||||
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Total commercial commitments | ¥ | 929,456 | ¥ | 195,336 | ¥ | 178,891 | ¥ | 168,602 | ¥ | 386,627 | ||||||||||
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Amount of commitment expiration per period | ||||||||||||||||||||
Total | Within 1 year | 1-3 years | 3-5 years | After 5 years | ||||||||||||||||
(Millions of yen) | ||||||||||||||||||||
Commitments: | ||||||||||||||||||||
Guarantees | ¥ | 644,720 | ¥ | 90,059 | ¥ | 181,920 | ¥ | 240,907 | ¥ | 131,834 | ||||||||||
Committed credit lines and other | 397,111 | 132,969 | 79,595 | 9,660 | 174,887 | |||||||||||||||
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Total commercial commitments | ¥ | 1,041,831 | ¥ | 223,028 | ¥ | 261,515 | ¥ | 250,567 | ¥ | 306,721 | ||||||||||
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One of our U.S. subsidiaries is authorized to underwrite, originate, fund and service multi-family and senior housing loans without prior approval from Fannie Mae under Fannie Mae’s Delegated Underwriting and Servicing program. As part of this program, Fannie Mae provides a commitment to purchase the loans.
In return for this delegated authority, the subsidiary guarantees the performance of certain housing loans transferred to Fannie Mae 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 ¥174,322¥166,906 million as of March 31, 2016.
2018.
The subsidiary makes certain representations and warranties in connection with the sale of loans through Fannie Mae, including among others, that: the mortgage meets Fannie Mae 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 for any related losses incurred. The subsidiary had no such repurchase claims during fiscal 2016.
2018.
For a discussion of commitments, guarantee and contingent liabilities, see Note 3332 of “Item 18. Financial Statements.”
TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
The table below sets forth the maturities of contractual cash obligations as of March 31, 2016.2018.
Payments due by period | ||||||||||||||||||||
Total | Within 1 year | 1-3 years | 3-5 years | After 5 years | ||||||||||||||||
(Millions of yen) | ||||||||||||||||||||
Contractual cash obligations: | ||||||||||||||||||||
Deposits | ¥ | 1,398,472 | ¥ | 920,685 | ¥ | 345,021 | ¥ | 132,766 | — | |||||||||||
Long-term debt | 3,940,906 | 858,090 | 1,372,384 | 841,886 | 868,546 | |||||||||||||||
Operating leases | 67,241 | 7,959 | 12,132 | 9,451 | 37,699 | |||||||||||||||
Unconditional purchase obligations of lease equipment | 1,033 | 462 | 518 | 37 | 16 | |||||||||||||||
Unconditional noncancelable contracts for computer systems | 10,674 | 3,385 | 5,342 | 1,926 | 21 | |||||||||||||||
Interest rate swaps: | ||||||||||||||||||||
Notional amount (floating to fixed) | 259,556 | 7,905 | 83,951 | 31,043 | 136,657 | |||||||||||||||
Notional amount (fixed to floating) | 3,000 | 0 | 3,000 | 0 | 0 | |||||||||||||||
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Total contractual cash obligations | ¥ | 5,680,882 | ¥ | 1,798,486 | ¥ | 1,822,348 | ¥ | 1,017,109 | ¥ | 1,042,939 | ||||||||||
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Payments due by period | ||||||||||||||||||||
Total | Within 1 year | 1-3 years | 3-5 years | After 5 years | ||||||||||||||||
(Millions of yen) | ||||||||||||||||||||
Contractual cash obligations: | ||||||||||||||||||||
Deposits | ¥ | 1,757,462 | ¥ | 1,123,696 | ¥ | 540,297 | ¥ | 92,969 | 500 | |||||||||||
Long-term debt | 3,826,504 | 652,061 | 1,006,176 | 949,572 | 1,218,695 | |||||||||||||||
Operating leases | 67,671 | 7,939 | 13,035 | 12,174 | 34,523 | |||||||||||||||
Unconditional purchase obligations of lease equipment | 341 | 87 | 229 | 25 | — | |||||||||||||||
Unconditional noncancelable contracts for computer systems | 11,830 | 5,280 | 5,437 | 1,109 | 4 | |||||||||||||||
Interest rate swaps: | ||||||||||||||||||||
Notional amount (floating to fixed) | 296,902 | 67,725 | 40,978 | 40,313 | 147,886 | |||||||||||||||
Notional amount (fixed to floating) | 1,517 | 1,372 | — | 94 | 51 | |||||||||||||||
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Total contractual cash obligations | ¥ | 5,962,227 | ¥ | 1,858,160 | ¥ | 1,606,152 | ¥ | 1,096,256 | ¥ | 1,401,659 | ||||||||||
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Items excluded from the above table include short-term debt of ¥349,624¥306,754 million, trade notes, accounts and other payable of ¥266,216¥262,301 million and policy liabilities and policy account balances of ¥1,668,636¥1,511,246 million as of March 31, 2016.2018. For information on pension plans and derivatives, see Notes 17 and 2928 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 14 and 15 of “Item 18. Financial Statements.”
NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
In May 2014, Accounting Standards Update2014-09 (“Revenue from Contracts with Customers” —ASC—ASC 606 (“Revenue from Contracts with Customers”)) was issued. The core principle of this Update is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply a five-step model to determine when to recognize revenue, and in what amount. The five steps to apply the model are:
Identify the contract(s) with a customer
Identify the performance obligations in the contract
Determine the transaction price
Allocate the transaction price to the performance obligations in the contract
Recognize revenue when (or as) the entity satisfies a performance obligation
This Update requires an entity to disclose more information about contracts with customers than under the current disclosure requirements.
In April 2016, Accounting Standards Update2016-10 (“Identifying Performance Obligations and Licensing”—ASC 606 (“Revenue from Contracts with Customers”)) was issued as an amendment of the new revenue standard. This Update adds further guidance on identifying performance obligations and also improves the operability and understandability of the licensing implementation guidance. The amendments do not change the core principle of the guidance in ASC 606.
In May 2016, Accounting Standards Update2016-12 (“Narrow-Scope Improvements and Practical Expedients”—ASC 606 (“Revenue from Contracts with Customers”)) was issued as an amendment of the new revenue standard. This Update (1) clarifies the objective of the collectibility criterion for applying paragraph606-10-25-7; (2) permits an entity to exclude amounts collected from customers for all sales (and other similar) taxes from the transaction price; (3) specifies that the measurement date fornon-cash consideration is contract inception; (4) provides a practical expedient that permits an entity to reflect the aggregate effect of all modifications that occur before the beginning of the earliest period presented when identifying the satisfied and unsatisfied performance obligations, determining the transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations; (5) clarifies that a completed contract for purposes of transition is a contract for which all (or substantially all) of the revenue was recognized under legacy GAAP before the date of initial application, and (6) clarifies that an entity that retrospectively applies ASC606ASC 606 to each prior reporting period is not required to disclose the effect of the accounting change for the period of adoption.
These Updates are effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2017. Early adoption is permitted only for the fiscal year beginning after December 15, 2016, and interim periods within the fiscal year. An entity should apply the amendments in these Updates using either a retrospective method or a cumulative-effect method. The entity may elect some optional practical expedients when applying these Updates. The entity using the cumulative-effect method would recognize the cumulative effect of initially applying these Updates as an adjustment to the opening balance of retained earnings or net assets at the date of initial application. The Company and its subsidiaries will adopt these Updates on April 1, 2018, using the cumulative-effect method, for only those contracts that are currently evaluatingnot completed at the effect thatdate of initial adoption. These Updates require a number of new disclosures to enable users of the adoptionfinancial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The scope of these Updates will haveexcludes lease contracts, financial instruments and other contractual rights and obligations within the scope of other ASC Topics including loans, investments in securities and derivatives and also excludes contracts within the scope of ASC Topic 944 (“Financial Services – Insurance”). Based on the Company and its subsidiaries’ resultsassessment and estimates, the impact of operations or financial position.
In June 2014, Accounting Standards Update 2014-12 (“Accountingthe application of these Updates will result in a change in the timing of revenue recognition and accounting policy for Share-Based Payments Whenperformance fees received from customers regarding asset management business. Currently, certain subsidiaries recognize such fees when earned based on the Termsperformance of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period”—ASC 718 (“Compensation—Stock Compensation”)) was issued. This Updateasset under management, while other subsidiaries recognize the fees on accrual basis over the period in which services are performed. New guidance requires recognizing such fees as revenue to the extent that it is probable that a performance target that affects vestingsignificant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Additionally, there will be changes in the timing of revenue recognition and that could be achieved afteraccounting policy for the requisite service period be treated ascertain project-based orders in real estate business for which the Company and its subsidiaries currently apply thepercentage-of-completion or completed contract method. Under the new guidance, there are specific criteria to determine if a performance condition. This Update is effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2015. The amendments in this Updateobligation should be appliedsatisfied over time or at a point in time. In some cases, the revenue recognition timing will change from current practice based on either a prospective basis or a modified retrospective basis. Early adoption is permitted.applying the specific criteria under the new guidance. Further, the Company and its subsidiaries will expand its disclosures regarding these revenue streams, to discuss contract balances, performance obligations, significant judgments made, and contract costs. The adoption isof these Updates will not expected to have a material effect on the Company and its subsidiaries’ results of operations or financial position.
In August 2014, Accounting Standards Update 2014-13 (“Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity”—ASC 810 (“Consolidation”)) was issued. This Update permits the parent of the consolidated collateralized financing entity (“CFE”) within the scope of this Update to measure the CFE’s financial assets and liabilities based on either the fair value of the financial assets or financial liabilities, whichever has the more observable inputs. This Update is effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2015. Early adoption is permitted as of the beginning of a fiscal year. An entity should apply the amendments in this Update using either a modified retrospective approach or a full retrospective approach. The Company and its subsidiaries are currently evaluating the effect that the adoption of this Update will have on the Company and its subsidiaries’ results of operations or financial position.
In August 2014, Accounting Standards Update 2014-15 (“Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”—ASC 205-40 (“Presentation of Financial Statements—Going Concern”)) was issued. This Update requires an entity to perform a going concern assessment by evaluating their
ability to meet obligations for a look-forward period of one year from the financial statement issuance date (or date the financial statements are available to be issued). Disclosures are required if it is probable an entity will be unable to meet its obligations within the look-forward period. Incremental substantial doubt disclosure is required if the probability is not mitigated by management’s plans. This Update is effective for the first fiscal year ending after December 15, 2016 and fiscal years and interim periods thereafter. Early adoption is permitted. The Update only relates to certain disclosure requirements and the adoption will have no effect on the Company and its subsidiaries’ results of operations or financial position.
In November 2014, Accounting Standards Update 2014-16 (“Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity”—ASC 815 (“Derivatives and Hedging”)) was issued. This Update requires an issuer or an investor of hybrid financial instruments issued in the form of a share to determine whether the nature of the host contract is more akin to debt or to equity by considering the economic characteristics and risks of the entire hybrid financial instrument, including the embedded derivative feature that is being evaluated for separate accounting from the host contract. This Update is effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2015. Early adoption, including adoption in an interim period, is permitted. The amendments in this Update should be applied on a modified retrospective basis to all existing hybrid financial instruments in the form of a share as of the beginning of the fiscal year of adoption. Retrospective application is permitted to all relevant prior periods. The Company and its subsidiaries are currently evaluating the effect that the adoption of this Update will have on the Company and its subsidiaries’ results of operations or financial position.
In January 2015, Accounting Standards Update 2015-01 (“Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items”—ASC 225-20 (“Income Statement—Extraordinary and Unusual Items”)) was issued. This Update eliminates the concept of extraordinary items from U.S. GAAP, but does not change the current presentation and disclosure requirements for material events or transactions that are unusual in nature or infrequent in occurrence. This Update is effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2015. The amendments in this Update should be applied on either a prospective basis or a retrospective basis. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. Generally, the effect of adopting this Update on the Company and its subsidiaries’ results of operations will depend on future transactions.
In February 2015, Accounting Standards Update 2015-02 (“Amendments to the Consolidation Analysis”—ASC 810 (“Consolidation”)) was issued. This Update requires an entity to change the way to evaluate whether reporting entities should consolidate limited partnerships and similar legal entities, fees paid to a decision maker or service provider are variable interest in a VIE, and variable interests in a VIE held by related parties of the reporting entity require the reporting entity to consolidate the VIE. Additionally, the amendments in this Update rescind the indefinite deferral of FASB Statement No.167 (“Amendments to FASB Interpretation No.46(R)”), included in Accounting Standards Update 2010-10 (ASC 810 (“Consolidation”)) for certain investment companies and similar entities. This Update is effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2015. A reporting entity is permitted to apply the amendments in this Update using either a modified retrospective approach or a full retrospective approach. Early adoption is permitted. If an entity adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company and its subsidiaries are currently evaluating the effect that the adoption of this Update will have on the Company and its subsidiaries’ results of operations or financial position.
In April 2015, Accounting Standards Update 2015-03 (“Simplifying the Presentation of Debt Issuance Costs”—ASC 835-30 (“Interest—Imputation of Interest”)) was issued. This Update requires that debt issuance costs related to a recognized debt liability are presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, similar to the presentation of debt discounts or premiums. This Update is effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2015. Retrospective application is required to all relevant prior periods. Early adoption is permitted for financial
statements that have not been previously issued. The Company and its subsidiaries are currently evaluating the effect that the adoption of this Update will have on the Company and its subsidiaries’ results of operations or financial position.
In July 2015, Accounting Standards Update 2015-11 (“Simplifying the Measurement of Inventory”—ASC 330 (“Inventory”)) was issued. This Update applies to all inventory except for which is measured using last-in, first-out (LIFO) or the retail inventory method, and requires an entity to measure inventory at the lower of cost and net realizable value. Additionally, this Update defines net realizable value as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This Update is effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2016. The amendments in this Update should be applied on a prospective basis. Early adoption is permitted. The Company and its subsidiaries are currently evaluating the effect that the adoption of this Update will have on the Company and its subsidiaries’ results of operations or financial position.
In September 2015, Accounting Standards Update 2015-16 (“Simplifying the Accounting for Measurement-Period Adjustments”—ASC 805 (“Business Combinations”)) was issued. This Update requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. This Update is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The amendments in this Update should be applied prospectively to adjustments to provisional amounts that occur after the effective date of this Update. Early application is permitted for financial statements that have not yet been issued. Generally, the effect of adopting this Update on the Company and its subsidiaries’ results of operations and financial position will depend on future transactions.
In January 2016, Accounting Standards Update2016-01 (“Recognition and Measurement of Financial Assets and Financial Liabilities”—ASC825-10 (“Financial Instruments -Overall”Instruments—Overall”)) was issued. This Update revises accounting related to the classification and measurement of equity investments. This Update also revises
the presentation of certain fair value changes for financial liabilities measured at fair value. Additionally, this Update amends certain disclosure requirements associated with the fair value of financial instruments. This Update is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early application to financial statements of fiscal years or interim periods that have not yet been issued areis permitted as of the beginning of the fiscal year of adoption. The amendments in this Update should be applied by means of cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. And the amendments relate to equity investments without readily determinable fair value are to be applied prospectively. The Company and its subsidiaries arewill adopt this Update on April 1, 2018. The impact of adopting this Update will result in recognizing unrealized changes in fair value of equity investments through earnings rather than other comprehensive income. Equity investments currently evaluatingaccounted for under the cost method of accounting will be accounted for either at fair value with changes in fair value recognized in earnings or using alternative method that requires carrying value to be adjusted by using subsequent observable transactions. The effect thatof the adoption of this Update will have on the Company and its subsidiaries’ resultsfinancial position at the adoption date will be a decrease of operations or financial position.
¥2,899 million in accumulated other comprehensive income and an increase of ¥2,899 million in retained earnings in the consolidated balance sheets.
In February 2016, Accounting Standards Update2016-02 (ASC 842 (“Leases”)) was issued. This Update requires a lessee to recognize most leases on-balanceon the balance sheet. Lessor accounting remains substantially similar to current U.S.GAAPU.S. GAAP but with some important changes. This Update is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early application is permitted. The amendments in this Update should be applied by means of cumulative-effect adjustment to retained earnings as ofat the beginning of the fiscal year of adoption.earliest period presented using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that entities may elect to apply. The Company and its subsidiaries will adopt this Update on April 1, 2019. Based on the Company and its subsidiaries’ initial assessment and best estimates to date, the impact of the application of the Update will likely result in gross up of right-of-use assets and corresponding lease liabilities principally for operating leases where it is the lessee, such as ground leases and office and equipment leases. Other than the impact that have been currently identified, the Company and its subsidiaries continue to evaluate 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 June 2016, Accounting Standards Update2016-13 (“Measurement of Credit Losses on Financial Instruments”—ASC 326 (“Financial Instruments—Credit Losses”)) was issued. This Update significantly changes 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 this Update. This Update also makes targeted amendments to the current impairment model foravailable-for-sale debt securities. This Update is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The amendments in this Update should be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. Early application is permitted for fiscal year beginning after December 15, 2018, including interim periods within the fiscal year. The Company and its subsidiaries will adopt this Update on April 1, 2020. The Company and its subsidiaries continue to evaluate 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 August 2016, Accounting Standards Update2016-15 (“Classification of Certain Cash Receipts and Cash Payments”—ASC 230 (“Statement of Cash Flows”)) was issued. This Update amends ASC 230 to add or clarify guidance on the classification of certain cash receipts and cash payments in the statement of cash flows. This Update is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. This Update should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company and its subsidiaries will adopt this Update on April 1, 2018. Generally, the effect of adopting this Update on the Company and its subsidiaries’ statement of cash flows will depend on future transactions.
In October 2016, Accounting Standards Update2016-16 (“Intra-Entity Transfers of Assets Other Than Inventory”—ASC 740 (“Income Taxes”)) was issued. This Update eliminates the exception to defer the income tax consequences of intra-entity transfers of assets other than inventory until the assets are ultimately sold to an outside party and requires the recognition of the current and deferred tax consequences when those transfers occur. This Update is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. This Update should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company and its subsidiaries will adopt this Update on April 1, 2018. The effect of the adoption of this Update on the Company and its subsidiaries’ financial position at the adoption date will be an increase of ¥3,772 million in retained earnings in the consolidated balance sheets.
In November 2016, Accounting Standards Update2016-18 (“Restricted Cash”—ASC230 (“Statement of Cash Flows”)) was issued. This Update requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. This Update is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company and its subsidiaries will adopt this Update on April 1, 2018. The Company and its subsidiaries are currently evaluating the effect that the adoption of this Update will have on the Company and its subsidiaries’ statement of cash flows.
In January 2017, Accounting Standards Update2017-04 (“Simplifying the Test for Goodwill Impairment”—ASC 350 (“Intangible—Goodwill and Other”)) was issued. This Update eliminates Step 2 from the current 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. This Update is effective for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019 and should be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates on or after January 1, 2017. The Company and its subsidiaries will adopt this Update on April 1, 2020. Generally, the effect of adopting this Update on the Company and its subsidiaries’ results of operation or financial position will depend on the outcomes of future goodwill impairment tests.
In August 2017, Accounting Standards Update2017-12 (“Targeted Improvements to Accounting for Hedging Activities”—ASC 815 (“Derivatives and Hedging”)) was issued. This Update changes the recognition and presentation requirements of hedge accounting including eliminating the requirement to separately measure and report hedge ineffectiveness and presenting all items that affect earnings in the same income statement line as the hedged item. This Update is effective for fiscal years beginning after December 15, 2018, and interim period within those fiscal years. Early adoption is permitted, including in an interim period. For cash flow hedges and net investment hedges existing at the date of adoption, an entity should apply a cumulative-effect adjustment related to eliminating the separate measurement of ineffectiveness to accumulated other comprehensive income with a corresponding adjustment to the opening balance of retained earnings as of the beginning of fiscal year that an entity adopts the amendment in this Update. The amended presentation and disclosure guidance is required only prospectively. At present, the Company and its subsidiaries will adopt this Update on April 1, 2019. The Company and its subsidiaries are currently evaluating the effect that the adoption of this Update will have on the Company and its subsidiaries’ results of operations or financial position.
In March 2016, Accounting Standards Update 2016-07 (“Simplifying the Transition to the Equity Method Accounting”—ASC 323 (“Investments—Equity Method and Joint Ventures”)) was issued. This Update eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. This Update also requires that the equity
method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and requires that an entity that has an available-for sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. This Update is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The amendments in this Update should be applied prospectively. Early application is permitted. Generally, the effect of adopting this Update on the Company and its subsidiaries’ results of operations or financial position will depend on future transactions.
The sections “Results of Operation” and “Liquidity and Capital Resources” contain certain financial measures presented on a basis not in accordance with U.S. GAAP (commonly referred to as non-GAAP financial measures), including long-term debt, ORIX Corporation Shareholders’ equity and total assets, as well as other measures or ratios calculated based on those measures, presented on an adjusted basis, which excludes payables under securitized leases, loan receivables and others and reverses the cumulative effect on retained earnings of applying the accounting standards for the consolidation of VIEs under ASU 2009-16 and ASU 2009-17, effective April 1, 2010.
Our management believes these non-GAAP financial measures provide investors with additional meaningful comparisons between our financial condition as of March 31, 2016, as compared to prior periods. Effective April 1, 2010, we adopted ASU 2009-16 and ASU 2009-17, which changed the circumstances under which we are required to consolidate certain VIEs. Our adoption of these accounting standards caused a significant increase in our consolidated assets and liabilities and a decrease in our retained earnings without affecting the net cash flow and economic effects of our investments in such consolidated VIEs. Accordingly, our management believes that providing certain financial measures that exclude the impact of consolidating certain VIEs on our assets and liabilities as a supplement to financial information calculated in accordance with U.S. GAAP enhances understanding of the overall picture of our current financial position and enables investors to evaluate our historical financial and business trends without the large balance sheet fluctuation caused by our adoption of these accounting standards.
We provide these non-GAAP financial measures as supplemental information to our consolidated financial statements prepared in accordance with U.S. GAAP, and they should not be considered in isolation or as substitutes for the most directly comparable U.S. GAAP measures.
The tables set forth below provide reconciliations of these non-GAAP financial measures to the most directly comparable financial measures presented in accordance with U.S. GAAP as reflected in our consolidated financial statements for the periods provided.
As of March 31, | ||||||||||||||
2014 | 2015 | 2016 | ||||||||||||
(Millions of yen, except ratios and percentage data) | ||||||||||||||
Total assets | (a) | ¥ | 9,066,961 | ¥ | 11,443,628 | ¥ | 10,996,906 | |||||||
Deduct: Payables under securitized leases, loan receivables and others* | 253,827 | 291,635 | 276,054 | |||||||||||
Adjusted total assets | (b) | 8,813,134 | 11,151,993 | 10,720,852 | ||||||||||
Short-term debt | (c) | 308,331 | 284,785 | 349,624 | ||||||||||
Long-term debt | (d) | 3,852,668 | 4,132,945 | 3,940,906 | ||||||||||
Deduct: Payables under securitized leases, loan receivables and others* | 253,827 | 291,635 | 276,054 | |||||||||||
Adjusted long-term debt | (e) | 3,598,841 | 3,841,310 | 3,664,852 | ||||||||||
Long- and short-term debt (excluding deposits) | (f) = (c) + (d) | 4,160,999 | 4,417,730 | 4,290,530 | ||||||||||
Adjusted long- and short-term debt (excluding deposits) | (g) = (c) + (e) | 3,907,172 | 4,126,095 | 4,014,476 | ||||||||||
ORIX Corporation Shareholders’ Equity | (h) | 1,919,346 | 2,152,198 | 2,310,431 | ||||||||||
Deduct: The cumulative effect on retained earnings of applying the accounting standards for the consolidation of VIEs under ASU 2009-16 andASU 2009-17, effective April 1, 2010 | (5,195 | ) | (3,060 | ) | (411 | ) | ||||||||
Adjusted ORIX Corporation Shareholders’ Equity | (i) | 1,924,541 | 2,155,258 | 2,310,842 | ||||||||||
ORIX Corporation Shareholders’ Equity Ratio | (h) / (a) | 21.2 | % | 18.8 | % | 21.0 | % | |||||||
Adjusted ORIX Corporation Shareholders’ Equity Ratio | (i) / (b) | 21.8 | % | 19.3 | % | 21.6 | % | |||||||
D/E ratio | (f) / (h) | 2.2x | 2.1x | 1.9x | ||||||||||
Adjusted D/E ratio | (g) / (i) | 2.0x | 1.9x | 1.7x | ||||||||||
Long-term debt ratio | (d) / (f) | 93 | % | 94 | % | 92 | % | |||||||
Adjusted long-term debt ratio | (e) / (g) | 92 | % | 93 | % | 91 | % |
Group-Wide Risk Management System
Risk Management System
ORIX Group monitors and manages the risks relating to the Group businesses through its risk management system. In addition to the credit department, which primarily monitors risks related to individual transactions, and the corporate planning department, which monitors risks at the corporate level, each business unit has designated staff responsible for managing risks at the business unit level. The credit department, the corporate planning department and individual business units analyze and monitor various risks in collaboration with each other. The results are reported to the Investment and Credit Committee at meetings held three times a month, to the Group Executive Officer Committee at meetings generally held on a monthly basisonce every two months and to the board of directors at meetings held on a regular basis for evaluation, and the relevant executive officers take measures deemed appropriate to address identified risks.
Risk Control
ORIX Group allocates management resources by taking into account Group-wide risk preferencepreferences based on management strategies as well as the strategy of individual business units. Our board of directors and executive officers evaluate the performance and profitability of each business unit, and the executive officers take the responsive measures they deem necessary to control risk. This process enables us to control theour balance sheet and allocate more management resources to business units viewed as having greater growth potential.
ORIX Group, in addition to monitoring by business unit, monitors risks on an individual transaction and total portfolio basis.
For individual transactions relating to business transactions, the credit department evaluates the operating environment, strategies, and potential risks and profitability of each transaction prior to execution, and reports on such individual transactions to the Investment and Credit Committee for review. Changes to the operating environment and cash flow are monitored after transaction execution, and transactions for which there has been a major change in circumstances or strategy are then reported to the appropriate executive officers. In addition, individual business units conduct their own risk analysis together with the trend analysis ofby analyzing trends in relevant industries aimed at controllingto control risks for individual transactions.
In analyzing a portfolio, the credit department monitors the following characteristics from a Group-wide perspective: business type, region, transaction type, risk type, asset quality status and concentration status of major debtors. The corporate planning department monitors risks at the corporate level, including market risk and liquidity risk related to fund procurement, in cooperation with the treasury department and the credit department.
Main Risk Management
of Principal Risks
We recognize that credit risk, business risk, market risk, liquidity risk (risk relating to funding), compliance risk, legal risk information asset risk and other operational risk are the mainprincipal risks we face, and we manage each of these risks according to its characteristics.
Credit Risk Management
We definecredit risk as uncertainty regarding future recovery of investments caused by fluctuations in the cash flow from debtors and investees.
To analyze credit risk, we evaluate the adequacy of collateral and guarantees, the liquidationsecuritization of debtreceivables and the concentrationdiversification of debtors and their business types. WeA 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 as well asand measures to establish appropriate credit limits allowsallow us to control exposure to markets with potentially high risks.higher risk markets.
We recognize that certain assets that require extra monitoring, including credit extended to debtors who have petitioned for bankruptcy, or 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. The accumulated collection knowhow ranging from sending an initial reminder to actively seizing collateral is consolidated in the credit department and is reflected in our evaluation criteria for individual credit transactions and portfolio analysis.
Business Risk Management
We definebusiness risk as uncertainties related to new business areas, potential obsolescence of the products or services we offer or a decline in their quality, and variability in market prices for the types of products or services we offer.
AgainstTo address uncertainties related to new business areas, we monitor business plans and operations using scenario analyses and stress tests, and wetests. We also evaluate and verify the cost of withdrawal from a business.
business or business area.
For products and services we offer, in addition to monitoring quality, we regularly review the content of our lineup of productsproduct 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 the leased properties. To control fluctuation in residual value,this risk, we monitor our inventories of leased properties inventory, the relevant market environments and the overall business environment. We generally limit our operating leases to leased properties and other assets with high versatility that are comparatively easy tore-lease, and evaluate the sale of such properties and other assets depending on changes in market conditions.
We endeavor to reduce the risk related to fluctuation in market prices for real estate by strengthening our cash flow.flow through careful management of our rental income, vacancy rates and expenses related to capital expenditures.
Market Risk Management
We definemarket 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 establish Group-wide ALM policies, and 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 factoring inbased 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. These exactThe analysis methods we use are modified, as required, depending on the situation.
We generally manage exchange rate risk by using 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 properly monitor and manage exchange rate risk ofrelating to unhedged foreign currency denominatedcurrency-denominated assets and retained earnings of foreign subsidiaries using appropriate indicators such as the 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.
For assets under management in our banking business, our life insurance business and our overseas operations, we regularly monitor monetary policies, macroeconomic indicators and securities and financial market trends and country risk, and we manage our asset portfolios by analyzing individual security price movements and(both gains and losses.losses). Market volatility is managed according to guidelines that include fixed loss amounts and decreases in position. Our credit department monitors our compliance with the guidelines.
For quantitative and qualitative analysis information on market risk, please see “Item 11. Quantitative and Qualitative Disclosures about Market Risk.”
Liquidity Risk Management (Risk Management Relating to Funding)
We defineliquidity risk as the risk that we will be unable to obtain the required funds or that we will be forced to procure funds at an unusually high rate of interest due to market turmoil, deteriorationa sharp deteriorate in the financial condition of the 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 businessour businesses may continue undisturbed in the event ofwithstand 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 managemitigate liquidity risk, including through such action asparent-to-subsidiary lending.
ORIX Bank and ORIX Life Insurance are engaged in retail financial activities for individual customers and are regulated by Japanese financial authorities. They 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 theliquidity levels required liquidity levelsby Japanese financial regulations by holding highly liquid assets such as cash and government and corporate bonds and by setting an upper limit for capital market-basedmarkets-based funding. In addition, itORIX Bank regularly monitors the status of these measures,its liquidity, estimates the tightness of cash flows under different scenarios and conductsstage-by-stage management of liquidity risk accordingly.
ORIX Life Insurance conducts stress tests on insured events and ensures the necessarymanages its liquidity requirements by holding highly liquid assets with high liquidity such as cash and cash equivalents and securities above a certain ratio against the balance of a liability reserve and by setting maximum limits for holdingheld-to-maturity securities.
Compliance Risk Management
We definecompliance risk as the risk of financial loss, regulatory sanction or damage to our reputation resulting from a failure by ORIX Group to comply with applicable laws and regulations regarding ORIX Group’s business activities and/or a failure to comply with ORIX Group’s corporate philosophy, internal policies, social norms rules and procedures.
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 levels of risks that we deem significant at the Group level, the compliance department requires each department of the ORIX Group to formulate an annual compliance plan and monitors compliance
risks within the 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 the 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 the ORIX Group Principles of Conduct, which sets forth the ORIX Group’s principles of compliance.
Legal Risk Management
We definelegal risk as the risk offailure to comply with laws and regulations applicable to ORIX Group’s business and corporate management and the resulting legal responsibility or legal disadvantage arising due to noncompliance with applicable laws and/or regulations in anyliability as well as business or corporate management.
disadvantages that may arise therefrom.
To avoid, preventreduce and mitigateprevent transactional legal risk in Japan, we generally require that the credit department, the legal department and the compliance department each be involved in evaluating and/or executing transactions. In addition to establishing and maintaining internal rules designed to facilitate compliance with applicable laws that are currently in effect, we take steps to ensure that we will beare in compliance with new laws and revisions to laws as they take effect.
existing laws.
For business transactional agreements relating to business transactions, we have established an approval process involving the legal department in accordance with our prescribed internal rules. In addition, depending on the size and importance of a given transaction, we mightmay also utilize the expertise ofseek advice from outside lawyers.counsel. 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.
The administrationlegal department monitors the use ofmanages intellectual property rights and takes necessary protective measures if and immediately if and when an actual or potential infringement of third partyORIX Group’s intellectual property rights is discovered.
Overseas, each Group company works to avoid, reduce and prevent and mitigatelegal risks by utilizingin-house legal functions and, whenas necessary, by engaging outside lawyers and other advisers.
Information Asset Risk Management
We defineinformation asset riskas the risk of loss caused by loss, damage or leakage of information or failure of our information systems.
ORIX Group has established policies regarding the use of information systems and information management systems for the proper handling of information and information about officers and employees.
The IT planning department and ORIX Computer Systems Corporation endeavor to reduce the risk of system failure within the ORIX Group, including from cyber-attack and damage to information security, through the maintenance operation and management of internal systems. We have also created a system for responding to information security incidents.
We have also established internal regulations concerning our information security management system, basic policy, management standards, education and audits.
Operational Risk Management
We defineoperational risk as the risk of loss resulting from damages, losses, adverse effects or harm to our reputation caused by inadequate or failed internal processes people and systems,for business execution or fromprevention of human error or by a failure in operations due to external events.
Operationalevents such as natural disasters. We also include risk is inherentof failure in our business and includes compliance risk and fiduciary risk. Compliance risk is the risk of financial loss, regulatory sanction or damageresponsibility to exercise properly our reputation resulting from a failure by ORIX Group to comply with applicable laws and regulations where it conducts its business and ORIX Group’s internal policies, rules and procedures and may encompass legal risk when applicable laws and regulations are violated. Fiduciary risk is the risk of loss resulting from a failure to properly exercise discretion when acting on behalf of ourdiscretionary rights for those customers and clients.
Each ORIX department conductsclients for whom we are acting as a compliance annual programfiduciary as such risk may lead to address material risks at the Group level. The internal audit department conducts monitoring activities based on an annual internal audit plan that focuses on material 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.
The compliance department supports the business and operations functions by implementing and maintaining compliance programs designed to identify and manage compliance risks in each jurisdiction where ORIX does business and to support a strong culture of compliance throughout the Group.
In fiscal 2016, ORIX undertook to enhance compliance risk management in its global businesses and in connection with that effort updated its Principles of Conduct and introduced a Code of Conduct and Ethics to increase compliance awareness among its directors, executive officers and employees throughout the Group.
IT planning department and ORIX Computer Systems Corporation endeavor to reduce operational risk including risks of cyber-attacksreputational and other information security threats through the maintenance and operational administration of internal systems.
damage.
We have established internal rules to manage risks associated with natural disasters, which are designed to protect management resources and minimize losses while giving priority to the safety of our executives and employees.
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.
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 Segment
Credit risk is the main risk of the Corporate Financial Services segment.
After individual transactions have been executed, the Corporate Financial Services segment regularly monitors the transaction’s performance and related collateral, as well as collection from customers whose balances exceed specified levels. The credit department regularly evaluates customers with large credit balances.
WeWithin this segment, 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 those 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.
Maintenance Leasing Segment
Business risk and credit risk are the main risks of the Maintenance Leasing segment.
To manage the risk of changes in the market valuesvalue of property under operating leases, we continuously monitor market environmentsconditions and fluctuationfluctuations in the resale value of leased property and adjust residual value estimates of leased property in new transactions accordingly.
Cost fluctuation is the maina risk ofwhen providing various services such as outsourcing. In response to this, we analyze initial cost planning and performance, monitor future forecasts and control costs at an appropriate level.
In addition, to manage the risk that the quality of our services might fall short of customer expectations due to changes in the operating environment or changes toin and diversification of client needs, weneeds. We monitor our service quality quantitatively and qualitatively and continuously strive to improve our services in line with the operating environment.
We also conduct credit examinations of individual transactions to manage credit risk.
Real Estate Segment
InBusiness risk is the main risk of the Real Estate segment, the main risk for business involvingwhich includes real estate development, rental, management, asset management and operation is business risk.
of a real estate investment trust and a real estate investment advisory business.
With respect to our real estate investment, 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. In addition, when we invest in large scale or long termlong-term projects, we consider diversifying risk by making joint investments with our partners.
For development and leasing properties, we monitor development and retention schedules and NOInet 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 strive to take into consideration customers’ feedback and also implement training programs for our employees.
Investment and Operation Segment
Credit risk, market risk and business risk are the main risks of the Investment and Operation segment.
In the environment and energy-related businesses, for renewable energy, energy conservation and resource and waste processing operations, we endeavor to minimize business risk by deploying appropriate equipment and technology, forming alliances with expert operators and arranging our business structure to allow for changes in the business environment and the business content.
When making investment decisions in the principal investment business, we conduct a credit evaluation, analyzing the investee’s credit risk and assessing its cash flow, as is done for credit examinations. In addition, we perform a multi-faceted evaluation onof the characteristics of the business operation and investment scheme, in which administrative departments such as the accounting and legal departments are also involved. After the initial investment, individual transactions are monitored for divergence from the initial scenario.
CreditWe emphasize credit risk is emphasized forwhen increasing the companies for which we are raising corporate value due to the focus onof a company since cash flow.flow is akey-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 the ORIX Group, we work to strengthen management through measures such as the secondmentseconding of management personnel.
We conduct our concession business in public facilities such as airports, together with business partners. The main risks of such business are business and operational risks. 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 regularly monitor business plans and operations. 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.
In the loan servicing business, we seek to reduce credit and operational risksrisk by conducting periodic internal auditing and monitoring and by implementing business operations based on work procedures in accordance with the applicable supervision and guidance from regulatory authorities. In addition, OAMLS has designated an outsideappointed a lawyer as a company director, and has streamlined its organization to place legal and compliance-related affairs under the control of its legal and compliance departmentdepartment. This approach allows OAMLS to cope with diversifiedemploy expert advice and other perspectives in addressing stakeholder related legal issues, which could occur with any stakeholders, from a professional and multi-faceted viewpoint.issues.
Retail Segment
The main risk in the life insurance business is business risk and market risk, in particular, the risk associated with underwriting insurance contracts.
When underwriting insurance contracts, while implementingORIX Life Insurance has implemented strict assessment standards based on documents such as statements of health condition and medical examination reports ORIX Life Insurance cultivatesin underwriting insurance contracts, and also relies on its staff of trained underwriting employees with expert knowledge and hires sufficient staff, checksto check the status of insurance solicitation and takesto take rigorous measures to prevent the underwriting of fraudulent contracts. In addition, ORIX Life Insurance educates and instructs its representative branch staff and agents to enhance compliance with applicable laws and regulations regarding the privacy of personal information, as well as insurance sales practices, and regularly checks whether these measures are carried out.
Credit risk is the main risk of the housing loan business, the corporate loan business and the card loan business.
Regarding each housing 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, industryknow-how and network we have built forover many years.
Decision making for corporate loans is based on an investigation of the client’s performance, business plan, the purpose of the loan, the expected source of repayment and industry trends. We also reduce risksrisk by avoiding overconcentration in any particular business typestype and productsproduct 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 thetheir ability of the borrower to repay. Also, we undertake subsequent credit evaluations at regular intervals to monitor changes in the customer’s financial condition.
Overseas Business Segment
In the Overseas Business segment, credit risk is the main risk of the leasing and loan businesses operated by local subsidiaries which are located mainly in Asia.
Individual transactions in this segment are conducted in a manner similar to those in the domestic business segments. The credit department monitors the portfolio according to country risk. Information regarding the portfolio of the respective local subsidiaries, the business condition of major clients, the condition of those assets requiring extra monitoring and the clients of particular concern is shared internally.
Risk management in the principal investment business and the automobile-related business which are mainly in Asia, is conducted in a similar manner to that in the domestic business segments.
In addition, in the shipaircraft and aircraft-relatedship-related business, we monitor market conditions and the overall business environment for business risk. We generally limit our operating leases to ships and aircraft with high versatility that are comparatively easy tore-lease and evaluate sales depending on changes in market conditions.
Credit risk and market risk such as those arising from corporate loans and securities investment in the United States are the main risks for the investment and finance business such as corporate loans and securities investment in the United States.
business.
Regarding credit risk, at the time onan investment or loan is made, we assign an internal credit rating to eachsuch investment or loan taking into consideration the credit status and the collateral status and continuously monitor the credit status. For any investments and/or loans of which the rating has reached or exceeded the cautioncautionary level, our policy requires management to determine the necessity of a provision for doubtful receivables and probable loan 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 loan servicing business in the United States. We arrange loans and conduct servicing operations thereof under public financing schemes such as the Federal National Mortgage Association and the Federal Housing Administration. We conduct our operations based on the designated operating procedures set forth by these public financial institutions, and monitor and manage service quality through internal auditing.
Business risk and operational risk, in particular, the risk associated with fiduciary responsibility, are the main risks for the asset management business and the advisory business.
Regarding business risk, in addition to monitoring to maintain and ensure satisfactory quality levels, we review the content of our products and services to constantly maintain and improve quality in response to changes in the business environment and evolving customer needs.
InRegarding operational risk in the asset management business, regarding risk arising from acting as a trustee for customer and client property, we have established an internal compliance systempromote the standardization of business processes, regulations and manuals and seek to manage operationalprevent omissions and mistakes in conducting business operations and to improve efficiency generally. In addition, we ensure proper risk management by clarifying operating procedures and manage our operations to abide by the compliance standards established byauthority and the supervisory authority.responsibilities of administrators and supervisors in business operations.
Regarding operational riskTo ensure high-quality advice and evaluation services in the advisory business, we maintain and ensure quality and operationaloperating procedures that meet the operating standards set forth by authorities and other forms of oversight through an internal quality control committee and other oversight so that high-quality advice and/or evaluation services can be supplied to customers according to proper operating procedures.
GOVERNMENTAL AND POLITICAL POLICIES AND FACTORS
Other than as outlined below, in our opinion, no current governmental economic, fiscal, monetary or political policies or factors have materially affected, or threaten to materially affect, directly or indirectly, our operations or the investments in our Shares by our U.S. shareholders.
In January 2014, the Financial Stability Board (“FSB”)— – an international standard-setting authority—authority – proposed a methodology for assessing and designating non-bank non-insurernon-banknon-insurer global systemically important financial institutions (“NBNIG-SIFIs”). In March 2015, the FSB and the International Organization of Securities Commissions, jointly published a revised proposal for public comment,comment; and in July 2015, the FSB announced its decision to wait to finalize the assessment methodologies until it completes its assessment of financial stability risks from asset management activities. ItWhile the FSB released final policy recommendations to address
structural vulnerabilities from asset management activities in January 2017, it is currently unclear if or when the assessment methodologies framework will be finalized, what form a final framework may take, what policy measures will be recommended to apply to NBNIG-SIFIs, and whether ORIX or any of its affiliates ultimately would be designated as a NBNIG-SIFI.
Item 6. Directors, Senior Management and Employees
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
CORPORATE GOVERNANCE SYSTEM
ORIX believesWe believe that a robust corporate governance system is a vital element of effective and enhanced management and therefore hashave established sound and transparent corporate governance to carry out appropriate business activities in line with our core policies and to ensure objective management.
ORIX’s corporate governance system is characterized by:
separation of operation and oversight through a “Company with Nominating Committee, etc.” board model;
Nominating, Audit and Compensation Committee are each formedCommittees composed entirely by non-executive directors and the Audit Committee is formed entirely byof outside directors;
all outside directors satisfysatisfying strict conditions for independence; and
all outside directors arebeing 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 respondresponding to changes in the business environment. Furthermore, we believe that ORIX’s governance systemORIX promotes improved management transparency by creatingthrough a corporate governance system in which outside directors, with expertisewho are experts in their respective fields monitor and advise on legal compliance and the appropriate execution of operations.
Based on these principles, our board of directors possesses oversight function and, under the “Company with Nominating Committee, etc.” board model which we adopted in June 2003, delegates certain responsibilities to the three committees (Nominating, Audit and Compensation Committees) to carry out the role of effective governance. Please see the history of ORIX’s corporate governance system below.
Oversight by directors is separate from the execution of operations within the three committees (Nominating, Audit and Compensation Committees) that form the heart of the board of directors. Each committee is formed entirely by non-executiveoutside directors to help avoid conflicts of interest with our shareholders.
In addition, all outside directors must meet the specific conditions necessary for director independence as set forth 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 Directors | |
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 |
The “Company with Nominating Committees,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 thosean individual who havehas 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 such companythe Company or any of its subsidiaries. (See Item 16G “Corporate Governance”.)
Board of Directors
The board of directors has the ultimate decision-making responsibilityauthority 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. TheOur Articles of Incorporation of ORIX 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 Committees, etc”Committee, etc.” board model, expires at the close of the first annual general meeting of shareholders after his or her election.
The board of directors carries 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 important items as determined by the regulations of the board of directors. The board of directors is responsible for deciding and monitoring ORIX’s policies on a regular basis, which include corporate planning such as capital management, fund procurement, personnelhiring and recruitment strategies and policy of internal control.controls. Aside from such items, the board of directors delegates decision-making regarding operational executionoperations to representative executive officers.officers to facilitate better efficiency and swiftness of such process. The board of directors also receives reports from executive officers and committees regarding the status of business operations and finances.
operations.
With the exception of the aforementioned items, the board of directors may delegate substantial management authority to representative executive officers. Representative executive officers make decisions on management issues as delegated by the board of directors and execute the business of the Company. For example, the board may delegate to representative executive officers 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, 20152017 through March 31, 2016,2018, the board of directors met eight times. The attendance rate of directors for these meetings was 97%98%.
The board of directors as of June 23, 2016 includes 1328, 2018 included 12 members, six of whom are outside directors.
Composition and size of Board of Directors
The board of directors is composed of directors, including outside directors, that 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.
Structure and Activities of the Three Committees
As of June 23, 2016,28, 2018, all three committees (Nominating, Audit and Compensation Committees) consisted of non-executive directors, and the Audit Committee consisted 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 |
Nobuaki Usui (Chairperson) Robert Feldman Takeshi Niinami Ryuji Yasuda
Heizo Takenaka | 4 Members (Outside Directors: 4) Eiko Tsujiyama (Chairperson) Nobuaki Usui Ryuji Yasuda Heizo Takenaka |
Robert Feldman (Chairperson) Eiko Tsujiyama Takeshi Niinami Ryuji Yasuda
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Number of meetings held during fiscal | Three (3) meetings | Five (5) meetings |
Nominating Committee
The Nominating Committee is authorized to propose the slate of director appointmentappointments or dismissaldismissals to be submitted to the annual general meeting of shareholders. Directors shall be electedare appointed and dismissed by a resolution of the annual 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 composition of the board of directors overall possesses the right balanceappropriate levels of and diversity in knowledge, experience, and expertise, and the diversity of which, by setting certain criteriathrough an established decision-making process for the decision making process of directors’ appointment.appointments. The Nominating Committee also nominates executive officer candidates to the board of directors following an assessment of the candidates’ past experience, knowledge, and his/her fitsuitability for the position to execute business decisions in the company’sCompany’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
An individual with 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 theysuch relate to corporate management
An individual with extensive knowledge in areas such as politics, society, culture and academics, as theysuch relate to corporate management
The Nominating Committee determines whether the conditions for director independence have been met in accordance with nomination criteria for outside directors, which are:
(1) | No individual may be a principal trading partner*, or an executive officer (including operating |
existed in the past, one year must have passed since that person’s |
* A “principal trading partner” refers to an entity with a business connection withto ORIX Group with a transaction amount equivalent to more than the greater of 2% of such entities consolidated total sales (or consolidated total revenues) or one million U.S. dollars in any fiscal year of 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 |
(3) | No |
(4) | No |
* “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 |
(6) | No |
(7) | None of |
i) | A person who was an executive officer or an important employee of the 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 the 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.
(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 executivesexecutive officers and prepares audit reports. In addition, the Audit Committee proposes the appointment or dismissal of, or the passage
of resolutions refusing the reappointment of the Company’s independent certified public accountants to the annual general meeting of shareholders. Eiko Tsujiyama, chairperson of the Audit Committee, is qualified as a certified public accountant and has extensive knowledge in finance and accounting as a professional accountant.
Under the “Company with Nominating Committees,Committee, etc.” board model, the directors who compose the Audit Committee are not permitted to be executive officers, executive directors, managers, any other employees or accounting counselors (kaikei san-yo) of the Company or its subsidiaries. Under the “Company with Nominating Committees,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 Committees,Committee, etc.” board model, and within the scope of laws and ordinances, corporate decisions reachedmade at the board of directors meetingmeetings are delegated to the executive officers to accelerate and achieve efficiency in business operations. The representative executive officer makes our important business execution decisions after deliberations by the Investment and Credit Committee (“ICC”) in accordance with the various regulations of the Company.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 various regulations of the Company.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:
Investment and Credit Committee
The ICC, which includes members of top management and the executive officers involved with a given transaction, is held on average three times a month primarily to deliberatediscusses and decide onmakes decisions regarding credit transactions and investments that exceed certain specified investment or credit amounts, important matters related to the management of the Company and matters that have been entrusted to the representative executive officer by the board of directors. Matters considered crucial to our operations are decided by the ICC and reported to the board of directors as appropriate.
Group Executive Officer Committee
The Group Executive Officer Committee, in which executive officers and group executives of the Company participate, are held on a monthly basis to sharediscusses important information relatedmatters relating to the business execution of ORIX Group.
Monthly Strategy Meetings
Monthly Strategy Meetings include meetings between top management and the management in charge of individual departments and business units to discuss matters such as the state of achievement ofstatus for achieving strategic targets and
changes in the business environment. Matters of key importance discussed at Monthly Strategy Meetings are then deliberated and decided by the ICC and reported to the board of directors as necessary.
Information Technology Management Committee
The Information Technology Management Committee includes members of the top management and the executive officer in charge of information technology (“IT”) systems, andsystems. It meets once a month to deliberate and approve important matters concerning fundamental policies for IT operations and IT systems. The committee determines 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. Furthermore, this enables ORIXstrategies and to pursue its goal of makingmake IT investments that contribute to business growth and help risk reduction.reduce risk.
Disclosure Committee
The Disclosure Committee, which plays a key role in our disclosure control, is chaired by the CFO and consists of the executive officers in charge of various departments, including: Corporate Planning Department, Treasury Headquarters,and Accounting Headquarters, Credit and Investment Management Headquarters, Enterprise Risk Management Headquarters, Legal and External Relations Department, Group Compliance Department, Group Human Resources and Corporate Administration Headquarters and Group Internal Audit Department and Corporate Communications Department. Upon receiving material information from an executive officer of ORIX Group or the person in charge of an ORIX Group company department, the committee discusses whether or not any timely disclosure is necessary, and takes steps to provide appropriate disclosure ofappropriately disclose such information.
Policies on Auditing and Auditing System
The Audit Committee has established the following five items as its fundamental policies.policies:
The Committee shall always emphasize a consolidated management standpoint in auditing.
The Committee shall monitor and verify the formulation and statestatus 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.
To ensure the fairness and credibility of audits, the Committee shall monitor and verify whether the accounting auditor is maintaining its 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 statestatus 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 accounting auditor, and others as necessary.
The Auditing functionfunctions of the Company isare as follows.
Audit Committee
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The Audit Committee which consists of four outside directors evaluates the Company’s internal control systems from an independent standpoint and may appoint outside experts to conduct its duties if necessary. Eiko Tsujiyama, chairperson of the Audit Committee, is qualified as a certified public accountant and has extensive knowledge in finance and accounting as a professional accountant. Audit Committee Secretariat The Audit Committee Secretariat which includes three 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. Executive Officer Responsible for Group Internal Audit Department The Executive 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. Group Internal Audit Department and Group Corporate Auditors The Group Internal Audit Department, which includes 34 staff (as of the end of May 2018), 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 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
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AUDITOR INDEPENDENCE
ORIX Group must appoint independent certified public accountants, who have the statutory duty of examining the nonconsolidated financial statements prepared in accordance with accounting principles generally accepted in Japan (“Japanese GAAP”). The independent certified public accountants must present an auditor’s report to the Audit Committee and the executive officers specified by the board of directors. The independent certified public accountants are also responsible for auditing financial statements that are submitted to the Kanto Local Finance Bureau of the Ministry of Finance (“Kanto Local Finance Bureau”). The board of directors is required to submit the audited consolidated and nonconsolidated financial information to the annual general meeting of shareholders, and this information is also required to be submitted to the Tokyo Stock Exchange and the Kanto Local Finance Bureau.
Presently, our independent certified public accountants are KPMG AZSA LLC. The independence of KPMG AZSA LLC has been evaluated by our Audit Committee.
In addition to the nonconsolidated financial statements that are prepared under Japanese GAAP, we also prepare 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.
In the opinion of management, the provision ofnon-audit services did not impair the independence of KPMG AZSA LLC.
DIRECTORS
The directors of ORIX as of June 23, 201628, 2018 are as follows:
Name (Date of birth) | Current positions and principal outside positions(1) | Business experience | Shareholdings as of June | |||||
Makoto Inoue (Oct. 2, 1952) | Director, Representative Executive Officer, President and Chief Executive Officer, Responsible for Group Strategy Business Unit | Apr. 1975 | Joined | |||||
Jan. 2003 | Deputy Head of Investment Banking Headquarters | |||||||
Feb. 2005 | Assumed office of Executive Officer, the Company | |||||||
Jan. 2006 |
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Jun. 2009 |
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Jun. 2010 | Assumed office of Director, Deputy President, the Company | |||||||
Jan. 2011 | Assumed office of Representative Executive Officer, President, the Company
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Jan. 2014 | Co-Chief Executive Officer | |||||||
Jun. 2014 | Chief Executive Officer |
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Yuichi Nishigori (Jan. 28, 1957) | Director,
Head of Energy and Eco Services Business Headquarters
| Apr. 1980 | Joined The Industrial Bank of Japan, Limited | |||||
Apr. 2003 | Joined | |||||||
Jan. 2007 | Deputy Head of Alternative Investment and Development Headquarters | |||||||
Jan. 2009 | Assumed office of Executive Officer, the Company | |||||||
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Jan. 2014 |
Head of Energy and Eco Services Business Headquarters | |||||||
Jun. 2015 | Assumed office of Director, Managing Executive Officer, the Company |
Name (Date of birth) | Current positions and principal outside positions(1) | Business experience | Shareholdings as of June 28, 2018 | |||||
Sep. 2015 | Assumed office of Director, Ubiteq, INC. | |||||||
Jan. 2016 | Assumed office of Director, Senior Managing Executive | |||||||
Kiyoshi Fushitani (Nov. 22, 1950) | Director,
Head of Global Business Head of East Asia Business Headquarters Head of Global Transportation Services Headquarters | Joined The Sumitomo Bank, Limited (currently Sumitomo Mitsui Banking Corporation) | 1,500 | |||||
Feb. 1975 | Joined | |||||||
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Deputy Head of Global Business and Alternative Investment Headquarters | ||||||||
Jan. 2015 | Assumed office of Managing Executive Officer, the Company | |||||||
Head of Global Transportation Services Headquarters | ||||||||
Jun. 2015 | Head of East Asia Business Headquarters | |||||||
Jan. 2016 | Assumed office of Senior Managing Executive Officer, the Company Head of Global Business Headquarters | |||||||
Jun. 2016 | Assumed office of Director, Senior Managing Executive Officer, the Company |
Name (Date of birth) | Current positions and principal outside positions(1) | Business experience | Shareholdings as of June 28, 2018 | |||||
Stan Koyanagi (Dec. 25, 1960) | Director, Managing Executive Officer Head of Enterprise Risk Management Headquarters Global General Counsel Chairman, ORIX Corporation Europe N.V. | Oct. 1985 | Joined SHEPPARD, MULLIN, RICHTER & HAMPTON LLP | 0 | ||||
Jan. 1993 | Partner, GRAHAM & JAMES LLP (currently Squire Patton Boggs LLP) | |||||||
Mar. 1997 | Vice President, ORIX USA Corporation (currently ORIX Corporation USA) | |||||||
Mar. 1999 | General Counsel, Vice President and Manager, ORIX USA Corporation (currently ORIX Corporation USA) | |||||||
Jan. 2004 | Vice President and Associate General Counsel, KB HOME | |||||||
Jul. 2013 | Joined the Company Global General Counsel, Global Business Headquarters | |||||||
Jun. 2017 | Assumed office of Director, Managing Executive Officer, the Company Responsible for Enterprise Risk Management Global General Counsel | |||||||
Aug. 2017 | Assumed office of Chairman, Robeco Groep N.V. (currently ORIX Corporation Europe N.V.) | |||||||
Jun. 2018 | Head of Enterprise Risk Management Headquarters | |||||||
(Mar. |
Head of
| May 2001 Apr. 2011 | Joined Joined the Company | |||||
Deputy | ||||||||
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Jan, 2014 | Head of Investment and Operation Headquarters | |||||||
Jan. 2016 | Assumed office of Managing Executive Officer, the Company Responsible for Concession Business Development | |||||||
Jun. 2018 | Assumed office of Director, Managing Executive Officer, the Company |
Name (Date of birth) | Current positions and principal outside positions(1) | Business experience | Shareholdings as of June 28, 2018 | ||||||
Hitomaro Yano (Jul. 25, 1962) | Director, Executive Officer Head of Treasury and Accounting Headquarters | Apr. 1985 | Joined Seibu Department Stores, Limited (currently Sogo & Seibu Co., Ltd.) | 5,100 | |||||
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Jun. 2017 | Deputy Head of Treasury and Accounting Headquarters | ||||||||
Jan. 2018 | Head of Treasury and Accounting Headquarters | ||||||||
Jun. 2018 | Assumed office of Director, Executive Office, the Company | ||||||||
Eiko Tsujiyama (Dec. 11, 1947) | Outside Director Emeritus Professor,
Corporate Auditor, Lawson, Inc. Audit & Supervisory Board Member, NTT DOCOMO, Inc. Audit & Supervisory Board Member, Shiseido Company, Limited | Apr. 1974
| Certified Public Accountant | 0 | |||||
Aug. 1980 | Assistant Professor, College of Humanities at Ibaraki University |
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Apr. 1985 | Assistant Professor, School of Economics at Musashi University | ||||||||
Apr. 1991 | Professor, School of Economics at Musashi University | ||||||||
Apr. 1996 | Assumed office of Dean, School of Economics at Musashi University | ||||||||
Apr. 2003 | Professor, School of Commerce and the Graduate School of Commerce at Waseda University | ||||||||
Sep. 2004 | Professor, Faculty of Commerce at Waseda University | ||||||||
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Sep. 2010 | Assumed office of Dean, Graduate School of Commerce at Waseda University | ||||||||
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May 2011 |
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Jun. 2011 | Assumed office of Audit & Supervisory Board Member, NTT DOCOMO, Inc. | |||||||
Jun. 2012 | Assumed office of Audit & Supervisory Board Member, Shiseido Company, Limited | |||||||
Apr. 2018 | Emeritus Professor, Waseda University |
Name (Date of birth) | Current positions and principal outside positions(1) | Business experience | Shareholdings as of June 28, 2018 | |||||||
Robert Feldman (Jun. 12, 1953) | Outside Director
Professor, Graduate School of Management and Innovation Studies at Tokyo University of Science | Oct. 1983 | Economist, International Monetary Fund | 0 | ||||||
May 1989 | Chief Economist, Salomon Brothers Inc. (currently Citigroup Global Markets Japan Inc.) | |||||||||
Feb. 1998 | Joined Morgan Stanley Securities, Ltd. (currently Morgan Stanley MUFG Securities Co., Ltd.) as Managing Director and Chief Economist Japan | |||||||||
Apr. 2003 | Managing Director, | |||||||||
Dec. 2007 | Managing Director and Head of Japan Economic Research, Morgan Stanley Japan Securities Co., Ltd. (currently Morgan Stanley MUFG Securities Co., Ltd.) | |||||||||
Jun. 2010 | Outside Director, ORIX | |||||||||
Jul. 2012 | Managing Director, Chief Economist and Head of Fixed Income Research, Morgan Stanley MUFG Securities Co., Ltd. | |||||||||
Mar. 2014 | Managing Director and Chief Economist, Morgan Stanley MUFG Securities Co., Ltd. | |||||||||
Jan. 2017 | Senior Advisor, Morgan Stanley MUFG Securities Co., Ltd. | |||||||||
Apr. 2018 | Professor, Graduate School of Management and Innovation Studies at Tokyo University of Science | |||||||||
Takeshi Niinami (Jan. 30, 1959) | Outside Director President and Chief Executive Officer, Member of the Board, Representative Director, Suntory Holdings Limited.
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| Assumed office of President, Sodex Corporation (currently LEOC Co., Ltd.) | 0 | |||||
Apr. 2001 | Unit Manager, Lawson Business and Mitsubishi’s Dining Logistical Planning team, Consumer Industry division, Mitsubishi Corporation | |||||||||
May 2002 | Assumed office of President, Representative Director and Executive Officer, Lawson, Inc. |
Name (Date of birth) | Current positions and principal outside positions(1) | Business experience | Shareholdings as of June | |||||
Mar. 2005 | Assumed office of President, Representative Director and | |||||||
Jun. 2010 |
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May 2013 | Assumed office of Outside Director, the Company Assumed office of Representative Director and | |||||||
May 2014 | Assumed office of Chairman and Representative Director, Lawson, Inc. Assumed office of Chairman and Member of the Board, Lawson, Inc. | |||||||
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| Assumed office of President and Chief Executive Officer, Member of the Board, Representative Director, Suntory Holdings Limited. | |||||||
Nobuaki Usui (Jan. 1, 1941) | Outside Director
Outside Auditor, Miroku Jyoho Service Co., Ltd. | May 1995 | Director-General of the Tax Bureau, Ministry of Finance | 0 | ||||
Jan. 1998 | Commissioner, National Tax Agency | |||||||
Jul. 1999 | Administrative Vice Minister, Ministry of Finance | |||||||
Jan. 2003 | Governor and | |||||||
Dec. 2008 | Assumed office of Chairman, The Japan Research Institute, Limited | |||||||
Jun. 2011 |
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Jun. 2016 | Assumed office of Outside |
Name (Date of birth) | Current positions and principal outside positions(1) | Business experience | Shareholdings as of June 28, 2018 | |||||
Ryuji Yasuda (Apr. 28, 1946) | Outside Director Outside Director,
Outside Director, Benesse Holdings, Inc. Adjunct Professor, Graduate School of Business Administration, Hitotsubashi University Department of International Corporate Strategy Outside Director, Kansai Mirai Financial Group, Inc. | Jun. 1991 | Director, McKinsey & Company | 0 | ||||
Jun. 1996 | Chairman, A.T. Kearney, Asia | |||||||
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Jun. 2003 | Assumed office of Chairman,J-Will Partners, Co., Ltd. | |||||||
Apr. 2004 | Professor, Graduate School of International Corporate Strategy at Hitotsubashi University | |||||||
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Jun. 2013 |
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Jun. 2015 | Assumed office of Outside Director, | |||||||||
Mar. 2017 | Adjunct Professor, Graduate School of International Corporate Strategy at Hitotsubashi University | |||||||||
Apr. 2018 |
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Heizo Takenaka (Mar. 3, 1951) | Outside Director Professor, Faculty of Global and Regional Chairman and Director, PASONA Group Inc. Director, Academyhills Director, Center for Global Innovation Studies at Toyo University Outside Director, SBI Holdings, Inc. | Apr. 1990 | Assistant Professor, Faculty of Policy Management at Keio University | 0 | ||||||
Apr. 1996 | Professor, Faculty of Policy Management at Keio University | |||||||||
Apr. 2001 | Minister of State for Economic and Fiscal Policy | |||||||||
Sep. 2002 | Minister of State for Financial Services and for Economic and Fiscal Policy | |||||||||
Jul. 2004 | Elected to House of | |||||||||
Sep. 2004 | Minister of State for Economic and Fiscal Policy and Communications and Privatization of Postal Services | |||||||||
Oct. 2005 | Minister for Internal Affairs and Communications and Privatization of Postal Services | |||||||||
Dec. 2006 |
| Assumed office of Director, Academyhills | ||||||||
Aug. 2009 | Assumed office of Chairman and Director, PASONA Group Inc. |
Name (Date of birth) | Current positions and principal outside positions(1) | Business experience | Shareholdings as of June 28, 2018 | |||||
Apr. 2010 | Professor, Faculty of Policy Management at Keio University | |||||||
Jun. 2015 | Assumed office of Outside Director, | |||||||
Apr. 2016 | Professor, Faculty of Regional Development Studies at Toyo University (currently Faculty of Global and Regional Studies at Toyo University) Assumed office of Director, Center for Global Innovation Studies at Toyo University | |||||||
Jun. 2016 | Assumed office of Outside Director, SBI Holdings, Inc. |
| 1. All ORIX directors are engaged full-time except | |
2. ORIX Corporation USA, one of the Company’s subsidiaries, has changed its name from ORIX USA Corporation on June 1, 2018. | ||
3. ORIX Corporation Europe N.V., one of the Company’s subsidiaries, has changed its name from Robeco Groep N.V. on January 1, 2018. |
EXECUTIVE OFFICERS
The executive officers of the ORIX Group as of June 23, 2016,28, 2018, excluding those who are also directors as listed above are as follows:
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Kazutaka Shimoura |
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Hideto Nishitani | Chairman and President, ORIX Corporation USA | |||||||
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Satoru Matsuzaki | Managing Executive Officer |
Eastern Japan Sales Headquarters | ||||||
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Shinichi Obara | Executive Officer |
Group Kansai | ||||||
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Harukazu Yamaguchi | Executive Officer | Global Business | ||||||
Toshinari Fukaya | Executive Officer | Real Estate Headquarters Finance and Investment Department | 4,200 | |||||
Yasuaki Mikami | Executive Officer | Group Human Resources and Corporate Administration Headquarters Secretariat of The Board of Directors Work Style Reform Project | 1,158 | |||||
Yoshiteru Suzuki | Executive Officer | Deputy President, ORIX Corporation USA | 0 | |||||
Yoshiko Fujii | Executive Officer | Enterprise Risk Management Headquarters | 6,000 | |||||
Katsunobu Kamei | Group Senior Managing Executive | President, ORIX Auto Corporation | 26,280 | |||||
Kazunori Kataoka | Group Senior | President, ORIX Life Insurance Corporation | 0 | |||||
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Hiroko Yamashina | Group Executive | President, ORIX Credit Corporation | 32,700 | |||||
Toyonori Takahashi | Group Executive | President, ORIX Real Estate Corporation Group Kansai Deputy Representative | 6,588 |
Notes: | 1. Name on the family register of Yoshiko Fujii is Yoshiko Hirano. | |
2. Name on the family register of Hiroko Yamashina is Hiroko Arai. | ||
3. ORIX Corporation USA, one of the Company’s subsidiaries, has changed its name from ORIX USA Corporation on June 1, 2018. |
EMPLOYEES
As of March 31, 2016,2018, we had 33,33331,890 full-time employees, compared to 31,03534,835 as of March 31, 20152017 and 25,97733,333 as of March 31, 2014.2016. We employ 2,6352,167 staff in the Corporate Financial Services segment, 2,6092,825 staff in
the Maintenance Leasing segment, 4,3124,978 staff in the Real Estate segment, 11,9149,190 staff in the Investment and Operation segment, 2,4573,047 staff in the Retail segment, 8,1667,813 staff in the Overseas Business segment and 1,2401,870 staff as part of our headquarters function as of March 31, 2016.2018. With the exception of the Overseas Business segment, all other staff are located in Japan. As of March 31, 2016,2018, we had 20,55920,687 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 currentre-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 ¥6,478¥9,417 million, ¥13,032¥9,136 million and ¥9,417¥8,738 million in fiscal 2014, 20152016, 2017 and 2016,2018, respectively.
SHARE OWNERSHIP
As of June 23, 2016,28, 2018, the directors, executive officers and group executives of the Company directly held an aggregate of 407,775245,878 Shares, representing 0.03%0.02% 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.”
Along with the adoption of the “Company with Committees” board model, ORIX terminated its program for retirement payments to directors and corporate auditors. In connection with the termination of this program, shareholders approved payments of an aggregate maximum amount of ¥3,250 million to directors and ¥50 million to corporate auditors for accumulated payments. The amount, timing and method of payment was approved for each director and corporate auditor by the then newly established Compensation Committee. The payments to individual directors and corporate auditors were based on the length of service and remuneration at the time of termination.
Compensation for directors, executive officers and group executives in fiscal 20162018 was as follows (in millions of yen);
Fixed compensation (Number of people) | Performance- linked compensation (Number of people) | Share component of compensation (Number of people) | Total compensation | Fixed compensation (Number of people) | Performance- linked compensation (Number of people) | Share component of compensation (Number of people) | Total compensation | |||||||||||||||||||||||||
Non-Executive Director and Outside Director | ¥ | 106 | ¥ | 0 | ¥ | 19 | ¥ | 125 | ¥ | 99 | — | ¥ | 16 | ¥ | 116 | |||||||||||||||||
(9 | ) | (0 | ) | (1 | ) | (7 | ) | — | (7 | ) | (7 | ) | ||||||||||||||||||||
Executive Officer and Group Executive | 830 | 386 | 707 | 1,924 | ¥ | 694 | ¥ | 370 | ¥ | 492 | ¥ | 1,557 | ||||||||||||||||||||
(31 | ) | (31 | ) | (7 | ) | (27 | ) | (27 | ) | (27 | ) | (27 | ) | |||||||||||||||||||
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Total | ¥ | 936 | ¥ | 386 | ¥ | 726 | ¥ | 2,049 | ¥ | 794 | ¥ | 370 | ¥ | 508 | ¥ | 1,673 | ||||||||||||||||
(40 | ) | (31 | ) | (8 | ) | (34 | ) | (27 | ) | (34 | ) | (34 | ) | |||||||||||||||||||
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The amount paid listed in the table above is calculated by multiplying the number of points confirmed to be provided as the portion for fiscal 2018 by the stock market price paid by the trust (“Board Incentive Plan Trust”) when ORIX’s shares were acquired (¥1,544 per share).
Compensation for Makoto Inoue, Representative Executive Officer, President and Chief Executive Officer of ORIX, for fiscal 20162018 was ¥97¥90 million in fixed compensation, and ¥44¥93 million in performance-linked compensation and ¥89 million in share component of compensation.
Compensation for Haruyuki Urata,Kazuo Kojima, currently Director, Representative DirectorExecutive Officer and President of ORIX Bank,DAIKYO INCORPORATED, as Director, Representative Executive Officer, Deputy President and Chief Financial Officer of ORIX, for fiscal 20162018 was ¥11¥51 million in fixed compensation, ¥22 million in performance-linked compensation and ¥31 million in share component of compensation.
The actual total amount of the share component of compensation paid in fiscal 2018 was ¥696 million paid to six executive officers (including those serving concurrently as Directors and Executive Officers) who retired during fiscal 2018. The following individuals retired during fiscal year 2018 and were paid share component of compensation totaling over ¥100 million. Compensation for Tamio Umaki, currently Advisor of ORIX Corporation, as Director, Representative Executive Officer and Deputy President of ORIX, for fiscal 2018 was ¥12 million in fixed compensation, ¥5 million in performance-linked compensation and ¥244¥217 million in share component of compensation.
Compensation for Eiji Mitani,Shintaro Agata, currently ChairmanAdvisor of ORIX, Interior Corporation, as Corporate Senior Vice PresidentManaging Executive Officer of ORIX, for fiscal 20162018 was ¥26 million in fixed compensation, ¥11 million in performance-linked compensation and ¥127 million in share component of compensation. Compensation for Takao Kato, currently Advisor of ORIX, as Managing Executive Officer of ORIX, for fiscal 2018 was ¥21 million in fixed compensation, ¥9 million in performance-linked compensation and ¥168¥122 million in share component of compensation.
Compensation for Satoru Katahira, currently Chairman of Health Insurance Society and Corporate Pension Fund of ORIX Group, as Managing Executive Officer of ORIX, for fiscal 2018 was ¥21 million in fixed compensation, ¥8 million in performance-linked compensation and ¥72 million in share component of 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
OurORIX’s business objective is to increase shareholder value over the medium- andto long- term. We believeORIX believes in the importance of each directordirector’s and executive officerofficer’s responsibly performing his or her duties and in the importance of 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 focusplace emphasis not only on business performance during the current fiscal year, but also on medium- andto long-term results. Accordingly, under the basic policy that compensation should provide effective incentives, we takeincentives. ORIX takes such factors into account when making decisions regarding the compensation system and compensation levels for our 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.
Compensation Policy for Directors
The compensation policy for directors who are not also executive officers aims for a level and composition of compensation that is effective in maintaining supervisory and oversight functions of executive officers’ performance in business operations, which is the main duty of directors. Specifically, while aiming to maintain competitive compensation standards, ourORIX’s compensation structure for directors consists of a fixed compensation component based on duties performed, and a shares component ofshare-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 membersmember of each committee. Share-based compensation reflecting medium- to long-termlong- term performance is granted at the time of retirement in the form of ORIX’s shares, which is calculated based on the number of points earned and accumulated by the individual while in office until retirement.the end of his or her directorship.
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, while aiming to maintain competitive compensation standards, ourORIX’s compensation structure for executive officers consists of a fixed component based on positionscompensation, performance-linked compensation, and duties performed, an annual performance-linked component, and a share-based component*compensation* as described above. In addition, based on the outcome ofa research report from a third-party compensation market research analysis report, we striveconsultant, the Company strives to maintain a competitive level of compensation with executive officer compensation that is competitive and providesfunctioning as an effective incentive.
Each individual’s fixedFixed compensation is determined for each individual based on a standard amount for each position. AnnualFor executive officers, compensation linked to business performance is based on two indicators. One isfor fiscal 2018 uses the level of achievement of the consolidated net income target achieved as a company-wide performance indicator, which is adjusted from halfadjusting 50% of the level-basedposition-based standard amount within the range of 0% to 200%. The other is while, at the fiscal year resultssame time, using the level of achievement of the target of the division for which the areas eachrelevant executive officer iswas responsible, for as a segment performance indicator, which is adjusted from halfadjusting 50% of the level-basedposition-based standard amount within the range of 0% to 200%300%. Annual compensation linked to business performance forIn the case of the representative executive officer is based onofficers, the level of consolidated net income target achievedis used as a company-wide performance indicator, which is adjusted fromadjusting the level-based standard amount within the range of 0% to 200%. Share-based compensation reflecting medium- to long-term performance is granted in the form ofas a certain number of points based on a standard amount for each position held by an individual while in office, and the actual number of ORIX’s shares granted to an executive officer is calculated based on two indicators. One is the level of consolidated net income target achieved as a company-wide performance indicator, which is adjusted from halfamount of the level-based standard point withinpayment is decided according to the rangeshare price at the time of 0% to 200%. The other is the fiscal year results for the areas eachan individual executive officer is responsible for as a segment performance indicator, which is adjusted from half of the level-based standard point within the range of 0% to 200%. =Share-based compensation for the
representative executive officer is based on the level of consolidated net income target achieved as a company-wide performance indicator, which is adjusted from the level-based standard point within the range of 0% to 200%.officer’s retirement.
* | In June 2005, we introduced the share-based component of 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 |
** | The Company entrusts money |
In addition, in June 2005, we established guidelines for ownership of our shares for directors, executive officers and group executives.
The total number of points of the shares component of compensation granted to directors, executive officers and group executives for fiscal 20162018 is equivalent to 342,500349,410 points. Under this system, ¥726¥696 million, which is equivalent to 457,583474,633 points accumulated up to the timeend of retirement,tenure, was paid to executive officers who retiredleft their positions during fiscal 2016.2018. As a result, the balance to directors, executive officers and group executives as of March 31, 20162018 was 1,642,9591,451,485 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.
The following table shows the names of directors, executive officers and group executives who received stock options, and the number of Shares for which they were granted options, under the stock option plans for each year from 2006 to 2008. No stock options were granted for eachin any year from 2009 to 2016.since 2009. Each unit of the Shares has one vote. We have not issued any preferred shares.
Titles for each individual as of June 23, 2016,28, 2018, unless otherwise described, are as follows:
Name | Title | stock option plans | ||||
Makoto Inoue | Director, President and Chief Executive Officer | |||||
| ||||||
| ||||||
| ||||||
Yuichi Nishigori | Director, | |||||
Kiyoshi Fushitani | Director, | 0 | ||||
| 0 | |||||
Shuji Irie | Director, Managing Executive Officer | 0 | ||||
Hitomaro Yano | Director, Executive Officer | 0 | ||||
Eiko Tsujiyama | Outside Director | 0 | ||||
Robert Feldman | Outside Director | 0 | ||||
Takeshi Niinami | Outside Director | 0 | ||||
Nobuaki Usui | Outside Director | 0 | ||||
Ryuji Yasuda | Outside Director | 0 |
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Heizo Takenaka | Outside Director | 0 | ||||
| ||||||
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Kazutaka Shimoura | ||||||
Hideto Nishitani | ||||||
| ||||||
| ||||||
| ||||||
| Managing Executive Officer | |||||
Satoru Matsuzaki | Managing Executive Officer | |||||
| ||||||
| ||||||
Shinichi Obara | Executive Officer | |||||
| ||||||
Harukazu Yamaguchi | Executive Officer | |||||
Toshinari Fukaya | Executive Officer | 2,400 | ||||
Yasuaki Mikami | Executive Officer | 0 | ||||
Yoshiteru Suzuki | Executive Officer | 0 | ||||
Yoshiko Fujii | Executive Officer | 1,600 | ||||
Katsunobu Kamei | Group Senior Managing Executive | 2,900 | ||||
Kazunori Kataoka | Group Senior | 0 | ||||
| ||||||
Hiroko Yamashina | Group Executive | |||||
Toyonori Takahashi | Group Executive | 2,000 |
Notes: | 1. Name on the family register of Yoshiko Fujii is Yoshiko Hirano. | |
2. Name on the family register of Hiroko Yamashina is Hiroko Arai. |
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 theORIX’s Human Resources Department of ORIX.Department. For further discussion of the stock-based compensation, see Note 19 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 of ORIX 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, executivesexecutive officers and certain employees of our subsidiaries and affiliates. From 2009 to 2016,2018, no stock option plans were adopted for our directors, executive officers, employees, or those of our subsidiaries and affiliates.
Options granted under stock option plans generally expire one year after the termination of the option holder’s service with ORIX Group.
The following is an outline of the stock option plans authorized since 2006:2008:
Shares granted | Exercise price per Share | Option expiration date | ||||||||||
2006 Stock Acquisition Rights Plan | 1,942,000 | ¥ | 2,962 | June 20, 2016 | ||||||||
2007 Stock Acquisition Rights Plan | 1,449,800 | ¥ | 3,101 | June 22, 2017 | ||||||||
2008 Stock Acquisition Rights Plan | 1,479,000 | ¥ | 1,689 | June 24, 2018 |
Shares granted | Exercise price per Share | Option expiration date | ||||||||
2008 Stock Acquisition Rights Plan | 1,479,000 | ¥ | 1,689 | June 24, 2018 |
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, 2016.
On April 1, 2013, the Company implemented a 10-for-1 stock split of common stock held by shareholders registered on the Company’s register of shareholders as of March 31, 2013. The numbers of issued shares and the numbers of shares held described herein have been retrospectively adjusted to reflect the stock split. As a result of the stock split, the ratio of underlying shares to ADSs changed from 0.5 underlying shares per 1 ADS to 5 underlying shares per 1 ADS.
2018.
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) | (%) | |||||||
Japan Trustee Services Bank, Ltd. (Trust Account) | 118,667 | 8.96 | ||||||
The Master Trust Bank of Japan, Ltd. (Trust Account) | 71,154 | 5.37 | ||||||
JP Morgan Chase Bank 380055 | 61,423 | 4.63 | ||||||
Japan Trustee Services Bank, Ltd. (Trust Account 9) | 38,184 | 2.88 | ||||||
The Chase Manhattan Bank 385036 | 35,055 | 2.64 | ||||||
State Street Bank and Trust Company | 31,108 | 2.34 | ||||||
The Bank of New York Mellon SA/NV 10 | 26,312 | 1.98 | ||||||
CITIBANK, N.A. -N.Y , AS DEPOSITARY BANK FOR DEPOSITARY SHARE HOLDERS | 25,049 | 1.89 | ||||||
State Street Bank and Trust Company 505225 | 20,444 | 1.54 | ||||||
State Street Bank West Client Treaty 505234 | 19,925 | 1.50 |
Name | Number of Shares held | Percentage of Issued shares | ||||||
(Thousands) | (%) | |||||||
Japan Trustee Services Bank, Ltd. (Trust Account) | 114,527 | 8.93 | ||||||
The Master Trust Bank of Japan, Ltd. (Trust Account) | 77,985 | 6.08 | ||||||
Japan Trustee Services Bank, Ltd. (Trust Account 9) | 38,225 | 2.98 | ||||||
CITIBANK, N.A. -N.Y, AS DEPOSITARY BANK FOR DEPOSITARY SHARE HOLDERS | 26,904 | 2.09 | ||||||
Japan Trustee Services Bank, Ltd. (Trust Account 5) | 25,136 | 1.96 | ||||||
State Street Bank and Trust Company | 24,468 | 1.90 | ||||||
State Street Bank West Client Treaty 505234 | 24,344 | 1.89 | ||||||
The Chase Manhattan Bank 385036 | 23,629 | 1.84 | ||||||
State Street Bank and Trust Company 505001 | 22,203 | 1.73 | ||||||
Japan Trustee Services Bank, Ltd. (Trust Account 7) | 20,941 | 1.63 |
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, 2016,2018, the percentage of issued Shares held
by overseas corporations and individuals was 59.39%55.16%. OnAs of March 31, 2016,2018, approximately 5,021,8835,380,864 ADSs were outstanding (equivalent to 25,109,41526,904,320 or approximately 1.90%2.09% of ORIX’s issued Shares as of that date). As of March 31, 2016,2018, all our ADSs were held by twoone record holdersholder in the United States.
On February 22, 2016, CapitalApril 2, 2018, Mitsubishi UFJ Financial Group, Inc. submitted a filing to the Kanto Local Finance Bureau indicating that CapitalMitsubishi UFJ Financial Group, primarily through Capital Research and Management Company,Inc. held 78,952,71367,702,521 Shares, representing 5.96%5.11% of ORIX’s outstanding Shares, as part of Capital Group’sMitsubishi UFJ Financial Group, Inc.’s assets under management.
On February 12, 2016,13, 2018, Fidelity Group submitted a filing to the Securities and Exchange Commission indicating that FMR LLC held 69,958,03567,964,627 Shares, representing 5.28%5.13% of ORIX’s outstanding Shares, as part of Fidelity Group’s assets under management.
On January 22, 2016, BlackRock,February 8, 2018, Sumitomo Mitsui Trust Holdings, Inc. submitted a filing to the Securities and Exchange Commission indicating that BlackRock,Sumitomo Mitsui Trust Holdings, Inc. held 79,842,26962,599,200 Shares, representing 6.0%4.7% of ORIX’s outstanding Shares, as part of Sumitomo Mitsui Trust Holdings, Inc.’s assets under management.
On January 29, 2018, BlackRock Group submitted a filing to the Securities and Exchange Commission indicating that BlackRock Inc., primarily through BlackRock Japan Co., Ltd, held 81,537,083 Shares, representing 6.2% of ORIX’s outstanding Shares, as part of BlackRock Inc.’sGroup’s assets under management.
RELATED PARTY TRANSACTIONS
To our knowledge, no personindividual beneficially owns 5% or more of any class of the Shares that might give that personindividual 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 the Capital Group, the FMR LLC or other 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.
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.
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) in the foregoing paragraph 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) of the foregoing paragraph. 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 ¥34,085¥47,111 million as of March 31, 20162018 and did not exceed ¥35,000¥54,000 million at any time during fiscal 2016.
2018.
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 20162018 and the aggregate amount outstanding as of March 31, 2016.2018.
Related Party | The largest aggregate amount outstanding during fiscal 2016 | Aggregate amount outstanding as of March 31, 2016 | Interest rate | |||||||||
(Millions of yen) | (%) | |||||||||||
Flexible Energy Service Co., Ltd. | ¥ | 26 | ¥ | 2 | 3.2 – 6.0 | |||||||
Plaza Sunroute Co | 1,196 | 1,105 | 3.5 | |||||||||
Sharp Office Rental Corporation | 1 | 0 | 5.6 | |||||||||
THE CHUGIN LEASE CO., LTD. | 971 | 429 | 1.1 | |||||||||
ORIX JREIT Inc. | 1,000 | 0 | 0.9 | |||||||||
YM Leasing Corporation | 368 | 368 | 1.0 – 1.1 | |||||||||
SHIGAGIN LEASE CAPITAL CO., LTD | 19 | 0 | 0.7 – 1.0 | |||||||||
Pacific League Marketing Corporation | 60 | 60 | 2.9 | |||||||||
Torigin Leasing Corporation | 154 | 32 | 1.0 – 1.2 | |||||||||
TOMONY Lease, Inc. | 220 | 140 | 1.0 | |||||||||
BAROQUE JAPAN Ltd. | 56 | 0 | 4.4 |
Related Party | The largest aggregate amount outstanding during fiscal 2018 | Aggregate amount outstanding as of March 31, 2018 | Interest rate | |||||||||
(Millions of yen) | (%) | |||||||||||
Kansai Airports | ¥ | 12,329 | ¥ | 12,004 | 6.5 | |||||||
SORA Airlease Limited | 18,203 | 9,126 | 6.0 – 9.5 | |||||||||
Dalian Financial & Industrial Investment Group Co., Ltd. | 8,904 | 8,883 | 1.6 – 6.4 | |||||||||
Meritix Airlease Limited | 3,994 | 3,433 | 6.0 – 9.5 | |||||||||
Shipston Equity Holdings, LLC | 2,885 | 2,769 | 13.0 | |||||||||
H&O MEDICAL INC. | 2,090 | 1,980 | 5.0 | |||||||||
Utsunomiya Central Clinic Medical Corporation DIC | 1,960 | 1,960 | 5.0 | |||||||||
TAS Environmental Services L.P., | 1,264 | 1,191 | 12.0 | |||||||||
Magix Airlease Limited | 1,027 | 986 | 9.0 | |||||||||
IOS II, LLC | 956 | 956 | 6.3 | |||||||||
Plaza Sunroute Co. | 1,000 | 955 | 3.5 | |||||||||
RAM INDUSTRIES INC. | 900 | 815 | 13.0 | |||||||||
Timber Parent, LLC | 599 | 567 | 14.0 | |||||||||
ALLIANCE ENVIRONMENTAL GROUP, LLC | 448 | 420 | 12.0 | |||||||||
YM Leasing Corporation | 406 | 406 | 0.9 – 1.1 | |||||||||
Mode Apartments Unit Trust | 757 | 221 | 3.2 | |||||||||
Pacific League Marketing Corporation | 157 | 122 | 2.9 | |||||||||
Sazanka Marine S.A. | 130 | 122 | 1.0 | |||||||||
Tsubaki Marine S.A. | 130 | 122 | 1.0 | |||||||||
Torigin Leasing Corporation | 83 | 49 | 0.8 | |||||||||
Medical Corporation NIDC | 20 | 20 | 5.0 | |||||||||
Kada Greenfarm Co., Ltd. | 3 | 2 | 3.1 | |||||||||
Flexible Energy Service Co., Ltd. | 2 | 2 | 3.2 | |||||||||
Houlihan Lokey, Inc. | 1,683 | 0 | 2.8 | |||||||||
TOMONY Lease, Inc. | 60 | 0 | 1.0 | |||||||||
Hyakugo Leasing Company Limited | 30 | 0 | 0.8 | |||||||||
Tokyo Yamaki Inc. | 20 | 0 | 2.6 | |||||||||
Sharp Office Rental Corporation | 7 | 0 | 5.1 – 5.7 |
Related Party Hyakugo Leasing Company Limited Kansai Airports Wind Power Energy K.K. Hasegawa Holdings Co., Ltd. H&O MEDICAL INC. Roadsafe Traffic Systems, Inc. Matawan Pharmaceuticals LLC RAM INDUSTRIES INC. L&S Mechanical, LLC Ontario Drive & Gear Limited Shipston Equity Holdings, LLC Magix Airlease Limited Aisling Airlease Ltd. Tsubaki Marine S.A. Houlihan Lokey, Inc. Sazanka Marine S.A. Tokyo Yamaki Inc. S-cubism Holdings Inc. The largest aggregate
amount outstanding
during fiscal 2016 Aggregate amount
outstanding as of
March 31, 2016 Interest rate (Millions of yen) (%) 70 50 0.8 12,036 12,036 6.5 220 220 1.3 100 83 1.5 2,200 2,200 5.0 4,045 4,011 6.0 4,043 0 11.0 1,032 947 13.0 424 387 13.0 – 14.0 430 397 13.5 3,031 2,837 12.0 – 13.0 4,106 3,395 9.0 14 0 8.0 328 0 1.0 5,527 5,071 2.0 – 2.3 141 130 1.0 85 85 2.7 100 100 1.5
We are party to various real estate transactions with ORIX JREIT Inc. (“ORIX JREIT”). The Company has no more ability to exercise significant influence against ORIX JREIT, therefore excluded ORIX JREIT from investmentA certain subsidiary invests in affiliates accounted forconvertible bonds issued by using the equity method. Our transactions with ORIX JREIT primarily relate to the purchase of our rental properties by ORIX JREIT. Theseaffiliates. Although these transactions were effected at fair prices based on third-party appraisals, and were valued less than ¥33,600 millionmade in the aggregate for fiscal 2016. We also entered into certain ordinary course of business transactions with ORIX JREIT. These transactionsand are not material to us, although they may be material to ORIX JREIT.the affiliates. The aggregate principal amount of convertible bonds issued by our affiliates to the subsidiary totaled ¥14,105 million as of March 31, 2018.
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.
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.
The following table shows the reported high and low closing sales prices of the Shares on the Tokyo Stock Exchange, excludingoff-floor transactions. High and low sales price quotations from the Tokyo Stock Exchange have been translated in each case into dollars per ADS at the noon buying rate for yen expressed in yen per $1.00 in New York City for cable transfer in foreign currencies on the relevant date or the noon buying rate for yen on the next business day if the relevant date is not a New York business day. On April 1, 2013, the Company implemented a 10-for-1 stock split of common stock held by shareholders registered on the Company’s register of shareholders as of March 31, 2013. 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. In the following tables and elsewhere in this document unless indicated otherwise, numbers of shares of ORIX’s common stock, per share, including price per share, information for ORIX’s common stock and ORIX’s ADS information in this annual report have been retroactively adjusted to reflect the 10-for-1 stock split on April 1, 2013.
TOKYO STOCK EXCHANGE PRICE PER SHARE
Price per Share (¥) | Translated into dollars per ADS | Price per Share (¥) | Translated into dollars per ADS | |||||||||||||||||||||||||||||
High | Low | High | Low | High | Low | High | Low | |||||||||||||||||||||||||
Fiscal Year ended March 31, 2012 | 846 | 555 | 54 | 37 | ||||||||||||||||||||||||||||
Fiscal Year ended March 31, 2013 | 1,217 | 642 | 65 | 41 | ||||||||||||||||||||||||||||
Fiscal Year ended March 31, 2014 | 1,873 | 1,152 | 92 | 61 | 1,873.0 | 1,152.0 | 92 | 61 | ||||||||||||||||||||||||
Fiscal Year ended March 31, 2015 | 1,788.5 | 1,300.0 | 84 | 57 | ||||||||||||||||||||||||||||
Fiscal Year ended March 31, 2016 | 2,022.5 | 1,262.5 | 83 | 59 | ||||||||||||||||||||||||||||
Fiscal Year ended March 31, 2017 | ||||||||||||||||||||||||||||||||
First fiscal quarter | 1,679 | 1,340 | 83 | 66 | 1,686.5 | 1,256.0 | 77 | 62 | ||||||||||||||||||||||||
Second fiscal quarter | 1,706 | 1,513 | 84 | 69 | 1,569.5 | 1,251.0 | 76 | 63 | ||||||||||||||||||||||||
Third fiscal quarter | 1,662.5 | 1,300.0 | 73 | 61 | 1,895.0 | 1,440.5 | 83 | 69 | ||||||||||||||||||||||||
Fourth fiscal quarter | 1,788.5 | 1,312.5 | 75 | 57 | 1,898.0 | 1,647.5 | 81 | 74 | ||||||||||||||||||||||||
Fiscal Year ended March 31, 2016 | ||||||||||||||||||||||||||||||||
Fiscal Year ended March 31, 2018 | ||||||||||||||||||||||||||||||||
First fiscal quarter | 2,022.5 | 1,687.0 | 83 | 71 | 1,803.5 | 1,636.0 | 82 | 74 | ||||||||||||||||||||||||
Second fiscal quarter | 1,914.0 | 1,464.0 | 76 | 63 | 1,851.0 | 1,708.5 | 84 | 78 | ||||||||||||||||||||||||
Third fiscal quarter | 1,850.5 | 1,628.0 | 78 | 68 | 2,039.5 | 1,805.5 | 89 | 81 | ||||||||||||||||||||||||
Fourth fiscal quarter | 1,842.0 | 1,262.5 | 75 | 59 | 2,210.0 | 1,818.5 | 100 | 85 | ||||||||||||||||||||||||
Recent Six Months | ||||||||||||||||||||||||||||||||
December 2015 | 1,815.0 | 1,634.5 | 74 | 69 | ||||||||||||||||||||||||||||
January 2016 | 1,697.0 | 1,425.5 | 71 | 63 | ||||||||||||||||||||||||||||
February 2016 | 1,842.0 | 1,262.5 | 75 | 59 | ||||||||||||||||||||||||||||
March 2016 | 1,645.5 | 1,497.5 | 74 | 68 | ||||||||||||||||||||||||||||
April 2016 | 1,686.5 | 1,496.5 | 77 | 68 | ||||||||||||||||||||||||||||
May 2016 | 1,600.5 | 1,502.5 | 72 | 69 | ||||||||||||||||||||||||||||
December 2017 | 1,935.0 | 1,867.0 | 86 | 83 | ||||||||||||||||||||||||||||
January 2018 | 2,210.0 | 1,977.0 | 100 | 85 | ||||||||||||||||||||||||||||
February 2018 | 2,055.0 | 1,818.5 | 94 | 86 | ||||||||||||||||||||||||||||
March 2018 | 1,914.0 | 1,819.5 | 90 | 87 | ||||||||||||||||||||||||||||
April 2018 | 1,924.0 | 1,834.5 | 88 | 86 | ||||||||||||||||||||||||||||
May 2018 | 2,008.5 | 1,896.0 | 93 | 84 |
NEW YORK STOCK EXCHANGE
The ADS are listed on the New York Stock Exchange under the symbol “IX.”
One ADSs represents five shares.Shares. On March 31, 2016,2018, approximately 5,021,8835,380,864 ADSs were outstanding. This is equivalent to 25,109,41526,904,320 or approximately 1.90%2.10% of the total number of Shares outstanding on that date. On that date, all our ADSs were held by twoone record holdersholder in the United States.
The following table provides the high and low closing sales prices and the average daily trading volume of the ADSs on the New York Stock Exchange based on information provided by Bloomberg L.P.
NYSE PRICE PER ADS
Price per ADS ($) | Average daily trading volume (shares) | Price per ADS ($) | Average daily trading volume (shares) | |||||||||||||||||||||
High | Low | High | Low | |||||||||||||||||||||
Fiscal Year ended March 31, 2012 | 54.23 | 36.94 | 26,119 | |||||||||||||||||||||
Fiscal Year ended March 31, 2013 | 64.53 | 41.28 | 12,818 | |||||||||||||||||||||
Fiscal Year ended March 31, 2014 | 91.83 | 61.24 | 22,160 | 92 | 61 | 22,160 | ||||||||||||||||||
Fiscal Year ended March 31, 2015 | 84 | 57 | 21,637 | |||||||||||||||||||||
Fiscal Year ended March 31, 2016 | 83 | 59 | 35,003 | |||||||||||||||||||||
Fiscal Year ended March 31, 2017 | ||||||||||||||||||||||||
First fiscal quarter | 83.04 | 66.25 | 16,265 | 77 | 62 | 47,269 | ||||||||||||||||||
Second fiscal quarter | 84.27 | 69.00 | 16,618 | 76 | 63 | 50,070 | ||||||||||||||||||
Third fiscal quarter | 73.36 | 60.79 | 26,798 | 83 | 69 | 45,264 | ||||||||||||||||||
Fourth fiscal quarter | 74.69 | 57.04 | 26,984 | 81 | 74 | 36,993 | ||||||||||||||||||
Fiscal Year ended March 31, 2016 | ||||||||||||||||||||||||
Fiscal Year ended March 31, 2018 | ||||||||||||||||||||||||
First fiscal quarter | 82.78 | 71.26 | 39,876 | 82 | 74 | 32,153 | ||||||||||||||||||
Second fiscal quarter | 76.38 | 62.96 | 26,016 | 84 | 78 | 29,846 | ||||||||||||||||||
Third fiscal quarter | 77.81 | 67.57 | 22,261 | 89 | 81 | 23,104 | ||||||||||||||||||
Fourth fiscal quarter | 75.14 | 58.95 | 52,768 | 100 | 85 | 42,209 | ||||||||||||||||||
Recent Six Months | ||||||||||||||||||||||||
December 2015 | 73.57 | 68.56 | 27,884 | |||||||||||||||||||||
January 2016 | 71.34 | 62.75 | 49,639 | |||||||||||||||||||||
February 2016 | 75.14 | 58.95 | 51,912 | |||||||||||||||||||||
March 2016 | 73.51 | 68.37 | 56,250 | |||||||||||||||||||||
April 2016 | 76.65 | 67.88 | 35,321 | |||||||||||||||||||||
May 2016 | 72.21 | 68.54 | 29,347 | |||||||||||||||||||||
December 2017 | 86 | 83 | 20,002 | |||||||||||||||||||||
January 2018 | 100 | 85 | 41,142 | |||||||||||||||||||||
February 2018 | 94 | 86 | 56,571 | |||||||||||||||||||||
March 2018 | 90 | 87 | 31,261 | |||||||||||||||||||||
April 2018 | 88 | 86 | 25,113 | |||||||||||||||||||||
May 2018 | 93 | 84 | 38,280 |
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 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) supply of various energy resources and the products in relation thereto; (xv) planning, developing, contracting for, lease and sale of, intangible property rights; (xvi) information processing and providing services, telecommunications business; (xvii) business of dispatching workers to enterprise and employment agency business; (xviii) purchase and sale of antiques; (xix) transport business; (xx) mining of various minerals, and the manufacture and sale of the products in relation thereto; (xxi) business support and consulting; (xxii) brokerage, agency, investigation, manufacturing, processing, research and consultingdevelopment for business relating to any of the preceding items, and pension consulting service; (xxi)other business; (xxiii) 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 (xxii)(xxiv) 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 andnon-assessable.
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 21 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 at4-5, Marunouchi1-chome,Chiyoda-ku, Tokyo100-8212, 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.
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 thanone-quarter of our stated capital, we must, until such sum reachesone-quarter of the stated capital, set aside in our capital reserve and/or earned surplus reserve an amount equal toone-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 theone-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.
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, theex-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 goesex-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 exceedingone-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 additionalpaid-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, additionalpaid-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 aten-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; |
(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.
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 isone-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 isone-third of the total number of voting rights and the approval by at leasttwo-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 nopre-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.
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.
None.
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 fornon-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 which are organized under the laws of foreign countries or whose principal offices are located outside Japan, and (iii) corporations (1) of which 50% or more of their voting rights are held, directly or indirectly, by (i) and/or (ii) or (2) a majority of the officers (or officers having the power of representation) of which 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. While prior notification, as described above, is not 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 anover-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 10% or more of the issued shares of the relevant company, the foreign investor is, in general, required to report such acquisition to the Minister of Finance and any other competent Ministers by the 15th day of the calendar month following the date of such acquisition. In certain exceptional cases, prior notification is required with respect to such 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 Japanese financial instruments exchange (such as the shares of capital stock of ORIX) or whose shares are traded on theover-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 his exchange of exchangeable securities or exercise of Stock Acquisition Rights are taken into account in determining both the size of his 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
ORIX has paid dividends on the Shares on an annual basis in each year since 1967. With the adoption of a “Company with Committees” board model in June 2003, the board of directors has been responsible for setting the annual dividend per common share since the fiscal year ended March 31, 2004. The board of directors approves annual dividends at the board of directors’ meeting customarily held in May of each year. Following such approval, dividends are paid to holders of record as of the preceding March 31. We have implemented an interim dividend starting from the fiscal year ended March 31, 2016 (dividend calculation based on the retained earnings recorded on September 30, 2015).
The following table shows the amount of dividends applicable to fiscal year per Shareshare 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. On April 1, 2013, the Company implemented a 10-for-1 stock split of common stock held by shareholders registered on the Company’s register of shareholders as of March 31, 2013. 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. In the following tables and elsewhere in this document unless indicated otherwise, numbers of shares of ORIX’s common stock, per share, including price per share, information for ORIX’s common stock and ORIX’s ADS information in this annual report have been retroactively adjusted to reflect the 10-for-1 stock split on April 1, 2013.
Year ended | Dividends applicable to fiscal year per Share | Translated into dollar per ADS | ||||||
March 31, 2012 | 9.00 | 0.57 | ||||||
March 31, 2013 | 13.00 | 0.64 | ||||||
March 31, 2014 | 23.00 | 1.12 | ||||||
March 31, 2015 | 36.00 | 1.45 | ||||||
March 31, 2016 | 45.75 | 2.09 |
Year ended | Dividends applicable to fiscal year per Share | Translated into dollar per ADS | ||||||
March 31, 2014 | 23.00 | 1.12 | ||||||
March 31, 2015 | 36.00 | 1.45 | ||||||
March 31, 2016 | 45.75 | 2.09 | ||||||
March 31, 2017 | 52.25 | 2.39 | ||||||
March 31, 2018 | 66.00 | 3.01 |
ORIX aims to increase shareholder value by utilizing profits earned from business activities that were secured primarily as retained earnings, 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 thea level in line with its business performance.
Based on this fundamental, dividend is paid twice in the fiscal year and the annual dividend is raised to 45.75 yen per share (interim dividend paid is 22.00 yen per share and year-end dividend is 23.75 yen per share) from 36.00 yen per share in the previous fiscal year.
With In addition, with regards to the decision of share buyback,whether to buy back shares, ORIX aims to act with flexibility and swiftness while considering various factors such as the adequate level of the Company’s retained earnings, the soundness of its financial condition and external factors such as changes in the business environment, and share price valuation and its trend.trend and target performance indicators.
Based on this fundamental policy, the dividend payout ratio for the fiscal year ended March 31, 2018 has been decided at 27%, up 2% from the fiscal year ended March 31, 2017, and the annual dividend is 66.00 yen per share (interim dividend paid was 27.00 yen per share andyear-end dividend is 39.00 yen per share) from 52.25 yen per share in the previous fiscal year.
For the next fiscal year ending on March 31, 2017,2019, we expect the dividend payout ratio will continue tobe maintained at 27% with a focus on the optimal balance betweenof securing of capital for investment in future profit growth and providing the appropriate levelmaking of dividendstable and sustainable distribution of dividends to shareholders. Furthermore, dividend distribution for the next fiscal year is also scheduled twice a year with an interim dividend and a year-end dividend. The interim dividend for the next fiscal year is projectedforecasted at 23.0030.00 yen per share. Theyear-end dividend for the next fiscal year is to be determined.
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 ornon-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.
Shares
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 (i) 7% for dividends due and payable on or before December 31, 2012, (ii) 7.147% for dividends due and payable on or after January 1, 2013 through December 31, 2013, and (iii) 15.315% for dividends due and payable on or after January 1, 2014.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 (i) 20% for dividends due and payable on or before December 31, 2012, and (ii) 20.42% for dividends due and payable on or after January 1, 2013.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 of America 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 donee.
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 amark-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 is 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 voting stock of the Company;
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.
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.
The U.S. Treasury has expressed concerns that parties to whom American depositary shares are released prior to delivery of shares to the depositary(“pre-release”), or intermediaries in the chain of ownership between U.S. Holders and the issuer of the security underlying the American depositary shares, may be taking actions that are inconsistent with the claiming of foreign tax credits by U.S. Holders of American depositary shares. Accordingly, the creditability of Japanese taxes, described below, could be affected by actions taken by such parties or intermediaries.
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 certainnon-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.”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, and subject to the discussion above regarding concerns expressed by the U.S. Treasury, 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 amark-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 otherwisetax-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 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 allocated to such taxable year.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.
Under certain attribution rules, ifIf 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 amark-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 ade 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, themark-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 themark-to-market election. However, even if a U.S. Holder makes amark-to-market election with respect to our Shares or ADSs, a U.S. Holder will not be able to make amark-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 amark-to-market
election in their particular circumstances. In particular, U.S. Holders should consider carefully the impact of amark-to-market election with respect to their ADSs given that we may have subsidiary PFICs for which amark-to-market election may not be available.
If a U.S. Holder is eligible and makes themark-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 themark-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.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 themark-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.
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 themark-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 certainU.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 under recently finalized Treasury regulations, specifiedcertain entities that are formed or availed of for purposes of holding certain foreign financial assets)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 anon-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 Form20-F and furnish periodic reports on Form6-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 at1-800-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.
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 are 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 investment in direct financing 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. Movements in market interest rates affect gains and losses.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.
We manage asset liabilityassets and liabilities through various methods including conducting gains and losses impact analysis and balance sheet fair value analysis when market interest rates fluctuate, constructing balance sheets for fixed rate assets and liabilities, and those for floating rate, testing interest rate sensitivities.
The table below of interest rate sensitivity for financial instruments summarizes installment loans, investment in securities (floating and fixed rate) and long- and short-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 contractual period and the weighted average of swap rates are disclosed. The average interest rates of financial instruments as of March 31, 20162018 were: 4.2%3.9% for installment loans, 1.9%2.1% for investment in securities (floating and fixed rate), 1.1%1.5% for long- and short-term debt and 0.3%0.2% for deposits. As of March 31, 2016,2018, the average payment rate of interest rate swaps was 1.0%1.2% and the average receipt rate was 0.5%0.2%. The average interest rates of financial instruments as of March 31, 20152017 were: 3.9%4.1% for installment loans, 1.6%2.2% for investmentsinvestment in securities (floating and fixed rate), 1.4%1.2% for long- and short-term debt and 0.3%0.2% for deposits. As of March 31, 2015,2017, the average payment rate of interest rate swaps was 1.0%0.9% and the average receipt rate was 1.6%0.3%. As of March 31, 2016,2018, there was no material change in the balance or in the average interest rate of financial instruments from March 31, 2015.2017. The table below shows our interest rate risk exposure and the results of our interest rate sensitivity analysis.
INTEREST RATE SENSITIVITY
NONTRADING FINANCIAL INSTRUMENTS
Expected Maturity Date | Thereafter | Total | March 31, 2016 Estimated Fair Value | Expected Maturity Date | Thereafter | Total | March 31, 2018 Estimated Fair Value | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended and ending March 31, | Year ending March 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2017 | 2018 | 2019 | 2020 | 2021 | 2019 | 2020 | 2021 | 2022 | 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Millions of yen) | (Millions of yen) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Installment loans (fixed rate) | ¥ | 256,499 | ¥ | 129,795 | ¥ | 107,193 | ¥ | 67,154 | ¥ | 56,206 | ¥ | 288,518 | ¥ | 905,365 | ¥ | 903,567 | ¥ | 251,418 | ¥ | 129,382 | ¥ | 98,776 | ¥ | 77,324 | ¥ | 55,733 | ¥ | 359,174 | ¥ | 971,807 | ¥ | 965,421 | ||||||||||||||||||||||||||||||||
Average interest rate | 6.1 | % | 7.7 | % | 7.3 | % | 7.1 | % | 7.6 | % | 4.8 | % | 6.2 | % | — | 5.7 | % | 7.3 | % | 7.3 | % | 7.0 | % | 6.9 | % | 4.6 | % | 5.9 | % | — | ||||||||||||||||||||||||||||||||||
Installment loans (floating rate) | ¥ | 152,247 | ¥ | 157,565 | ¥ | 160,280 | ¥ | 133,719 | ¥ | 163,695 | ¥ | 888,838 | ¥ | 1,656,344 | ¥ | 1,627,149 | ¥ | 218,624 | ¥ | 171,667 | ¥ | 179,526 | ¥ | 109,511 | ¥ | 92,348 | ¥ | 1,061,353 | ¥ | 1,833,029 | ¥ | 1,808,007 | ||||||||||||||||||||||||||||||||
Average interest rate | 3.6 | % | 3.8 | % | 3.5 | % | 3.6 | % | 3.7 | % | 2.6 | % | 3.1 | % | — | 3.2 | % | 3.6 | % | 4.2 | % | 3.5 | % | 3.9 | % | 2.4 | % | 2.9 | % | — | ||||||||||||||||||||||||||||||||||
Investment in securities (fixed rate) | ¥ | 89,099 | ¥ | 53,279 | ¥ | 89,857 | ¥ | 93,970 | ¥ | 117,663 | ¥ | 784,469 | ¥ | 1,228,337 | ¥ | 1,304,052 | ¥ | 72,087 | ¥ | 61,157 | ¥ | 68,059 | ¥ | 33,028 | ¥ | 35,975 | ¥ | 707,280 | ¥ | 977,586 | ¥ | 1,011,520 | ||||||||||||||||||||||||||||||||
Average interest rate | 0.7 | % | 1.0 | % | 0.6 | % | 0.7 | % | 0.9 | % | 2.2 | % | 1.7 | % | — | 0.9 | % | 0.7 | % | 1.2 | % | 1.4 | % | 1.7 | % | 2.1 | % | 1.8 | % | — | ||||||||||||||||||||||||||||||||||
Investment in securities (floating rate) | ¥ | 9,552 | ¥ | 7,321 | ¥ | 13,228 | ¥ | 5,062 | ¥ | 5,670 | ¥ | 43,549 | ¥ | 84,382 | ¥ | 78,013 | ¥ | 6,769 | ¥ | 4,441 | ¥ | 6,424 | ¥ | 2,780 | ¥ | 7,962 | ¥ | 60,071 | ¥ | 88,447 | ¥ | 91,183 | ||||||||||||||||||||||||||||||||
Average interest rate | 4.0 | % | 5.9 | % | 5.0 | % | 4.1 | % | 5.3 | % | 5.4 | % | 5.1 | % | — | 5.1 | % | 5.5 | % | 5.8 | % | 5.0 | % | 5.7 | % | 5.5 | % | 5.5 | % | — | ||||||||||||||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Short-term debt | ¥ | 349,624 | ¥ | — | ¥ | — | ¥ | — | ¥ | — | ¥ | — | ¥ | 349,624 | ¥ | 349,624 | ¥ | 306,754 | ¥ | 0 | ¥ | 0 | ¥ | 0 | ¥ | 0 | ¥ | 0 | ¥ | 306,754 | ¥ | 306,754 | ||||||||||||||||||||||||||||||||
Average interest rate | 1.3 | % | — | — | — | — | — | 1.3 | % | — | 2.3 | % | — | — | — | — | — | 2.3 | % | — | ||||||||||||||||||||||||||||||||||||||||||||
Deposits | ¥ | 920,685 | ¥ | 223,410 | ¥ | 121,611 | ¥ | 52,595 | ¥ | 80,171 | ¥ | — | ¥ | 1,398,472 | ¥ | 1,400,528 | ¥ | 1,123,696 | ¥ | 150,324 | ¥ | 389,973 | ¥ | 27,909 | ¥ | 65,060 | ¥ | 500 | ¥ | 1,757,462 | ¥ | 1,759,248 | ||||||||||||||||||||||||||||||||
Average interest rate | 0.2 | % | 0.3 | % | 0.4 | % | 0.4 | % | 0.4 | % | — | 0.3 | % | — | 0.2 | % | 0.3 | % | 0.3 | % | 0.2 | % | 0.3 | % | 0.2 | % | 0.2 | % | — | |||||||||||||||||||||||||||||||||||
Long-term debt (fixed rate) | ¥ | 518,285 | ¥ | 457,499 | ¥ | 313,269 | ¥ | 150,144 | ¥ | 226,911 | ¥ | 285,447 | ¥ | 1,951,555 | ¥ | 1,967,850 | ¥ | 309,069 | ¥ | 220,413 | ¥ | 297,342 | ¥ | 269,662 | ¥ | 221,493 | ¥ | 509,087 | ¥ | 1,827,066 | ¥ | 1,815,361 | ||||||||||||||||||||||||||||||||
Average interest rate | 1.5 | % | 1.4 | % | 1.5 | % | 1.1 | % | 1.4 | % | 1.0 | % | 1.3 | % | — | 1.2 | % | 1.5 | % | 1.5 | % | 1.6 | % | 1.5 | % | 1.6 | % | 1.5 | % | — | ||||||||||||||||||||||||||||||||||
Long-term debt (floating rate) | ¥ | 339,805 | ¥ | 301,985 | ¥ | 299,631 | ¥ | 250,070 | ¥ | 214,761 | ¥ | 583,099 | ¥ | 1,989,351 | ¥ | 1,991,316 | ¥ | 342,992 | ¥ | 282,610 | ¥ | 205,811 | ¥ | 194,658 | ¥ | 263,759 | ¥ | 709,608 | ¥ | 1,999,438 | ¥ | 2,015,168 | ||||||||||||||||||||||||||||||||
Average interest rate | 1.2 | % | 0.9 | % | 0.9 | % | 1.1 | % | 1.1 | % | 0.8 | % | 0.9 | % | — | 1.5 | % | 1.7 | % | 1.4 | % | 1.7 | % | 1.2 | % | 1.3 | % | 1.4 | % | — |
NONTRADING DERIVATIVE FINANCIAL INSTRUMENTS
Expected Maturity Date | Thereafter | Total | March 31, 2016 Estimated Fair Value | |||||||||||||||||||||||||||||
Year ended and ending March 31, | ||||||||||||||||||||||||||||||||
2017 | 2018 | 2019 | 2020 | 2021 | ||||||||||||||||||||||||||||
(Millions of yen) | ||||||||||||||||||||||||||||||||
Interest rate swaps: | ||||||||||||||||||||||||||||||||
Notional amount (floating to fixed) | ¥ | 7,905 | ¥ | 19,487 | ¥ | 64,464 | ¥ | 28,275 | ¥ | 2,768 | ¥ | 136,657 | ¥ | 259,556 | ¥ | (5,906 | ) | |||||||||||||||
Average pay rate | 3.3 | % | 1.9 | % | 0.6 | % | 0.6 | % | 2.2 | % | 1.0 | % | 1.0 | % | — | |||||||||||||||||
Average receive rate | 2.9 | % | 1.6 | % | 0.5 | % | 0.4 | % | 1.4 | % | 0.2 | % | 0.5 | % | — | |||||||||||||||||
Notional amount (fixed to floating) | ¥ | 0 | ¥ | 3,000 | ¥ | 0 | ¥ | 0 | ¥ | 0 | ¥ | 0 | ¥ | 3,000 | ¥ | 77 | ||||||||||||||||
Average pay rate | — | 2.0 | % | — | — | — | — | 2.0 | % | — | ||||||||||||||||||||||
Average receive rate | — | 2.1 | % | — | — | — | — | 2.1 | % | — |
Expected Maturity Date | Thereafter | Total | March 31, 2018 Estimated Fair Value | |||||||||||||||||||||||||||||
Year ending March 31, | ||||||||||||||||||||||||||||||||
2019 | 2020 | 2021 | 2022 | 2023 | ||||||||||||||||||||||||||||
(Millions of yen) | ||||||||||||||||||||||||||||||||
Interest rate swaps: | ||||||||||||||||||||||||||||||||
Notional amount (floating to fixed) | ¥ | 67,725 | ¥ | 32,547 | ¥ | 8,431 | ¥ | 12,982 | ¥ | 27,331 | ¥ | 147,886 | ¥ | 296,902 | ¥ | (4,596 | ) | |||||||||||||||
Average pay rate | 0.7 | % | 0.8 | % | 2.4 | % | 1.4 | % | 1.6 | % | 1.4 | % | 1.2 | % | — | |||||||||||||||||
Average receive rate | 0.3 | % | 0.5 | % | 1.4 | % | 0.8 | % | 1.0 | % | (0.1 | %) | 0.2 | % | — | |||||||||||||||||
Notional amount (fixed to floating) | ¥ | 1,372 | ¥ | 0 | ¥ | 0 | ¥ | 29 | ¥ | 65 | ¥ | 51 | ¥ | 1,517 | ¥ | (1 | ) | |||||||||||||||
Average pay rate | 0.0 | % | — | — | 7.8 | % | (0.3 | %) | 2.6 | % | 0.2 | % | — | |||||||||||||||||||
Average receive rate | 2.2 | % | — | — | 7.4 | % | 0.5 | % | 3.4 | % | 2.2 | % | — |
The above table excludes “purchased loans” forloans,” which there isare exposed to interest rate exposure. We acquirerisk, 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 under ASC 310-30 (“Receivables—Loans and Debt Securities Acquired with Deteriorated Credit Quality”). We refer to these as “purchased loans.” It is difficult to estimate the timing and extent of collection for these loans.unlikely. The total book value of our purchased loans as of March 31, 20162018 was to ¥30,524¥18,933 million.
Long-term debt (floating rate) in the table above includes the amount of the ¥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 can be repaid after 5 years and 7 years, respectively.
We are also exposed to interest rate risks onin our life insurance businesses, because revenues from life insurance related investment income fluctuates based on changes in market interest rate,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 subject to exchange rate including retained earnings accumulated in foreign currencies in our overseas subsidiaries, which is translated to Japanese yen upon consolidation, as a major positionthat are subject to exchange rate risk. ORIX shareholders’ equity is accordingly subject to exchange rate risk arising from such translations. For otherOther positions, such as potential losses in future earnings, are calculated using several hypothetical scenarios withbased on 10% changes in the relevant currencies. Based on these scenarios, exchange losses in future earnings were estimated to be ¥1,395¥635 million and ¥1,069¥570 million as of March 31, 20152017 and 2016,2018, respectively. The largest of such losses were estimated in scenarios where the euro appreciated 10% against the U.S. dollar from the rate in effect on March 31, 20152017 and 2016.2018.
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 risksrisk 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, 20152017 and 2016,2018, respectively, and under such circumstances estimate ¥15,493¥9,303 million and ¥11,135¥5,360 million decrease in the fair value of our equity securities as of March 31, 20152017 and 2016.2018.
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;
Fees for the transfer and registration of Shares charged by the registrar and transfer agent for the Shares in Japan (i.e., upon deposit and withdrawal of Shares);
Expenses incurred for converting foreign currency into U.S. dollars;
Expenses for cable, telex and fax transmissions and for delivery of securities;
Fees and expenses of the Depositary incurred in connection with compliance with exchange control regulations and regulatory requirements applicable to the Shares or ADSs; and
Fees and expenses of the Depositary in delivering deposited securities.
We have agreed to pay some other charges and expenses of the depositary bank. Note that the fees and charges you may be required to pay may vary over time and may be changed by us and by the depositary bank. You will receive prior notice of these changes.
PAYMENTS TO ORIX FROM THE DEPOSITARY
The Depositary has agreed to reimburse us for certain expenses we incur in connection with our ADR program. These reimbursable expenses include investor relations expenses, and proxy voting and related expenses. In fiscal 2016,2018, this amount was $80,250.$80,000.
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 a10-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, 2016,2018, the ORIX Group, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer,principal financial officer, performed an evaluation of the effectiveness of the ORIX Group’s disclosure controls and procedures (as defined in Rule13a-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 Chief Financial Officerprincipal 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 Rule13a-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 Chief Financial Officerprincipal 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 of America 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, of America, 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.
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, 20162018 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, 2016.
2018.
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, 2016,2018, as stated in their attestation report which is included in Item 18 (pageF-3).
Item 16A. Audit Committee Financial Expert
Our board of directors has determined that Eiko Tsujiyama is an “audit committee financial expert,” within the meaning of the current rules of the U.S. Securities and Exchange Commission. Eiko Tsujiyama is “independent” as required by Section 303A.06 of the New York Stock Exchange Listed Company Manual.
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 20152017 and 2016,2018, KPMG (including Japanese and overseas affiliates of KPMG AZSA LLC) billed us ¥2,440¥2,443 million and ¥2,338¥2,976 million, respectively, for direct audit fees.
AUDIT-RELATED FEES
In fiscal 20152017 and 2016,2018, KPMG billed us ¥108¥137 million and ¥101¥119 million, respectively, for audit-related services, including attestation, assurance and related services related to due diligence.that are not reported under audit fees.
TAX FEES
In fiscal 20152017 and 2016,2018, KPMG billed us ¥172¥161 million and ¥139¥155 million, respectively, fortax-related services, including tax compliance and tax advice.
ALL OTHER FEES
In fiscal 2015 and 2016, KPMG billed us ¥14 million and ¥1 million, respectively, for other products and services which primarily consisted of advisory services.
AUDIT COMMITTEE’SPRE-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 thenon-audit services of the independent registered public accounting firm, preapproval is obtained from the Audit Committee on acase-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, 2016 | (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) | (d) Maximum Number (or Approximate Yen Value) of Shares that May Yet be Purchased Under the Plans or Programs(1) | ||||||||||||
April 2015 | 130 | ¥ | 1,810 | 0 | ¥ | 0 | ||||||||||
May 2015 | 60 | 1,881 | 0 | 0 | ||||||||||||
June 2015 | 68 | 1,854 | 0 | 0 | ||||||||||||
July 2015 | 290 | 1,775 | 0 | 0 | ||||||||||||
August 2015 | 160 | 1,813 | 0 | 0 | ||||||||||||
September 2015 | 40 | 1,571 | 0 | 0 | ||||||||||||
October 2015 | 0 | 0 | 0 | 0 | ||||||||||||
November 2015 | 160 | 1,813 | 0 | 0 | ||||||||||||
December 2015 | 166 | 1,729 | 0 | 0 | ||||||||||||
January 2016 | 100 | 1,662 | 0 | 0 | ||||||||||||
February 2016 | 0 | 0 | 0 | 0 | ||||||||||||
March 2016 | 0 | 0 | 0 | 0 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 1,174 | ¥ | 1,776 | 0 | ¥ | 0 | ||||||||||
|
|
|
|
|
|
|
|
Year ended March 31, 2018 | (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 | (d) Maximum Number (or Approximate Yen Value) of Shares that May Yet be Purchased Under the Plans or Programs*1,2 | ||||||||||||
April 2017 | 23,448,540 | ¥ | 1,668 | 23,448,500 | 0 | |||||||||||
May 2017 | 0 | 0 | 0 | 0 | ||||||||||||
June 2017 | 90 | 1,761 | 0 | 0 | ||||||||||||
July 2017 | 80 | 1,773 | 0 | 0 | ||||||||||||
August 2017 | 80 | 1,803 | 0 | 0 | ||||||||||||
September 2017 | 61 | 1,748 | 0 | 0 | ||||||||||||
October 2017 | 111 | 1,852 | 0 | 0 | ||||||||||||
November 2017 | 60 | 1,994 | 0 | 0 | ||||||||||||
December 2017 | 110 | 1,889 | 0 | 0 | ||||||||||||
January 2018 | 60 | 2,072 | 0 | 0 | ||||||||||||
February 2018 | 20 | 2,106 | 0 | 0 | ||||||||||||
March 2018 | 20 | 1,942 | 0 | 0 | ||||||||||||
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|
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|
| |||||||||
Total | 23,449,232 | ¥ | 1,668 | 23,448,500 | ¥ | 0 | ||||||||||
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*2 | The share repurchase based on the above resolution at the Board of Directors meeting was completed. The details of share repurchasing are as follows. |
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.
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 our committees must be “outside directors”—a Japanese law concept that shares similarities with the U.S. concept of “independent director.” 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 of our 1312 directors are considered outside directors. 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 adviser.
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 (collectively called “Executive Directors and Employees”) of the Company or its subsidiaries (collectively called “Executive Directors And Employees”) and who has not been the Executive Directors and Employees in the past 10 years of the Company or its subsidiaries; (ii) who has not been the Executive Directors Andand Employees 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 50 percent or more of the Company’s shares, etc., or has not been a director, executive officer, manager or any other kind of employeesthe Executive Directors and Employees of the parent company of the Company; (iv) who has not been the Executive Directors Andand Employees 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 50 percent or more 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 criteria 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 adviser only after taking into consideration all factors relevant to determining the adviser’s independence from management.
ORIX has elected to provide financial statements and related information pursuant to Item 18.
See pagesF-1 throughF-139.
The following consolidated financial statements of ORIX listed below and the report thereon by its independent registered public accounting firm are filed as part of this Form20-F:
(a) | Consolidated Balance Sheets as of March 31, |
(b) | Consolidated Statements of Income for the years ended March 31, |
(c) | Consolidated Statements of Comprehensive Income for the years ended March 31, |
(d) | Consolidated Statements of Changes in Equity for the years ended March 31, |
(e) | Consolidated Statements of Cash Flows for the years ended March 31, |
(f) | Notes to Consolidated Financial Statements (pageF-12 toF-138); |
(g) | Schedule II.—Valuation and Qualifying Accounts and Reserves (pageF-139). |
We have filed the following documents as exhibits to this document.
We have not included as exhibits certain instruments with relation to our long-term debt or the long-term debt of our subsidiaries. The total amount of securities of us or our subsidiaries authorized under any such instrument does not exceed 10% of our consolidated total assets. We hereby agree to furnish to the SEC, upon its request, a copy of any and all such instruments.
The company hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
ORIX KABUSHIKI KAISHA | ||
By: | /s/ | |
Name: | ||
Title: | Attorney-in-Fact
|
Date: June 23, 201628, 2018
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page | ||||
F-2 | ||||
Consolidated Balance Sheets as of March 31, | F-4 | |||
Consolidated Statements of Income For the Years Ended March 31, | F-6 | |||
F-8 | ||||
F-9 | ||||
F-11 | ||||
F-12 | ||||
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of
ORIX Corporation: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 “Company”) as of March 31, 20152018 and 2016,2017, the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the years in thethree-year period ended March 31, 2018, and the related notes and financial statement schedule II (collectively, the “consolidated financial statements”). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of March 31, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the three-year period ended March 31, 2018, 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 Company’s internal control over financial reporting as of March 31, 2018, 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 28, 2018 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’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 Company 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.
KPMG AZSA LLC
We have served as the Company’s auditor since 1985.
Tokyo, Japan
June 28, 2018
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 “Company”) internal control over financial reporting as of March 31, 2018, 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 Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2018, 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 Company as of March 31, 2018 and 2017, 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, 2016. In connection with our audits of2018, and the consolidated financial statements, we also have audited financial statement Schedule II. These consolidated financial statementsrelated notes and financial statement schedule areII (collectively, the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated“consolidated financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of ORIX Corporation and its subsidiaries as of March 31, 2015 and 2016, and the results of their operations and their cash flows for each of the years in the three-year period ended March 31, 2016, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), ORIX Corporation’s internal control over financial reporting as of March 31, 2016, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)statements”), and our report dated June 23, 201628, 2018 expressed an unqualified opinion on the effectiveness of ORIX Corporation’s internal control overthose consolidated financial reporting.statements.
Basis for Opinion
KPMG AZSA LLC
Tokyo, Japan
June 23, 2016
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of ORIX Corporation:
We have audited ORIX Corporation’s (a Japanese corporation) internal control over financial reporting as of March 31, 2016, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’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, included in Item 15 “Controls and Procedures” of the accompanying Form 20-F.Reporting. Our responsibility is to express an opinion on ORIX Corporation’sthe Company’s 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 Company 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 Public Company Accounting Oversight Board (United States).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.
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.
In our opinion, ORIX Corporation maintained, in all material respects, effective internal control over financial reporting as of March 31, 2016, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of ORIX Corporation and its subsidiaries as of March 31, 2015 and 2016, 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, 2016, and our report dated June 23, 2016 expressed an unqualified opinion on those consolidated financial statements.
KPMG AZSA LLC
Tokyo, Japan
June 23, 201628, 2018
AS OF MARCH 31, 20152017 AND 20162018
ORIX Corporation and Subsidiaries
Millions of yen | Millions of yen | |||||||||||||||||||||
2015 | 2016 | 2017 | 2018 | |||||||||||||||||||
ASSETS | ASSETS | |||||||||||||||||||||
Cash and Cash Equivalents | ¥ | 827,518 | ¥ | 730,420 | Cash and Cash Equivalents | ¥ | 1,039,870 | ¥ | 1,321,241 | |||||||||||||
Restricted Cash | 85,561 | 80,979 | Restricted Cash | 93,342 | 83,876 | |||||||||||||||||
Investment in Direct Financing Leases | 1,216,454 | 1,190,136 | Investment in Direct Financing Leases | 1,204,024 | 1,194,888 | |||||||||||||||||
Installment Loans | 2,478,054 | 2,592,233 | Installment Loans | 2,815,706 | 2,823,769 | |||||||||||||||||
(The amounts of ¥15,361 million as of March 31, 2015 and ¥20,673 million as of March 31, 2016 are measured at fair value by electing the fair value option under FASB ASC 825.) | ||||||||||||||||||||||
The amounts which are measured at fair value by electing the fair value option are as follows: | The amounts which are measured at fair value by electing the fair value option are as follows: | |||||||||||||||||||||
March 31, 2017 | ¥ | 19,232 | million | |||||||||||||||||||
March 31, 2018 | ¥ | 17,260 | million | |||||||||||||||||||
Allowance for Doubtful Receivables on Direct Financing Leases and Probable Loan Losses | (72,326 | ) | (60,071 | ) | Allowance for Doubtful Receivables on Direct Financing Leases and Probable Loan Losses | (59,227 | ) | (54,672 | ) | |||||||||||||
Investment in Operating Leases | 1,296,220 | 1,349,199 | Investment in Operating Leases | 1,313,164 | 1,344,926 | |||||||||||||||||
Investment in Securities | 2,846,257 | 2,344,792 | Investment in Securities | 2,026,512 | 1,729,455 | |||||||||||||||||
(The amounts of ¥16,891 million as of March 31, 2015 and ¥27,367 million as of March 31, 2016 are measured at fair value by electing the fair value option under FASB ASC 825.) | ||||||||||||||||||||||
The amounts which are measured at fair value by electing the fair value option are as follows: | The amounts which are measured at fair value by electing the fair value option are as follows: | |||||||||||||||||||||
March 31, 2017 | ¥ | 24,894 | million | |||||||||||||||||||
March 31, 2018 | ¥ | 37,631 | million | |||||||||||||||||||
Property under Facility Operations | 278,100 | 327,016 | Property under Facility Operations | 398,936 | 434,786 | |||||||||||||||||
Investment in Affiliates | 378,087 | 530,667 | Investment in Affiliates | 524,234 | 591,363 | |||||||||||||||||
Trade Notes, Accounts and Other Receivable | 348,404 | 294,638 | Trade Notes, Accounts and Other Receivable | 283,427 | 294,773 | |||||||||||||||||
Inventories | 165,540 | 139,950 | Inventories | 117,863 | 111,001 | |||||||||||||||||
Office Facilities | 131,556 | 120,173 | Office Facilities | 110,781 | 112,962 | |||||||||||||||||
Other Assets | 1,464,203 | 1,356,774 | Other Assets | 1,363,263 | 1,437,614 | |||||||||||||||||
(The amount of ¥36,038 million as of March 31, 2015 and ¥37,855 million as of March 31, 2016 are measured at fair value by electing the fair value option under FASB ASC 825.) | ||||||||||||||||||||||
The amounts which are measured at fair value by electing the fair value option are as follows: | The amounts which are measured at fair value by electing the fair value option are as follows: | |||||||||||||||||||||
March 31, 2017 | ¥ | 22,116 | million | |||||||||||||||||||
March 31, 2018 | ¥ | 15,008 | million | |||||||||||||||||||
|
|
|
| |||||||||||||||||||
Total Assets | ¥ | 11,443,628 | ¥ | 10,996,906 | Total Assets | ¥ | 11,231,895 | ¥ | 11,425,982 | |||||||||||||
|
|
|
|
: The assets of consolidated variable interest entities (VIEs) that can be used only to settle obligations of those VIEs are below: |
Millions of yen | Millions of yen | |||||||||||||||
2015 | 2016 | 2017 | 2018 | |||||||||||||
Cash and Cash Equivalents | ¥ | 5,242 | ¥ | 4,697 | ¥ | 5,674 | ¥ | 4,553 | ||||||||
Investment in Direct Financing Leases (Net of Allowance for Doubtful Receivables on Direct Financing Leases and Probable Loan Losses) | 153,951 | 134,604 | 90,822 | 43,942 | ||||||||||||
Installment Loans (Net of Allowance for Doubtful Receivables on Direct Financing Leases and Probable Loan Losses) | 171,163 | 195,702 | 186,818 | 36,991 | ||||||||||||
Investment in Operating Leases | 252,234 | 227,340 | 151,686 | 124,998 | ||||||||||||
Property under Facility Operations | 39,153 | 79,697 | 109,656 | 108,115 | ||||||||||||
Investment in Affiliates | 11,905 | 65,059 | 53,046 | 52,450 | ||||||||||||
Others | 93,983 | 93,410 | ||||||||||||||
Other | 105,591 | 74,645 | ||||||||||||||
|
|
|
| |||||||||||||
¥ | 727,631 | ¥ | 800,509 | ¥ | 703,293 | ¥ | 445,694 | |||||||||
|
|
|
|
CONSOLIDATED BALANCE SHEETS—(Continued)
AS OF MARCH 31, 20152017 AND 20162018
ORIX Corporation and Subsidiaries
Millions of yen | Millions of yen | |||||||||||||||||||||
2015 | 2016 | 2017 | 2018 | |||||||||||||||||||
LIABILITIES AND EQUITY | LIABILITIES AND EQUITY | |||||||||||||||||||||
Liabilities: | Liabilities: | |||||||||||||||||||||
Short-term Debt | ¥ | 284,785 | ¥ | 349,624 | Short-term Debt | ¥ | 283,467 | ¥ | 306,754 | |||||||||||||
Deposits | 1,287,380 | 1,398,472 | Deposits | 1,614,608 | 1,757,462 | |||||||||||||||||
Trade Notes, Accounts and Other Payable | 335,936 | 266,216 | Trade Notes, Accounts and Other Payable | 251,800 | 262,301 | |||||||||||||||||
Policy Liabilities and Policy Account Balances | 2,073,650 | 1,668,636 | Policy Liabilities and Policy Account Balances | 1,564,758 | 1,511,246 | |||||||||||||||||
(The amount of ¥1,254,483 million as of March 31, 2015 and ¥795,001 million as of March 31, 2016 are measured at fair value by electing the fair value option under FASB ASC 825.) | ||||||||||||||||||||||
The amounts which are measured at fair value by electing the fair value option are as follows: | The amounts which are measured at fair value by electing the fair value option are as follows: | |||||||||||||||||||||
March 31, 2017 | ¥605,520 | million | ||||||||||||||||||||
March 31, 2018 | ¥444,010 | million | ||||||||||||||||||||
Income Taxes: | ||||||||||||||||||||||
Current | 9,445 | 17,398 | Current | 93,884 | 18,798 | |||||||||||||||||
Deferred | 336,069 | 341,360 | Deferred | 351,828 | 348,149 | |||||||||||||||||
Long-term Debt | 4,132,945 | 3,940,906 | Long-term Debt | 3,854,984 | 3,826,504 | |||||||||||||||||
Other Liabilities | 598,446 | 534,008 | Other Liabilities | 562,393 | 588,474 | |||||||||||||||||
|
|
|
| |||||||||||||||||||
Total Liabilities | 9,058,656 | 8,516,620 | Total Liabilities | 8,577,722 | 8,619,688 | |||||||||||||||||
|
|
|
| |||||||||||||||||||
Redeemable Noncontrolling Interests | 66,901 | 7,467 | Redeemable Noncontrolling Interests | 6,548 | 7,420 | |||||||||||||||||
|
|
|
| |||||||||||||||||||
Commitments and Contingent Liabilities | Commitments and Contingent Liabilities | |||||||||||||||||||||
Equity: | Equity: | |||||||||||||||||||||
Common stock: | Common stock: | 220,524 | 220,961 | |||||||||||||||||||
Authorized 2,590,000,000 shares | ||||||||||||||||||||||
Issued 1,323,644,528 shares as of March 31, 2015 and 1,324,058,828 shares as of March 31, 2016 | 220,056 | 220,469 | ||||||||||||||||||||
Authorized: | 2,590,000,000 | shares | ||||||||||||||||||||
Issued: | Issued: | |||||||||||||||||||||
March 31, 2017 | 1,324,107,328 | shares | ||||||||||||||||||||
March 31, 2018 | 1,324,495,728 | shares | ||||||||||||||||||||
Additional Paid-in Capital | 255,595 | 257,629 | AdditionalPaid-in Capital | 268,138 | 267,291 | |||||||||||||||||
Retained Earnings | 1,672,585 | 1,864,241 | Retained Earnings | 2,077,474 | 2,315,283 | |||||||||||||||||
Accumulated Other Comprehensive Income (Loss) | 30,373 | (6,222 | ) | Accumulated Other Comprehensive Income (Loss) | (21,270 | ) | (45,566 | ) | ||||||||||||||
Treasury Stock, at Cost: | Treasury Stock, at Cost: | (37,168 | ) | (75,545 | ) | |||||||||||||||||
15,001,557 shares as of March 31, 2015 and 14,544,808 shares as of March 31, 2016 | (26,411 | ) | ( 25,686 | ) | ||||||||||||||||||
March 31, 2017 | 21,520,267 | shares | ||||||||||||||||||||
March 31, 2018 | 44,494,856 | shares | ||||||||||||||||||||
|
|
|
| |||||||||||||||||||
ORIX Corporation Shareholders’ Equity | 2,152,198 | 2,310,431 | ORIX Corporation Shareholders’ Equity | 2,507,698 | 2,682,424 | |||||||||||||||||
Noncontrolling Interests | 165,873 | 162,388 | Noncontrolling Interests | 139,927 | 116,450 | |||||||||||||||||
|
|
|
| |||||||||||||||||||
Total Equity | 2,318,071 | 2,472,819 | Total Equity | 2,647,625 | 2,798,874 | |||||||||||||||||
|
|
|
| |||||||||||||||||||
Total Liabilities and Equity | ¥ | 11,443,628 | ¥ | 10,996,906 | Total Liabilities and Equity | ¥ | 11,231,895 | ¥ | 11,425,982 | |||||||||||||
|
|
|
|
Notes | 1: The Company’s shares held through the Board Incentive Plan Trust | |
2: The liabilities of consolidated VIEs for which creditors (or beneficial interest holders) do not have recourse to the general credit of the Company and its subsidiaries are below: |
Millions of yen | ||||||||
2015 | 2016 | |||||||
Trade Notes, Accounts and Other Payable | ¥ | 2,100 | ¥ | 1,576 | ||||
Long-Term Debt | 454,216 | 479,152 | ||||||
Others | 7,792 | 11,778 | ||||||
|
|
|
| |||||
¥ | 464,108 | ¥ | 492,506 | |||||
|
|
|
|
Millions of yen | ||||||||
2017 | 2018 | |||||||
Trade Notes, Accounts and Other Payable | ¥ | 2,998 | ¥ | 1,102 | ||||
Long-Term Debt | 438,473 | 263,973 | ||||||
Other | 10,391 | 8,047 | ||||||
|
|
|
| |||||
¥ | 451,862 | ¥ | 273,122 | |||||
|
|
|
|
The accompanying notes to consolidated financial statements are an integral part of these statements.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED MARCH 31, 2014, 20152016, 2017 AND 20162018
ORIX Corporation and Subsidiaries
Millions of yen | ||||||||||||
2014 | 2015 | 2016 | ||||||||||
Revenues: | ||||||||||||
Finance revenues | ¥ | 191,700 | ¥ | 186,883 | ¥ | 200,889 | ||||||
Gains on investment securities and dividends | 27,181 | 56,395 | 35,786 | |||||||||
Operating leases | 330,606 | 363,095 | 373,910 | |||||||||
Life insurance premiums and related investment income | 155,406 | 351,493 | 189,421 | |||||||||
Sales of goods and real estate | 179,884 | 450,869 | 834,010 | |||||||||
Services income | 490,515 | 765,548 | 735,186 | |||||||||
|
|
|
|
|
| |||||||
Total revenues | 1,375,292 | 2,174,283 | 2,369,202 | |||||||||
|
|
|
|
|
| |||||||
Expenses: | ||||||||||||
Interest expense | 82,968 | 72,647 | 72,821 | |||||||||
Costs of operating leases | 216,568 | 238,157 | 245,069 | |||||||||
Life insurance costs | 108,343 | 271,948 | 121,282 | |||||||||
Costs of goods and real estate sold | 162,989 | 402,021 | 748,259 | |||||||||
Services expense | 260,278 | 425,676 | 445,387 | |||||||||
Other (income) and expense, net | (21,001 | ) | 23,674 | (3,729 | ) | |||||||
Selling, general and administrative expenses | 316,851 | 427,816 | 422,692 | |||||||||
Provision for doubtful receivables and probable loan losses | 13,838 | 11,631 | 11,717 | |||||||||
Write-downs of long-lived assets | 23,421 | 34,887 | 13,448 | |||||||||
Write-downs of securities | 7,989 | 8,997 | 4,515 | |||||||||
|
|
|
|
|
| |||||||
Total expenses | 1,172,244 | 1,917,454 | 2,081,461 | |||||||||
|
|
|
|
|
| |||||||
Operating Income | 203,048 | 256,829 | 287,741 | |||||||||
Equity in Net Income of Affiliates | 18,368 | 30,531 | 45,694 | |||||||||
Gains on Sales of Subsidiaries and Affiliates and Liquidation Losses, net | 64,923 | 20,575 | 57,867 | |||||||||
Bargain Purchase Gain | 0 | 36,082 | 0 | |||||||||
|
|
|
|
|
| |||||||
Income before Income Taxes and Discontinued Operations | 286,339 | 344,017 | 391,302 | |||||||||
Provision for Income Taxes | 98,553 | 89,057 | 120,312 | |||||||||
|
|
|
|
|
| |||||||
Income from Continuing Operations | 187,786 | 254,960 | 270,990 | |||||||||
|
|
|
|
|
| |||||||
Discontinued Operations: | ||||||||||||
Income from discontinued operations, net | 12,182 | 463 | 0 | |||||||||
Provision for income taxes | (4,681 | ) | (166 | ) | (0 | ) | ||||||
|
|
|
|
|
| |||||||
Discontinued operations, net of applicable tax effect | 7,501 | 297 | 0 | |||||||||
|
|
|
|
|
| |||||||
Net Income | 195,287 | 255,257 | 270,990 | |||||||||
|
|
|
|
|
| |||||||
Net Income Attributable to the Noncontrolling Interests | 3,815 | 15,339 | 10,002 | |||||||||
|
|
|
|
|
| |||||||
Net Income Attributable to the Redeemable Noncontrolling Interests | 4,108 | 4,970 | 819 | |||||||||
|
|
|
|
|
| |||||||
Net Income Attributable to ORIX Corporation Shareholders | ¥ | 187,364 | ¥ | 234,948 | ¥ | 260,169 | ||||||
|
|
|
|
|
|
|
Millions of yen | ||||||||||||
2016 | 2017 | 2018 | ||||||||||
Revenues: | ||||||||||||
Finance revenues | ¥ | 200,889 | ¥ | 200,584 | ¥ | 214,104 | ||||||
Gains on investment securities and dividends | 35,786 | 30,328 | 43,302 | |||||||||
Operating leases | 373,910 | 398,655 | 379,665 | |||||||||
Life insurance premiums and related investment income | 189,421 | 295,940 | 351,590 | |||||||||
Sales of goods and real estate | 834,010 | 1,015,249 | 1,079,052 | |||||||||
Services income | 735,186 | 737,903 | 795,058 | |||||||||
|
|
|
|
|
| |||||||
Total revenues | 2,369,202 | 2,678,659 | 2,862,771 | |||||||||
|
|
|
|
|
| |||||||
Expenses: | ||||||||||||
Interest expense | 72,821 | 72,910 | 76,815 | |||||||||
Costs of operating leases | 245,069 | 243,537 | 252,327 | |||||||||
Life insurance costs | 121,282 | 200,158 | 255,070 | |||||||||
Costs of goods and real estate sold | 748,259 | 928,794 | 1,003,509 | |||||||||
Services expense | 445,387 | 451,277 | 482,796 | |||||||||
Other (income) and expense, net | (3,729 | ) | (4,396 | ) | 429 | |||||||
Selling, general and administrative expenses | 422,692 | 418,746 | 431,594 | |||||||||
Provision for doubtful receivables and probable loan losses | 11,717 | 22,667 | 17,265 | |||||||||
Write-downs of long-lived assets | 13,448 | 9,134 | 5,525 | |||||||||
Write-downs of securities | 4,515 | 6,608 | 1,246 | |||||||||
|
|
|
|
|
| |||||||
Total expenses | 2,081,461 | 2,349,435 | 2,526,576 | |||||||||
|
|
|
|
|
| |||||||
Operating Income | 287,741 | 329,224 | 336,195 | |||||||||
Equity in Net Income of Affiliates | 45,694 | 26,520 | 50,103 | |||||||||
Gains on Sales of Subsidiaries and Affiliates and Liquidation Losses, net | 57,867 | 63,419 | 49,203 | |||||||||
Bargain Purchase Gain | 0 | 5,802 | 0 | |||||||||
|
|
|
|
|
| |||||||
Income before Income Taxes | 391,302 | 424,965 | 435,501 | |||||||||
Provision for Income Taxes | 120,312 | 144,039 | 113,912 | |||||||||
|
|
|
|
|
| |||||||
Net Income | 270,990 | 280,926 | 321,589 | |||||||||
|
|
|
|
|
| |||||||
Net Income Attributable to the Noncontrolling Interests | 10,002 | 7,255 | 8,002 | |||||||||
|
|
|
|
|
| |||||||
Net Income Attributable to the Redeemable Noncontrolling Interests | 819 | 432 | 452 | |||||||||
|
|
|
|
|
| |||||||
Net Income Attributable to ORIX Corporation Shareholders | ¥ | 260,169 | ¥ | 273,239 | ¥ | 313,135 | ||||||
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF INCOME—(Continued)
FOR THE YEARS ENDED MARCH 31, 2014, 20152016, 2017 AND 20162018
ORIX Corporation and Subsidiaries
|
Millions of yen | ||||||||||||
2014 | 2015 | 2016 | ||||||||||
Income Attributable to ORIX Corporation Shareholders: | ||||||||||||
Income from Continuing Operations | ¥ | 180,069 | ¥ | 234,651 | ¥ | 260,169 | ||||||
Discontinued Operations | 7,295 | 297 | 0 | |||||||||
|
|
|
|
|
| |||||||
Net income Attributable to ORIX Corporation Shareholders | ¥ | 187,364 | ¥ | 234,948 | ¥ | 260,169 |
Yen | ||||||||||||
2014 | 2015 | 2016 | ||||||||||
Amounts per Share of Common Stock for Income attributable to ORIX Corporation shareholders: | ||||||||||||
Basic: | ||||||||||||
Income from continuing operations | ¥ | 142.00 | ¥ | 179.24 | ¥ | 198.73 | ||||||
Discontinued operations | 5.75 | 0.23 | 0 | |||||||||
|
|
|
|
|
| |||||||
Net income attributable to ORIX Corporation shareholders | ¥ | 147.75 | ¥ | 179.47 | ¥ | 198.73 | ||||||
Diluted: | ||||||||||||
Income from continuing operations | ¥ | 137.63 | ¥ | 178.99 | ¥ | 198.52 | ||||||
Discontinued operations | 5.57 | 0.22 | 0 | |||||||||
|
|
|
|
|
| |||||||
Net income attributable to ORIX Corporation shareholders | ¥ | 143.20 | ¥ | 179.21 | ¥ | 198.52 | ||||||
Cash Dividends | 13.00 | 23.00 | 58.00 |
Yen | ||||||||||||
2016 | 2017 | 2018 | ||||||||||
Amounts per Share of Common Stock for Income Attributable to ORIX Corporation Shareholders: | ||||||||||||
Basic: | ||||||||||||
Net Income Attributable to ORIX Corporation Shareholders | ¥ | 198.73 | ¥ | 208.88 | ¥ | 244.40 | ||||||
Diluted: | ||||||||||||
Net Income Attributable to ORIX Corporation Shareholders | ¥ | 198.52 | ¥ | 208.68 | ¥ | 244.15 | ||||||
Cash Dividends | 58.00 | 46.75 | 56.25 |
The accompanying notes to consolidated financial statements are an integral part of these statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED MARCH 31, 2014, 20152016, 2017 AND 20162018
ORIX Corporation and Subsidiaries
Millions of yen | ||||||||||||
2014 | 2015 | 2016 | ||||||||||
Net Income | ¥ | 195,287 | ¥ | 255,257 | ¥ | 270,990 | ||||||
|
|
|
|
|
| |||||||
Other comprehensive income (loss), net of tax: | ||||||||||||
Net change of unrealized gains (losses) on investment in securities | 10,603 | 9,867 | (3,121 | ) | ||||||||
Net change of defined benefit pension plans | 3,570 | (14,952 | ) | (4,123 | ) | |||||||
Net change of foreign currency translation adjustments | 36,928 | 37,155 | (26,957 | ) | ||||||||
Net change of unrealized gains (losses) on derivative instruments | 1,487 | (561 | ) | (4,063 | ) | |||||||
|
|
|
|
|
| |||||||
Total other comprehensive income (loss) | 52,588 | 31,509 | (38,264 | ) | ||||||||
|
|
|
|
|
| |||||||
Comprehensive Income | 247,875 | 286,766 | 232,726 | |||||||||
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|
|
|
| |||||||
Comprehensive Income Attributable to the Noncontrolling Interests | 16,003 | 7,314 | 7,414 | |||||||||
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|
|
|
| |||||||
Comprehensive Income Attributable to the Redeemable Noncontrolling Interests | 8,207 | 14,265 | 1,738 | |||||||||
|
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|
| |||||||
Comprehensive Income Attributable to ORIX Corporation Shareholders | ¥ | 223,665 | ¥ | 265,187 | ¥ | 223,574 | ||||||
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|
|
|
Millions of yen | ||||||||||||
2016 | 2017 | 2018 | ||||||||||
Net Income | ¥ | 270,990 | ¥ | 280,926 | ¥ | 321,589 | ||||||
|
|
|
|
|
| |||||||
Other comprehensive income (loss), net of tax: | ||||||||||||
Net change of unrealized gains (losses) on investment in securities | (3,121 | ) | (14,926 | ) | (22,834 | ) | ||||||
Net change of defined benefit pension plans | (4,123 | ) | 7,670 | (2,962 | ) | |||||||
Net change of foreign currency translation adjustments | (26,957 | ) | (5,968 | ) | (1,955 | ) | ||||||
Net change of unrealized gains (losses) on derivative instruments | (4,063 | ) | 326 | 779 | ||||||||
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|
|
|
|
| |||||||
Total other comprehensive income (loss) | (38,264 | ) | (12,898 | ) | (26,972 | ) | ||||||
|
|
|
|
|
| |||||||
Comprehensive Income | 232,726 | 268,028 | 294,617 | |||||||||
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|
|
|
| |||||||
Comprehensive Income Attributable to the Noncontrolling Interests | 7,414 | 4,276 | 6,433 | |||||||||
|
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|
|
|
| |||||||
Comprehensive Income Attributable to the Redeemable Noncontrolling Interests | 1,738 | 374 | 36 | |||||||||
|
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|
|
|
| |||||||
Comprehensive Income Attributable to ORIX Corporation Shareholders | ¥ | 223,574 | ¥ | 263,378 | ¥ | 288,148 | ||||||
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|
|
The accompanying notes to consolidated financial statements are an integral part of these statements.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED MARCH 31, 2014, 20152016, 2017 AND 20162018
ORIX Corporation and Subsidiaries
Millions of yen | Millions of yen | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ORIX Corporation Shareholders’ Equity | 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 | Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2013 | ¥ | 194,039 | ¥ | 229,600 | ¥ | 1,305,044 | ¥ | (36,263 | ) | ¥ | (48,824 | ) | ¥ | 1,643,596 | ¥ | 43,977 | ¥ | 1,687,573 | ||||||||||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2015 | ¥ | 220,056 | ¥ | 255,595 | ¥ | 1,672,585 | ¥ | 30,373 | ¥ | (26,411 | ) | ¥ | 2,152,198 | ¥ | 165,873 | ¥ | 2,318,071 | |||||||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||||||||
Contribution to subsidiaries | 0 | 89,233 | 89,233 | 0 | 6,801 | 6,801 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Transaction with noncontrolling interests | 239 | 239 | 2,055 | 2,294 | 1,918 | 1,918 | (10,519 | ) | (8,601 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Comprehensive income, net of tax: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | 187,364 | 187,364 | 3,815 | 191,179 | 260,169 | 260,169 | 10,002 | 270,171 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net change of unrealized gains on investment in securities | 9,677 | 9,677 | 926 | 10,603 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income(loss) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net change of unrealized gains (losses) on investment in securities | (3,145 | ) | (3,145 | ) | 24 | (3,121 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net change of defined benefit pension plans | 3,357 | 3,357 | 213 | 3,570 | (4,436 | ) | (4,436 | ) | 313 | (4,123 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net change of foreign currency translation adjustments | 21,810 | 21,810 | 11,019 | 32,829 | (25,197 | ) | (25,197 | ) | (2,679 | ) | (27,876 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Net change of unrealized gains on derivative instruments | 1,457 | 1,457 | 30 | 1,487 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net change of unrealized gains (losses) on derivative instruments | (3,817 | ) | (3,817 | ) | (246 | ) | (4,063 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total other comprehensive income | 36,301 | 12,188 | 48,489 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total other comprehensive income(loss) | (36,595 | ) | (2,588 | ) | (39,183 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total comprehensive income | 223,665 | 16,003 | 239,668 | 223,574 | 7,414 | 230,988 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends | (15,878 | ) | (15,878 | ) | (2,099 | ) | (17,977 | ) | (76,034 | ) | (76,034 | ) | (7,181 | ) | (83,215 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Conversion of convertible bond | 25,066 | 24,878 | 49,944 | 0 | 49,944 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of stock options | 441 | 422 | 863 | 0 | 863 | 413 | 409 | 822 | 0 | 822 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisition of treasury stock | (19 | ) | (19 | ) | 0 | (19 | ) | (2 | ) | (2 | ) | 0 | (2 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisition of Robeco | (5,471 | ) | 24,880 | 19,409 | 27,850 | 47,259 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disposal of treasury stock | (426 | ) | (53 | ) | 727 | 248 | 0 | 248 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Adjustment of redeemable noncontrolling interests to redemption value | (2,851 | ) | (2,851 | ) | 0 | (2,851 | ) | 7,557 | 7,557 | 0 | 7,557 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Other, net | 310 | (36 | ) | 104 | 378 | 0 | 378 | 133 | 17 | 150 | 0 | 150 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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Balance at March 31, 2014 | ¥ | 219,546 | ¥ | 255,449 | ¥ | 1,468,172 | ¥ | 38 | ¥ | (23,859 | ) | ¥ | 1,919,346 | ¥ | 177,019 | ¥ | 2,096,365 | |||||||||||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2016 | ¥ | 220,469 | ¥ | 257,629 | ¥ | 1,864,241 | ¥ | (6,222 | ) | ¥ | (25,686 | ) | ¥ | 2,310,431 | ¥ | 162,388 | ¥ | 2,472,819 | ||||||||||||||||||||||||||||||||||||||||||||||
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| �� |
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| ||||||||||||||||||||||||||||||||||||||||||||||||
Contribution to subsidiaries | 0 | 26,447 | 26,447 | 0 | 20,811 | 20,811 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Transaction with noncontrolling interests | (505 | ) | 96 | (409 | ) | (40,735 | ) | (41,144 | ) | 10,516 | (5,187 | ) | 5,329 | (42,421 | ) | (37,092 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Comprehensive income, net of tax: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | 234,948 | 234,948 | 15,339 | 250,287 | 273,239 | 273,239 | 7,255 | 280,494 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net change of unrealized gains (losses) on investment in securities | 11,679 | 11,679 | (1,812 | ) | 9,867 | (14,918 | ) | (14,918 | ) | (8 | ) | (14,926 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
Net change of defined benefit pension plans | (13,218 | ) | (13,218 | ) | (1,734 | ) | (14,952 | ) | 7,508 | 7,508 | 162 | 7,670 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Net change of foreign currency translation adjustments | 32,284 | 32,284 | (4,424 | ) | 27,860 | (2,725 | ) | (2,725 | ) | (3,185 | ) | (5,910 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||
Net change of unrealized gains (losses) on derivative instruments | (506 | ) | (506 | ) | (55 | ) | (561 | ) | 274 | 274 | 52 | 326 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total other comprehensive income (loss) | 30,239 | (8,025 | ) | 22,214 | (9,861 | ) | (2,979 | ) | (12,840 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total comprehensive income | 265,187 | 7,314 | 272,501 | 263,378 | 4,276 | 267,654 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends | (30,117 | ) | (30,117 | ) | (4,172 | ) | (34,289 | ) | (61,299 | ) | (61,299 | ) | (5,127 | ) | (66,426 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of stock options | 510 | 504 | 1,014 | 0 | 1,014 | 55 | 26 | 81 | 0 | 81 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisition of treasury stock | (3,423 | ) | (3,423 | ) | 0 | (3,423 | ) | (12,128 | ) | (12,128 | ) | 0 | (12,128 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Disposal of treasury stock | (697 | ) | (174 | ) | 871 | 0 | 0 | 0 | (409 | ) | 646 | 237 | 0 | 237 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Adjustment of redeemable noncontrolling interests to redemption value | (220 | ) | (220 | ) | 0 | (220 | ) | 1,293 | 1,293 | 0 | 1,293 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Other, net | 844 | (24 | ) | 820 | 0 | 820 | 376 | 376 | 0 | 376 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2015 | ¥ | 220,056 | ¥ | 255,595 | ¥ | 1,672,585 | ¥ | 30,373 | ¥ | (26,411 | ) | ¥ | 2,152,198 | ¥ | 165,873 | ¥ | 2,318,071 | |||||||||||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2017 | ¥ | 220,524 | ¥ | 268,138 | ¥ | 2,077,474 | ¥ | (21,270 | ) | ¥ | (37,168 | ) | ¥ | 2,507,698 | ¥ | 139,927 | ¥ | 2,647,625 | ||||||||||||||||||||||||||||||||||||||||||||||
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CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY—(Continued)
FOR THE YEARS ENDED MARCH 31, 2014, 20152016, 2017 AND 20162018
ORIX Corporation and Subsidiaries
Millions of yen | Millions of yen | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ORIX Corporation Shareholders’ Equity | 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 | Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2015 | ¥ | 220,056 | ¥ | 255,595 | ¥ | 1,672,585 | ¥ | 30,373 | ¥ | (26,411 | ) | ¥ | 2,152,198 | ¥ | 165,873 | ¥ | 2,318,071 | |||||||||||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2017 | ¥ | 220,524 | ¥ | 268,138 | ¥ | 2,077,474 | ¥ | (21,270 | ) | ¥ | (37,168 | ) | ¥ | 2,507,698 | ¥ | 139,927 | ¥ | 2,647,625 | ||||||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||||||||
Contribution to subsidiaries | 0 | 6,801 | 6,801 | 0 | 13,830 | 13,830 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Transaction with noncontrolling interests | 1,918 | 1,918 | (10,519 | ) | (8,601 | ) | (972 | ) | (1 | ) | (973 | ) | (35,522 | ) | (36,495 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Comprehensive income, net of tax: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | 260,169 | 260,169 | 10,002 | 270,171 | 313,135 | 313,135 | 8,002 | 321,137 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net change of unrealized gains (losses) on investment in securities | (3,145 | ) | (3,145 | ) | 24 | (3,121 | ) | (22,746 | ) | (22,746 | ) | (88 | ) | (22,834 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
Net change of defined benefit pension plans | (4,436 | ) | (4,436 | ) | 313 | (4,123 | ) | (2,984 | ) | (2,984 | ) | 22 | (2,962 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Net change of foreign currency translation adjustments | (25,197 | ) | (25,197 | ) | (2,679 | ) | (27,876 | ) | (2 | ) | (2 | ) | (1,537 | ) | (1,539 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Net change of unrealized gains (losses) on derivative instruments | (3,817 | ) | (3,817 | ) | (246 | ) | (4,063 | ) | 745 | 745 | 34 | 779 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total other comprehensive income (loss) | (36,595 | ) | (2,588 | ) | (39,183 | ) | (24,987 | ) | (1,569 | ) | (26,556 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total comprehensive income | 223,574 | 7,414 | 230,988 | 288,148 | 6,433 | 294,581 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends | (76,034 | ) | (76,034 | ) | (7,181 | ) | (83,215 | ) | (72,757 | ) | (72,757 | ) | (8,218 | ) | (80,975 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of stock options | 413 | 409 | 822 | 0 | 822 | 437 | 219 | 656 | 0 | 656 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisition of treasury stock | (2 | ) | (2 | ) | 0 | (2 | ) | (39,110 | ) | (39,110 | ) | 0 | (39,110 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Disposal of treasury stock | (426 | ) | (53 | ) | 727 | 248 | 0 | 248 | (476 | ) | 733 | 257 | 0 | 257 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Adjustment of redeemable noncontrolling interests to redemption value | 7,557 | 7,557 | 0 | 7,557 | (1,876 | ) | (1,876 | ) | 0 | (1,876 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Reclassification of change in accounting standards | (692 | ) | 692 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other, net | 133 | 17 | 150 | 0 | 150 | 382 | (1 | ) | 381 | 0 | 381 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
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Balance at March 31, 2016 | ¥ | 220,469 | ¥ | 257,629 | ¥ | 1,864,241 | ¥ | (6,222 | ) | ¥ | (25,686 | ) | ¥ | 2,310,431 | ¥ | 162,388 | ¥ | 2,472,819 | ||||||||||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2018 | ¥ | 220,961 | ¥ | 267,291 | ¥ | 2,315,283 | ¥ | (45,566 | ) | ¥ | (75,545 | ) | ¥ | 2,682,424 | ¥ | 116,450 | ¥ | 2,798,874 | ||||||||||||||||||||||||||||||||||||||||||||||
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| 1: Changes in the redeemable noncontrolling interests are not included in this table. For further information, see Note 18 “Redeemable Noncontrolling Interests.” | |
2: Reclassification of change in accounting standards represents the amounts reclassified for the early adoption of the Accounting Standards Update2018-02 (“Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”—ASC 220 (“Income Statement—Reporting Comprehensive Income”)). |
The accompanying notes to consolidated financial statements are an integral part of these statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 2014, 20152016, 2017 AND 20162018
ORIX Corporation and Subsidiaries
Millions of yen | ||||||||||||
2014 | 2015 | 2016 | ||||||||||
Cash Flows from Operating Activities: | ||||||||||||
Net income | ¥ | 195,287 | ¥ | 255,257 | ¥ | 270, 990 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 206,670 | 229,583 | 244,853 | |||||||||
Provision for doubtful receivables and probable loan losses | 13,838 | 11,631 | 11,717 | |||||||||
Equity in net income of affiliates (excluding interest on loans) | (18,159 | ) | (30,267 | ) | (44,333 | ) | ||||||
Gains on sales of subsidiaries and affiliates and liquidation losses, net | (64,923 | ) | (20,575 | ) | (57,867 | ) | ||||||
Bargain purchase gain | 0 | (36,082 | ) | 0 | ||||||||
Gains on sales of available-for-sale securities | (14,149 | ) | (32,077 | ) | (32,126 | ) | ||||||
Gains on sales of operating lease assets | (23,692 | ) | (34,425 | ) | (38,340 | ) | ||||||
Write-downs of long-lived assets | 23,421 | 34,887 | 13,448 | |||||||||
Write-downs of securities | 7,989 | 8,997 | 4,515 | |||||||||
Decrease (Increase) in restricted cash | 22,366 | (1,922 | ) | 9,009 | ||||||||
Decrease in trading securities | 21,300 | 441,554 | 461,298 | |||||||||
Decrease (Increase) in inventories | 25,581 | (13,481 | ) | 20,935 | ||||||||
Increase in trade notes, accounts and other receivable | (17,572 | ) | (20,742 | ) | (8,224 | ) | ||||||
Increase (Decrease) in trade notes, accounts and other payable | 26,505 | 34,275 | (41,004 | ) | ||||||||
Increase (Decrease) in policy liabilities and policy account balances | 28,429 | (506,043 | ) | (405,014 | ) | |||||||
Deferred tax provision | 52,344 | 41,338 | 42,528 | |||||||||
Income taxes payable, net | 18,695 | (39,264 | ) | 47,065 | ||||||||
Other, net | (25,924 | ) | (65,033 | ) | 11,112 | |||||||
|
|
|
|
|
| |||||||
Net cash provided by operating activities | 478,006 | 257,611 | 510,562 | |||||||||
|
|
|
|
|
| |||||||
Cash Flows from Investing Activities: | ||||||||||||
Purchases of lease equipment | (859,568 | ) | (907,484 | ) | (991,154 | ) | ||||||
Principal payments received under direct financing leases | 459,003 | 488,522 | 515,053 | |||||||||
Installment loans made to customers | (1,035,564 | ) | (1,109,458 | ) | (1,101,807 | ) | ||||||
Principal collected on installment loans | 1,264,645 | 977,272 | 948,057 | |||||||||
Proceeds from sales of operating lease assets | 251,904 | 272,040 | 239,911 | |||||||||
Investment in affiliates, net | (45,084 | ) | (27,698 | ) | (70,569 | ) | ||||||
Proceeds from sales of investment in affiliates | 15,429 | 2,128 | 20,991 | |||||||||
Purchases of available-for-sale securities | (897,246 | ) | (982,415 | ) | (864,874 | ) | ||||||
Proceeds from sales of available-for-sale securities | 318,697 | 511,868 | 464,232 | |||||||||
Proceeds from redemption of available-for-sale securities | 473,126 | 398,280 | 381,099 | |||||||||
Purchases of held-to-maturity securities | (8,519 | ) | (20,522 | ) | (538 | ) | ||||||
Purchases of other securities | (24,761 | ) | (27,489 | ) | (32,818 | ) | ||||||
Proceeds from sales of other securities | 26,501 | 67,982 | 48,594 | |||||||||
Purchases of property under facility operations | (48,195 | ) | (81,311 | ) | (91,492 | ) | ||||||
Acquisitions of subsidiaries, net of cash acquired | (94,586 | ) | (73,240 | ) | (47,324 | ) | ||||||
Sales of subsidiaries, net of cash disposed | 0 | 47,800 | 39,437 | |||||||||
Other, net | (11,096 | ) | (4,076 | ) | (9,327 | ) | ||||||
|
|
|
|
|
| |||||||
Net cash used in investing activities | (215,314 | ) | (467,801 | ) | (552,529 | ) | ||||||
|
|
|
|
|
| |||||||
Cash Flows from Financing Activities: | ||||||||||||
Net increase (decrease) in debt with maturities of three months or less | (106,783 | ) | 3,819 | (4,707 | ) | |||||||
Proceeds from debt with maturities longer than three months | 1,211,797 | 1,337,870 | 1,376,125 | |||||||||
Repayment of debt with maturities longer than three months | (1,501,403 | ) | (1,178,401 | ) | (1,470,325 | ) | ||||||
Net increase in deposits due to customers | 127,610 | 80,924 | 111,220 | |||||||||
Cash dividends paid to ORIX Corporation shareholders | (15,878 | ) | (30,117 | ) | (76,034 | ) | ||||||
Contribution from noncontrolling interests | 11,089 | 7,919 | 6,117 | |||||||||
Cash dividends paid to redeemable noncontrolling interests | (1,224 | ) | (3,030 | ) | (11,272 | ) | ||||||
Net increase (decrease) in call money | (5,000 | ) | 6,000 | 36,500 | ||||||||
Other, net | 2,088 | (11,552 | ) | (15,625 | ) | |||||||
|
|
|
|
|
| |||||||
Net cash provided by (used in) financing activities | (277,704 | ) | 213,432 | (48,001 | ) | |||||||
|
|
|
|
|
| |||||||
Effect of Exchange Rate Changes on Cash and Cash Equivalents | 6,755 | 6,237 | (7,130 | ) | ||||||||
|
|
|
|
|
| |||||||
Net Increase (decrease) in Cash and Cash Equivalents | (8,257 | ) | 9,479 | (97,098 | ) | |||||||
|
|
|
|
|
| |||||||
Cash and Cash Equivalents at Beginning of Year | 826,296 | 818,039 | 827,518 | |||||||||
|
|
|
|
|
| |||||||
Cash and Cash Equivalents at End of Year | ¥ | 818,039 | ¥ | 827,518 | ¥ | 730,420 | ||||||
|
|
|
|
|
|
Millions of yen | ||||||||||||
2016 | 2017 | 2018 | ||||||||||
Cash Flows from Operating Activities: | ||||||||||||
Net income | ¥ | 270,990 | ¥ | 280,926 | ¥ | 321,589 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 244,853 | 253,677 | 279,923 | |||||||||
Provision for doubtful receivables and probable loan losses | 11,717 | 22,667 | 17,265 | |||||||||
Equity in net income of affiliates (excluding interest on loans) | (44,333 | ) | (24,549 | ) | (46,587 | ) | ||||||
Gains on sales of subsidiaries and affiliates and liquidation losses, net | (57,867 | ) | (63,419 | ) | (49,203 | ) | ||||||
Bargain purchase gain | 0 | (5,802 | ) | 0 | ||||||||
Gains on sales ofavailable-for-sale securities | (32,126 | ) | (30,701 | ) | (30,716 | ) | ||||||
Gains on sales of operating lease assets | (38,340 | ) | (69,265 | ) | (35,291 | ) | ||||||
Write-downs of long-lived assets | 13,448 | 9,134 | 5,525 | |||||||||
Write-downs of securities | 4,515 | 6,608 | 1,246 | |||||||||
Deferred tax provision | 42,528 | 25,318 | 5,588 | |||||||||
Decrease in restricted cash | 9,009 | 155 | 450 | |||||||||
Decrease in trading securities | 461,298 | 159,809 | 144,367 | |||||||||
Decrease (Increase) in inventories | 20,935 | (5,318 | ) | 10,609 | ||||||||
Decrease (Increase) in trade notes, accounts and other receivable | (8,224 | ) | 8,362 | (13,984 | ) | |||||||
Increase (Decrease) in trade notes, accounts and other payable | (41,004 | ) | (6,660 | ) | 17,831 | |||||||
Decrease in policy liabilities and policy account balances | (405,014 | ) | (103,878 | ) | (53,512 | ) | ||||||
Income taxes payable, net | 47,065 | 67,904 | (74,241 | ) | ||||||||
Other, net | 11,112 | 58,987 | 45,765 | |||||||||
|
|
|
|
|
| |||||||
Net cash provided by operating activities | 510,562 | 583,955 | 546,624 | |||||||||
|
|
|
|
|
| |||||||
Cash Flows from Investing Activities: | ||||||||||||
Purchases of lease equipment | (991,154 | ) | (894,300 | ) | (971,163 | ) | ||||||
Principal payments received under direct financing leases | 515,053 | 483,627 | 470,870 | |||||||||
Installment loans made to customers | (1,101,807 | ) | (1,309,056 | ) | (1,396,724 | ) | ||||||
Principal collected on installment loans | 948,057 | 1,063,339 | 1,184,298 | |||||||||
Proceeds from sales of operating lease assets | 239,911 | 321,328 | 285,954 | |||||||||
Investment in affiliates, net | (70,569 | ) | (51,529 | ) | (110,547 | ) | ||||||
Proceeds from sales of investment in affiliates | 20,991 | 97,453 | 74,742 | |||||||||
Purchases ofavailable-for-sale securities | (864,874 | ) | (466,314 | ) | (399,362 | ) | ||||||
Proceeds from sales ofavailable-for-sale securities | 464,232 | 549,865 | 456,270 | |||||||||
Proceeds from redemption ofavailable-for-sale securities | 381,099 | 105,255 | 97,565 | |||||||||
Purchases ofheld-to-maturity securities | (538 | ) | (306 | ) | 0 | |||||||
Purchases of other securities | (32,818 | ) | (22,737 | ) | (40,021 | ) | ||||||
Proceeds from sales of other securities | 48,594 | 31,829 | 43,959 | |||||||||
Purchases of property under facility operations | (91,492 | ) | (95,601 | ) | (80,095 | ) | ||||||
Acquisitions of subsidiaries, net of cash acquired | (47,324 | ) | (79,405 | ) | (66,418 | ) | ||||||
Sales of subsidiaries, net of cash disposed | 39,437 | 55,530 | 57,205 | |||||||||
Other, net | (9,327 | ) | (26,586 | ) | (18,111 | ) | ||||||
|
|
|
|
|
| |||||||
Net cash used in investing activities | (552,529 | ) | (237,608 | ) | (411,578 | ) | ||||||
|
|
|
|
|
| |||||||
Cash Flows from Financing Activities: | ||||||||||||
Net increase (decrease) in debt with maturities of three months or less | (4,707 | ) | 793 | 50,900 | ||||||||
Proceeds from debt with maturities longer than three months | 1,376,125 | 1,319,523 | 1,488,259 | |||||||||
Repayment of debt with maturities longer than three months | (1,470,325 | ) | (1,456,366 | ) | (1,396,531 | ) | ||||||
Net increase in deposits due to customers | 111,220 | 216,118 | 143,318 | |||||||||
Cash dividends paid to ORIX Corporation shareholders | (76,034 | ) | (61,299 | ) | (72,757 | ) | ||||||
Acquisition of treasury stock | (2 | ) | (12,128 | ) | (39,110 | ) | ||||||
Contribution from noncontrolling interests | 6,117 | 5,599 | 4,740 | |||||||||
Purchases of shares of subsidiaries from noncontrolling interests | (4,764 | ) | (25,840 | ) | (11,299 | ) | ||||||
Cash dividends paid to redeemable noncontrolling interests | (11,272 | ) | 0 | (1,040 | ) | |||||||
Net increase (decrease) in call money | 36,500 | (14,500 | ) | (18,000 | ) | |||||||
Other, net | (10,859 | ) | (5,359 | ) | (4,898 | ) | ||||||
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|
|
|
|
| |||||||
Net cash provided by (used in) financing activities | (48,001 | ) | (33,459 | ) | 143,582 | |||||||
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|
|
|
|
| |||||||
Effect of Exchange Rate Changes on Cash and Cash Equivalents | (7,130 | ) | (3,438 | ) | 2,743 | |||||||
|
|
|
|
|
| |||||||
Net increase (decrease) in Cash and Cash Equivalents | (97,098 | ) | 309,450 | 281,371 | ||||||||
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|
|
|
| |||||||
Cash and Cash Equivalents at Beginning of Year | 827,518 | 730,420 | 1,039,870 | |||||||||
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| |||||||
Cash and Cash Equivalents at End of Year | ¥ | 730,420 | ¥ | 1,039,870 | ¥ | 1,321,241 | ||||||
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|
|
The accompanying notes to consolidated financial statements are an integral part of these statements.
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 accounting principles generally accepted in the United States of America (“U.S. GAAP”), except for the accounting for stock splits (see (o)).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 initial direct costs to originate leases and loans, 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 contingent consideration in business combination,combinations, accounting for pension plans, accounting for sales of the parent’s ownership interest in subsidiaries, accounting for securitization of financial assets, accounting for fair value optionand reflection of the income tax effect on such adjustments and reclassification of discontinued operations.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 pursuant to FASB Accounting Standards Codification (“ASC”) 810-10-25-2 to 14 (“Consolidation—The Effect of Noncontrolling Rights on Consolidation”).applied. In addition, the consolidated financial statements also include variable interest entities to which the Company and its subsidiaries are primary beneficiaries pursuant to ASC 810 (“Consolidation”).
beneficiaries.
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.
(c) Use of estimates
The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company has identified ten areas where it believes assumptions and estimates are particularly critical to the financial statements. The Company makes estimates and assumptions to the selection of valuation techniques and determination of assumptions used in fair value measurements, (see Note 2), the determination and periodic reassessment of the unguaranteed residual value for direct financing leases and operating leases, (see (e)), the determination and reassessment of insurance policy liabilities and deferred policy acquisition costs, (see (f)), the determination of the allowance for doubtful receivables on direct financing leases and probable loan losses, (see (g)), the recognition and measurement of
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
impairment of long-lived assets, (see (h)), the recognition and measurement of impairment of investment in securities, (see (i)), the determination of the valuation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
allowance for deferred tax assets and the evaluation of tax positions, (see (j)), the assessment and measurement of effectiveness in hedging relationship using derivative financial instruments, (see (l)), the determination of benefit obligation and net periodic pension cost (see (m)) and the recognition and measurement of impairment of goodwill and intangible assets that have indefinite useful lives (see (w)).lives.
(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.
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 accumulated other comprehensive income (loss) arise from the translation of foreign currency financial statements into Japanese yen.
(e) Recognition of revenues
Revenue recognition
Revenues are recognized when persuasive evidence of an arrangement exists, the service has been rendered or the goods have been delivered to the customer, the transaction price is fixed or determinable and collectability is reasonably assured.
In addition to the aforementioned general policy, the policies as specifically described hereinafter are applied for each of the major revenue items.
Finance Revenues—Finance revenues mainly include revenues for direct financing leases and installment loans. The policies applied to direct financing leases and installment loans are described hereinafter.
(1) Revenues from direct financing leases
Direct financing leases consist of full-payout leases for various equipment types, including office equipment, industrial machinery and transportation equipment. In providing leasing services, the Company and its subsidiaries execute supplemental services, such as paying insurance and handling taxes on leased assets on behalf of lessees. The excess of aggregate lease rentals plus the estimated unguaranteed residual value over the cost of the leased equipment constitutes the unearned lease income to be taken into income over the lease term by using the interest method. The estimated unguaranteed residual values representvalue represents estimated proceeds from the disposition of equipment at the time the lease is terminated. Estimates ofThe estimated unguaranteed residual values arevalue is based on market valuesvalue of used equipment, estimates of when and how much equipment will become obsolete, and actual recovery being experienced for similar used equipment. Initial direct costs 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 is reflected as a component of investment in direct financing 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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
the related loan’s yield using the interest method.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
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.
(3)(3) Non-accrual policy
In common with all classes,past-due financing receivables are receivables for which principal or interest ispast-due 30 days or more. Loans whose terms have been modified are not classified aspast-due financing receivables if the principals and interests are notpast-due 30 days or more in accordance with the modified terms. The Company and its subsidiaries suspend accruing revenues onpast-due installment loans and direct financing leases when principal or interest ispast-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. Accrued but uncollected interest is reclassified to investment in direct financing leases or installment loans in the accompanying consolidated balance sheets and becomes subject to the allowance for doubtful receivables and probable loan loss process. Cash repayments received onnon-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 returnnon-accrual loans and lease receivables 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 debtor’s creditworthiness, such as the debtor’s 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. Investment in operating leases is recorded at cost less accumulated depreciation and is 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 10 years, measuring and information-related equipment is 4 years, real estate (other than land) is 3130 years and other is 57 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.
Sales of goods and real estate—
(1) Sales of goods
The Company and its subsidiaries sell to theirour customers various types of goods, including precious metals and jewels, and aftermarket parts and accessories for vehicles.jewels. Revenues from such sales of goods are recognized when persuasive evidence of an arrangement
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
exists, delivery has occurred, and collectability is reasonably assured. Delivery is considered to have occurred when the customer has taken title to the goods and assumed the risks and rewards of ownership. Revenues are recognized net of estimated sales returns and incentives.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
(2) Real estate sales
Revenues from the sales of real estate are recognized when a contract is in place, a closing has taken place, the buyer’s initial and continuing investment is adequate to demonstrate a commitment to pay for the property and the Company and its subsidiaries do not have a substantial continuing involvement in the property.
Services income—Revenues are recognized when persuasive evidence of an arrangement exists, the service has been rendered to the customer, the transaction price is fixed or determinable and collectability is reasonably assured. The policies applied to asset management, servicing and automobile maintenance services are described hereinafter.
(1) Revenues from asset management and servicing
The Company and its subsidiaries provide to our customers investment management services for investments in financial assets, and asset management as well as maintenance and administrative services for investments in real estate properties. The Company and its subsidiaries also perform servicing on behalf of our customers. The Company and its subsidiaries receive fees for those services from our customers.
Revenues from asset management and servicing primarily include management fees, servicing fees, and performance fees. Management and servicing fees are recognized when transactions occur or services are rendered and the amounts are fixed or determinable and collectability of which is reasonably assured. 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 contracts. Certain subsidiaries recognize revenues from performance fees when earned based on the performance of the asset under management while other subsidiaries recognize revenues from performance fees on an accrual basis over the period in which services are performed. Performance fees are calculated based on the predetermined percentages on the performance of the assets under management in accordance with the contracts.
(2) Revenues from automobile maintenance services
The Company and its subsidiaries provide automobile maintenance services to lessees. Where under terms of the lease or related maintenance agreements the Company and its subsidiaries bear the favorable or unfavorable variability of cost, revenues and expenses are recorded on a gross basis. For those arrangements in which the Company and its subsidiaries do not have substantial risks and rewards of ownership, but instead serve as an agent in collecting from lessees and remitting payments to third parties, the Company and its subsidiaries record revenues net of third-party services costs. Revenues from automobile maintenance services are recognized over the contract period in proportion to the estimated service costs to be incurred.
(f) Insurance and reinsurance transactions
Premium income from life insurance policies, net of premiums on reinsurance ceded, is recognized as earned premiums when due.
Life insurance benefits are recorded as expenses when they are incurred. Policy liabilities and policy account balances for future policy benefits are measured using the net level premium method, based on actuarial
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
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 consist ofinclude 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 investments 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 in accordance with ASC 825 (“Financial Instruments”) 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 the reinsurance companies and the remaining risk is economically hedged by entering into derivative contracts (See Note 29 “Derivative financial instruments and hedging”).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 under ASC 825 (“Financial Instruments”) for certain reinsurance contracts relating to variable annuity and variable life insurance contracts, which is 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 athe subsidiary, less withdrawals, expenses and other charges. The credited interest is recorded in life insurance costs in the consolidated statements of income.
ASC 944 (“Financial Services—Insurance”) requires insurance companies to defer certainCertain costs related directly to the successful acquisition of new or renewal insurance contracts, or deferred policy acquisition costs are deferred and amortize themamortized 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.
(g) Allowance for doubtful receivables on direct financing leases and probable loan losses
The allowance for doubtful receivables on direct financing 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 direct financing leases and probable loan losses is subject to numerous estimates and judgments. In evaluating the appropriateness of the allowance, management considers various factors, including the business characteristics and financial conditions of the obligors, current economic conditions and trends, priorcharge-off experience, current delinquencies and delinquency trends, future cash flows expected to be received from the direct financing leases and loans and value of underlying collateral and guarantees.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
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. Fornon-impaired loans, including loans that are not individually evaluated for impairment, and direct financing leases, the Company and its subsidiaries evaluate priorcharge-off experience segmented by the debtors’ industries and the purpose of the loans, and then develop the allowance for doubtful receivables on direct financing leases and probable loan losses considering the priorcharge-off experience and primarily 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) Impairment of long-lived assets
The Company and its subsidiaries have followed ASC 360 (“Property, Plant, and Equipment”). Under ASC 360,perform a recoverability test for long-lived assets to be held and used in operations, including tangible assets and intangible assets being amortized, consisting primarily of office buildings, condominiums, golf courses and other properties under facility operations, are tested for recoverability whenever events or changes in circumstances indicateindicated 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, and the netassets. 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.
(i) Investment in securities
Trading securities are reported at fair value with unrealized gains and losses included in income.
Available-for-sale securities are reported at fair value, and unrealized gains or losses are recorded in accumulated other comprehensive income (loss), net of applicable income taxes, except investments which are recorded at fair value with unrealized gains and losses included in income by electing the fair value option under ASC 825 (“Financial Instruments”).option.
Held-to-maturity securities are recorded at amortized cost.
Other securities are recorded at cost or carrying value that reflects equity income and loss based on the Company’s share, except investments which are recorded at fair value with unrealized gains and losses included in income by electing the fair value option under ASC 825 (“Financial Instruments”).
option.
Foravailable-for-sale securities, the Company and its subsidiaries generally recognize losses related to equity securities for which the fair value has been significantly below the acquisition cost (or current carrying value if an adjustment has been made in the past) for more than six months. Also, the Company and its subsidiaries charge against income losses related to equity securities in situations where, even though the fair value has not remained significantly below the carrying value for six months, the decline in the fair value of an equity security is based on the issuer’s specific economic conditions and not just general declines in the related market and where it is considered unlikely that the fair value of the equity security will recover within six months.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
For debt securities, where the fair value is less than the amortized cost, the Company and its subsidiaries consider whether those securities are other-than-temporarily impaired using all available information about their collectability. The Company and its subsidiaries do not consider a debt security to be other-than-temporarily impaired if (1) the Company and its subsidiaries do not intend to sell the debt security, (2) it is not 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 and (3) the present value of estimated cash flows will fully cover the amortized cost of the security. On the other hand, the Company and its subsidiaries consider a debt security to be other-than-temporarily impaired if any of the above mentioned three conditions are not met. When the Company and its subsidiaries deem a debt security to be other-than-temporarily impaired, the Company and its subsidiaries recognize the entire difference between the amortized cost and the fair value of the debt securities in earnings if the Company and its subsidiaries intend to sell the debt security or it is more likely than not that the Company and its subsidiarysubsidiaries will be required to sell the debt security before recovery of its amortized cost basis less any current-period credit loss. However, if the Company and its subsidiaries do not intend to sell the debt security and it is not 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 less any current-period credit loss, the Company and its subsidiaries separate the difference between the amortized cost and the fair value of the debt securities into the credit loss component and thenon-credit loss component. The credit loss component is recognized in earnings, and thenon-credit loss component is recognized in other comprehensive income (loss), net of applicable income taxes.
For other securities, when the Company and its subsidiaries determine the decline in value is other than temporary, the Company and its subsidiaries reduce the carrying value of the security to the fair value and charge against income losses related to these other securities.
(j) 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 operating loss and tax credit 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 for National Corporation tax purposes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
(k) Securitized assets
The Company and its subsidiaries have securitized and sold to investors various financial assets such as lease receivables and loan receivables. In the securitization process, the assets to be securitized are sold to trusts or SPEs that issue asset-backed beneficial interests and securities to the investors.
In accordance with ASC 860 (“Transfers and Servicing”) and ASC 810 (“Consolidation”), trustsTrusts or SPEs used in securitization transactions are consolidated if the Company and its subsidiaries are the primary beneficiary of the trusts or SPEs, and the transfers of the financial assets to those consolidated trusts and SPEs are not accounted for as sales. Assets held by consolidated trusts or 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.
AThe Company and certain subsidiary originatessubsidiaries originate and sellssell loans into the secondary market, while retaining the obligation to service those loans. In addition, ita certain subsidiary undertakes obligations to service loans originated by others. The subsidiary recognizes servicing assets if it expects the benefit of servicing to more than adequately compensate it for performing the servicing or recognizes servicing liabilities if it expects the benefit of servicing to less than adequately compensate it. These servicing assets and liabilities are initially recognized at fair value and subsequently accounted for using the amortization method whereby the assets and liabilities are amortized in proportion to and over the period of estimated net servicing income or net servicing loss. On a quarterly basis, servicing assets and liabilities are evaluated for impairment or increased obligations. The fair value of servicing assets and liabilities is estimated using an internal valuation model, or by obtaining an opinion of value from an independent third-party vendor. Both methods are based on calculating the present value of estimated future net servicing cash flows, taking into consideration discount rates, prepayments and servicing costs. The internal valuation model is validated at least semiannually through third-party valuations.
(l) Derivative financial instruments
The Company and its subsidiaries apply ASC 815 (“Derivatives and Hedging”), andrecognize all derivatives held by the Company and its subsidiaries are recognized 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 hedges must bequalified for hedge accounting are adjusted to fair value through the consolidated statements of income. If a derivative is a hedge, then depending on its nature, changes in its fair value will be either offset against changes in the fair value of hedged assets or liabilities through the consolidated statements of income, or recorded in other comprehensive income (loss).
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) to the extent that the derivative is effective as a hedge, until earnings are affected by the variability in cash flows of the designated hedged item.
If a derivative is held as a hedge of a foreign-currency fair-value or cash-flow hedge (“foreign currency” hedge), changes in the fair value of the derivative are recorded in either earnings or other comprehensive income
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
(loss), depending on whether the hedged transaction is a fair-value hedge or a cash-flow hedge. However, if a
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
derivative is used as a hedge of a net investment in a foreign operation, changes in its fair value, to the extent effective as a hedge, are recorded in the foreign currency translation adjustments account within other comprehensive income (loss).
Changes in the fair value of derivatives that are held for trading purposes or held for the purpose of economic hedges, and theThe ineffective portion of changes in fair value of derivatives that qualify as a hedge are recorded in earnings.
For all hedging relationships that are designated and qualified as hedging, at inception the Company and its subsidiaries formally document the details of the hedging relationship and the hedged activity. The Company and its subsidiaries also 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 qualifiedqualifies for hedge accounting.
(m) Pension plans
The Company and certain subsidiaries have contributory andnon-contributory pension plans covering substantially all of their employees. The Company and its subsidiaries apply ASC 715 (“Compensation—Retirement Benefits”), and the costs of pension plans are accrued based on amounts determined using actuarial methods, with assumptions of discount rate, rate of increase in compensation level, expected long-term rate of return on plan assets and others.
The Company and its subsidiaries also recognize the funded status of pension plans, measured as the difference between the fair value of plan assets and the benefit obligation, on the consolidated balance sheets. Changes in that funded status are recognized in the year in which the changes occur through other comprehensive income (loss), net of applicable income taxes.
(n) Stock-based compensation
The Company and its subsidiaries apply ASC 718 (“Compensation—Stock Compensation”). ASC 718 requires, with limited exception, that the cost of employeemeasure stock-based compensation expense as consideration for services received in exchange for an award of equity instruments be measuredprovided by employees based on the grant-date fair value.value of the grant date. The costs are recognized over the requisite employee service period.
(o) Stock splits
Stock splits implemented prior to October 1, 2001 had been accounted for by transferring an amount equivalent to the par value of the shares from additionalpaid-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 has becomebecame 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 additionalpaid-in capital amounts
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
equal to the fair market value of the shares issued. Common stock is increased by the par value of the shares and additionalpaid-in capital is increased by the excess of the market value over par value of the shares issued. Had
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
such stock splits made prior to October 1, 2001 been accounted for in this manner, additionalpaid-in capital as of March 31, 20162018 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 split wassplits were not considered to be a stock dividenddividends under U.S. GAAP.
(p) Cash and cash equivalents
Cash and cash equivalents include cash on hand, deposits placed with banks and short-term highly liquid investments with original maturities of three months or less.
(q) Restricted cash
Restricted cash consists of trust accounts under securitization programs and real estate, deposits related to servicing agreements, deposits collected on the underlying assets and applied tonon-recourse loans, deposits held on behalf of third parties in the aircraft-related business and others.
(r) Property under facility operations
Property under facility operations consist primarily of operating facilities (including golf courses, hotels, and training facilities and senior housings) and environmental assets (including mega solar), 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 2014, 20152016, 2017 and 20162018 were ¥12,268¥16,321 million, ¥13,239¥20,976 million and ¥16,321¥25,444 million, respectively. Accumulated depreciation was ¥60,999¥85,255 million and ¥67,055¥101,103 million as of March 31, 20152017 and 2016,2018, respectively. Estimated useful lives range up to 50 years for buildings, up to 60 years for land improvementstructures and up to 30 years for others.
(s) 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 payment made on behalf of lessees for property tax, maintenance fees and insurance premiums in relation to direct financing lease contracts.
(t) 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 merchandises 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 first-in first-out (FIFO)average method. As of March 31, 20152017 and 2016,2018, residential condominiums under development were ¥97,320¥60,920 million and ¥81,859¥51,415 million, respectively, and completed residential condominiums and merchandises for sale were ¥68,220¥56,943 million and ¥58,091¥59,586 million, respectively.
The Company and its subsidiaries recorded ¥5,650¥168 million, ¥5,241¥916 million and ¥168¥936 million of write-downs principally on completed residential condominiums under developmentand merchandise for sale for fiscal 2014, 20152016, 2017 and 2016,2018, respectively,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
primarily resulting from an increase in development costs and/or a decrease in expected sales price. These write-downs were principally recorded in costscost of goods and real estate sold and principally included in the Real Estate segment and the Investment and Operation segment.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
(u) 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 2014, 20152016, 2017 and 20162018 were ¥3,524¥5,110 million, ¥4,711¥5,380 million and ¥5,110¥5,131 million, respectively. Accumulated depreciation was ¥44,443¥47,534 million and ¥45,310¥51,395 million as of March 31, 20152017 and 2016,2018, respectively. Estimated useful lives range up to 65 years for buildings and fixturesstructures and up to 2022 years for machinery and equipment.
(v) Other assets
Other assets consist primarily of the excess of purchase prices over the net assets acquired in acquisitions (goodwill) and other intangible assets, (see (w)), reinsurance recoverables in relation to reinsurance contracts, (see (f)), deferred insurance policy acquisition costs which are amortized over the contract periods, (see (f)), leasehold deposits, advance payments made in relation to purchases of assets to be leased and construction of real estate for operating lease, prepaid benefit cost, servicing assets, derivative assets and deferred tax assets.
(w) Goodwill and other intangible assets
The Company and its subsidiaries have followed ASC 805 (“Business Combinations”) and ASC 350 (“Intangibles”).
ASC 805 requires thataccount for all business combinations be accounted for using the acquisition method. It also requires thatThe Company and its subsidiaries recognize intangible assets acquired in a business combination be recognized apart from goodwill if the intangible assets meet one of two criteria—either the contractual-legal criterion or the separability 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.
ASC 350 establishes how intangible assets (other than those acquired in a business combination) should be accounted for upon acquisition. It also addresses how goodwill and other intangible assets should be accounted for subsequent to their acquisition. The Company and its subsidiaries perform an impairment test for impairment of goodwill and any intangible assets that have indefinite useful lives at least annually. Additionally, if events or changes in circumstances indicate that the asset might be impaired, the Company and its subsidiaries test for impairment when such events or changes occur.
The Company and its subsidiaries have the option to perform a qualitative assessment to determine whether to calculate the fair value of a reporting unit under the first step of thetwo-step goodwill impairment test. If,The Company and its subsidiaries perform the qualitative assessment for some goodwill but bypass the qualitative assessment and proceed directly to the first step of thetwo-step 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 thetwo-step 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 first step of thetwo-step impairment test. The
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
first step of goodwill impairment test, used to identify potential impairment, 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, the second step of the goodwill impairment test is performed to measure the amount of impairment loss. The second step of the goodwill impairment test compares implied fair value of goodwill with its carrying amount. If the carrying amount of goodwill exceeds its implied fair value, an impairment loss is recognized in an amount equal to that
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
excess. 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 perform the qualitative assessment for some goodwill but bypass the qualitative assessment and proceed directly to the first step of the two-step impairment test for other goodwill.
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. If,The Company and its subsidiaries perform the qualitative assessment for some indefinite-lived intangible assets but bypass the qualitative assessment and perform the quantitative assessment for other indefinite-lived intangible assets. For those indefinite-lived 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 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. The Company and its subsidiaries perform the qualitative assessment for some indefinite-lived intangible assets but bypass the qualitative assessment and perform the quantitative assessment for other indefinite-lived intangible assets.
Intangible assets with finite lives are amortized over their useful lives and tested for impairmentimpairment. The Company and its subsidiaries perform a recoverability test for the intangible assets whenever events or changes in accordance with ASC 360 (“Property, Plant,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 Equipment”).the net carrying amount of assets not recoverable is reduced to fair value if lower than the carrying amount.
(x) 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.
(y) Other Liabilities
Other liabilities include primarily interest, bonus accrued expense and accrued benefit liability, advances received from lessees in relation to lease contracts, deposit received from real estate transaction and derivative liabilities.
(z) Capitalization of interest costs
The Company and its subsidiaries capitalized interest costs of ¥1,037¥1,639 million, ¥1,369¥1,066 million and ¥1,639¥1,043 million in fiscal 2014, 20152016, 2017 and 2016,2018, respectively, primarily related to specific environment and energy assets and long-term real estate development projects.
(aa) Advertising
The costs of advertising are expensed as incurred. The total amounts charged to advertising expense in fiscal 2014, 20152016, 2017 and 20162018 were ¥15,270¥21,276 million, ¥20,329¥25,309 million and ¥21,276¥26,083 million, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
(ab) Discontinued operations
In April 2014, Accounting Standards Update 2014-08 (“Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity”—ASC 205 (“Presentation of Financial Statements”) and ASC 360 (“Property, Plant, and Equipment”)) was issued. This Update requires an entity to report a disposal or a classification as held for sale of a component of an entity or a group of components of an entity in discontinued operations if it represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. The Company and its subsidiaries early adopted this Update on April 1, 2014. In accordance with this Update, the Company and its subsidiaries report a disposal of a component or a group of components of the Company and its subsidiaries in discontinued operations if the disposal represents a strategic shift which has (or will have) a major effect on the Company and its subsidiaries’ operations and financial results when the component or group of components is disposed by sale or classified as held for sale on or after April 1, 2014.
During fiscal 2014, the Company and its subsidiaries have followed ASC 205-20 (“Presentation of Financial Statements—Discontinued Operations”) prior to the early adoption of the update. Under ASC 205-20 prior to the early adoption of the update, the scope of discontinued operations includes the operating results of any component of an entity with its own identifiable operations and cash flow and in which operations the Company and its subsidiaries will not have significant continuing involvement. Included in reported discontinued operations are the operating results of operations for the subsidiaries, the business units and certain properties sold or to be disposed of by sale without significant continuing involvements, which results of operations for prior periods presented have also been reclassified as discontinued operations in the accompanying consolidated statements of income and consolidated statements of cash flows. During fiscal 2014, where the Company and its subsidiaries have significant continuing involvement in the operations from the real estate under operating leases which have been disposed of, the gains or losses arising from such disposition are separately disclosed as operating leases, whereas if the Company and its subsidiaries have no significant continuing involvement in the operations from such disposed real estate, the gains or losses are reported as income from discontinued operations, net.
Accounting Standards Update 2014-08 does not apply retrospectively to a disposal or a classification as held for sale of a component or a group of components of the Company and its subsidiaries which have previously been reported in the financial statements. Accordingly, during fiscal 2015, the Company and its subsidiaries continue to report gains on sales and the results of operations of subsidiaries and business units, which were classified as held for sale at March 31, 2014, as income from discontinued operations in the accompanying consolidated statements of income in accordance with ASC 205-20 prior to the early adoption of the update.
(ac) Earnings per share
Basic earnings per share is computed by dividing income attributable to ORIX Corporation shareholders from continuing operations and net income attributable to ORIX Corporation shareholders by the weighted average number of shares of outstanding common stock in each period and dilutedperiod. Diluted earnings per share which reflectsis calculated by reflecting the potential dilution that could occur if securities or other contracts issuing common stock were exercised or converted into common stock.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
(ad)(ac) Additional acquisition and partial sale of the parent’s ownership interest in subsidiaries
Additional acquisition of the parent’s ownership interest in subsidiaries and partial sale of such interest where the parent continues to retain control of the subsidiary are accounted for as equity transactions. On the other hand, in a transaction that results in the loss of control, the gain or loss recognized in income includes the
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
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.
(ae)(ad) 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 in accordance with provisions including EITF Topic No. D-98 (ASC 480-10-S99-3A) (“Classification and Measurement of Redeemable Securities”).value.
(af)(ae) 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 gain or loss in the consolidated statements of income in the year in which the change in ownership interest occurs.
(ag)(af) New accounting pronouncements
In January 2014, Accounting Standards Update 2014-04 (“Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure”—ASC 310-40 (“Receivables—Troubled Debt Restructurings by Creditors”)) was issued. This Update clarifies when a creditor is considered to have received physical possession resulting from an in substance repossession or foreclosure of residential real estate property collateralizing a consumer mortgage loan. Additionally, this Update requires an entity to disclose the amount of foreclosed residential real estate property and the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure. This Update is effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2014. The amendments should be applied on either a prospective basis or a modified retrospective basis. Early adoption is permitted. The Company and its subsidiaries adopted this Update on April 1, 2015. The adoption had no material effect on the Company and its subsidiaries’ results of operations or financial position.
In May 2014, Accounting Standards Update2014-09 (“Revenue from Contracts with Customers”—ASC 606 (“Revenue from Contracts with Customers”)) was issued. The core principle of this Update is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply a five-step model to determine when to recognize revenue, and in what amount. The five steps to apply the model are:
Identify the contract(s) with a customer
Identify the performance obligations in the contract
Determine the transaction price
Allocate the transaction price to the performance obligations in the contract
Recognize revenue when (or as) the entity satisfies a performance obligation
This Update requires an entity to disclose more information about contracts with customers than under the current disclosure requirements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
In April 2016, Accounting Standards Update2016-10 (“Identifying Performance Obligations and Licensing”—ASC 606 (“Revenue from Contracts with Customers”)) was issued as an amendment of the new revenue standard. This Update adds further guidance on identifying performance obligations and also improves the operability and understandability of the licensing implementation guidance. The amendments do not change the core principle of the guidance in ASC 606.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
In May 2016, Accounting Standards Update2016-12 (“Narrow-Scope Improvements and Practical Expedients”—ASC 606 (“Revenue from Contracts with Customers”)) was issued as an amendment of the new revenue standard. This Update (1) clarifies the objective of the collectibility criterion for applying paragraphparagraph 606-10-25-7; (2) permits an entity to exclude amounts collected from customers for all sales (and other similar) taxes from the transaction price; (3) specifies that the measurement date fornon-cash consideration is contract inception; (4) provides a practical expedient that permits an entity to reflect the aggregate effect of all modifications that occur before the beginning of the earliest period presented when identifying the satisfied and unsatisfied performance obligations, determining the transaction price, and allocating the transaction price to the satisfied and unsatisfied performance obligations; (5) clarifies that a completed contract for purposes of transition is a contract for which all (or substantially all) of the revenue was recognized under legacy GAAP before the date of initial application, and (6) clarifies that an entity that retrospectively applies ASC606ASC 606 to each prior reporting period is not required to disclose the effect of the accounting change for the period of adoption.
These Updates are effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2017. Early adoption is permitted only for the fiscal year beginning after December 15, 2016, and interim periods within the fiscal year. An entity should apply the amendments in these Updates using either a retrospective method or a cumulative-effect method. The entity may elect some optional practical expedients when applying these Updates. The entity using the cumulative-effect method would recognize the cumulative effect of initially applying these Updates as an adjustment to the opening balance of retained earnings or net assets at the date of initial application. The Company and its subsidiaries will adopt these Updates on April 1, 2018, using the cumulative-effect method, for only those contracts that are currently evaluatingnot completed at the effect thatdate of initial adoption. These Updates require a number of new disclosures to enable users of the adoptionfinancial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The scope of these Updates will haveexcludes lease contracts, financial instruments and other contractual rights and obligations within the scope of other ASC Topics including loans, investments in securities and derivatives and also excludes contracts within the scope of ASC Topic 944 (“Financial Services—Insurance”). Based on the Company and its subsidiaries’ resultsassessment and estimates, the impact of operations or financial position.
In June 2014, Accounting Standards Update 2014-11 (“Repurchase-to-Maturity Transactions, Repurchase Financings,the application of these Updates will result in a change in the timing of revenue recognition and Disclosures”—ASC 860 (“Transfersaccounting policy for performance fees received from customers regarding asset management business. Currently, certain subsidiaries recognize such fees when earned based on the performance of the asset under management, while other subsidiaries recognize the fees on accrual basis over the period in which services are performed. New guidance requires recognizing such fees as revenue 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. Additionally, there will be changes in the timing of revenue recognition and Servicing”)) was issued. This Update requires an entity to account for repurchase-to-maturity transactions as secured borrowings. This Update eliminates the guidance on repurchase financing transactions in ASC 860-10-40-42 through 40-47 and requires the transferor and transferee to symmetrically accountaccounting policy for the initial transfer ofcertain project-based orders in real estate business for which the financial asset as a sale (provided that derecognition conditions are met) and purchase, respectively. Additionally, this Update requires new disclosure requirements related to certain transfers of financial assets that are accounted for as sales and certain transfers accounted for as secured borrowings. The Company and its subsidiaries adopted this Update for accountingcurrently apply thepercentage-of-completion or completed contract method. Under the new guidance, there are specific criteria to determine if a performance obligation should be satisfied over time or at a point in time. In some cases, the revenue recognition timing will change from current practice based on January 1, 2015,applying the specific criteria under the new guidance. Further, the Company and for new disclosure on April 1, 2015.its subsidiaries will expand its disclosures regarding these revenue streams, to discuss contract balances, performance obligations, significant judgments made, and contract costs. The adoption had noof these Updates will not have material effect on the Company and its subsidiaries’ results of operations or financial position.
In June 2014, Accounting Standards Update 2014-12 (“Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period”—ASC 718 (“Compensation—Stock Compensation”)) was issued. This Update requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. This Update is effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2015. The amendments in this Update should be applied on either a prospective basis or a modified retrospective basis. Early adoption is permitted. The adoption is not expected to have a material effect on the Company and its subsidiaries’ results of operations or financial position.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
In August 2014, Accounting Standards Update 2014-13 (“Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity”—ASC 810 (“Consolidation”)) was issued. This Update permits the parent of the consolidated collateralized financing entity (“CFE”) within the scope of this Update to measure the CFE’s financial assets and liabilities based on either the fair value of the financial assets or financial liabilities, whichever has the more observable inputs. This Update is effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2015. Early adoption is permitted as of the beginning of a fiscal year. An entity should apply the amendments in this Update using either a modified retrospective approach or a full retrospective approach. The Company and its subsidiaries are currently evaluating the effect that the adoption of this Update will have on the Company and its subsidiaries’ results of operations or financial position.
In August 2014, Accounting Standards Update 2014-14 (“Classification of Certain Government—Guaranteed Mortgage Loans Upon Foreclosure”—ASC 310-40 (“Receivables—Troubled Debt Restructurings by Creditors”)) was issued. This Update requires creditors to classify certain foreclosed government guaranteed mortgage loans as a receivable from the guarantor that is measured at the amount expected to be recovered under the guarantee, without treating the guarantee as a separate unit of account. This Update is effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2014. An entity should apply the amendments in this Update using either a prospective transition method or a modified retrospective transition method. The transition method must be consistent with that applied by the entity for Accounting Standards Update 2014-04 (“Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure”—ASC 310-40 (“Receivables—Troubled Debt Restructurings by Creditors”)). Early adoption is permitted only if the entity has already adopted Accounting Standards Update 2014-04. The Company and its subsidiaries adopted this Update on April 1, 2015. The adoption had no effect on the Company and its subsidiaries’ results of operations or financial position.
In August 2014, Accounting Standards Update 2014-15 (“Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”—ASC 205-40 (“Presentation of Financial Statements—Going Concern”)) was issued. This Update requires an entity to perform a going concern assessment by evaluating their ability to meet obligations for a look-forward period of one year from the financial statement issuance date (or date the financial statements are available to be issued). Disclosures are required if it is probable an entity will be unable to meet its obligations within the look-forward period. Incremental substantial doubt disclosure is required if the probability is not mitigated by management’s plans. This Update is effective for the first fiscal year ending after December 15, 2016 and fiscal years and interim periods thereafter. Early adoption is permitted. The Update only relates to certain disclosure requirements and the adoption will have no effect on the Company and its subsidiaries’ results of operations or financial position.
In November 2014, Accounting Standards Update 2014-16 (“Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity”—ASC 815 (“Derivatives and Hedging”)) was issued. This Update requires an issuer or an investor of hybrid financial instruments issued in the form of a share to determine whether the nature of the host contract is more akin to debt or to equity by considering the economic characteristics and risks of the entire hybrid financial instrument, including the embedded derivative feature that is being evaluated for separate accounting from the host contract. This Update is effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2015. Early adoption, including adoption in an interim period, is permitted. The amendments in this Update should be applied on a modified retrospective basis to all existing hybrid financial instruments in the form of a share as of the beginning of the fiscal year of adoption. Retrospective application is permitted to all relevant prior periods. 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
In January 2015, Accounting Standards Update 2015-01 (“Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items”—ASC 225-20 (“Income Statement—Extraordinary and Unusual Items”)) was issued. This Update eliminates the concept of extraordinary items from U.S. GAAP, but does not change the current presentation and disclosure requirements for material events or transactions that are unusual in nature or infrequent in occurrence. This Update is effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2015. The amendments in this Update should be applied on either a prospective basis or a retrospective basis. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. Generally, the effect of adopting this Update on the Company and its subsidiaries’ results of operations will depend on future transactions.
In February 2015, Accounting Standards Update 2015-02 (“Amendments to the Consolidation Analysis”—ASC 810 (“Consolidation”)) was issued. This Update requires an entity to change the way to evaluate whether reporting entities should consolidate limited partnerships and similar legal entities, fees paid to a decision maker or service provider are variable interest in a VIE, and variable interests in a VIE held by related parties of the reporting entity require the reporting entity to consolidate the VIE. Additionally, the amendments in this Update rescind the indefinite deferral of FASB Statement No.167 (“Amendments to FASB Interpretation No.46(R)”), included in Accounting Standards Update 2010-10 (ASC 810 (“Consolidation”)) for certain investment companies and similar entities. This Update is effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2015. A reporting entity is permitted to apply the amendments in this Update using either a modified retrospective approach or a full retrospective approach. Early adoption is permitted. If an entity adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company and its subsidiaries are currently evaluating the effect that the adoption of this Update will have on the Company and its subsidiaries’ results of operations or financial position.
In April 2015, Accounting Standards Update 2015-03 (“Simplifying the Presentation of Debt Issuance Costs”—ASC 835-30 (“Interest—Imputation of Interest”)) was issued. This Update requires that debt issuance costs related to a recognized debt liability are presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, similar to the presentation of debt discounts or premiums. This Update is effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2015. Retrospective application is required to all relevant prior periods. Early adoption is permitted for financial statements that have not been previously issued. The Company and its subsidiaries are currently evaluating the effect that the adoption of this Update will have on the Company and its subsidiaries’ results of operations or financial position.
In July 2015, Accounting Standards Update2015-11 (“Simplifying the Measurement of Inventory”—ASC 330 (“Inventory”)) was issued. This Update applies to all inventory except for which is measured usinglast-in,first-out first-out (LIFO) or the retail inventory method, and requires an entity to measure inventory at the lower of cost and net realizable value. Additionally, this Update defines net realizable value as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This Update is effective for fiscal years,The
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and interim periods within those fiscal years beginning after December 15, 2016. The amendments in this Update should be applied on a prospective basis. Early adoption is permitted. The Subsidiaries
Company and its subsidiaries are currently evaluating the effect that the adoption ofadopted this Update will haveon April 1, 2017. The adoption had no effect on the Company and its subsidiaries’ results of operations or financial position.
In September 2015, Accounting Standards Update 2015-16 (“Simplifying the Accounting for Measurement—Period Adjustments”—ASC 805 (“Business Combinations”)) was issued. This Update requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. This Update is effective for fiscal years
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
beginning after December 15, 2015, and interim periods within those fiscal years. The amendments in this Update should be applied prospectively to adjustments to provisional amounts that occur after the effective date of this Update. Early application is permitted for financial statements that have not yet been issued. Generally, the effect of adopting this Update on the Company and its subsidiaries’ results of operations and financial position will depend on future transactions.
In January 2016, Accounting Standards Update2016-01 (“Recognition and Measurement of Financial Assets and Financial Liabilities”—ASC825-10 (“Financial Instruments—Overall”)) was issued. This Update revises accounting related to the classification and measurement of equity investments. This Update also revises the presentation of certain fair value changes for financial liabilities measured at fair value. Additionally, this Update amends certain disclosure requirements associated with the fair value of financial instruments. This Update is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early application to financial statements of fiscal years or interim periods that have not yet been issued areis permitted as of the beginning of the fiscal year of adoption. The amendments in this Update should be applied by means of cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. And the amendments relate to equity investments without readily determinable fair value are to be applied prospectively. The Company and its subsidiaries arewill adopt this Update on April 1, 2018. The impact of adopting this Update will result in recognizing unrealized changes in fair value of equity investments through earnings rather than other comprehensive income. Equity investments currently evaluatingaccounted for under the cost method of accounting will be accounted for either at fair value with changes in fair value recognized in earnings or using alternative method that requires carrying value to be adjusted by using subsequent observable transactions. The effect thatof the adoption of this Update will have on the Company and its subsidiaries’ resultsfinancial position at the adoption date will be a decrease of operations or financial position.
¥2,899 million in accumulated other comprehensive income and an increase of ¥2,899 million in retained earnings in the consolidated balance sheets.
In February 2016, Accounting Standards Update2016-02 (ASC 842 (“Leases”)) was issued. This Update requires a lessee to recognize most leases on-balanceon the balance sheet. Lessor accounting remains substantially similar to current U.S.GAAPU.S. GAAP but with some important changes. This Update is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early application is permitted. The amendments in this Update should be applied by means of cumulative-effect adjustment to retained earnings as ofat the beginning of the fiscal year of adoption.earliest period presented using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that entities may elect to apply. The Company and its subsidiaries arewill adopt this Update on April 1, 2019. Based on the Company and its subsidiaries’ initial assessment and best estimates to date, the impact of the application of the Update will likely result in gross up of right-of-use assets and corresponding lease liabilities principally for operating leases where it is the lessee, such as ground leases and office and equipment leases. Other than the impact that have been currently evaluatingidentified, the Company and its subsidiaries continue to evaluate the effect that the adoption of this Update will have on the Company and its subsidiaries’ results of operations or financial position.
position, as well as changes in disclosures required by this Update.
In March 2016, Accounting Standards Update2016-07 (“Simplifying the Transition to the Equity Method Accounting”—ASC 323 (“Investments—Equity Method and Joint Ventures”)) was issued. This Update eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on astep-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. This Update also requires that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and requires that an entity that has anavailable-for sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. The Company and its subsidiaries adopted this Update on April 1, 2017. The adoption had no effect on the Company and its subsidiaries’ results of operations or financial position.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
In June 2016, Accounting Standards Update2016-13 (“Measurement of Credit Losses on Financial Instruments”—ASC 326 (“Financial Instruments—Credit Losses”)) was issued. This Update significantly changes 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 this Update. This Update also makes targeted amendments to the current impairment model foravailable-for-sale debt securities. This Update is effective for fiscal years beginning after December 15, 2016,2019, and interim periods within those fiscal years. The amendments in this Update should be applied prospectively.through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. Early application is permitted for fiscal year beginning after December 15, 2018, including interim periods within the fiscal year. The Company and its subsidiaries will adopt this Update on April 1, 2020. The Company and its subsidiaries continue to evaluate 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 August 2016, Accounting Standards Update2016-15 (“Classification of Certain Cash Receipts and Cash Payments”—ASC 230 (“Statement of Cash Flows”)) was issued. This Update amends ASC 230 to add or clarify guidance on the classification of certain cash receipts and cash payments in the statement of cash flows. This Update is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. This Update should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company and its subsidiaries will adopt this Update on April 1, 2018. Generally, the effect of adopting this Update on the Company and its subsidiaries’ statement of cash flows will depend on future transactions.
In October 2016, Accounting Standards Update2016-16 (“Intra-Entity Transfers of Assets Other Than Inventory”—ASC 740 (“Income Taxes”)) was issued. This Update eliminates the exception to defer the income tax consequences of intra-entity transfers of assets other than inventory until the assets are ultimately sold to an outside party and requires the recognition of the current and deferred tax consequences when those transfers occur. This Update is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. This Update should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company and its subsidiaries will adopt this Update on April 1, 2018. The effect of the adoption of this Update on the Company and its subsidiaries’ financial position at the adoption date will be an increase of ¥3,772 million in retained earnings in the consolidated balance sheets.
In October 2016, Accounting Standards Update2016-17 (“Interests Held through Related Parties That Are under Common Control”—ASC 810 (“Consolidation”)) was issued. This Update amends the consolidation guidance on how a reporting entity that is the single decision maker of a VIE should treat indirect interests in the entity held through related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of that VIE. The Company and its subsidiaries adopted this Update on April 1, 2017. The adoption had no effect on the Company and its subsidiaries’ results of operations or financial position.
In November 2016, Accounting Standards Update2016-18 (“Restricted Cash”—ASC230 (“Statement of Cash Flows”)) was issued. This Update requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. This Update is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. If an entity early
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company and its subsidiaries will adopt this Update on April 1, 2018. The Company and its subsidiaries are currently evaluating the effect that the adoption of this Update will have on the Company and its subsidiaries’ statement of cash flows.
In January 2017, Accounting Standards Update2017-04 (“Simplifying the Test for Goodwill Impairment”—ASC 350 (“Intangible—Goodwill and Other”)) was issued. This Update eliminates Step 2 from the current 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. This Update is effective for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019 and should be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates on or after January 1, 2017. The Company and its subsidiaries will adopt this Update on April 1, 2020. Generally, the effect of adopting this Update on the Company and its subsidiaries’ results of operationsoperation or financial position will depend on the outcomes of future transactions.goodwill impairment tests.
In August 2017, Accounting Standards Update(ah) Elimination2017-12 (“Targeted Improvements to Accounting for Hedging Activities”—ASC 815 (“Derivatives and Hedging”)) was issued. This Update changes the recognition and presentation requirements of a lag period
Since its acquisition on February 27, 2014,hedge accounting including eliminating the Company had been consolidating DAIKYO INCORPORATED (hereinafter, “DAIKYO”) on a lag basis. In orderrequirement to reflect DAIKYO’s financial positionseparately measure and results of operationsreport hedge ineffectiveness and cash flowspresenting all items that affect earnings in the Company’s consolidated financial statementssame income statement line as the hedged item. This Update is effective for fiscal years beginning after December 15, 2018, and interim period within those fiscal years. Early adoption is permitted, including in an interim period. For cash flow hedges and net investment hedges existing at the date of adoption, an entity should apply a concurrent manner,cumulative-effect adjustment related to eliminating the Company eliminatedseparate measurement of ineffectiveness to accumulated other comprehensive income with a corresponding adjustment to the lag period and has alignedopening balance of retained earnings as of the beginning of fiscal year end of DAIKYO withthat an entity adopts the Company’s fiscal year end of March 31 during fiscal 2015.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporationamendment in this Update. The amended presentation and Subsidiaries
Because the elimination of a lag period represents a change in accounting principle, the Company retrospectively adjusted the prior year’s consolidated financial statements for the effects of the lag accounting.
Below are the effects of this change in accounting principle on major line items and earnings per share amounts in the consolidated financial statements for fiscal 2014 and 2015. The segment information in the Note 34 “Segment Information” has been restated giving effect to these changes to conform to DAIKYO’s current fiscal year end.
Millions of yen | ||||||||
2014 | 2015 | |||||||
Adjustments Increase (decrease) | Adjustments Increase (decrease) | |||||||
Revenues: | ||||||||
Sales of goods and real estate | ¥ | 30,937 | ¥ | 10,548 | ||||
Services income | 25,205 | 27,960 | ||||||
Other | 661 | 1,377 | ||||||
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Total revenues | 56,803 | 39,885 | ||||||
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Expenses: | ||||||||
Costs of goods and real estate sold | 28,883 | 6,125 | ||||||
Services expense | 21,507 | 23,760 | ||||||
Selling, general and administrative expenses | 3,186 | 3,804 | ||||||
Other | 1,157 | 999 | ||||||
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Total expenses | 54,733 | 34,688 | ||||||
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Operating Income | 2,070 | 5,197 | ||||||
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Income before Income Taxes and Discontinued Operations | ¥ | 2,613 | ¥ | 8,068 | ||||
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Millions of yen, except for per share amounts | ||||||||
2014 | 2015 | |||||||
Adjustments Increase (decrease) | Adjustments Increase (decrease) | |||||||
Income from Continuing Operations | ¥ | 1,296 | ¥ | 2,184 | ||||
Net Income | 1,296 | 2,184 | ||||||
Net Income Attributable to the Noncontrolling Interests | 726 | 1,070 | ||||||
Net Income Attributable to ORIX Corporation Shareholders | 570 | 1,114 | ||||||
Basic EPS | 0.45 | 0.84 | ||||||
Diluted EPS | 0.43 | 0.86 | ||||||
Millions of yen | ||||||||
2014 | 2015 | |||||||
Adjustments Increase (decrease) | Adjustments Increase (decrease) | |||||||
Net cash provided by operating activities | ¥ | 7,013 | ¥ | 30,919 | ||||
Net cash provided by (used in) investing activities | (13,148 | ) | 3,743 | |||||
Net cash provided by (used in) financing activities | (3,125 | ) | 3,832 | |||||
Cash and Cash Equivalents at Beginning of Year | 0 | (9,260 | ) | |||||
Cash and Cash Equivalents at End of Year | (9,260 | ) | 29,234 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
(ai) Reclassifications
Certain line items presented in the consolidated balance sheets, the consolidated statements of income and the consolidated statements of cash flows have been changed as follows starting from fiscal 2015. These changes aim to reflect fairly the changing revenues structure ofdisclosure guidance is required only prospectively. At present, the Company and its subsidiaries will adopt this Update on April 1, 2019. The Company and its subsidiaries are currently evaluating the effect that the adoption of this Update will have on the consolidatedCompany and its subsidiaries’ results of operations or financial statements,position.
In February 2018, Accounting Standards Update2018-02 (“Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”—ASC 220 (“Income Statement—Reporting Comprehensive Income”)) was issued. This Update provides the option to reclassify certain stranded tax effects resulting from the Tax Cuts and Jobs Act, which has resultedwas enacted on December 22, 2017, from continued diversification in our business activitiesaccumulated other comprehensive income to retained earnings. The Company and alsoits subsidiaries early adopted this Update on January 1, 2018. The effect of the early adoption on the Company and its subsidiaries’ financial position at the adoption date was an increase of ¥692 million in the numberaccumulated other comprehensive income and a decrease of consolidated subsidiaries acquired¥692 million in recent years. Corresponding to these changes, the presented amountsretained earnings in the consolidated statement of income and the consolidated statement of cash flows for fiscal 2014 have also been reclassified retrospectively to conform to the presentation for fiscal 2015.balance sheets.
(Consolidated Statement of Income)
“Direct financing leases” and “Interest on loans and investment securities” have been presented as “Finance revenues.” Certain finance-related revenues previously included in “Other operating revenues” in the amount of ¥3,537 million for fiscal 2014 have been included in “Finance revenues.”
“Brokerage commissions and net gains on investment securities” has been changed to “Gains on investment securities and dividends.”
“Gains (losses) on sales of real estate under operating leases” has been reclassified and combined into “Operating leases.”
“Real estate sales” and sales of goods included in “Other operating revenues” have been reclassified and combined into “Sales of goods and real estate.” “Costs of real estate sales” and costs of goods sold included in “Other operating expenses” have been reclassified and combined into “Costs of goods and real estate sold.”
“Revenues from asset management and servicing” and part of the service-related revenues in the amount of ¥364,023 million for fiscal 2014 previously classified under “Other operating revenues” have been reclassified into “Services income.” “Expenses from asset management and servicing” and part of service-related expenses in the amount of ¥224,128 million for fiscal 2014 previously classified under “Other operating expenses” have been reclassified into “Services expense.”
“Foreign currency transaction loss (gain), net” and revenues and expenses other than service-related previously classified under “Other operating revenues” in the amount of ¥(23,186) million for fiscal 2014 and “Other operating expenses,” in the amount of ¥1,107 million for fiscal 2014 as well as part of expenses previously classified under “Selling, general and administrative expenses,” in the amount of ¥331 million for fiscal 2014 have been reclassified and combined into “Other (income) and expense, net.”
(Consolidated Statement of Cash flows)
“Gains on sales of real estate under operating lease” and “Gains on sales of operating lease assets other than real estate” have been combined and presented as “Gains on sales of operating lease assets” in cash flows from operating activities.
“Increase in trade notes, accounts and other receivable” previously included in “Decrease (Increase) in other receivables” has separately been presented. A part of assets in the amount of ¥10,853 million for fiscal 2014 previously included in “Decrease (Increase) in other receivables” has been reclassified into “Other, net” in cash flows from operating activities.
“Increase (Decrease) in trade notes, accounts and other payable” previously included in “Increase (Decrease) in trade notes, accounts payable and other liabilities” has separately been presented. A part
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
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“Decrease in accrued expenses” has been reclassified into “Other, net” in cash flows from operating activities.
“Purchases of other operating assets” has been changed to “Purchases of property under facility operations.” A part of assets in the amount of ¥(4,355) million for fiscal 2014 previously included in “Purchases of other operating assets” has been reclassified into “Other, net” in cash flows from investing activities.
2. Fair Value Measurements
The Company and its subsidiaries adopted ASC 820 (“Fair Value Measurement”). This Codification Section defines fair value, establishes a framework for measuring fair valueclassify and expands disclosures about fair value measurements.
This Codification Section classifies and prioritizesprioritize 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
Level 3—Unobservable inputs for the assets or liabilities.
This Codification Section differentiatesThe Company and its subsidiaries differentiate between those assets and liabilities required to be carried at fair value at every reporting period (“recurring”) and those assets and liabilities that are only required to be adjusted to fair value under certain circumstances (“nonrecurring”). The Company and its subsidiaries mainly measure certain loans held for sale, trading securities,available-for-sale securities, certain investment funds, derivatives, certain reinsurance recoverables, certain contingent consideration, and variable annuity and variable life insurance contracts at fair value on a recurring basis.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
The following table presentstables present recorded amounts of major financial assets and liabilities measured at fair value on a recurring basis as of March 31, 20152017 and 2016:2018:
March 31, 2017
March 31, 2015 | ||||||||||||||||||||||||||||||||
Millions of yen | Millions of yen | |||||||||||||||||||||||||||||||
Total Carrying Value in Consolidated Balance Sheets | Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | 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*1 | ¥ | 15,361 | ¥ | 0 | ¥ | 15,361 | ¥ | 0 | ¥ | 19,232 | ¥ | 0 | ¥ | 19,232 | ¥ | 0 | ||||||||||||||||
Trading securities | 1,190,131 | 50,902 | 1,139,229 | 0 | 569,074 | 37,500 | 531,574 | 0 | ||||||||||||||||||||||||
Available-for-sale securities | 1,356,840 | 130,519 | 1,129,270 | 97,051 | ||||||||||||||||||||||||||||
Japanese and foreign government bond securities | 527,592 | 0 | 527,592 | 0 | ||||||||||||||||||||||||||||
Available-for-sale securities: | 1,165,417 | 93,995 | 946,906 | 124,516 | ||||||||||||||||||||||||||||
Japanese and foreign government bond securities*2 | 345,612 | 2,748 | 342,864 | 0 | ||||||||||||||||||||||||||||
Japanese prefectural and foreign municipal bond securities | 161,477 | 0 | 161,477 | 0 | 168,822 | 0 | 168,822 | 0 | ||||||||||||||||||||||||
Corporate debt securities | 287,613 | 0 | 287,613 | 0 | ||||||||||||||||||||||||||||
Corporate debt securities*3 | 393,644 | 11,464 | 380,562 | 1,618 | ||||||||||||||||||||||||||||
Specified bonds issued by SPEs in Japan | 7,280 | 0 | 0 | 7,280 | 1,087 | 0 | 0 | 1,087 | ||||||||||||||||||||||||
CMBS and RMBS in the Americas | 69,976 | 0 | 47,318 | 22,658 | 98,501 | 0 | 40,643 | 57,858 | ||||||||||||||||||||||||
Other asset- backed securities and debt securities | 147,970 | 0 | 81,718 | 66,252 | ||||||||||||||||||||||||||||
Equity securities*3 | 154,932 | 130,519 | 23,552 | 861 | ||||||||||||||||||||||||||||
Other securities | 8,723 | 0 | 0 | 8,723 | ||||||||||||||||||||||||||||
Investment funds*4 | 8,723 | 0 | 0 | 8,723 | ||||||||||||||||||||||||||||
Derivative assets | 25,123 | 6 | 13,247 | 11,870 | ||||||||||||||||||||||||||||
Other asset-backed securities and debt securities | 64,717 | 0 | 764 | 63,953 | ||||||||||||||||||||||||||||
Equity securities*4 | 93,034 | 79,783 | 13,251 | 0 | ||||||||||||||||||||||||||||
Other securities: | 27,801 | 0 | 0 | 27,801 | ||||||||||||||||||||||||||||
Investment funds*5 | 27,801 | 0 | 0 | 27,801 | ||||||||||||||||||||||||||||
Derivative assets: | 22,999 | 734 | 17,032 | 5,233 | ||||||||||||||||||||||||||||
Interest rate swap agreements | 890 | 0 | 890 | 0 | 304 | 0 | 304 | 0 | ||||||||||||||||||||||||
Options held/written and other | 12,103 | 0 | 233 | 11,870 | 5,804 | 0 | 571 | 5,233 | ||||||||||||||||||||||||
Futures, foreign exchange contracts | 5,719 | 6 | 5,713 | 0 | 12,346 | 734 | 11,612 | 0 | ||||||||||||||||||||||||
Foreign currency swap agreements | 6,411 | 0 | 6,411 | 0 | 4,545 | 0 | 4,545 | 0 | ||||||||||||||||||||||||
Netting*5 | (2,858 | ) | 0 | 0 | 0 | |||||||||||||||||||||||||||
Netting*6 | (4,019 | ) | 0 | 0 | 0 | |||||||||||||||||||||||||||
Net derivative assets | 22,265 | 0 | 0 | 0 | 18,980 | 0 | 0 | 0 | ||||||||||||||||||||||||
Other assets | 36,038 | 0 | 0 | 36,038 | ||||||||||||||||||||||||||||
Reinsurance recoverables*6 | 36,038 | 0 | 0 | 36,038 | ||||||||||||||||||||||||||||
Other assets: | 22,116 | 0 | 0 | 22,116 | ||||||||||||||||||||||||||||
Reinsurance recoverables*7 | 22,116 | 0 | 0 | 22,116 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total | ¥ | 2,632,216 | ¥ | 181,427 | ¥ | 2,297,107 | ¥ | 153,682 | ¥ | 1,826,639 | ¥ | 132,229 | ¥ | 1,514,744 | ¥ | 179,666 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||
Derivative liabilities | ¥ | 29,619 | ¥ | 762 | ¥ | 28,857 | ¥ | 0 | ||||||||||||||||||||||||
Derivative liabilities: | ¥ | 16,295 | ¥ | 165 | ¥ | 16,130 | ¥ | 0 | ||||||||||||||||||||||||
Interest rate swap agreements | 1,221 | 0 | 1,221 | 0 | 4,567 | 0 | 4,567 | 0 | ||||||||||||||||||||||||
Options written and other | 6,177 | 0 | 6,177 | 0 | ||||||||||||||||||||||||||||
Options held/written and other | 1,071 | 0 | 1,071 | 0 | ||||||||||||||||||||||||||||
Futures, foreign exchange contracts | 12,268 | 762 | 11,506 | 0 | 8,821 | 165 | 8,656 | 0 | ||||||||||||||||||||||||
Foreign currency swap agreements | 9,788 | 0 | 9,788 | 0 | 1,677 | 0 | 1,677 | 0 | ||||||||||||||||||||||||
Credit derivatives held | 165 | 0 | 165 | 0 | 159 | 0 | 159 | 0 | ||||||||||||||||||||||||
Netting*5 | (2,858 | ) | 0 | 0 | 0 | |||||||||||||||||||||||||||
Netting*6 | (4,019 | ) | 0 | 0 | 0 | |||||||||||||||||||||||||||
Net derivative Liabilities | 26,761 | 0 | 0 | 0 | 12,276 | 0 | 0 | 0 | ||||||||||||||||||||||||
Accounts Payable | 5,533 | 0 | 0 | 5,533 | ||||||||||||||||||||||||||||
Contingent consideration | 5,533 | 0 | 0 | 5,533 | ||||||||||||||||||||||||||||
Policy Liabilities and Policy Account Balances | 1,254,483 | 0 | 0 | 1,254,483 | ||||||||||||||||||||||||||||
Variable annuity and variable life insurance contracts*7 | 1,254,483 | 0 | 0 | 1,254,483 | ||||||||||||||||||||||||||||
Policy Liabilities and Policy Account Balances: | 605,520 | 0 | 0 | 605,520 | ||||||||||||||||||||||||||||
Variable annuity and variable life insurance contracts*8 | 605,520 | 0 | 0 | 605,520 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total | ¥ | 1,289,635 | ¥ | 762 | ¥ | 28,857 | ¥ | 1,260,016 | ¥ | 621,815 | ¥ | 165 | ¥ | 16,130 | ¥ | 605,520 | ||||||||||||||||
|
|
|
|
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
March 31, 2016 | ||||||||||||||||
Millions of yen | ||||||||||||||||
Total Carrying Value in Consolidated Balance Sheets | Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
Assets: | ||||||||||||||||
Loans held for sale*1 | ¥ | 20,673 | ¥ | 0 | ¥ | 20,673 | ¥ | 0 | ||||||||
Trading securities | 725,821 | 37,592 | 688,229 | 0 | ||||||||||||
Available-for-sale securities | 1,347,890 | 99,347 | 1,149,021 | 99,522 | ||||||||||||
Japanese and foreign government bond securities*2 | 497,355 | 988 | 496,367 | 0 | ||||||||||||
Japanese prefectural and foreign municipal bond securities | 169,534 | 0 | 169,534 | 0 | ||||||||||||
Corporate debt securities | 410,779 | 0 | 410,774 | 5 | ||||||||||||
Specified bonds issued by SPEs in Japan | 3,461 | 0 | 0 | 3,461 | ||||||||||||
CMBS and RMBS in the Americas | 97,186 | 0 | 58,693 | 38,493 | ||||||||||||
Other asset- backed securities and debt securities | 58,230 | 0 | 667 | 57,563 | ||||||||||||
Equity securities*3 | 111,345 | 98,359 | 12,986 | 0 | ||||||||||||
Other securities | �� | 17,751 | 0 | 0 | 17,751 | |||||||||||
Investment funds*4 | 17,751 | 0 | 0 | 17,751 | ||||||||||||
Derivative assets | 33,747 | 48 | 25,491 | 8,208 | ||||||||||||
Interest rate swap agreements | 93 | 0 | 93 | 0 | ||||||||||||
Options held/written and other | 8,789 | 0 | 581 | 8,208 | ||||||||||||
Futures, foreign exchange contracts | 18,294 | 48 | 18,246 | 0 | ||||||||||||
Foreign currency swap agreements | 6,571 | 0 | 6,571 | 0 | ||||||||||||
Netting*5 | (5,757 | ) | 0 | 0 | 0 | |||||||||||
Net derivative assets | 27,990 | 0 | 0 | 0 | ||||||||||||
Other assets | 37,855 | 0 | 0 | 37,855 | ||||||||||||
Reinsurance recoverables*6 | 37,855 | 0 | 0 | 37,855 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | ¥ | 2,183,737 | ¥ | 136,987 | ¥ | 1,883,414 | ¥ | 163,336 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Liabilities: | ||||||||||||||||
Derivative liabilities | ¥ | 19,870 | ¥ | 533 | ¥ | 19,337 | ¥ | 0 | ||||||||
Interest rate swap agreements | 5,921 | 0 | 5,921 | 0 | ||||||||||||
Options written and other | 3,637 | 0 | 3,637 | 0 | ||||||||||||
Futures, foreign exchange contracts | 6,655 | 533 | 6,122 | 0 | ||||||||||||
Foreign currency swap agreements | 3,601 | 0 | 3,601 | 0 | ||||||||||||
Credit derivatives held | 56 | 0 | 56 | 0 | ||||||||||||
Netting*5 | (5,757 | ) | 0 | 0 | 0 | |||||||||||
Net derivative Liabilities | 14,113 | 0 | 0 | 0 | ||||||||||||
Policy Liabilities and Policy Account Balances | 795,001 | 0 | 0 | 795,001 | ||||||||||||
Variable annuity and variable life insurance contracts*7 | 795,001 | 0 | 0 | 795,001 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | ¥ | 814,871 | ¥ | 533 | ¥ | 19,337 | ¥ | 795,001 | ||||||||
|
|
|
|
|
|
|
|
March 31, 2018
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*1 | ¥ | 17,260 | ¥ | 0 | ¥ | 17,260 | ¥ | 0 | ||||||||
Trading securities | 422,053 | 35,766 | 386,287 | 0 | ||||||||||||
Available-for-sale securities: | 1,015,477 | 65,716 | 828,844 | 120,917 | ||||||||||||
Japanese and foreign government bond securities*2 | 275,810 | 3,949 | 271,861 | 0 | ||||||||||||
Japanese prefectural and foreign municipal bond securities | 163,236 | 0 | 163,236 | 0 | ||||||||||||
Corporate debt securities*3 | 366,475 | 8,882 | 354,556 | 3,037 | ||||||||||||
Specified bonds issued by SPEs in Japan | 861 | 0 | 0 | 861 | ||||||||||||
CMBS and RMBS in the Americas | 74,176 | 0 | 38,166 | 36,010 | ||||||||||||
Other asset-backed securities and debt securities | 81,321 | 0 | 312 | 81,009 | ||||||||||||
Equity securities*4 | 53,598 | 52,885 | 713 | 0 | ||||||||||||
Other securities: | 37,879 | 0 | 0 | 37,879 | ||||||||||||
Investment funds*5 | 37,879 | 0 | 0 | 37,879 | ||||||||||||
Derivative assets: | 21,831 | 507 | 19,033 | 2,291 | ||||||||||||
Interest rate swap agreements | 327 | 0 | 327 | 0 | ||||||||||||
Options held/written and other | 7,025 | 0 | 4,734 | 2,291 | ||||||||||||
Futures, foreign exchange contracts | 14,057 | 507 | 13,550 | 0 | ||||||||||||
Foreign currency swap agreements | 422 | 0 | 422 | 0 | ||||||||||||
Netting*6 | (2,105 | ) | 0 | 0 | 0 | |||||||||||
Net derivative assets | 19,726 | 0 | 0 | 0 | ||||||||||||
Other assets: | 15,008 | 0 | 0 | 15,008 | ||||||||||||
Reinsurance recoverables*7 | 15,008 | 0 | 0 | 15,008 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | ¥ | 1,529,508 | ¥ | 101,989 | ¥ | 1,251,424 | ¥ | 176,095 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Liabilities: | ||||||||||||||||
Derivative liabilities: | ¥ | 12,400 | ¥ | 318 | ¥ | 12,082 | ¥ | 0 | ||||||||
Interest rate swap agreements | 4,924 | 0 | 4,924 | 0 | ||||||||||||
Options held/written and other | 701 | 0 | 701 | 0 | ||||||||||||
Futures, foreign exchange contracts | 3,447 | 318 | 3,129 | 0 | ||||||||||||
Foreign currency swap agreements | 3,220 | 0 | 3,220 | 0 | ||||||||||||
Credit derivatives held | 108 | 0 | 108 | 0 | ||||||||||||
Netting*6 | (2,105 | ) | 0 | 0 | 0 | |||||||||||
Net derivative Liabilities | 10,295 | 0 | 0 | 0 | ||||||||||||
Policy Liabilities and Policy Account Balances: | 444,010 | 0 | 0 | 444,010 | ||||||||||||
Variable annuity and variable life insurance contracts*8 | 444,010 | 0 | 0 | 444,010 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | ¥ | 456,410 | ¥ | 318 | ¥ | 12,082 | ¥ | 444,010 | ||||||||
|
|
|
|
|
|
|
|
*1 | A certain subsidiary elected the fair value option |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
loss from the change in the fair value of the loans of ¥71 million for fiscal |
*2 |
A certain subsidiary elected the fair value option |
* |
*4 | A certain subsidiary elected the fair value option for investments in equity securities included inavailable-for-sale securities. Included in “Gains on investment securities and dividends” in the consolidated statements of income were a loss of ¥202 million, gains of ¥1,277 million and ¥961 million from the change in the fair value of those investments for fiscal 2016, 2017 and 2018. The amount of aggregate fair value elected the fair value option were ¥15,400 million and ¥22,365 million as of March 31, 2017 and 2018, respectively. |
*5 | Certain subsidiaries elected the fair value option for certain investments in investment funds included in other securities. Included in “Gains on investment securities and dividends” in the consolidated statements of income were a loss of ¥4 million, gains of ¥699 million and ¥1,456 million from the change in the fair value of those investments for fiscal 2016, 2017 and 2018. The amounts of aggregate fair value elected the fair value option were ¥7,453 million and ¥5,665 million as of March 31, 2017 and 2018, respectively. |
*6 | It represents the amount offset under counterparty netting of derivative assets and liabilities. |
* | Certain subsidiaries elected the fair value option |
* |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
Changes in economic conditions or valuation methodologies may require the transfer of assets and liabilities from one fair value level to another. In such instances, the Company and its subsidiaries recognize the transfer at the beginning of the quarter during which the transfers occur. The Company and its subsidiaries evaluate the significance of transfers between levels based upon size of the transfer relative to total assets, total liabilities or total earnings. ForIn fiscal 2015 and 2016,2017, there were no transfers between Level 1 and Level 2.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
In fiscal 2018, equity securities totaling ¥3,887 million were transferred from level 2 to level 1, since the inputs became available to use the quoted price in active markets.
The following table presentstables 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 2014, 20152016, 2017 and 2016:2018:
2016
Millions of yen | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Change in | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2014 | unrealized | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Millions of yen | gains or losses | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at April 1, 2013 | Gains or losses (realized/ unrealized) | Purchases*3 | Sales | Settlements*4 | Transfers in and/ or out of Level 3 (net)*5 | Balance at March 31, 2014 | Change in unrealized gains or losses included in earnings for assets and liabilities still held at March 31, 2014*1 | Balance at April 1, 2015 | Gains or losses (realized/unrealized) | Purchases*3 | Sales | Settlements*4 | Transfers in and/or out of Level 3 (net)*5 | Balance at March 31, 2016 | included in earnings for assets and liabilities still held at March 31, 2016*1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Included in earnings*1 | Included in other comprehensive Income*2 | Total | Included in earnings*1 | Included in other comprehensive income*2 | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Available-for-sale securities | ¥ | 136,978 | ¥ | 4,364 | ¥ | 4,056 | ¥ | 8,420 | ¥ | 56,202 | ¥ | (13,817 | ) | ¥ | (103,782 | ) | ¥ | 0 | ¥ | 84,001 | ¥ | 180 |
¥ |
97,051 |
|
¥ |
922 |
|
¥ |
(10,458 |
) |
¥ |
(9,536 |
) |
¥ |
47,886 |
|
¥ |
(15,632 |
) |
¥ |
(19,378 |
) |
¥ |
(869 |
) |
¥ |
99,522 |
|
¥ |
(679 |
) | ||||||||||||||||||||||||||||
Corporate debt securities | 6,524 | 416 | (356 | ) | 60 | 0 | (1,325 | ) | (4,598 | ) | 0 | 661 | 0 | 0 | 1 | 0 | 1 | 5 | (1 | ) | 0 | 0 | 5 | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Specified bonds issued by SPEs in Japan | 63,244 | 327 | 839 | 1,166 | 0 | (36 | ) | (57,602 | ) | 0 | 6,772 | 5 | 7,280 | 5 | 16 | 21 | 0 | (1,885 | ) | (1,955 | ) | 0 | 3,461 | 2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CMBS and RMBS in the Americas | 24,338 | 2,388 | 963 | 3,351 | 14,295 | (11,067 | ) | (13,084 | ) | 0 | 17,833 | (152 | ) | 22,658 | 424 | (3,831 | ) | (3,407 | ) | 26,431 | (2,401 | ) | (4,788 | ) | 0 | 38,493 | (763 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Other asset- backed securities and debt securities | 42,872 | 1,233 | 2,610 | 3,843 | 41,907 | (1,389 | ) | (28,498 | ) | 0 | 58,735 | 327 | 66,252 | 492 | (6,651 | ) | (6,159 | ) | 21,450 | (11,345 | ) | (12,635 | ) | 0 | 57,563 | 82 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other securities | 5,800 | 1,767 | 584 | 2,351 | 2,013 | (3,824 | ) | (23 | ) | 0 | 6,317 | 1,767 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investment funds | 5,800 | 1,767 | 584 | 2,351 | 2,013 | (3,824 | ) | (23 | ) | 0 | 6,317 | 1,767 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative assets and liabilities (net) | 2,099 | 2,987 | 0 | 2,987 | 0 | 0 | (2,600 | ) | 0 | 2,486 | 2,987 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Options held/written and other | 2,099 | 2,987 | 0 | 2,987 | 0 | 0 | (2,600 | ) | 0 | 2,486 | 2,987 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounts payable | 0 | 2,343 | 0 | 2,343 | 5,176 | 0 | 0 | 0 | 2,833 | 2,343 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Contingent consideration | 0 | 2,343 | 0 | 2,343 | 5,176 | 0 | 0 | 0 | 2,833 | 2,343 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Millions of yen | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at April 1, 2014 | Gains or losses (realized/unrealized) | Purchases*3 | Sales | Settlements*4 | Transfers in and/ or out of Level 3 (net)*5 | Balance at March 31, 2015 | Change in unrealized gains or losses included in earnings for assets and liabilities still held at March 31, 2015*1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Included in earnings*1 | Included in other comprehensive income*2 | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Available-for-sale securities | ¥ | 84,001 | ¥ | 2,101 | ¥ | 6,653 | ¥ | 8,754 | ¥ | 65,964 | ¥ | (18,222 | ) | ¥ | (23,796 | ) | ¥ | (19,650 | ) | ¥ | 97,051 | ¥ | (1,745 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Corporate debt securities | 661 | 73 | (24 | ) | 49 | 0 | (210 | ) | (500 | ) | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Specified bonds issued by SPEs in Japan | 6,772 | 5 | 101 | 106 | 1,700 | 0 | (1,298 | ) | 0 | 7,280 | 5 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CMBS and RMBS in the Americas | 17,833 | 60 | 3,724 | 3,784 | 29,372 | (3,446 | ) | (4,447 | ) | (20,438 | ) | 22,658 | (395 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other asset-backed securities and debt securities | 58,735 | 1,963 | 2,779 | 4,742 | 34,892 | (14,566 | ) | (17,551 | ) | 0 | 66,252 | (1,355 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity securities | 0 | 0 | 73 | 73 | 0 | 0 | 0 | 788 | 861 | 0 | 861 | 0 | 8 | 8 | 0 | 0 | 0 | (869 | ) | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other securities | 6,317 | 1,290 | 1,142 | 2,432 | 6,180 | (4,870 | ) | (1,336 | ) | 0 | 8,723 | 1,290 | 8,723 | 1,146 | (2,194 | ) | (1,048 | ) | 10,933 | (857 | ) | 0 | 0 | 17,751 | 849 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investment funds | 6,317 | 1,290 | 1,142 | 2,432 | 6,180 | (4,870 | ) | (1,336 | ) | 0 | 8,723 | 1,290 | 8,723 | 1,146 | (2,194 | ) | (1,048 | ) | 10,933 | (857 | ) | 0 | 0 | 17,751 | 849 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative assets and liabilities (net) | 2,486 | (13,838 | ) | 0 | (13,838 | ) | 28,536 | 0 | (5,314 | ) | 0 | 11,870 | (13,838 | ) | 11,870 | (4,596 | ) | 0 | (4,596 | ) | 5,857 | 0 | (4,923 | ) | 0 | 8,208 | (4,596 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Options held/written and other | 2,486 | (13,838 | ) | 0 | (13,838 | ) | 28,536 | 0 | (5,314 | ) | 0 | 11,870 | (13,838 | ) | 11,870 | (4,596 | ) | 0 | (4,596 | ) | 5,857 | 0 | (4,923 | ) | 0 | 8,208 | (4,596 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Other assets | 0 | (36,072 | ) | 0 | (36,072 | ) | 72,654 | 0 | (544 | ) | 0 | 36,038 | (36,072 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other asset | 36,038 | (8,482 | ) | 0 | (8,482 | ) | 10,669 | 0 | (370 | ) | 0 | 37,855 | (8,482 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reinsurance recoverables*6 | 0 | (36,072 | ) | 0 | (36,072 | ) | 72,654 | 0 | (544 | ) | 0 | 36,038 | (36,072 | ) | 36,038 | (8,482 | ) | 0 | (8,482 | ) | 10,669 | 0 | (370 | ) | 0 | 37,855 | (8,482 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounts payable | 2,833 | (12,203 | ) | 0 | (12,203 | ) | 0 | 0 | (9,503 | ) | 0 | 5,533 | (12,203 | ) | 5,533 | 3,059 | 0 | 3,059 | 0 | 0 | (2,474 | ) | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Contingent consideration | 2,833 | (12,203 | ) | 0 | (12,203 | ) | 0 | 0 | (9,503 | ) | 0 | 5,533 | (12,203 | ) | 5,533 | 3,059 | 0 | 3,059 | 0 | 0 | (2,474 | ) | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Policy Liabilities and Policy Account Balances | 0 | (100,702 | ) | 0 | (100,702 | ) | 1,765,444 | 0 | (611,663 | ) | 0 | 1,254,483 | (100,702 | ) | 1,254,483 | 40,751 | 0 | 40,751 | 0 | 0 | (418,731 | ) | 0 | 795,001 | 40,751 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Variable annuity and variable life insurance contracts*7 | 0 | (100,702 | ) | 0 | (100,702 | ) | 1,765,444 | 0 | (611,663 | ) | 0 | 1,254,483 | (100,702 | ) | 1,254,483 | 40,751 | 0 | 40,751 | 0 | 0 | (418,731 | ) | 0 | 795,001 | 40,751 |
2017
Millions of yen | ||||||||||||||||||||||||||||||||||||||||
Change in | ||||||||||||||||||||||||||||||||||||||||
unrealized | ||||||||||||||||||||||||||||||||||||||||
gains or losses | ||||||||||||||||||||||||||||||||||||||||
Gains or losses (realized/unrealized) | Purchases*3 | Sales | Settlements*4 | Transfers in and/or out of Level 3 (net)*5 | Balance at March 31, 2017 | included in earnings for assets and liabilities still held at March 31, 2017*1 | ||||||||||||||||||||||||||||||||||
Balance at April 1, 2016 | Included in earnings*1 | Included in other comprehensive income*2 | Total | |||||||||||||||||||||||||||||||||||||
Available-for-sale securities |
¥ |
99,522 |
|
¥ |
287 |
|
¥ |
10,106 |
|
¥ |
10,393 |
|
¥ |
37,212 |
|
¥ |
(6,545 |
) |
¥ |
(16,066 |
) |
¥ |
0 |
|
¥ |
124,516 |
|
¥ |
98 |
| ||||||||||
Corporate debt securities | 5 | 0 | (3 | ) | (3 | ) | 1,800 | 0 | (184 | ) | 0 | 1,618 | 0 | |||||||||||||||||||||||||||
Specified bonds issued by SPEs in Japan | 3,461 | 1 | (29 | ) | (28 | ) | 0 | (1,200 | ) | (1,146 | ) | 0 | 1,087 | 0 | ||||||||||||||||||||||||||
CMBS and RMBS in the Americas | 38,493 | 202 | 2,674 | 2,876 | 21,871 | (466 | ) | (4,916 | ) | 0 | 57,858 | 23 | ||||||||||||||||||||||||||||
Other asset-backed securities and debt securities | 57,563 | 84 | 7,464 | 7,548 | 13,541 | (4,879 | ) | (9,820 | ) | 0 | 63,953 | 75 | ||||||||||||||||||||||||||||
Other securities | 17,751 | 639 | 475 | 1,114 | 14,521 | (5,585 | ) | 0 | 0 | 27,801 | 581 | |||||||||||||||||||||||||||||
Investment funds | 17,751 | 639 | 475 | 1,114 | 14,521 | (5,585 | ) | 0 | 0 | 27,801 | 581 | |||||||||||||||||||||||||||||
Derivative assets and liabilities (net) | 8,208 | (4,141 | ) | 0 | (4,141 | ) | 2,480 | 0 | (1,314 | ) | 0 | 5,233 | (4,141 | ) | ||||||||||||||||||||||||||
Options held/written and other | 8,208 | (4,141 | ) | 0 | (4,141 | ) | 2,480 | 0 | (1,314 | ) | 0 | 5,233 | (4,141 | ) | ||||||||||||||||||||||||||
Other asset | 37,855 | (22,398 | ) | 0 | (22,398 | ) | 8,309 | 0 | (1,650 | ) | 0 | 22,116 | (22,398 | ) | ||||||||||||||||||||||||||
Reinsurance recoverables*6 | 37,855 | (22,398 | ) | 0 | (22,398 | ) | 8,309 | 0 | (1,650 | ) | 0 | 22,116 | (22,398 | ) | ||||||||||||||||||||||||||
Policy Liabilities and Policy Account Balances | 795,001 | 3,651 | 0 | 3,651 | 0 | 0 | (185,830 | ) | 0 | 605,520 | 3,651 | |||||||||||||||||||||||||||||
Variable annuity and variable life insurance contracts*7 | 795,001 | 3,651 | 0 | 3,651 | 0 | 0 | (185,830 | ) | 0 | 605,520 | 3,651 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
2016 | ||||||||||||||||||||||||||||||||||||||||
Millions of yen | ||||||||||||||||||||||||||||||||||||||||
Balance at April 1, 2015 | Gains or losses (realized/unrealized) | Purchases*3 | Sales | Settlements*4 | Transfers in and/ or out of Level 3 (net)*5 | Balance at March 31, 2016 | Change in unrealized gains or losses included in earnings for assets and liabilities still held at March 31, 2016*1 | |||||||||||||||||||||||||||||||||
Included in earnings*1 | Included in other comprehensive income*2 | Total | ||||||||||||||||||||||||||||||||||||||
Available-for-sale securities | ¥ | 97,051 | ¥ | 922 | ¥ | (10,458 | ) | ¥ | (9,536 | ) | ¥ | 47,886 | ¥ | (15,632 | ) | ¥ | (19,378 | ) | ¥ | (869 | ) | ¥ | 99,522 | ¥ | (679 | ) | ||||||||||||||
Corporate debt securities | 0 | 1 | 0 | 1 | 5 | (1 | ) | 0 | 0 | 5 | 0 | |||||||||||||||||||||||||||||
Specified bonds issued by SPEs in Japan | 7,280 | 5 | 16 | 21 | 0 | (1,885 | ) | (1,955 | ) | 0 | 3,461 | 2 | ||||||||||||||||||||||||||||
CMBS and RMBS in the Americas | 22,658 | 424 | (3,831 | ) | (3,407 | ) | 26,431 | (2,401 | ) | (4,788 | ) | 0 | 38,493 | (763 | ) | |||||||||||||||||||||||||
Other asset-backed securities and debt securities | 66,252 | 492 | (6,651 | ) | (6,159 | ) | 21,450 | (11,345 | ) | (12,635 | ) | 0 | 57,563 | 82 | ||||||||||||||||||||||||||
Equity securities | 861 | 0 | 8 | 8 | 0 | 0 | 0 | (869 | ) | 0 | 0 | |||||||||||||||||||||||||||||
Other securities | 8,723 | 1,146 | (2,194 | ) | (1,048 | ) | 10,933 | (857 | ) | 0 | 0 | 17,751 | 849 | |||||||||||||||||||||||||||
Investment funds | 8,723 | 1,146 | (2,194 | ) | (1,048 | ) | 10,933 | (857 | ) | 0 | 0 | 17,751 | 849 | |||||||||||||||||||||||||||
Derivative assets and liabilities (net) | 11,870 | (4,596 | ) | 0 | (4,596 | ) | 5,857 | 0 | (4,923 | ) | 0 | 8,208 | (4,596 | ) | ||||||||||||||||||||||||||
Options held/written and other | 11,870 | (4,596 | ) | 0 | (4,596 | ) | 5,857 | 0 | (4,923 | ) | 0 | 8,208 | (4,596 | ) | ||||||||||||||||||||||||||
Other assets | 36,038 | (8,482 | ) | 0 | (8,482 | ) | 10,669 | 0 | (370 | ) | 0 | 37,855 | (8,482 | ) | ||||||||||||||||||||||||||
Reinsurance recoverables*6 | 36,038 | (8,482 | ) | 0 | (8,482 | ) | 10,669 | 0 | (370 | ) | 0 | 37,855 | (8,482 | ) | ||||||||||||||||||||||||||
Accounts payable | 5,533 | 3,059 | 0 | 3,059 | 0 | 0 | (2,474 | ) | 0 | 0 | 0 | |||||||||||||||||||||||||||||
Contingent consideration | 5,533 | 3,059 | 0 | 3,059 | 0 | 0 | (2,474 | ) | 0 | 0 | 0 | |||||||||||||||||||||||||||||
Policy Liabilities and Policy Account Balances | 1,254,483 | 40,751 | 0 | 40,751 | 0 | 0 | (418,731 | ) | 0 | 795,001 | 40,751 | |||||||||||||||||||||||||||||
Variable annuity and variable life insurance contracts*7 | 1,254,483 | 40,751 | 0 | 40,751 | 0 | 0 | (418,731 | ) | 0 | 795,001 | 40,751 |
2018
Millions of yen | ||||||||||||||||||||||||||||||||||||||||
Change in | ||||||||||||||||||||||||||||||||||||||||
unrealized | ||||||||||||||||||||||||||||||||||||||||
gains or losses | ||||||||||||||||||||||||||||||||||||||||
Balance at April 1, 2017 | Gains or losses (realized/unrealized) | Purchases*3 | Sales | Settlements*4 | Transfers in and/ or out of Level 3 (net)*5 | Balance at March 31, 2018 | included in earnings for assets and liabilities still held at March 31, 2018*1 | |||||||||||||||||||||||||||||||||
Included in earnings*1 | Included in other comprehensive income*2 | Total | ||||||||||||||||||||||||||||||||||||||
Available-for-sale securities | ¥ | 124,516 | ¥ | 3,690 | ¥ | (5,717 | ) | ¥ | (2,027 | ) | ¥ | 79,925 | ¥ | (37,942 | ) | ¥ | (43,555 | ) | ¥ | 0 | ¥ | 120,917 | ¥ | (35 | ) | |||||||||||||||
Corporate debt securities | 1,618 | 0 | 2 | 2 | 2,050 | 0 | (633 | ) | 0 | 3,037 | 0 | |||||||||||||||||||||||||||||
Specified bonds issued by SPEs in Japan | 1,087 | 16 | (3 | ) | 13 | 0 | 0 | (239 | ) | 0 | 861 | 0 | ||||||||||||||||||||||||||||
CMBS and RMBS in the Americas | 57,858 | 1,664 | (3,248 | ) | (1,584 | ) | 1,858 | (3,347 | ) | (18,775 | ) | 0 | 36,010 | (97 | ) | |||||||||||||||||||||||||
Other asset-backed securities and debt securities | 63,953 | 2,010 | (2,468 | ) | (458 | ) | 76,017 | (34,595 | ) | (23,908 | ) | 0 | 81,009 | 62 | ||||||||||||||||||||||||||
Other securities | 27,801 | 4,169 | (1,976 | ) | 2,193 | 26,991 | (19,106 | ) | 0 | 0 | 37,879 | 4,274 | ||||||||||||||||||||||||||||
Investment funds | 27,801 | 4,169 | (1,976 | ) | 2,193 | 26,991 | (19,106 | ) | 0 | 0 | 37,879 | 4,274 | ||||||||||||||||||||||||||||
Derivative assets and liabilities (net) | 5,233 | (3,356 | ) | 0 | (3,356 | ) | 2,024 | 0 | (1,610 | ) | 0 | 2,291 | (3,356 | ) | ||||||||||||||||||||||||||
Options held/written and other | 5,233 | (3,356 | ) | 0 | (3,356 | ) | 2,024 | 0 | (1,610 | ) | 0 | 2,291 | (3,356 | ) | ||||||||||||||||||||||||||
Other asset | 22,116 | (11,191 | ) | 0 | (11,191 | ) | 5,385 | 0 | (1,302 | ) | 0 | 15,008 | (11,191 | ) | ||||||||||||||||||||||||||
Reinsurance recoverables*6 | 22,116 | (11,191 | ) | 0 | (11,191 | ) | 5,385 | 0 | (1,302 | ) | 0 | 15,008 | (11,191 | ) | ||||||||||||||||||||||||||
Policy Liabilities and Policy Account Balances | 605,520 | (19,265 | ) | 0 | (19,265 | ) | 0 | 0 | (180,775 | ) | 0 | 444,010 | (19,265 | ) | ||||||||||||||||||||||||||
Variable annuity and variable life insurance contracts*7 | 605,520 | (19,265 | ) | 0 | (19,265 | ) | 0 | 0 | (180,775 | ) | 0 | 444,010 | (19,265 | ) |
*1 | Principally, gains and losses fromavailable-for-sale securities are included in “Gains on investment securities and dividends”, |
*2 | Unrealized gains and losses fromavailable-for-sale securities are included in “Net change of unrealized gains (losses) on investment in |
*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. Due to the elapse of the computation period of the contingent consideration during fiscal 2016, the unsettled payment is included in a decrease of Accounts payable. |
*5 | The amount reported in “Transfers in and/or out of Level 3 (net)” is the fair value at the beginning of quarter during which the transfers occur. |
*6 | “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.” |
*7 | “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. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
There were no transfers in or out of Level 3 in fiscal 2014.
In fiscal 2015, CMBS in the Americas totaling ¥20,438 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 and the bonds invested being more liquid with actual observable trades of the similar financial instruments and/or active dealer bids. In addition equity securities totaling ¥788 million were transferred from Level 2 to Level 3, since the inputs became unobservable.
In fiscal 2016, equity securities totaling ¥869 million were transferred from Level 3 to Level 2, since the inputs became observable.
There were no transfers in or out of Level 3 in fiscal 2017 and 2018.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
The following table presentstables present recorded amounts of assets measured at fair value on a nonrecurring basis as of March 31, 20152017 and 2016.2018. These assets are measured at fair value on a nonrecurring basis mainly to recognize impairment:
March 31, 2015 | ||||||||||||||||
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: | ||||||||||||||||
Real estate collateral-dependent loans (net of allowance for probable loan losses) | ¥ | 21,537 | ¥ | 0 | ¥ | 0 | ¥ | 21,537 | ||||||||
Investment in operating leases and property under facility operations | 67,500 | 0 | 0 | 67,500 | ||||||||||||
Land and buildings undeveloped or under construction | 8,084 | 0 | 0 | 8,084 | ||||||||||||
Certain investment in affiliates | 1,220 | 0 | 0 | 1,220 | ||||||||||||
Goodwill | 2,435 | 0 | 0 | 2,435 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | ¥ | 100,776 | ¥ | 0 | ¥ | 0 | ¥ | 100,776 | ||||||||
|
|
|
|
|
|
|
| |||||||||
March 31, 2016 | ||||||||||||||||
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: | ||||||||||||||||
Real estate collateral-dependent loans (net of allowance for probable loan losses) | ¥ | 17,511 | ¥ | 0 | ¥ | 0 | ¥ | 17,511 | ||||||||
Investment in operating leases and property under facility operations | 25,681 | 0 | 0 | 25,681 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | ¥ | 43,192 | ¥ | 0 | ¥ | 0 | ¥ | 43,192 | ||||||||
|
|
|
|
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)March 31, 2017
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: | ||||||||||||||||
Real estate collateral-dependent loans (net of allowance for probable loan losses) | ¥ | 12,472 | ¥ | 0 | ¥ | 0 | ¥ | 12,472 | ||||||||
Investment in operating leases and property under facility operations | 22,525 | 0 | 0 | 22,525 | ||||||||||||
Certain investment in affiliates | 15,726 | 0 | 0 | 15,726 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
¥ | 50,723 | ¥ | 0 | ¥ | 0 | ¥ | 50,723 | |||||||||
|
|
|
|
|
|
|
|
ORIX Corporation and SubsidiariesMarch 31, 2018
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: | ||||||||||||||||
Real estate collateral-dependent loans (net of allowance for probable loan losses) | ¥ | 7,526 | ¥ | 0 | ¥ | 0 | ¥ | 7,526 | ||||||||
Investment in operating leases and property under facility operations | 3,916 | 0 | 0 | 3,916 | ||||||||||||
Certain investments in affiliates | 11,730 | 0 | 0 | 11,730 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
¥ | 23,172 | ¥ | 0 | ¥ | 0 | ¥ | 23,172 | |||||||||
|
|
|
|
|
|
|
|
The following is a description of the valuation process and the main valuation methodologies used for assets and liabilities measured at fair value:
Valuation process
The Company and its subsidiaries determine fair value of Level 3 assets and liabilities by using valuation techniques, such as internally developed models, or using third-party pricing information. Internally developed models include the discounted cash flow methodologies and direct capitalization methodologies. To measure the fair value of the assets and liabilities, the Company and its subsidiaries select the valuation technique which best reflects the nature, characteristics and risks of each asset and liability. The appropriateness of valuation methods and unobservable inputs is verified when measuring fair values of the assets and liabilities by using internally
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
developed models. The Company and its subsidiaries also use third-party pricing information to measure the fair value of certain assets and liabilities. In that case, the Company and its subsidiaries verify the appropriateness of the prices by monitoring available information about the assets and liabilities, such as current conditions of the assets or liabilities, as well as surrounding market information. When these prices are determined to be able to reflect the nature, characteristics and risks of assets and liabilities reasonably, the Company and its subsidiaries use these prices as fair value of the assets and liabilities.
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 consideredheld-for-sale. The loans held for sale in the Americas are classified as Level 2, because 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.
Real estate collateral-dependent loans
The valuation allowance for large balancenon-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 impaired loans determined using a present value technique is not considered a fair value measurement. However, measurement for impaired loans 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
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 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.
Trading securities, available-for-saleAvailable-for-sale securities and investmentInvestment in affiliates
If active market prices are available, fair value measurement is based on quoted active market prices and, accordingly, these securities are classified as Level 1. If active market prices are not available, fair value measurement is based on observable inputs other than quoted prices included within Level 1, such as prices for similar assets and accordingly these securities are classified as Level 2. 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 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 bench mark 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 companyCompany 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 widebid-ask spread, significant decline in new issuances, little or no public information (e.g. aprincipal-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 judged that there has been increased overall trading activity, and the Company and its subsidiaries classified these securities as Level 2 for those securities that were measured at fair value based on the observable inputs such as trading price and/or bit price. 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 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
The Company and its subsidiaries classified the specified bonds as Level 3 because the Company and its subsidiaries measure their fair value using unobservable inputs. Since the specified bonds are not traded in an open market, no relevant observable market data is available. Accordingly the Company and its subsidiaries use the discounted cash flow methodology that incorporates significant unobservable inputs to measure their fair value. When evaluating the specified bonds issued by SPEs in Japan, the Company and its subsidiaries estimate the fair value by discounting future cash flows using a discount rate based on market interest rates and a risk premium. The future cash flows for the specified bonds issued by the SPEs in Japan are estimated based on contractual principal and interest repayment schedules on each of the specified bonds issued by the SPEs in Japan. Since the discount rate is not observable for the specified bonds, the Company and its subsidiaries use an internally developed model to estimate a risk premium considering the value of the real estate collateral (which also involves unobservable inputs in many cases when using valuation techniques such as discounted cash flow methodologies) and the seniority of the bonds. Under the model, the Company and its subsidiaries consider the loan-to-value ratio and other relevant available information to reflect both the credit risk and the liquidity risk in our own estimate of the risk premium. Generally, the higher the loan-to-value ratio, the larger the risk premium the Company and its subsidiaries estimate under the model. The fair value of the specified bonds issued by SPEs in Japan rises when the fair value of the collateral real estate rises and the discount rate declines. The fair value of the specified bonds issued by SPEs in Japan declines when the fair value of the collateral real estate declines and the discount rate rises.
Investment funds
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. A certain subsidiary measures its investment held by the investment company which is owned by the subsidiary at fair value.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
Derivatives
For exchange-traded derivatives, fair value is based on quoted market prices, and accordingly, classified as Level 1. Fornon-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.
Contingent consideration
The Company will be required to pay certain contingent consideration described in Note 3 “Acquisitions and divestitures” depending on the future performance of a certain asset management business of the acquired subsidiary, and the Company recognizes a liability for the contingent consideration at its estimated fair value. The fair value of the contingent consideration is classified as Level 3 because the Company measures its fair value using a Monte Carlo model based on inputs that are unobservable in the market.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
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 and are categorized as trading securities. 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 process and the valuation methodologies, see Note 13 “Goodwill and Other Intangible Assets.”
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
Information about Level 3 Fair Value Measurements
The following table providestables provide information about the valuation techniques and significant unobservable inputs used in the valuation of Level 3 assets orand liabilities measured at fair value on a recurring basis as of March 31, 20152017 and 2016.2018.
March 31, 2015 | ||||||||||
Millions of yen | Valuation technique(s) | Significant unobservable inputs | Range (Weighted average) | |||||||
Fair value | ||||||||||
Assets: | ||||||||||
Available-for-sale securities | ||||||||||
Specified bonds issued by SPEs in Japan | ¥ | 2,543 | Discounted cash flows | Discount rate | 0.9% – 3.6% | |||||
(2.2%) | ||||||||||
4,737 | Appraisals/Broker quotes | — | — | |||||||
CMBS and RMBS in the Americas | 22,658 | Discounted cash flows | Discount rate | 13.6% – 32.4% | ||||||
(18.2%) | ||||||||||
Probability of default | 0.0% – 22.0% | |||||||||
(7.2%) | ||||||||||
Other asset-backed securities and debt securities | 7,583 | Discounted cash flows | Discount rate | 1.2% – 32.4% | ||||||
(13.2%) | ||||||||||
Probability of default | 0.8% – 1.3% | |||||||||
(1.0%) | ||||||||||
58,669 | Appraisals/Broker quotes | — | — | |||||||
Equity securities | 861 | Discounted cash flows | Discount rate | 6.2% | ||||||
(6.2%) | ||||||||||
Other securities | ||||||||||
Investment funds | 8,723 | Internal cash flows | Discount rate | 12.0% – 28.0% | ||||||
(15.8%) | ||||||||||
Derivative assets | ||||||||||
Options held/written and other | 7,982 | Discounted cash flows | Discount rate | 10.0% – 15.0% | ||||||
(11.8%) | ||||||||||
3,888 | Appraisals/Broker quotes | — | — | |||||||
Other assets | ||||||||||
Reinsurance recoverables | 36,038 | Discounted cash flows | Discount rate | (0.1)% – 0.8% | ||||||
(0.2%) | ||||||||||
Mortality rate | 0.0% – 100.0% | |||||||||
(1.3%) | ||||||||||
Lapse rate | 1.5% – 54.0% | |||||||||
(20.8%) | ||||||||||
Annuitization rate (guaranteed minimum annuity benefit) | 0.0% – 100.0% | |||||||||
(100.0%) | ||||||||||
|
| |||||||||
Total | ¥ | 153,682 | ||||||||
|
| |||||||||
Liabilities: | ||||||||||
Accounts payable | ||||||||||
Contingent consideration | ¥ | 5,533 | Monte Carlo simulation | Discount rate | 13.9% | |||||
(13.9%) | ||||||||||
Policy liabilities and Policy Account Balances | ||||||||||
Valuable annuity and variable life insurance contracts | 1,254,483 | Discounted cash flows | Discount rate | (0.1)% – 0.8% | ||||||
(0.2%) | ||||||||||
Mortality rate | 0.0% – 100.0% | |||||||||
(1.3%) | ||||||||||
Lapse rate | 1.5% – 54.0% | |||||||||
(20.8%) | ||||||||||
Annuitization rate (guaranteed minimum annuity benefit) | 0.0% – 100.0% | |||||||||
(100.0%) | ||||||||||
|
| |||||||||
Total | ¥ | 1,260,016 | ||||||||
|
| �� |
March 31, 2017 | ||||||||||
Millions of yen | Valuation technique(s) | Significant unobservable inputs | Range (Weighted average) | |||||||
Fair value | ||||||||||
Assets: | ||||||||||
Available-for-sale securities: | ||||||||||
Corporate debt securities | ¥ | 1,613 | Discounted cash flows | Discount rate | 0.5% – 1.6% | |||||
(1.1%) | ||||||||||
5 | Appraisals/Broker quotes | — | — | |||||||
Specified bonds issued by SPEs in Japan | 1,087 | Appraisals/Broker quotes | — | — | ||||||
CMBS and RMBS in the Americas | 57,858 | Discounted cash flows | Discount rate | 6.4% – 22.6% | ||||||
(18.0%) | ||||||||||
Probability of default | 0.0% – 26.4% | |||||||||
(3.6%) | ||||||||||
Other asset-backed securities and debt securities | 13,890 | Discounted cash flows | Discount rate | 1.0% – 51.2% | ||||||
(8.9%) | ||||||||||
Probability of default | 0.6% – 11.0% | |||||||||
(0.8%) | ||||||||||
50,063 | Appraisals/Broker quotes | — | — | |||||||
Other securities: | ||||||||||
Investment funds | 11,202 | Internal cash flows | Discount rate | 0.0% – 40.0% | ||||||
(10.0%) | ||||||||||
894 | Discounted cash flows | Discount rate | 5.4% – 10.0% | |||||||
(8.6%) | ||||||||||
15,705 | Appraisals/Broker quotes | — | — | |||||||
Derivative assets: | ||||||||||
Options held/written and other | 3,525 | Discounted cash flows | Discount rate | 10.0% – 15.0% | ||||||
(11.7%) | ||||||||||
1,708 | Appraisals/Broker quotes | — | — | |||||||
Other assets: | ||||||||||
Reinsurance recoverables | 22,116 | Discounted cash flows | Discount rate | (0.1)% – 0.5% | ||||||
(0.1%) | ||||||||||
Mortality rate | 0.0% – 100.0% | |||||||||
(1.0%) | ||||||||||
Lapse rate | 1.5% – 54.0% | |||||||||
(14.9%) | ||||||||||
Annuitization rate (guaranteed minimum annuity benefit) | 0.0% – 100.0% | |||||||||
(99.2%) | ||||||||||
Total | ¥ | 179,666 | ||||||||
Liabilities: | ||||||||||
Policy liabilities and Policy Account Balances: | ||||||||||
Variable annuity and variable life insurance contracts | ¥ | 605,520 | Discounted cash flows | Discount rate | (0.1)% – 0.5% | |||||
(0.1%) | ||||||||||
Mortality rate | 0.0% – 100.0% | |||||||||
(1.0%) | ||||||||||
Lapse rate | 1.5% – 54.0% | |||||||||
(14.7%) | ||||||||||
Annuitization rate (guaranteed minimum annuity benefit) | 0.0% – 100.0% | |||||||||
(82.7%) | ||||||||||
Total | ¥605,520 | |||||||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
March 31, 2016 | ||||||||||
Millions of yen | Valuation technique(s) | Significant unobservable inputs | Range (Weighted average) | |||||||
Fair value | ||||||||||
Assets: | ||||||||||
Available-for-sale securities | ||||||||||
Corporate debt securities | ¥ | 5 | Appraisals/Broker quotes | — | — | |||||
Specified bonds issued by SPEs in Japan | 806 | Discounted cash flows | Discount rate | 0.9 % | ||||||
(0.9%) | ||||||||||
2,655 | Appraisals/Broker quotes | — | — | |||||||
CMBS and RMBS in the Americas | 38,493 | Discounted cash flows | Discount rate | 6.4% – 32.4% | ||||||
(18.5%) | ||||||||||
Probability of default | 0.0% – 34.0% | |||||||||
(8.2%) | ||||||||||
Other asset-backed securities and debt securities | 7,432 | Discounted cash flows | Discount rate | 1.0% – 32.4% | ||||||
(12.7%) | ||||||||||
Probability of default | 0.7% – 1.1% | |||||||||
(0.9%) | ||||||||||
50,131 | Appraisals/Broker quotes | — | — | |||||||
Other securities | ||||||||||
Investment funds | 10,153 | Internal cash flows | Discount rate | 10.0% – 40.0% | ||||||
(13.6%) | ||||||||||
7,598 | Appraisals/Broker quotes | — | — | |||||||
Derivative assets | ||||||||||
Options held/written and other | 4,876 | Discounted cash flows | Discount rate | 10.0% – 15.0% | ||||||
(11.7%) | ||||||||||
3,332 | Appraisals/Broker quotes | — | — | |||||||
Other assets | ||||||||||
Reinsurance recoverables | 37,855 | Discounted cash flows | Discount rate | (0.2)% – 0.5% | ||||||
(0.1%) | ||||||||||
Mortality rate | 0.0% – 100.0% | |||||||||
(0.9%) | ||||||||||
Lapse rate | 1.5% – 54.0% | |||||||||
(15.0%) | ||||||||||
Annuitization rate (guaranteed minimum annuity benefit) | 0.0% – 100.0% | |||||||||
(99.4%) | ||||||||||
|
| |||||||||
Total | ¥ | 163,336 | ||||||||
|
| |||||||||
Liabilities: | ||||||||||
Policy liabilities and Policy Account Balances | ||||||||||
Valuable annuity and variable life insurance contracts | 795,001 | Discounted cash flows | Discount rate | (0.2)% – 0.5% | ||||||
(0.1%) | ||||||||||
Mortality rate | 0.0% – 100.0% | |||||||||
(1.0%) | ||||||||||
Lapse rate | 1.5% – 54.0% | |||||||||
(14.5%) | ||||||||||
Annuitization rate (guaranteed minimum annuity benefit) | 0.0% – 100.0% | |||||||||
(85.2%) | ||||||||||
|
| |||||||||
Total | ¥ | 795,001 | ||||||||
|
|
March 31, 2018 | ||||||||||
Millions of yen | Valuation technique(s) | Significant unobservable inputs | Range (Weighted average) | |||||||
Fair value | ||||||||||
Assets: | ||||||||||
Available-for-sale securities: | ||||||||||
Corporate debt securities | ¥ | 3,037 | Discounted cash flows | Discount rate | 0.2% – 1.7% | |||||
(0.9%) | ||||||||||
Specified bonds issued by SPEs in Japan | 861 | Appraisals/Broker quotes | — | — | ||||||
CMBS and RMBS in the Americas | 36,010 | Discounted cash flows | Discount rate | 6.4% – 20.0% | ||||||
(17.6%) | ||||||||||
Probability of default | 0.0% – 24.7% | |||||||||
(3.2%) | ||||||||||
Other asset-backed securities and debt securities | 18,146 | Discounted cash flows | Discount rate | 1.0% – 51.2% | ||||||
(10.0%) | ||||||||||
Probability of default | 0.6% – 1.6% | |||||||||
(1.0%) | ||||||||||
62,863 | Appraisals/Broker quotes | — | — | |||||||
Other securities: | ||||||||||
Investment funds | 5,665 | Internal cash flows | Discount rate | 0.0% – 40.0% | ||||||
(9.9%) | ||||||||||
25,246 | Discounted cash flows | Discount rate | 3.8% – 11.6% | |||||||
(8.3%) | ||||||||||
6,968 | Appraisals/Broker quotes | — | — | |||||||
Derivative assets: | ||||||||||
Options held/written and other | 1,447 | Discounted cash flows | Discount rate | 0.0% – 15.0% | ||||||
(8.0%) | ||||||||||
844 | Appraisals/Broker quotes | — | — | |||||||
Other assets: | ||||||||||
Reinsurance recoverables | 15,008 | Discounted cash flows | Discount rate | (0.1)% – 0.4% | ||||||
(0.1%) | ||||||||||
Mortality rate | 0.0% – 100.0% | |||||||||
(1.1%) | ||||||||||
Lapse rate | 1.5% – 30.0% | |||||||||
(17.5%) | ||||||||||
Annuitization rate (guaranteed minimum annuity benefit) | 0.0% – 100.0% | |||||||||
(99.1%) | ||||||||||
Total | ¥ | 176,095 | ||||||||
Liabilities: | ||||||||||
Policy liabilities and Policy Account Balances: | ||||||||||
Variable annuity and variable life insurance contracts | ¥ | 444,010 | Discounted cash flows | Discount rate | (0.1)% – 0.4% | |||||
(0.1%) | ||||||||||
Mortality rate | 0.0% – 100.0% | |||||||||
(1.2%) | ||||||||||
Lapse rate | 1.5% – 54.0% | |||||||||
(17.1%) | ||||||||||
Annuitization rate (guaranteed minimum annuity benefit) | 0.0% – 100.0% | |||||||||
(79.4%) | ||||||||||
Total | ¥ | 444,010 | ||||||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
The following table providestables 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 as of March 31, 20152017 and 2016.2018.
March 31, 2015 | ||||||||||
Millions of yen | Valuation technique(s) | Significant unobservable inputs | Range (Weighted average) | |||||||
Fair value | ||||||||||
Assets: | ||||||||||
Real estate collateral-dependent loans (net of allowance for probable loan losses) | ¥ | 21,537 | Discounted cash flows | Discount rate | 5.8% – 12.0% | |||||
(9.5%) | ||||||||||
Direct capitalization | Capitalization rate | 5.5% – 16.5% | ||||||||
(10.4%) | ||||||||||
Investment in operating leases and property under facility operations | 25,732 | Discounted cash flows | Discount rate | 4.1% – 15.0% | ||||||
(5.1%) | ||||||||||
41,768 | Appraisals | — | — | |||||||
Land and buildings undeveloped or under construction | 8,084 | Discounted cash flows | Discount rate | 5.3% – 10.1% | ||||||
(9.2%) | ||||||||||
Certain investment in affiliates | 1,220 | Discounted cash flows | Discount rate | 9.8% | ||||||
(9.8%) | ||||||||||
Goodwill | 2,435 | Discounted cash flows | — | — | ||||||
Business enterprise value multiples | — | — | ||||||||
|
| |||||||||
Total | ¥ | 100,776 | ||||||||
|
| |||||||||
March 31, 2016 | ||||||||||
Millions of yen | Valuation technique(s) | Significant unobservable inputs | Range (Weighted average) | |||||||
Fair value | ||||||||||
Assets: | ||||||||||
Real estate collateral-dependent loans (net of allowance for probable loan losses) | ¥ | 17,511 | Discounted cash flows | Discount rate | 5.3% – 10.9% | |||||
(9.3%) | ||||||||||
Direct capitalization | Capitalization rate | 5.9% – 17.0% | ||||||||
(9.9%) | ||||||||||
Investment in operating leases and property under facility operations | 5,679 | Discounted cash flows | Discount rate | 5.3% – 10.0% | ||||||
(5.5%) | ||||||||||
20,002 | Appraisals | — | — | |||||||
|
| |||||||||
Total | ¥ | 43,192 | ||||||||
|
|
March 31, 2017 | ||||||||||||||||
Millions of yen | Significant unobservable inputs | Range (Weighted average) | ||||||||||||||
Fair value | Valuation technique(s) | |||||||||||||||
Assets: | ||||||||||||||||
Real estate collateral-dependent loans (net of allowance for probable loan losses) | ¥ | 12,472 | Discounted cash flows | Discount rate | 10.0% – 10.7% | |||||||||||
(10.5%) | ||||||||||||||||
Direct capitalization | Capitalization rate | 10.3% – 11.2% | ||||||||||||||
(10.9%) | ||||||||||||||||
Investment in operating leases and property under facility operations | 204 | Direct capitalization | Capitalization rate | 8.5% – 10.0% | ||||||||||||
(8.7%) | ||||||||||||||||
1,381 | Discounted cash flows | Discount rate | 6.8% – 10.2% | |||||||||||||
(9.0%) | ||||||||||||||||
20,940 | Appraisals | — | — | |||||||||||||
Certain investment in affiliates | 15,726 | Market price method | — | — | ||||||||||||
| Business enterprise value multiples | | — | — | ||||||||||||
|
| |||||||||||||||
¥ | 50,723 | |||||||||||||||
|
| |||||||||||||||
March 31, 2018 | ||||||||||||||||
Millions of yen | Significant unobservable inputs | Range (Weighted average) | ||||||||||||||
Fair value | Valuation technique(s) | |||||||||||||||
Assets: | �� | |||||||||||||||
Real estate collateral-dependent loans (net of allowance for probable loan losses) | ¥ | 7,526 | Discounted cash flows | Discount rate | 10.7% | |||||||||||
(10.7%) | ||||||||||||||||
Direct capitalization | Capitalization rate | 11.2% | ||||||||||||||
(11.2%) | ||||||||||||||||
Investment in operating leases and property under facility operations |
| 27 |
|
| Discounted cash flows |
|
| Discount rate |
|
| 8.0% (8.0%) |
| ||||
3,889 | Appraisals | — | — | |||||||||||||
Certain investments in affiliates | 11,730 | Market price method | — | — | ||||||||||||
| Business enterprise value multiples | | — | — | ||||||||||||
Discounted cash flows | Discount rate | 9.3% – 10.3% | ||||||||||||||
(9.8%) | ||||||||||||||||
|
| |||||||||||||||
¥ | 23,172 | |||||||||||||||
|
|
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.
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.
For more analysis of the sensitivity of each input, see the description of the valuation process and the main valuation methodologies used for assets and liabilities measured at fair value.
3. Acquisitions and divestitures
(1) Robeco GroepORIX Corporation Europe N.V. acquisition
On July 1, 2013, the Company acquired approximately 90.01% of the total voting equity interests of Robeco GroepORIX Corporation Europe N.V. (Head office: Rotterdam, the Netherlands, hereinafter, “Robeco”)“ORIX Europe”, one of the Company’s subsidiaries, has changed its name from Robeco Groep N.V. on January 1, 2018) from Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. (Head office: Utrecht, the Netherlands, hereinafter, “Rabobank”)Netherlands). As a result, RobecoORIX Europe has become a consolidated subsidiary of the Company. Robeco,Furthermore, the Company acquired additional voting equity interests of ORIX Europe during fiscal 2017. Therefore, ORIX Europe has become the Company’s wholly owned subsidiary. ORIX Europe is a mid-sizeholding company of global asset manager, offersmanagement companies which offer a mix of investment solutions in a broad range of strategies to institutional and private investors worldwide.
The total cost of the acquisition consideration was ¥255,163 million. The initial consideration of ¥249,987 million was paid by ¥230,579 million in cash and 13,902,900 shares issued out of treasury, valued at ¥19,408 million. The 13,902,900 shares issued to Rabobank as part of the total consideration was determined based on the closing price of ¥1,396 of the Company’s common share on the Tokyo Stock Exchange on July 1, 2013 inIn accordance with the share purchase agreement, executed between the Company and Rabobank as of February 19, 2013. In addition, the Company agreed to pay contingent consideration depending on the future performance of a certain section of asset management business for each of Robeco’sORIX Europe’s fiscal years until the fiscal year endedending in December 2015. The estimated fair value of such contingent consideration was ¥5,176 million, which wasis included in the total consideration transferred. Due toDuring fiscal 2017, the elapse of the computation period of the contingent consideration, unsettled payment ofCompany settled ¥2,398 million waswhich had been included in trade notes, accounts and other payable in the Company’s consolidated balance sheets as of March 31, 2016. During fiscal 2015, there was an increase in its fair value by ¥12,203 million, a decrease by ¥47 million due to settlement, and a decrease by ¥9,456 million due to the amount for an annual payment being finalized. During fiscal 2016, there was a decrease in its fair value by ¥3,059 million. The changes in the fair value is included as part of other (income) and expense, net in the Company’s consolidated statements of income.
Transaction costs of ¥2,039 million are included in selling, general and administrative expenses in the Company’s consolidated statements of income for prior periods.
Through this acquisition, the Company aims to expand its global asset management business as one of the measures to pursue new business models by combining finance with related services. The rationale for the Company’s acquisition of Robeco includes the strength of Robeco’s global brand, the diversity of its businesses across asset classes and regions, the breadth of its global distribution network and the experience of its investment teams. As a well-managed and relatively autonomous group of businesses with a good performance record, Robeco is the ideal vehicle for the Company to pursue its ambitions in global asset management. Growth opportunities also exist in the pension and asset management markets in Asia and the Middle East, where the Company has an established network.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
The following unaudited supplemental pro forma financial information presents the combined results of operations of the Company and its subsidiaries as though the acquisition had occurred as of April 1, 2012, the beginning of fiscal 2013:
| ||||
|
Total revenues and income from continuing operations of Robeco included in the Company’s consolidated statements of income for fiscal 2014 were ¥111,166 million and ¥17,251 million, respectively.
The unaudited supplemental pro forma financial information is based on estimates and assumptions, that the Company believes are reasonable and should not be taken as indicative of what the Company’s consolidated financial results would have been had the acquisition been completed on that date. The unaudited supplemental pro forma financial information does not include nonrecurring costs directly attributable to the acquisition, such as certain professional fees, that would not have been incurred had the acquisition not occurred.
(2) DAIKYO INCORPORATED acquisition
In March, 2005, the Company entered into a capital alliance with DAIKYO, which operates condominium development and management businesses. In connection with the capital alliance, the Company acquired 133,720,000 shares of DAIKYO’s common stock, 10,000,000 shares of type-1 preferred stock, 15,000,000 shares of type-2 preferred stock and 25,000,000 shares of type-4 preferred stock. In June 2008, DAIKYO redeemed certain of type-2 preferred stock and type-4 preferred stock held by the Company. Furthermore, in March 2009, the Company subscribed 25,000,000 shares of type-7 preferred stock and acquired 23,598,144 shares of type-8 preferred stock of DAIKYO. Since entering into the capital alliance, DAIKYO has shifted its business model from one focusing on “Flow business”, such as development and sale of condominiums, to one that achieves a balance between “Flow business” and “Stock business”, such as asset management and brokerage of condominiums. As a result of the shift, DAIKYO has developed business platforms that generate more stable financial performance.
On February 27, 2014, the Company exercised its conversion rights attached to all type-2 preferred stock, type-4 preferred stock, type-7 preferred stock and type-8 preferred stock of DAIKYO held by the Company. As a result, the Company acquired an additional 398,204,999 shares of common stock of DAIKYO. Following the conversion, its voting rights in DAIKYO increased from 31.7% to 64.1% and DAIKYO became a consolidated subsidiary of the Company from an equity method affiliate. There was no additional capital investment in DAIKYO in conjunction with the exercise of the acquisition rights.
Transaction costs of ¥23 million are included in selling, general and administrative expenses in the Company’s consolidated statements of income for fiscal 2014.
Prior to the exercise of the acquisition rights in February 2014, the Company’s interest in DAIKYO was accounted for under the equity method of accounting. As a result of this step acquisition, the Company remeasured its previously held equity interest at its fair value of ¥124,606 million, which was calculated based primarily on the market price of the common shares on an as-if converted basis adjusted for any control premium, and the Company recognized a gain of ¥58,435 million included in gains on sales of subsidiaries and affiliates and liquidation losses, net in the consolidated statements of income for fiscal 2014.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
The following unaudited supplemental pro forma financial information presents the combined results of operations of the Company and its subsidiaries as though the acquisition had occurred as of April 1, 2012, the beginning of fiscal 2013:
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Total revenues and income from continuing operations of DAIKYO included in the Company’s consolidated statements of income for fiscal 2014 were ¥56,803 million and ¥1,296 million, respectively.
The unaudited supplemental pro forma financial information is based on estimates and assumptions, that the Company believes are reasonable and should not be taken as indicative of what the Company’s consolidated financial results would have been had the acquisition been completed on that date.
(3) Hartford Life Insurance K.K. acquisition
On July 1, 2014, the Company’s wholly owned subsidiary, ORIX Life Insurance Corporation (hereinafter, “ORIX Life Insurance”), acquired the entire outstanding shares of Hartford Life Insurance K.K. (Head office: Minato-ku, Tokyo, Japan, Business description: Life insurance business and reinsurance business, hereinafter, “HLIKK”), a subsidiary of The Hartford Financial Services Group, Inc. in accordance with the share purchase agreement executed between the Company and Hartford Life, Inc. (Head office: Simsburry, Connecticut, U.S.A.), a subsidiary of The Hartford Financial Services Group, Inc. as of April 28, 2014 in order to enhance its capital strength and improve the soundness of its management, in view of accelerating its growth. As a result, HLIKK has become a consolidated subsidiary of the Company. HLIKK has discontinued selling insurance products since June 2009.
In addition, on July 1, 2015, HLIKK was merged into ORIX Life Insurance.
The total cost of acquisition consideration was ¥98,355 million, of which cost, ¥97,676 million was paid in cash on July 1, 2014. In addition, an additional consideration of ¥679 million was paid in cash on December 3, 2014, as a result of the acquisition price adjustment calculated based on HLIKK’s net assets as of June 30, 2014 pursuant to the share purchase agreement.
Transaction costs were ¥224 million and ¥1,217 million for fiscal 2014 and 2015, respectively, and are included in selling, general and administrative expenses in the Company’s consolidated statements of income.
The Company allocated the acquisition consideration to HLIKK’s respective assets acquired and liabilities assumed, and recorded the identified assets and liabilities based on their fair values at the acquisition date by the acquisition method of accounting in accordance with ASC 805 (“Business Combinations”).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
The company finalized the purchase price allocation during fiscal 2016. As a result, the following table provides fair value amounts allocated to assets acquired and liabilities assumed of HLIKK.
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In connection with this acquisition, the Company recognized the identifiable assets acquired and the liabilities assumed at their fair value, and recognized an excess of the fair value of the net assets acquired over the fair value of the consideration transferred as a bargain purchase gain of ¥36,082 million for the previous fiscal year, which is separately reported in the consolidated statements of income.
The following unaudited supplemental pro forma financial information presents the combined results of operations of the Company and its subsidiaries as though the acquisition had occurred as of April 1, 2013, the beginning of fiscal 2014:
Millions of yen | ||||||||
2014 | 2015 | |||||||
Total revenues | ¥ | 1,819,007 | ¥ | 2,220,805 | ||||
Income from Continuing Operations | 215,158 | 259,239 |
Total revenues and income from continuing operations of HLIKK included in the Company’s consolidated statements of income for fiscal 2015 are ¥196,883 million and ¥4,597 million, respectively.
The unaudited supplemental pro forma financial information is based on estimates and assumptions, that the Company believes are reasonable and should not be taken as indicative of what the Company’s consolidated financial results would have been had the acquisition been completed on that date. The Company elected the fair value option to account for variable annuity insurance contracts at the acquisition date; however, it cannot reasonably calculate their fair values prior to the acquisition date as if the fair value option were retrospectively applied. Thus, the unaudited supplemental pro forma financial information is prepared in accordance with ASC 944 (“Financial Services—Insurance”) without applying the fair value option accounting.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
(4) Other acquisitions
During fiscal 2014, the Company and its subsidiaries acquired entities, other than Robeco and DAIKYO, for a total cost of the acquisition consideration of ¥62,565 million, which was paid in cash. In accordance with the finalization of purchase price allocation during fiscal 2015, the amount of goodwill was ¥39,507 million, of which ¥1,184 million is deductible for income tax calculation purposes. The amount of acquired intangible assets other than goodwill recognized in these transactions was ¥1,343 million. The acquisitions were mainly included in the Corporate Financial Services segment and the Overseas Business segment.
During fiscal 2015, the Company and its subsidiaries acquired entities other than HLIKK which were individually immaterial business combinations but were considered collectively material. The total cost of the acquisitions consideration was ¥102,621 million which was paid mainly in cash.
The Company allocated the acquisition consideration to the entities’ respective assets acquired and liabilities assumed, and records the identified assets, liabilities and noncontrolling interest based on their fair values at the acquisition date by the acquisition method of accounting in accordance with ASC 805 (“Business Combinations”). The fair value of noncontrolling interest is estimated based on the acquisition consideration taking into account an appraisal value using a binominal option pricing model.
The Company finalized the purchase price allocation during fiscal 2016. As a result, the following table provides fair value amounts allocated to assets acquired and liabilities assumed of the acquired entities.
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Goodwill with a value of ¥79,872 million and other intangible assets of ¥60,839 million that were identified in connection with the acquisitions are included in other assets in the Company’s consolidated balance sheet as of March 31, 2016. The goodwill is calculated as the excess of considerations transferred and the fair value of noncontrolling interest over the net assets recognized at fair value. The Company calculated the amount of goodwill based on estimates of fair value of assets acquired, liabilities assumed and noncontrolling interest. The
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
goodwill represents the future growth of the ORIX Group from new revenue streams arising from the consolidation of the entities and synergies with the existing Company’s assets and businesses. The goodwill is not deductible for tax purposes. The goodwill and other intangible assets recorded in connection with the acquisitions are included in the Corporate Financial Services segment, the Investment and Operation segment and the Overseas Business segment.
The following unaudited supplemental pro forma financial information presents the combined results of operations of the Company and its subsidiaries as though the acquisitions had occurred as of April 1, 2013, the beginning of fiscal 2014:
Millions of yen | ||||||||
2014 | 2015 | |||||||
Total revenues | ¥ | 1,756,437 | ¥ | 2,345,327 | ||||
Income from Continuing Operations | 197,772 | 255,219 |
Total revenues and income from continuing operations of newly consolidated subsidiaries included in the Company’s consolidated statements of income for fiscal 2015 are ¥234,030 million and ¥5,033 million, respectively.
The unaudited supplemental pro forma financial information is based on estimates and assumptions, that the Company believes are reasonable and should not be taken as indicative of what the Company’s consolidated financial results would have been had the acquisition been completed on that date.
During fiscal 2016, the Company and its subsidiaries acquired entities for a total cost of the acquisition consideration of ¥51,786 million, which was paid mainly in cash. In accordance with the finalization of purchase price allocation during fiscal 2017, the amount of goodwill was ¥34,319 million and the goodwill is not deductible for tax purposes. The amount of acquired intangible assets other than goodwill was ¥11,238 million. The acquisitions were mainly included in the Investment and Operation segment and the Overseas Business segment.
During fiscal 2017, the Company and its subsidiaries acquired entities for a total cost of the acquisition consideration of ¥97,090 million, which was paid mainly in cash. In accordance with the finalization of purchase price allocation during fiscal 2018, the amount of goodwill was ¥33,370 million and the goodwill is not deductible for tax purposes. The amount of acquired intangible assets other than goodwill was ¥35,559 million. The acquisitions were included in the Investment and Operation segment and the Overseas Business segment.
During fiscal 2018, the Company and its subsidiaries acquired entities for a total cost of the acquisition consideration of ¥71,840 million, which was paid mainly in cash. Goodwill initially recognized in these
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
transactions amounted to ¥34,319 million. The¥42,933 million and the goodwill is not deductible for tax purposes. The amount of acquired intangible assets other than goodwill recognized in these transactions was ¥11,238¥40,008 million. The Company reflected certain preliminary estimates with respect to the fair value of the underlying net assets of these entities in determining amounts of the goodwill. The amount of the goodwill and intangible assets other than goodwill could possibly be adjusted because certain of these acquisitions were made near the fiscalyear-end and the purchase price allocations have not been completed yet. The acquisitions were mainly included in the Overseas Business segment, the Investment and Operation segment and the Overseas BusinessMaintenance Leasing segment.
The Company recognized a bargain purchase gain of ¥5,802 million associated with one of its acquisitions for fiscal 2017. The purchase price allocation was finalized for the three months ended June 30, 2017. The Company did not recognize any bargain purchase gain associated with the purchase price allocation during the three months ended June 30, 2017. The Company did not recognize any bargain purchase gain during fiscal 2016 and 2018.
The segment in which goodwill is allocated is disclosed in Note 13 “Goodwill and Other Intangible Assets.”
(5)(3) Divestitures
Gains on sales of subsidiaries and affiliates and liquidation losses, net for fiscal 2014, 20152016, 2017 and 20162018 amounted to ¥64,923¥57,867 million, ¥20,575¥63,419 million and ¥57,867¥49,203 million, respectively. Gains on sales of subsidiaries and affiliates and liquidation losses, net for fiscal 2014 mainly consisted of ¥58,738 million in the Investment and Operating segment. Gains on sales of subsidiaries and affiliates and liquidation losses, net for fiscal 2015 mainly consisted of ¥18,510 million in the Overseas Business segment. Gains on sales of subsidiaries and affiliates and liquidation losses, net for fiscal 2016 mainly consisted of ¥47,994 million in the Overseas Business segment and ¥9,145 million in the Investment and Operation segment. The details of significant divestitures are as follows.
During fiscal 2015, the Company sold 71.9% of the common shares of a consolidated subsidiary, STX Energy Co., Ltd. (presently GS E&R Corp., hereinafter, “STX Energy”) to a third-party. The Company retains a 25% interest in STX Energy, which became an equity method affiliate from fiscal 2015. The sale of the controlling interest resulted in a gain of ¥14,883 million, and the remeasurement of the retained interest to its fair
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
value resulted in a gain of ¥1,329 million, both of which were included in earnings as gainsGains on sales of subsidiaries and affiliates and liquidation losses, net duringfor fiscal 2015.2017 mainly consisted of ¥30,583 million in the Overseas Business segment, ¥29,378 million in the Investment and Operation segment, and ¥2,234 million in the Corporate Financial Services segment. Gains on sales of subsidiaries and affiliates and liquidation losses, net for fiscal 2018 mainly consisted of ¥31,774 million in the Investment and Operation segment, ¥15,408 million in the Overseas Business segment, and ¥2,028 million in the Corporate Financial Services segment. The fair valuedetails of the retained interest was remeasured based on the sale proceed adjusted for a control premium.
significant divestitures are as follows.
During fiscal 2016, ORIX USA Corporation (hereinafter, “ORIX USA”), one of the Company’s subsidiaries, has changed its name to ORIX Corporation USA on June 1, 2018), a wholly owned subsidiary of the Company, sold 14.7% of its shares of Class A common stock of Houlihan Lokey, Inc. (hereinafter, “Houlihan Lokey”), a subsidiary of ORIX USA, through the initial public offering (hereinafter, “IPO”), concurrently allotting its shares to Houlihan Lokey’s management and other employees. ORIX USA retainsretained a 33.0% interest in Houlihan Lokey’s Class AB common stock and thus Houlihan Lokey became an equity method investee during fiscal 2016. The partial sale of the ownership interest resulted in a gain of ¥10,498 million, and the remeasurement of the retained interest to its fair value due to a loss of control resulted in a gain of ¥29,087 million, both of which were included in earnings as gains on sales of subsidiaries and affiliates and liquidation losses, net for fiscal 2016. The fair value of the retained interest was remeasured based on the sale price in the IPO.
During fiscal 2016,2017, gains on the Company and its subsidiaries sold to third parties allsale of a subsidiary that runs the sharesautomotive supply wholesale business of certain consolidated subsidiaries.
As a resultORIX USA were included in the amount of the sales, the Company and its subsidiaries recognized a gain¥30,583 million of ¥8,739 million in gains on sales of subsidiaries and affiliates and liquidation losses, net in the consolidated statement of income for fiscal 2016.Overseas Business segment.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
4. Cash Flow Information
Cash payments during fiscal 2014, 20152016, 2017 and 20162018 are as follows:
Millions of yen | Millions of yen | |||||||||||||||||||||||
2014 | 2015 | 2016 | 2016 | 2017 | 2018 | |||||||||||||||||||
Cash payments: | ||||||||||||||||||||||||
Interest | ¥ | 88,385 | ¥ | 76,755 | ¥ | 77,321 | ¥ | 77,321 | ¥ | 71,280 | ¥ | 75,013 | ||||||||||||
Income taxes, net | 32,831 | 83,462 | 31,046 | 31,046 | 50,813 | 181,854 |
Non-cash activities in fiscal 2014, 20152016, 2017 and 20162018 are as follows.
In fiscal 2014, 20152016, 2017 and 2016,2018, real estate under operating leases of ¥50,820¥15,963 million, ¥4,042¥1,273 million and ¥15,963¥226 million, respectively, were recognized with the corresponding amounts of installment loans and investment in securities being derecognized as a result of acquiring real estate collateral. In fiscal 2014, other assets of ¥8,741 million were also recognized with the corresponding amounts of installment loans and investment in securities being derecognized as a result of acquiring real estate collateral.
In fiscal 2014, assets and liabilities were decreased by ¥155,918 million and ¥170,869 million, respectively, in the Company’s consolidated balance sheet due to deconsolidation of certain VIEs which had been consolidated by a subsidiary. The derecognized assets mainly consist of installment loans and investment in securities, and the derecognized liabilities mainly consist of long-term debt. 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. In fiscal 2015, assets and liabilities decreased by ¥7,450 million and ¥9,279 million, respectively, in the Company’s consolidated balance sheet due to deconsolidation of certain VIEs which had been consolidated by a subsidiary. The derecognized assets mainly consist of installment loans, and the derecognized liabilities mainly consist of long-term debt. Derecognition of
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
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. In fiscal 2016, assets and liabilities decreased by ¥7,234 million and ¥12,181 million, respectively, in the Company’s consolidated balance sheet due to deconsolidation of certain VIEs which had been consolidated by a subsidiary. In fiscal 2018, assets and liabilities decreased by ¥4,313 million and ¥2,304 million, respectively, 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 the derecognized liabilities mainly consist of long-term debt. 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.
As non-cash financing activities, ¥49,944 million of convertible bonds were converted to common stocks in fiscal 2014.
In addition, the Company and its subsidiaries recognized identifiable assets acquired and liabilities assumed at their fair values in connection with the acquisitions, details of which are provided in Note 3 “Acquisitions and divestitures.”
5. Investment in Direct Financing Leases
Investment in direct financing leases at March 31, 20152017 and 20162018 consists of the following:
Millions of yen | Millions of yen | |||||||||||||||
2015 | 2016 | 2017 | 2018 | |||||||||||||
Total Minimum lease payments to be received | ¥ | 1,410,512 | ¥ | 1,366,454 | ¥ | 1,369,120 | ¥ | 1,358,322 | ||||||||
Less: Estimated executory costs | (63,456 | ) | (57,600 | ) | ||||||||||||
Less : Estimated executory costs | (56,470 | ) | (57,959 | ) | ||||||||||||
Minimum lease payments receivable | 1,347,056 | 1,308,854 | 1,312,650 | 1,300,363 | ||||||||||||
Estimated residual value | 30,620 | 31,338 | 35,413 | 37,216 | ||||||||||||
Initial direct costs | 5,866 | 5,557 | 5,893 | 6,489 | ||||||||||||
Unearned lease income | (167,088 | ) | (155,613 | ) | (149,932 | ) | (149,180 | ) | ||||||||
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¥ | 1,216,454 | ¥ | 1,190,136 | ¥ | 1,204,024 | ¥ | 1,194,888 | |||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
Minimum lease payments receivable are due in periodic installments through fiscal 2036.2038. At March 31, 2016,2018, the amounts due in each of the next five years and thereafter are as follows:
Years ending March 31, | Millions of yen | |||
2017 | ¥ | 441,910 | ||
2018 | 313,483 | |||
2019 | 217,794 | |||
2020 | 142,674 | |||
2021 | 76,900 | |||
Thereafter | 116,093 | |||
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Total | ¥ | 1,308,854 | ||
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Years ending March 31, | Millions of yen | |||
2019 | ¥ | 451,650 | ||
2020 | 329,089 | |||
2021 | 218,344 | |||
2022 | 131,853 | |||
2023 | 72,389 | |||
Thereafter | 97,038 | |||
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Total | ¥ | 1,300,363 | ||
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Included in finance revenues in the consolidated statements of income are direct financing leases revenues of ¥57,483¥65,365 million, ¥61,116¥56,349 million and ¥65,365¥59,900 million for fiscal 2014, 20152016, 2017 and 2016,2018, respectively.
Gains and losses from the disposition of direct financing lease assets, which were included in finance revenues, were not significantmaterial for fiscal 2014, 20152016, 2017 and 2016.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
6. Investment in Operating Leases
Investment in operating leases at March 31, 20152017 and 20162018 consists of the following:
Millions of yen | ||||||||
2015 | 2016 | |||||||
Transportation equipment | ¥ | 934,430 | ¥ | 1,076,697 | ||||
Measuring and information-related equipment | 236,922 | 239,262 | ||||||
Real estate | 590,388 | 531,155 | ||||||
Other | 19,767 | 21,343 | ||||||
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1,781,507 | 1,868,457 | |||||||
Accumulated depreciation | (506,801 | ) | (542,868 | ) | ||||
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Net | 1,274,706 | 1,325,589 | ||||||
Accrued rental receivables | 21,514 | 23,610 | ||||||
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¥ | 1,296,220 | ¥ | 1,349,199 | |||||
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Millions of yen | ||||||||
2017 | 2018 | |||||||
Transportation equipment | ¥ | 1,144,511 | ¥ | 1,249,683 | ||||
Measuring and information-related equipment | 237,597 | 245,492 | ||||||
Real estate | 451,367 | 395,533 | ||||||
Other | 23,414 | 29,118 | ||||||
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1,856,889 | 1,919,826 | |||||||
Accumulated depreciation | (566,946 | ) | (605,415 | ) | ||||
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Net | 1,289,943 | 1,314,411 | ||||||
Accrued rental receivables | 23,221 | 30,515 | ||||||
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¥ | 1,313,164 | ¥ | 1,344,926 | |||||
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For fiscal 2014, 20152016, 2017 and 2016,2018, gains from the disposition of real estate under operating leases included in operating lease revenues are ¥5,872¥18,768 million, ¥16,338¥53,004 million and ¥18,768¥16,383 million, respectively, and gains from the disposition of operating lease assets other than real estate included in operating lease revenues are ¥17,820¥19,572 million, ¥18,087¥16,261 million and ¥19,572¥18,908 million, respectively.
For fiscal 2014, where the Company and its subsidiaries have no significant continuing involvement in the operations from the real estate under operating leases which have been disposed of, the gains or losses arising from such disposition are reported as income from discontinued operations, net.
Costs of operating leases include depreciation and various expenses (insurance, property tax and other). Depreciation and various expenses for fiscal 2014, 20152016, 2017 and 20162018 are as follows:
Millions of yen | Millions of yen | |||||||||||||||||||||||
2014 | 2015 | 2016 | 2016 | 2017 | 2018 | |||||||||||||||||||
Depreciation expenses | ¥ | 166,234 | ¥ | 177,038 | ¥ | 184,768 | ¥ | 184,768 | ¥ | 185,277 | ¥ | 195,047 | ||||||||||||
Various expenses | 50,334 | 61,119 | 60,301 | 60,301 | 58,260 | 57,280 | ||||||||||||||||||
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¥ | 216,568 | ¥ | 238,157 | ¥ | 245,069 | ¥ | 245,069 | ¥ | 243,537 | ¥ | 252,327 | |||||||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
The operating lease contracts includenon-cancelable lease terms that range up to 2117 years at March 31, 2016.2018. The minimum future rentals onnon-cancelable operating leases due in each of the next five years and thereafter are as follows:
Years ending March 31, | Millions of yen | |||
2017 | ¥ | 196,417 | ||
2018 | 138,642 | |||
2019 | 94,783 | |||
2020 | 59,821 | |||
2021 | 34,586 | |||
Thereafter | 62,532 | |||
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Total | ¥ | 586,781 | ||
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Years ending March 31, | Millions of yen | |||
2019 | ¥ | 219,243 | ||
2020 | 153,121 | |||
2021 | 109,728 | |||
2022 | 74,251 | |||
2023 | 44,350 | |||
Thereafter | 70,262 | |||
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Total | ¥ | 670,955 | ||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
7. Installment Loans
The composition of installment loans by domicile and type of borrower at March 31, 20152017 and 20162018 is as follows:
Millions of yen | Millions of yen | |||||||||||||||
2015 | 2016 | 2017 | 2018 | |||||||||||||
Borrowers in Japan: | ||||||||||||||||
Consumer— | ||||||||||||||||
Housing loans | ¥ | 1,048,216 | ¥ | 1,122,088 | ¥ | 1,261,571 | ¥ | 1,375,380 | ||||||||
Card loans | 243,225 | 260,533 | 270,007 | 264,323 | ||||||||||||
Other | 22,866 | 23,466 | 28,668 | 34,333 | ||||||||||||
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1,314,307 | 1,406,087 | 1,560,246 | 1,674,036 | |||||||||||||
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Corporate— | ||||||||||||||||
Real estate companies | 227,568 | 230,001 | 270,965 | 278,076 | ||||||||||||
Non-recourse loans | 41,535 | 19,951 | 12,758 | 18,318 | ||||||||||||
Commercial, industrial and other companies | 401,718 | 365,371 | 340,050 | 301,083 | ||||||||||||
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670,821 | 615,323 | 623,773 | 597,477 | |||||||||||||
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Overseas: | ||||||||||||||||
Non-recourse loans | 83,233 | 61,260 | 75,968 | 54,987 | ||||||||||||
Commercial, industrial companies and other | 367,401 | 479,039 | 530,924 | 478,336 | ||||||||||||
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450,634 | 540,299 | 606,892 | 533,323 | |||||||||||||
Purchased loans* | 42,292 | 30,524 | 24,795 | 18,933 | ||||||||||||
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¥ | 2,478,054 | ¥ | 2,592,233 | ¥ | 2,815,706 | ¥ | 2,823,769 | |||||||||
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* | 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 |
Generally, installment loans are made under agreements that require the borrower to provide collateral or guarantors.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
At March 31, 2016,2018, 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 | Millions of yen | ||||||
2017 | ¥ | 408,746 | ||||||
2018 | 287,360 | |||||||
2019 | 267,473 | ¥ | 470,042 | |||||
2020 | 200,873 | 301,049 | ||||||
2021 | 219,901 | 278,302 | ||||||
2022 | 186,835 | |||||||
2023 | 148,081 | |||||||
Thereafter | 1,177,356 | 1,420,527 | ||||||
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Total | ¥ | 2,561,709 | ¥ | 2,804,836 | ||||
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IncludedRevenues from installment loans which are included in finance revenues in the consolidated statements of income is interest income on loans of ¥118,287are ¥118,982 million, ¥110,390¥127,128 million and ¥118,982¥134,211 million for fiscal 2014, 20152016, 2017 and 2016,2018, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
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 under ASC 825 (“Financial Instruments”) was elected. A subsidiary elected the fair value option under ASC 825 (“Financial Instruments”) on its loans held for sale originated on or after October 1, 2011.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, 20152017 and 20162018 were ¥15,613¥22,548 million and ¥21,867¥18,300 million, respectively. There were ¥15,361¥19,232 million and ¥20,673¥17,260 million of loans held for sale as of March 31, 20152017 and 2016,2018, respectively, measured at fair value by electing the fair value option.
ForPurchased 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 ASC 310-30 (“Receivables—Loans and Debt Securities Acquired with Deteriorated Credit Quality”) requires that the investor recognize the excess of the loan’s cash flows expected at acquisition over the investor’s initial investment as interest income on the level-yield basis over the remaining life of the purchased loan (“accretable yield”). ASC 310-30, however, does not prohibit placing loans on non-accrual status subsequent to acquisition, including use of the cost recovery or cash basis methods of income recognition when it is not appropriate to recognize the accretable yield, such as when the investor does not have sufficient information to reasonably estimate cash flows expected to be collected to compute the accretable yield.
Purchased loans acquired by the Company and its subsidiaries are generally characterized by extended period ofnon-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 ¥42,292¥24,795 million and ¥30,524¥18,933 million as of March 31, 20152017 and 2016,2018, respectively, and the fair value at the acquisition date of purchased loans acquired during fiscal 20152017 and 20162018 were ¥10,131¥6,326 million and ¥7,799¥2,886 million, respectively.
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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
recoverable amount is estimated based on the collateral value. Purchased loans for which valuation allowances were provided amounted to ¥15,216¥7,443 million and ¥11,013¥5,101 million as of March 31, 20152017 and 2016,2018, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
Changes in the allowance for uncollectible accounts relating to the purchased loans for fiscal 2014, 20152016, 2017 and 20162018 are as follows:
Millions of yen | Millions of yen | |||||||||||||||||||||||
2014 | 2015 | 2016 | 2016 | 2017 | 2018 | |||||||||||||||||||
Beginning balance | ¥ | 15,316 | ¥ | 14,148 | ¥ | 10,717 | ¥ | 10,717 | ¥ | 8,233 | ¥ | 6,061 | ||||||||||||
Provision (Reversal) | 2,532 | (690 | ) | (1,308 | ) | (1,308 | ) | (1,247 | ) | (539 | ) | |||||||||||||
Charge-offs | (3,921 | ) | (3,390 | ) | (1,236 | ) | (1,236 | ) | (841 | ) | (1,375 | ) | ||||||||||||
Recoveries | 111 | 432 | 232 | 232 | 232 | 152 | ||||||||||||||||||
Other* | 110 | 217 | (172 | ) | (172 | ) | (316 | ) | (7 | ) | ||||||||||||||
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| |||||||||||||||||||
Ending balance | ¥ | 14,148 | ¥ | 10,717 | ¥ | 8,233 | ¥ | 8,233 | ¥ | 6,061 | ¥ | 4,292 | ||||||||||||
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* | Other includes foreign currency translation adjustments. |
8. Credit Quality of Financing Receivables and the Allowance for Credit Losses
The Company and its subsidiaries apply ASC 310 (“Receivables”), which requires an entity to 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 andpast-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 direct financing 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
The following table provides information about the allowance for credit losses for fiscal 2014, 20152016, 2017 and 2016:2018:
March 31, 2014 | March 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||
Millions of yen | Millions of yen | |||||||||||||||||||||||||||||||||||||||||||||||
Loans | Direct financing leases | Total | Loans | Direct financing leases | Total | |||||||||||||||||||||||||||||||||||||||||||
Consumer | Corporate | Purchased loans*1 | Consumer | Corporate | Purchased loans*1 | |||||||||||||||||||||||||||||||||||||||||||
Non-recourse loans | Other | Non-recourse loans | Other | |||||||||||||||||||||||||||||||||||||||||||||
Allowance for Credit Losses: | ||||||||||||||||||||||||||||||||||||||||||||||||
Allowance for credit losses: | ||||||||||||||||||||||||||||||||||||||||||||||||
Beginning balance | ¥ | 14,526 | ¥ | 16,717 | ¥ | 41,875 | ¥ | 15,316 | ¥ | 15,830 | ¥ | 104,264 | ¥ | 12,585 | ¥ | 8,148 | ¥ | 25,672 | ¥ | 10,717 | ¥ | 15,204 | ¥ | 72,326 | ||||||||||||||||||||||||
Provision | 4,437 | 2,381 | 837 | 2,532 | 3,651 | 13,838 | ||||||||||||||||||||||||||||||||||||||||||
Provision (Reversal) | 7,367 | (491 | ) | 3,362 | (1,308 | ) | 2,787 | 11,717 | ||||||||||||||||||||||||||||||||||||||||
Charge-offs | (5,786 | ) | (3,590 | ) | (11,807 | ) | (3,921 | ) | (4,421 | ) | (29,525 | ) | (7,572 | ) | (504 | ) | (5,298 | ) | (1,236 | ) | (4,075 | ) | (18,685 | ) | ||||||||||||||||||||||||
Recoveries | 290 | 140 | 798 | 111 | 70 | 1,409 | 543 | 0 | 393 | 232 | 13 | 1,181 | ||||||||||||||||||||||||||||||||||||
Other*2 | 6 | (6,601 | ) | 1,041 | 110 | 254 | (5,190 | ) | 344 | (5,353 | ) | (738 | ) | (172 | ) | (549 | ) | (6,468 | ) | |||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||
Ending balance | ¥ | 13,473 | ¥ | 9,047 | ¥ | 32,744 | ¥ | 14,148 | ¥ | 15,384 | ¥ | 84,796 | ¥ | 13,267 | ¥ | 1,800 | ¥ | 23,391 | ¥ | 8,233 | ¥ | 13,380 | ¥ | 60,071 | ||||||||||||||||||||||||
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Individually evaluated for impairment | 3,279 | 8,534 | 25,054 | 12,288 | 0 | 49,155 | 2,770 | 1,323 | 12,552 | 5,888 | 0 | 22,533 | ||||||||||||||||||||||||||||||||||||
Not individually evaluated for impairment | 10,194 | 513 | 7,690 | 1,860 | 15,384 | 35,641 | 10,497 | 477 | 10,839 | 2,345 | 13,380 | 37,538 | ||||||||||||||||||||||||||||||||||||
Financing receivables: | ||||||||||||||||||||||||||||||||||||||||||||||||
Ending balance | ¥ | 1,236,414 | ¥ | 174,204 | ¥ | 837,329 | ¥ | 53,341 | ¥ | 1,094,073 | ¥ | 3,395,361 | ¥ | 1,461,982 | ¥ | 81,211 | ¥ | 996,649 | ¥ | 30,524 | ¥ | 1,190,136 | ¥ | 3,760,502 | ||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment | 11,796 | 24,902 | 76,051 | 23,075 | 0 | 135,824 | 14,101 | 11,057 | 37,422 | 11,013 | 0 | 73,593 | ||||||||||||||||||||||||||||||||||||
Not individually evaluated for impairment | 1,224,618 | 149,302 | 761,278 | 30,266 | 1,094,073 | 3,259,537 | 1,447,881 | 70,154 | 959,227 | 19,511 | 1,190,136 | 3,686,909 | ||||||||||||||||||||||||||||||||||||
March 31, 2015 | March 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||
Millions of yen | Millions of yen | |||||||||||||||||||||||||||||||||||||||||||||||
Loans | Direct financing leases | Total | Loans | Direct financing leases | Total | |||||||||||||||||||||||||||||||||||||||||||
Consumer | Corporate | Purchased loans*1 | Consumer | Corporate | Purchased loans*1 | |||||||||||||||||||||||||||||||||||||||||||
Non-recourse loans | Other | Non-recourse loans | Other | |||||||||||||||||||||||||||||||||||||||||||||
Allowance for Credit Losses: | ||||||||||||||||||||||||||||||||||||||||||||||||
Allowance for credit losses : | ||||||||||||||||||||||||||||||||||||||||||||||||
Beginning balance | ¥ | 13,473 | ¥ | 9,047 | ¥ | 32,744 | ¥ | 14,148 | ¥ | 15,384 | ¥ | 84,796 | ¥ | 13,267 | ¥ | 1,800 | ¥ | 23,391 | ¥ | 8,233 | ¥ | 13,380 | ¥ | 60,071 | ||||||||||||||||||||||||
Provision (Reversal) | 5,456 | (1,080 | ) | 4,800 | (690 | ) | 3,145 | 11,631 | 17,844 | 1,134 | 3,564 | (1,247 | ) | 1,372 | 22,667 | |||||||||||||||||||||||||||||||||
Charge-offs | (7,189 | ) | (53 | ) | (13,247 | ) | (3,390 | ) | (3,832 | ) | (27,711 | ) | (13,363 | ) | 0 | (4,485 | ) | (841 | ) | (4,067 | ) | (22,756 | ) | |||||||||||||||||||||||||
Recoveries | 835 | 0 | 593 | 432 | 58 | 1,918 | 469 | 0 | 222 | 232 | 11 | 934 | ||||||||||||||||||||||||||||||||||||
Other*3 | 10 | 234 | 782 | 217 | 449 | 1,692 | 382 | 17 | (1,613 | ) | (316 | ) | (159 | ) | (1,689 | ) | ||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||
Ending balance | ¥ | 12,585 | ¥ | 8,148 | ¥ | 25,672 | ¥ | 10,717 | ¥ | 15,204 | ¥ | 72,326 | ¥ | 18,599 | ¥ | 2,951 | ¥ | 21,079 | ¥ | 6,061 | ¥ | 10,537 | ¥ | 59,227 | ||||||||||||||||||||||||
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Individually evaluated for impairment | 2,606 | 7,751 | 15,541 | 8,481 | 0 | 34,379 | 2,927 | 2,114 | 10,565 | 4,462 | 0 | 20,068 | ||||||||||||||||||||||||||||||||||||
Not individually evaluated for impairment | 9,979 | 397 | 10,131 | 2,236 | 15,204 | 37,947 | 15,672 | 837 | 10,514 | 1,599 | 10,537 | 39,159 | ||||||||||||||||||||||||||||||||||||
Financing receivables: | ||||||||||||||||||||||||||||||||||||||||||||||||
Financing receivables : | ||||||||||||||||||||||||||||||||||||||||||||||||
Ending balance | ¥ | 1,330,353 | ¥ | 124,768 | ¥ | 965,028 | ¥ | 42,292 | ¥ | 1,216,454 | ¥ | 3,678,895 | ¥ | 1,616,009 | ¥ | 88,726 | ¥ | 1,063,628 | ¥ | 24,795 | ¥ | 1,204,024 | ¥ | 3,997,182 | ||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||
Individually evaluated for impairment | 11,993 | 22,032 | 51,793 | 15,216 | 0 | 101,034 | 16,667 | 6,032 | 28,883 | 7,443 | 0 | 59,025 | ||||||||||||||||||||||||||||||||||||
Not individually evaluated for impairment | 1,318,360 | 102,736 | 913,235 | 27,076 | 1,216,454 | 3,577,861 | 1,599,342 | 82,694 | 1,034,745 | 17,352 | 1,204,024 | 3,938,157 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
March 31, 2016 | ||||||||||||||||||||||||
Millions of yen | ||||||||||||||||||||||||
Loans | Direct financing leases | Total | ||||||||||||||||||||||
Consumer | Corporate | Purchased loans*1 | ||||||||||||||||||||||
Non-recourse loans | Other | |||||||||||||||||||||||
Allowance for Credit Losses: | ||||||||||||||||||||||||
Beginning Balance | ¥ | 12,585 | ¥ | 8,148 | ¥ | 25,672 | ¥ | 10,717 | ¥ | 15,204 | ¥ | 72,326 | ||||||||||||
Provision (Reversal) | 7,367 | (491 | ) | 3,362 | (1,308 | ) | 2,787 | 11,717 | ||||||||||||||||
Charge-offs | (7,572 | ) | (504 | ) | (5,298 | ) | (1,236 | ) | (4,075 | ) | (18,685 | ) | ||||||||||||
Recoveries | 543 | 0 | 393 | 232 | 13 | 1,181 | ||||||||||||||||||
Other*4 | 344 | (5,353 | ) | (738 | ) | (172 | ) | (549 | ) | (6,468 | ) | |||||||||||||
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Ending Balance | ¥ | 13,267 | ¥ | 1,800 | ¥ | 23,391 | ¥ | 8,233 | ¥ | 13,380 | ¥ | 60,071 | ||||||||||||
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Individually Evaluated for Impairment | 2,770 | 1,323 | 12,552 | 5,888 | 0 | 22,533 | ||||||||||||||||||
Not Individually Evaluated for Impairment | 10,497 | 477 | 10,839 | 2,345 | 13,380 | 37,538 | ||||||||||||||||||
Financing receivables: | ||||||||||||||||||||||||
Ending Balance | ¥ | 1,461,982 | ¥ | 81,211 | ¥ | 996,649 | ¥ | 30,524 | ¥ | 1,190,136 | ¥ | 3,760,502 | ||||||||||||
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Individually Evaluated for Impairment | 14,101 | 11,057 | 37,422 | 11,013 | 0 | 73,593 | ||||||||||||||||||
Not Individually Evaluated for Impairment | 1,447,881 | 70,154 | 959,227 | 19,511 | 1,190,136 | 3,686,909 |
March 31, 2018 | ||||||||||||||||||||||||
Millions of yen | ||||||||||||||||||||||||
Loans | Direct financing leases | Total | ||||||||||||||||||||||
Consumer | Corporate | Purchased loans*1 | ||||||||||||||||||||||
Non-recourse loans | Other | |||||||||||||||||||||||
Allowance for credit losses : | ||||||||||||||||||||||||
Beginning balance | ¥ | 18,599 | ¥ | 2,951 | ¥ | 21,079 | ¥ | 6,061 | ¥ | 10,537 | ¥ | 59,227 | ||||||||||||
Provision (reversal) | 11,922 | (173 | ) | 3,814 | (539 | ) | 2,241 | 17,265 | ||||||||||||||||
Charge-offs | (9,784 | ) | (2,031 | ) | (4,643 | ) | (1,375 | ) | (2,733 | ) | (20,566 | ) | ||||||||||||
Recoveries | 657 | 0 | 260 | 152 | 32 | 1,101 | ||||||||||||||||||
Other*4 | (198 | ) | (59 | ) | (2,103 | ) | (7 | ) | 12 | (2,355 | ) | |||||||||||||
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Ending balance | ¥ | 21,196 | ¥ | 688 | ¥ | 18,407 | ¥ | 4,292 | ¥ | 10,089 | ¥ | 54,672 | ||||||||||||
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Individually evaluated for impairment | 3,020 | 149 | 8,295 | 2,880 | 0 | 14,344 | ||||||||||||||||||
Not individually evaluated for impairment | 18,176 | 539 | 10,112 | 1,412 | 10,089 | 40,328 | ||||||||||||||||||
Financing receivables : | ||||||||||||||||||||||||
Ending balance | ¥ | 1,739,173 | ¥ | 73,305 | ¥ | 974,058 | ¥ | 18,933 | ¥ | 1,194,888 | ¥ | 4,000,357 | ||||||||||||
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Individually evaluated for impairment | 18,911 | 3,745 | 19,385 | 5,101 | 0 | 47,142 | ||||||||||||||||||
Not individually evaluated for impairment | 1,720,262 | 69,560 | 954,673 | 13,832 | 1,194,888 | 3,953,215 |
Note: | Loans held for sale are not included in the table above. |
*1 | Purchased loans represent loans with evidence of deterioration of credit quality since origination and for which it is probable at acquisition that collection of all contractually required payments from the debtors is |
*2 | Other mainly includes foreign currency translation adjustments and decrease in allowance related to |
*3 | Other mainly includes foreign currency translation adjustments and decrease in allowance related to |
*4 | Other mainly includes foreign currency translation adjustments and decrease in allowance related to |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
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;
priorcharge-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. Fornon-impaired loans, including loans that are not individually evaluated for impairment, and direct financing leases, the Company and its subsidiaries evaluate priorcharge-off experience as segmented by debtor’s industry and the purpose of the loans and develop the allowance for credit losses based on such priorcharge-off experience as well as current economic conditions.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
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 priorcharge-off experience. For loans to corporate other borrowers and direct financing 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 priorcharge-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 direct financing leases. Particularly fornon-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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
The following table provides information about the impaired loans as of March 31, 20152017 and 2016:2018:
March 31, 2015 | March 31, 2017 | |||||||||||||||||||||||||||||
Millions of Yen | Millions of yen | |||||||||||||||||||||||||||||
Portfolio segment | Class | Loans Individually Evaluated for Impairment | Unpaid Principal Balance | Related Allowance | Class | Loans individually evaluated for impairment | Unpaid principal balance | Related allowance | ||||||||||||||||||||||
With no related allowance recorded*1: | ¥ | 18,404 | ¥ | 18,359 | ¥ | 0 | ||||||||||||||||||||||||
With no related allowance recorded *1 | ¥ | 6,524 | ¥ | 6,499 | ¥ | 0 | ||||||||||||||||||||||||
Consumer borrowers | 450 | 407 | 0 | 973 | 956 | 0 | ||||||||||||||||||||||||
Housing loans | 450 | 407 | 0 | Housing loans | 973 | 956 | 0 | |||||||||||||||||||||||
Card loans | 0 | 0 | 0 | Card loans | 0 | 0 | 0 | |||||||||||||||||||||||
Other | 0 | 0 | 0 | Other | 0 | 0 | 0 | |||||||||||||||||||||||
Corporate borrowers | 17,954 | 17,952 | 0 | 5,439 | 5,431 | 0 | ||||||||||||||||||||||||
Non-recourse loans | Japan | 4,975 | 4,975 | 0 | Japan | 0 | 0 | 0 | ||||||||||||||||||||||
The Americas | 0 | 0 | 0 | The Americas | 0 | 0 | 0 | |||||||||||||||||||||||
Other | Real estate companies | 5,167 | 5,167 | 0 | Real estate companies | 0 | 0 | 0 | ||||||||||||||||||||||
Entertainment companies | 892 | 892 | 0 | Entertainment companies | 8 | 2 | 0 | |||||||||||||||||||||||
Other | 6,920 | 6,918 | 0 | Other | 5,431 | 5,429 | 0 | |||||||||||||||||||||||
Purchased loans | 0 | 0 | 0 | 112 | 112 | 0 | ||||||||||||||||||||||||
With an allowance recorded*2: | 82,630 | 79,418 | 34,379 | |||||||||||||||||||||||||||
With an allowance recorded *2 | 52,501 | 51,153 | 20,068 | |||||||||||||||||||||||||||
Consumer borrowers | 11,543 | 9,737 | 2,606 | 15,694 | 14,775 | 2,927 | ||||||||||||||||||||||||
Housing loans | 4,907 | 3,118 | 1,689 | Housing loans | 3,271 | 2,796 | 1,202 | |||||||||||||||||||||||
Card loans | 3,741 | 3,731 | 566 | Card loans | 4,102 | 4,091 | 616 | |||||||||||||||||||||||
Other | 2,895 | 2,888 | 351 | Other | 8,321 | 7,888 | 1,109 | |||||||||||||||||||||||
Corporate borrowers | 55,871 | 54,465 | 23,292 | 29,476 | 29,047 | 12,679 | ||||||||||||||||||||||||
Non-recourse loans | Japan | 310 | 310 | 64 | Japan | 203 | 202 | 35 | ||||||||||||||||||||||
The Americas | 16,747 | 16,747 | 7,687 | The Americas | 5,829 | 5,829 | 2,079 | |||||||||||||||||||||||
Other | Real estate companies | 15,940 | 15,708 | 5,099 | Real estate companies | 7,212 | 7,154 | 1,638 | ||||||||||||||||||||||
Entertainment companies | 3,580 | 3,548 | 1,429 | Entertainment companies | 1,728 | 1,720 | 637 | |||||||||||||||||||||||
Other | 19,294 | 18,152 | 9,013 | Other | 14,504 | 14,142 | 8,290 | |||||||||||||||||||||||
Purchased loans | 15,216 | 15,216 | 8,481 | 7,331 | 7,331 | 4,462 | ||||||||||||||||||||||||
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Total: | ¥ | 101,034 | ¥ | 97,777 | ¥ | 34,379 | ||||||||||||||||||||||||
Total | ¥ | 59,025 | ¥ | 57,652 | ¥ | 20,068 | ||||||||||||||||||||||||
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Consumer borrowers | 11,993 | 10,144 | 2,606 | 16,667 | 15,731 | 2,927 | ||||||||||||||||||||||||
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Housing loans | 5,357 | 3,525 | 1,689 | Housing loans | 4,244 | 3,752 | 1,202 | |||||||||||||||||||||||
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|
| |||||||||||||||||||||||||
Card loans | 3,741 | 3,731 | 566 | Card loans | 4,102 | 4,091 | 616 | |||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||
Other | 2,895 | 2,888 | 351 | Other | 8,321 | 7,888 | 1,109 | |||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||
Corporate borrowers | 73,825 | 72,417 | 23,292 | 34,915 | 34,478 | 12,679 | ||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||
Non-recourse loans | Japan | 5,285 | 5,285 | 64 | Japan | 203 | 202 | 35 | ||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||
The Americas | 16,747 | 16,747 | 7,687 | The Americas | 5,829 | 5,829 | 2,079 | |||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||
Other | Real estate companies | 21,107 | 20,875 | 5,099 | Real estate companies | 7,212 | 7,154 | 1,638 | ||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||
Entertainment companies | 4,472 | 4,440 | 1,429 | Entertainment companies | 1,736 | 1,722 | 637 | |||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||
Other | 26,214 | 25,070 | 9,013 | Other | 19,935 | 19,571 | 8,290 | |||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||
Purchased loans | 15,216 | 15,216 | 8,481 | 7,443 | 7,443 | 4,462 | ||||||||||||||||||||||||
|
|
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
March 31, 2016 | March 31, 2018 | |||||||||||||||||||||||||||||
Millions of yen | Millions of yen | |||||||||||||||||||||||||||||
Portfolio segment | Class | Loans Individually Evaluated for Impairment | Unpaid Principal Balance | Related Allowance | Class | Loans individually evaluated for impairment | Unpaid principal balance | Related allowance | ||||||||||||||||||||||
With no related allowance recorded*1: | ¥ | 14,601 | ¥ | 14,498 | ¥ | 0 | ||||||||||||||||||||||||
With no related allowance recorded *1 | ¥ | 7,813 | ¥ | 7,774 | ¥ | 0 | ||||||||||||||||||||||||
Consumer borrowers | 931 | 852 | 0 | 409 | 409 | 0 | ||||||||||||||||||||||||
Housing loans | 931 | 852 | 0 | Housing loans | 184 | 184 | 0 | |||||||||||||||||||||||
Card loans | 0 | 0 | 0 | Card loans | 0 | 0 | 0 | |||||||||||||||||||||||
Other | 0 | 0 | 0 | Other | 225 | 225 | 0 | |||||||||||||||||||||||
Corporate borrowers | 13,670 | 13,646 | 0 | 7,301 | 7,262 | 0 | ||||||||||||||||||||||||
Non-recourse loans | Japan | 4,776 | 4,776 | 0 | Japan | 0 | 0 | 0 | ||||||||||||||||||||||
The Americas | 0 | 0 | 0 | The Americas | 3,395 | 3,395 | 0 | |||||||||||||||||||||||
Other | Real estate companies | 0 | 0 | 0 | Real estate companies | 1,003 | 1,003 | 0 | ||||||||||||||||||||||
Entertainment companies | 211 | 211 | 0 | Entertainment companies | 7 | 0 | 0 | |||||||||||||||||||||||
Other | 8,683 | 8,659 | 0 | Other | 2,896 | 2,864 | 0 | |||||||||||||||||||||||
Purchased loans | 0 | 0 | 0 | 103 | 103 | 0 | ||||||||||||||||||||||||
With an allowance recorded*2: | 58,992 | 57,758 | 22,533 | |||||||||||||||||||||||||||
With an allowance recorded *2 | 39,329 | 37,943 | 14,344 | |||||||||||||||||||||||||||
Consumer borrowers | 13,170 | 12,628 | 2,770 | 18,502 | 17,953 | 3,020 | ||||||||||||||||||||||||
Housing loans | 3,580 | 3,058 | 1,401 | Housing loans | 3,360 | 3,068 | 984 | |||||||||||||||||||||||
Card loans | 4,123 | 4,113 | 590 | Card loans | 4,060 | 4,051 | 631 | |||||||||||||||||||||||
Other | 5,467 | 5,457 | 779 | Other | 11,082 | 10,834 | 1,405 | |||||||||||||||||||||||
Corporate borrowers | 34,809 | 34,117 | 13,875 | 15,829 | 15,227 | 8,444 | ||||||||||||||||||||||||
Non-recourse loans | Japan | 292 | 292 | 72 | Japan | 254 | 254 | 53 | ||||||||||||||||||||||
The Americas | 5,989 | 5,988 | 1,251 | The Americas | 96 | 96 | 96 | |||||||||||||||||||||||
Other | Real estate companies | 8,612 | 8,480 | 2,140 | Real estate companies | 1,544 | 1,482 | 543 | ||||||||||||||||||||||
Entertainment companies | 2,218 | 2,209 | 840 | Entertainment companies | 1,581 | 1,570 | 576 | |||||||||||||||||||||||
Other | 17,698 | 17,148 | 9,572 | Other | 12,354 | 11,825 | 7,176 | |||||||||||||||||||||||
Purchased loans | 11,013 | 11,013 | 5,888 | 4,998 | 4,763 | 2,880 | ||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||
Total: | ¥ | 73,593 | ¥ | 72,256 | ¥ | 22,533 | ||||||||||||||||||||||||
Total | ¥ | 47,142 | ¥ | 45,717 | ¥ | 14,344 | ||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||
Consumer borrowers | 14,101 | 13,480 | 2,770 | 18,911 | 18,362 | 3,020 | ||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||
Housing loans | 4,511 | �� | 3,910 | 1,401 | Housing loans | 3,544 | 3,252 | 984 | ||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||
Card loans | 4,123 | 4,113 | 590 | Card loans | 4,060 | 4,051 | 631 | |||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||
Other | 5,467 | 5,457 | 779 | Other | 11,307 | 11,059 | 1,405 | |||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||
Corporate borrowers | 48,479 | 47,763 | 13,875 | 23,130 | 22,489 | 8,444 | ||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||
Non-recourse loans | Japan | 5,068 | 5,068 | 72 | Japan | 254 | 254 | 53 | ||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||
The Americas | 5,989 | 5,988 | 1,251 | The Americas | 3,491 | 3,491 | 96 | |||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||
Other | Real estate companies | 8,612 | 8,480 | 2,140 | Real estate companies | 2,547 | 2,485 | 543 | ||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||
Entertainment companies | 2,429 | 2,420 | 840 | Entertainment companies | 1,588 | 1,570 | 576 | |||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||
Other | 26,381 | 25,807 | 9,572 | Other | 15,250 | 14,689 | 7,176 | |||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||
Purchased loans | 11,013 | 11,013 | 5,888 | 5,101 | 4,866 | 2,880 | ||||||||||||||||||||||||
|
|
|
|
|
|
Note: | Loans held for sale are not included in the table above. |
*1 | “With no related allowance recorded” represents impaired loans with no allowance for credit losses as all amounts are considered to be collectible. |
*2 | “With an allowance recorded” represents impaired loans with the allowance for credit losses as all or a part of the amounts are not considered to be collectible. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
The Company and its subsidiaries recognize installment loans other than purchased loans and loans to consumer borrowers as impaired loans when principal or interest ispast-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. Fornon-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 housing 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. Fornon-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 certainnon-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.
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 2014, 20152016, 2017 and 2016:2018:
March 31, 2014 | March 31, 2016 | |||||||||||||||||||||||||||
Millions of yen | Millions of yen | |||||||||||||||||||||||||||
Portfolio segment | Class | Average Recorded Investments in Impaired Loans* | Interest Income on Impaired Loans | Interest on Impaired Loans Collected in Cash | Class | Average recorded investments in impaired loans* | Interest income on impaired loans | Interest on impaired loans collected in cash | ||||||||||||||||||||
Consumer borrowers | ¥ | 11,445 | ¥ | 295 | ¥ | 230 | ¥ | 13,215 | ¥ | 317 | ¥ | 269 | ||||||||||||||||
Housing loans | 8,004 | 231 | 178 | Housing loans | 5,090 | 176 | 148 | |||||||||||||||||||||
Card loans | 2,453 | 38 | 31 | Card loans | 3,970 | 69 | 59 | |||||||||||||||||||||
Other | 988 | 26 | 21 | Other | 4,155 | 72 | 62 | |||||||||||||||||||||
Corporate borrowers | 134,927 | 4,146 | 3,449 | 58,138 | 974 | 947 | ||||||||||||||||||||||
Non-recourse loans | Japan | 15,897 | 234 | 219 | Japan | 5,117 | 7 | 7 | ||||||||||||||||||||
The Americas | 23,119 | 667 | 667 | The Americas | 11,759 | 275 | 275 | |||||||||||||||||||||
Other | Real estate companies | 38,733 | 1,154 | 990 | Real estate companies | 13,843 | 210 | 198 | ||||||||||||||||||||
Entertainment companies | 10,277 | 509 | 343 | Entertainment companies | 3,505 | 102 | 99 | |||||||||||||||||||||
Other | 46,901 | 1,582 | 1,230 | Other | 23,914 | 380 | 368 | |||||||||||||||||||||
Purchased loans | 25,588 | 0 | 0 | 12,864 | 0 | 0 | ||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||
Total | ¥ | 171,960 | ¥ | 4,441 | ¥ | 3,679 | ¥ | 84,217 | ¥ | 1,291 | ¥ | 1,216 | ||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||
March 31, 2015 | March 31, 2017 | |||||||||||||||||||||||||||
Millions of yen | Millions of yen | |||||||||||||||||||||||||||
Portfolio segment | Class | Average Recorded Investments in Impaired Loans* | Interest Income on Impaired Loans | Interest on Impaired Loans Collected in Cash | Class | Average recorded investments in impaired loans* | Interest income on impaired loans | Interest on impaired loans collected in cash | ||||||||||||||||||||
Consumer borrowers | ¥ | 11,822 | ¥ | 376 | ¥ | 273 | ¥ | 15,166 | ¥ | 316 | ¥ | 277 | ||||||||||||||||
Housing loans | 6,286 | 268 | 180 | Housing loans | 4,261 | 146 | 130 | |||||||||||||||||||||
Card loans | 3,368 | 60 | 51 | Card loans | 4,113 | 67 | 58 | |||||||||||||||||||||
Other | 2,168 | 48 | 42 | Other | 6,792 | 103 | 89 | |||||||||||||||||||||
Corporate borrowers | 82,986 | 2,005 | 1,648 | 39,667 | 626 | 576 | ||||||||||||||||||||||
Non-recourse loans | Japan | 5,975 | 10 | 10 | Japan | 1,224 | 6 | 6 | ||||||||||||||||||||
The Americas | 15,657 | 502 | 502 | The Americas | 5,679 | 66 | 66 | |||||||||||||||||||||
Other | Real estate companies | 22,009 | 417 | 355 | Real estate companies | 7,720 | 189 | 177 | ||||||||||||||||||||
Entertainment companies | 5,951 | 202 | 149 | Entertainment companies | 2,134 | 76 | 76 | |||||||||||||||||||||
Other | 33,394 | 874 | 632 | Other | 22,910 | 289 | 251 | |||||||||||||||||||||
Purchased loans | 18,736 | 0 | 0 | 9,348 | 591 | 591 | ||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||
Total | ¥ | 113,544 | ¥ | 2,381 | ¥ | 1,921 | ¥ | 64,181 | ¥ | 1,533 | ¥ | 1,444 | ||||||||||||||||
|
|
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
March 31, 2016 | ||||||||||||||
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 | ¥ | 13,215 | ¥ | 317 | ¥ | 269 | ||||||||
Housing loans | 5,090 | 176 | 148 | |||||||||||
Card loans | 3,970 | 69 | 59 | |||||||||||
Other | 4,155 | 72 | 62 | |||||||||||
Corporate borrowers | 58,138 | 974 | 947 | |||||||||||
Non-recourse loans | Japan | 5,117 | 7 | 7 | ||||||||||
The Americas | 11,759 | 275 | 275 | |||||||||||
Other | Real estate companies | 13,843 | 210 | 198 | ||||||||||
Entertainment companies | 3,505 | 102 | 99 | |||||||||||
Other | 23,914 | 380 | 368 | |||||||||||
Purchased loans | 12,864 | 0 | 0 | |||||||||||
|
|
|
|
|
| |||||||||
Total | ¥ | 84,217 | ¥ | 1,291 | ¥ | 1,216 | ||||||||
|
|
|
|
|
|
The following table provides information about the credit quality indicators as of March 31, 2015 and 2016:
March 31, 2015 | ||||||||||||||||||||||
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 | ¥ | 1,311,725 | ¥ | 11,993 | ¥ | 6,635 | ¥ | 18,628 | ¥ | 1,330,353 | ||||||||||||
Housing loans | 1,050,531 | 5,357 | 3,898 | 9,255 | 1,059,786 | |||||||||||||||||
Card loans | 238,660 | 3,741 | 824 | 4,565 | 243,225 | |||||||||||||||||
Other | 22,534 | 2,895 | 1,913 | 4,808 | 27,342 | |||||||||||||||||
Corporate borrowers | 1,015,971 | 73,825 | 0 | 73,825 | 1,089,796 | |||||||||||||||||
Non-recourse loans | Japan | 36,250 | 5,285 | 0 | 5,285 | 41,535 | ||||||||||||||||
The Americas | 66,486 | 16,747 | 0 | 16,747 | 83,233 | |||||||||||||||||
Other | Real estate companies | 235,493 | 21,107 | 0 | 21,107 | 256,600 | ||||||||||||||||
Entertainment companies | 101,701 | 4,472 | 0 | 4,472 | 106,173 | |||||||||||||||||
Other | 576,041 | 26,214 | 0 | 26,214 | 602,255 | |||||||||||||||||
Purchased loans | 27,076 | 15,216 | 0 | 15,216 | 42,292 | |||||||||||||||||
Direct financing leases | 1,201,081 | 0 | 15,373 | 15,373 | 1,216,454 | |||||||||||||||||
Japan | 819,592 | 0 | 10,293 | 10,293 | 829,885 | |||||||||||||||||
Overseas | 381,489 | 0 | 5,080 | 5,080 | 386,569 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | ¥ | 3,555,853 | ¥ | 101,034 | ¥ | 22,008 | ¥ | 123,042 | ¥ | 3,678,895 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
March 31, 2016 | ||||||||||||||||||||||||||||||||||||
Millions of yen | March 31, 2018 | |||||||||||||||||||||||||||||||||||
Non-performing | Millions of yen | |||||||||||||||||||||||||||||||||||
Portfolio segment | Class | Performing | Loans individually evaluated for impairment | 90+ days past-due loans not individually evaluated for impairment | Subtotal | Total | Class | Average recorded investments in impaired loans* | Interest income on impaired loans | Interest on impaired loans collected in cash | ||||||||||||||||||||||||||
Consumer borrowers | ¥ | 1,439,703 | ¥ | 14,101 | ¥ | 8,178 | ¥ | 22,279 | ¥ | 1,461,982 | ¥ | 17,799 | ¥ | 402 | ¥ | 300 | ||||||||||||||||||||
Housing loans | 1,131,276 | 4,511 | 2,267 | 6,778 | 1,138,054 | Housing loans | 4,143 | 191 | 121 | |||||||||||||||||||||||||||
Card loans | 255,753 | 4,123 | 657 | 4,780 | 260,533 | Card loans | 4,081 | 60 | 52 | |||||||||||||||||||||||||||
Other | 52,674 | 5,467 | 5,254 | 10,721 | 63,395 | Other | 9,575 | 151 | 127 | |||||||||||||||||||||||||||
Corporate borrowers | 1,029,381 | 48,479 | 0 | 48,479 | 1,077,860 | 30,661 | 204 | 196 | ||||||||||||||||||||||||||||
Non-recourse loans | Japan | 14,883 | 5,068 | 0 | 5,068 | 19,951 | Japan | 210 | 8 | 8 | ||||||||||||||||||||||||||
The Americas | 55,271 | 5,989 | 0 | 5,989 | 61,260 | The Americas | 4,972 | 6 | 6 | |||||||||||||||||||||||||||
Other | Real estate companies | 261,558 | 8,612 | 0 | 8,612 | 270,170 | Real estate companies | 5,657 | 53 | 52 | ||||||||||||||||||||||||||
Entertainment companies | 98,852 | 2,429 | 0 | 2,429 | 101,281 | Entertainment companies | 1,667 | 44 | 43 | |||||||||||||||||||||||||||
Other | 598,817 | 26,381 | 0 | 26,381 | 625,198 | Other | 18,155 | 93 | 87 | |||||||||||||||||||||||||||
Purchased loans | 19,511 | 11,013 | 0 | 11,013 | 30,524 | 6,304 | 18 | 3 | ||||||||||||||||||||||||||||
Direct financing leases | 1,177,580 | 0 | 12,556 | 12,556 | 1,190,136 | |||||||||||||||||||||||||||||||
Japan | 831,207 | 0 | 7,918 | 7,918 | 839,125 | |||||||||||||||||||||||||||||||
Overseas | 346,373 | 0 | 4,638 | 4,638 | 351,011 | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||
Total | ¥ | 3,666,175 | ¥ | 73,593 | ¥ | 20,734 | ¥ | 94,327 | ¥ | 3,760,502 | ¥ | 54,764 | ¥ | 624 | ¥ | 499 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
Note: | Loans held for sale are not included in the table above. |
* | Average balances are calculated on the basis of fiscal beginning andquarter-end balances. |
The following table provides information about the credit quality indicators as of March 31, 2017 and 2018:
March 31, 2017 | ||||||||||||||||||||||
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 | ¥ | 1,589,620 | ¥ | 16,667 | ¥ | 9,722 | ¥ | 26,389 | ¥ | 1,616,009 | ||||||||||||
Housing loans | 1,273,603 | 4,244 | 1,685 | 5,929 | 1,279,532 | |||||||||||||||||
Card loans | 264,559 | 4,102 | 1,346 | 5,448 | 270,007 | |||||||||||||||||
Other | 51,458 | 8,321 | 6,691 | 15,012 | 66,470 | |||||||||||||||||
Corporate borrowers | 1,117,439 | 34,915 | 0 | 34,915 | 1,152,354 | |||||||||||||||||
Non-recourse loans | Japan | 12,555 | 203 | 0 | 203 | 12,758 | ||||||||||||||||
The Americas | 70,139 | 5,829 | 0 | 5,829 | 75,968 | |||||||||||||||||
Other | Real estate companies | 313,947 | 7,212 | 0 | 7,212 | 321,159 | ||||||||||||||||
Entertainment companies | 94,190 | 1,736 | 0 | 1,736 | 95,926 | |||||||||||||||||
Other | 626,608 | 19,935 | 0 | 19,935 | 646,543 | |||||||||||||||||
Purchased loans | 17,352 | 7,443 | 0 | 7,443 | 24,795 | |||||||||||||||||
Direct financing leases | 1,192,424 | 0 | 11,600 | 11,600 | 1,204,024 | |||||||||||||||||
Japan | 839,848 | 0 | 6,442 | 6,442 | 846,290 | |||||||||||||||||
Overseas | 352,576 | 0 | 5,158 | 5,158 | 357,734 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | ¥ | 3,916,835 | ¥ | 59,025 | ¥ | 21,322 | ¥ | 80,347 | ¥ | 3,997,182 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
March 31, 2018 | ||||||||||||||||||||||
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 | ¥ | 1,707,514 | ¥ | 18,911 | ¥ | 12,748 | ¥ | 31,659 | ¥ | 1,739,173 | ||||||||||||
Housing loans | 1,397,217 | 3,544 | 2,077 | 5,621 | 1,402,838 | |||||||||||||||||
Card loans | 258,478 | 4,060 | 1,785 | 5,845 | 264,323 | |||||||||||||||||
Other | 51,819 | 11,307 | 8,886 | 20,193 | 72,012 | |||||||||||||||||
Corporate borrowers | 1,024,233 | 23,130 | 0 | 23,130 | 1,047,363 | |||||||||||||||||
Non-recourse loans | Japan | 18,064 | 254 | 0 | 254 | 18,318 | ||||||||||||||||
The Americas | 51,496 | 3,491 | 0 | 3,491 | 54,987 | |||||||||||||||||
Other | Real estate companies | 326,165 | 2,547 | 0 | 2,547 | 328,712 | ||||||||||||||||
Entertainment companies | 81,726 | 1,588 | 0 | 1,588 | 83,314 | |||||||||||||||||
Other | 546,782 | 15,250 | 0 | 15,250 | 562,032 | |||||||||||||||||
Purchased loans | 13,832 | 5,101 | 0 | 5,101 | 18,933 | |||||||||||||||||
Direct financing leases | 1,182,804 | 0 | 12,084 | 12,084 | 1,194,888 | |||||||||||||||||
Japan | 820,225 | 0 | 5,943 | 5,943 | 826,168 | |||||||||||||||||
Overseas | 362,579 | 0 | 6,141 | 6,141 | 368,720 | |||||||||||||||||
|
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|
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|
|
|
|
|
| |||||||||||||
Total | ¥ | 3,928,383 | ¥ | 47,142 | ¥ | 24,832 | ¥ | 71,974 | ¥ | 4,000,357 | ||||||||||||
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Note: | Loans held for sale are not included in the table above. |
In common with all classes, the Company and its subsidiaries monitor the credit quality indicators as performing andnon-performing assets. The category ofnon-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 ispast-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 asnon-performing assets when considered impaired, while all the other loans are included in the category of performing assets.
Out ofnon-performing assets, the Company and its subsidiaries consider smaller balance homogeneous loans, including housing loans, card loans and other, which are not restructured and direct financing leases, as 90 days or morepast-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 thosenon-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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
The following table provides information about thenon-accrual andpast-due financing receivables as of March 31, 20152017 and 2016:2018:
March 31, 2015 | March 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||
Millions of yen | Millions of yen | |||||||||||||||||||||||||||||||||||||||||||
Past-Due Financing Receivables | 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 | Class | 30-89 days past-due | 90 days or more past-due | Total past-due | Total financing receivables | Non-accrual | ||||||||||||||||||||||||||||||||
Consumer borrowers | ¥ | 3,229 | ¥ | 9,825 | ¥ | 13,054 | ¥ | 1,330,353 | ¥ | 9,825 | ¥ | 6,433 | ¥ | 12,971 | ¥ | 19,404 | ¥ | 1,616,009 | ¥ | 12,971 | ||||||||||||||||||||||||
Housing loans | 1,672 | 6,503 | 8,175 | 1,059,786 | 6,503 | Housing loans | 2,314 | 3,420 | 5,734 | 1,279,532 | 3,420 | |||||||||||||||||||||||||||||||||
Card loans | 704 | 1,202 | 1,906 | 243,225 | 1,202 | Card loans | 518 | 1,825 | 2,343 | 270,007 | 1,825 | |||||||||||||||||||||||||||||||||
Other | 853 | 2,120 | 2,973 | 27,342 | 2,120 | Other | 3,601 | 7,726 | 11,327 | 66,470 | 7,726 | |||||||||||||||||||||||||||||||||
Corporate borrowers | 7,991 | 33,694 | 41,685 | 1,089,796 | 43,697 | 4,902 | 15,224 | 20,126 | 1,152,354 | 24,474 | ||||||||||||||||||||||||||||||||||
Non-recourse loans | Japan | 0 | 4,975 | 4,975 | 41,535 | 4,975 | Japan | 0 | 0 | 0 | 12,758 | 0 | ||||||||||||||||||||||||||||||||
The Americas | 6,639 | 9,846 | 16,485 | 83,233 | 14,716 | The Americas | 4,028 | 4,940 | 8,968 | 75,968 | 5,768 | |||||||||||||||||||||||||||||||||
Other | Real estate companies | 37 | 8,366 | 8,403 | 256,600 | 8,730 | Real estate companies | 37 | 1,867 | 1,904 | 321,159 | 1,867 | ||||||||||||||||||||||||||||||||
Entertainment companies | 0 | 571 | 571 | 106,173 | 571 | Entertainment companies | 0 | 140 | 140 | 95,926 | 140 | |||||||||||||||||||||||||||||||||
Other | 1,315 | 9,936 | 11,251 | 602,255 | 14,705 | Other | 837 | 8,277 | 9,114 | 646,543 | 16,699 | |||||||||||||||||||||||||||||||||
Direct financing leases | 6,142 | 15,373 | 21,515 | 1,216,454 | 15,373 | 4,834 | 11,600 | 16,434 | 1,204,024 | 11,600 | ||||||||||||||||||||||||||||||||||
Japan | 1,877 | 10,293 | 12,170 | 829,885 | 10,293 | Japan | 535 | 6,442 | 6,977 | 846,290 | 6,442 | |||||||||||||||||||||||||||||||||
Overseas | 4,265 | 5,080 | 9,345 | 386,569 | 5,080 | Overseas | 4,299 | 5,158 | 9,457 | 357,734 | 5,158 | |||||||||||||||||||||||||||||||||
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Total | ¥ | 17,362 | ¥ | 58,892 | ¥ | 76,254 | ¥ | 3,636,603 | ¥ | 68,895 | ¥ | 16,169 | ¥ | 39,795 | ¥ | 55,964 | ¥ | 3,972,387 | ¥ | 49,045 | ||||||||||||||||||||||||
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March 31, 2016 | March 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||
Millions of yen | Millions of yen | |||||||||||||||||||||||||||||||||||||||||||
Past-due financing receivables | 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 | Class | 30-89 days past-due | 90 days or more past-due | Total past-due | Total financing receivables | Non-accrual | ||||||||||||||||||||||||||||||||
Consumer borrowers | ¥ | 5,002 | ¥ | 11,348 | ¥ | 16,350 | ¥ | 1,461,982 | ¥ | 11,348 | ¥ | 6,750 | ¥ | 15,740 | ¥ | 22,490 | ¥ | 1,739,173 | ¥ | 15,740 | ||||||||||||||||||||||||
Housing loans | 2,283 | 4,435 | 6,718 | 1,138,054 | 4,435 | Housing loans | 2,560 | 3,340 | 5,900 | 1,402,838 | 3,340 | |||||||||||||||||||||||||||||||||
Card loans | 503 | 1,103 | 1,606 | 260,533 | 1,103 | Card loans | 604 | 2,268 | 2,872 | 264,323 | 2,268 | |||||||||||||||||||||||||||||||||
Other | 2,216 | 5,810 | 8,026 | 63,395 | 5,810 | Other | 3,586 | 10,132 | 13,718 | 72,012 | 10,132 | |||||||||||||||||||||||||||||||||
Corporate borrowers | 3,018 | 18,944 | 21,962 | 1,077,860 | 31,464 | 3,404 | 8,949 | 12,353 | 1,047,363 | 18,326 | ||||||||||||||||||||||||||||||||||
Non-recourse loans | Japan | 0 | 4,776 | 4,776 | 19,951 | 4,776 | Japan | 0 | 0 | 0 | 18,318 | 0 | ||||||||||||||||||||||||||||||||
The Americas | 2,370 | 400 | 2,770 | 61,260 | 5,924 | The Americas | 1,655 | 92 | 1,747 | 54,987 | 3,491 | |||||||||||||||||||||||||||||||||
Other | Real estate companies | 44 | 2,727 | 2,771 | 270,170 | 2,727 | Real estate companies | 346 | 644 | 990 | 328,712 | 1,593 | ||||||||||||||||||||||||||||||||
Entertainment companies | 0 | 145 | 145 | 101,281 | 145 | Entertainment companies | 0 | 760 | 760 | 83,314 | 760 | |||||||||||||||||||||||||||||||||
Other | 604 | 10,896 | 11,500 | 625,198 | 17,892 | Other | 1,403 | 7,453 | 8,856 | 562,032 | 12,482 | |||||||||||||||||||||||||||||||||
Direct financing leases | 6,457 | 12,556 | 19,013 | 1,190,136 | 12,556 | 5,184 | 12,084 | 17,268 | 1,194,888 | 12,084 | ||||||||||||||||||||||||||||||||||
Japan | 500 | 7,918 | 8,418 | 839,125 | 7,918 | Japan | 628 | 5,943 | 6,571 | 826,168 | 5,943 | |||||||||||||||||||||||||||||||||
Overseas | 5,957 | 4,638 | 10,595 | 351,011 | 4,638 | Overseas | 4,556 | 6,141 | 10,697 | 368,720 | 6,141 | |||||||||||||||||||||||||||||||||
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|
|
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| |||||||||||||||||||||||||||||||||||
Total | ¥ | 14,477 | ¥ | 42,848 | ¥ | 57,325 | ¥ | 3,729,978 | ¥ | 55,368 | ¥ | 15,338 | ¥ | 36,773 | ¥ | 52,111 | ¥ | 3,981,424 | ¥ | 46,150 | ||||||||||||||||||||||||
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|
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|
|
Note: | Loans held for sale and purchased loans are not included in the table above. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
In common with all classes, the Company and its subsidiaries consider financing receivables aspast-due financing receivables when principal or interest ispast-due 30 days or more. Loans whose terms have been modified are not classified aspast-due financing receivables if the principals and interests are notpast-due 30 days or more in accordance with the modified terms.
The Company and its subsidiaries suspend accruing revenues onpast-due installment loans and direct financing leases when principal or interest ispast-due 90 days or more, or earlier, if management determines that their collections are doubtful based on factors such as the individual debtor’s creditworthiness, historical loss experience, current delinquencies and delinquency trends. Cash repayments received onnon-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 statusnon-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.
The following table provides information about troubled debt restructurings of financing receivables that occurred during fiscal 2014, 20152016, 2017 and 2016:2018:
March 31, 2014 | ||||||||||||||||||||
Millions of yen | ||||||||||||||||||||
Portfolio segment | Class | Pre-modification Outstanding Recorded Investment | Post-modification Outstanding Recorded Investment | |||||||||||||||||
Consumer borrowers | ¥ | 3,899 | ¥ | 2,586 | ||||||||||||||||
Housing loans | 724 | 334 | ||||||||||||||||||
Card loans | 1,898 | 1,391 | ||||||||||||||||||
Other | 1,277 | 861 | ||||||||||||||||||
Corporate borrowers | 14,135 | 11,097 | ||||||||||||||||||
Non-recourse loans | Japan | 4,745 | 2,608 | |||||||||||||||||
The Americas | 4,809 | 4,723 | ||||||||||||||||||
Other | Real estate companies | 328 | 276 | |||||||||||||||||
Entertainment companies | 779 | 509 | ||||||||||||||||||
Other | 3,474 | 2,981 | ||||||||||||||||||
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| |||||||||||||||||||
Total | ¥ | 18,034 | ¥ | 13,683 | ||||||||||||||||
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| |||||||||||||||||||
March 31, 2015 | March 31, 2016 | |||||||||||||||||||
Millions of yen | Millions of yen | |||||||||||||||||||
Portfolio segment | Class | Pre-modification Outstanding Recorded Investment | Post-modification Outstanding Recorded Investment | Class | Pre-modification outstanding recorded investment | Post-modification outstanding recorded investment | ||||||||||||||
Consumer borrowers | ¥ | 5,504 | ¥ | 4,061 | ¥ | 6,436 | ¥ | 4,890 | ||||||||||||
Housing loans | 483 | 263 | Housing loans | 71 | 23 | |||||||||||||||
Card loans | 2,566 | 2,018 | Card loans | 2,405 | 1,910 | |||||||||||||||
Other | 2,455 | 1,780 | Other | 3,960 | 2,957 | |||||||||||||||
Corporate borrowers | 946 | 891 | 584 | 582 | ||||||||||||||||
Non-recourse loans | The Americas | 145 | 145 | The Americas | 575 | 575 | ||||||||||||||
Other | Other | 801 | 746 | Other | 9 | 7 | ||||||||||||||
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| |||||||||||||||||
Total | ¥ | 6,450 | ¥ | 4,952 | ¥ | 7,020 | ¥ | 5,472 | ||||||||||||
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March 31, 2017 | ||||||||||||||||||||
Millions of yen | ||||||||||||||||||||
Portfolio segment | Class | Pre-modification outstanding recorded investment | Post-modification outstanding recorded investment | |||||||||||||||||
Consumer borrowers | ¥ | 10,721 | ¥ | 8,253 | ||||||||||||||||
Housing loans | 640 | 587 | ||||||||||||||||||
Card loans | 2,120 | 1,687 | ||||||||||||||||||
Other | 7,961 | 5,979 | ||||||||||||||||||
Corporate borrowers | 729 | 693 | ||||||||||||||||||
Other | Other | 729 | 693 | |||||||||||||||||
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| |||||||||||||||||||
Total | ¥ | 11,450 | ¥ | 8,946 | ||||||||||||||||
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
March 31, 2016 | ||||||||||
Millions of yen | ||||||||||
Portfolio segment | Class | Pre-modification Outstanding Recorded Investment | Post-modification Outstanding Recorded Investment | |||||||
Consumer borrowers | ¥6,436 | ¥4,890 | ||||||||
Housing loans | 71 | 23 | ||||||||
Card loans | 2,405 | 1,910 | ||||||||
Other | 3,960 | 2,957 | ||||||||
Corporate borrowers | 584 | 582 | ||||||||
Non-recourse loans | The Americas | 575 | 575 | |||||||
Other | Other | 9 | 7 | |||||||
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| |||||||
Total | ¥7,020 | ¥5,472 | ||||||||
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|
March 31, 2018 | ||||||||||
Millions of yen | ||||||||||
Portfolio segment | Class | Pre-modification outstanding recorded investment | Post-modification outstanding recorded investment | |||||||
Consumer borrowers | ¥ | 9,632 | ¥ | 7,015 | ||||||
Housing loans | 12 | 12 | ||||||||
Card loans | 2,169 | 1,589 | ||||||||
Other | 7,451 | 5,414 | ||||||||
Corporate borrowers | 7,983 | 7,872 | ||||||||
Non-recourse loans | The Americas | 3,460 | 3,460 | |||||||
Other | Other | 4,523 | 4,412 | |||||||
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|
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| |||||||
Total | ¥ | 17,615 | ¥ | 14,887 | ||||||
|
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|
A troubled debt restructuring is defined as a restructuring of a financing receivable in which the creditor grants a concession to the debtor for economic or other reasons related to the debtor’s financial difficulties.
The Company and its subsidiaries offer various types of concessions to our debtors to protect as much of our investment as possible in troubled debt restructurings. For the debtors ofnon-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 thannon-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.
The following table provides information about financing receivables modified as troubled debt restructurings within the previous 12 months from March 31, 2014 and for which there was a payment default during fiscal 2014:
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
The following table provides information about financing receivables modified as troubled debt restructurings within the previous 12 months from March 31, 2015 and for which there was a payment default during fiscal 2015:
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The following table provides information about financing receivables modified as troubled debt restructurings within the previous 12 months from March 31, 2016 and for which there was a payment default during fiscal 2016:
March 31, 2016 | ||||||
Millions of yen | ||||||
Portfolio segment | Class | Recorded | ||||
Consumer borrowers | ¥ | 68 | ||||
Card loans | 45 | |||||
Other | 23 | |||||
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Total | ¥ | 68 | ||||
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|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
The following table provides information about financing receivables modified as troubled debt restructurings within the previous 12 months from March 31, 2017 and for which there was a payment default during fiscal 2017:
March 31, 2017 | ||||||
Millions of yen | ||||||
Portfolio segment | Class | Recorded investment | ||||
Consumer borrowers | ¥ | 1,526 | ||||
Card loans | 47 | |||||
Other | 1,479 | |||||
Total | ¥ | 1,526 | ||||
The following table provides information about financing receivables modified as troubled debt restructurings within the previous 12 months from March 31, 2018 and for which there was a payment default during fiscal 2018:
March 31, 2018 | ||||||
Millions of yen | ||||||
Portfolio segment | Class | Recorded investment | ||||
Consumer borrowers | ¥ | 99 | ||||
Card loans | 25 | |||||
Other | 74 | |||||
Corporate borrowers | 7,872 | |||||
Non-recourse loans | The Americas | 3,460 | ||||
Other | Other | 4,412 | ||||
Total | ¥ | 7,971 | ||||
The Company and its subsidiaries consider financing receivables whose terms have been modified in a restructuring as defaulted receivables when principal or interest ispast-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.
In January 2014, Accounting Standards Update 2014-04(“ReclassificationAs of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure” —ASC 310-40(“Receivables-Troubled Debt Restructurings by Creditors”)) was issued. This Update clarifies when a creditor is considered to have received physical possession resulting from an in substance repossession or foreclosure or residential real estate property collateralizing a consumer mortgage loan. Additionally, this Update requires an entity to disclose the amount ofMarch 31, 2017 and 2018, there were no foreclosed residential real estate property and the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure. The Company and its subsidiaries adopted this Update on April 1, 2015.
As of March 31, 2016, there was no amount of foreclosed residential real estate property based on this Update.properties. The carrying amounts of installment loans in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure is ¥601were ¥324 million and ¥245 million as of March 31, 2016.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
9. Investment in Securities
Investment in securities as of March 31, 20152017 and 20162018 consists of the following:
Millions of yen | Millions of yen | |||||||||||||||
2015 | 2016 | 2017 | 2018 | |||||||||||||
Trading securities* | ¥ | 1,190,131 | ¥ | 725,821 | ¥ | 569,074 | ¥ | 422,053 | ||||||||
Available-for-sale securities | 1,356,840 | 1,347,890 | 1,165,417 | 1,015,477 | ||||||||||||
Held-to-maturity securities | 115,599 | 114,858 | 114,400 | 113,891 | ||||||||||||
Other securities | 183,687 | 156,223 | 177,621 | 178,034 | ||||||||||||
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| |||||||||||||
Total | ¥ | 2,846,257 | ¥ | 2,344,792 | ¥ | 2,026,512 | ¥ | 1,729,455 | ||||||||
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|
* | The amount of assets under management of variable annuity and variable life insurance contracts included in trading securities were |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
Gains and losses realized from the sale of trading securities and net unrealized holding gains (losses) on trading securities are included in net gains on investment securities and life insurance related investment income. For further information, see Note 22 “Gains on investment securitiesInvestment Securities and dividends”Dividends” and Note 23 “Life Insurance Operations.” For fiscal 2014, 2015 and 2016, netNet unrealized holding gains (losses) on trading securities were lossesheld as of ¥3,083 million, gains of ¥137,704 millionMarch 31, 2016, 2017 and 2018 were losses of ¥84,678 million, gains of ¥19,049 million and gains of ¥14,497 million for fiscal 2016, 2017 and 2018, respectively.
During fiscal 2014, 20152016, 2017 and 2016,2018, the Company and its subsidiaries soldavailable-for-sale securities for aggregate proceeds of ¥318,697¥464,232 million, ¥511,868¥549,865 million and ¥464,232¥456,270 million, respectively, resulting in gross realized gains of ¥14,517¥32,593 million, ¥32,206¥33,804 million and ¥32,593¥31,312 million, respectively, and gross realized losses of ¥368¥467 million, ¥129¥3,103 million and ¥467¥596 million, respectively. The cost of the securities sold was based on the average cost of each such securityissue of securities held at the time of the sale.
During fiscal 2014, 20152016, 2017 and 2016,2018, the Company and its subsidiaries charged losses on securities of ¥7,989¥4,515 million, ¥8,997¥6,608 million and ¥4,515¥1,246 million, respectively, to the accompanying consolidated statements of income for declines in market value of securities where the decline was considered as other than temporary.
Other securities consist mainly ofnon-marketable equity securities and preferred capital sharesequity securities carried at cost, and investment funds carried at an amount that reflects equity income and loss based on the investor’s share. The aggregate carrying amount of other securities accounted for under the cost method totaled ¥43,718¥25,597 million and ¥27,349¥27,334 million as of March 31, 20152017 and 2016,2018, respectively. Investments with an aggregate cost of ¥42,838¥25,396 million and ¥27,125¥27,260 million respectively, were not evaluated for impairment because the Company and its subsidiaries did not identify any events or changes in circumstances that might have had a significant adverse effect on the fair value of those investments and it was not practicable to estimate the fair value of the investments.
A certain subsidiary that has newly become a consolidated subsidiary of the company during fiscal 2016 elected the fair value option under ASC 825 (“Financial Instruments”) for investments in foreign government bond securities included inavailable-for-sale securities which asto 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 manage the risk of changes in fair value of these foreign government bond securities. As of March 31, 2016, was2017 and 2018, were fair valued at ¥988 million.
¥1,015 million and ¥719 million, respectively.
A certain subsidiary elected the fair value option under ASC 825 (“Financial Instruments”)for investments in foreign corporate debt securities included inavailable-for-sale 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 manage the risk of changes in fair value of these foreign corporate debt securities. As of March 31, 2017 and 2018, were fair valued at ¥1,026 million and ¥8,882 million, respectively.
A certain subsidiary elected the fair value option for certain investments in equity securities included inavailable-for-sale securities which asto mitigate volatility in the consolidated statements of income caused by the difference in recognition of gain or loss that would otherwise exist between the equity securities and the derivatives used to manage the risk of changes in fair value of these equity securities. As of March 31, 20152017 and 2016,2018, these equity securities were fair valued at ¥8,168¥15,400 million and ¥16,227¥22,365 million, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
Certain subsidiaries elected the fair value option under ASC 825 (“Financial Instruments”) for certain investments in a trust and investment funds included in other securities whose net asset values do not represent the fair value of investments due to the illiquid nature of these investments. The subsidiaries manage these investments on a fair value basis and the election of the fair value option enables the subsidiaries to reflect more appropriate assumptions to measure the fair value of these investments. As of March 31, 20152017 and 2016,2018, the fair values of these investments were ¥8,723¥7,453 million and ¥10,152¥5,665 million, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
The amortized cost basis amounts, gross unrealized holding gains, gross unrealized holding losses and fair values ofavailable-for-sale securities andheld-to-maturity securities in each major security type as of March 31, 20152017 and 20162018 are as follows:
March 31, 20152017
Millions of yen | Millions of yen | |||||||||||||||||||||||||||||||
Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value | Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value | |||||||||||||||||||||||||
Available-for-sale: | ||||||||||||||||||||||||||||||||
Japanese and foreign government bond securities | ¥ | 517,500 | ¥ | 10,127 | ¥ | (35 | ) | ¥ | 527,592 | ¥ | 334,117 | ¥ | 12,321 | ¥ | (826 | ) | ¥ | 345,612 | ||||||||||||||
Japanese prefectural and foreign municipal bond securities | 155,943 | 5,644 | (110 | ) | 161,477 | 166,789 | 3,034 | (1,001 | ) | 168,822 | ||||||||||||||||||||||
Corporate debt securities | 283,859 | 3,891 | (137 | ) | 287,613 | 393,021 | 3,606 | (2,983 | ) | 393,644 | ||||||||||||||||||||||
Specified bonds issued by SPEs in Japan | 7,257 | 54 | (31 | ) | 7,280 | 1,077 | 10 | 0 | 1,087 | |||||||||||||||||||||||
CMBS and RMBS in the Americas | 67,049 | 3,073 | (146 | ) | 69,976 | 95,700 | 3,359 | (558 | ) | 98,501 | ||||||||||||||||||||||
Other asset-backed securities and debt securities | 147,308 | 1,286 | (624 | ) | 147,970 | 61,138 | 3,957 | (378 | ) | 64,717 | ||||||||||||||||||||||
Equity securities | 104,096 | 52,568 | (1,732 | ) | 154,932 | 67,914 | 25,618 | (498 | ) | 93,034 | ||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
1,283,012 | 76,643 | (2,815 | ) | 1,356,840 | 1,119,756 | 51,905 | (6,244 | ) | 1,165,417 | |||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Held-to-maturity: | ||||||||||||||||||||||||||||||||
Japanese government bond securities and other | 115,599 | 14,490 | (112 | ) | 129,977 | 114,400 | 25,323 | 0 | 139,723 | |||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
¥ | 1,398,611 | ¥ | 91,133 | ¥ | (2,927 | ) | ¥ | 1,486,817 | ¥ | 1,234,156 | ¥ | 77,228 | ¥ | (6,244 | ) | ¥ | 1,305,140 | |||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
March 31, 2016 | ||||||||||||||||||||||||||||||||
March 31, 2018
| ||||||||||||||||||||||||||||||||
Millions of yen | Millions of yen | |||||||||||||||||||||||||||||||
Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value | Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value | |||||||||||||||||||||||||
Available-for-sale: | ||||||||||||||||||||||||||||||||
Japanese and foreign government bond securities | ¥ | 464,854 | ¥ | 32,501 | ¥ | 0 | ¥ | 497,355 | ¥ | 271,866 | ¥ | 11,383 | ¥ | (7,439 | ) | ¥ | 275,810 | |||||||||||||||
Japanese prefectural and foreign municipal bond securities | 165,465 | 4,106 | (37 | ) | 169,534 | 160,549 | 3,247 | (560 | ) | 163,236 | ||||||||||||||||||||||
Corporate debt securities | 403,349 | 7,443 | (13 | ) | 410,779 | 368,106 | 2,974 | (4,605 | ) | 366,475 | ||||||||||||||||||||||
Specified bonds issued by SPEs in Japan | 3,422 | 39 | 0 | 3,461 | 854 | 7 | 0 | 861 | ||||||||||||||||||||||||
CMBS and RMBS in the Americas | 97,692 | 1,906 | (2,412 | ) | 97,186 | 72,793 | 2,543 | (1,160 | ) | 74,176 | ||||||||||||||||||||||
Other asset-backed securities and debt securities | 63,079 | 1,744 | (6,593 | ) | 58,230 | 77,974 | 3,413 | (66 | ) | 81,321 | ||||||||||||||||||||||
Equity securities | 85,452 | 33,492 | (7,599 | ) | 111,345 | 49,971 | 5,653 | (2,026 | ) | 53,598 | ||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
1,283,313 | 81,231 | (16,654 | ) | 1,347,890 | 1,002,113 | 29,220 | (15,856 | ) | 1,015,477 | |||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Held-to-maturity: | ||||||||||||||||||||||||||||||||
Japanese government bond securities and other | 114,858 | 30,662 | 0 | 145,520 | 113,891 | 26,933 | 0 | 140,824 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
¥ | 1,398,171 | ¥ | 111,893 | ¥ | (16,654 | ) | ¥ | 1,493,410 | ¥ | 1,116,004 | ¥ | 56,153 | ¥ | (15,856 | ) | ¥ | 1,156,301 | |||||||||||||||
|
|
|
|
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
The following table providestables provide information aboutavailable-for-sale securities and held-to-maturity securities with gross unrealized losses and the length of time that individual securities have been in a continuous unrealized loss position as of March 31, 20152017 and 2016,2018, respectively:
March 31, 2017
March 31, 2015
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: | ||||||||||||||||||||||||
Japanese and foreign government bond securities | ¥ | 5,407 | ¥ | (35 | ) | ¥ | 0 | ¥ | 0 | ¥ | 5,407 | ¥ | (35 | ) | ||||||||||
Japanese prefectural and foreign municipal bond securities | 44,782 | (110 | ) | 0 | 0 | 44,782 | (110 | ) | ||||||||||||||||
Corporate debt securities | 81,108 | (58 | ) | 6,363 | (79 | ) | 87,471 | (137 | ) | |||||||||||||||
Specified bonds issued by SPEs in Japan | 0 | 0 | 1,269 | (31 | ) | 1,269 | (31 | ) | ||||||||||||||||
CMBS and RMBS in the Americas | 9,754 | (31 | ) | 506 | (115 | ) | 10,260 | (146 | ) | |||||||||||||||
Other asset-backed securities and debt securities | 10,950 | (304 | ) | 8,127 | (320 | ) | 19,077 | (624 | ) | |||||||||||||||
Equity securities | 6,640 | (1,723 | ) | 585 | (9 | ) | 7,225 | (1,732 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
158,641 | (2,261 | ) | 16,850 | (554 | ) | 175,491 | (2,815 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Held-to-maturity: | ||||||||||||||||||||||||
Japanese government bond securities and other | 4,889 | (112 | ) | 0 | 0 | 4,889 | (112 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
¥ | 163,530 | ¥ | (2,373 | ) | ¥ | 16,850 | ¥ | (554 | ) | ¥ | 180,380 | ¥ | (2,927 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
March 31, 2016 | ||||||||||||||||||||||||
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: | ||||||||||||||||||||||||
Japanese prefectural and foreign municipal bond securities | ¥ | 14,821 | ¥ | (30 | ) | ¥ | 554 | ¥ | (7 | ) | ¥ | 15,375 | ¥ | (37 | ) | |||||||||
Corporate debt securities | 32,969 | (13 | ) | 1,802 | 0 | 34,771 | (13 | ) | ||||||||||||||||
CMBS and RMBS in the Americas | 55,226 | (2,234 | ) | 5,002 | (178 | ) | 60,228 | (2,412 | ) | |||||||||||||||
Other asset-backed securities and debt securities | 14,220 | (1,857 | ) | 18,846 | (4,736 | ) | 33,066 | (6,593 | ) | |||||||||||||||
Equity securities | 17,040 | (7,550 | ) | 594 | (49 | ) | 17,634 | (7,599 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
¥ | 134,276 | ¥ | (11,684 | ) | ¥ | 26,798 | ¥ | (4,970 | ) | ¥ | 161,074 | ¥ | (16,654 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
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: | ||||||||||||||||||||||||
Japanese and foreign government bond securities | ¥ | 33,991 | ¥ | (826 | ) | ¥ | 0 | ¥ | 0 | ¥ | 33,991 | ¥ | (826 | ) | ||||||||||
Japanese prefectural and foreign municipal bond securities | 36,873 | (696 | ) | 6,202 | (305 | ) | 43,075 | (1,001 | ) | |||||||||||||||
Corporate debt securities | 152,812 | (2,983 | ) | 0 | 0 | 152,812 | (2,983 | ) | ||||||||||||||||
CMBS and RMBS in the Americas | 20,238 | (485 | ) | 9,428 | (73 | ) | 29,666 | (558 | ) | |||||||||||||||
Other asset-backed securities and debt securities | 3,308 | (1 | ) | 3,991 | (377 | ) | 7,299 | (378 | ) | |||||||||||||||
Equity securities | 7,645 | (480 | ) | 787 | (18 | ) | 8,432 | (498 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
¥ | 254,867 | ¥ | (5,471 | ) | ¥ | 20,408 | ¥ | (773 | ) | ¥ | 275,275 | ¥ | (6,244 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
March 31, 2018 | ||||||||||||||||||||||||
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: | ||||||||||||||||||||||||
Japanese and foreign government bond securities | ¥ | 72,523 | ¥ | (5,599 | ) | ¥ | 27,458 | ¥ | (1,840 | ) | ¥ | 99,981 | ¥ | (7,439 | ) | |||||||||
Japanese prefectural and foreign municipal bond securities | 17,208 | (125 | ) | 19,479 | (435 | ) | 36,687 | (560 | ) | |||||||||||||||
Corporate debt securities | 90,216 | (2,011 | ) | 89,573 | (2,594 | ) | 179,789 | (4,605 | ) | |||||||||||||||
CMBS and RMBS in the Americas | 12,798 | (359 | ) | 7,065 | (801 | ) | 19,863 | (1,160 | ) | |||||||||||||||
Other asset-backed securities and debt securities | 4,623 | (56 | ) | 774 | (10 | ) | 5,397 | (66 | ) | |||||||||||||||
Equity securities | 6,505 | (247 | ) | 6,914 | (1,779 | ) | 13,419 | (2,026 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
¥ | 203,873 | ¥ | (8,397 | ) | ¥ | 151,263 | ¥ | (7,459 | ) | ¥ | 355,136 | ¥ | (15,856 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The number of investment securities that were in an unrealized loss position as of March 31, 20152017 and 20162018 were 197325 and 259,320, respectively. The gross unrealized losses on these securities are attributable to a number of factors including changes in interest rates, credit spreads and market trends.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
For debt securities, in the case of the fair value being below the amortized cost, the Company and its subsidiaries consider whether those securities are other-than-temporarily impaired using all available information
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
about their collectability. The Company and its subsidiaries do not consider a debt security to be other-than-temporarily impaired if (1) the Company and its subsidiaries do not intend to sell the debt security, (2) it is not 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 and (3) the present value of estimated cash flows will fully cover the amortized cost of the security. On the other hand, the Company and its subsidiaries consider a debt security to be other-than-temporarily impaired if any of the above mentioned three conditions are not met.
Debt securities with unrealized loss position mainly include CMBSforeign government bond securities and RMBScorporate debt securities in the AmericasJapan and other asset-backed securities.
overseas.
The unrealized loss associated with CMBSgovernment bond securities and RMBScorporate debt securities are primarily due to changes in the Americasmarket interest rate and other asset-backed securities is primarily caused by changes in credit spreadsrisk premium. Considering all available information to assess the collectability of those investments (such as the financial condition of and interest rates. In order to determine whether a credit loss exists,business prospects for the issuers), the Company and its subsidiaries estimate the present value of anticipated cash flows, discounted at the current yield to accrete the security. 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. Then, a credit loss is assessed by comparing the present value of the expected cash flows to the security’s amortized cost basis. Based onbelieve that assessment, the Company and its subsidiaries expectare able to recover the entire amortized cost basis and no credit impairment was identified.of those investments. 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 Company and its subsidiaries do not consider these investments to be other-than-temporarily impaired as ofat March 31, 2016.
2018.
For equity securities with unrealized losses, the Company and its subsidiaries consider various factors to determine whether the decline is other-than-temporary, including the length of time and the extent to which the fair value has been less than the carrying value and the issuer’s specific economic conditions as well as the ability and intent to hold these securities for a period of time sufficient to recover the securities’ carrying amounts. Based on our ongoing monitoring process, the Company and its subsidiaries do not consider these investments to be other-than-temporarily impaired as of March 31, 2016.
2018.
The total other-than-temporary impairment with an offset for the amount of the total other-than-temporary impairment recognized in other comprehensive income (loss) for fiscal 2014, 20152016, 2017 and 20162018 are as follows:
Millions of yen | ||||||||||||
2014 | 2015 | 2016 | ||||||||||
Total other-than-temporary impairment losses | ¥ | 7,992 | ¥ | 9,077 | ¥ | 4,517 | ||||||
Portion of loss recognized in other comprehensive income (before taxes) | (3 | ) | (80 | ) | (2 | ) | ||||||
|
|
|
|
|
| |||||||
Net impairment losses recognized in earnings | ¥ | 7,989 | ¥ | 8,997 | ¥ | 4,515 | ||||||
|
|
|
|
|
|
Millions of yen | ||||||||||||
2016 | 2017 | 2018 | ||||||||||
Total other-than-temporary impairment losses | ¥ | 4,517 | ¥ | 6,608 | ¥ | 1,246 | ||||||
Portion of loss recognized in other comprehensive income (before taxes) | (2 | ) | 0 | 0 | ||||||||
|
|
|
|
|
| |||||||
Net impairment losses recognized in earnings | ¥ | 4,515 | ¥ | 6,608 | ¥ | 1,246 | ||||||
|
|
|
|
|
|
Total other-than-temporary impairment losses for fiscal 2014 mainly2016 and 2018 related to equity securities, debt securities and other securities. Total other-than-temporary impairment losses for fiscal 2015 and 20162017 related to equity securities debt securities and other securities.
During fiscal 2014, other-than-temporary impairment losses related to debt securities are recognized mainly on certain mortgage-backed securities. During fiscal 20152016 and 2016,2018, other-than-temporary impairment losses related to debt securities are recognized mainly on certain other asset-backed securities. Mortgage-backed securities have experienced credit losses due to a decrease in cash flows attributable to significant default and
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
bankruptcies on the underlying loans. Other asset-backed securities have experienced credit losses due to a decline in value of the underlying assets. 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 thenon-credit loss component is recognized in other comprehensive income (loss), net of applicable income taxes. 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 of assumptions such as seniority of the security.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
Roll-forwards of the amount related to credit losses on other-than-temporarily impaired debt securities recognized in earnings according to ASC 320-10-35-34 (“Investments—Debt and Equity Securities—Recognition of Other-Than-Temporary Impairments”) for fiscal 2014, 20152016, 2017 and 20162018 are as follows:
Millions of yen | Millions of yen | |||||||||||||||||||||||
2014 | 2015 | 2016 | 2016 | 2017 | 2018 | |||||||||||||||||||
Beginning | ¥ | 7,809 | ¥ | 1,991 | ¥ | 2,633 | ¥ | 2,633 | ¥ | 1,413 | ¥ | 1,220 | ||||||||||||
Addition during the period: | ||||||||||||||||||||||||
Credit loss for which an other-than-temporary impairment was not previously recognized | 8 | 456 | 0 | |||||||||||||||||||||
Credit loss for which an other-than-temporary impairment was previously recognized | 239 | 282 | 49 | 49 | 0 | 0 | ||||||||||||||||||
Reduction during the period: | ||||||||||||||||||||||||
For securities sold or redeemed | (3,609 | ) | (44 | ) | (604 | ) | (604 | ) | (171 | ) | 0 | |||||||||||||
Due to change in intent to sell or requirement to sell | (2,456 | ) | (52 | ) | (665 | ) | (665 | ) | (22 | ) | (199 | ) | ||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Ending | ¥ | 1,991 | ¥ | 2,633 | ¥ | 1,413 | ¥ | 1,413 | ¥ | 1,220 | ¥ | 1,021 | ||||||||||||
|
|
|
|
|
|
The Company and itsCertain subsidiaries recorded other-than-temporary impairments related to thenon-credit losses arising from foregoing debt securities for CMBS and RMBS in the Americas. These impairments included the amount of unrealized gains or losses for the changes in fair value of the debt securities after recognition of other-than-temporary impairments in earnings. As of March 31, 2014, an unrealized gain of ¥59 million and an unrealized loss of ¥102 million, before taxes, were included and an unrealized gain of ¥38 million and an unrealized loss of ¥65 million, net of taxes, were included in unrealized gains or losses of accumulated other comprehensive income. As of March 31, 2015, an unrealized gain of ¥234 million and an unrealized loss of ¥58 million, before taxes, were included and an unrealized gain of ¥149 million and an unrealized loss of ¥37 million, net of taxes, were included in unrealized gains or losses of accumulated other comprehensive income. As of March 31, 2016, an unrealized gain of ¥61 million and an unrealized loss of ¥6 million, before taxes, were included and an unrealized gain of ¥39 million and an unrealized loss of ¥4 million, net of taxes, were included in unrealized gains or losses of accumulated other comprehensive income.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation As of March 31, 2017, an unrealized gain of ¥57 million, before taxes, were included and Subsidiaries
an unrealized gain of ¥36 million, net of taxes, were included in unrealized gains or losses of accumulated other comprehensive income. As of March 31, 2018, an unrealized gain of ¥42 million, before taxes, were included and an unrealized gain of ¥33 million, net of taxes, were included in unrealized gains or losses of accumulated other comprehensive income. As of March 31, 2017 and 2018, no unrealized loss was included in unrealized gains or losses of accumulated other comprehensive income.
The following is a summary of the contractual maturities of debt securities classified asavailable-for-sale securities andheld-to-maturity securities held as of March 31, 2016:2018:
Available-for-sale securities held as of March 31, 2016:2018:
Millions of yen | Millions of yen | |||||||||||||||
Amortized cost | Fair value | Amortized cost | Fair value | |||||||||||||
Due within one year | ¥ | 98,357 | ¥ | 99,607 | ¥ | 78,856 | ¥ | 79,275 | ||||||||
Due after one to five years | 386,050 | 388,102 | 219,826 | 222,521 | ||||||||||||
Due after five to ten years | 375,770 | 387,105 | 373,031 | 363,490 | ||||||||||||
Due after ten years | 337,684 | 361,731 | 280,429 | 296,593 | ||||||||||||
|
|
|
| |||||||||||||
¥ | 1,197,861 | ¥ | 1,236,545 | ¥ | 952,142 | ¥ | 961,879 | |||||||||
|
|
|
| |||||||||||||
Held-to-maturity securities held as of March 31, 2016: | ||||||||||||||||
Millions of yen | ||||||||||||||||
Amortized cost | Fair value | |||||||||||||||
Due within one year | ¥ | 294 | ¥ | 294 | ||||||||||||
Due after ten years | 114,564 | 145,226 | ||||||||||||||
|
| |||||||||||||||
¥ | 114,858 | ¥ | 145,520 | |||||||||||||
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
Held-to-maturity securities held as of March 31, 2018:
Millions of yen | ||||||||
Amortized cost | Fair value | |||||||
Due after ten years | ¥ | 113,891 | ¥ | 140,824 | ||||
|
|
|
| |||||
¥ | 113,891 | ¥ | 140,824 | |||||
|
|
|
|
Securities not due at a single maturity date, such as mortgage-backed securities, are included in the above table based on their final maturities.
Certain borrowers may have the right to call or prepay obligations. This right may cause actual maturities to differ from the contractual maturities summarized above.
Included in finance revenues in the consolidated statements of income is interest income on investment securities of ¥12,393¥12,712 million, ¥12,391¥14,031 million and ¥12,712¥15,756 million for fiscal 2014, 20152016, 2017 and 2016,2018, respectively.
The Company and aA certain foreign subsidiary acquired debt securities with evidence of deterioration of credit quality at the time of acquisition, and it was not probable the Company and a certain foreign subsidiary werewas able to recover all contractual amounts of those debt securities. In accordance with the provision of ASC 310-30 (“Receivables—Loans and Debt Securities Acquired with Deteriorated Credit Quality”) and ASC 320 (“Investments”), the Company and theThe subsidiary determined the expected future cash flows taking into account historical cash collections for debt securities with similar characteristics as well as expected prepayments and the amount and the timing of undiscounted expected principal, interest and other cash flows for each pool of debt securities. Accretable yield represents the excess of expected future cash flows over carrying value of the debt securities, which is recognized as interest income over the remaining life of the debt securities. For a debt security for which the fair value is less than the amortized cost basis, the Company and a certain foreign subsidiary estimates the present value of cash flows expected to be collected from the security and compares it with the amortized cost basis of the security to determine whether a credit loss exists. If, based on current information and events, the Company and the subsidiary determinedetermines a credit loss exists for that security, an other-than-temporary impairment is considered to have occurred. For a debt security for which an other-than-temporary impairment is considered to have occurred, the Company andsubsidiary recognizes the subsidiary recognize the entire
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
difference between the amortized cost and the fair value in earnings if the Company and the subsidiary intendintends to sell the debt security or it is more likely than not that the Company and the subsidiary will be required to sell the debt security before recovery of its amortized cost basis less any current-period credit loss. On the other hand, if the Company and the subsidiary dodoes not intend to sell the debt security and it is not more likely than not that the Company and the subsidiary will be required to sell the debt security before recovery of its amortized cost basis less any current-period credit loss, the Company and the subsidiary separateseparates the difference between the amortized cost and the fair value of the debt securities into the credit loss component and thenon-credit loss component. The credit loss component is recognized in earnings, and thenon-credit loss component is recognized in other comprehensive income (loss), net of applicable income taxes. The carrying amounts and the nominal value of debt securities acquired with evidence of deterioration of credit quality were ¥851¥18 million and ¥5,595¥355 million as of March 31, 2015,2017, and ¥319¥17 million and ¥1,057¥337 million as of March 31, 2016.2018. The outstanding balance of accretable yield was ¥996¥402 million and ¥743¥298 million as of March 31, 20152017 and 2016,2018, respectively.
10. Securitization Transactions
Transfer of Financial Assets
The Company and its subsidiaries have securitized variousand transferred financial assets such as lease receivables andincluding installment loans (commercial mortgage loans, housing loans and other).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
In the securitization process, these financial assets are transferred to SPEs, such as trusts and special-purpose companies that issue beneficial interests of the securitization trusts and securities backed by the financial assets to investors. The cash flows collected from these assets transferred to the SPEs are then used to repay these asset-backed beneficial interests and securities. As the transferred assets are isolated from the Company and its subsidiaries, the investors and the SPEs have no recourse to other assets of the Company and its subsidiaries in cases where the debtors or the issuers of the transferred financial assets fail to perform under the original terms of those financial assets.
The Company and its subsidiaries often retainhave 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.
In accordance with ASC 860 (“Transfers and Servicing”) and ASC 810 (“Consolidation”), trusts Trusts or SPEs used in securitization transactions have been consolidated if the Company and its subsidiaries are the primary beneficiary of the trusts or 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 2014, 20152016, 2017 and 2016, there was no securitization transaction accounted for as a sale.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
Quantitative information about delinquencies, impaired2018, the amount of installment loans and components of financial assets sold onthat has been derecognized due to new securitization and other assets managed together asloan sales are ¥263,775 million, ¥280,350 million and ¥394,688 million, respectively. For fiscal 2018, gains (losses) from the securitization and loan sales are ¥12,702��million, which is included in finance revenues in the consolidated statements of March 31, 2015 andincome. For fiscal 2016 and quantitative information about net credit loss for fiscal 2014, 20152017, gains (losses) from the securitization and 2016 are as follows:
Total principal amount of receivables | ||||||||
Millions of yen | ||||||||
March 31, 2015 | March 31, 2016 | |||||||
Direct financing leases | ¥ | 1,216,454 | ¥ | 1,190,136 | ||||
Installment loans | 2,478,054 | 2,592,233 | ||||||
|
|
|
| |||||
Assets recorded on the balance sheet | 3,694,508 | 3,782,369 | ||||||
Direct financing leases sold on securitization | 894 | 706 | ||||||
|
|
|
| |||||
Total assets managed together or sold on securitization | ¥ | 3,695,402 | ¥ | 3,783,075 | ||||
|
|
|
| |||||
Principal amount of receivables that are 90 days or more past-due and impaired loans | ||||||||
Millions of yen | ||||||||
March 31, 2015 | March 31, 2016 | |||||||
Direct financing leases | ¥ | 15,373 | ¥ | 12,556 | ||||
Installment loans | 107,669 | 81,771 | ||||||
|
|
|
| |||||
Assets recorded on the balance sheet | 123,042 | 94,327 | ||||||
Direct financing leases sold on securitization | 0 | 0 | ||||||
|
|
|
| |||||
Total assets managed together or sold on securitization | ¥ | 123,042 | ¥ | 94,327 | ||||
|
|
|
|
Credit loss | ||||||||||||
Millions of yen | ||||||||||||
2014 | 2015 | 2016 | ||||||||||
Direct financing leases | ¥ | 4,351 | ¥ | 3,774 | ¥ | 4,062 | ||||||
Installment loans | 23,765 | 22,019 | 13,442 | |||||||||
|
|
|
|
|
| |||||||
Assets recorded on the balance sheet | 28,116 | 25,793 | 17,504 | |||||||||
Direct financing leases sold on securitization | 0 | 0 | 0 | |||||||||
|
|
|
|
|
| |||||||
Total assets managed together or sold on securitization | ¥ | 28,116 | ¥ | 25,793 | ¥ | 17,504 | ||||||
|
|
|
|
|
|
loan sales were not material.
A certain subsidiary originates and sells loans into the secondary market while retaining the obligation to service those loans. In addition, itthe 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 balancesamount of these servicing assets as of March 31, 2015 and 2016 were ¥18,376 million and ¥16,852 million, respectively. During fiscal 2015 and 2016, the servicing assets were increased by ¥3,410 millionduring fiscal 2017 and ¥4,077 million, respectively, mainly from loans sold with servicing retained2018 are as follows:
Millions of yen | ||||||||
2017 | 2018 | |||||||
Beginning balance | ¥ | 16,852 | ¥ | 17,303 | ||||
Increase mainly from loans sold with servicing retained | 4,118 | 16,983 | ||||||
Decrease mainly from amortization | (3,625 | ) | (4,019 | ) | ||||
Decrease from the effects of changes in foreign exchange rates | (42 | ) | (1,511 | ) | ||||
|
|
|
| |||||
Ending balance | ¥ | 17,303 | ¥ | 28,756 | ||||
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and decreased by ¥4,703 million and ¥4,467 million, respectively, mainly from amortization and increased by ¥2,758 million and decreased by ¥1,134 million, respectively, from the effects of changes in foreign exchange rates. Subsidiaries
The fair value of the servicing assets as of March 31, 20152017 and 2016 were ¥27,676 million and ¥24,229 million, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)2018 are as follows:
Millions of yen | ||||||||
March 31, 2017 | March 31, 2018 | |||||||
Beginning balance | ¥ | 24,229 | ¥ | 24,907 | ||||
Ending balance | ¥ | 24,907 | ¥ | 35,681 |
ORIX Corporation and Subsidiaries
11. Variable Interest Entities
The Company and its subsidiaries use special purpose companies, partnerships and trusts (hereinafter referred to as 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 referred to as VIE) among those SPEs. ASC 810 (“Consolidation”) addresses consolidation by business enterprises of SPEs within the scope of ASC 810. Generally these SPEs are entities wherewhen (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. Entities within the scope of ASC 810 are called VIEs.
According to ASC 810, theThe Company and its subsidiaries are required to 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
The obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE
All facts and circumstances are taken into consideration when determining whether the Company and its subsidiaries have variable interests that would deem it the primary beneficiary and therefore require consolidation of the VIE. The Company and its subsidiaries make ongoing reassessment of whether they are the primary beneficiaries of a VIE.
The following are the itemsfactors 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
The entity’s purpose and design, including the risks that the entity was designed to create and pass through to its variable interest holders
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
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
Providing liquidity and other financial support
The Company and its subsidiaries do not have the power to direct activities of the VIEs that most significantly impact the VIEs’ economic performance if that power is shared among multiple unrelated parties, and accordingly do not consolidate such VIEs.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
Information aboutInformationabout VIEs (consolidated andnon-consolidated) for the Company and its subsidiaries are as follows:
1. | Consolidated VIEs |
March 31, 20152017
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 | 1,036 | 123 | 0 | 0 | ||||||||||||
(c) VIEs for acquisition of real estate for the Company and its subsidiaries’ real estate-related business | 223,069 | 65,017 | 135,723 | 7,000 | ||||||||||||
(d) VIEs for corporate rehabilitation support business | 4,366 | 34 | 0 | 0 | ||||||||||||
(e) VIEs for investment in securities | 21,027 | 8,064 | 12,928 | 23,974 | ||||||||||||
(f) VIEs for securitizing financial assets such as direct financing lease receivable and loan receivable | 393,502 | 250,402 | 325,236 | 0 | ||||||||||||
(g) VIEs for securitization of loan receivable originated by third parties | 36,452 | 43,280 | 36,452 | 0 | ||||||||||||
(h) VIEs for power generation projects | 84,242 | 31,236 | 30,227 | 173,560 | ||||||||||||
(i) Other VIEs | 202,708 | 99,545 | 187,065 | 0 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | ¥ | 966,402 | ¥ | 497,701 | ¥ | 727,631 | ¥ | 204,534 | ||||||||
|
|
|
|
|
|
|
| |||||||||
March 31, 2016
| ||||||||||||||||
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 | 953 | 0 | 0 | 0 | ||||||||||||
(c) VIEs for acquisition of real estate for the Company and its subsidiaries’ real estate-related business | 174,854 | 56,325 | 113,869 | 7,000 | ||||||||||||
(d) VIEs for corporate rehabilitation support business | 2,055 | 40 | 0 | 0 | ||||||||||||
(e) VIEs for investment in securities | 24,882 | 9,657 | 17,336 | 2,422 | ||||||||||||
(f) VIEs for securitizing financial assets such as direct financing lease receivable and loan receivable | 381,313 | 256,620 | 346,169 | 0 | ||||||||||||
(g) VIEs for securitization of loan receivable originated by third parties | 21,550 | 20,548 | 21,550 | 0 | ||||||||||||
(h) VIEs for power generation projects | 159,593 | 82,535 | 88,119 | 121,390 | ||||||||||||
(i) Other VIEs | 216,632 | 97,979 | 213,466 | 0 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | ¥ | 981,832 | ¥ | 523,704 | ¥ | 800,509 | ¥ | 130,812 | ||||||||
|
|
|
|
|
|
|
|
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 | 663 | 0 | 0 | 0 | ||||||||||||
(c) VIEs for acquisition of real estate for the Company and its subsidiaries’ real estate-related business | 127,425 | 39,877 | 75,382 | 7,000 | ||||||||||||
(d) VIEs for corporate rehabilitation support business | 1,544 | 16 | 0 | 0 | ||||||||||||
(e) VIEs for investment in securities | 50,411 | 2,027 | 5,567 | 1,995 | ||||||||||||
(f) VIEs for securitizing financial assets such as direct financing lease receivable and loan receivable | 338,138 | 228,935 | 307,315 | 0 | ||||||||||||
(g) VIEs for securitization of loan receivable originated by third parties | 18,683 | 17,202 | 18,683 | 0 | ||||||||||||
(h) VIEs for power generation projects | 212,153 | 111,404 | 127,993 | 84,227 | ||||||||||||
(i) Other VIEs | 202,386 | 72,447 | 168,353 | 0 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | ¥ | 951,403 | ¥ | 471,908 | ¥ | 703,293 | ¥ | 93,222 | ||||||||
|
|
|
|
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
March 31, 2018
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 | 2,181 | 0 | 0 | 0 | ||||||||||||
(c) VIEs for acquisition of real estate for the Company and its subsidiaries’ real estate-related business | 103,288 | 27,892 | 46,860 | 0 | ||||||||||||
(d) VIEs for corporate rehabilitation support business | 1,057 | 49 | 0 | 0 | ||||||||||||
(e) VIEs for investment in securities | 42,456 | 60 | 60 | 0 | ||||||||||||
(f) VIEs for securitizing financial assets such as direct financing lease receivable and loan receivable | 116,665 | 72,219 | 89,103 | 0 | ||||||||||||
(g) VIEs for securitization of loan receivable originated by third parties | 9,783 | 10,425 | 9,783 | 0 | ||||||||||||
(h) VIEs for power generation projects | 236,367 | 117,906 | 138,159 | 85,371 | ||||||||||||
(i) Other VIEs | 177,373 | 67,592 | 161,729 | 0 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | ¥ | 689,170 | ¥ | 296,143 | ¥ | 445,694 | ¥ | 85,371 | ||||||||
|
|
|
|
|
|
|
|
*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, 2017
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 |
¥ |
8,671 |
|
¥ |
0 |
|
¥ |
991 |
|
¥ |
991 |
| ||||
(b) VIEs for acquisition of real estate and real estate development projects for customers | 96,187 | 0 | 11,130 | 11,194 | ||||||||||||
(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 | 30,299,519 | 0 | 80,211 | 109,310 | ||||||||||||
(f) VIEs for securitizing financial assets such as direct financing lease receivable and loan receivable | 0 | 0 | 0 | 0 | ||||||||||||
(g) VIEs for securitization of loan receivable originated by third parties | 1,744,471 | 0 | 18,448 | 18,483 | ||||||||||||
(h) VIEs for power generation projects | 12,414 | 0 | 1,719 | 3,729 | ||||||||||||
(i) Other VIEs | 319,520 | 4,864 | 17,963 | 25,260 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | ¥ | 32,480,782 | ¥ | 4,864 | ¥ | 130,462 | ¥ | 168,967 | ||||||||
|
|
|
|
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
March 31, 20152018
Millions of yen | ||||||||||||||||
Carrying amount of the variable interests in the VIEs held by the Company and its subsidiaries | ||||||||||||||||
Types of VIEs | Total assets | Specified bonds and non-recourse loans | Investments | Maximum exposure to loss* | ||||||||||||
(a) VIEs for liquidating customer assets | ¥ | 32,421 | ¥ | 0 | ¥ | 2,091 | ¥ | 9,551 | ||||||||
(b) VIEs for acquisition of real estate and real estate development projects for customers | 325,429 | 14,084 | 26,283 | 50,017 | ||||||||||||
(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 | 3,038,819 | 0 | 28,584 | 55,940 | ||||||||||||
(f) VIEs for securitizing financial assets such as direct financing lease receivable and loan receivable | 0 | 0 | 0 | 0 | ||||||||||||
(g) VIEs for securitization of loan receivable originated by third parties | 1,100,830 | 0 | 8,064 | 8,139 | ||||||||||||
(h) VIEs for power generation projects | 0 | 0 | 0 | 0 | ||||||||||||
(i) Other VIEs | 26,894 | 14 | 3,038 | 3,052 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | ¥ | 4,524,393 | ¥ | 14,098 | ¥ | 68,060 | ¥ | 126,699 | ||||||||
|
|
|
|
|
|
|
| |||||||||
March 31, 2016
|
| |||||||||||||||
Millions of yen | ||||||||||||||||
Total assets | Carrying amount of the variable interests in the VIEs held by the Company and its subsidiaries |
| ||||||||||||||
Types of VIEs | Specified bonds and non-recourse loans | Investments | Maximum exposure to loss* | |||||||||||||
(a) VIEs for liquidating customer assets | ¥ | 33,406 | ¥ | 0 | ¥ | 2,091 | ¥ | 9,551 | ||||||||
(b) VIEs for acquisition of real estate and real estate development projects for customers | 170,001 | 4,776 | 13,039 | 24,964 | ||||||||||||
(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 | 2,964,616 | 0 | 26,174 | 47,636 | ||||||||||||
(f) VIEs for securitizing financial assets such as direct financing lease receivable and loan receivable | 0 | 0 | 0 | 0 | ||||||||||||
(g) VIEs for securitization of loan receivable originated by third parties | 1,070,683 | 0 | 10,671 | 10,721 | ||||||||||||
(h) VIEs for power generation projects | 20,007 | 0 | 1,182 | 1,182 | ||||||||||||
(i) Other VIEs | 104,284 | 0 | 4,868 | 4,868 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | ¥ | 4,362,997 | ¥ | 4,776 | ¥ | 58,025 | ¥ | 98,922 | ||||||||
|
|
|
|
|
|
|
|
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 |
¥ |
8,602 |
|
¥ |
0 |
|
¥ |
991 |
|
¥ |
991 |
| ||||
(b) VIEs for acquisition of real estate and real estate development projects for customers | 35,812 | 0 | 2,424 | 2,424 | ||||||||||||
(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 | 19,170,411 | 0 | 75,336 | 108,678 | ||||||||||||
(f) VIEs for securitizing financial assets such as direct financing lease receivable and loan receivable | 0 | 0 | 0 | 0 | ||||||||||||
(g) VIEs for securitization of loan receivable originated by third parties | 1,355,962 | 0 | 16,653 | 16,670 | ||||||||||||
(h) VIEs for power generation projects | 29,539 | 0 | 1,920 | 1,920 | ||||||||||||
(i) Other VIEs | 467,259 | 3,732 | 23,484 | 29,813 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | ¥ | 21,067,585 | ¥ | 3,732 | ¥ | 120,808 | ¥ | 160,496 | ||||||||
|
|
|
|
|
|
|
|
* | 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. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
(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, borrownon-recourse loans from financial institutions and have an equity investment made by the customer. By using cash flows from the liquidated assets, these VIEs repay the loan and pay dividends to equity investors if sufficient funds exist.
Variable interests ofnon-consolidated VIEs, which the Company and its subsidiaries have, are mainly included in other assets 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.
(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 providenon-recourse loans to such VIEs and hold specified bonds issued by them and/or make investments in them. The Company and its subsidiaries have consolidated certain VIEs because the Company or its subsidiary effectively controls the VIEs by acting as the asset manager of the VIEs.
In the Company’s consolidated balance sheets, assets of consolidated VIEs are mainly included in investment in affiliates.cash and cash equivalents.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
With respect to the variableVariable interests ofnon-consolidated VIEs, which the Company and its subsidiaries have, specified bonds are included in investment in securities, 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 have commitment agreements by which the Company and its subsidiaries may be required to provide additional investment in certain non-consolidated VIEs as long as the agreed-upon terms are met. Under these agreements, the Company and its subsidiaries are committed to invest in these VIEs with the other investors based on their respective ownership percentages. The Company and its subsidiaries concluded that the VIEs are not consolidated because the power to direct these VIEs is held by unrelated parties. In some cases, the Company and its subsidiaries concluded that the VIEs are not consolidated because the power to direct these VIEs is shared among multiple unrelated parties.
(c) VIEs for acquisition of real estate for the Company and its subsidiaries’ real estate-related business
The Company and its subsidiaries establish VIEs and acquire real estate to borrownon-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.
The Company and its subsidiaries contributed additional funding to certain consolidated VIEs, since those VIEs had difficulty repaying debt and accounts payable. The amount of the additional funding for fiscal 2015 was ¥5,628 million. There was no additional funding or acquisition of subordinated interests during fiscal 2016.
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, 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. The Company has a commitment agreement by which the Company may be required to make additional investment in certain such consolidated VIEs.
(d) VIEs for corporate rehabilitation support business
Financial institutions, the Company and its subsidiary 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 subsidiary consolidated such VIEs since the Company and the subsidiary 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.
The CompanyCertain subsidiaries consolidated certain such VIEs since the Companysubsidiaries has the majority of the investment share of them, and has 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 long-term debt. A subsidiary has a commitment agreement by which the subsidiary may be required to make additional investment in certain such consolidated VIEs.trade notes, accounts and other payable.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
Variable interests ofnon-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 a commitment agreementagreements by which the Company and its subsidiaries may be required to make additional investment in certain suchnon-consolidated VIEs.
(f) VIEs for securitizing financial assets such as direct financing lease receivable and loan receivable
The Company and its subsidiaries use VIEs to securitize financial assets such as direct financing leases 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
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, investment in direct financing leases and installment loans, and liabilities of those consolidated VIEs are mainly included in long-term debt.
(g) VIEs for securitization of loan receivable originated by third parties
The Company and its subsidiaries invest in CMBS, RMBS and other asset-backed securities originated by third parties. In some cases of such securitization, certain subsidiaries hold the subordinated portion and the subsidiaries act as a special-servicer of the securitization transaction. As the special servicer, the subsidiaries have rights to dispose of real estate collateral related to the securitized commercial mortgage loans.
The subsidiaries consolidate certain of these VIEs when the subsidiaries have the power to direct the activities of the VIEs that most significantly impact the entities’ economic performance through its role as special-servicer, including the right to dispose of the collateral, and have a responsibility to absorb losses of the VIEs that could potentially be significant to the entities by holding the subordinated part of the securities.
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 long-term debt.
Variable interests ofnon-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 suchnon-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, installconstruct solar panelspower stations and thermal 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.
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 long-term debt. The Company hasand a certain subsidiary have commitment agreements by which the Company and its subsidiaries may be required to make additional investment or execute loans in certain such consolidated VIEs.
Variable interests ofnon-consolidated VIEs, which the Company has, isare included in investment in securitiesaffiliates 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 andnon-consolidated VIEs of this category are mainly kumiai structures. In addition, certain subsidiaries hashave 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and 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 means 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 anon-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 to finance. The Company transfers its own held assets to SPEs, which borrownon-recourse loan from financial institutions and effectively pledge such assets as collateral. The Company continually holds subordinated interests in the SPEs and performperforms 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, and office facilities and other assets, and liabilities of those consolidated VIEs are mainly included in long-term debt.
Variable interests innon-consolidated VIEs, which the Company and its subsidiaries hold,have,non-recourse loans are included in installment loans, and investments are mainly included in installment loansinvestment in securities in the
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
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 suchnon-consolidated VIEs.
12. Investment in Affiliates
Investment in affiliates at March 31, 20152017 and 20162018 consists of the following:
Millions of yen | ||||||||
2015 | 2016 | |||||||
Shares | ¥ | 368,989 | ¥ | 499,922 | ||||
Loans | 9,098 | 30,745 | ||||||
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| |||||
¥ | 378,087 | ¥ | 530,667 | |||||
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Millions of yen | ||||||||
2017 | 2018 | |||||||
Shares | ¥ | 485,386 | ¥ | 531,481 | ||||
Loans and others | 38,848 | 59,882 | ||||||
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| |||||
¥ | 524,234 | ¥ | 591,363 | |||||
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|
|
Certain affiliates are listed on stock exchanges. The aggregate investment in and quoted market value of those affiliates amounted to ¥38,916¥127,121 million and ¥50,244¥159,867 million, respectively, as of March 31, 20152017 and ¥110,121¥176,216 million and ¥110,568¥225,569 million, respectively, as of March 31, 2016.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
2018.
In fiscal 2014, 20152016, 2017 and 2016,2018, the Company and its subsidiaries received dividends from affiliates of ¥9,957¥30,063 million, ¥18,186¥14,913 million and ¥30,063¥47,688 million, respectively.
TheIn the Company’s consolidated balance sheets, the book value of excess of costinvestment in affiliates over the underlying equity at acquisition datesin the net assets of investment insuch affiliates amounted to ¥50,977as of date of the most recent available financial statements of the investees were ¥96,649 million and ¥101,289¥95,575 million as of March 31, 20152017 and 2018, respectively. The differences mainly consist of goodwill and fair value adjustments for fixed assets.
From fiscal 2016, respectively.
Thethe Company no longer has the ability to exercise significant influence on ORIX JREIT Inc., and therefore has excluded ORIX JREIT Inc. from investment in affiliates accounted for by using the equity method. The transactions during the period accounted for by the equity method are described below.
ORIX JREIT Inc., formerly an equity method affiliate, entered into an asset management agreement and the like with one of the Company’s subsidiaries and paid fees of ¥1,905 million, ¥2,433 million and ¥1,937 million for fiscal 2014, 2015 and 2016, respectively.
2016.
In fiscal 2014, 2015 and 2016, the Company and certain subsidiaries sold to ORIX JREIT Inc., office buildings, commercial facilities other than office buildings, and condominiums mainly under operating leases. In fiscal 2014, 2015 and 2016, the Company and the subsidiaries recognized gains of ¥2,261 million, ¥10,473 million and ¥1,744 million respectively in earnings as operating leases.leases revenues. The related intercompany profits have been eliminated based on the Company’s proportionate share.
Combined and condensed information relating to the affiliates for fiscal 2014, 20152016, 2017 and 20162018 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 | Millions of yen | |||||||||||||||||||||||
2014 | 2015 | 2016 | 2016 | 2017 | 2018 | |||||||||||||||||||
Operations: | ||||||||||||||||||||||||
Total revenues | ¥ | 1,086,818 | ¥ | 1,094,317 | ¥ | 1,333,838 | ¥ | 1,333,838 | ¥ | 1,394,872 | ¥ | 1,871,156 | ||||||||||||
Income before income taxes | 137,698 | 130,799 | 177,535 | 177,535 | 154,162 | 245,408 | ||||||||||||||||||
Net income | 91,200 | 109,865 | 141,964 | 141,964 | 109,183 | 210,443 | ||||||||||||||||||
Financial position: | ||||||||||||||||||||||||
Total assets | ¥ | 5,704,862 | ¥ | 6,897,921 | ¥ | 8,350,901 | ¥ | 8,350,901 | ¥ | 8,452,544 | ¥ | 9,391,445 | ||||||||||||
Total liabilities | 4,562,871 | 5,131,402 | 6,206,321 | 6,206,321 | 6,075,513 | 6,717,326 | ||||||||||||||||||
Total equity | 1,141,991 | 1,766,519 | 2,144,580 | 2,144,580 | 2,377,031 | 2,674,119 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
The Company and its subsidiaries had no significant transactions with these companies except as described above.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
13. Goodwill and Other Intangible Assets
Changes in goodwill by reportable segment for fiscal 2014, 20152016, 2017 and 20162018 are as follows:
Millions of yen | Millions of yen | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Corporate Financial Services | Maintenance Leasing | Real Estate | Investment and Operation | Retail | Overseas Business | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2013 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill | ¥ | 754 | ¥ | 282 | ¥ | 19,329 | ¥ | 11,751 | ¥ | 15,424 | ¥ | 79,085 | ¥ | 126,625 | ||||||||||||||||||||||||||||||||||||||||||
Accumulated impairment losses | (257 | ) | 0 | 0 | (39 | ) | 0 | 0 | (296 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
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497 | 282 | 19,329 | 11,712 | 15,424 | 79,085 | 126,329 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Acquired | 550 | 0 | 0 | 14,388 | 0 | 169,307 | 184,245 | |||||||||||||||||||||||||||||||||||||||||||||||||
Impairment | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||
Other (net) * | 0 | 0 | (29 | ) | 111 | 0 | 25,251 | 25,333 | ||||||||||||||||||||||||||||||||||||||||||||||||
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Balance at March 31, 2014 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill | 1,304 | 282 | 19,300 | 26,250 | 15,424 | 273,643 | 336,203 | |||||||||||||||||||||||||||||||||||||||||||||||||
Accumulated impairment losses | (257 | ) | 0 | 0 | (39 | ) | 0 | 0 | (296 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
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1,047 | 282 | 19,300 | 26,211 | 15,424 | 273,643 | 335,907 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Acquired | 53,741 | 0 | 0 | 17,967 | 0 | 12,043 | 83,751 | |||||||||||||||||||||||||||||||||||||||||||||||||
Impairment | (550 | ) | 0 | (8,708 | ) | 0 | 0 | (587 | ) | (9,845 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Other (net)* | 0 | 0 | (97 | ) | (376 | ) | 0 | (36,725 | ) | (37,198 | ) | |||||||||||||||||||||||||||||||||||||||||||||
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| Corporate Financial Services | Maintenance Leasing | Real Estate | Investment and Operation | Retail | Overseas Business | Total | |||||||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill | 55,045 | 282 | 19,203 | 43,841 | 15,424 | 248,961 | 382,756 | ¥ | 55,045 | ¥ | 282 | ¥ | 19,203 | ¥ | 43,841 | ¥ | 15,424 | ¥ | 248,961 | ¥ | 382,756 | |||||||||||||||||||||||||||||||||||
Accumulated impairment losses | (807 | ) | 0 | (8,708 | ) | (39 | ) | 0 | (587 | ) | (10,141 | ) | (807 | ) | 0 | (8,708 | ) | (39 | ) | 0 | (587 | ) | (10,141 | ) | ||||||||||||||||||||||||||||||||
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54,238 | 282 | 10,495 | 43,802 | 15,424 | 248,374 | 372,615 | 54,238 | 282 | 10,495 | 43,802 | 15,424 | 248,374 | 372,615 | |||||||||||||||||||||||||||||||||||||||||||
Acquired | 1,158 | 0 | 0 | 29,365 | 0 | 3,796 | 34,319 | 1,158 | 0 | 0 | 29,365 | 0 | 3,796 | 34,319 | ||||||||||||||||||||||||||||||||||||||||||
Impairment | (30 | ) | 0 | 0 | 0 | 0 | 0 | (30 | ) | (30 | ) | 0 | 0 | 0 | 0 | 0 | (30 | ) | ||||||||||||||||||||||||||||||||||||||
Other (net)* | 0 | 0 | 0 | (6,260 | ) | 0 | (68,491 | ) | (74,751 | ) | 0 | 0 | 0 | (6,260 | ) | 0 | (68,491 | ) | (74,751 | ) | ||||||||||||||||||||||||||||||||||||
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Balance at March 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill | 56,203 | 282 | 19,203 | 66,946 | 15,424 | 184,266 | 342,324 | 56,203 | 282 | 19,203 | 66,946 | 15,424 | 184,266 | 342,324 | ||||||||||||||||||||||||||||||||||||||||||
Accumulated impairment losses | (837 | ) | 0 | (8,708 | ) | (39 | ) | 0 | (587 | ) | (10,171 | ) | (837 | ) | 0 | (8,708 | ) | (39 | ) | 0 | (587 | ) | (10,171 | ) | ||||||||||||||||||||||||||||||||
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| 55,366 | 282 | 10,495 | 66,907 | 15,424 | 183,679 | 332,153 | |||||||||||||||||||||||||||||||||||||||||||
Acquired | 0 | 0 | 0 | 26,316 | 0 | 7,054 | 33,370 | |||||||||||||||||||||||||||||||||||||||||||||||||
Impairment | 0 | 0 | 0 | 0 | 0 | (2,785 | ) | (2,785 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Other (net)* | 0 | 0 | (31 | ) | (11,342 | ) | 0 | (10,187 | ) | (21,560 | ) | |||||||||||||||||||||||||||||||||||||||||||||
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Balance at March 31, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill | 56,203 | 282 | 19,172 | 81,920 | 15,424 | 181,133 | 354,134 | |||||||||||||||||||||||||||||||||||||||||||||||||
Accumulated impairment losses | (837 | ) | 0 | (8,708 | ) | (39 | ) | 0 | (3,372 | ) | (12,956 | ) | ||||||||||||||||||||||||||||||||||||||||||||
55,366 | 282 | 10,464 | 81,881 | 15,424 | 177,761 | 341,178 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Acquired | 0 | 9,258 | 0 | 13,517 | 0 | 20,158 | 42,933 | |||||||||||||||||||||||||||||||||||||||||||||||||
Impairment | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||
Other (net)* | 0 | 0 | 0 | (20,673 | ) | 0 | 5,187 | (15,486 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
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Balance at March 31, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill | 56,203 | 9,540 | 19,172 | 74,764 | 15,424 | 206,478 | 381,581 | |||||||||||||||||||||||||||||||||||||||||||||||||
Accumulated impairment losses | (837 | ) | 0 | (8,708 | ) | (39 | ) | 0 | (3,372 | ) | (12,956 | ) | ||||||||||||||||||||||||||||||||||||||||||||
¥ | 55,366 | ¥ | 282 | ¥ | 10,495 | ¥ | 66,907 | ¥ | 15,424 | ¥ | 183,679 | ¥ | 332,153 |
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| ¥ | 55,366 | ¥ | 9,540 | ¥ | 10,464 | ¥ | 74,725 | ¥ | 15,424 | ¥ | 203,106 | ¥ | 368,625 | ||||||||||||||||||||||||||||||||||||
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* | 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 noan impairment losses on goodwill during fiscal 2014. The Company and its subsidiaries recognized impairment losses on goodwill of
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
¥550 million in Corporate Financial Services segment, ¥8,708 million on golf business included in Real Estate segment, ¥587 million in Overseas Business segment during fiscal 2015. These impairment losses are accounted in other (income) and expense, net. The impairment loss on golf business was recognized as a result of reduction in estimated future cash flow due to our additional capital investment in the slower market growth, which brought the fair value of the reporting unit below its carrying amount. The Company and its subsidiaries recognized impairment losses on goodwill of ¥30 million in Corporate Financial Services segment during fiscal 2016. TheThis impairment losses are accountedloss is included in other (income) and expense, net.net in the consolidated statements of income. The fair values of the reporting units were measured using mainly the discounted cash flow methodologies and the business enterprise value multiples methodologies. The Company and its subsidiaries recognized an impairment loss on goodwill of ¥2,785 million in Overseas Business segment during fiscal 2017. This impairment loss is included in other
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
(income) and expense, net in the consolidated statements of income. This impairment loss was recognized as a result of reduction in the fair value of an overseas subsidiary due to increases in the credit losses from installment loans, which brought the fair value of the reporting unit below its carrying amount.
The Company and its subsidiaries recognized no impairment loss on goodwill during fiscal 2018.
Other intangible assets at March 31, 20152017 and 20162018 consist of the following:
Millions of yen | ||||||||
2015 | 2016 | |||||||
Intangible assets that have indefinite useful lives: | ||||||||
Trade names | ¥ | 99,395 | ¥ | 75,860 | ||||
Asset management contracts | 153,778 | 150,686 | ||||||
Others | 2,812 | 3,906 | ||||||
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255,985 | 230,452 | |||||||
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Intangible assets subject to amortization: | ||||||||
Software | 99,342 | 94,898 | ||||||
Customer relationships | 126,201 | 125,081 | ||||||
Others | 33,071 | 32,388 | ||||||
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258,614 | 252,367 | |||||||
Accumulated amortization | (89,587 | ) | (96,485 | ) | ||||
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Net | 169,027 | 155,882 | ||||||
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¥ | 425,012 | ¥ | 386,334 | |||||
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|
Millions of yen | ||||||||
2017 | 2018 | |||||||
Intangible assets that have indefinite useful lives: | ||||||||
Trade names | ¥ | 74,489 | ¥ | 80,844 | ||||
Asset management contracts | 141,352 | 154,014 | ||||||
Others | 6,395 | 8,311 | ||||||
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222,236 | 243,169 | |||||||
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Intangible assets subject to amortization: | ||||||||
Software | 89,714 | 99,315 | ||||||
Customer relationships | 117,716 | 121,385 | ||||||
Others | 73,866 | 89,028 | ||||||
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281,296 | 309,728 | |||||||
Accumulated amortization | (107,481 | ) | (113,797 | ) | ||||
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| |||||
Net | 173,815 | 195,931 | ||||||
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¥ | 396,051 | ¥ | 439,100 | |||||
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The aggregate amortization expenses for intangible assets are ¥17,467¥25,848 million, ¥23,164¥26,252 million and ¥25,848¥30,959 million in fiscal 2014, 20152016, 2017 and 2016,2018, respectively.
The estimated amortization expenses for each of five succeeding fiscal years are ¥24,540 million in fiscal 2017, ¥21,143 million in fiscal 2018, ¥19,072¥30,277 million in fiscal 2019, ¥17,551¥28,419 million in fiscal 2020, and ¥13,352¥23,379 million in fiscal 2021, ¥20,657 million in fiscal 2022 and ¥15,729 million in fiscal 2023, respectively.
Intangible assets subject to amortization increased during fiscal 20162018 are ¥29,010¥52,940 million. They mainly consist of ¥10,094¥20,695 million of software and ¥7,973¥13,441 million of customer relationships recognized in acquisitions. The weighted average amortization periods for the software and the customer relationships recognized in acquisitions are 65 years and 1012 years, respectively.
As a result of the impairment test, the Company and its subsidiaries recognized noan impairment losses on intangible assets during fiscal 2014. The Company and its subsidiaries recognized impairment losses of ¥358 million on intangible assets included in mainly Corporate Financial Services segment, during fiscal 2015. The Company and its subsidiaries recognized impairment lossesloss of ¥295 million on intangible assets included in mainly Investment and Operation segment during fiscal 2016. The Company and its subsidiaries recognized an impairment loss of ¥411 million on intangible assets included in Overseas Business segment during fiscal 2017. The Company and its subsidiaries recognized an impairment loss of ¥194 million on intangible assets included in Investment and Operation segment during fiscal 2018. These impairment losses are accountedincluded in other (income) and expense, net. Thenet 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 the intangible assets were measured using the discounted cash flow methodologies.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
14. 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, 20152017 and 20162018 are as follows:
March 31, 20152017
Millions of yen | Weighted average rate | Millions of yen | Weighted average rate | |||||||||||||
Short-term debt in Japan, mainly from banks | ¥ | 16,778 | 0.5 | % | ¥ | 79,494 | 0.8 | % | ||||||||
Short-term debt outside Japan, mainly from banks | 178,386 | 2.4 | 153,877 | 2.8 | ||||||||||||
Commercial paper in Japan | 78,072 | 0.2 | 50,096 | 0.0 | ||||||||||||
Commercial paper outside Japan | 11,549 | 4.0 | 0 | 0.0 | ||||||||||||
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¥ | 284,785 | 1.7 | ¥ | 283,467 | 1.7 | |||||||||||
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March 31, 20162018
Millions of yen | Weighted average rate | |||||||
Short-term debt in Japan, mainly from banks | ¥ | 80,846 | 0.5 | % | ||||
Short-term debt outside Japan, mainly from banks | 166,417 | 2.2 | ||||||
Commercial paper in Japan | 94,786 | 0.1 | ||||||
Commercial paper outside Japan | 7,575 | 4.0 | ||||||
|
| |||||||
¥ | 349,624 | 1.3 | ||||||
|
|
Millions of yen | Weighted average rate | |||||||
Short-term debt in Japan, mainly from banks | ¥ | 83,940 | 2.0 | % | ||||
Short-term debt outside Japan, mainly from banks | 167,920 | 3.1 | ||||||
Commercial paper in Japan | 51,597 | 0.0 | ||||||
Commercial paper outside Japan | 3,297 | 3.5 | ||||||
|
| |||||||
¥ | 306,754 | 2.3 | ||||||
|
|
The composition of long-term debt, the weighted average contract interest rate on long-term debt and the repayment due dates at March 31, 20152017 and 20162018 are as follows:
March 31, 20152017
Due (Fiscal Year) | Millions of yen | Weighted average rate | Due (Fiscal Year) | Millions of yen | Weighted average rate | |||||||||||||||||||
Banks: | ||||||||||||||||||||||||
Fixed rate | 2016~2031 | ¥ | 485,910 | 1.7 | % | 2018~2035 | ¥ | 481,959 | 1.7 | % | ||||||||||||||
Floating rate | 2016~2032 | 1,622,729 | 1.0 | 2018~2077 | 1,613,795 | 1.0 | ||||||||||||||||||
Insurance companies and others: | ||||||||||||||||||||||||
Fixed rate | 2016~2025 | 328,639 | 1.2 | 2020~2027 | 340,265 | 1.0 | ||||||||||||||||||
Floating rate | 2017~2028 | 250,156 | 0.7 | 2019~2077 | 288,837 | 0.6 | ||||||||||||||||||
Unsecured bonds | 2016~2025 | 1,118,766 | 1.8 | 2018~2027 | 688,488 | 1.0 | ||||||||||||||||||
Unsecured notes under medium-term note program | 2016~2018 | 35,110 | 2.9 | 2019~2027 | 196,570 | 3.0 | ||||||||||||||||||
Payables under securitized lease receivables | 2020~2021 | 157,773 | 0.5 | 2021~2023 | 103,212 | 0.4 | ||||||||||||||||||
Payables under securitized loan receivables and investment in securities | 2018~2039 | 133,862 | 3.2 | 2018~2039 | 141,858 | 2.6 | ||||||||||||||||||
|
| |||||||||||||||||||||||
¥ | 4,132,945 | 1.4 | ¥ | 3,854,984 | 1.2 | |||||||||||||||||||
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
March 31, 20162018
Due (Fiscal Year) | Millions of yen | Weighted average rate | ||||||||||
Banks: | ||||||||||||
Fixed rate | 2017~2033 | ¥ | 521,491 | 1.8 | % | |||||||
Floating rate | 2017~2033 | 1,601,178 | 0.9 | |||||||||
Insurance companies and others: | ||||||||||||
Fixed rate | 2018~2027 | 342,720 | 1.0 | |||||||||
Floating rate | 2017~2026 | 259,306 | 0.8 | |||||||||
Unsecured bonds | 2017~2025 | 877,504 | 1.1 | |||||||||
Unsecured notes under medium-term note program | 2017~2021 | 62,653 | 2.7 | |||||||||
Payables under securitized lease receivables | 2020~2021 | 129,005 | 0.3 | |||||||||
Payables under securitized loan receivables and investment in securities | 2017~2039 | 147,049 | 2.6 | |||||||||
|
| |||||||||||
¥ | 3,940,906 | 1.1 | ||||||||||
|
|
Due (Fiscal Year) | Millions of yen | Weighted average rate | ||||||||||
Banks: | ||||||||||||
Fixed rate | 2019~2035 | ¥ | 497,392 | 1.3 | % | |||||||
Floating rate | 2019~2077 | 1,660,225 | 1.4 | |||||||||
Insurance companies and others: | ||||||||||||
Fixed rate | 2020~2035 | 329,841 | 0.9 | |||||||||
Floating rate | 2019~2077 | 316,899 | 1.0 | |||||||||
Unsecured bonds | 2021~2027 | 756,865 | 1.6 | |||||||||
Unsecured notes under medium-term note program | 2021~2024 | 183,224 | 3.1 | |||||||||
Payables under securitized lease receivables | 2021~2023 | 53,017 | 0.3 | |||||||||
Payables under securitized loan receivables and investment in securities | 2024~2039 | 29,041 | 3.1 | |||||||||
|
| |||||||||||
¥ | 3,826,504 | 1.4 | ||||||||||
|
|
The repayment schedule for the next five years and thereafter for long-term debt at March 31, 20162018 is as follows:
Years ending March 31, | Millions of yen | Millions of yen | ||||||
2017 | ¥ | 858,090 | ||||||
2018 | 759,484 | |||||||
2019 | 612,900 | ¥ | 652,061 | |||||
2020 | 400,214 | 503,023 | ||||||
2021 | 441,672 | 503,153 | ||||||
2022 | 464,320 | |||||||
2023 | 485,252 | |||||||
Thereafter | 868,546 | 1,218,695 | ||||||
|
| |||||||
Total | ¥ | 3,940,906 | ¥ | 3,826,504 | ||||
|
|
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 the previous year, whose maturity date is fiscal 2077), and ¥60,000 million and ¥34,000 million can be repaid after 5 years, and 7 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 2014, 20152016, 2017 and 2016,2018, 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 ¥618¥1,085 million, ¥367¥924 million and ¥1,085¥957 million, respectively.
Total committed credit lines for the Company and its subsidiaries were ¥475,553¥463,643 million and ¥464,677¥466,164 million at March 31, 20152017 and 2016,2018, respectively, and, of these lines, ¥419,356¥393,968 million and ¥389,903¥332,670 million were available at March 31, 20152017 and 2016,2018, respectively. Of the available committed credit lines, ¥274,980¥356,164 million and ¥380,062¥268,759 million were long-term committed credit lines at March 31, 20152017 and 2016,2018, respectively.
Some of the debt and commitment contracts contain covenant clauses, and some of these include financial restrictions, such as maintenance of certain ORIX Corporation shareholders’ equity ratios. As of March 31, 2016, the Company and its subsidiaries were in compliance with such objective covenant requirements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
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 11 “Variable Interest Entities”), the Company and certain subsidiaries provide the following assets as collateral for the short-term and long-term debt payables to financial institutions as of March 31, 2016:2018:
Millions of yen | ||||
Minimum lease payments, loans and investment in operating leases | ¥ | |||
Investment in securities | ||||
Property under facility operations | ||||
Other assets and other | ||||
|
| |||
¥ | ||||
|
|
As of March 31, 2016, investment in securities2018, debt liabilities was secured by shares of ¥25,808subsidiaries of ¥24,348 million, was pledged for primarily collateral deposits. In addition,which were eliminated through consolidation adjustment, and debt liabilities of affiliates amounted to ¥184,950 million waswere secured by investment in affiliates of ¥32,097¥44,900 million. In addition, ¥26,456 million was pledged primarily by investment in securities for collateral deposits and deposit for real estate transaction as of March 31, 2016.
2018.
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, 2016.2018.
15. Deposits
Deposits at March 31, 20152017 and 20162018 consist of the following:
Millions of yen | ||||||||
2015 | 2016 | |||||||
Time deposits | ¥ | 1,028,977 | ¥ | 1,093,238 | ||||
Other deposits | 258,403 | 305,234 | ||||||
|
|
|
| |||||
Total | ¥ | 1,287,380 | ¥ | 1,398,472 | ||||
|
|
|
|
Millions of yen | ||||||||
2017 | 2018 | |||||||
Time deposits | ¥ | 1,200,240 | ¥ | 1,334,290 | ||||
Other deposits | 414,368 | 423,172 | ||||||
|
|
|
| |||||
Total | ¥ | 1,614,608 | ¥ | 1,757,462 | ||||
|
|
|
|
The balances of time deposits and certificates of deposit issued in amounts of ¥10 million or more were ¥617,235¥781,516 million and ¥648,697¥880,725 million at March 31, 20152017 and 2016,2018, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
The maturity schedule of time deposits at March 31, 20162018 is as follows:
Years ending March 31, | Millions of yen | |||
2017 | ¥ | 633,451 | ||
2018 | 205,410 | |||
2019 | 121,611 | |||
2020 | 52,595 | |||
2021 | 80,171 | |||
|
| |||
Total | ¥ | 1,093,238 | ||
|
|
Years ending March 31, | Millions of yen | |||
2019 | ¥ | 700,524 | ||
2020 | 150,324 | |||
2021 | 389,973 | |||
2022 | 27,909 | |||
2023 | 65,060 | |||
Thereafter | 500 | |||
|
| |||
Total | ¥ | 1,334,290 | ||
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
16. Income Taxes
Income before income taxes and discontinued operations, and the provision for income taxes in fiscal 2014, 20152016, 2017 and 20162018 are as follows:
Millions of yen | Millions of yen | |||||||||||||||||||||||
2014 | 2015 | 2016 | 2016 | 2017 | 2018 | |||||||||||||||||||
Income before income taxes and discontinued operations: | ||||||||||||||||||||||||
Income before income taxes: | ||||||||||||||||||||||||
Japan | ¥ | 184,504 | ¥ | 188,601 | ¥ | 228,527 | ¥ | 228,527 | ¥ | 302,995 | ¥ | 296,577 | ||||||||||||
Overseas | 101,835 | 155,416 | 162,775 | 162,775 | 121,970 | 138,924 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
¥ | 286,339 | ¥ | 344,017 | ¥ | 391,302 | ¥ | 391,302 | ¥ | 424,965 | ¥ | 435,501 | |||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Provision for income taxes: | ||||||||||||||||||||||||
Current— | ||||||||||||||||||||||||
Japan | ¥ | 19,116 | ¥ | 9,455 | ¥ | 34,866 | ¥ | 34,866 | ¥ | 85,963 | ¥ | 85,514 | ||||||||||||
Overseas | 27,093 | 38,264 | 42,918 | 42,918 | 32,758 | 22,810 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
46,209 | 47,719 | 77,784 | 77,784 | 118,721 | 108,324 | |||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Deferred— | ||||||||||||||||||||||||
Japan | 49,419 | 36,112 | 34,315 | 34,315 | 20,859 | 5,960 | ||||||||||||||||||
Overseas | 2,925 | 5,226 | 8,213 | 8,213 | 4,459 | (372 | ) | |||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
52,344 | 41,338 | 42,528 | 42,528 | 25,318 | 5,588 | |||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Provision for income taxes | ¥ | 98,553 | ¥ | 89,057 | ¥ | 120,312 | ¥ | 120,312 | ¥ | 144,039 | ¥ | 113,912 | ||||||||||||
|
|
|
|
|
|
In fiscal 2014, the Company and its subsidiaries in Japan are subject to a National Corporation tax of approximately 28%, an Inhabitant tax of approximately 5% and a deductible Enterprise tax of approximately 8%, which in the aggregate result in a statutory income tax rate of approximately 38.3%. In fiscal 2015, the Company and its subsidiaries in Japan are subject to a National Corporation tax of approximately 26%, an Inhabitant tax of approximately 5% and a deductible Enterprise tax of approximately 8%, which in the aggregate result in a statutory income tax rate of approximately 35.9%. In fiscal 2016, the Company and its subsidiaries in Japan are subject to a National Corporation tax of approximately 25%, an Inhabitant tax of approximately 4% and a deductible Enterprise tax of approximately 6%, which in the aggregate result in a statutory income tax rate of approximately 33.5%. In fiscal 2017 and 2018, the Company and its subsidiaries in Japan are subject to a National Corporation tax of approximately 24%, an Inhabitant tax of approximately 4% and a deductible Enterprise tax of approximately 4%, which in the aggregate result in a statutory income tax rate of approximately 31.7%.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
Reconciliations of the differences between the tax provision computed at the statutory rate and the consolidated provision for income taxes in fiscal 2014, 20152016, 2017 and 20162018 are as follows:
Millions of yen | ||||||||||||
2014 | 2015 | 2016 | ||||||||||
Income before income taxes and discontinued operations | ¥ | 286,339 | ¥ | 344,017 | ¥ | 391,302 | ||||||
|
|
|
|
|
| |||||||
Tax provision computed at statutory rate | ¥ | 109,668 | ¥ | 123,502 | ¥ | 131,086 | ||||||
Increases (reductions) in taxes due to: | ||||||||||||
Change in valuation allowance* | (845 | ) | 1,839 | (1,547 | ) | |||||||
Non-deductible expenses for tax purposes | 2,382 | 3,513 | 2,277 | |||||||||
Non-taxable income for tax purposes | (3,224 | ) | (7,633 | ) | (3,767 | ) | ||||||
Effect of nontaxable bargain purchase gain | 0 | (12,953 | ) | 0 | ||||||||
Effect of lower tax rates on foreign subsidiaries and a domestic life insurance subsidiary | (5,805 | ) | (8,766 | ) | (3,593 | ) | ||||||
Effect of the tax rate change related to the new Japanese tax law | (5,824 | ) | (14,098 | ) | (7,468 | ) | ||||||
Other, net | 2,201 | 3,653 | 3,324 | |||||||||
|
|
|
|
|
| |||||||
Provision for income taxes | ¥ | 98,553 | ¥ | 89,057 | ¥ | 120,312 | ||||||
|
|
|
|
|
|
Millions of yen | ||||||||||||
2016 | 2017 | 2018 | ||||||||||
Income before income taxes | ¥ | 391,302 | ¥ | 424,965 | ¥ | 435,501 | ||||||
|
|
|
|
|
| |||||||
Tax provision computed at statutory rate | ¥ | 131,086 | ¥ | 134,714 | ¥ | 138,054 | ||||||
Increases (reductions) in taxes due to: | ||||||||||||
Change in valuation allowance* | (1,547 | ) | 57 | (6,971 | ) | |||||||
Nondeductible expenses | 2,277 | 4,550 | 3,000 | |||||||||
Nontaxable income | (3,767 | ) | (3,504 | ) | (4,464 | ) | ||||||
Effect of lower tax rates on certain subsidiaries | (3,593 | ) | (2,780 | ) | (5,713 | ) | ||||||
Effect of investor taxes on earnings of subsidiaries | 5,279 | 8,650 | 3,831 | |||||||||
Effect of the tax rate change related to the new tax law | (7,468 | ) | 1,219 | (16,232 | ) | |||||||
Other, net | (1,955 | ) | 1,133 | 2,407 | ||||||||
|
|
|
|
|
| |||||||
Provision for income taxes | ¥ | 120,312 | ¥ | 144,039 | ¥ | 113,912 | ||||||
|
|
|
|
|
|
* | In fiscal |
The effective income tax rate is different from the statutory tax rate primarily because of certain nondeductible expenses, for tax purposes, non-taxablenontaxable income, for tax purposes, changes in valuation allowance, the effect of nontaxable bargain purchase gain, the effect of lower income tax rates on foreigncertain subsidiaries, and a domestic life insuranceeffect of investor taxes on earnings of subsidiaries, and the effect of the tax reforms as discussed in the following paragraph.
On March 20, 2014, the bill for reconstruction funding and the bill for local corporate tax were approved by the National Diet of Japan. For a fiscal year beginning on April 1, 2014, special corporate tax for reconstruction will not be charged, and as a result, the combined statutory income tax rate for a fiscal year beginning on April 1, 2014 was reduced from approximately 38.3% to approximately 35.9%.
On March 31, 2015, the 2015 tax reform bill was passed by the National Diet of Japan. From fiscal years beginning on April 1, 2015, the national tax rate and the local business tax rate were reduced, and as a result, the combined statutory income tax rate for the fiscal year beginning on April 1, 2015 was reduced from approximately 35.9% to approximately 33.5%. The increase and decrease of the deferred tax assets and liabilities due to the change in the tax rates resulted in a decrease of provision for income taxes by ¥14,098 million in the consolidated statements of income, and the increase of the valuation allowance due to the amendment to tax loss carryforward rules resulted in an increase of provision for income taxes by ¥1,819 million in the consolidated statements of income.
On March 29, 2016, the 2016 tax reform bill was passed by the National Diet of Japan. From fiscal years beginning on April 1, 2016, the national corporate tax rate and local business tax rate were reduced and the local corporate tax rate was increased. The net effect of those changes was a reduction in the combined statutory income tax rate for the fiscal year beginning on April 1, 2016 from approximately 32.9% to approximately 31.7%, and a further reduction in the combined statutory income tax rate for fiscal year beginning on April 1, 2017 to approximately 31.5%. For the fiscal years beginning on or after April 1, 2018, the combined statutory income tax rate was further reduced to approximately 31.3%. Subsequently, the combined statutory income tax rate was increased to approximately 31.7% for the fiscal year beginning on April 1, 2017, and to approximately 31.5% for the fiscal year beginning on or after April 1, 2018 due to the enactment of a local tax rate. In addition, tax loss carryforward rules were amended, and the deductible amountlimit of tax losses carried forward forthat can be utilized in the fiscal year beginning on April 1, 2016 iswas reduced to 60% of taxable income for the year, compared to 65% pursuant to the 2015 tax reform. FromFor the
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
fiscal year beginning on April 1, 2017, the deductible limit of tax losses carried forward willthat can be utilized in the fiscal year was increased to 55% of taxable income for the year, while the tax loss carryforward period will bewas reduced from ten years to nine years. From the fiscal years beginning on or after April 1, 2018, the deductible limit of tax losses carried forward that can be utilized in each fiscal year will remain at 50% of taxable income for the year and the tax loss carryforward period will remain at 10 years, consistent with the 2015 tax reform. The increase and decrease of the deferred tax assets and liabilities due to the change in the tax rates resulted in a decrease of provision for income taxes by ¥7,468 million in the consolidated statements of income in fiscal 2016, and the decrease of the valuation allowance due to the amendment to tax loss carryforward rules resulted in ana decrease of provision for income taxes by ¥12 million in the consolidated statements of income.income in fiscal 2016.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
On November 18, 2016, the 2016 tax reform bill was passed by the National Diet of Japan. The effect of the tax reform bill on the Company and its subsidiaries’ results of operations or financial position in fiscal 2017 was not material.
On December 22, 2017, the tax reform bill commonly referred to as the Tax Cuts and Jobs Act in the United States was enacted. From January 1, 2018, the U.S. corporate tax rate was reduced from 35% to 21%. The decrease in the deferred tax assets and liabilities due to the change in the tax reform resulted in a decrease in provision for income taxes by ¥17,465 million in the consolidated statements of income in fiscal 2018.
Total income taxes recognized in fiscal 2014, 20152016, 2017 and 20162018 are as follows:
Millions of yen | Millions of yen | |||||||||||||||||||||||
2014 | 2015 | 2016 | 2016 | 2017 | 2018 | |||||||||||||||||||
Provision for income taxes | ¥ | 98,553 | ¥ | 89,057 | ¥ | 120,312 | ¥ | 120,312 | ¥ | 144,039 | ¥ | 113,912 | ||||||||||||
Income taxes on discontinued operations | 4,681 | 166 | 0 | |||||||||||||||||||||
Income taxes on other comprehensive income (loss): | ||||||||||||||||||||||||
Net unrealized gains (losses) on investment in securities | 5,304 | 6,915 | (6,003 | ) | (6,003 | ) | (6,293 | ) | (11,084 | ) | ||||||||||||||
Defined benefit pension plans | 1,456 | (4,045 | ) | (2,954 | ) | (2,954 | ) | 2,582 | (911 | ) | ||||||||||||||
Foreign currency translation adjustments | 1,756 | 6,880 | (2,921 | ) | (2,921 | ) | (8,576 | ) | (1,517 | ) | ||||||||||||||
Net unrealized gains (losses) on derivative instruments | 329 | (255 | ) | (1,696 | ) | (1,696 | ) | 229 | 139 | |||||||||||||||
Direct adjustments to shareholders’ equity | (101 | ) | (734 | ) | (2 | ) | (2 | ) | (1 | ) | (2 | ) | ||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Total income taxes | ¥ | 111,978 | ¥ | 97,984 | ¥ | 106,736 | ¥ | 106,736 | ¥ | 131,980 | ¥ | 100,537 | ||||||||||||
|
|
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
The tax effects of temporary differences giving rise to the deferred tax assets and liabilities at March 31, 20152017 and 20162018 are as follows:
Millions of yen | ||||||||
2015 | 2016 | |||||||
Assets: | ||||||||
Net operating loss carryforwards | ¥ | 91,899 | ¥ | 72,994 | ||||
Allowance for doubtful receivables on direct financing leases and probable loan losses | 20,170 | 12,883 | ||||||
Investment in securities | 11,128 | 15,306 | ||||||
Policy liabilities and policy account balances | 18,273 | 763 | ||||||
Accrued expenses | 30,352 | 25,537 | ||||||
Investment in operating leases | 18,470 | 16,814 | ||||||
Property under facility operations | 10,098 | 10,211 | ||||||
Installment loans | 6,487 | 8,640 | ||||||
Other | 50,961 | 49,393 | ||||||
|
|
|
| |||||
257,838 | 212,541 | |||||||
Less: valuation allowance | (50,515 | ) | (43,220 | ) | ||||
|
|
|
| |||||
207,323 | 169,321 | |||||||
Liabilities: | ||||||||
Investment in direct financing leases | 6,342 | 10,471 | ||||||
Investment in operating leases | 89,411 | 90,074 | ||||||
Unrealized gains (losses) on investment in securities | 26,361 | 20,734 | ||||||
Deferred insurance policy acquisition costs | 28,494 | 35,894 | ||||||
Policy liabilities and policy account balances | 53,871 | 41,995 | ||||||
Property under facility operations | 2,221 | 9,256 | ||||||
Other intangible assets | 122,996 | 103,503 | ||||||
Undistributed earnings | 68,269 | 97,156 | ||||||
Prepaid benefit cost | 15,205 | 9,037 | ||||||
Other | 55,773 | 39,265 | ||||||
|
|
|
| |||||
468,943 | 457,385 | |||||||
|
|
|
| |||||
Net deferred tax liability | ¥ | 261,620 | ¥ | 288,064 | ||||
|
|
|
|
Millions of yen | ||||||||
2017 | 2018 | |||||||
Assets: | ||||||||
Net operating loss carryforwards | ¥ | 62,953 | ¥ | 27,144 | ||||
Allowance for doubtful receivables on direct financing leases and probable loan losses | 13,997 | 12,984 | ||||||
Investment in securities | 13,778 | 8,650 | ||||||
Accrued expenses | 25,973 | 20,729 | ||||||
Investment in operating leases | 16,613 | 15,400 | ||||||
Property under facility operations | 12,299 | 11,048 | ||||||
Installment loans | 6,063 | 5,916 | ||||||
Other | 56,625 | 53,300 | ||||||
|
|
|
| |||||
208,301 | 155,171 | |||||||
Less: valuation allowance | (43,487 | ) | (14,676 | ) | ||||
|
|
|
| |||||
164,814 | 140,495 | |||||||
Liabilities: | ||||||||
Investment in direct financing leases | 11,217 | 11,503 | ||||||
Investment in operating leases | 90,310 | 92,243 | ||||||
Unrealized gains (losses) on investment in securities | 14,554 | 4,957 | ||||||
Deferred insurance policy acquisition costs | 42,984 | 49,982 | ||||||
Policy liabilities and policy account balances | 57,748 | 54,202 | ||||||
Property under facility operations | 9,610 | 10,596 | ||||||
Other intangible assets | 107,804 | 99,999 | ||||||
Undistributed earnings | 93,021 | 89,311 | ||||||
Prepaid benefit cost | 9,389 | 9,290 | ||||||
Other | 34,325 | 34,520 | ||||||
|
|
|
| |||||
470,962 | 456,603 | |||||||
|
|
|
| |||||
Net deferred tax liability | ¥ | 306,148 | ¥ | 316,108 | ||||
|
|
|
|
Net deferred tax assets and liabilities at March 31, 20152017 and 20162018 are reflected in the accompanying consolidated balance sheets under the following captions:
Millions of yen | ||||||||
2015 | 2016 | |||||||
Other assets | ¥ | 74,449 | ¥ | 53,296 | ||||
Income taxes: Deferred | 336,069 | 341,360 | ||||||
|
|
|
| |||||
Net deferred tax liability | ¥ | 261,620 | ¥ | 288,064 | ||||
|
|
|
|
Millions of yen | ||||||||
2017 | 2018 | |||||||
Other assets | ¥ | 45,680 | ¥ | 32,041 | ||||
Income taxes: Deferred | 351,828 | 348,149 | ||||||
|
|
|
| |||||
Net deferred tax liability | ¥ | 306,148 | ¥ | 316,108 | ||||
|
|
|
|
The valuation allowance is primarily recognized for deferred tax assets of consolidated subsidiaries with net operating loss carryforwards for tax purposes. 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, andtax-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 tax loss carryforwards, net of the existing valuation allowances at March 31, 2016.2018. 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 ¥11,739 million in fiscal 2014, increases of ¥19,945 million in fiscal 2015, and decreases of ¥7,295 million in fiscal 2016.2016, increases of ¥267 million in fiscal 2017, and decreases of ¥28,811 million in fiscal 2018. The decrease in the total valuation allowance recognized in earinings due to the utilization of net operating loss carryforwards were ¥4,179 million in fiscal 2016, ¥1,639 million in fiscal 2017 and ¥8,303 million in fiscal 2018. The adjustments to thebeginning-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 decreases of ¥1,908 million in fiscal 2014 (increases of ¥1,308 million and decreases of ¥3,216 million on a gross basis), net decreases of ¥2,917 million in fiscal 2015 (increases of ¥5,447 million and decreases of ¥8,364 million on a gross basis), and net increases of ¥177 million in fiscal 2016 (increases of ¥381 million and decreases of ¥204 million on a gross basis), net increases of ¥2,215 million in fiscal 2017 (increases of ¥2,859 million and decreases of ¥644 million on a gross basis), and net increases of ¥2,029 million in fiscal 2018 (increases of ¥2,677 million and decreases of ¥648 million on a gross basis), respectively.
The Company and certain subsidiaries have net operating loss carryforwards of ¥539,796¥293,622 million at March 31, 2016,2018, which expire as follows:
Year ending March 31, | Millions of yen | |||
2017 | ¥ | 366 | ||
2018 | 92,434 | |||
2019 | 32,184 | |||
2020 | 18,161 | |||
2021 | 85,722 | |||
Thereafter | 279,902 | |||
Indefinite period | 31,027 | |||
|
| |||
Total | ¥ | 539,796 | ||
|
|
Year ending March 31, | Millions of yen | |||
2019 | ¥ | 21,807 | ||
2020 | 12,618 | |||
2021 | 23,499 | |||
2022 | 18,174 | |||
2023 | 41,048 | |||
Thereafter | 137,300 | |||
Indefinite period | 39,176 | |||
|
| |||
Total | ¥ | 293,622 | ||
|
|
The unrecognized tax benefits as of March 31, 20152017 and 20162018 were not material. The Company and its subsidiaries believe that it is not reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within 12 months of March 31, 2016.
2018.
The total amounts of penalties and interest expense related to income taxes recognized in the consolidated balance sheets as of March 31, 20152017 and 2016,2018, and in the consolidated statements of income for the fiscal 2014, 20152016, 2017 and 20162018 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 for the tax years prior to fiscal 2013,2016, and its major domestic subsidiaries are no longer subject to ordinary tax examination for the tax years prior to fiscal 2010, respectively.
Subsidiaries in the United States remain subject to a tax examination for the tax years after fiscal 2009. Subsidiaries in the Netherlands remain subject to a tax examination for the tax years after fiscal 2010.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
17. Pension Plans
The Company and certain subsidiaries have contributory andnon-contributory pension plans covering substantially all of their employees. Those contributory funded pension plans include defined benefit pension
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
plans and defined contribution pension plans. Under the plans, employees are entitled tolump-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 itscertain subsidiaries’ funding policy is to contribute annually the amounts actuarially determined. Assets of the plans are invested primarily in interest-bearingdebt 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, 20152017 and 20162018 are as follows:
Millions of yen | Millions of yen | |||||||||||||||||||||||||||||||
Japanese plans | Overseas plans | Japanese plans | Overseas plans | |||||||||||||||||||||||||||||
2015 | 2016 | 2015 | 2016 | 2017 | 2018 | 2017 | 2018 | |||||||||||||||||||||||||
Change in benefit obligation: | ||||||||||||||||||||||||||||||||
Benefit obligation at beginning of year | ¥ | 82,859 | ¥ | 86,793 | ¥ | 68,840 | ¥ | 110,521 | ¥ | 97,030 | ¥ | 99,721 | ¥ | 99,912 | ¥ | 88,630 | ||||||||||||||||
Service cost | 4,415 | 4,401 | 2,460 | 3,856 | 5,276 | 5,339 | 3,270 | 3,455 | ||||||||||||||||||||||||
Interest cost | 1,159 | 995 | 2,251 | 1,747 | 682 | 778 | 1,757 | 1,994 | ||||||||||||||||||||||||
Actuarial loss (gain) | (169 | ) | 10,674 | 46,110 | (12,840 | ) | (1,656 | ) | 1,587 | (8,893 | ) | 1,843 | ||||||||||||||||||||
Foreign currency exchange rate change | 0 | 0 | (6,947 | ) | (2,262 | ) | 0 | 0 | (6,226 | ) | 6,838 | |||||||||||||||||||||
Benefits paid | (2,573 | ) | (2,705 | ) | (1,390 | ) | (1,336 | ) | (2,702 | ) | (2,997 | ) | (1,190 | ) | (1,654 | ) | ||||||||||||||||
Plan participant’s contributions | 0 | 0 | 80 | 88 | ||||||||||||||||||||||||||||
Business combinations | 1,353 | 0 | 0 | 138 | 1,455 | 381 | 0 | 0 | ||||||||||||||||||||||||
Divestitures | (251 | ) | (3,396 | ) | 0 | 0 | 0 | (226 | ) | 0 | 0 | |||||||||||||||||||||
Plan amendments | 0 | 268 | (883 | ) | 0 | (364 | ) | 10 | 0 | (324 | ) | |||||||||||||||||||||
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Benefit obligation at end of year | 86,793 | 97,030 | 110,521 | 99,912 | 99,721 | 104,593 | 88,630 | 100,782 | ||||||||||||||||||||||||
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Change in plan assets: | ||||||||||||||||||||||||||||||||
Fair value of plan assets at beginning of year | 104,844 | 115,864 | 62,042 | 87,009 | 113,056 | 116,990 | 85,180 | 83,394 | ||||||||||||||||||||||||
Actual return on plan assets | 10,200 | (2,043 | ) | 21,074 | (109 | ) | 987 | 3,196 | 2,780 | 2,586 | ||||||||||||||||||||||
Employer contribution | 3,040 | 3,072 | 10,820 | 1,456 | 3,387 | 3,559 | 1,338 | 1,738 | ||||||||||||||||||||||||
Benefits paid | (2,136 | ) | (2,227 | ) | (1,296 | ) | (1,265 | ) | (2,229 | ) | (2,486 | ) | (1,086 | ) | (1,529 | ) | ||||||||||||||||
Plan participant’s contributions | 0 | 0 | 80 | 88 | ||||||||||||||||||||||||||||
Business combinations | 0 | 0 | 0 | 0 | 1,789 | 142 | 0 | 0 | ||||||||||||||||||||||||
Divestitures | (84 | ) | (1,610 | ) | 0 | 0 | 0 | (132 | ) | 0 | 0 | |||||||||||||||||||||
Foreign currency exchange rate change | 0 | 0 | (5,711 | ) | (1,999 | ) | 0 | 0 | (4,818 | ) | 7,149 | |||||||||||||||||||||
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Fair value of plan assets at end of year | 115,864 | 113,056 | 87,009 | 85,180 | 116,990 | 121,269 | 83,394 | 93,338 | ||||||||||||||||||||||||
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The funded status of the plans | ¥ | 29,071 | ¥ | 16,026 | ¥ | (23,512 | ) | ¥ | (14,732 | ) | ¥ | 17,269 | ¥ | 16,676 | ¥ | (5,236 | ) | ¥ | (7,444 | ) | ||||||||||||
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Amount recognized in the consolidated balance sheets consists of: | Amount recognized in the consolidated balance sheets consists of: |
| ||||||||||||||||||||||||||||||
Prepaid benefit cost included in other assets | ¥ | 42,376 | ¥ | 28,848 | ¥ | 8 | ¥ | 0 | ¥ | 29,958 | ¥ | 29,701 | ¥ | 0 | ¥ | 0 | ||||||||||||||||
Accrued benefit liability included in other liabilities | (13,305 | ) | (12,822 | ) | (23,520 | ) | (14,732 | ) | (12,689 | ) | ¥ | (13,025 | ) | (5,236 | ) | (7,444 | ) | |||||||||||||||
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Net amount recognized | ¥ | 29,071 | ¥ | 16,026 | ¥ | (23,512 | ) | ¥ | (14,732 | ) | ¥ | 17,269 | ¥ | 16,676 | ¥ | (5,236 | ) | ¥ | (7,444 | ) | ||||||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
Amount recognized in accumulated other comprehensive income (loss),pre-tax, at March 31, 20152017 and 20162018 consisted of:
Millions of yen | ||||||||||||||||
Japanese plans | Overseas plans | |||||||||||||||
2015 | 2016 | 2015 | 2016 | |||||||||||||
Net prior service credit | ¥ | 5,127 | ¥ | 4,110 | ¥ | 1,074 | ¥ | 959 | ||||||||
Net actuarial loss | (9,602 | ) | (25,125 | ) | (26,674 | ) | (17,150 | ) | ||||||||
Net transition obligation | (140 | ) | (91 | ) | (19 | ) | (14 | ) | ||||||||
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| |||||||||
Total recognized in accumulated other comprehensive loss, pre-tax | ¥ | (4,615 | ) | ¥ | (21,106 | ) | ¥ | (25,619 | ) | ¥ | (16,205 | ) | ||||
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Millions of yen | ||||||||||||||||
Japanese plans | Overseas plans | |||||||||||||||
2017 | 2018 | 2017 | 2018 | |||||||||||||
Net prior service credit | ¥ | 3,151 | ¥ | 2,241 | ¥ | 800 | ¥ | 754 | ||||||||
Net actuarial loss | (23,999 | ) | (24,155 | ) | (6,954 | ) | (9,764 | ) | ||||||||
Net transition obligation | (45 | ) | 0 | (12 | ) | (8 | ) | |||||||||
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| |||||||||
Total recognized in accumulated other comprehensive loss,pre-tax | ¥ | (20,893 | ) | ¥ | (21,914 | ) | ¥ | (6,166 | ) | ¥ | (9,018 | ) | ||||
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The estimated portions of the net prior service credit and net actuarial loss above that will be recognized as a component of net pension cost (gain) of Japanese pension plans in fiscal 2019 are ¥919 million and ¥897 million, respectively, the estimated portions of the net prior service credit, net actuarial loss and net transition obligation above that will be recognized as a component of net pension cost (gain) of Japanese pension plans in fiscal 2017 are ¥(916) million, ¥936 million and ¥45 million, respectively, a component of net pension cost (gain) of overseas pension plans in fiscal 20172019 are ¥(102)¥140 million, ¥663¥12 million and ¥3¥2 million, respectively.
The accumulated benefit obligations for all Japanese defined benefit pension plans were ¥79,178¥87,443 million and ¥86,744¥93,143 million, respectively, at March 31, 20152017 and 2016.2018. The accumulated benefit obligations for all overseas defined benefit pension plans were ¥98,634¥80,731 million and ¥89,425¥92,176 million, respectively, at March 31, 20152017 and 2016.2018.
In Japanese pension plans, the aggregateThe aggregates of projected benefit obligations, aggregate accumulated benefit obligations and aggregate fair values of plan assets for thein Japanese pension plans with the accumulated benefit obligations in excess of plan assets were ¥21,279¥19,715 million, ¥21,061¥19,101 million and ¥8,031¥7,026 million, respectively, at March 31, 20152017 and ¥19,351¥20,621 million, ¥18,822¥20,005 million and ¥6,529¥7,597 million, respectively, at March 31, 2016. In overseas pension plans, the aggregate2018. The aggregates of projected benefit obligations, aggregate accumulated benefit obligations and aggregate fair values of plan assets for thein overseas pension plans with the accumulated benefit obligations in excess of plan assets were ¥110,498¥6,222 million, ¥98,621¥6,136 million and ¥86,978¥5,111 million, respectively, at March 31, 20152017 and ¥99,715¥6,863 million, ¥89,407¥6,584 million and ¥85,151¥5,356 million, respectively, at March 31, 2016.2018.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
Net pension cost of the plans for fiscal 2014, 20152016, 2017 and 20162018 consists of the following:
Millions of yen | ||||||||||||
2014 | 2015 | 2016 | ||||||||||
Japanese plans: | ||||||||||||
Service cost | ¥ | 3,391 | ¥ | 4,415 | ¥ | 4,401 | ||||||
Interest cost | 1,139 | 1,159 | 995 | |||||||||
Expected return on plan assets | (2,047 | ) | (2,351 | ) | (2,575 | ) | ||||||
Amortization of prior service credit | (1,259 | ) | (927 | ) | (928 | ) | ||||||
Amortization of net actuarial loss | 777 | 502 | (15 | ) | ||||||||
Amortization of transition obligation | 53 | 53 | 49 | |||||||||
|
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| |||||||
Net periodic pension cost | ¥ | 2,054 | ¥ | 2,851 | ¥ | 1,927 | ||||||
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| |||||||
Overseas plans: | ||||||||||||
Service cost | ¥ | 1,654 | ¥ | 2,460 | ¥ | 3,856 | ||||||
Interest cost | 1,684 | 2,251 | 1,747 | |||||||||
Expected return on plan assets | (2,389 | ) | (3,857 | ) | (4,584 | ) | ||||||
Amortization of prior service credit | (3 | ) | (51 | ) | (113 | ) | ||||||
Amortization of net actuarial loss | 60 | 215 | 1,336 | |||||||||
Amortization of transition obligation | 3 | 5 | 3 | |||||||||
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|
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| |||||||
Net periodic pension cost | ¥ | 1,009 | ¥ | 1,023 | ¥ | 2,245 | ||||||
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|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
Millions of yen | ||||||||||||
2016 | 2017 | 2018 | ||||||||||
Japanese plans: | ||||||||||||
Service cost | ¥ | 4,401 | ¥ | 5,276 | ¥ | 5,339 | ||||||
Interest cost | 995 | 682 | 778 | |||||||||
Expected return on plan assets | (2,575 | ) | (2,566 | ) | (2,627 | ) | ||||||
Amortization of prior service credit | (928 | ) | (925 | ) | (912 | ) | ||||||
Amortization of net actuarial loss (gain) | (15 | ) | 959 | 856 | ||||||||
Amortization of transition obligation | 49 | 45 | 45 | |||||||||
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Net periodic pension cost | ¥ | 1,927 | ¥ | 3,471 | ¥ | 3,479 | ||||||
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Overseas plans: | ||||||||||||
Service cost | ¥ | 3,856 | ¥ | 3,270 | ¥ | 3,455 | ||||||
Interest cost | 1,747 | 1,757 | 1,994 | |||||||||
Expected return on plan assets | (4,584 | ) | (3,581 | ) | (4,217 | ) | ||||||
Amortization of prior service credit | (113 | ) | (96 | ) | (123 | ) | ||||||
Amortization of net actuarial loss | 1,336 | 617 | 38 | |||||||||
Amortization of transition obligation | 3 | 4 | 4 | |||||||||
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Net periodic pension cost | ¥ | 2,245 | ¥ | 1,971 | ¥ | 1,151 | ||||||
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Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss) for fiscal 2014, 20152016, 2017 and 20162018 are summarized as follows:
Millions of yen | ||||||||||||
2014 | 2015 | 2016 | ||||||||||
Japanese plans: | ||||||||||||
Current year actuarial gain (loss) | ¥ | 1,870 | ¥ | 8,028 | ¥ | (15,417 | ) | |||||
Amortization of net actuarial loss | 777 | 502 | (15 | ) | ||||||||
Prior service credit due to amendments | 743 | 0 | (88 | ) | ||||||||
Amortization of prior service credit | (1,259 | ) | (927 | ) | (928 | ) | ||||||
Amortization of transition obligation | 53 | 53 | 49 | |||||||||
Plan curtailments and settlements | 0 | 0 | (92 | ) | ||||||||
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Total recognized in other comprehensive income (loss), pre-tax | ¥ | 2,184 | ¥ | 7,656 | ¥ | (16,491 | ) | |||||
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Overseas plans: | ||||||||||||
Current year actuarial gain (loss) | ¥ | 2,447 | ¥ | (28,730 | ) | ¥ | 7,881 | |||||
Amortization of net actuarial loss | 60 | 215 | 1,336 | |||||||||
Prior service credit due to amendments | 344 | 843 | 0 | |||||||||
Amortization of prior service credit | (3 | ) | (51 | ) | (113 | ) | ||||||
Amortization of transition obligation | 3 | 5 | 3 | |||||||||
Foreign currency exchange rate change | (7 | ) | 1,065 | 307 | ||||||||
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Total recognized in other comprehensive income (loss), pre-tax | ¥ | 2,844 | ¥ | (26,653 | ) | ¥ | 9,414 | |||||
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Millions of yen | ||||||||||||
2016 | 2017 | 2018 | ||||||||||
Japanese plans: | ||||||||||||
Current year actuarial gain (loss) | ¥ | (15,417 | ) | ¥ | 168 | ¥ | (1,005 | ) | ||||
Amortization of net actuarial loss (gain) | (15 | ) | 959 | 856 | ||||||||
Prior service credit due to amendments | (88 | ) | (34 | ) | (5 | ) | ||||||
Amortization of prior service credit | (928 | ) | (925 | ) | (912 | ) | ||||||
Amortization of transition obligation | 49 | 45 | 45 | |||||||||
Plan curtailments and settlements | (92 | ) | 0 | 0 | ||||||||
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Total recognized in other comprehensive income (loss),pre-tax | ¥ | (16,491 | ) | ¥ | 213 | ¥ | (1,021 | ) | ||||
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Overseas plans: | ||||||||||||
Current year actuarial gain (loss) | ¥ | 7,881 | ¥ | 8,585 | ¥ | (2,417 | ) | |||||
Amortization of net actuarial loss | 1,336 | 617 | 38 | |||||||||
Prior service credit due to amendments | 0 | (1 | ) | 0 | ||||||||
Amortization of prior service credit | (113 | ) | (96 | ) | (123 | ) | ||||||
Amortization of transition obligation | 3 | 4 | 4 | |||||||||
Foreign currency exchange rate change | 307 | 930 | (354 | ) | ||||||||
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Total recognized in other comprehensive income (loss),pre-tax | ¥ | 9,414 | ¥ | 10,039 | ¥ | (2,852 | ) | |||||
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The Company and certain subsidiaries use March 31 as a measurement date for all of our material plans.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
Significant assumptions of Japanese pension plans and overseas pension plans used to determine these amounts are as follows:
Japanese plans | 2014 | 2015 | 2016 | |||||||||
Weighted-average assumptions used to determine benefit obligations at March 31: | ||||||||||||
Discount rate | 1.4 | % | 1.2 | % | 0.7 | % | ||||||
Rate of increase in compensation levels | 5.1 | % | 4.8 | % | 4.4 | % | ||||||
Weighted-average assumptions used to determine net periodic pension cost for years ended March 31: | ||||||||||||
Discount rate | 1.8 | % | 1.4 | % | 1.2 | % | ||||||
Rate of increase in compensation levels | 6.0 | % | 5.1 | % | 4.8 | % | ||||||
Expected long-term rate of return on plan assets | 2.2 | % | 2.3 | % | 2.3 | % |
Overseas plans | 2014 | 2015 | 2016 | |||||||||
Weighted-average assumptions used to determine benefit obligations at March 31: | ||||||||||||
Discount rate | 3.5 | % | 1.5 | % | 1.9 | % | ||||||
Rate of increase in compensation levels | 2.8 | % | 2.8 | % | 2.8 | % | ||||||
Weighted-average assumptions used to determine net periodic pension cost for years ended March 31: | ||||||||||||
Discount rate | 4.3 | % | 3.5 | % | 1.5 | % | ||||||
Rate of increase in compensation levels | 0.6 | % | 2.8 | % | 2.8 | % | ||||||
Expected long-term rate of return on plan assets | 5.6 | % | 5.2 | % | 5.5 | % |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
Japanese plans | 2016 | 2017 | 2018 | |||||||||
Weighted-average assumptions used to determine benefit obligations at March 31: | ||||||||||||
Discount rate | 0.7 | % | 0.8 | % | 0.7 | % | ||||||
Rate of increase in compensation levels | 4.4 | % | 4.5 | % | 4.6 | % | ||||||
Weighted-average assumptions used to determine net periodic pension cost for years ended March 31: | ||||||||||||
Discount rate | 1.2 | % | 0.7 | % | 0.8 | % | ||||||
Rate of increase in compensation levels | 4.8 | % | 4.4 | % | 4.5 | % | ||||||
Expected long-term rate of return on plan assets | 2.3 | % | 2.2 | % | 2.2 | % | ||||||
Overseas plans | 2016 | 2017 | 2018 | |||||||||
Weighted-average assumptions used to determine benefit obligations at March 31: | ||||||||||||
Discount rate | 1.9 | % | 2.1 | % | 2.0 | % | ||||||
Rate of increase in compensation levels | 2.8 | % | 2.4 | % | 2.4 | % | ||||||
Weighted-average assumptions used to determine net periodic pension cost for years ended March 31: | ||||||||||||
Discount rate | 1.5 | % | 1.9 | % | 2.1 | % | ||||||
Rate of increase in compensation levels | 2.8 | % | 2.8 | % | 2.4 | % | ||||||
Expected long-term rate of return on plan assets | 5.5 | % | 4.7 | % | 4.9 | % |
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
The fair value of Japanese pension plan assets at March 31, 20152017 and 2016,2018, by asset category, are as follows. The three levels of input used to measure fair value are described in Note 2 “Fair Value Measurement.”
Millions of yen | Millions of yen | |||||||||||||||||||||||||||||||
March 31, 2015 | March 31, 2017 | |||||||||||||||||||||||||||||||
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) | 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 | ¥ | 16,572 | ¥ | 0 | ¥ | 16,572 | ¥ | 0 | ¥ | 16,902 | ¥ | 0 | ¥ | 0 | ¥ | 0 | ||||||||||||||||
Other than Japan | ||||||||||||||||||||||||||||||||
Pooled funds*2 | 19,717 | 0 | 19,717 | 0 | 18,508 | 0 | 0 | 0 | ||||||||||||||||||||||||
Debt securities: | ||||||||||||||||||||||||||||||||
Japan | ||||||||||||||||||||||||||||||||
Pooled funds*3 | 29,106 | 0 | 29,106 | 0 | 18,524 | 0 | 0 | 0 | ||||||||||||||||||||||||
Other than Japan | ||||||||||||||||||||||||||||||||
Pooled funds*4 | 16,933 | 0 | 16,933 | 0 | 21,127 | 0 | 0 | 0 | ||||||||||||||||||||||||
Other assets: | ||||||||||||||||||||||||||||||||
Life insurance company general accounts*5 | 23,395 | 0 | 23,395 | 0 | 26,731 | 0 | 26,731 | 0 | ||||||||||||||||||||||||
Others*6 | 10,141 | 0 | 10,141 | 0 | 15,198 | 0 | 15,198 | 0 | ||||||||||||||||||||||||
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|
|
| |||||||||||||||||||||||||
¥ | 115,864 | ¥ | 0 | ¥ | 115,864 | ¥ | 0 | ¥ | 116,990 | ¥ | 0 | ¥ | 41,929 | ¥ | 0 | |||||||||||||||||
|
|
|
|
|
|
|
|
*1 | These funds invest in listed shares including shares of ORIX Corporation in the amounts of |
*2 | These funds invest in listed shares. |
*3 | These funds invest approximately |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
At March 31, 2015, our policy for the portfolio of plans consists of three major components: approximately 30% is invested in equity securities, approximately 40% is invested in debt securities and approximately 30% is invested in other assets, primarily consisting of investments in life insurance company general accounts.
Millions of yen | ||||||||||||||||
March 31, 2016 | ||||||||||||||||
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 | ¥ | 15,663 | ¥ | 0 | ¥ | 15,663 | ¥ | 0 | ||||||||
Other than Japan | ||||||||||||||||
Pooled funds*2 | 17,829 | 0 | 17,829 | 0 | ||||||||||||
Debt securities: | ||||||||||||||||
Japan | ||||||||||||||||
Pooled funds*3 | 22,324 | 0 | 22,324 | 0 | ||||||||||||
Other than Japan | ||||||||||||||||
Pooled funds*4 | 21,760 | 0 | 21,760 | 0 | ||||||||||||
Other assets: | ||||||||||||||||
Life insurance company general accounts*5 | 26,300 | 0 | 26,300 | 0 | ||||||||||||
Others*6 | 9,180 | 0 | 9,180 | 0 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
¥ | 113,056 | ¥ | 0 | ¥ | 113,056 | ¥ | 0 | |||||||||
|
|
|
|
|
|
|
|
*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, 2016,2017, our policy for the portfolio of plans consists of three major components: approximately 30% is invested in equity securities, approximately 40%30% is invested in debt securities and approximately 30%40% is invested in other assets, primarily consisting of investments in life insurance company general accounts.
Level 2 assets are comprised principally of pooled funds that invest in equity, debt securities and hedge funds 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. They aredate and they have not redeemable at the net asset value per share at the measurement date, but they are redeemable at the net asset value per sharebeen classified in the near term after the measurement date. Investments in life insurance company general accounts are valued at conversion value.fair value hierarchy.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
The fair value of overseas pension plan assets at March 31, 2015 and 2016, by asset category, are as follows. The three levels of input used to measure fair value are described in Note 2 “Fair Value Measurement.”
Millions of yen | Millions of yen | |||||||||||||||||||||||||||||||
March 31, 2015 | March 31, 2018 | |||||||||||||||||||||||||||||||
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) | 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 | ¥ | 20,628 | ¥ | 0 | ¥ | 0 | ¥ | 0 | ||||||||||||||||||||||||
Other than Japan | ||||||||||||||||||||||||||||||||
Shares | ¥ | 33,001 | ¥ | 33,001 | ¥ | 0 | ¥ | 0 | ||||||||||||||||||||||||
Pooled funds*1 | 70 | 0 | 70 | 0 | ||||||||||||||||||||||||||||
Pooled funds*2 | 23,954 | 0 | 0 | 0 | ||||||||||||||||||||||||||||
Debt securities: | ||||||||||||||||||||||||||||||||
Japan | ||||||||||||||||||||||||||||||||
Pooled funds*3 | 17,828 | 0 | 0 | 0 | ||||||||||||||||||||||||||||
Other than Japan | ||||||||||||||||||||||||||||||||
Government bonds | 27,853 | 27,853 | 0 | 0 | ||||||||||||||||||||||||||||
Municipal bonds | 4,855 | 0 | 4,855 | 0 | ||||||||||||||||||||||||||||
Corporate bonds | 20,314 | 20,314 | 0 | 0 | ||||||||||||||||||||||||||||
Pooled funds*4 | 26,540 | 0 | 0 | 0 | ||||||||||||||||||||||||||||
Other assets: | ||||||||||||||||||||||||||||||||
Life insurance company general accounts*2 | 196 | 0 | 196 | 0 | ||||||||||||||||||||||||||||
Others*3 | 720 | 0 | 720 | 0 | ||||||||||||||||||||||||||||
Life insurance company general accounts*5 | 27,112 | 0 | 27,112 | 0 | ||||||||||||||||||||||||||||
Others*6 | 5,207 | 0 | 5,207 | 0 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
¥ | 87,009 | ¥ | 81,168 | ¥ | 5,841 | ¥ | 0 | ¥ | 121,269 | ¥ | 0 | ¥ | 32,319 | ¥ | 0 | |||||||||||||||||
|
|
|
|
|
|
|
|
*1 | These funds invest in listed shares including shares of ORIX Corporation in the amounts of ¥49 million at March 31, 2018. |
*2 | These funds invest in listed shares. |
* | These funds invest approximately 50% in Japanese government bonds, approximately 10% in Japanese municipal bonds, and approximately 40% in Japanese corporate bonds. These funds include corporate bonds of ORIX Corporation in the amounts of ¥2,017 million at March 31, 2018. |
*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. |
* | Others include derivative instruments held for hedging change in the fair value of equity securities, and short-term instruments. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
At March 31, 2015,2018, our policy for the portfolio of plans consists of twothree major components: approximately 40% is invested in equity securities, and approximately 60%40% is invested in debt securities.securities and approximately 20% is invested in other assets, primarily consisting of investments in life insurance company general accounts.
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
Millions of yen | ||||||||||||||||
March 31, 2016 | ||||||||||||||||
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 | ¥ | 29,367 | ¥ | 29,367 | ¥ | 0 | ¥ | 0 | ||||||||
Pooled funds*1 | 64 | 0 | 64 | 0 | ||||||||||||
Debt securities: | ||||||||||||||||
Other than Japan | ||||||||||||||||
Government bonds | 46,280 | 46,280 | 0 | 0 | ||||||||||||
Municipal bonds | 4,885 | 0 | 4,885 | 0 | ||||||||||||
Corporate bonds | 98 | 98 | 0 | 0 | ||||||||||||
Other assets: | ||||||||||||||||
Life insurance company general accounts*2 | 2,520 | 0 | 2,520 | 0 | ||||||||||||
Others*3 | 1,966 | 0 | 1,966 | 0 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
¥ | 85,180 | ¥ | 75,745 | ¥ | 9,435 | ¥ | 0 | |||||||||
|
|
|
|
|
|
|
|
The fair value of overseas pension plan assets at March 31, 2017 and 2018, by asset category, are as follows. The three levels of input used to measure fair value are described in Note 2 “Fair Value Measurement.”
Millions of yen | ||||||||||||||||
March 31, 2017 | ||||||||||||||||
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 | ¥ | 34,905 | ¥ | 34,905 | ¥ | 0 | ¥ | 0 | ||||||||
Pooled funds*1 | 67 | 0 | 0 | 0 | ||||||||||||
Debt securities: | ||||||||||||||||
Other than Japan | ||||||||||||||||
Government bonds | 39,969 | 39,969 | 0 | 0 | ||||||||||||
Municipal bonds | 4,650 | 0 | 4,650 | 0 | ||||||||||||
Other assets: | ||||||||||||||||
Life insurance company general accounts*2 | 2,487 | 0 | 2,487 | 0 | ||||||||||||
Others*3 | 1,316 | 0 | 1,316 | 0 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
¥ | 83,394 | ¥ | 74,874 | ¥ | 8,453 | ¥ | 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, 2016,2017, our policy for the portfolio of plans consists of three major components: approximately 30%40% is invested in equity securities and approximately 60%50% is invested in debt securities and approximately 10% is invested in other assets, primarily consisting of investments in life insurance company general accounts.
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 pooled funds that invest in equity, debt securities and hedge funds 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. Theydate and they have not been classified in the fair value hierarchy.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
Millions of yen | ||||||||||||||||
March 31, 2018 | ||||||||||||||||
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 | ¥ | 39,841 | ¥ | 39,841 | ¥ | 0 | ¥ | 0 | ||||||||
Pooled funds*1 | 69 | 0 | 0 | 0 | ||||||||||||
Debt securities: | ||||||||||||||||
Other than Japan | ||||||||||||||||
Government bonds | 43,110 | 43,110 | 0 | 0 | ||||||||||||
Municipal bonds | 4,387 | 0 | 4,387 | 0 | ||||||||||||
Other assets: | ||||||||||||||||
Life insurance company general accounts*2 | 2,318 | 0 | 2,318 | 0 | ||||||||||||
Others*3 | 3,613 | 0 | 3,613 | 0 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
¥ | 93,338 | ¥ | 82,951 | ¥ | 10,318 | ¥ | 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, 2018, our policy for the portfolio of plans consists of three major components: approximately 40% is invested in equity securities and approximately 50% is invested in debt securities and approximately 10% is invested in other assets, primarily consisting of investments in life insurance company general accounts.
Each level into which assets are not redeemablecategorized 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 butand they are redeemable at the net asset value per sharehave not been classified in the near term after the measurement date. Investments in life insurance company general accounts are valued at conversion value.
fair value hierarchy.
The Company and certain subsidiaries expect to contribute ¥3,127¥3,467 million to its Japanese pension plans and ¥1,577¥1,844 million to its overseas pension plans during the year ending March 31, 2017.2019.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
At March 31, 2016,2018, 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:
Years ending March 31, | Millions of yen | |||||||
Japanese plans | Overseas plans | |||||||
2017 | ¥ | 2,159 | ¥ | 1,488 | ||||
2018 | 1,785 | 1,239 | ||||||
2019 | 1,916 | 1,301 | ||||||
2020 | 2,060 | 1,334 | ||||||
2021 | 2,165 | 1,330 | ||||||
2022-2026 | 14,055 | 7,757 | ||||||
|
|
|
| |||||
Total | ¥ | 24,140 | ¥ | 14,449 | ||||
|
|
|
|
Millions of yen | ||||||||
Years ending March 31, | Japanese plans | Overseas plans | ||||||
2019 | ¥ | 2,308 | ¥ | 1,412 | ||||
2020 | 2,093 | 1,414 | ||||||
2021 | 2,293 | 1,391 | ||||||
2022 | 2,506 | 1,454 | ||||||
2023 | 2,701 | 1,520 | ||||||
2024-2028 | 16,315 | 10,823 | ||||||
|
|
|
| |||||
Total | ¥ | 28,216 | ¥ | 18,014 | ||||
|
|
|
|
The cost recognized for Japanese defined contribution pension plans of the Company and certain of its subsidiaries for fiscal 2014, 20152016, 2017 and 20162018 were ¥1,044¥1,350 million, ¥1,248¥1,422 million and ¥1,350¥1,626 million, respectively. The cost recognized for overseas defined contribution pension plans of the Company and certain of its subsidiaries for fiscal 2014, 20152016, 2017 and 20162018 were ¥1,560¥2,926 million, ¥2,526¥2,077 million and ¥2,926¥2,354 million, respectively.
18. Redeemable Noncontrolling Interests
Changes in redeemable noncontrolling interests in fiscal 2014, 20152016, 2017 and 20162018 are as follows:
Millions of yen | Millions of yen | |||||||||||||||||||||||
2014 | 2015 | 2016 | 2016 | 2017 | 2018 | |||||||||||||||||||
Beginning Balance | ¥ | 41,621 | ¥ | 53,177 | ¥ | 66,901 | ¥ | 66,901 | ¥ | 7,467 | ¥ | 6,548 | ||||||||||||
Adjustment of redeemable noncontrolling interests to redemption value | 2,851 | 220 | (7,557 | ) | (7,557 | ) | (1,293 | ) | 1,876 | |||||||||||||||
Contribution to subsidiary | 413 | 0 | 0 | |||||||||||||||||||||
Transaction with noncontrolling interests | 1,309 | 2,269 | (3,606 | ) | (3,606 | ) | 0 | 0 | ||||||||||||||||
Comprehensive income | ||||||||||||||||||||||||
Net Income | 4,108 | 4,970 | 819 | 819 | 432 | 452 | ||||||||||||||||||
Other comprehensive income | ||||||||||||||||||||||||
Other comprehensive income (loss) | ||||||||||||||||||||||||
Net change of foreign currency translation adjustments | 4,099 | 9,295 | 919 | 919 | (58 | ) | (416 | ) | ||||||||||||||||
Total other comprehensive income | 4,099 | 9,295 | 919 | |||||||||||||||||||||
Total other comprehensive income (loss) | 919 | (58 | ) | (416 | ) | |||||||||||||||||||
Comprehensive income | 8,207 | 14,265 | 1,738 | 1,738 | 374 | 36 | ||||||||||||||||||
Cash dividends | (1,224 | ) | (3,030 | ) | (11,272 | ) | (11,272 | ) | 0 | (1,040 | ) | |||||||||||||
Property dividends | 0 | 0 | (3,776 | ) | (3,776 | ) | 0 | 0 | ||||||||||||||||
Partial sale of the parent’s ownership interest in subsidiaries that results in the loss of control | 0 | 0 | (34,961 | ) | (34,961 | ) | 0 | 0 | ||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Ending Balance | ¥ | 53,177 | ¥ | 66,901 | ¥ | 7,467 | ¥ | 7,467 | ¥ | 6,548 | ¥ | 7,420 | ||||||||||||
|
|
|
|
|
|
19. 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
Stock-option program
Since fiscal 2006,2008, the Company has granted stock acquisition rights with a vesting period between 1.75 and 1.92 years and an exercise period between 9.83 and 9.92 years from grant date. The acquisition rights were to purchase the Company’s common
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
stock at a specified exercise price and were distributed to directors, executive officers, corporate auditors and certain employees of the Company, subsidiaries and capitaltie-up companies such as affiliated companies. The Company did not grant stock options in fiscal 2014, 20152016, 2017 and 2016.
2018.
A summary of the Company’s stock acquisition rights is as follows:
Years ended March 31, | Exercise period | Number of shares granted* | Exercise price* | Exercise period | Number of shares granted* | Exercise price* | ||||||||||||||
Yen | Yen | |||||||||||||||||||
2006 | From June 22, 2007 to June 21, 2015 | 4,774,000 | 1,891 | |||||||||||||||||
2007 | From June 21, 2008 to June 20, 2016 | 1,942,000 | 2,962 | |||||||||||||||||
2008 | From July 5, 2009 to June 22, 2017 | 1,449,800 | 3,101 | From July 5, 2009 to June 22, 2017 | 1,449,800 | 3,101 | ||||||||||||||
2009 | From July 18, 2010 to June 24, 2018 | 1,479,000 | 1,689 | From July 18, 2010 to June 24, 2018 | 1,479,000 | 1,689 |
* | The number of shares and exercise price of the granted options were adjusted for the10-for-1 stock split implemented on April 1, 2013. |
For the stock-option programs, the exercise prices, which are determined by a formula linked to the price of the Company’s common stock on the Tokyo Stock Exchange, are equal or greater than the fair market value of the Company’s common stock at the grant dates.
The following table summarizes information about the activity of these stock options for fiscal 2016:2018:
Number of shares*2 | Weighted average exercise price*1*2 | Weighted average remaining contractual life | Aggregate intrinsic value | Number of shares*2 | Weighted average exercise price*1*2 | Weighted average remaining contractual life | Aggregate intrinsic value | |||||||||||||||||||||||||
Yen | Years | Millions of yen | Yen | Years | Millions of yen | |||||||||||||||||||||||||||
Outstanding at beginning of the year | 6,347,200 | ¥ | 2,281 | 1,683,200 | 2,386 | |||||||||||||||||||||||||||
Exercised | (414,300 | ) | 1,835 | (388,400 | ) | 1,689 | ||||||||||||||||||||||||||
Forfeited or expired | (2,852,400 | ) | 1,989 | (864,200 | ) | 3,047 | ||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||
Outstanding at end of year | 3,080,500 | 2,612 | 1.08 | ¥ | 0 | 430,600 | 1,689 | 0.17 | 81 | |||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||
Exercisable at end of year | 3,080,500 | ¥ | 2,612 | 1.08 | ¥ | 0 | 430,600 | 1,689 | 0.17 | 81 |
*1 | The exercise price of the granted options was adjusted in July 2009 for the issuance of new 18 million shares. |
*2 | The number of shares and exercise price of the granted options were adjusted for the10-for-1 stock split implemented on April 1, 2013. |
The Company received ¥863¥822 million, ¥1,014¥81 million and ¥822¥656 million in cash from the exercise of stock options during fiscal 2014, 20152016, 2017 and 2016,2018, respectively.
The total intrinsic value of options exercised during fiscal 2014, 20152016, 2017 and 20162018 was ¥403¥39 million, ¥378¥6 million and ¥39¥118 million, respectively.
In fiscal 2014, 20152016, 2017 and 2016,2018, the Company did not recognize any stock-based compensation costs of its stock-option program. As of March 31, 2016,2018, the Company had no unrecognized compensation costs.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
Stock compensation program
The Company maintains a stock compensation program for directors, executive officers and group executives of the Company. In July 2014, the companyCompany changed the way of provision of the compensation for retiree to provide these shares through “The Board Incentive Plan Trust (“the trust”Trust”)” by a resolution of the
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
Compensation Committee. The trustTrust 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 2016,2018, the Company granted 342,500349,410 points, and 457,583474,633 points were settled for individuals who retired during fiscal 2016.2018. Total points outstanding under the stock compensation program as of March 31, 20162018 were 1,642,9591,451,485 points. The points were adjusted for the10-for-1 stock split implemented on April 1, 2013.
During fiscal 2014, 20152016, 2017 and 2016,2018, the Company recognized stock-based compensation costs of its stock compensation program in the amount of ¥609¥646 million, ¥818¥611 million and ¥646¥701 million, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
20. Accumulated Other Comprehensive Income (Loss)
Changes in each component of accumulated other comprehensive income (loss) attributable to ORIX Corporation Shareholders in fiscal 2014, 20152016, 2017 and 20162018 are as follows:
Millions of yen | ||||||||||||||||||||
Net unrealized gains (losses) on investment in securities | Defined benefit pension plans | Foreign currency translation adjustments | Net unrealized gains (losses) on derivative instruments | Accumulated other comprehensive income (loss) | ||||||||||||||||
Balance at March 31, 2013 | ¥ | 28,974 | ¥ | (9,587 | ) | ¥ | (53,759 | ) | ¥ | (1,891 | ) | ¥ | (36,263 | ) | ||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net unrealized gains on investment in securities, net of tax of ¥(9,529) million | 18,566 | 18,566 | ||||||||||||||||||
Reclassification adjustment included in net income, net of tax of ¥4,225 million | (7,963 | ) | (7,963 | ) | ||||||||||||||||
Defined benefit pension plans, net of tax | 3,848 | 3,848 | ||||||||||||||||||
Reclassification adjustment included in net income, net of tax of ¥91 million | (278 | ) | (278 | ) | ||||||||||||||||
Foreign currency translation adjustments, net of tax | 35,425 | 35,425 | ||||||||||||||||||
Reclassification adjustment included in net income, net of tax of ¥(17) million | 1,503 | 1,503 | ||||||||||||||||||
Net unrealized gains on derivative instruments, net of tax | 572 | 572 | ||||||||||||||||||
Reclassification adjustment included in net income, net of tax of ¥(298) million | 915 | 915 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total other comprehensive income | 10,603 | 3,570 | 36,928 | 1,487 | 52,588 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less: Other Comprehensive Income Attributable to the Noncontrolling Interest | 926 | 213 | 11,019 | 30 | 12,188 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less: Other Comprehensive Income Attributable to the Redeemable Noncontrolling Interests | 0 | 0 | 4,099 | 0 | 4,099 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Balance at March 31, 2014 | ¥ | 38,651 | ¥ | (6,230 | ) | ¥ | (31,949 | ) | ¥ | (434 | ) | ¥ | 38 | |||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net unrealized gains on investment in securities, net of tax of ¥(15,416) million | 34,914 | 34,914 | ||||||||||||||||||
Reclassification adjustment included in net income, net of tax of ¥8,501 million | (25,047 | ) | (25,047 | ) | ||||||||||||||||
Defined benefit pension plans, net of tax | (14,834 | ) | (14,834 | ) | ||||||||||||||||
Reclassification adjustment included in net income, net of tax of ¥85 million | (118 | ) | (118 | ) | ||||||||||||||||
Foreign currency translation adjustments, net of tax | 38,309 | 38,309 | ||||||||||||||||||
Reclassification adjustment included in net income, net of tax of ¥120 million | (1,154 | ) | (1,154 | ) | ||||||||||||||||
Net unrealized losses on derivative instruments, net of tax of ¥971 million | (2,985 | ) | (2,985 | ) | ||||||||||||||||
Reclassification adjustment included in net income, net of tax of ¥(716) million | 2,424 | 2,424 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total other comprehensive income (loss) | 9,867 | (14,952 | ) | 37,155 | (561 | ) | 31,509 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Transaction with noncontrolling interests | 0 | 0 | 96 | 0 | 96 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less: Other Comprehensive Income (loss) Attributable to the Noncontrolling Interest | (1,812 | ) | (1,734 | ) | (4,424 | ) | (55 | ) | (8,025 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less: Other Comprehensive Income Attributable to the Redeemable Noncontrolling Interests | 0 | 0 | 9,295 | 0 | 9,295 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Balance at March 31, 2015 | ¥ | 50,330 | ¥ | (19,448 | ) | ¥ | 431 | ¥ | (940 | ) | ¥ | 30,373 | ||||||||
|
|
|
|
|
|
|
|
|
|
Millions of yen | ||||||||||||||||||||
Net unrealized gains (losses) on investment in securities | Defined benefit pension plans | Foreign currency translation adjustments | Net unrealized gains (losses) on derivative instruments | Accumulated other comprehensive income (loss) | ||||||||||||||||
Balance at March 31, 2015 | ¥ | 50,330 | ¥ | (19,448 | ) | ¥ | 431 | ¥ | (940 | ) | ¥ | 30,373 | ||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net unrealized gains (losses) on investment in securities, net of tax of ¥(3,579) million | 14,593 | 14,593 | ||||||||||||||||||
Reclassification adjustment included in net income, net of tax of ¥9,582 million | (17,714 | ) | (17,714 | ) | ||||||||||||||||
Defined benefit pension plans, net of tax of ¥2,969 million | (4,440 | ) | (4,440 | ) | ||||||||||||||||
Reclassification adjustment included in net income, net of tax of ¥(15) million | 317 | 317 | ||||||||||||||||||
Foreign currency translation adjustments, net of tax of ¥2,921 million | (27,763 | ) | (27,763 | ) | ||||||||||||||||
Reclassification adjustment included in net income, net of tax of ¥0 million | 806 | 806 | ||||||||||||||||||
Net unrealized gains (losses) on derivative instruments, net of tax of ¥2,037 million | (4,901 | ) | (4,901 | ) | ||||||||||||||||
Reclassification adjustment included in net income, net of tax of ¥(341) million | 838 | 838 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total other comprehensive income (loss) | (3,121 | ) | (4,123 | ) | (26,957 | ) | (4,063 | ) | (38,264 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less: Other Comprehensive Income (Loss) Attributable to the Noncontrolling Interest | 24 | 313 | (2,679 | ) | (246 | ) | (2,588 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less: Other Comprehensive Income Attributable to the Redeemable Noncontrolling Interests | 0 | 0 | 919 | 0 | 919 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Balance at March 31, 2016 | ¥ | 47,185 | ¥ | (23,884 | ) | ¥ | (24,766 | ) | ¥ | (4,757 | ) | ¥ | (6,222 | ) | ||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net unrealized gains (losses) on investment in securities, net of tax of ¥(1,962) million | (470 | ) | (470 | ) | ||||||||||||||||
Reclassification adjustment included in net income, net of tax of ¥8,255 million | (14,456 | ) | (14,456 | ) | ||||||||||||||||
Defined benefit pension plans, net of tax of ¥(2,422) million | 7,226 | 7,226 | ||||||||||||||||||
Reclassification adjustment included in net income, net of tax of ¥(160) million | 444 | 444 | ||||||||||||||||||
Foreign currency translation adjustments, net of tax of ¥9,385 million | (6,570 | ) | (6,570 | ) | ||||||||||||||||
Reclassification adjustment included in net income, net of tax of ¥(809) million | 602 | 602 | ||||||||||||||||||
Net unrealized gains (losses) on derivative instruments, net of tax of ¥(788) million | 2,020 | 2,020 | ||||||||||||||||||
Reclassification adjustment included in net income, net of tax of ¥559 million | (1,694 | ) | (1,694 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total other comprehensive income (loss) | (14,926 | ) | 7,670 | (5,968 | ) | 326 | (12,898 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Transaction with noncontrolling interests | 12 | (954 | ) | (4,245 | ) | 0 | (5,187 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less: Other Comprehensive Income (Loss) Attributable to the Noncontrolling Interest | (8 | ) | 162 | (3,185 | ) | 52 | (2,979 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less: Other Comprehensive Income (Loss) Attributable to the Redeemable Noncontrolling Interests | 0 | 0 | (58 | ) | 0 | (58 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Balance at March 31, 2017 | ¥ | 32,279 | ¥ | (17,330 | ) | ¥ | (31,736 | ) | ¥ | (4,483 | ) | ¥ | (21,270 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
Millions of yen | ||||||||||||||||||||
Net unrealized gains (losses) on investment in securities | Defined benefit pension plans | Foreign currency translation adjustments | Net unrealized gains (losses) on derivative instruments | Accumulated other comprehensive income (loss) | ||||||||||||||||
Balance at March 31, 2015 | ¥ | 50,330 | ¥ | (19,448 | ) | ¥ | 431 | ¥ | (940 | ) | ¥ | 30,373 | ||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net unrealized gains on investment in securities, net of tax of ¥(3,579) million | 14,593 | 14,593 | ||||||||||||||||||
Reclassification adjustment included in net income, net of tax of ¥9,582 million | (17,714 | ) | (17,714 | ) | ||||||||||||||||
Defined benefit pension plans, net of tax of ¥2,969 million | (4,440 | ) | (4,440 | ) | ||||||||||||||||
Reclassification adjustment included in net income, net of tax of ¥(15) million | 317 | 317 | ||||||||||||||||||
Foreign currency translation adjustments, net of tax of ¥2,921 million | (27,763 | ) | (27,763 | ) | ||||||||||||||||
Reclassification adjustment included in net income, net of tax of ¥0 million | 806 | 806 | ||||||||||||||||||
Net unrealized losses on derivative instruments, net of tax of ¥2,037 million | (4,901 | ) | (4,901 | ) | ||||||||||||||||
Reclassification adjustment included in net income, net of tax of ¥(341) million | 838 | 838 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total other comprehensive income (loss) | (3,121 | ) | (4,123 | ) | (26,957 | ) | (4,063 | ) | (38,264 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less: Other Comprehensive Income (loss) Attributable to the Noncontrolling Interest | 24 | 313 | (2,679 | ) | (246 | ) | (2,588 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less: Other Comprehensive Income Attributable to the Redeemable Noncontrolling Interests | 0 | 0 | 919 | 0 | 919 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Balance at March 31, 2016 | ¥ | 47,185 | ¥ | (23,884 | ) | ¥ | (24,766 | ) | ¥ | (4,757 | ) | ¥ | (6,222 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
Millions of yen | ||||||||||||||||||||
Net unrealized gains (losses) on investment in securities | Defined benefit pension plans | Foreign currency translation adjustments | Net unrealized gains (losses) on derivative instruments | Accumulated other comprehensive income (loss) | ||||||||||||||||
Balance at March 31, 2017 | ¥ | 32,279 | ¥ | (17,330 | ) | ¥ | (31,736 | ) | ¥ | (4,483 | ) | ¥ | (21,270 | ) | ||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net unrealized gains (losses) on investment in securities, net of tax of ¥2,045 million | (2,408 | ) | (2,408 | ) | ||||||||||||||||
Reclassification adjustment included in net income, net of tax of ¥9,039 million | (20,426 | ) | (20,426 | ) | ||||||||||||||||
Defined benefit pension plans, net of tax of ¥888 million | (2,893 | ) | (2,893 | ) | ||||||||||||||||
Reclassification adjustment included in net income, net of tax of ¥23 million | (69 | ) | (69 | ) | ||||||||||||||||
Foreign currency translation adjustments, net of tax of ¥2,813 million | (1,387 | ) | (1,387 | ) | ||||||||||||||||
Reclassification adjustment included in net income, net of tax of ¥(1,296) million | (568 | ) | (568 | ) | ||||||||||||||||
Net unrealized gains (losses) on derivative instruments, net of tax of ¥(1,120) million | 3,820 | 3,820 | ||||||||||||||||||
Reclassification adjustment included in net income, net of tax of ¥981 million | (3,041 | ) | (3,041 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total other comprehensive income (loss) | (22,834 | ) | (2,962 | ) | (1,955 | ) | 779 | (26,972 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Transaction with noncontrolling interests | 0 | 0 | (1 | ) | 0 | (1 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less: Other Comprehensive Income (Loss) Attributable to the Noncontrolling Interest | (88 | ) | 22 | (1,537 | ) | 34 | (1,569 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less: Other Comprehensive Income (Loss) Attributable to the Redeemable Noncontrolling Interests | 0 | 0 | (416 | ) | 0 | (416 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Reclassification of change in accounting standards | 932 | (173 | ) | (67 | ) | 0 | 692 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Balance at March 31, 2018 | ¥ | 10,465 | ¥ | (20,487 | ) | ¥ | (31,806 | ) | ¥ | (3,738 | ) | ¥ | (45,566 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
Note: | Reclassification of change in accounting standards represents the amounts reclassified for the early adoption of the Accounting Standards Update2018-02 (“Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”—ASC 220 (“Income Statement—Reporting Comprehensive Income”)). |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
Amounts reclassified to net income from accumulated other comprehensive income (loss) for fiscal 2014, 20152016, 2017 and 20162018 are as follows:
March 31, | ||||||
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 investment securities | ¥ | |||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
|
| |||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
| ||||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
|
| |||||
| ||||||
| 25,673 | Gains on investment securities and dividends | ||||
Sales of investment securities | 6,453 | Life insurance premiums and related investment income | ||||
Amortization of investment securities | (182 | ) | Finance revenues | |||
Amortization of investment securities | (1,584 | ) | Life insurance premiums and related investment income | |||
Others | (3,064 | ) | Write-downs of securities and other | |||
|
| |||||
27,296 | Total before income tax | |||||
(9,582 | ) | |||||
|
| |||||
¥ | 17,714 | Net of tax | ||||
|
| |||||
Defined benefit pension plans | ||||||
Amortization of prior service credit | ¥ | 1,041 | See Note 17 “Pension Plans” | |||
Amortization of net actuarial loss | (1,321 | ) | See Note 17 “Pension Plans” | |||
Amortization of transition obligation | (52 | ) | See Note 17 “Pension Plans” | |||
|
| |||||
(332 | ) | Total before income tax | ||||
15 | ||||||
|
| |||||
¥ | (317 | ) | Net of tax | |||
|
| |||||
Foreign currency translation adjustments | ||||||
Sales or liquidation | ¥ | (806 | ) | Gains on sales of subsidiaries and affiliates and liquidation losses, net | ||
|
| |||||
(806 | ) | Total before income tax | ||||
0 | ||||||
|
| |||||
¥ | (806 | ) | Net of tax | |||
|
| |||||
Net unrealized gains (losses) on derivative instruments | ||||||
Interest rate swap agreements | ¥ | (27 | ) | Finance revenues/Interest expense | ||
Foreign exchange contracts | 2,608 | Other (income) and expense, net | ||||
Foreign currency swap agreements | (3,760 | ) | Finance revenues/Interest expense/ Other (income) and expense, net | |||
|
| |||||
(1,179 | ) | Total before income tax | ||||
341 | ||||||
|
| |||||
¥ | (838 | ) | Net of tax | |||
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
March 31, 2017 | ||||||
Details about accumulated other comprehensive | Reclassification adjustment included in net income | Consolidated statements of income caption | ||||
Millions of yen | ||||||
Net unrealized gains (losses) on investment in securities | ||||||
Sales of investment securities | ¥ | 16,404 | Gains on investment securities and dividends | |||
Sales of investment securities | 14,297 | Life insurance premiums and related investment income | ||||
Amortization of investment securities | (648 | ) | Finance revenues | |||
Amortization of investment securities | (1,125 | ) | Life insurance premiums and related investment income | |||
Others | (6,217 | ) | Write-downs of securities and other | |||
22,711 | Total before income tax | |||||
(8,255 | ) | Income tax (expense) or benefit | ||||
¥ | 14,456 | Net of tax | ||||
Defined benefit pension plans | ||||||
Amortization of prior service credit | ¥ | 1,021 | See Note 17 “Pension Plans” | |||
Amortization of net actuarial loss | (1,576 | ) | See Note 17 “Pension Plans” | |||
Amortization of transition obligation | (49 | ) | See Note 17 “Pension Plans” | |||
(604 | ) | Total before income tax | ||||
160 | Income tax (expense) or benefit | |||||
¥ | (444 | ) | Net of tax | |||
Foreign currency translation adjustments | ||||||
Sales or liquidation | ¥ | (1,411 | ) | Gains on sales of subsidiaries and affiliates and liquidation losses, net | ||
(1,411 | ) | Total before income tax | ||||
809 | Income tax (expense) or benefit | |||||
¥ | (602 | ) | Net of tax | |||
Net unrealized gains (losses) on derivative instruments | ||||||
Interest rate swap agreements | ¥ | 7 | Finance revenues/Interest expense | |||
Foreign exchange contracts | (136 | ) | Other (income) and expense, net | |||
Foreign currency swap agreements | 2,382 | Finance revenues/Interest expense/ Other (income) and expense, net | ||||
2,253 | Total before income tax | |||||
(559 | ) | Income tax (expense) or benefit | ||||
¥ | 1,694 | Net of tax | ||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
March 31, 2018 | ||||||
Details about accumulated other comprehensive | Reclassification adjustment included in net income | Consolidated statements of income caption | ||||
Millions of yen | ||||||
Net unrealized gains (losses) on investment in securities | ||||||
Sales of investment securities | ¥ | 27,158 | Gains on investment securities and dividends | |||
Sales of investment securities | 4,228 | Life insurance premiums and related investment income | ||||
Amortization of investment securities | (735 | ) | Finance revenues | |||
Amortization of investment securities | (504 | ) | Life insurance premiums and related investment income | |||
Others | (682 | ) | Write-downs of securities and other | |||
29,465 | Total before income tax | |||||
(9,039 | ) | Income tax (expense) or benefit | ||||
¥ | 20,426 | Net of tax | ||||
Defined benefit pension plans | ||||||
Amortization of prior service credit | ¥ | 1,035 | See Note 17 “Pension Plans” | |||
Amortization of net actuarial loss | (894 | ) | See Note 17 “Pension Plans” | |||
Amortization of transition obligation | (49 | ) | See Note 17 “Pension Plans” | |||
92 | Total before income tax | |||||
(23 | ) | Income tax (expense) or benefit | ||||
¥ | 69 | Net of tax | ||||
Foreign currency translation adjustments | ||||||
Sales or liquidation | ¥ | (728 | ) | Gains on sales of subsidiaries and affiliates and liquidation losses, net | ||
(728 | ) | Total before income tax | ||||
1,296 | Income tax (expense) or benefit | |||||
¥ | 568 | Net of tax | ||||
Net unrealized gains (losses) on derivative instruments | ||||||
Interest rate swap agreements | ¥ | 132 | Finance revenues/Interest expense | |||
Foreign exchange contracts | (20 | ) | Other (income) and expense, net | |||
Foreign currency swap agreements | 3,910 | Finance revenues/Interest expense/ Other (income) and expense, net | ||||
4,022 | Total before income tax | |||||
(981 | ) | Income tax (expense) or benefit | ||||
¥ | 3,041 | Net of tax | ||||
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 18 “Redeemable Noncontrolling Interests.” Total comprehensive income (loss) and its components have been reported, net of tax, in the consolidated statements of comprehensive income.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
21. ORIX Corporation Shareholders’ Equity
Changes in the number of shares issued in fiscal 2014, 20152016, 2017 and 20162018 are as follows:
Number of shares | ||||||||||||
2014 | 2015 | 2016 | ||||||||||
Beginning balance | 1,248,714,760 | 1,322,777,628 | 1,323,644,528 | |||||||||
Exercise of stock options | 804,300 | 866,900 | 414,300 | |||||||||
Conversion of convertible bonds | 73,258,568 | 0 | 0 | |||||||||
|
|
|
|
|
| |||||||
Ending balance | 1,322,777,628 | 1,323,644,528 | 1,324,058,828 | |||||||||
|
|
|
|
|
|
Number of shares | ||||||||||||
2016 | 2017 | 2018 | ||||||||||
Beginning balance | 1,323,644,528 | 1,324,058,828 | 1,324,107,328 | |||||||||
Exercise of stock options | 414,300 | 48,500 | 388,400 | |||||||||
|
|
|
|
|
| |||||||
Ending balance | 1,324,058,828 | 1,324,107,328 | 1,324,495,728 | |||||||||
|
|
|
|
|
|
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 additionalpaid-in capital and the legal reserve equals 25% of the issued capital. The Act also provides that both additionalpaid-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 20162018 that a total of ¥31,141¥49,984 million dividends shall be distributed to the shareholders of record as of March 31, 2016.2018. 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 leastone-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 additionalpaid-in capital, and set off expenses related to the issuance from the additionalpaid-in capital.
The amount available for dividends under the Act is calculated based on the amount recorded in the Company’snon-consolidated financial statements prepared in accordance with accounting principles generally accepted in Japan. As a result, the amount available for dividends is ¥567,647¥674,340 million as of March 31, 2016.
2018.
Retained earnings at March 31, 20162018 include ¥47,949¥57,990 million relating to equity in undistributed earnings of the companies accounted for by the equity method.
As of March 31, 2016,2018, the restricted net assets of certain subsidiaries, which include regulatory capital requirements mainly for banking operations and life insurance of ¥23,294¥25,634 million, do not exceed 25% of consolidated net assets.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
22. Gains on Investment Securities and Dividends
Gains on investment securities and dividends in fiscal 2014, 20152016, 2017 and 20162018 consist of the following:
Millions of yen | Millions of yen | |||||||||||||||||||||||
2014 | 2015 | 2016 | 2016 | 2017 | 2018 | |||||||||||||||||||
Net gains on investment securities | ¥ | 19,412 | ¥ | 50,617 | ¥ | 31,134 | ¥ | 31,134 | ¥ | 27,233 | ¥ | 39,139 | ||||||||||||
Dividends income, other | 7,769 | 5,778 | 4,652 | 4,652 | 3,095 | 4,163 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
¥ | 27,181 | ¥ | 56,395 | ¥ | 35,786 | ¥ | 35,786 | ¥ | 30,328 | ¥ | 43,302 | |||||||||||||
|
|
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
Trading activities—Net gains on investment securities include net trading lossesgains of ¥3,208¥892 million, net trading gainslosses of ¥2,843¥65 million and net trading gains of ¥892¥2,290 million for fiscal 2014, 20152016, 2017 and 2016,2018, respectively.
23. Life Insurance Operations
Life insurance premiums and related investment income in fiscal 2014, 20152016, 2017 and 20162018 consist of the following:
Millions of yen | ||||||||||||
2014 | 2015 | 2016 | ||||||||||
Life insurance premiums | ¥ | 145,464 | ¥ | 186,547 | ¥ | 209,120 | ||||||
Life insurance related investment income (loss) | 9,942 | 164,946 | (19,699 | ) | ||||||||
|
|
|
|
|
| |||||||
¥ | 155,406 | ¥ | 351,493 | ¥ | 189,421 | |||||||
|
|
|
|
|
|
Millions of yen | ||||||||||||
2016 | 2017 | 2018 | ||||||||||
Life insurance premiums | ¥ | 209,120 | ¥ | 247,427 | ¥ | 299,320 | ||||||
Life insurance related investment income (loss) | (19,699 | ) | 48,513 | 52,270 | ||||||||
|
|
|
|
|
| |||||||
¥ | 189,421 | ¥ | 295,940 | ¥ | 351,590 | |||||||
|
|
|
|
|
|
Life insurance premiums include reinsurance benefits, net of reinsurance premiums. For fiscal 20152016, 2017 and 2016,2018, reinsurance benefits and reinsurance premiums included in life insurance premiums are as follows:
Millions of yen | ||||||||
2015 | 2016 | |||||||
Reinsurance benefits | ¥ | 2,438 | ¥ | 2,298 | ||||
Reinsurance premiums | (11,430 | ) | (11,530 | ) |
Millions of yen | ||||||||||||
2016 | 2017 | 2018 | ||||||||||
Reinsurance benefits | ¥ | 2,298 | ¥ | 4,023 | ¥ | 3,617 | ||||||
Reinsurance premiums | (11,530 | ) | (9,657 | ) | (6,993 | ) |
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 2014, 20152016, 2017 and 20162018 amounted to ¥9,701¥12,585 million, ¥11,917¥14,346 million and ¥12,585¥16,465 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, life insurance costs include the net amount of the changes in fair value of the variable annuity and variable life insurance contracts elected for the fair value option 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
The above mentioned gains or losses relating to variable annuity and variable life insurance contracts for fiscal 20152016, 2017 and 20162018 are as follows:
Millions of yen | Millions of yen | |||||||||||||||||||
2015 | 2016 | 2016 | 2017 | 2018 | ||||||||||||||||
Life insurance premiums and related investment income : | ||||||||||||||||||||
Net realized and unrealized gains or losses from investment assets | ¥ | 174,602 | ¥ | (33,318 | ) | ¥ | (33,318 | ) | ¥ | 37,016 | ¥ | 46,890 | ||||||||
Net gains or losses from derivative contracts : | (28,227 | ) | 1,633 | |||||||||||||||||
Net gains or losses from derivative contracts: | 1,633 | (10,568 | ) | (7,332 | ) | |||||||||||||||
Futures | (10,216 | ) | 1,116 | 1,116 | (9,118 | ) | (6,238 | ) | ||||||||||||
Foreign exchange contracts | (1,680 | ) | 496 | 496 | 220 | (270 | ) | |||||||||||||
Options held | (16,331 | ) | 21 | 21 | (1,670 | ) | (824 | ) | ||||||||||||
Life insurance costs : | ||||||||||||||||||||
Changes in the fair value of the policy liabilities and policy account balances | ¥ | (510,961 | ) | ¥ | (459,482 | ) | ¥ | (459,482 | ) | ¥ | (189,481 | ) | ¥ | (161,510 | ) | |||||
Insurance costs recognized for insurance and annuity payouts as a result of insured events | 611,663 | 418,731 | 418,731 | ¥ | 185,830 | 180,775 | ||||||||||||||
Changes in the fair value of the reinsurance contracts | 36,072 | (1,817 | ) | (1,817 | ) | ¥ | 15,739 | 7,108 |
24. Sales of Goods and Real Estate
The following table provides information about sales of goods and real estate and costs of goods and real estate sold for fiscal 2014, 20152016, 2017 and 2016:2018:
Millions of yen | Millions of yen | |||||||||||||||||||||||
2014 | 2015 | 2016 | 2016 | 2017 | 2018 | |||||||||||||||||||
Sales of goods | ¥ | 125,808 | ¥ | 352,228 | ¥ | 707,502 | ¥ | 707,502 | ¥ | 898,022 | ¥ | 954,807 | ||||||||||||
Real estate sales | 54,076 | 98,641 | 126,508 | 126,508 | 117,227 | 124,245 | ||||||||||||||||||
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| |||||||||||||||||||
Sales of goods and real estate | ¥ | 179,884 | ¥ | 450,869 | ¥ | 834,010 | ¥ | 834,010 | ¥ | 1,015,249 | ¥ | 1,079,052 | ||||||||||||
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| |||||||||||||||||||
Costs of goods sold | ¥ | 107,047 | ¥ | 308,723 | ¥ | 641,715 | ¥ | 641,715 | ¥ | 832,423 | ¥ | 896,515 | ||||||||||||
Costs of real estate sold | 55,942 | 93,298 | 106,544 | 106,544 | 96,371 | 106,994 | ||||||||||||||||||
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|
|
|
| |||||||||||||||||||
Costs of goods and real estate sold | ¥ | 162,989 | ¥ | 402,021 | ¥ | 748,259 | ¥ | 748,259 | ¥ | 928,794 | ¥ | 1,003,509 | ||||||||||||
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|
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
25. Services Income and Services Expense
The following table provides information about services income and services expense for fiscal 2014, 20152016, 2017 and 2016:2018:
Millions of yen | Millions of yen | |||||||||||||||||||||||
2014 | 2015 | 2016 | 2016 | 2017 | 2018 | |||||||||||||||||||
Revenues from asset management and servicing | ¥ | 126,492 | ¥ | 214,372 | ¥ | 201,470 | ¥ | 201,470 | ¥ | 190,454 | ¥ | 213,667 | ||||||||||||
Revenues from automobile related business | 63,072 | 70,442 | 76,134 | 76,134 | 73,091 | 73,095 | ||||||||||||||||||
Revenues from facilities management related business | 111,228 | 115,177 | 106,632 | |||||||||||||||||||||
Revenues from facilities operation related business | 106,632 | 102,399 | 104,187 | |||||||||||||||||||||
Revenues from environment and energy related business | 49,552 | 62,286 | 85,271 | 85,271 | 100,102 | 112,821 | ||||||||||||||||||
Revenues from real estate management and contract work | 28,243 | 171,562 | 174,170 | 174,170 | 181,088 | 183,243 | ||||||||||||||||||
Revenues from commissions for M&A advisory services, financing advice, financial restructuring advisory services and related services | 58,892 | 78,342 | 22,983 | 22,983 | 0 | 0 | ||||||||||||||||||
Other | 53,036 | 53,367 | 68,526 | 68,526 | 90,769 | 108,045 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Services income | ¥ | 490,515 | ¥ | 765,548 | ¥ | 735,186 | ¥ | 735,186 | ¥ | 737,903 | ¥ | 795,058 | ||||||||||||
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|
|
|
|
| |||||||||||||||||||
Expenses from asset management and servicing | ¥ | 36,150 | ¥ | 52,825 | ¥ | 55,283 | ¥ | 55,283 | ¥ | 47,126 | ¥ | 49,848 | ||||||||||||
Expenses from automobile related business | 39,767 | 43,163 | 46,424 | 46,424 | 44,417 | 44,599 | ||||||||||||||||||
Expenses from facilities management related business | 93,521 | 99,582 | 90,949 | |||||||||||||||||||||
Expenses from facilities operation related business | 90,949 | 87,709 | 90,623 | |||||||||||||||||||||
Expenses from environment and energy related business | 41,712 | 51,436 | 68,888 | 68,888 | 77,020 | 89,278 | ||||||||||||||||||
Expenses from real estate management and contract work | 22,626 | 152,447 | 156,075 | 156,075 | 160,917 | 166,487 | ||||||||||||||||||
Other | 26,502 | 26,223 | 27,768 | 27,768 | 34,088 | 41,961 | ||||||||||||||||||
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| |||||||||||||||||||
Services expense | ¥ | 260,278 | ¥ | 425,676 | ¥ | 445,387 | ¥ | 445,387 | ¥ | 451,277 | ¥ | 482,796 | ||||||||||||
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|
26. Write-Downs of Long-Lived Assets
In accordance with ASC 360 (“Property, Plant, and Equipment”), theThe 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, 2017 and 2018, the long-lived assets classified as held for sale in the accompanying consolidated balance sheets are as follows.
Millions of yen | ||||||||
2017 | 2018 | |||||||
Investment in operating leases | ¥ | 32,283 | ¥ | 31,776 | ||||
Property under facility operations | 1,977 | 12,483 | ||||||
Other assets | 2,508 | 164 |
The long-lived assets classified as held for sale as of March 31, 2017 are included in Corporate Financial Services segment, Maintenance Leasing segment, Real Estate segment, Investment and Operation segment and Overseas Business segment. The long-lived assets classified as held for sale as of March 31, 2018 are included in Corporate Financial Services segment, Real Estate segment, Investment and Operation segment and Overseas Business segment.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
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 2014, 20152016, 2017 and 2016,2018, the Company and its subsidiaries recognized impairment losses for the difference between carrying amounts and fair values in the amount of ¥26,742¥13,448 million, ¥34,887¥9,134 million and ¥13,448¥5,525 million, respectively, which are reflected as write-downs of long-lived assets and income from discontinued operations. Ofassets. Breakdowns of these amounts ¥23,421 million, ¥34,887are as follows.
March 31, 2016 | Write-downs of the assets held for sale | Write-downs due to decline in estimated future cash flows | ||||||||||||||
Amount (Millions of yen) | The number of properties | Amount (Millions of yen) | The number of properties | |||||||||||||
Office buildings | ¥ | 2,183 | 5 | ¥ | 5,855 | 6 | ||||||||||
Commercial facilities other than office buildings | 502 | 2 | 1,559 | 3 | ||||||||||||
Condominiums | 780 | 1 | 0 | 0 | ||||||||||||
Land undeveloped or under construction | 22 | 1 | 0 | 0 | ||||||||||||
Others* | 2,353 | — | 194 | — | ||||||||||||
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|
|
|
|
|
| |||||||||
Total | ¥ | 5,840 | — | ¥ | 7,608 | — | ||||||||||
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|
|
| |||||||||
March 31, 2017 | Write-downs of the assets held for sale | Write-downs due to decline in estimated future cash flows | ||||||||||||||
Amount (Millions of yen) | The number of properties | Amount (Millions of yen) | The number of properties | |||||||||||||
Office buildings | ¥ | 68 | 1 | ¥ | 1,239 | 5 | ||||||||||
Commercial facilities other than office buildings | 1,316 | 3 | 2,082 | 5 | ||||||||||||
Condominiums | 317 | 1 | 69 | 1 | ||||||||||||
Land undeveloped or under construction | 0 | 0 | 786 | 5 | ||||||||||||
Others* | 2,215 | — | 1,042 | — | ||||||||||||
|
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|
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| |||||||||
Total | ¥ | 3,916 | — | ¥ | 5,218 | — | ||||||||||
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|
|
| |||||||||
March 31, 2018 | Write-downs of the assets held for sale | Write-downs due to decline in estimated future cash flows | ||||||||||||||
Amount (Millions of yen) | The number of properties | Amount (Millions of yen) | The number of properties | |||||||||||||
Office buildings | ¥ | 190 | 2 | ¥ | 0 | 0 | ||||||||||
Commercial facilities other than office buildings | 1,134 | 2 | 297 | 3 | ||||||||||||
Others* | 538 | — | 3,366 | — | ||||||||||||
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|
|
|
|
| |||||||||
Total | ¥ | 1,862 | — | ¥ | 3,663 | — | ||||||||||
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|
|
|
|
* | For the “Others”, the number of properties are omitted. Write-downs of long-lived assets for fiscal 2016 and 2017 include write-downs of ¥2,338 million and ¥1,156 million of aircraft, respectively. Write-downs of long-lived assets for fiscal 2018 include write-downs of ¥2,138 million of hotels. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and ¥13,448 million are reflected as write-downs of long-lived assets in the accompanying consolidated statements of income for fiscal 2014, 2015 and 2016, respectively. Subsidiaries
Breakdowns of these amounts by segment are provided in Note 3433 “Segment Information.”
The details of significant write-downs are as follows.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
Office Buildings—During fiscal 2014, write-downs of ¥1,445 million were recorded for five office buildings held for sale, write-downs of ¥3,582 million were recorded in relation to two office buildings due to a decline in estimated future cash flows of each unit, and write-downs of ¥4,109 million were recorded for one office building due to change in use. During fiscal 2015, write-downs of ¥4,805 million were recorded for three office buildings held for sale, and write-downs of ¥9,172 million were recorded in relation to six office buildings due to a decline in estimated future cash flows of each unit. During fiscal 2016, write-downs of ¥2,183 million were recorded for five office buildings held for sale, and write-downs of ¥5,855 million were recorded in relation to six office buildings due to a decline in estimated future cash flows of each unit.
Condominiums—During fiscal 2014, write-downs of ¥988 million were recorded for a condominium held for sale. During fiscal 2015, write-downs of ¥621 million were recorded for one condominium due to change in use. During fiscal 2016, write-downs of ¥780 million were recorded for one condominium held for sale.
Commercial Facilities Other Than Office Buildings—During fiscal 2014, write-downs of ¥137 million were recorded for one building held for sale, and write-downs of ¥2,976 million were recorded in relation to two buildings due to a decline in estimated future cash flows of each unit. During fiscal 2015, write-downs of ¥3,832 million were recorded in relation to three buildings due to a decline in estimated future cash flows of each unit. During fiscal 2016, write-downs of ¥502 million were recorded for two buildings held for sale, and write-downs of ¥1,559 million were recorded in relation to three buildings due to a decline in estimated future cash flows of each unit.
Land undeveloped or under construction—During fiscal 2014, write-downs of ¥713 million were recorded for land undeveloped or under construction held for sale, and write-downs of ¥3,787 million were recorded in relation to land undeveloped or under construction due to a decline in estimated future cash flows of each unit. During fiscal 2015, write-downs of ¥586 million were recorded for land undeveloped or under construction held for sale, and write-downs of ¥2,797 million were recorded in relation to land undeveloped or under construction due to a decline in estimated future cash flows of each unit. During fiscal 2016, write-downs of ¥22 million were recorded for land undeveloped or under construction held for sale.
Others—During fiscal 2014 and 2015, write-downs of ¥9,005 million and ¥13,074 million, respectively, were recorded for long-lived assets other than the above, mainly because the carrying amounts exceeded the estimated undiscounted future cash flows, which decreased due to deterioration in operating performance. During fiscal 2016, write-downs of ¥2,547 million were recorded for long-lived assets other than the above, mainly because these assets were classified as held for sale. In addition, write-downs of long-lived assets in fiscal 2014 includes write-downs of ¥5,052 million of a building used for training facility in facilities operation business and ¥1,292 million of information-related equipment in rental operation. Write-downs of long-lived assets in fiscal 2015 include write-downs of ¥7,737 million of golf courses. Write-downs of long-lived assets in fiscal 2016 include write-downs of ¥2,338 million of aircraft.
27. Discontinued Operations
In April 2014, Accounting Standards Update 2014-08 (“Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity”—ASC 205 (“Presentation of Financial Statements”) and ASC 360 (“Property, Plant, and Equipment”)) was issued. This Update requires an entity to report a disposal or a classification as held for sale of a component of an entity or a group of components of an entity in discontinued operations if it represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. The Company and its subsidiaries early adopted this Update on April 1, 2014. In accordance with this Update, the Company and its subsidiaries report a disposal of a component or a group of components of
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
the Company and its subsidiaries in discontinued operations if the disposal represents a strategic shift which has (or will have) a major effect on the Company and its subsidiaries’ operations and financial results when the component or group of components is disposed by sale or classified as held for sale on or after April 1, 2014.
During fiscal 2015 and 2016, there was no disposal or classification as held for sale of a component or a group of components which represents a strategic shift which has (or will have) a major effect on the Company and its subsidiaries’ operations and financial results.
Prior to these amendments, ASC 205-20 (“Presentation of Financial Statements—Discontinued Operations”) required that the Company and its subsidiaries reclassify the operations sold or disposed of, or to be disposed of by sale without significant continuing involvement in the operations to discontinued operations. During fiscal 2014, the Company and its subsidiaries reported gains on sales and the results of operations of subsidiaries, business units, and certain rental properties, which have been sold or are to be disposed of by sale, as income from discontinued operations in the accompanying consolidated statements of income in accordance with ASC 205-20 prior to the amendments.
Accounting Standards Update 2014-08 does not apply retrospectively to a disposal or a classification as held for sale of a component or a group of components of the Company and its subsidiaries which have previously been reported in the financial statements. Accordingly, during fiscal 2015, the Company and its subsidiaries continue to report gains on sales and the results of operations of subsidiaries and business units, which were classified as held for sale at March 31, 2014, as income from discontinued operations in the accompanying consolidated statements of income in accordance with ASC 205-20 prior to the early adoption of the update.
The Company liquidated a subsidiary that operated a hotel and the Company has determined to wind up a subsidiary that operates corporate finance business overseas due to a state of substantially complete liquidation during fiscal 2014. As a result, a loss of ¥1,600 million was recognized during fiscal 2014. During fiscal 2014, the Company has determined to sell the food business unit of a subsidiary, which is composed of the food service business unit and the food business unit. During fiscal 2015, the operating income from the food business unit and the gain were ¥463 million. The Company has completed the sale of the food business unit of a subsidiary during fiscal 2015 and there are no amounts of assets or liabilities included in the accompanying consolidated balance sheets as of March 31, 2015 and 2016.
The Company and its subsidiaries own various real estate properties, including commercial and office buildings, for rental operations. In fiscal 2014, the Company and its subsidiaries recognized ¥16,200 million of aggregated gains on sales of such real estate properties. In fiscal 2015 and 2016, the Company and its subsidiaries did not recognize any gains or losses on sales of such real estate properties reported as income from discontinued operations. With respect to the real estate properties classified as held for sale at March 31, 2015 included in the accompanying consolidated balance sheets are investment in operating leases of ¥24,619 million, property under facility operations of ¥2,873 million and other assets of ¥689 million. With respect to the real estate properties and transportation equipment classified as held for sale at March 31, 2016, included in the accompanying consolidated balance sheets are investment in operating leases of ¥70,300 million, property under facility operations of ¥2,811 million and other assets of ¥9,959 million.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
Discontinued operations in fiscal 2014 and 2015 consist of the following. During fiscal 2016, there was no income from discontinued operations.
Millions of yen | ||||||||
2014 | 2015 | |||||||
Revenues | ¥ | 26,607 | ¥ | 2,214 | ||||
|
|
|
| |||||
Income from discontinued operations, net* | 12,182 | 463 | ||||||
Provision for income taxes | (4,681 | ) | (166 | ) | ||||
|
|
|
| |||||
Discontinued operations, net of applicable tax effect | ¥ | 7,501 | ¥ | 297 | ||||
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|
|
28. Per Share Data
Reconciliation of the differences between basic and diluted earnings per share (EPS) in fiscal 2014, 20152016, 2017 and 20162018 is as follows:
In fiscal 2014, 20152016, 2017 and 20162018 the diluted EPS calculation excludes stock options for 6,8154,370 thousand shares, 6,4992,697 thousand shares and 4,370192 thousand shares, as they were antidilutive.
Millions of yen | ||||||||||||
2014 | 2015 | 2016 | ||||||||||
Income attributable to ORIX Corporation shareholders from continuing operations | ¥ | 180,069 | ¥ | 234,651 | ¥ | 260,169 | ||||||
Effect of dilutive securities | ||||||||||||
Expense related to convertible bond | 265 | 0 | 0 | |||||||||
|
|
|
|
|
| |||||||
Income from continuing operations for diluted EPS computation | ¥ | 180,334 | ¥ | 234,651 | ¥ | 260,169 | ||||||
|
|
|
|
|
| |||||||
Thousands of shares | ||||||||||||
2014 | 2015 | 2016 | ||||||||||
Weighted-average shares | 1,268,081 | 1,309,144 | 1,309,136 | |||||||||
Effect of dilutive securities | ||||||||||||
Conversion of convertible bond | 40,057 | 0 | 0 | |||||||||
Exercise of stock options | 2,117 | 1,865 | 1,377 | |||||||||
|
|
|
|
|
| |||||||
Weighted-average shares for diluted EPS computation | 1,310,255 | 1,311,009 | 1,310,513 | |||||||||
|
|
|
|
|
| |||||||
Yen | ||||||||||||
2014 | 2015 | 2016 | ||||||||||
Earnings per share for income attributable to ORIX Corporation shareholders from continuing operations: | ||||||||||||
Basic | ¥ | 142.00 | ¥ | 179.24 | ¥ | 198.73 | ||||||
Diluted | 137.63 | 178.99 | 198.52 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Millions of yen | ||||||||||||
2016 | 2017 | 2018 | ||||||||||
Net Income attributable to ORIX Corporation shareholders | ¥ | 260,169 | ¥ | 273,239 | ¥ | 313,135 | ||||||
|
|
|
|
|
| |||||||
Thousands of shares | ||||||||||||
2016 | 2017 | 2018 | ||||||||||
Weighted-average shares | 1,309,136 | 1,308,105 | 1,281,238 | |||||||||
Effect of dilutive securities | ||||||||||||
Exercise of stock options | 1,377 | 1,277 | 1,314 | |||||||||
|
|
|
|
|
| |||||||
Weighted-average shares for diluted EPS computation | 1,310,513 | 1,309,382 | 1,282,552 | |||||||||
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| |||||||
Yen | ||||||||||||
2016 | 2017 | 2018 | ||||||||||
Earnings per share for net income attributable to ORIX Corporation shareholders: | ||||||||||||
Basic | ¥ | 198.73 | ¥ | 208.88 | ¥ | 244.40 | ||||||
Diluted | 198.52 | 208.68 | 244.15 |
Note: | The Company’s shares held through the Board Incentive Plan Trust are included in the number of treasury stock shares to be deducted in calculation of the weighted-average shares for EPS computation (1,984,512 shares, 2,092,595 shares and 1,946,561 shares in fiscal 2016, 2017 and 2018). |
ORIX Corporation and Subsidiaries
The Company’s shares held through the Board Incentive Plan Trust are included in the number of treasury stock shares to be deducted in calculation of the weighted-average shares for EPS computation (1,159,738 shares and 1,984,512 shares in fiscal 2015 and 2016).
29.28. Derivative Financial Instruments and Hedging
Risk management policy
The Company and its subsidiaries manage interest rate risk through asset and liabilityasset-liability management systems.(“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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
agreements, futures and foreign exchange contracts for the purpose of economic hedges against minimum guarantee risk of variable annuity and variable life insurance contracts.
By using derivative instruments, the Company and its subsidiaries are exposed to credit risk in the event of 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, 2017 and 2018.
(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 accumulated 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 ¥915¥838 million, ¥2,424gains of ¥1,694 million and ¥838¥3,041 million during fiscal 2014, 20152016, 2017 and 2016,2018, respectively. The amount of net gains (losses), which represent the ineffectiveness of cash flow hedges, ¥269¥111 million of losses, ¥510gains, ¥310 million of gains and ¥111¥1,124 million of gainslosses were recorded in earnings for fiscal 2014, 20152016, 2017 and 2016,2018, respectively. The amount of net derivative gains, ¥1,465losses, ¥591 million, included in accumulated other comprehensive income (loss), net of applicable income taxes at March 31, 20162018 will be reclassified into earnings within fiscal 2017.2019.
(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 currency swap agreements and foreign exchange contracts to minimize foreign currency exposures on lease receivables, loan receivables, borrowings and others denominated in foreign currency. The Company and
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
its subsidiaries designate interest rate swap to hedge interest rate exposure of the fair values of loan receivables. The Company and certain overseas subsidiaries, which issued medium-term notes or bonds with fixed interest rates, use interest rate swap agreements to hedge interest rate exposure of the fair values of these medium-term notes or bonds. In cases where the medium-term notes were denominated in other than the subsidiaries’ local currencies, foreign currency swap agreements are used to hedge foreign exchange rate exposure. A certain overseas subsidiary uses foreign currency long-term-debt to hedge foreign exchange rate exposure from unrecognized firm commitment. For fiscal 2014, 20152016 and 2016,fiscal 2017, net gains of ¥1 million and net losses of ¥20 million, net gains of ¥21 million and net gains of ¥1¥2 million, respectively, of hedge ineffectiveness associated with instruments designated as fair value hedges were recorded in earnings. For fiscal 2018, there were no gains or losses of hedge ineffectiveness associated with instruments designated as fair value hedges.
(c) Hedges of net investment in foreign operations
The Company uses foreign exchange contracts and borrowings and bonds denominated in the subsidiaries’ localforeign currencies to hedge the foreign currency exposure of the net investment in overseas subsidiaries. The gains and losses of these hedging instruments were recorded in foreign currency translation adjustments, which is a part of other comprehensive income (loss).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
(d) Trading derivatives or derivativesDerivatives not designated as hedging instruments
Certain subsidiaries engage in trading activities involving various future contracts. Therefore the Company and its subsidiaries are at various risks such as share price fluctuation risk, interest rate risk and foreign currency exchange risk. The Company and its subsidiaries check that these risks are below a certain level by using internal indicators and determine whether such contracts should be continued or not. The Company and the subsidiaries entered into interest rate swap agreements, foreign currency swap agreementsfutures and foreign exchange contracts for risk management purposes which are not qualified for hedge accounting under ASC 815 (“Derivatives and Hedging”).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.
ASC 815-10-50 (“Derivatives and Hedging—Disclosures”) requires companies to disclose the fair value of derivative instruments and their gains (losses) in tabular format, as well as information about credit-risk-related contingent features in derivative agreements.
The effect of derivative instruments on the consolidated statements of income,pre-tax, for fiscal 20142016 is as follows.
(1) Cash flow hedges
Gains (losses) recognized in other comprehensive income on derivative (effective portion) | Gains (losses) reclassified from accumulated other comprehensive income (loss) into income (effective portion) | Gains (losses) recognized in income on derivative (ineffective portion and amount excluded from effectiveness testing) | 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 | |||||||||||||||||||||||||||
Millions of yen | Consolidated statements of income location | Millions of yen | Consolidated statements of income location | Millions of yen | Millions of yen | Consolidated statements of | Millions of yen | Consolidated statements of | Millions of yen | |||||||||||||||||||||||
Interest rate swap agreements | ¥ | 945 | Finance revenues/Interest expense | ¥ | 39 | — | ¥ | 0 | ¥ | (4,463 | ) | Finance revenues/Interest expense | ¥ | (27 | ) | — | ¥ | 0 | ||||||||||||||
Foreign exchange contracts | (948 | ) | Other (income) and expense, net | 773 | — | 0 | 491 | Other (income) and expense, net | 2,608 | — | 0 | |||||||||||||||||||||
Foreign currency swap agreements |
| 594 |
| Finance revenues/Interest expense/Other (income) and expense, net |
| (2,025 | ) | Other (income) and expense, net |
| 269 |
|
| (2,786 | ) | Finance revenues/Interest expense/Other (income) and expense, net |
| (3,760 | ) | Other (income) and expense, net |
| 111 |
|
(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 | ¥ | (608 | ) | Finance revenues/Interest expense | ¥ | 608 | Finance revenues/Interest expense | |||||
Foreign exchange contracts | 24,746 | Other (income) and expense, net | (24,746 | ) | Other (income) and expense, net | |||||||
Foreign currency swap agreements | 3,261 | Other (income) and expense, net | (3,260 | ) | Other (income) and expense, net | |||||||
Foreign currency long-term debt | 1,648 | Other (income) and expense, net | (1,648 | ) | Other (income) and expense, net |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
(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 | ¥ | (2,296 | ) | Finance revenues/Interest expense | ¥ | 2,276 | Finance revenues/Interest expense | |||||
Foreign exchange contracts | (3,574 | ) | Other (income) and expense, net | 3,574 | Other (income) and expense, net | |||||||
Foreign currency swap agreements | (2,896 | ) | Other (income) and expense, net | 2,896 | Other (income) and expense, net | |||||||
Foreign currency long-term-debt | (1,609 | ) | Other (income) and expense, net | 1,609 | Other (income) and expense, net |
(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 accumulated 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) | 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 | Millions of yen | Consolidated statements of income location | Millions of yen | Consolidated statements of income location | Millions of yen | |||||||||||||||||||||||||||
Foreign exchange contracts | ¥(23,638) | Gains on sales of subsidiaries and affiliates and liquidation losses, net | ¥(171 | ) | — | ¥0 | ¥ | 18,209 | Gains on sales of subsidiaries and affiliates and liquidation losses, net | ¥ | (57 | ) | — | ¥ | 0 | |||||||||||||||||||||
Borrowings and bonds in local currency | (16,469) | — | 0 | — | 0 | 11,626 | — | 0 | — | 0 |
(4) Trading derivatives or derivativesDerivatives not designated as hedging instruments
Gains (losses) recognized in income on derivative | ||||||
Millions of yen | Consolidated statements of income location | |||||
| ||||||
| ||||||
| ||||||
| ||||||
|
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 2015 is as follows.
(1) Cash flow hedges
Gains (losses) recognized in other comprehensive income on derivative (effective portion) | Gains (losses) reclassified from accumulated 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 | ¥ | (610 | ) | Finance revenues/Interest expense | ¥ | 32 | — | ¥ | 0 | |||||||
Foreign exchange contracts | (1,908 | ) | Other (income) and expense, net | 1,356 | — | 0 | ||||||||||
Foreign currency swap agreements |
| (1,438 | ) | Finance revenues/Interest expense/ Other (income) and expense, net |
| (4,528 | ) | Other (income) and expense, net |
| 510 |
|
(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 | ¥ | (1,298 | ) | Finance revenues/Interest expense | ¥ | 1,318 | Finance revenues/Interest expense | |||||
Foreign exchange contracts | (26,863 | ) | Other (income) and expense, net | 26,863 | Other (income) and expense, net | |||||||
Foreign currency swap agreements | (3,398 | ) | Other (income) and expense, net | 3,399 | Other (income) and expense, net | |||||||
Foreign currency long-term-debt | (1,551 | ) | Other (income) and expense, net | 1,551 | Other (income) and expense, net |
(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 accumulated 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 | ¥(18,670) | Gains on sales of subsidiaries and affiliates and liquidation losses, net | ¥ | 1,274 | — | ¥ | 0 | |||||||||
Borrowings and bonds in local currency | (6,968 | ) | — | 0 | — | 0 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
(4) Trading derivatives or derivatives not designated as hedging instruments
| ||||||
| ||||||
|
| |||||
|
| |||||
| ||||||
|
|
The effect of derivative instruments on the consolidated statements of income, pre-tax, for fiscal 2016 is as follows.
(1) Cash flow hedges
Gains (losses) recognized in other comprehensive income on derivative (effective portion) | Gains (losses) reclassified from accumulated 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 | ¥ | (4,643 | ) | Finance revenues/Interest expense | ¥ | (27 | ) | — | ¥ | 0 |
| |||||
Foreign exchange contracts | 491 | Other (income) and expense, net | 2,608 | — | 0 | |||||||||||
Foreign currency swap agreements |
| (2,786 | ) | Finance revenues/Interest expense/Other (income) and expense, net |
| (3,760 | ) | Other (income) and expense, net |
| 111 |
|
(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 | ¥ | (608 | ) | Finance revenues/Interest expense | ¥ | 608 | Finance revenues/Interest expense | |||||
Foreign exchange contracts | 24,746 | Other (income) and expense, net | (24,746 | ) | Other (income) and expense, net | |||||||
Foreign currency swap agreements | 3,261 | Other (income) and expense, net | (3,260 | ) | Other (income) and expense, net | |||||||
Foreign currency long-term-debt | 1,648 | Other (income) and expense, net | (1,648 | ) | Other (income) and expense, net |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
(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 accumulated 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 | ¥ | 18,209 | Gains on sales of subsidiaries and affiliates and liquidation losses, net | ¥ | (57 | ) | — | ¥ | 0 | |||||||||
Borrowings and bonds in local currency | 11,626 | — | 0 | — | 0 |
(4) Trading derivatives or derivatives not designated as hedging instruments
| ||||||
Interest rate swap agreements | ¥ | (95 | ) | Other (income) and expense, net | ||
Futures | 1,092 | Gains on investment securities and dividends Life insurance premiums and related investment income* | ||||
Foreign exchange contracts | 470 | Gains on investment securities and dividends Life insurance premiums and related investment income* Other (income) and expense, net | ||||
Credit derivatives held | 109 | Other (income) and expense, net | ||||
Options held/written and other | (272 | ) | Other (income) and expense, net Life insurance premiums and related investment income* |
* | Futures, foreign exchange contracts and options held/written and other in the above table include 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 2016 (see Note 23 “Life Insurance Operations”). |
The effect of derivative instruments on the consolidated statements of income,pre-tax, for fiscal 2017 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 | ¥ | 1,757 | Finance revenues/Interest expense | ¥ | 7 | — | ¥ | 0 | ||||||||
Foreign exchange contracts | (1,174 | ) | Other (income) and expense, net | (136 | ) | — | 0 | |||||||||
Foreign currency swap agreements |
|
2,225 |
|
Finance revenues/Interest expense/Other (income) and expense, net |
|
2,382 |
|
Other (income) and expense, net |
|
310 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
(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 | ¥ | (56 | ) | Finance revenues/Interest expense | ¥ | 56 | Finance revenues/Interest expense | |||||
Foreign exchange contracts | (4,463 | ) | Other (income) and expense, net | 4,463 | Other (income) and expense, net | |||||||
Foreign currency swap agreements | 595 | Other (income) and expense, net | (597 | ) | Other (income) and expense, net | |||||||
Foreign currency long-term debt | 78 | Other (income) and expense, net | (78 | ) | Other (income) and expense, net |
(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 | Millions of yen | Consolidated statements of | Millions of yen | ||||||||||||
Foreign exchange contracts | ¥2,300 | Gains on sales of subsidiaries and affiliates and liquidation losses, net | ¥858 | — | ¥0 | |||||||||||
Borrowings and bonds in foreign currencies | 8,908 | — | 0 | — | 0 |
(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 | ¥ | 634 | Other (income) and expense, net | |||
Futures | (9,104 | ) | Gains on investment securities and dividends Life insurance premiums and related investment income* | |||
Foreign exchange contracts | 4,602 | Gains on investment securities and dividends Life insurance premiums and related investment income* Other (income) and expense, net | ||||
Credit derivatives held | (103 | ) | Other (income) and expense, net | |||
Options held/written and other | (2,324 | ) | Other (income) and expense, net Life insurance premiums and related investment income* |
* | Futures, foreign exchange contracts and options held/written and other in the above table include 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 2017 (see Note 23 “Life Insurance Operations”). |
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 2018 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 portion and amount | ||||||||||||||
Millions of yen | Consolidated statements of income location | Millions of yen | Consolidated statements of income location | Millions of yen | ||||||||||||
Interest rate swap agreements | ¥ | (114 | ) | Finance revenues/Interest expense | ¥ | 132 | — | ¥ | 0 | |||||||
Foreign exchange contracts | (566 | ) | Other (income) and expense, net | (20 | ) | — | 0 | |||||||||
Foreign currency swap agreements |
|
5,620 |
|
Finance revenues/Interest expense/Other (income) and expense, net |
|
3,910 |
|
Other (income) and expense, net |
|
(1,124 |
) |
(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 | ¥ | (393 | ) | Finance revenues/Interest expense | ¥ | 393 | Finance revenues/Interest expense | |||||
Foreign exchange contracts | 956 | Other (income) and expense, net | (956 | ) | Other (income) and expense, net | |||||||
Foreign currency swap agreements | 1,147 | Other (income) and expense, net | (1,147 | ) | Other (income) and expense, net |
(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 | ¥ | (14,300 | ) | Gains on sales of subsidiaries and affiliates and liquidation losses, net | ¥ | (3,559 | ) | — | ¥ | 0 | ||||||||
Borrowings and bonds in foreign currencies |
|
8,746 |
|
— |
|
0 |
|
|
— |
|
|
0 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
(4) Derivatives or 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 | ¥ | 1,420 | Other (income) and expense, net | |||
Futures | (5,819 | ) | Gains on investment securities and dividends Life insurance premiums and related investment income* | |||
Foreign exchange contracts | (6,626 | ) | Gains on investment securities and dividends Life insurance premiums and related investment income* Other (income) and expense, net | |||
Credit derivatives held | (4 | ) | Other (income) and expense, net | |||
Options held/written and other | (291 | ) | Other (income) and expense, net Life insurance premiums and related investment income* |
* | Futures, foreign exchange contracts and options held/written and other in the above table include 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 2018 (see Note 23 “Life Insurance Operations”). |
Notional amounts of derivative instruments and other, fair values of derivative instruments and other before offsetting at March 31, 20152017 and 20162018 are as follows.
March 31, 20152017
Asset derivatives | Liability derivatives | Derivative assets | Derivative liabilities | |||||||||||||||||||||||||||||||||
Notional amount | Fair value | Consolidated balance sheets location | Fair value | Consolidated balance sheets location | Notional amount | Fair value | Consolidated balance sheets location | Fair value | Consolidated balance sheets location | |||||||||||||||||||||||||||
Millions of yen | Millions of yen | Millions of yen | Millions of yen | Millions of yen | Millions of yen | |||||||||||||||||||||||||||||||
Derivatives designated as hedging instruments and other: | �� | |||||||||||||||||||||||||||||||||||
Interest rate swap agreements | ¥ | 296,464 | ¥ | 890 | Other Assets | ¥ | 1,094 | Other Liabilities | ¥ | 243,197 | ¥ | 71 | Other Assets | ¥ | 4,391 | Other Liabilities | ||||||||||||||||||||
Futures, Foreign exchange contracts | 581,510 | 5,281 | Other Assets | 11,016 | Other Liabilities | |||||||||||||||||||||||||||||||
Futures, foreign exchange contracts | 745,481 | 6,373 | Other Assets | 8,021 | Other Liabilities | |||||||||||||||||||||||||||||||
Foreign currency swap agreements | 104,058 | 6,411 | Other Assets | 9,788 | Other Liabilities | 74,482 | 4,545 | Other Assets | 1,677 | Other Liabilities | ||||||||||||||||||||||||||
Foreign currency long- term-debt | 258,313 | 0 | — | 0 | — | |||||||||||||||||||||||||||||||
Trading derivatives or derivatives not designated as hedging instruments: | ||||||||||||||||||||||||||||||||||||
Foreign currency long-term debt | 280,266 | 0 | — | 0 | — | |||||||||||||||||||||||||||||||
Derivatives not designated as hedging instruments: | ||||||||||||||||||||||||||||||||||||
Interest rate swap agreements | ¥ | 3,000 | ¥ | 0 | — | ¥ | 127 | Other Liabilities | ¥ | 8,258 | ¥ | 233 | Other Assets | ¥ | 176 | Other Liabilities | ||||||||||||||||||||
Options held/written and other* | 441,586 | 12,103 | Other Assets | 6,177 | Other Liabilities | 224,064 | 5,804 | Other Assets | 1,071 | Other Liabilities | ||||||||||||||||||||||||||
Futures, Foreign exchange contracts* | 111,309 | 438 | Other Assets | 1,252 | Other Liabilities | |||||||||||||||||||||||||||||||
Futures, foreign exchange contracts* | 565,981 | 5,973 | Other Assets | 800 | Other Liabilities | |||||||||||||||||||||||||||||||
Credit derivatives held | 9,013 | 0 | — | 165 | Other Liabilities | 6,942 | 0 | — | 159 | Other Liabilities |
* | The notional amounts of options held/written and other and futures, foreign exchange contracts in the above table include options held of |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
March 31, 20162018
Asset derivatives | Liability derivatives | Derivative assets | Derivative liabilities | |||||||||||||||||||||||||||||||||
Notional amount | Fair value | Consolidated balance sheets location | Fair value | Consolidated balance sheets location | Notional amount | Fair value | Consolidated balance sheets location | Fair value | Consolidated balance sheets location | |||||||||||||||||||||||||||
Millions of yen | Millions of yen | Millions of yen | Millions of yen | Millions of yen | Millions of yen | |||||||||||||||||||||||||||||||
Derivatives designated as hedging instruments and other: | ||||||||||||||||||||||||||||||||||||
Interest rate swap agreements | ¥ | 257,700 | ¥ | 80 | Other Assets | ¥ | 5,686 | Other Liabilities | ¥ | 278,850 | ¥ | 55 | Other Assets | ¥ | 4,759 | Other Liabilities | ||||||||||||||||||||
Futures, Foreign exchange contracts | 1,035,342 | 17,636 | Other Assets | 5,966 | Other Liabilities | |||||||||||||||||||||||||||||||
Futures, foreign exchange contracts | 566,583 | 11,445 | Other Assets | 2,149 | Other Liabilities | |||||||||||||||||||||||||||||||
Foreign currency swap agreements | 96,539 | 6,571 | Other Assets | 3,601 | Other Liabilities | 70,156 | 422 | Other Assets | 3,220 | Other Liabilities | ||||||||||||||||||||||||||
Foreign currency long- term-debt | 225,711 | 0 | — | 0 | — | |||||||||||||||||||||||||||||||
Trading derivatives or derivatives not designated as hedging instruments: | ||||||||||||||||||||||||||||||||||||
Foreign currency long-term debt | 396,503 | 0 | — | 0 | — | |||||||||||||||||||||||||||||||
Derivatives not designated as hedging instruments: | ||||||||||||||||||||||||||||||||||||
Interest rate swap agreements | ¥ | 4,856 | ¥ | 13 | Other Assets | ¥ | 235 | Other Liabilities | ¥ | 19,569 | ¥ | 272 | Other Assets | ¥ | 165 | Other Liabilities | ||||||||||||||||||||
Options held/written and other* | 246,068 | 8,789 | Other Assets | 3,637 | Other Liabilities | 372,138 | 7,025 | Other Assets | 701 | Other Liabilities | ||||||||||||||||||||||||||
Futures, Foreign exchange contracts* | 1,047,878 | 658 | Other Assets | 689 | Other Liabilities | |||||||||||||||||||||||||||||||
Futures, foreign exchange contracts* | 271,365 | 2,612 | Other Assets | 1,298 | Other Liabilities | |||||||||||||||||||||||||||||||
Credit derivatives held | 3,380 | 0 | — | 56 | Other Liabilities | 5,459 | 0 | — | 108 | Other Liabilities |
* | The notional amounts of options held/written and other and futures, foreign exchange contracts in the above table include options held of |
Certain of the Company’s derivative instruments contain provisions that require the Company to maintain an investment grade credit rating from each of the major credit rating agencies. If the Company’s credit rating were to fall below investment grade, it would be in violation of these provisions, and the counterparties to the
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
derivative instruments could request immediate payment on derivative instruments that are in net liability positions. There are no derivative instruments with credit-risk-related contingent features that were in a net liability position on March 31, 2015 and 2016.
30.29. Offsetting Assets and Liabilities
The gross amounts recognized, gross amounts offset, and net amounts presented in the consolidated balance sheetsheets regarding to derivative assets and liabilities and other assets and liabilities as of March 31, 20152017 and 20162018 are as follows.
March 31, 20152017
Millions of yen | 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*1 | Net amount | 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*1 | Net amount | |||||||||||||||||||||||||||||||||||||||
Financial instruments | Collateral | Financial instruments | Collateral received/ pledged | |||||||||||||||||||||||||||||||||||||||||||||
Derivative assets | ¥ | 25,123 | ¥ | (2,858 | ) | ¥ | 22,265 | ¥ | 0 | ¥ | (3,888 | ) | ¥ | 18,377 | ¥ | 22,999 | ¥ | (4,019 | ) | ¥ | 18,980 | ¥ | 0 | ¥ | (3,132 | ) | ¥ | 15,848 | ||||||||||||||||||||
Reverse repurchase, securities borrowing, and similar arrangements*2 | 9,915 | (9,915 | ) | 0 | 0 | 0 | 0 | 3,582 | (3,503 | ) | 79 | 0 | 0 | 79 | ||||||||||||||||||||||||||||||||||
|
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|
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|
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|
| |||||||||||||||||||||||||||||||||||||
Total assets | ¥ | 35,038 | ¥ | (12,773 | ) | ¥ | 22,265 | ¥ | 0 | ¥ | (3,888 | ) | ¥ | 18,377 | ¥ | 26,581 | ¥ | (7,522 | ) | ¥ | 19,059 | ¥ | 0 | ¥ | (3,132 | ) | ¥ | 15,927 | ||||||||||||||||||||
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|
|
|
|
|
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|
| |||||||||||||||||||||||||||||||||||||
Derivative liabilities | ¥ | 29,619 | ¥ | (2,858 | ) | ¥ | 26,761 | ¥ | 0 | ¥ | (277 | ) | ¥ | 26,484 | ¥ | 16,295 | ¥ | (4,019 | ) | ¥ | 12,276 | ¥ | (1,105 | ) | ¥ | (398 | ) | ¥ | 10,773 | |||||||||||||||||||
Repurchase, securities lending, and similar arrangements*2 | 10,590 | (9,915) | 675 | 0 | 0 | 675 | 3,503 | (3,503 | ) | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||
Total liabilities | ¥ | 40,209 | ¥ | (12,773 | ) | ¥ | 27,436 | ¥ | 0 | ¥ | (277 | ) | ¥ | 27,159 | ¥ | 19,798 | ¥ | (7,522 | ) | ¥ | 12,276 | ¥ | (1,105 | ) | ¥ | (398 | ) | ¥ | 10,773 | |||||||||||||||||||
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|
|
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| |||||||||||||||||||||||||||||||||||||
March 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||
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*1 | Net amount | ||||||||||||||||||||||||||||||||||||||||||||
Financial instruments | Collateral | |||||||||||||||||||||||||||||||||||||||||||||||
Derivative assets | ¥ | 33,747 | ¥ | (5,757 | ) | ¥ | 27,990 | ¥ | 0 | ¥ | (3,332 | ) | ¥ | 24,658 | ||||||||||||||||||||||||||||||||||
Reverse repurchase, securities borrowing, and similar arrangements*2 | 5,186 | (5,186 | ) | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Total assets | ¥ | 38,933 | ¥ | (10,943 | ) | ¥ | 27,990 | ¥ | 0 | ¥ | (3,332 | ) | ¥ | 24,658 | ||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Derivative liabilities | ¥ | 19,870 | ¥ | (5,757 | ) | ¥ | 14,113 | ¥ | 0 | ¥ | (225 | ) | ¥ | 13,888 | ||||||||||||||||||||||||||||||||||
Repurchase, securities lending, and similar arrangements*2 | 5,203 | (5,186 | ) | 17 | 0 | 0 | 17 | |||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Total liabilities | ¥ | 25,073 | ¥ | (10,943 | ) | ¥ | 14,130 | ¥ | 0 | ¥ | (225 | ) | ¥ | 13,905 | ||||||||||||||||||||||||||||||||||
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|
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
March 31, 2018
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*1 | Net amount | ||||||||||||||||||||
Financial instruments | Collateral received/ pledged | |||||||||||||||||||||||
Derivative assets | ¥ | 21,831 | ¥ | (2,105 | ) | ¥ | 19,726 | ¥ | (820 | ) | ¥ | (6,497 | ) | ¥ | 12,409 | |||||||||
Reverse repurchase, securities borrowing, and similar arrangements*2 | 5,784 | (5,590 | ) | 194 | 0 | 0 | 194 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total assets | ¥ | 27,615 | ¥ | (7,695 | ) | ¥ | 19,920 | ¥ | (820 | ) | ¥ | (6,497 | ) | ¥ | 12,603 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Derivative liabilities | ¥ | 12,400 | ¥ | (2,105 | ) | ¥ | 10,295 | ¥ | 0 | ¥ | (180 | ) | ¥ | 10,115 | ||||||||||
Repurchase, securities lending, and similar arrangements*2 | 5,590 | (5,590) | 0 | 0 | 0 | 0 | ||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total liabilities | ¥ | 17,990 | ¥ | (7,695 | ) | ¥ | 10,295 | ¥ | 0 | ¥ | (180 | ) | ¥ | 10,115 | ||||||||||
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|
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|
|
*1 | The balances related to enforceable master netting agreements or similar agreements which were not offset in the consolidated balance sheets. |
*2 | Reserve repurchase agreements and securities borrowing, and similar transactions are reported within other assets in the consolidated balance sheets. Repurchase agreements and securities lending, and similar transactions are reported within other liabilities in the consolidated balance sheets. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
31.30. 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 direct financing 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.
The Company and its subsidiaries make investments in securities for various purposes. The risk of incurring significant losses during a certain period is believed to be minimal due to the diversification in the investment portfolio. However, various factors, including the issuer’s credit risk and market trends, could expose the Company and its subsidiaries to a risk of unexpected loss. In connection with investments in securities, the percentage of trading securities to consolidated total assets is 10.4% and 6.6% as of March 31, 2015 and 2016, respectively.
At March 31, 20152017 and 2016,2018, 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, ¥6,601¥6,072 billion, or 80%75%, at March 31, 20152017 and ¥6,104¥6,166 billion, or 78%76%, at March 31, 20162018 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 United States.Americas. The gross amount of such exposure is ¥764¥965 billion and ¥848¥821 billion as of March 31, 20152017 and 2016,2018, respectively.
The Company and its subsidiaries have transportation equipment such as automobile operations and aircraft. Transportation equipment is mainly recorded in investment in direct financing leases and operating leases. In connection with investment in direct financing leases and operating leases, the percentage of investment in transportation equipment to consolidated total assets is 9.4%11.4% and 11.0%11.8% as of March 31, 20152017 and 2016,2018, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
The Company and its subsidiaries provide consumers with housing loans. In connection with installment loans, the percentage of housing loans to consolidated total assets is 9.3%11.4% and 10.3%12.3% as of March 31, 20152017 and 2016,2018, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
32.31. 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 accompanyingCompany’s consolidated financial statementsbalance sheets and the related market or fair value. For derivative financial instruments, see Note 2 “Fair Value Measurements.”
The disclosures do not include investment in direct financing leases, investment in affiliates, pension obligations and insurance contracts and reinsurance contracts except for those classified as investment contracts. For derivative financial instruments, see Note 2 “Fair Value Measurements.”
March 31, 2017
March 31, 2015
Millions of yen | Millions of yen | |||||||||||||||||||||||||||||||||||||||
Carrying amount | Estimated fair value | Level 1 | Level 2 | Level 3 | Carrying amount | Estimated fair value | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||||||||||
Trading securities | ¥ | 1,190,131 | ¥ | 1,190,131 | ¥ | 50,902 | ¥ | 1,139,229 | ¥ | 0 | ||||||||||||||||||||||||||||||
Cash and cash equivalents | 827,518 | 827,518 | 827,518 | 0 | 0 | ¥ | 1,039,870 | ¥ | 1,039,870 | ¥ | 1,039,870 | ¥ | 0 | ¥ | 0 | |||||||||||||||||||||||||
Restricted cash | 85,561 | 85,561 | 85,561 | 0 | 0 | 93,342 | 93,342 | 93,342 | 0 | 0 | ||||||||||||||||||||||||||||||
Installment loans (net of allowance for probable loan losses) | 2,420,932 | 2,439,904 | 0 | 231,565 | 2,208,339 | 2,767,016 | 2,783,466 | 0 | 254,708 | 2,528,758 | ||||||||||||||||||||||||||||||
Trading securities | 569,074 | 569,074 | 37,500 | 531,574 | 0 | |||||||||||||||||||||||||||||||||||
Investment in securities: | ||||||||||||||||||||||||||||||||||||||||
Practicable to estimate fair value | 1,481,162 | 1,495,540 | 130,519 | 1,239,124 | 125,897 | 1,307,618 | 1,332,941 | 93,995 | 1,086,629 | 152,317 | ||||||||||||||||||||||||||||||
Not practicable to estimate fair value*1 | 174,964 | 174,964 | 0 | 0 | 0 | 149,820 | 149,820 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||
Other Assets: | ||||||||||||||||||||||||||||||||||||||||
Time deposits | 13,761 | 13,761 | 0 | 13,761 | 0 | 9,375 | 9,375 | 0 | 9,375 | 0 | ||||||||||||||||||||||||||||||
Derivative assets*2 | 22,265 | 22,265 | 0 | 0 | 0 | 18,980 | 18,980 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||
Reinsurance recoverables (Investment contracts) | 115,116 | 116,229 | 0 | 0 | 116,229 | 72,615 | 73,967 | 0 | 0 | 73,967 | ||||||||||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||||||||||
Short-term debt | ¥ | 284,785 | ¥ | 284,785 | ¥ | 0 | ¥ | 284,785 | ¥ | 0 | ¥ | 283,467 | ¥ | 283,467 | ¥ | 0 | ¥ | 283,467 | ¥ | 0 | ||||||||||||||||||||
Deposits | 1,287,380 | 1,288,419 | 0 | 1,288,419 | 0 | 1,614,608 | 1,615,655 | 0 | 1,615,655 | 0 | ||||||||||||||||||||||||||||||
Policy liabilities and Policy account balances (Investment contracts) | 298,132 | 303,359 | 0 | 0 | 303,359 | 287,463 | 288,372 | 0 | 0 | 288,372 | ||||||||||||||||||||||||||||||
Long-term debt | 4,132,945 | 4,117,259 | 0 | 1,417,687 | 2,699,572 | 3,854,984 | 3,862,815 | 0 | 1,184,261 | 2,678,554 | ||||||||||||||||||||||||||||||
Other Liabilities: | ||||||||||||||||||||||||||||||||||||||||
Derivative liabilities*2 | 26,761 | 26,761 | 0 | 0 | 0 | 12,276 | 12,276 | 0 | 0 | 0 |
*1 | The fair value of investment securities of |
*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.” |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
March 31, 20162018
Millions of yen | Millions of yen | |||||||||||||||||||||||||||||||||||||||
Carrying amount | Estimated fair value | Level 1 | Level 2 | Level 3 | Carrying amount | Estimated fair value | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||||||||||
Trading securities | ¥ | 725,821 | ¥ | 725,821 | ¥ | 37,592 | ¥ | 688,229 | ¥ | 0 | ||||||||||||||||||||||||||||||
Cash and cash equivalents | 730,420 | 730,420 | 730,420 | 0 | 0 | ¥ | 1,321,241 | ¥ | 1,321,241 | ¥ | 1,321,241 | ¥ | 0 | ¥ | 0 | |||||||||||||||||||||||||
Restricted cash | 80,979 | 80,979 | 80,979 | 0 | 0 | 83,876 | 83,876 | 83,876 | 0 | 0 | ||||||||||||||||||||||||||||||
Installment loans (net of allowance for probable loan losses) | 2,545,542 | 2,553,006 | 0 | 264,452 | 2,288,554 | 2,779,186 | 2,788,069 | 0 | 139,416 | 2,648,653 | ||||||||||||||||||||||||||||||
Trading securities | 422,053 | 422,053 | 35,766 | 386,287 | 0 | |||||||||||||||||||||||||||||||||||
Investment in securities: | ||||||||||||||||||||||||||||||||||||||||
Practicable to estimate fair value | 1,480,499 | 1,511,161 | 99,347 | 1,271,506 | 140,308 | 1,167,247 | 1,194,180 | 65,716 | 969,668 | 158,796 | ||||||||||||||||||||||||||||||
Not practicable to estimate fair value*1 | 138,472 | 138,472 | 0 | 0 | 0 | 140,155 | 140,155 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||
Other Assets: | ||||||||||||||||||||||||||||||||||||||||
Time deposits | 9,843 | 9,843 | 0 | 9,843 | 0 | 3,378 | 3,378 | 0 | 3,378 | 0 | ||||||||||||||||||||||||||||||
Derivative assets*2 | 27,990 | 27,990 | 0 | 0 | 0 | 19,726 | 19,726 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||
Reinsurance recoverables Investment contracts | 93,838 | 94,656 | 0 | 0 | 94,656 | |||||||||||||||||||||||||||||||||||
Reinsurance recoverables (Investment contracts) | 51,351 | 52,015 | 0 | 0 | 52,015 | |||||||||||||||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||||||||||
Short-term debt | ¥ | 349,624 | ¥ | 349,624 | ¥ | 0 | ¥ | 349,624 | ¥ | 0 | ¥ | 306,754 | ¥ | 306,754 | ¥ | 0 | ¥ | 306,754 | ¥ | 0 | ||||||||||||||||||||
Deposits | 1,398,472 | 1,400,528 | 0 | 1,400,528 | 0 | 1,757,462 | 1,759,248 | 0 | 1,759,248 | 0 | ||||||||||||||||||||||||||||||
Policy liabilities and Policy account balances (Investment contracts) | 306,058 | 308,064 | 0 | 0 | 308,064 | 275,507 | 275,979 | 0 | 0 | 275,979 | ||||||||||||||||||||||||||||||
Long-term debt | 3,940,906 | 3,959,166 | 0 | 1,106,147 | 2,853,019 | 3,826,504 | 3,830,529 | 0 | 922,319 | 2,908,210 | ||||||||||||||||||||||||||||||
Other Liabilities: | ||||||||||||||||||||||||||||||||||||||||
Derivative liabilities*2 | 14,113 | 14,113 | 0 | 0 | 0 | 10,295 | 10,295 | 0 | 0 | 0 |
*1 | The fair value of investment securities of |
*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.
Estimation of fair value
The following methods and significant assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate a value:
Cash and cash equivalents, restricted cash, time deposits and short-term debt—The carrying amounts recognized in the balance sheets were determined to be reasonable estimates of their fair values due to their short maturity.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
Installment loans—The carrying amounts of floating-rate installment loans with no significant changes in credit risk and which could be repriced within a short-term period were determined to be reasonable estimates of their fair values. The carrying amounts of purchased loans were determined to be reasonable estimates of their fair values because the carrying amounts (net of allowance) are considered to properly reflect the recoverability and value of these loans. For certain homogeneous categories of medium- and long-term fixed-rate loans, such as housing loans, the estimated fair values were calculated by discounting the future cash flows using the current interest rates charged by the Company and its subsidiaries for new loans made to borrowers with similar credit ratings and remaining maturities. Concerning the above, if available, estimated fair values were based on quoted market prices or quotations provided by dealers.
Investment in securities—For trading securities andavailable-for-sale securities other than specified bonds issued by SPEs and certain other mortgage-backed and asset-backed securities, the estimated fair values, which are also the carrying amounts recorded in the balance sheets, were generally based on quoted market prices or quotations provided by dealers. As for the specified bonds issued by the SPEs and certain other mortgage-backed and asset-backed securities included inavailable-for-sale securities, the Company and its subsidiaries estimated the fair value by using valuation models including discounted cash flow methodologies and broker quotes (see Note 2 “Fair Value Measurements”). Forheld-to-maturity securities, the estimated fair values were mainly based on quoted market prices. For certain investment funds included in other securities, the fair values were estimated based on net asset value per share or discounted cash flow methodologies. With regard to other securities other than the investment funds described above, the Company and its subsidiaries have not estimated the fair value, as it is not practicable to do so. Those other securities mainly consist ofnon-marketable equity securities and preferred capital shares. Because there were no quoted market prices for such other securities and each security has a different nature and characteristics, reasonable estimates of fair values could not be made without incurring excessive costs.
Deposits—The carrying amounts of demand deposits recognized in the consolidated balance sheets were determined to be reasonable estimates of their fair values. The estimated fair values of time deposits were calculated by discounting the future cash flows. The current interest rates offered for the deposits with similar terms and remaining average maturities were used as the discount rates.
Long-term debt—The carrying amounts of long-term debt with floating rates which could be repriced within short-term periods were determined to be reasonable estimates of their fair values. Formedium-and long-term fixed-rate debt, the estimated fair values were calculated by discounting the future cash flows. The borrowing interest rates that werewould be currently available to the Company and its subsidiaries offered by financial institutions for debt with similar terms and remaining average maturities were used as the discount rates. Concerning the above, if available, estimated fair values were based on quoted market prices or quotations provided by dealers.
Derivatives—For exchange-traded derivatives, fair value is based on quoted market prices. Fair value estimates for other derivatives generally reflect the estimated amounts that the Company and its subsidiaries would receive or pay to terminate the contracts at the reportingbalance sheet date, thereby taking into account the current unrealized gains or losses of open contracts. In estimating the fair value of most of the Company’s and its subsidiaries’ derivatives, estimated future cash flows are discounted using the current interest rate.
Reinsurance recoverables and Policy liabilities and Policy account balances—A certain subsidiary has fixed annuity contracts, variable annuity and variable life insurance contracts, and reinsurance contracts which are classified as investment contracts because they do not expose the subsidiary to mortality or morbidity risks. In estimating the fair value of those contracts, estimated future cash flows are discounted using the current interest rate.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
33.32. Commitments, Guarantees and Contingent Liabilities
Commitments—As of March 31, 2016,2018, the Company and itscertain subsidiaries have commitments for the purchase of equipment to be leased, having a cost of ¥1,033¥341 million.
The minimum future rentals onnon-cancelable operating leases are as follows:
Years ending March 31, | Millions of yen | |||
2017 | ¥ | 7,959 | ||
2018 | 6,506 | |||
2019 | 5,626 | |||
2020 | 5,280 | |||
2021 | 4,171 | |||
Thereafter | 37,699 | |||
|
| |||
Total | ¥ | 67,241 | ||
|
|
Years ending March 31, | Millions of yen | |||
2019 | ¥ | 7,939 | ||
2020 | 7,017 | |||
2021 | 6,018 | |||
2022 | 5,543 | |||
2023 | 6,631 | |||
Thereafter | 34,523 | |||
|
| |||
Total | ¥ | 67,671 | ||
|
|
The Company and certain subsidiaries lease office space under operating lease agreements, which are primarily cancelable, and made rental payments totaling ¥10,217¥14,036 million, ¥15,782¥13,849 million and ¥14,036¥14,516 million in fiscal 2014, 20152016, 2017 and 2016,2018, respectively.
Certain computer systems of the Company and certain subsidiaries have been operated and maintained undernon-cancelable contracts with third-party service providers. For such services, the Company and certain subsidiaries made payments totaling ¥3,297¥4,754 million, ¥4,231¥5,068 million and ¥4,754¥5,922 million in fiscal 2014, 20152016, 2017 and 2016,2018, respectively. The longest contract of them will mature in fiscal 2022.2024. As of March 31, 2016,2018, the amounts due are as follows:
Years ending March 31, | Millions of yen | |||
2017 | ¥ | 3,385 | ||
2018 | 2,918 | |||
2019 | 2,424 | |||
2020 | 1,822 | |||
2021 | 104 | |||
Thereafter | 21 | |||
|
| |||
Total | ¥ | 10,674 | ||
|
|
Years ending March 31, | Millions of yen | |||
2019 | ¥ | 5,280 | ||
2020 | 3,764 | |||
2021 | 1,673 | |||
2022 | 751 | |||
2023 | 358 | |||
Thereafter | 4 | |||
|
| |||
Total | ¥ | 11,830 | ||
|
|
The Company and certain subsidiaries have commitments to fund estimated construction costs to complete ongoing real estate development projects and other commitments, totaling ¥88,728¥77,957 million as of March 31, 2016.
2018.
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, 2016,2018, the total unused credit and capital amount available is ¥347,603¥319,154 million.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
Guarantees—The Company and its subsidiaries apply ASC 460 (“Guarantees”), and atAt the inception of a guarantee, the Company and its subsidiaries recognize a liability in the consolidated balance sheets at fair value for the guarantee within the scope of ASC 460.ASC460 (“Guarantees”). The following table represents the summary of potential future payments, book value recorded as guarantee liabilities of the guarantee contracts outstanding and maturity of the longest guarantee contracts as of March 31, 20152017 and 2016:2018:
2015 | 2016 | 2017 | 2018 | |||||||||||||||||||||||||||||||||||||||||||||
Millions of yen | Fiscal year | Millions of yen | Fiscal year | 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 | 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 | ¥ | 439,253 | ¥ | 4,959 | 2022 | ¥ | 396,340 | ¥ | 5,875 | 2023 | ¥ | 451,597 | ¥ | 7,274 | 2024 | ¥ | 488,297 | ¥ | 7,294 | 2025 | ||||||||||||||||||||||||||||
Transferred loans | 213,099 | 2,357 | 2045 | 174,322 | 1,587 | 2046 | 167,799 | 1,300 | 2047 | 166,906 | 1,227 | 2058 | ||||||||||||||||||||||||||||||||||||
Consumer loans | 117,153 | 11,773 | 2018 | 179,225 | 21,748 | 2018 | 249,719 | 29,641 | 2018 | 297,153 | 37,596 | 2029 | ||||||||||||||||||||||||||||||||||||
Housing loans | 59,743 | 6,422 | 2051 | 28,919 | 5,853 | 2051 | 26,448 | 5,362 | 2048 | 28,408 | 5,021 | 2048 | ||||||||||||||||||||||||||||||||||||
Other | 2,963 | 28 | 2024 | 482 | 179 | 2024 | 935 | 307 | 2025 | 615 | 230 | 2025 | ||||||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||||
Total | ¥ | 832,211 | ¥ | 25,539 | — | ¥ | 779,288 | ¥ | 35,242 | — | ¥ | 896,498 | ¥ | 43,884 | — | ¥ | 981,379 | ¥ | 51,368 | — | ||||||||||||||||||||||||||||
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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, 20152017 and 2016,2018, total notional amount of the loans subject to such guarantees are ¥1,204,000¥1,326,000 million and ¥1,278,000¥1,098,000 million, respectively, and book value of guarantee liabilities are ¥1,016¥1,722 million and ¥1,080¥1,966 million, respectively. The potential future payment amounts for these guarantees are limited to a certain range of the guarantee commissions, which are less than the total notional amounts of the loans subject to these guarantees. The potential future payment amounts for the contract period are calculated from the guarantee limit which is arranged by financial institutions in advance as to contracts that the amounts of performance guarantee are unlimited to a certain range of guarantee commissions. For this reason, the potential future payment amounts for these guarantees include the amount of the guarantee which may occur in the future, which is larger than the balance of guarantee executed as of the end of the 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 2016.2018.
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 from Fannie Mae under Fannie Mae’s Delegated Underwriting and Servicing program. As part of this program, Fannie Mae provides a commitment to purchase the loans.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
In return for the delegated authority, the subsidiary guarantees the performance of certain housing loans transferred to Fannie Mae 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 2016.2018.
As of March 31, 2017 and 2018, 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 ¥546,871 million and ¥564,854 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 a month 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 2016.2018.
Guarantee of housing loans: The Company and certain subsidiaries guarantee housing loans 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 housing 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.
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 2016.2018.
Other guarantees: Other guarantees include the guarantees to financial institutions and the guarantees derived from collection agency agreements. Pursuant to the contracts of the guarantees to financial institutions, a certain subsidiary pays to the financial institutions when customers of the financial institutions become debtors and default on the debts. Pursuant to the agreements of the guarantees derived from collection agency agreements, the Company and certain subsidiaries collect third parties’ debt and pay the uncovered amounts.
Litigation—The Company and certain subsidiaries are involved in legal proceedings and claims in the ordinary course of business. In the opinion of management, none of such proceedings and claims will have a significant impact on the Company’s financial position or results of operations.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
34.33. Segment Information
Financial information about the operating segments reported below is that which is available by segment and evaluated regularly by the management in deciding how to allocate resources and in assessing performance.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
An overview of operations for each of the six segments follows below.
Corporate Financial Services | : | |||||
Maintenance Leasing | : | Automobile leasing and rentals, | ||||
Real Estate | : | Real estate development and rental, facility operation, REIT asset management, and real estate investment and advisory services | ||||
Investment and Operation | : | Environment and | ||||
Retail | : | Life insurance, banking and card loan | ||||
Overseas Business | : | Leasing, |
Financial information of the segments for fiscal 2014, 20152016, 2017 and 20162018 is as follows:
Year ended March 31, 2014 | Millions of yen | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Corporate Financial Services | Maintenance Leasing | Real Estate | Investment and Operation | Retail | Overseas Business | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||
Year ended March 31, 2016 | Millions of yen | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Corporate Financial Services | Maintenance Leasing | Real Estate | Investment and Operation | Retail | Overseas Business | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||
Revenues | ¥ | 78,825 | ¥ | 251,328 | ¥ | 203,382 | ¥ | 236,879 | ¥ | 211,612 | ¥ | 412,157 | ¥ | 1,394,183 | ¥ | 107,150 | ¥ | 271,662 | ¥ | 191,540 | ¥ | 1,028,355 | ¥ | 254,289 | ¥ | 526,008 | ¥ | 2,379,004 | ||||||||||||||||||||||||||||
Finance revenues | 37,235 | 9,472 | 6,132 | 18,350 | 50,406 | 57,328 | 178,923 | 34,215 | 12,067 | 6,720 | 12,625 | 55,318 | 75,004 | 195,949 | ||||||||||||||||||||||||||||||||||||||||||
Interest expense | 8,594 | 3,687 | 9,018 | 4,077 | 5,593 | 28,087 | 59,056 | 7,214 | 3,545 | 4,676 | 3,539 | 4,654 | 33,356 | 56,984 | ||||||||||||||||||||||||||||||||||||||||||
Depreciation and amortization | 3,170 | 117,357 | 19,200 | 2,867 | 12,644 | 41,551 | 196,789 | 4,764 | 127,862 | 15,908 | 8,836 | 17,489 | 52,606 | 227,465 | ||||||||||||||||||||||||||||||||||||||||||
Other significant non-cash items: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Provision for doubtful receivables and probable loan losses | (974 | ) | 363 | 2,079 | 2,620 | 3,485 | 5,673 | 13,246 | (701 | ) | 24 | (110 | ) | (940 | ) | 7,370 | 7,277 | 12,920 | ||||||||||||||||||||||||||||||||||||||
Write-downs of long-lived assets | 0 | 1,292 | 16,958 | 15 | 0 | 1,046 | 19,311 | 0 | 0 | 8,036 | 214 | 0 | 4,978 | 13,228 | ||||||||||||||||||||||||||||||||||||||||||
Increase in policy liabilities and policy account balances | 0 | 0 | 0 | 0 | 28,429 | 0 | 28,429 | |||||||||||||||||||||||||||||||||||||||||||||||||
Decrease in policy liabilities and policy account balances | 0 | 0 | 0 | 0 | (405,014 | ) | 0 | (405,014 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Equity in net income (loss) of affiliates and gains (losses) on sales of subsidiaries and affiliates and liquidation losses, net | 792 | 152 | 4,709 | 68,758 | 3,920 | 6,793 | 85,124 | 1,064 | 191 | 6,048 | 18,822 | 796 | 76,747 | 103,668 | ||||||||||||||||||||||||||||||||||||||||||
Discontinued operations | 0 | 0 | 8,832 | 383 | 238 | (279 | ) | 9,174 | ||||||||||||||||||||||||||||||||||||||||||||||||
Segment profits | 24,874 | 37,062 | 17,956 | 95,786 | 49,871 | 69,688 | 295,237 | 42,418 | 42,935 | 42,902 | 57,220 | 51,756 | 142,879 | 380,110 | ||||||||||||||||||||||||||||||||||||||||||
Segment assets | 992,078 | 622,009 | 962,404 | 552,183 | 2,166,986 | 1,972,138 | 7,267,798 | 1,049,867 | 731,329 | 739,592 | 704,156 | 3,462,772 | 2,284,733 | 8,972,449 | ||||||||||||||||||||||||||||||||||||||||||
Long-lived assets | 26,665 | 433,342 | 773,146 | 75,458 | 76,491 | 396,948 | 1,782,050 | 41,170 | 479,619 | 600,693 | 193,970 | 52,359 | 386,950 | 1,754,761 | ||||||||||||||||||||||||||||||||||||||||||
Expenditures for long-lived assets | 3,505 | 176,952 | 32,056 | 22,428 | 195 | 117,419 | 352,555 | 14,180 | 151,330 | 49,858 | 74,645 | 439 | 272,315 | 562,767 | ||||||||||||||||||||||||||||||||||||||||||
Investment in affiliates | 18,909 | 1,718 | 62,504 | 59,759 | 10,971 | 143,454 | 297,315 | 22,755 | 1,996 | 91,010 | 108,237 | 911 | 305,674 | 530,583 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
Year ended March 31, 2015 | Millions of yen | |||||||||||||||||||||||||||
Corporate Financial Services | Maintenance Leasing | Real Estate | Investment and Operation | Retail | Overseas Business | Total | ||||||||||||||||||||||
Revenues | ¥ | 85,502 | ¥ | 263,499 | ¥ | 182,321 | ¥ | 666,120 | ¥ | 425,977 | ¥ | 561,893 | ¥ | 2,185,312 | ||||||||||||||
Finance revenues | 35,624 | 11,103 | 4,057 | 15,650 | 52,510 | 63,259 | 182,203 | |||||||||||||||||||||
Interest expense | 8,627 | 3,690 | 6,968 | 3,609 | 5,669 | 29,989 | 58,552 | |||||||||||||||||||||
Depreciation and amortization | 3,373 | 125,013 | 16,900 | 5,919 | 15,190 | 47,397 | 213,792 | |||||||||||||||||||||
Other significant non-cash items: | ||||||||||||||||||||||||||||
Provision for doubtful receivables and probable loan losses | 597 | 372 | (85 | ) | (296 | ) | 3,975 | 8,086 | 12,649 | |||||||||||||||||||
Write-downs of long-lived assets | 653 | 0 | 29,418 | 211 | 0 | 4,605 | 34,887 | |||||||||||||||||||||
Decrease in policy liabilities and policy account balances | 0 | 0 | 0 | 0 | (506,043 | ) | 0 | (506,043 | ) | |||||||||||||||||||
Equity in net income (loss) of affiliates and gains (losses) on sales of subsidiaries and affiliates and liquidation losses, net | 740 | 59 | 9,633 | 11,985 | 633 | 28,433 | 51,483 | |||||||||||||||||||||
Bargain Purchase Gain | 0 | 0 | 0 | 0 | 36,082 | 0 | 36,082 | |||||||||||||||||||||
Discontinued operations | 0 | 0 | 0 | 463 | 0 | 0 | 463 | |||||||||||||||||||||
Segment profits | 25,519 | 40,366 | 3,484 | 42,414 | 120,616 | 104,143 | 336,542 | |||||||||||||||||||||
Segment assets | 1,132,468 | 662,851 | 835,386 | 660,014 | 3,700,635 | 2,178,895 | 9,170,249 | |||||||||||||||||||||
Long-lived assets | 35,470 | 450,099 | 652,524 | 145,153 | 49,838 | 289,097 | 1,622,181 | |||||||||||||||||||||
Expenditures for long-lived assets | 8,717 | 162,323 | 45,019 | 70,616 | 144 | 106,338 | 393,157 | |||||||||||||||||||||
Investment in affiliates | 20,875 | 2,074 | 91,275 | 51,108 | 3,785 | 209,027 | 378,144 | |||||||||||||||||||||
Year ended March 31, 2016 | Millions of yen | |||||||||||||||||||||||||||
Corporate Financial Services | Maintenance Leasing | Real Estate | Investment and Operation | Retail | Overseas Business | Total | ||||||||||||||||||||||
Revenues | ¥ | 107,150 | ¥ | 271,662 | ¥ | 191,540 | ¥ | 1,028,355 | ¥ | 254,289 | ¥ | 526,008 | ¥ | 2,379,004 | ||||||||||||||
Finance revenues | 34,215 | 12,067 | 6,720 | 12,625 | 55,318 | 75,004 | 195,949 | |||||||||||||||||||||
Interest expense | 7,214 | 3,545 | 4,676 | 3,539 | 4,654 | 33,356 | 56,984 | |||||||||||||||||||||
Depreciation and amortization | 4,764 | 127,862 | 15,908 | 8,836 | 17,489 | 52,606 | 227,465 | |||||||||||||||||||||
Other significant non-cash items: | ||||||||||||||||||||||||||||
Provision for doubtful receivables and probable loan losses | (701 | ) | 24 | (110 | ) | (940 | ) | 7,370 | 7,277 | 12,920 | ||||||||||||||||||
Write-downs of long-lived assets | 0 | 0 | 8,036 | 214 | 0 | 4,978 | 13,228 | |||||||||||||||||||||
Decrease in policy liabilities and policy account balances | 0 | 0 | 0 | 0 | (405,014 | ) | 0 | (405,014 | ) | |||||||||||||||||||
Equity in net income (loss) of affiliates and gains (losses) on sales of subsidiaries and affiliates and liquidation losses, net | 1,064 | 191 | 6,048 | 18,822 | 796 | 76,747 | 103,668 | |||||||||||||||||||||
Segment profits | 42,418 | 42,935 | 42,902 | 57,220 | 51,756 | 142,879 | 380,110 | |||||||||||||||||||||
Segment assets | 1,049,867 | 731,329 | 739,592 | 704,156 | 3,462,772 | 2,284,733 | 8,972,449 | |||||||||||||||||||||
Long-lived assets | 41,170 | 479,619 | 600,693 | 193,970 | 52,359 | 386,950 | 1,754,761 | |||||||||||||||||||||
Expenditures for long-lived assets | 14,180 | 151,330 | 49,858 | 74,645 | 439 | 272,315 | 562,767 | |||||||||||||||||||||
Investment in affiliates | 22,755 | 1,996 | 91,010 | 108,237 | 911 | 305,674 | 530,583 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
Segment figures reported in these tables include operations classified as discontinued operations in the accompanying consolidated statements of income.
Year ended March 31, 2017 | Millions of yen | |||||||||||||||||||||||||||
Corporate Financial Services | Maintenance Leasing | Real Estate | Investment and Operation | Retail | Overseas Business | Total | ||||||||||||||||||||||
Revenues | ¥ | 102,979 | ¥ | 270,615 | ¥ | 212,050 | ¥ | 1,271,973 | ¥ | 368,665 | ¥ | 458,912 | ¥ | 2,685,194 | ||||||||||||||
Finance revenues | 30,153 | 13,029 | 2,319 | 10,680 | 59,177 | 81,251 | 196,609 | |||||||||||||||||||||
Interest expense | 6,032 | 3,360 | 3,085 | 4,870 | 4,041 | 36,535 | 57,923 | |||||||||||||||||||||
Depreciation and amortization | 6,517 | 130,272 | 15,169 | 13,176 | 18,914 | 50,960 | 235,008 | |||||||||||||||||||||
Other significantnon-cash items: | ||||||||||||||||||||||||||||
Provision for doubtful receivables and probable loan losses | (96 | ) | 210 | 33 | (1,047 | ) | 10,109 | 13,959 | 23,168 | |||||||||||||||||||
Write-downs of long-lived assets | 0 | 46 | 3,353 | 1,569 | 0 | 3,908 | 8,876 | |||||||||||||||||||||
Decrease in policy liabilities and policy account balances | 0 | 0 | 0 | 0 | (103,878 | ) | 0 | (103,878 | ) | |||||||||||||||||||
Equity in net income (loss) of affiliates and gains (losses) on sales of subsidiaries and affiliates and liquidation losses, net | 3,354 | 178 | 4,160 | 39,750 | 14 | 42,470 | 89,926 | |||||||||||||||||||||
Bargain Purchase Gain | 0 | 0 | 0 | 5,802 | 0 | 0 | 5,802 | |||||||||||||||||||||
Segment profits | 38,032 | 39,787 | 72,841 | 85,000 | 72,865 | 112,312 | 420,837 | |||||||||||||||||||||
Segment assets | 1,032,152 | 752,513 | 657,701 | 768,675 | 3,291,631 | 2,454,200 | 8,956,872 | |||||||||||||||||||||
Long-lived assets | 42,337 | 452,840 | 512,930 | 269,515 | 45,267 | 435,368 | 1,758,257 | |||||||||||||||||||||
Expenditures for long-lived assets | 8,330 | 164,486 | 32,875 | 74,787 | 276 | 196,451 | 477,205 | |||||||||||||||||||||
Investment in affiliates | 18,392 | 1,880 | 99,347 | 71,481 | 810 | 332,154 | 524,064 | |||||||||||||||||||||
Year ended March 31, 2018 | Millions of yen | |||||||||||||||||||||||||||
Corporate Financial Services | Maintenance Leasing | Real Estate | Investment and Operation | Retail | Overseas Business | Total | ||||||||||||||||||||||
Revenues | ¥ | 115,712 | ¥ | 275,740 | ¥ | 172,948 | ¥ | 1,402,313 | ¥ | 428,697 | ¥ | 477,420 | ¥ | 2,872,830 | ||||||||||||||
Finance revenues | 28,390 | 14,059 | 2,055 | 8,982 | 61,222 | 96,368 | 211,076 | |||||||||||||||||||||
Interest expense | 4,893 | 3,049 | 2,224 | 5,632 | 4,026 | 49,477 | 69,301 | |||||||||||||||||||||
Depreciation and amortization | 10,404 | 131,829 | 14,952 | 21,726 | 21,642 | 70,109 | 270,662 | |||||||||||||||||||||
Other significantnon-cash items: | ||||||||||||||||||||||||||||
Provision for doubtful receivables and probable loan losses | 1,072 | 192 | (8 | ) | (927 | ) | 11,244 | 5,831 | 17,404 | |||||||||||||||||||
Write-downs of long-lived assets | 32 | 29 | 4,187 | 27 | 0 | 1,250 | 5,525 | |||||||||||||||||||||
Decrease in policy liabilities and policy account balances | 0 | 0 | 0 | 0 | (53,512 | ) | 0 | (53,512 | ) | |||||||||||||||||||
Equity in net income (loss) of affiliates and gains (losses) on sales of subsidiaries and affiliates and liquidation losses, net | 2,681 | 102 | 32,775 | 52,001 | 6 | 11,749 | 99,314 | |||||||||||||||||||||
Segment profits | 49,275 | 40,162 | 62,372 | 96,120 | 74,527 | 106,602 | 429,058 | |||||||||||||||||||||
Segment assets | 961,901 | 818,201 | 620,238 | 847,677 | 3,174,505 | 2,594,728 | 9,017,250 | |||||||||||||||||||||
Long-lived assets | 41,252 | 468,459 | 482,300 | 284,416 | 43,878 | 507,535 | 1,827,840 | |||||||||||||||||||||
Expenditures for long-lived assets | 3,764 | 170,727 | 56,755 | 60,779 | 174 | 286,730 | 578,929 | |||||||||||||||||||||
Investment in affiliates | 16,845 | 1,996 | 86,666 | 170,449 | 702 | 314,569 | 591,227 |
The accounting policies of the segments are almost the same as those described in Note 1 “Significant Accounting and Reporting Policies” except for the treatment of income tax expenses, net income attributable to the noncontrolling interests, net income attributable to the redeemable noncontrolling interests income from discontinued operations and the consolidation of certain variable interest entities (VIEs). Income taxes are not included in segment profits or losses because the management evaluates segments’ performance on a pre-tax basis. Also, netNet income attributable to noncontrolling interests and
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
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. On the other hand, income from discontinued operations isIncome taxes are not included in segment profits or losses because the management considers such disposal activities as part of the ordinary course of business. Netevaluates segments’ performance on a pre-tax basis. Additionally, net income attributable to the noncontrolling interests, net income attributable to the redeemable noncontrolling interests, and income from discontinued operations, which are recognized net of tax in the accompanying consolidated statements of income, are adjusted to profit or loss before income taxes, when calculating segment profits or losses. Most of selling, general and administrative expenses, including compensation costs that are directly related to the revenue generating activities of each segment, 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 securities, write-downs of certain long-lived assets and certain foreign exchange gains or losses (included in other (income) and expense, net) are excluded from the segment profits or losses, and are regarded as corporate items.
Assets attributed to each segment are investment in direct financing leases, installment loans, investment in operating leases, investment in securities, property under facility operations, investment in affiliates, inventories, advances for investment in operating leases (included in other assets), advances for investment in property under facility operations (included in other assets) and goodwill and other intangible assets recognized as a result of business combination (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.
For those VIEs that are used for securitization and are consolidated, in accordance with ASC 810 (“Consolidations”), for which the VIE’s assets can be used only to settle related obligations of those VIEs and the creditors (or beneficial interest holders) do not have recourse to other assets of the Company or its subsidiaries, segment assets are measured based on the amount of the Company and its subsidiaries’ net investments in the VIEs, which is different from the amount of total assets of the VIEs, and accordingly, segment revenues are also measured at a net amount representing the revenues earned on the net investments in the VIEs.
Certain gains or losses related to assets and liabilities of consolidated VIEs, which are not ultimately attributable to the Company and its subsidiaries, are excluded from segment profits.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
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.
Prior-year amounts have been adjusted for the retrospective application of Accounting Standards Update 2015-03 (“Simplifying the Presentation of Debt Issuance Costs”—ASC 835-30 (“Interest—Imputation of Interest”)) on April 1, 2016.
Millions of yen | ||||||||||||
2014 | 2015 | 2016 | ||||||||||
Segment revenues: | ||||||||||||
Total revenues for segments | ¥ | 1,394,183 | ¥ | 2,185,312 | ¥ | 2,379,004 | ||||||
Revenues related to corporate assets | 6,618 | 6,531 | 9,230 | |||||||||
Revenues related to assets of certain VIEs | 13,989 | 6,356 | 5,455 | |||||||||
Revenues from inter-segment transactions | (12,891 | ) | (21,702 | ) | (24,487 | ) | ||||||
Revenues from discontinued operations | (26,607 | ) | (2,214 | ) | 0 | |||||||
|
|
|
|
|
| |||||||
Total consolidated revenues | ¥ | 1,375,292 | ¥ | 2,174,283 | ¥ | 2,369,202 | ||||||
|
|
|
|
|
| |||||||
Segment profits: | ||||||||||||
Total segment profits | ¥ | 295,237 | ¥ | 336,542 | ¥ | 380,110 | ||||||
Corporate losses | (21,642 | ) | (15,638 | ) | (5,261 | ) | ||||||
Gains related to assets or liabilities of certain VIEs | 17,003 | 3,267 | 5,632 | |||||||||
Discontinued operations, pre-tax | (12,182 | ) | (463 | ) | 0 | |||||||
Net income attributable to the noncontrolling interests and net income attributable to the redeemable noncontrolling interests, net of applicable tax effect | 7,923 | 20,309 | 10,821 | |||||||||
|
|
|
|
|
| |||||||
Total consolidated income before income taxes and discontinued operations | ¥ | 286,339 | ¥ | 344,017 | ¥ | 391,302 | ||||||
|
|
|
|
|
| |||||||
Segment assets: | ||||||||||||
Total segment assets | ¥ | 7,267,798 | ¥ | 9,170,249 | ¥ | 8,972,449 | ||||||
Cash and cash equivalents, restricted cash | 905,074 | 913,079 | 811,399 | |||||||||
Allowance for doubtful receivables on direct financing leases and probable loan losses | (84,796 | ) | (72,326 | ) | (60,071 | ) | ||||||
Trade notes, accounts and other receivable | 193,369 | 348,404 | 294,638 | |||||||||
Other corporate assets | 532,365 | 789,636 | 704,600 | |||||||||
Assets of certain VIEs | 253,151 | 294,586 | 273,891 | |||||||||
|
|
|
|
|
| |||||||
Total consolidated assets | ¥ | 9,066,961 | ¥ | 11,443,628 | ¥ | 10,996,906 | ||||||
|
|
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
Millions of yen | ||||||||||||
2016 | 2017 | 2018 | ||||||||||
Segment revenues: | ||||||||||||
Total revenues for segments | ¥ | 2,379,004 | ¥ | 2,685,194 | 2,872,830 | |||||||
Revenues related to corporate assets | 9,230 | 9,244 | 8,613 | |||||||||
Revenues related to assets of certain VIEs | 5,455 | 4,513 | 2,616 | |||||||||
Revenues from inter-segment transactions | (24,487 | ) | (20,292 | ) | (21,288 | ) | ||||||
|
|
|
|
|
| |||||||
Total consolidated revenues | ¥ | 2,369,202 | ¥ | 2,678,659 | ¥ | 2,862,771 | ||||||
|
|
|
|
|
| |||||||
Segment profits: | ||||||||||||
Total segment profits | ¥ | 380,110 | ¥ | 420,837 | ¥ | 429,058 | ||||||
Corporate losses | (5,261 | ) | (3,634 | ) | (4,329 | ) | ||||||
Gains related to assets or liabilities of certain VIEs | 5,632 | 75 | 20 | |||||||||
Net income attributable to the noncontrolling interests and net income attributable to the redeemable noncontrolling interests | 10,821 | 7,687 | 10,752 | |||||||||
|
|
|
|
|
| |||||||
Total consolidated income before income taxes | ¥ | 391,302 | ¥ | 424,965 | ¥ | 435,501 | ||||||
|
|
|
|
|
| |||||||
Segment assets: | ||||||||||||
Total segment assets | ¥ | 8,972,449 | ¥ | 8,956,872 | ¥ | 9,017,250 | ||||||
Cash and cash equivalents, restricted cash | 811,399 | 1,133,212 | 1,405,117 | |||||||||
Allowance for doubtful receivables on direct financing leases and probable loan losses | (60,071 | ) | (59,227 | ) | (54,672 | ) | ||||||
Trade notes, accounts and other receivable | 294,638 | 283,427 | 294,773 | |||||||||
Other corporate assets | 700,612 | 672,562 | 681,846 | |||||||||
Assets of certain VIEs | 273,891 | 245,049 | 81,668 | |||||||||
|
|
|
|
|
| |||||||
Total consolidated assets | ¥ | 10,992,918 | ¥ | 11,231,895 | ¥ | 11,425,982 | ||||||
|
|
|
|
|
|
The following information represents geographical revenues and income before income taxes, which are attributed to geographic areas, based on the country location of the Company and its subsidiaries.
Millions of yen | Millions of yen | |||||||||||||||||||||||||||||||||||
Year Ended March 31, 2014 | Year ended March 31, 2016 | |||||||||||||||||||||||||||||||||||
Japan | The Americas*2 | Other*3 | Difference between Geographic Total and Consolidated Amounts | Consolidated Amounts | Japan | The Americas*1 | Other*2*3 | Total | ||||||||||||||||||||||||||||
Total Revenues | ¥ | 977,427 | ¥ | 131,797 | ¥ | 292,675 | ¥ | (26,607 | ) | ¥ | 1,375,292 | ¥ | 1,827,582 | ¥ | 186,186 | ¥ | 355,434 | ¥ | 2,369,202 | |||||||||||||||||
Income before Income Taxes*1 | 211,442 | 42,901 | 44,178 | (12,182 | ) | 286,339 | ||||||||||||||||||||||||||||||
Income before Income Taxes | 241,794 | 74,546 | 74,962 | 391,302 | ||||||||||||||||||||||||||||||||
Millions of yen | Millions of yen | |||||||||||||||||||||||||||||||||||
Year Ended March 31, 2015 | Year ended March 31, 2017 | |||||||||||||||||||||||||||||||||||
Japan | The Americas*2 | Other*3 | Difference between Geographic Total and Consolidated Amounts | Consolidated Amounts | Japan | The Americas*1 | Other*2*3 | Total | ||||||||||||||||||||||||||||
Total Revenues | ¥ | 1,602,610 | ¥ | 209,923 | ¥ | 363,964 | ¥ | (2,214 | ) | ¥ | 2,174,283 | ¥ | 2,195,389 | ¥ | 142,430 | ¥ | 340,840 | ¥ | 2,678,659 | |||||||||||||||||
Income before Income Taxes*1 | 228,063 | 32,382 | 84,035 | (463 | ) | 344,017 | ||||||||||||||||||||||||||||||
Income before Income Taxes | 313,175 | 44,083 | 67,707 | 424,965 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
ORIX Corporation and Subsidiaries
Millions of yen | Millions of yen | |||||||||||||||||||||||||||||||||||
Year Ended March 31, 2016 | Year ended March 31, 2018 | |||||||||||||||||||||||||||||||||||
Japan | The Americas*2 | Other*3*4 | Difference between Geographic Total and Consolidated Amounts | Consolidated Amounts | Japan | The Americas*1 | Other*2*3 | Total | ||||||||||||||||||||||||||||
Total Revenues | ¥ | 1,827,582 | ¥ | 186,186 | ¥ | 355,434 | ¥ | 0 | ¥ | 2,369,202 | ¥ | 2,377,729 | ¥ | 108,186 | ¥ | 376,856 | ¥ | 2,862,771 | ||||||||||||||||||
Income before Income Taxes | 241,794 | 74,546 | 74,962 | 0 | 391,302 | 320,511 | 46,869 | 68,121 | 435,501 |
*1 |
Mainly the United States |
* | Mainly Asia, Europe, Australasia and Middle East |
* |
ASC 280 (“Segment Reporting”) requires disclosureRevenues from one customer that exceeds 10% of revenues from external customers for each product and service as enterprise-wide information. The consolidated statements of income and related notes to consolidated financial statements in which the revenues are categorized based on the nature of the types of business conducted include the required information.
No single customer accounted for 10% or more of the Company’s total revenuesrevenue for fiscal 2014, 20152018 consist of approximately ¥3 million in Corporate Financial Services Segment and 2016.¥320,446 million in Investment and Operation Segment.
35.34. Subsequent Events
There are no material subsequent events.
Schedule II.—Valuation and Qualifying Accounts and Reserves
ORIX Corporation and Subsidiaries
Description | Millions of yen | Millions of yen | ||||||||||||||||||||||||||||||||||||||||||||||
Year Ended March 31, 2014 | Year Ended March 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||
Balance at beginning of period | Acquisitions | Addition: Charged to costs and expenses | Deduction | Translation adjustment | Balance at end of period | Balance at beginning of period | Acquisitions | Addition: Charged to costs and expenses | Deduction | Translation adjustment | Balance at end of period | |||||||||||||||||||||||||||||||||||||
Restructuring cost: | ||||||||||||||||||||||||||||||||||||||||||||||||
Closed office lease obligations | ¥ | 9 | ¥ | 0 | ¥ | 0 | ¥ | (9) | ¥ | 0 | ¥ | 0 | ||||||||||||||||||||||||||||||||||||
Severance and other benefits to terminated employees | 0 | 3,049 | 0 | (1,221 | ) | 104 | 1,932 | ¥ | 392 | ¥ | 0 | ¥ | 0 | ¥ | (237 | ) | ¥ | 1 | ¥ | 156 | ||||||||||||||||||||||||||||
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Total | ¥ | 9 | ¥ | 3,049 | ¥ | 0 | ¥ | (1,230 | ) | ¥ | 104 | ¥ | 1,932 | ¥ | 392 | ¥ | 0 | ¥ | 0 | ¥ | (237 | ) | ¥ | 1 | ¥ | 156 | ||||||||||||||||||||||
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Description | Millions of yen | Millions of yen | ||||||||||||||||||||||||||||||||||||||||||||||
Year Ended March 31, 2015 | Year Ended March 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||
Balance at beginning of period | Acquisitions | Addition: Charged to costs and expenses | Deduction | Translation adjustment | Balance at end of period | 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 | ¥ | 1,932 | ¥ | 0 | ¥ | 0 | ¥ | (1,474 | ) | ¥ | (66 | ) | ¥ | 392 | ¥ | 156 | ¥ | 0 | ¥ | 86 | ¥ | (91 | ) | ¥ | (7 | ) | ¥ | 144 | ||||||||||||||||||||
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Total | ¥ | 1,932 | ¥ | 0 | ¥ | 0 | ¥ | (1,474 | ) | ¥ | (66 | ) | ¥ | 392 | ¥ | 156 | ¥ | 0 | ¥ | 86 | ¥ | (91 | ) | ¥ | (7 | ) | ¥ | 144 | ||||||||||||||||||||
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Description | Millions of yen | Millions of yen | ||||||||||||||||||||||||||||||||||||||||||||||
Year Ended March 31, 2016 | Year Ended March 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||
Balance at beginning of period | Acquisitions | Addition: Charged to costs and expenses | Deduction | Translation adjustment | Balance at end of period | 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 | ¥ | 392 | ¥ | 0 | ¥ | 0 | ¥ | (237 | ) | ¥ | 1 | ¥ | 156 | ¥ | 144 | ¥ | 0 | ¥ | 2,159 | ¥ | (182 | ) | ¥ | 30 | ¥ | 2,151 | ||||||||||||||||||||||
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Total | ¥ | 392 | ¥ | 0 | ¥ | 0 | ¥ | (237 | ) | ¥ | 1 | ¥ | 156 | ¥ | 144 | ¥ | 0 | ¥ | 2,159 | ¥ | (182 | ) | ¥ | 30 | ¥ | 2,151 | ||||||||||||||||||||||
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Description | Millions of yen | Millions of yen | ||||||||||||||||||||||||||||||||||||||||||||||
Balance at beginning of period | Acquisitions | Addition: Charged to costs and expenses | Deduction*1 | Other*2 | Balance at end of period | 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, 2014 | ¥ | 18,831 | ¥ | 13,182 | ¥ | 3,300 | ¥ | (4,792 | ) | ¥ | 49 | ¥ | 30,570 | |||||||||||||||||||||||||||||||||||
Year ended March 31, 2015 | ¥ | 30,570 | ¥ | 22,563 | ¥ | 9,591 | ¥ | (9,944 | ) | ¥ | (2,265 | ) | ¥ | 50,515 | ||||||||||||||||||||||||||||||||||
Year ended March 31, 2016 | ¥ | 50,515 | ¥ | 419 | ¥ | 2,936 | ¥ | (4,622 | ) | ¥ | (6,028 | ) | ¥ | 43,220 | ¥ | 50,515 | ¥ | 419 | ¥ | 2,936 | ¥ | (4,622 | ) | ¥ | (6,028 | ) | ¥ | 43,220 | ||||||||||||||||||||
Year ended March 31, 2017 | ¥ | 43,220 | ¥ | 1,606 | ¥ | 2,043 | ¥ | (2,104 | ) | ¥ | (1,278 | ) | ¥ | 43,487 | ||||||||||||||||||||||||||||||||||
Year ended March 31, 2018 | ¥ | 43,487 | ¥ | 0 | ¥ | 1,451 | ¥ | (30,295 | ) | ¥ | 33 | ¥ | 14,676 |
*1 | The amount of deduction includes benefits recognized in earnings, |
*2 | The amount of other includes translation adjustment and the effect of changes in statutory tax rate and the effect of the amendment to tax loss carryforward rules. |
F-128 |
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