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IX Orix

Filed: 29 Jun 21, 6:31am
0001070304 us-gaap:AvailableforsaleSecuritiesMember us-gaap:FairValueMeasurementsRecurringMember ck0001070304:CommercialMortgageBackedSecuritiesAndResidentialMortgageBackedSecuritiesInAmericasMember us-gaap:FairValueInputsLevel2Member 2021-03-31 0001070304 us-gaap:OperatingSegmentsMember ck0001070304:ORIXUsaMember ck0001070304:SalesOfGoodsAndRealEstateAndServiceMember 2020-04-01 2021-03-31
 
 
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, 2021
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
,
SOUTH TOWER,
2-4-1
Hamamatsu-cho
,
Minato-ku
Tokyo
105-5135,
Japan
(Address of principal executive offices)
Hiroya Goto
World Trade Center Building
,
SOUTH TOWER,
2-4-1
Hamamatsu-cho
,
Minato-ku
Tokyo
105-5135,
Japan
Telephone:
+81-3-3435-1274
Facsimile:
+81-3-3435-1276
(Name, telephone,
e-mail
and/or facsimile number and address of company contact person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
 
  
Title of each class
  
Trading
Symbols(s)
  
Name of each exchange on which registered
(1)
 American depository shares (the “ADSs”), each of which represents five shares  IX  New York Stock Exchange
(2)
 Common stock without par value (the “Shares”)*      
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
As of March 31, 2021, 1,285,724,480
 
Shares were outstanding, including Shares that were represented by
4,
661
,
728
 ADSs.
 
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
☒  Yes    ☐  No
If this report is an annual or transition report, indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
☐  Yes    ☒  No
Note—Checking the box above will not relieve any Registrant required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 from their obligations under those sections.
Indicate by check mark whether the Registrant
:
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☒  Yes   
 
 ☐  No
Indicate by check mark whether the Registrant submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).
☒  Yes    ☐  No
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, or an emerging growth company. See definition of “large accelerated filer” , “accelerated filer”, and “emerging growth company” in Rule
12b-2
of the Exchange Act.
☒   Large accelerated filer   ☐     Accelerated filer   ☐
    Non-accelerated
filer   ☐     Emerging growth company
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  ☒
Indicate by check mark which basis of accounting the Registrant has used to prepare the financial statements included in this filing.
☒   U.S. GAAP     ☐   International Financial Reporting Standards as issued by the International Accounting Standards Board     ☐   Other
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the Registrant has elected to follow.
☐  Item 17    ☐  Item 18
If this is an annual report, indicate by check mark whether the Registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).
☐  Yes    ☒  No
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the Registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
☐  Yes    ☐  No
 
*
Not for trading, but only for technical purposes in connection with the registration of the ADSs.
 
 
 

TABLE OF CONTENTS
 
   
Page
 
   ii 
   ii 
   1 
Item 1.
     1 
Item 2.
     1 
Item 3.
     1 
Item 4.
     14 
Item 4A.
     27 
Item 5.
     28 
Item 6.
     117 
Item 7.
     145 
Item 8.
     147 
Item 9.
     147 
Item 10.
     147 
Item 11.
     162 
Item 12.
     164 
   166 
Item 13.
     166 
Item 14.
     166 
Item 15.
     166 
Item 16A.
     167 
Item 16B.
     167 
Item 16C.
     167 
Item 16D.
     168 
Item 16E.
     168 
Item 16F.
     169 
Item 16G.
     169 
   171 
Item 17.
     171 
Item 18.
     171 
Item 19.
     172 
   173 
   
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 of
20-50%
ownership of the outstanding voting stock or other means.
The consolidated financial statements of ORIX have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). For certain entities where we hold majority voting interests but noncontrolling shareholders have substantive participating rights to decisions that occur as part of the ordinary course of the business, the equity method is applied. In addition, the consolidated financial statements also include variable interest entities (“VIEs”) of which the Company and its subsidiaries are primary beneficiaries. Unless otherwise stated or the context otherwise requires, all amounts in such financial statements are expressed in Japanese yen.
References in this annual report to “¥” or “yen” are to Japanese yen and references to “US$,” “$” or “dollars” are to United States dollars.
Certain monetary amounts and percentage data included in this annual report have been subject to rounding adjustments for the convenience of the reader. Accordingly, figures shown as totals in tables may not be equal to the arithmetic sums of the figures that precede them.
The Company’s fiscal year ends on March 31. The fiscal year ended March 31, 2021 is referred to throughout this annual report as “fiscal 2021,” and other fiscal years are referred to in a corresponding manner. References to years not specified as being fiscal years are to calendar years.
FORWARD-LOOKING STATEMENTS
This annual report contains statements that constitute “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934. When included in this annual report, the words “will,” “should,” “expects,” “intends,” “anticipates,” “estimates” and similar expressions, among others, identify forward looking statements. Such statements, which include, but are not limited to, statements contained in “Item 3. Key Information—Risk Factors,” “Item 5. Operating and Financial Review and Prospects” and “Item 11. Quantitative and Qualitative Disclosures About Market Risk,” inherently are subject to a variety of risks and uncertainties that could cause actual results to differ materially from those set forth in such statements. These forward-looking statements are made only as of the filing date of this annual report. The Company expressly disclaims any obligation or undertaking to release any update or revision to any forward-looking statement contained herein to reflect any change in the Company’s expectations with regard thereto or any change in events, conditions or circumstances on which any statement is based.
 
ii

PART I
Item 1. Identity of Directors, Senior Management and Advisers
Not applicable.
Item 2. Offer Statistics and Expected Timetable
Not applicable.
Item 3. Key Information
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,
 
   
2017
   
2018
   
2019
   
2020
   
2021
 
  
 
(Millions of yen)
 
Income statement data*
1
:
          
Total revenues*
2
  ¥2,678,659   ¥2,862,771   ¥2,434,864   ¥2,280,329   ¥2,292,708 
Total expenses
   2,349,435    2,526,576    2,105,426    2,010,648    2,033,894 
Operating income
   329,224    336,195    329,438    269,681    258,814 
Equity in net income of affiliates
   26,520    50,103    32,978    67,924    481 
Gains on sales of subsidiaries and affiliates and liquidation losses, net
   63,419    49,203    33,314    74,001    23,300 
Bargain purchase gain
   5,802    0    0    955    4,966 
Income before income taxes
   424,965    435,501    395,730    412,561    287,561 
Net Income
   280,926    321,589    327,039    306,724    196,814 
Net income attributable to the noncontrolling interests
   7,255    8,002    2,890    3,640    4,453 
Net income (loss) attributable to the redeemable noncontrolling interests
   432    452    404    384    (23
Net income attributable to ORIX Corporation shareholders
   273,239    313,135    323,745    302,700    192,384 
 
1

  
As of March 31,
 
  
2017
  
2018
  
2019
  
2020
  
2021
 
  
(Millions of yen, except number of shares)
 
Balance sheet data*
1
:
     
Investment in Direct Financing Leases*
3
 ¥1,204,024  ¥1,194,888  ¥1,155,632  ¥0  ¥0 
Net Investment in Leases*
3
  0   0   0   1,080,964   1,029,518 
Installment Loans*
3
  2,815,706   2,823,769   3,277,670   3,740,486   3,670,784 
Allowance for Doubtful Receivables on Finance Leases and Probable Loan Losses*
4
  (59,227  (54,672  (58,011  (56,836  0 
Allowance for Credit Losses*
4
  0   0   0   0   (78,945
Investment in Operating Leases
  1,313,164   1,344,926   1,335,959   1,400,001   1,408,189 
Investment in Securities
  2,026,512   1,729,455   1,928,916   2,245,323   2,660,443 
Property under Facility Operations
  398,936   434,786   441,632   562,485   491,855 
Others
  3,532,780   3,952,830   4,093,119   4,095,105   4,381,238 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Total Assets
 ¥11,231,895  ¥11,425,982  ¥12,174,917  ¥13,067,528  ¥13,563,082 
 
 
 
  
 
 
  
 
 
  
 
 
  
 
 
 
Short-term Debt, Long-term Debt and Deposits
 ¥5,753,059  ¥5,890,720  ¥6,423,512  ¥6,847,889  ¥7,041,887 
Policy Liabilities and Policy Account Balances
  1,564,758   1,511,246   1,521,355   1,591,475   1,822,422 
Common Stock
  220,524   220,961   221,111   221,111   221,111 
Additional
Paid-in
Capital
  268,138   267,291   257,625   257,638   259,361 
ORIX Corporation Shareholders’ Equity
  2,507,698   2,682,424   2,897,074   2,993,608   3,028,456 
Number of Issued Shares
  1,324,107,328   1,324,495,728   1,324,629,128   1,324,629,128   1,285,724,480 
Number of Outstanding Shares*
5
  1,302,587,061   1,280,000,872   1,279,961,352   1,254,471,656   1,217,338,316 
 
  
As of and for the Year Ended March 31,
 
  
2017
  
2018
  
2019
  
2020
  
2021
 
  
(Yen and dollars, except ratios and number of employees)
 
Key ratios (%)*
6
:
     
Return on ORIX Corporation shareholders’ equity (“ROE”)
  11.3   12.1   11.6   10.3   6.4 
Return on assets (“ROA”)
  2.46   2.76   2.74   2.40   1.44 
ORIX Corporation shareholders’ equity ratio
  22.3   23.5   23.8   22.9   22.3 
Allowance/investment in direct financing leases and installment loans
  1.5   1.4   1.3   0   0 
Allowance/net investment in leases and installment loans
  0   0   0   1.2   0 
Allowance for credit losses/net investment in leases and installment loans
  0   0   0   0   1.7 
Per share data and employees:
     
ORIX Corporation shareholders’ equity per share*
7
 ¥1,925.17  ¥2,095.64  ¥2,263.41  ¥2,386.35  ¥2,487.77 
Basic earnings per share for net income attributable to ORIX Corporation shareholders
  208.88   244.40   252.92   237.38   155.54 
Diluted earnings per share for net income attributable to ORIX Corporation shareholders
  208.68   244.15   252.70   237.17   155.39 
Dividends applicable to fiscal year per share
  52.25   66.00   76.00   76.00   78.00 
Dividends applicable to fiscal year per share*
8
 $0.48  $0.60  $0.69  $0.71  $0.73 
Number of employees
  34,835   31,890   32,411   31,233   33,153 
 
*
1
 
Accounting Standards Update
2014-09
(“Revenue from Contracts with Customers”—ASC 606 (“Revenue from Contracts with Customers”)), Accounting Standards Update
2016-01
(“Recognition and Measurement of Financial Assets and Financial Liabilities”—ASC
825-10
(“Financial Instruments—Overall”)) and Accounting Standards Update
2016-16
(“Intra-Entity Transfers of Assets Other Than Inventory”—ASC 740 (“Income Taxes”)) were adopted on April 1, 2018. In addition, Accounting Standards Update
2016-02
(ASC 842 (“Leases”)) (hereinafter, “New Lease Standard”) was adopted on April 1, 2019.
 
2

*
2
 
Consumption tax is excluded from the stated amount of total revenues.
*
3
 
The sum of assets considered 90 days or more past due and loans individually evaluated for impairment amounted to ¥80,347 million, ¥71,974 million, ¥86,046 million and ¥111,430 million as of March 31, 2017, 2018, 2019 and 2020, respectively. These sums included: (i) investment in direct financing leases considered 90 days or more past due of ¥11,600 million, ¥12,084 million and ¥14,807 million as of March 31, 2017, 2018 and 2019, respectively, and net investment in leases considered 90 days or more past due of ¥15,346 million as of March 31, 2020, (ii) installment loans (excluding loans individually evaluated for impairment) considered 90 days or more past due of ¥9,722 million, ¥12,748 million, ¥12,412 million and ¥10,264 million as of March 31, 2017, 2018, 2019 and 2020, respectively, and (iii) installment loans individually evaluated for impairment of ¥59,025 million, ¥47,142 million, ¥58,827 million and ¥85,820 million as of March 31, 2017, 2018, 2019 and 2020, respectively. The sum of net investment in leases and installment loans considered
non-performing
amounted to ¥106,863 million as of March 31, 2021. This sum included: (i) net investment in leases considered
non-performing
of ¥18,925 million as of March 31, 2021 and (ii) installment loans considered
non-performing
of ¥87,938 million as of March 31, 2021. See “Item 5. Operating and Financial Review and Prospects—Results of Operations—Year Ended March 31, 2021 Compared to Year Ended March 31, 2020—Details of Operating Results—Revenues, New Business Volumes and Investments—Asset quality.”
*
4
 
Accounting Standards Update
2016-13
(“Measurement of Credit Losses on Financial Instruments”—ASC 326 (“Financial Instruments—Credit Losses”)) (hereinafter, “Credit Losses Standard”) has been adopted since April 1, 2020, and the amounts of allowance for doubtful receivables on finance leases and probable loan losses have been reclassified to allowance for credit losses. For further information, see Note 1 of “Item 18. Financial Statements.”
*
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 and excluded from the number of outstanding shares. The Board Incentive Plan Trust held 2,126,076 shares, 1,651,443 shares, 1,823,993 shares, 1,476,828 shares and 2,154,248 shares as of March 31, 2017, 2018, 2019, 2020 and 2021, respectively.
*
6
 
Return on ORIX Corporation shareholders’ equity is the ratio of net income attributable to ORIX Corporation shareholders for the period to average ORIX Corporation shareholders’ equity based on fiscal year beginning and ending balances for the period. Return on assets is the ratio of net income attributable to ORIX Corporation shareholders for the period to average total assets based on fiscal year beginning and ending balances for the period. ORIX Corporation shareholders’ equity ratio is the ratio as of the period end of ORIX Corporation shareholders’ equity to total assets. Allowance/investment in direct financing leases and installment loans is the ratio as of the period end of the allowance for doubtful receivables on direct financing leases and probable loan losses to the sum of investment in direct financing leases and installment loans. Allowance/net investment in leases and installment loans is the ratio as of the period end of the allowance for doubtful receivables on finance leases and probable loan losses to the sum of net investment in leases and installment loans.
*
7
 
ORIX Corporation shareholders’ equity per share is the amount derived by dividing ORIX Corporation shareholders’ equity by the number of outstanding shares.
*
8
 
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.
 
3

RISK FACTORS
Investing in our securities involves risks. You should carefully consider the risks described below as well as all the other information in this annual report, including, but not limited to, our consolidated financial statements and related notes and “Item 11. Quantitative and Qualitative Disclosures about Market Risk.” Our business activities, financial condition and results of operations and the trading prices of our securities could be adversely affected by any of the factors discussed below or other factors. Even if we do not incur direct financial loss as a result of these risks, our reputation may be adversely affected. This annual report also contains forward-looking statements that involve uncertainties. Our actual results could differ from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to, the risks faced by us described below and elsewhere in this annual report. See “Forward-Looking Statements.” Forward-looking statements in this section are made only as of the filing date of this annual report.
For information about our management of the principal risks we face, see “Item 5. Risk Management—Management of Principal Risks.”
1. Effects of
COVID-19
Since the beginning of 2020, the novel coronavirus disease 2019
(“COVID-19”)
has spread worldwide and the world economy and business activity have been adversely impacted by preventative measures instituted by governments across the globe, including restrictions on people’s movement and gatherings, such as
stay-at-home
orders and limitations on travel and immigration, and requests and orders to limit the operations of, or to close, certain public and private facilities and businesses. In particular, businesses in industries that rely on consumer spending, such as those relating to travel and recreation, passenger transport,
in-store
dining and lodging industries, have been significantly impacted and the global economy experienced a significant downturn. Although some countries have been showing some signs of recovery since the second half of 2020, many countries, including Japan, have continued to experience increases in
COVID-19
cases, which has resulted in the imposition by some countries of additional restrictive measures. New variants of coronavirus have also been reported in many countries around the world, including Japan, which could lead to further spread of
COVID-19.
Although vaccines for
COVID-19
have been developed and approved for use, and it appears the implementation of vaccination programs and economic stimulus may both help prevent the spread of
COVID-19
and encourage economic activity, in many countries it is not yet clear to what extent the vaccines will be able to contain the spread of
COVID-19.
Accordingly, it continues to be difficult to predict when the economic and business activity will return to levels seen before the
COVID-19
pandemic.
As of the filing date of this annual report, the spread of
COVID-19
is significantly impacting various business in the ORIX Group. In our Real Estate segment, Japan
in-bound
travel restrictions and declarations of state of emergencies within Japan leading to closings of facilities and other
COVID-19-related
factors are adversely impacting operating revenue of our businesses that operate hotels and Japanese inns and other recreational facilities. In our PE Investment and Concession segment, decreases in the number of flights and passengers due to reduced demand for air travel is adversely impacting operating revenue from our operation of airports. In our Aircraft and Ships segment, reduced demand for aircraft is adversely impacting our aircraft leasing business and may do so over the long term as airline companies continue to request forbearance on lease fees leading to decreased revenue, among other effects.
In addition, other businesses in the ORIX Group are experiencing decreased profits resulting from reduced revenue due to economic slowdown, increasing credit costs due to deterioration of borrowers’ business performance, negative impact on asset values due to market volatility and increasing costs related to efforts to prevent the spread of
COVID-19.
In order to prevent the spread of
COVID-19,
the ORIX Group has implemented various measures, including policies on working remotely and restrictions on
face-to-face
meetings and domestic and overseas business trips. The implementation of these and other measures may adversely impact our business activities and efficiency.
 
4

The ORIX Group has expanded its various businesses into a global network that spans 31 countries and regions around the globe. For this and other reasons, if the global spread of
COVID-19
continues, we expect it could have a multi-faceted and adverse impact on all businesses we operate.
If the
COVID-19
pandemic is prolonged, it is possible that the businesses described above and others in the ORIX Group may experience increases in credit costs due to the deterioration of borrowers’ business performance and declines in assets under management, as well as decreased revenue and increased costs. Depending on developments in the spread of
COVID-19,
there may be increases in liquidity risk, such as increased funding costs and a heightening of the various risks described above and elsewhere in this annual report. In addition, it is possible that the
COVID-19
pandemic will adversely affect our business, management and financial results in ways that are currently unexpected or unknown to us. For further information, see “Item 4. Information on the Company—Strategy—Operating Environment,” “Item 4. Information on the Company—Business Segments,” “Item 5. Operating and Financial Review and Prospects—Overview—Results Overview” and “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources.”
2. Risks Related to our External Environment (Risk Related to Unpredictable Events)
(1) Global economic weakness and instability or political turmoil could adversely affect our business activities, financial condition and results of operations.
We conduct business operations in Japan and other areas of Asia, as well as in the Americas, Europe, Oceania and the Middle East. Our business is affected by general economic conditions and financial conditions in these countries and regions. These conditions are affected by changes in various factors including, for example, changes in fiscal and monetary policies and trade and technology frictions between the United States and China. Fluctuations or shifts in commodity market prices and consumer demand, trade disputes, political, social or economic instability in these countries and regions could also adversely affect our business activities, financial condition and results of operations.
Despite our attempts to minimize the adverse effects of such factors through, for example, improving our risk management procedures, global economic weakness and instability, or political turmoil could adversely affect our business activities, financial condition and results of operations.
(2) Competition could affect our business
We compete on the basis of pricing, transaction structure, service quality and other terms. It is possible that our competitors may seek to compete aggressively on the basis of pricing and other terms through their advantageous funding costs or without regard to their profitability. As a result of such aggressive competition by our competitors, our market share or our profitability may decline.
(3) Negative publicity could affect our business activities, financial condition, results of operations and share price
Our business is built upon the confidence of our customers and market participants. Whether based on facts or not, negative publicity about our activities, our industries or the parties with whom we do business could harm our reputation and diminish confidence in our business. In such an event, we may lose customers or business opportunities, which could adversely affect our business activities, financial condition and results of operations, as well as our share price.
(4) Our business activities, financial condition and results of operations may be adversely affected by natural disasters and other unpredictable events
Our business activities, financial condition and results of operations may be adversely affected by unpredictable events or any continuing effects caused by such events. Unpredictable events include extreme
 
5

weather due to the effects of climate change, and natural events, such as earthquakes, storms, tsunamis, floods, fires and outbreaks of infectious diseases, and
man-made
events, such as accidents, war, terrorism, and insurgency. If any such event occurs, it may, among other things, cause unexpectedly large market price movements or unanticipated deterioration of economic conditions in a country or region, or cause major injuries to our personnel or damage to our facilities, equipment and other property, which could adversely affect our business activities, financial condition and results of operations.
(5) Dispositions of Shares may adversely affect market prices for our Shares
Between June 30, 2020, and June 29, 2021, one of our shareholders filed a large shareholder report pursuant to the Financial Instruments and Exchange Act (“FIEA”) indicating, at the time of filing, beneficial ownership, as that term is used in the FIEA, of more than five percent of the total number of our outstanding Shares by each relevant reporting shareholder. Such shareholder or other of our shareholders may, for strategic, investment or other reasons, decide to reduce their shareholdings in ORIX. Dispositions of Shares, particularly dispositions of large numbers of Shares by major shareholders, may adversely affect market prices for our Shares. For information on major shareholders, see “Item 7. Major Shareholders and Related Party Transactions.”
If foreign investors reduce their investment in Japanese stocks due to changes in global or domestic economic or political conditions, market prices for our Shares could be adversely affected because a large percentage of our Shares are owned by investors outside of Japan.
3. Credit Risk
We maintain an allowance for credit losses on finance leases and probable loan losses. However, we cannot be sure that the allowance will be adequate to cover future credit losses. This allowance may be inadequate due to unexpected adverse changes in the Japanese and overseas economies in which we operate, whether due to
COVID-19
or otherwise, or deterioration of specific industries, markets or customers’ business performance. While we constantly strive to mitigate risk through portfolio management, we may be required to make additional provisions in the future depending on economic trends and other factors.
Furthermore, if adverse economic or market conditions affect the value of underlying collateral, secondhand equipment, or guarantees, our credit-related costs other than the allowance might increase. If any such event occurs, our business activities, financial condition and results of operations could be adversely affected.
4. Business Risk
(1) We are exposed to risks from expansion of our businesses, acquisitions of companies and assets, entry into joint ventures and alliances with other companies and similar activities with uncertain outcomes
We are engaged in a broad range of businesses in Japan and overseas and continue to expand such range, including through acquisitions of companies and businesses. The breadth of our business and continued expansion may expose us to new and complex risks that we may be unable to fully control or foresee, and, as a result, we may incur unexpected and potentially substantial costs or losses. Such unexpected costs and losses, which may result from regulatory, technological or other factors, may be particularly acute when we expand our business through acquisitions. In addition, we may not achieve targeted results if our business or business opportunities do not develop as expected or if competitive pressures undermine profitability. Furthermore, when we acquire companies or businesses to expand our business, we could be required to make large write-downs of goodwill or other assets if the results of operations of an acquired company or business are lower than what we expected at the time we made such acquisition, or if they encounter other financial or operational difficulties.
We have a wide range of investments in business operations, including operations that are very different from our financial services business. If we fail to manage our investee companies effectively, we may experience
 
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financial losses as well as losses of future business opportunities. In addition, we may not be able to sell or otherwise dispose of investments at the times or prices we initially expected or at all. We may also need to provide financial support, including credit support or equity investments, to some investee companies if their financial condition deteriorates.
From time to time we also enter into joint ventures and other alliances, and the success of these alliances is often dependent upon the operational capabilities, the financial stability and the legal environment of our counterparties. If an alliance suffers a decline in its financial condition or is subject to operational instability because of a change in applicable laws or regulations, we may be required to pay in additional capital, reduce our investment at a loss, or terminate the alliance.
If any such events occur, our business activities, financial condition results of operations and reputation may be adversely affected.
(2) We are exposed to risks related to asset value volatility
In the management of our businesses, we hold various classes of assets and investments, including real estate, aircraft, ships and other assets in Japan and overseas, which we may hold for our own use or lease to our customers. The market values of these assets and investments may be volatile and may decline substantially in the future.
Asset valuation losses are recorded based on the fair market values at the time when revaluation is conducted in accordance with applicable accounting principles. However, losses from the sale of these assets, including as a result of a sudden need for liquidity or to mitigate an adverse credit event at one of our customers, may exceed the amount of recorded valuation losses.
We estimate the residual value for certain operating leases at the time of contract. Our estimates of the residual value of equipment are based on current market values of used equipment and assumptions about when and to what extent the equipment will become obsolete; however, we may need to recognize additional valuation losses if our estimates differ from actual trends in equipment valuation and the secondhand market, and we may incur losses if we are unable to collect such estimated residual amounts.
In addition, due to our operation of asset management businesses, if there are changes in the market value of asset such as shares and other securities, it could affect the results of our asset management services, which could lead to reductions in our assets under management and related fees and negatively impact our revenue.
If any event described above occurs, our business activities, financial condition and results of operations may be adversely affected.
(3) Risks related to our other businesses
We operate a wide range of businesses in Japan and overseas, including financial services businesses.
Entry into new businesses, and the results of operations following such entry, are accompanied by various uncertainties, and if any unanticipated risk does occur, it may adversely affect our business activities, financial condition and results of operations.
 
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5. Market Risk
(1) Changes in market interest rates and currency exchange rates could adversely affect our assets and our business activities, financial condition and results of operations
Our business activities are subject to risks relating to changes in market interest rates and currency exchange rates in Japan and overseas. Although we conduct asset-liability management (“ALM”), changes in the yield curve and currency exchange rates could adversely affect our results of operations.
When funding costs increase due to actual or perceived increases in market interest rates, financing lease terms and loan interest rates for new transactions may diverge from the trend in market interest rates.
Changes in market interest rates could have an adverse effect on the credit quality of our assets and our asset structure. For example, with respect to floating-rate loan assets, if market interest rates increase, the repayment burdens of our customers may also increase, which could adversely affect the financial condition of such customers and their ability to repay their obligations to us. Alternatively, a decline in interest rates could result in an increase in early repayment of loans and a corresponding decrease in our assets, which could adversely impact our revenue generation capabilities.
Although we enter into derivative investments to hedge our market interest and currency risks, we may not be able to perfectly hedge against all risks arising from our business operations in foreign currencies and overseas investments. As a result, a significant change in interest rates or currency exchange rates could have an adverse impact on our business activities, financial condition and results of operations.
(2) Our risk management strategy of using derivatives for hedging purposes may not be effective
We may use derivative instruments to reduce fluctuations in the value of our investments and to hedge against interest rate and currency risks. However, it is possible that this risk management strategy may not be fully effective in all circumstances due to our failure to appraise the value of assets being hedged or execute such derivative instruments properly or at all, or our failure to achieve the intended results of such hedging due to the unavailability of offsetting or roll-over transactions in the event of sudden turbulence in the market or otherwise. Furthermore, our derivatives counterparties could fail to honor the terms of their contracts with us. Our existing derivative contracts and new derivative transactions may also be adversely affected if our credit ratings are downgraded.
In such instances, our business activities, financial condition and results of operations could be adversely affected.
(3) Fluctuations in market prices of stocks and bonds may adversely affect our business activities, financial condition and results of operations
We hold investments in shares of private and public company stock, including shares of our equity method affiliates, and corporate and government bonds in Japan and overseas. The market values of our investment assets are volatile and may fluctuate substantially in the future. A significant decline in the value of our investment assets could adversely affect our business activities, financial condition and results of operations.
(4) The transition away from and discontinuation of LIBOR and other interest rate benchmarks could have a negative impact on our results of operations.
The UK Financial Conduct Authority, which regulates LIBOR, is expected to stop persuading or compelling banks to submit rates for the calculation of LIBOR after 2021. However, this date has been extended by 18 months for certain U.S. dollar LIBOR settings. We are continuing to identify certain assets and liabilities linked to LIBOR and other interest rate benchmarks across our businesses that will require transition to alternative reference rates as a result.
 
8

The transition away from and discontinuation of LIBOR and other interest rate benchmarks, uncertainty as to the availability and/or suitability of alternative reference rates, and differences between LIBOR and other interest rate benchmarks and alternative reference rates may affect financial markets and market participants, including us. In response, we have taken, and are continuing to take, necessary steps to proactively address the transition, including monitoring external developments, negotiating successor reference rates with relevant counterparties, planning for the circumstances where the transition results in a mismatch with the fallback reference rates used (particularly in the case of derivatives contracts used for hedging purposes), and evaluating the potential impact on our financial results and condition. However, we remain subject to the risks that our actions to address the transition may be delayed or may not be successful, which could adversely affect our financial condition and the results of our business.
6. Liquidity Risk
Our primary sources of financing include: borrowings from banks and other institutional lenders, funding from capital markets (such as through issuances of bonds, medium-term notes or commercial paper (“CP”), loans receivables and other assets) and deposits. Such sources include a significant amount of short-term debt, such as CP and other short-term borrowings from various institutional lenders and the portion of our long-term debt maturing in the current fiscal year. Some of our committed credit lines require us to comply with financial covenants.
Adverse economic conditions or financial market instability, among other things, may adversely affect our ability to raise new funds or to renew existing funding sources, and may subject us to increased funding costs. If our access to liquidity is restricted, or if we are unable to obtain our required funding at acceptable costs, our business activities, financial condition and results of operations may be significantly and adversely affected.
We obtain credit ratings from ratings agencies. Downgrades of our credit ratings due to reasons such as market turmoil or the worsening of our financial condition could result in increases in our interest expenses and could have an adverse effect on our fund-raising ability by increasing costs of issuing CP and corporate debt securities and borrowing from banks and other financial institutions, reducing the amount of bank credit available to us or decreasing the attractiveness of our equity securities to investors. As a result, our business activities, financial condition and results of operations may be significantly and adversely affected.
7. Compliance Risk
Our efforts to implement and maintain thorough internal controls for appropriate compliance and legal risk management, as well as compliance education programs for our staff, in order to prevent violations of applicable laws, regulations and internal rules may not be fully effective in preventing all violations. In addition, we engage in a wide range of businesses, and our expansion into new businesses through acquisitions may cause our current internal controls to not be fully effective. If we are unable to implement and maintain robust internal controls to prevent any such violations and adjust such controls in response to expansion of our business, we may be subject to sanctions, which could also apply to our officers or employees. Such events could adversely affect our business activities, financial condition, results of operations and reputation.
In addition, we are also indirectly exposed to compliance risk through our joint venture and alliance partners, investee companies and other business partners or counterparties, whom we may not be able to control. If any of those parties engage in violations of applicable laws or regulations, our business activities, financial condition, results of operations and reputation may be adversely affected.
 
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8. Legal Risk
(1) We are subject to various laws and regulations in Japan and overseas that affect may our business
Our businesses and employees are subject to domestic and international laws, as well as regulatory oversight by government authorities who implement those laws, relating to the various sectors in which we operate and to our business operations generally. These include laws and regulations applicable to specific businesses and industries, such as moneylending, financial instruments exchange construction, real estate transactions, hotels, insurance, banking and trust services, as well as laws applicable more generally, such as the Companies Act of Japan, laws and regulations applicable due to our registration with the SEC, such as U.S. securities laws, and laws and regulations on antitrust, personal data protection, anti-money laundering and anti-bribery.
Regardless of whether we have violated any laws, if we become the subject of a governmental investigation, litigation or other proceeding in connection with our businesses, our business activities, financial condition and results of operations may be adversely affected.
For information on the regulations that apply to our businesses, see “Item 4. Information on the Company—Business Regulation.”
(2) Enactment of, or changes in, laws, regulations and accounting standards may affect our business activities, financial condition and results of operations
Enactment of, or changes in, laws and regulations may adversely affect the way that we conduct our business and the products or services that we may offer, as well as limit the activities of our customers, borrowers, invested companies and funding sources. Such enactment or changes may increase our compliance costs. In recent years, foreign laws and regulations on subject matters such as personal data protection, anti-money laundering, anti-bribery and antitrust have been enacted and strengthened such that they may directly apply to the activities of our businesses, even if conducted outside the relevant jurisdiction. If such pattern continues and it becomes necessary for us to comply with different countries’ regulations, in addition to significantly increasing the number of laws and regulations that we need to comply with, it may also significantly increase our compliance costs.
If accounting standards are changed, even if such changes do not directly affect our profitability or financial soundness, industries related to our businesses, our clients or the financial market may be negatively affected. As a result of such enactments or changes, our business activities, financial condition and results of operations could be adversely affected.
(3) Contractual deficiencies may affect our business and other initiatives
When engaging in business and other transactions, deficiencies, including our failure to execute legally required or binding agreements or our execution of agreements that do not reflect our intentions regarding parties’ contractual obligations, may lead to adverse events such as our being the target of infringement, breach of contract and other legal claims by contractual counterparties and third parties or disruption of our ability to obtain rights we expected as part of such transactions. Such events may adversely affect our business activities, financial condition and results of operations.
9. Information Risk
(1) Risks relating to loss, damage or leakage of information
We maintain various information such as customer information including information on individuals, accounting information and personnel information. We have implemented internal rules and training programs to properly manage such information. We also implement technical measures such as vulnerability countermeasures
 
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for our information systems and maintenance of various network security measures to protect against or mitigate cyber-attacks. However, in spite of such efforts, our measures may not be always effective and it is possible that our information may be lost, damaged or leaked.
In such event, we could be subject to governmental investigation, litigation or other proceedings in connection with potential violations of applicable data protection laws and regulations, such as the Act on the Protection of Personal Information of Japan and the General Data Protection Regulation adopted in the EU, and may be sued for damages. Our business activities, financial condition, results of operations and reputation may be adversely affected due to these and similar events.
(2) Failures in our computer and other information systems could interfere with our operations and damage our business activities, financial condition and results of operations
We use information systems for financial transactions, personal information management, business monitoring and processing and as part of our business decision-making and risk management activities. Some of these information systems may be outsourced.
System shutdowns, malfunctions or failures, the mishandling of data or fraudulent acts by employees, vendors or other third parties, cyber or ransomware attack by a computer virus, hacking, unauthorized access, business interruption or other types of cyber-terrorism, or a large-scale natural disaster, could have adverse effects on our operations, by causing, for example, delays in the receipt and payment of funds, the loss, damage or leakage of confidential or personal information of our customers or employees, the generation of errors in information used by our management for business decision-making and risk management evaluation and planning, the suspension of certain products or services we provide to our customers or other interruptions of our business activities. In such event, our liquidity or the liquidity of customers who rely on us for financing or payment could be adversely affected. We may also incur substantial costs to recover our business functionality or be sanctioned by regulatory authorities for violating applicable laws and regulations and may be sued for damages.
As a result of the above, our business activities, financial condition, results of operations and reputation may be adversely affected.
10. Operational Risk
(1) If our internal control over financial reporting is identified as being insufficient, our share price, reputation and business activities may be adversely affected
We have established and assessed our internal control over financial reporting in a manner intended to ensure compliance with the requirements of various laws and regulations. However, in future periods our management or independent registered public accounting firm may identify material weaknesses or deficiencies through the respective evaluations and audits of our internal control over financial reporting, that they conduct and such finding may cause us and our accountants to disclose that our internal control over financial reporting is ineffective, which could cause a loss of investor confidence in the reliability of our financial statements and cause our share price to fall. As a result, our business activities, financial condition, results of operations and reputation may be adversely affected.
(2) Our risk management may not be effective
We continuously seek to improve our risk management function. However, due to the rapid expansion of our business or significant changes in the business environment, our risk management may not always be effective. As a result, our business activities, financial condition and results of operations may be adversely affected. For a detailed discussion of our risk management system, see “Item 5. Operating and Financial Review and Prospects—Risk Management.”
 
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(3) We may not be able to hire or retain qualified personnel
Our businesses require a considerable investment in human resources and the retention of qualified personnel in order to successfully compete in markets in Japan and overseas. If we cannot develop, hire or retain the necessary qualified personnel, we may incur additional costs to hire specialists or the quality of our products and services may decline, which could prevent us from continuing our business operation in a stable manner and adversely affect our business activities, financial condition and results of operations.
(4) Other operational risks
Our business entails many types of operational risks. Examples include inappropriate sales practices; inadequate handling of client and customer complaints; inadequate internal communication of necessary information; misconduct of officers, employees, agents, franchisees, trading associates, vendors or other third parties; errors in the settlement of accounts and conflicts with employees concerning labor and workplace management.
When we offer new products or services, we must ensure that we have the capacity to properly undertake and perform such operations. If we lack such capacity or fail to perform such operations successfully, we may lose the confidence of the market and our customers, which may cause us to suffer decreased profitability or force us to withdraw from such operations.
Our management attempts to manage operational risk and maintain it at a level that we believe is appropriate. However, operational risk is part of the business environment in which we operate, and despite our control measures, our business activities, financial condition results of operations and reputation may be adversely affected at any time due to this risk.
11. Risks Related to Holding or Trading our Shares and ADRs
(1) Rights of shareholders under Japanese law may be different from those under the laws of other jurisdictions
Our Articles of Incorporation, the regulations of our board of directors and the Companies Act govern our corporate affairs. Legal principles relating to matters such as the validity of corporate procedures, directors’ and officers’ fiduciary duties and shareholders’ rights are different from those that would apply if we were incorporated elsewhere. Shareholders’ rights under Japanese law are different in some respects from shareholders’ rights under the laws of jurisdictions within the United States and other countries. You may have more difficulty in asserting your rights as a shareholder than you would as a shareholder of a corporation organized in a jurisdiction outside Japan. For a detailed discussion of the relevant provisions of the Companies Act and our Articles of Incorporation, see “Item 10. Additional Information—Memorandum and Articles of Incorporation.”
(2) It may not be possible for investors to effect service of process within the United States upon ORIX or ORIX’s directors or executive officers, or to enforce against ORIX or those persons judgments obtained in U.S. courts predicated upon the civil liability provisions of the federal securities laws of the United States
ORIX is a joint stock corporation formed in Japan. Almost all of ORIX’s directors and executive officers are residents of countries other than the United States. Although some of ORIX’s subsidiaries have substantial assets in the United States, substantially all of ORIX’s assets and the assets of ORIX’s directors and executive officers are located outside the United States. As a result, it may not be possible for investors to effect service of process within the United States upon ORIX or ORIX’s directors and executive officers or to enforce against ORIX or those persons, in U.S. courts, judgments of U.S. courts predicated upon the civil liability provisions of U.S. securities laws. ORIX has been advised by its Japanese counsel that there is doubt, in original actions or in actions to enforce judgments of U.S. courts, as to the enforceability in Japan of civil liabilities based solely on U.S. securities laws. A Japanese court may refuse to allow an original action based on U.S. securities laws.
 
12

The United States and Japan do not currently have a treaty providing for reciprocal recognition and enforcement of judgments, other than arbitration awards, in civil or commercial matters. Therefore, if you obtain a civil judgment by a U.S. court, you will not necessarily be able to enforce such judgment directly in Japan.
(3) We may be a passive foreign investment company, which could result in adverse U.S. federal income tax consequences to U.S. investors
We believe that we may have been a passive foreign investment company (a “PFIC”) under the U.S. Internal Revenue Code of 1986, as amended, for the year to which this report relates because of the composition of our assets and the nature of our income. In addition, we may be a PFIC in the foreseeable future. Assuming this is the case, U.S. investors in our Shares or ADSs will be subject to special rules of taxation in respect of certain dividends or gains on such Shares or ADSs, including the treatment of gains realized on the disposition of, and certain dividends received on, the Shares or ADSs as ordinary income earned pro rata over a U.S. investor’s holding period for such Shares or ADSs, taxed at the maximum rate applicable during the years in which such income is treated as earned, with the resulting tax liability subject to interest charges for a deemed deferral benefit. In addition, in the case of any dividends that are not subject to the foregoing rule, the favorable rates of tax applicable to certain dividends received by certain
non-corporate
U.S. investors would not be available. See “Item 10. Additional Information—Taxation—United States Taxation.” Investors are urged to consult their own tax advisors regarding all aspects of the income tax consequences of investing in our Shares or ADSs.
(4) If you hold fewer than 100 Shares, you will not have all the rights of shareholders with 100 or more Shares
One “unit” of our Shares is comprised of one hundred Shares. Each unit of the Shares has one vote. A holder who owns Shares other than in multiples of one hundred will own less than a whole unit (i.e., for the portion constituting of fewer than one hundred Shares.) The Companies Act imposes significant restrictions on the rights of holders of shares constituting less than a whole unit, which include restrictions on the right to vote. Under the unit share system, a holder of Shares constituting less than a unit has the right to require ORIX to purchase its Shares and the right to require ORIX to sell it additional Shares to create a whole unit. However, a holder of ADRs is not permitted to withdraw underlying Shares representing less than one unit, which is equivalent to 20 ADSs, and, as a practical matter, is unable to require ORIX to purchase those underlying Shares. The unit share system, however, does not affect the transferability of ADSs, which may be transferred in lots of any number of whole ADSs.
(5) Foreign exchange fluctuations may affect the value of our securities and dividends
Market prices for our ADSs may decline if the value of the yen declines against the dollar. In addition, the dollar amount of cash dividends or other cash payments made to holders of ADSs will decline if the value of the yen declines against the dollar.
(6) A holder of ADRs has fewer rights than a shareholder and must act through the depositary to exercise those rights
The rights of shareholders under Japanese law to take various actions, including voting shares, receiving dividends and distributions, bringing derivative actions, examining a company’s accounting books and records and exercising dissenters’ rights, are available only to holders of record on a company’s register of shareholders. The Shares represented by our ADSs are registered in the name of a nominee of the depositary, through its custodian agent. Only the depositary is able to exercise those rights in connection with the deposited Shares. The depositary will make efforts to vote the Shares represented by our ADSs as instructed by the holders of the ADRs representing such ADSs and will pay to those holders the dividends and distributions collected from us. However, a holder of ADRs will not be able to directly bring a derivative action, examine our accounting books and exercise dissenters’ rights through the depositary unless the depositary specifically undertakes to exercise those rights and is indemnified to its satisfaction by the holder for doing so.
 
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Item 4. Information on the Company
GENERAL
ORIX is a joint stock corporation
(kabushiki kaisha)
formed under Japanese law. Our principal place of business is at World Trade Center Building, SOUTH TOWER,
2-4-1
Hamamatsu-cho,
Minato-ku,
Tokyo
105-5135,
Japan, and our phone number is: +81 3 3435 3000. Our general contact URL is https://ssl.orix-form.jp/ir/inquiry_e/ and our corporate website URL is: https://www.orix.co.jp/grp/en. The information on our website is not incorporated by reference into this annual report. ORIX Corporation USA is ORIX’s agent in the United States, and its principal place of business is at 1717 Main Street, Suite 1100, Dallas, Texas 75201, USA.
CORPORATE HISTORY
ORIX was established in April, 1964 in Osaka, Japan as Orient Leasing Co., Ltd. by three trading companies and five banks that included Nichimen Corporation, Nissho Corporation and Iwai Corporation (presently Sojitz Corporation), the Sanwa Bank (presently The Bank of Mitsubishi UFJ, Ltd.), Toyo Trust & Banking (presently Mitsubishi UFJ Trust and Banking Corporation), the Industrial Bank of Japan and Nippon Kangyo Bank (presently Mizuho Bank, Ltd.), and the Bank of Kobe (presently Sumitomo Mitsui Banking Corporation).
Our initial development occurred during the period of sustained economic growth in Japan during the 1960s and the early 1970s. We capitalized on the growing demand in this period by expanding our portfolio of leasing assets.
During this time, our marketing strategy shifted from a focus on using the established networks of the trading companies and other initial shareholders to one that concentrated on independent marketing as the number of our branches expanded. In April 1970, we listed our Shares on the second section of the Osaka Securities Exchange. Since February 1973, our Shares have been listed on the first sections of the Tokyo Stock Exchange and the Osaka Securities Exchange (which was integrated into Tokyo Stock Exchange in 2013). ORIX was also listed on the first section of the Nagoya Stock Exchange from February 1973 to October 2004.
ORIX set up a number of specialized leasing companies to tap new market potential, starting with the establishment of Orient Auto Leasing Corporation (presently ORIX Auto Corporation) in 1973 and Orient Instrument Rentals Corporation (presently ORIX Rentec Corporation), Japan’s first electric measuring equipment rental company, in 1976. With the establishment of the credit company Family Consumer Credit Corporation (presently ORIX Credit Corporation, concentrating on card loans) in 1979, ORIX began to move into the retail market by offering financing services to individuals.
It was also during this time that ORIX began expanding overseas, commencing with the establishment of its first overseas office in Hong Kong in 1971, followed by Singapore (1972), Malaysia (1973), Indonesia (1975), the Philippines (1977) and Thailand (1978).
In the 1980s and early 1990s, ORIX established offices in the United States (1981), Australia (1986), Pakistan (1986) and Taiwan (1991). The Japanese company Budget
Rent-a-Car
(presently ORIX Auto Corporation) was also established in 1985.
In 1989, we introduced a corporate identity program and changed our name to ORIX Corporation from Orient Leasing Co., Ltd. to reflect our increasingly international profile and diversification into financial services other than leasing.
 
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In 1991, ORIX established ORIX Aviation Systems Limited in Ireland. In the same year, ORIX established ORIX Omaha Life Insurance Corporation (presently ORIX Life Insurance Corporation) and entered the life insurance business. In 1998, ORIX purchased Yamaichi Trust & Bank, Ltd. (presently ORIX Bank Corporation). In 1998, ORIX listed on the New York Stock Exchange (Ticker Symbol: IX) and, through registration with the U.S. Securities and Exchange Commission (“SEC”), has worked to further strengthen its corporate governance regulations. ORIX Real Estate Corporation was established in 1999 to concentrate on condominium development that was first begun in 1993 as well as develop office buildings in pursuit of improved real estate expertise. In 1999, we established ORIX Asset Management and Loan Services Corporation.
Since 2000, we have actively expanded our automobile-related operations by acquiring companies and assets. We combined seven automobile-related companies into ORIX Auto Corporation in 2005.
We have also continued our overseas expansion. In China, we established a rental company in Tianjin in 2004 and in 2005 established a leasing company in Shanghai. In 2009, we established a Chinese Headquarters in Dalian. We also set up local subsidiaries in Saudi Arabia (2001), and the United Arab Emirates (2002).
In 2006, we entered the investment banking field in the United States with the acquisition of Houlihan Lokey, Inc. (“Houlihan Lokey”) (All shares sold through a wholly-owned subsidiary ORIX USA in July 2019). In 2010, we acquired RED Capital Group (presently ORIX Real Estate Capital Holdings, LLC), a U.S.-based company that provides financing for multi-family, senior living and healthcare-related real estate development projects in the United States. In 2010, we also acquired Mariner Investment Group LLC, a leading independent
SEC-registered
hedge fund manager (All shares sold through a wholly-owned subsidiary ORIX USA in July 2020).
We managed ORIX Credit Corporation (“ORIX Credit”) over a continuous three-year period jointly with Sumitomo Mitsui Banking Corporation pursuant to an alliance established in July 2009. In June 2012, ORIX purchased all the shares of ORIX Credit, making ORIX Credit a wholly-owned subsidiary of ORIX.
In July 2013, ORIX acquired Robeco Groep N.V. (presently ORIX Corporation Europe N.V.), a holding company of global asset management companies based in the Netherlands, to pursue a new business model by combining finance with related services. In October 2016, ORIX purchased all the shares of Robeco, making Robeco a wholly-owned subsidiary of ORIX.
In July 2014, we acquired Hartford Life Insurance K.K. (“HLIKK”) (presently ORIX Life Insurance Corporation). In December 2014, we acquired Yayoi Co., Ltd. (“Yayoi”), a software service provider targeting small businesses.
In December 2015, ORIX and VINCI Airports S.A.S., an airport concession holder and operator based in France, established Kansai Airports to operate and manage Kansai International Airport and Osaka International Airport.
In November 2018, ORIX acquired 30% shareholding of Avolon Holdings Limited (“Avolon”), a leading global aircraft leasing company located in Ireland.
In January 2019, ORIX made DAIKYO INCORPORATED a wholly-owned subsidiary due to the acquisition of common shares of DAIKYO through a tender offer.
 
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STRATEGY
Operating Environment
Since the beginning of 2020, the spread of
COVID-19
continued worldwide, as did the various countermeasures and responses undertaken by governments around the world, including restrictions on the movement and gatherings of people. As a result, the global economy has continued to experience a severe downturn due to demand and supply chain disruptions. In fiscal 2021, ORIX Group has experienced a deterioration in the business environments in which it operates and also declining profitability, with the effects felt most strongly in the facility operation business in Real Estate Segment, the concession business in PE Investment and Concession Segment and the aircraft leasing business in Aircraft and Ships Segment.
In the future, it is hoped that vaccination programs and economic policy will balance the prevention of the further spread of
COVID-19
with economic recovery. However, the situation remains unpredictable for the foreseeable future. The negative impact of
COVID-19
on the three above-mentioned business segments in particular may be longer-term.
Progress on Target Performance Indicators
In its pursuit of sustainable growth, ORIX Group uses the following performance indicators: Net income attributable to ORIX Corporation shareholders to indicate profitability, ROE to indicate capital efficiency and credit ratings to indicate financial soundness.
In fiscal 2021, although certain of our businesses were adversely affected by the
COVID-19
pandemic, the impact to the ORIX group was limited because of the diversified nature of our businesses. As a result, net income attributable to ORIX Corporation shareholders was ¥192.4 billion. ROE for fiscal 2021 declined from 10.3% in the previous fiscal year to 6.4% due to a decrease in net income attributable to ORIX Corporation shareholders and an increase in shareholders’ equity. Our ROE target is 11% or more in the medium and long term. We continue to maintain a credit rating of A or higher.
Three- year trends in performance indicators are as follows.
 
      
As of March 31,
 
      
2019
   
2020
   
2021
 
Net income attributable to ORIX Corporation shareholders
   (Millions of yen  323,745    302,700    192,384 
ROE
(1)
   (%)   11.6    10.3    6.4 
 
(1) 
ROE is the ratio of Net income attributable to ORIX Corporation shareholders for the period to average ORIX Corporation shareholders’ equity based on fiscal year beginning and ending balances.
Corporate Challenges to be Addressed
ORIX Group believes that providing new value to society and being a company that is needed by society is what enables a company to achieve sustainable growth. To this end, ORIX Group believes that it must strengthen its management base through the following initiatives.
Promote Sustainability: In order to promote Sustainability and expand disclosure on the status of our initiatives, we established the Sustainability Promotion Team in Corporate Planning Department (current Sustainability Team in Investor Relations and Sustainability Department) in July 2019. We established ORIX Corporate Sustainability Policy, ORIX Human Rights Policy, and ORIX Sustainable Investing and Lending Policy, and based on the ORIX Sustainable Investing and Lending Policy, we review investment and loan projects in the process of considerations from the perspective of sustainability. In addition, in October 2020 we
 
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became a supporter of the recommendations of “TCFD” (the Task Force on Climate-related Financial Disclosures) which is aiming to assess and disclose the financial impact of risks and opportunities brought by climate change.
Enhance integrated risk management: We established the ERM Headquarters in June 2017. We are formulating Group-wide risk management policies and standards necessary for ORIX Group to achieve its management strategy and are creating mechanisms to continuously improve the effectiveness of structures and internal control systems for that purpose. In addition, we established Risk Management Department in the ERM Headquarters in August 2020 and we are making ongoing efforts to develop and enhance the operation of the system that can appropriately identify, evaluate, control and manage risks.
Strengthen information security and promote digital transformation: We established Information Security Control Department in June 2018 and Technology Planning and Governance Department in January 2020. We are solidifying the ORIX Group’s IT infrastructure, promoting digitalization of operations and strengthening the security of digitized management information. In the next step, we are considering an effective use of the massive transactional data accumulated over the years, leveraging information technology to expand existing businesses and launch new ones.
PROFILE OF BUSINESS BY SEGMENT
For a discussion of the basis for the breakdown of segments, see Note 34 of “Item 18. Financial Statements.” The following table shows a breakdown of profits by segment for fiscal 2019, 2020 and 2021. Since April 1, 2020, the reporting segments have been changed to the aforementioned segments. As a result of this change for fiscal 2021, segment data as of the end of and for the previous fiscal year has been retrospectively restated.
 
   
Years ended March 31,
 
   
2019
  
2020
  
2021
 
   
(Millions of yen)
 
Corporate Financial Services and Maintenance Leasing
  ¥78,310  ¥62,978  ¥59,149 
Real Estate
   93,748   80,182   24,684 
PE Investment and Concession
   23,061   44,110   3,431 
Environment and Energy
   12,144   11,625   28,563 
Insurance
   51,544   44,833   55,119 
Banking and Credit
   36,434   39,096   48,030 
Aircraft and Ships
   36,422   45,287   3,755 
ORIX USA
   50,056   56,690   43,614 
ORIX Europe
   35,629   43,778   37,886 
Asia and Australia
   7,521   14,673   14,660 
  
 
 
  
 
 
  
 
 
 
Total segment profits
   424,869   443,252   318,891 
  
 
 
  
 
 
  
 
 
 
Difference between segment total and consolidated amounts
   (29,139  (30,691  (31,330
  
 
 
  
 
 
  
 
 
 
Total Consolidated Amounts
  ¥395,730  ¥412,561  ¥287,561 
  
 
 
  
 
 
  
 
 
 
Each of our segments is briefly described below.
BUSINESS SEGMENTS
ORIX Group organizes its businesses into ten segments to facilitate strategy formulation, resource allocation and portfolio balancing at the segment level. These ten business segments are: Corporate Financial Services and
 
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Maintenance Leasing, Real Estate, PE Investment and Concession, Environment and Energy, Insurance, Banking and Credit, Aircraft and Ships, ORIX USA, ORIX Europe, Asia and Australia. Management believes that organizing our business into large, strategic units allows us to maximize our corporate value by identifying and cultivating strategic advantages vis-à-vis anticipated competitors in each area and by helping ORIX Group achieve competitive advantage overall.
An overview of operations, operating environment and operating strategy for each of the ten segments follows. However, the operating strategy of each business may change in the future due to developments relating to the spread of
COVID-19,
including the duration and extent to which preventative measures are maintained across the globe.
Corporate Financial Services and Maintenance Leasing
This segment is involved in finance and fee business; leasing and rental of automobiles, electronic measuring instruments and
IT-related
equipment; and Yayoi.
In corporate financial services, we are engaged in leasing and lending businesses with a focus on profitability. We also focus on fee businesses by providing life insurance and environment and energy-related products and services to domestic small and
medium-sized
enterprise customers, as well as business succession support in domestic regions. In the automobile-related businesses, we aim to increase market share in small and
medium-sized
enterprises and individual customers, as well as large corporate customers by enhancing our competitive advantages stemming from our industry-leading number of fleets under management and
one-stop
automobile-related services. In the rental business operated by ORIX Rentec Corporation, we are strengthening our engineering solution businesses by not only providing electronic measuring instruments and
IT-related
equipment leasing and lending, but also developing new services relating to robots and drones.
Real Estate
This segment consists of real estate development, rental and management, facility operation, and real estate asset management.
In our real estate business, we aim to promote portfolio rebalancing by selling rental properties in favorable market conditions while investing in real estate development projects that can generate added value. We are also building a revenue base that is less affected by volatility in the real estate market by expanding the scale of our asset management business, such as REIT and real estate investment advisory services. In addition, we aim to gain stable profits by accumulating expertise through the operation of various facilities such as hotels and Japanese inns. We aim to enhance mutually complementary aspects of the DAIKYO INCORPORATED and its subsidiaries (hereinafter, “DAIKYO”) with ORIX real estate businesses through integration, and to take advantage of our value chain of real estate development and rental, asset management, facility operations, residential management, office building management, construction contracting, and real estate brokerage, and to develop new businesses that make the most of our comprehensive strengths.
PE Investment and Concession
This segment consists of private equity investment, and concession.
In the private equity business, we aim to earn stable profits from investees and sustainable gains on sales by rebalancing our portfolio. We aim to expand investment in focused industries and increase value through rollups and alliances with existing investees as a starting point. At the same time, we seek business opportunities created by changes in the industrial structure and explore diversified investment methods. In the concession business, we aim to strengthen our operations in the three airports (Kansai International Airport, Osaka International Airport and Kobe Airport), and proactively engage in the operation of public infrastructures other than airports.
 
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Environment and Energy
This segment consists of domestic and overseas renewable energy, electric power retailing, ESCO services, sales of solar panels and electricity storage system, and recycling and waste management.
In the environment and energy business, we aim to increase services revenue as a comprehensive energy service provider by promoting our renewable energy business and electric power retailing business. In our solar power generation business, we have secured top solar power production capacity in Japan and we are gradually proceeding with operations. In the renewable energy business and electricity storage system business, we aim to design new business models based on the anticipated future business environment. In the recycling and waste management business, we are making new investments in facilities, with the aim of further expansion of business. We intend to accelerate our renewable energy business overseas by capitalizing the expertise we have gained in the domestic market.
Insurance
This segment consists of life insurance.
In the life insurance business, we sell life insurance through agents, banks and other financial institutions,
face-to-face
sales through our own consulting services, and online sales. With
“simple-to-understand”
and “providing reasonable guarantee at reasonable price” as the concepts of product development, we aim to expand the number of new life insurance contracts and increase life insurance premium income by constantly incorporating our customer needs while expanding the product lineup.
Banking and Credit
This segment consists of banking and consumer finance.
In the banking business, we aim to increase finance revenues by increasing the balance of outstanding real estate investment loans, which is the core of our banking business. In the consumer finance business, we aim to increase finance revenues by providing loans directly to our customers with our expertise in credit screening. We also aim to increase guarantee fees income by expanding guarantees against loans disbursed by other financial institutions. In the mortgage bank business, we aim to expand our market share by expanding our agency network and strengthening our product lineup.
Aircraft and Ships
This segment consists of aircraft leasing and management, and ship-related finance and investment.
In the aircraft-related operations, we are focusing on a wide range of profit opportunities, including operating leases of owned aircraft, sale of aircraft to investors, and asset management services for aircraft owned by domestic and overseas investors. We aim for medium- and long-term growth by further enhancing our presence in the global aircraft-leasing market through mutually complementary relationships with Avolon. In the ship-related business, we flexibly replace assets while closely monitoring the market environment, and aim to achieve goals such as increasing commission income by arranging investment in ships for domestic corporate investors. In the future, we aim to expand our business by collaborating with excellent partners based on our expertise in finance and investment.
ORIX USA
This segment consists of finance, investment and asset management in the Americas.
 
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ORIX Corporation USA provides various types of services such as corporate finance, real estate finance, private equity investment, and investment in bonds to our clients in response to their needs. We aim to expand such asset businesses by utilizing our expertise in them. We are also engaged in expanding the function of our asset management and servicing platform to increase stable fee revenues. With the expansion of both principle investments and assets under management, we aim for profit growth along with capital efficiency improvement.
ORIX Europe
This segment consists of equity and fixed income asset management.
Under ORIX Corporation Europe N.V. (hereinafter, “OCE”) as the holding company, Robeco Institutional Asset Management B.V. (hereinafter, “Robeco”) and Transtrend B.V. headquartered in the Netherlands, Boston Partners Global Investors, Inc. and Harbor Capital Advisors, Inc. headquartered in the United States are engaged in the asset management business through investments in stocks, bonds, etc. In addition to the focus on expanding the existing businesses by leveraging the expertise of Robeco, a pioneer in sustainable investment, we aim to increase assets under management with expanding products and investment strategies through M&A activities. ORIX Europe is also engaged in capturing a wide range of business opportunities as the strategic business location of ORIX Group in Europe.
Asia and Australia
This segment consists of finance and investment businesses in Asia and Australia.
Our overseas subsidiaries are well-versed in business practices and laws and regulations that vary from region to region, and are engaged in financial services such as leasing and lending. Our overseas subsidiaries also invest in private equity in Asian countries, particularly in China. We will further enhance the functions of our overseas subsidiaries and further invest in targeted markets in order to expand our business with an emphasis on profitability.
DIVISIONS, MAJOR SUBSIDIARIES AND AFFILIATES
A list of major subsidiaries and affiliates can be found in Exhibit 8.1.
CAPITAL PRINCIPAL EXPENDITURES AND DIVESTITURES
We are a financial services company with significant leasing, lending, real estate development and other operations based on investment in tangible assets. As such, we are continually acquiring and developing such assets as part of our business. A detailed discussion of these activities is presented elsewhere in this annual report, including in other parts of “Item 4. Information on the Company” and in “Item 5. Operating and Financial Review and Prospects.”
In general, we seek to expand and deepen our product and service offerings and enhance our financial performance through acquisitions of businesses or assets. We continually review acquisition opportunities, and selectively pursue such opportunities. We have in the past deployed a significant amount of capital for acquisition activities and expect to continue to make investments, on a selective basis. For a discussion of certain of our past acquisitions, see “Item 4. Information on the Company—Corporate History.”
 
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PROPERTY, PLANT AND EQUIPMENT
As our primary business is to provide various financial services to our clients, we do not own any material factories or facilities that manufacture products. We have no plans to build any factories that manufacture products.
The following table shows the book values of the primary facilities we own, which include three office buildings, two thermal power stations, three solar power stations and two hotels.
 
   
As of March 31, 2021
 
   
Book Value
(1)
   
Land Space
(2)
 
   
(Millions of yen)
   
(Thousands of m²)
 
Office building (Tachikawa, Tokyo)
  ¥11,499    2 
Office building (Shiba,
Minato-ku,
Tokyo)
   30,962    2 
Office building (Osaka, Osaka)
   9,484    2 
Thermal power station (Kitakyushu, Fukuoka)
   29,168    37 
Thermal power station (Soma, Fukushima)
   33,278    63 
Solar power station (Tsu, Mie)
   13,113    1,193 
Solar power station (Niigata, Niigata)
   12,576    251 
Solar power station (Tomakomai, Hokkaido)
   11,193    —   
Hotel (Beppu, Oita)
(3)
   21,077    166 
Hotel (Kanazawa, Ishikawa)
   11,207    2 
 
(1) 
Right-of-use
assets (hereinafter, “ROU assets”) are included in the book value.
(2) 
Land space is provided only for those facilities where we own the land.
(3) 
Book value of hotel (Beppu, Oita) includes advances for property under facility operations of ¥3,184 million.
We plan to make capital expenditures totaling approximately ¥578,178 million to support the growth and development of our operating lease business and power generation business during fiscal 2022. The following table shows a breakdown of planned capital expenditures and includes the estimated investment amounts and expected methods of financing the expenditures.
 
   
Fiscal 2022
   
Estimated
investment

amounts
   
Expected methods of
financing
   
(Millions of yen)
    
Operating lease equipment and property
  ¥430,000   Funds on hand, bank borrowings, etc.
Power generation equipment
   148,178   Funds on hand, bank borrowings, etc.
  
 
 
   
 
Total
  ¥578,178   —  
  
 
 
   
 
Our operations are generally conducted in leased office space in cities throughout Japan and in other countries in which we operate. We believe our leased office space is suitable and adequate for our needs. We utilize, or expect to utilize in the near future, substantially all of our leased office space.
We own office buildings, apartment buildings and recreational facilities for our employees and others with an aggregate book value of ¥246,399 million as of March 31, 2021.
As of March 31, 2021, the acquisition cost of equipment we held for operating leases amounted to ¥2,006,993 million, consisting of ¥1,364,559 million of transportation equipment, ¥307,010 million of measuring
 
21

and information-related equipment, ¥291,917 million of real estate and ¥43,507 million of others, before accumulated depreciation. Accumulated depreciation on equipment held for operating leases was ¥741,022 million. We also recognized ¥114,268 million of ROU assets of operating leases, ¥28,259 million of accrued rental receivables and ¥(309) million of allowance for doubtful receivables on operating leases as of the same date.
SEASONALITY
Our business is not materially affected by seasonality.
RAW MATERIALS
Our business does not materially depend on the supply of raw materials.
PATENTS, LICENSES AND CONTRACTS
Our business and profitability are not materially dependent on any patents or licenses, industrial, commercial or financial contracts, or new manufacturing processes.
BUSINESS REGULATION
ORIX and its group companies in Japan are incorporated under, and our corporate activities are primarily governed by, the Companies Act and other Japanese laws. However, because certain of ORIX’s group companies are organized in jurisdictions other than Japan, and ORIX and its group companies are involved in diverse businesses, joint ventures and acquisitions in overseas jurisdictions, including in the United States, Europe, Asia and Oceania, we are therefore subject to various laws and regulations in each jurisdiction in which they are organized or operate, including, but not limited to, regulations relating to corporate governance, business and investment approvals, competition, anti-corruption, anti-money laundering and terrorism financing, consumer and business taxation, foreign exchange controls, intellectual property and personal information protection. In recent years, there has been an increasing number of laws and regulations on competition, anti-corruption, anti-money laundering and terrorism financing, and personal data protection that can apply directly to business activities taking place outside of the jurisdiction that enacted such law or regulation (extraterritorial application). Given the need for ORIX and its group companies to deal with the laws and regulations of multiple countries on each legal topic, there has been a tendency for costs to increase as a result of the increasing number of laws and regulations that need to be assessed. In addition, there is an increasing number of cases where significant fines and penalties have been imposed for violations of such laws and regulations. For example, fines for violations of the European Union’s General Data Protection Regulation can be up to 4% of total global turnover and fines for violations of the U.S. Foreign Corrupt Practices Act can be up to twice the benefit sought, in addition to penalties such as disgorgement of profits and prejudgment interest.
The next section describes the main laws and regulations applicable to each of our business segments.
1. Corporate Financial Services and Maintenance Leasing
ORIX and certain of our group companies are engaged in the moneylending business in Japan. The Moneylending Business Act requires that all companies engaged in moneylending business register with the Prime Minister or the relevant prefectural governors. Moneylenders permitted to register are regulated by the Financial Services Agency (“FSA”), and are required to file various notifications and provide documents such as
 
22

their annual business reports. Further, moneylenders are required to comply with applicable laws and to establish an internal management system to ensure the appropriate management of money lending operations. These obligations are supervised by the FSA. Accordingly, pursuant to the Moneylending Business Act, ORIX and certain of our group companies have registered with the Prime Minister or various prefectural governors, established the necessary internal systems, and provide the necessary reporting and notification to the FSA. The FSA has the power to issue business improvement orders, suspend all or part of a money lender’s activities, or to revoke the registration of a moneylender that has violated the law, depending on the severity of the violation.
Certain businesses conducted by ORIX and our group companies are governed by the Financial Instruments and Exchange Act. The act was established to regulate activities such as the issuance, sale and purchase of stocks and other securities in order to protect investors and facilitate finance, and requires that any person conducting such activities register with the Prime Minister as a “financial instruments traders.” Financial instruments traders are divided among four classifications depending on the type of business: (1) First Class Financial Instruments Exchange Business, (2) Second Class Financial Instruments Exchange Business, (3) Investment Management Business, and (4) Investment Advisory and Agency Business, and companies in the Corporate Financial Services and Maintenance Leasing segment conducting such activities are registered with the Prime Minister as Second Class Financial Instruments Exchange Businesses. Registered financial instruments traders are obligated to establish an internal management system to ensure compliance with relevant laws and regulations and appropriate management of its business, as well as to provide and deliver material information and explain risks to their customers. The relevant supervisory authority, the FSA, monitors registered financial instruments traders and has the power to order improvement of a business, or suspension of a part or the whole of a business, or to revoke the registration of such a trader that has violated the law, depending on the severity of the violation:
While the ORIX Group includes a life insurance company engaged in the insurance business, ORIX and certain of our group companies are also separately registered with the Prime Minister as insurance agencies for life insurance and/or
non-life
insurance and are subject to Insurance Business Act. As insurance agencies, the companies are obligated to establish certain systems and provide and deliver material information and explain risks to their customers. In the event an insurance agency violates such obligations, the FSA has the power to order improvement of a business, or suspension of a part or the whole of a business, or to revoke the registration of the insurance agency that has violated the law, depending on the severity of the violation. For information on regulations applicable to our insurance business other than our insurance agencies, see “—
5.
Insurance
” below.
Leasing and rental businesses generally do not require registration or licenses. However, the renting of automobiles (operation of a car rental business) and
car-sharing
business is subject to licensing by the Minister of the Ministry of Land, Infrastructure and Transport (“MoLIT”). In addition, the leasing or renting of some types of goods may require compliance with regulations that specify reporting or notification obligations based on certain characteristics of the goods.
2. Real Estate
While it is unnecessary for a company to obtain a license to become a real estate developer, there are various regulations that apply to real estate activities. Certain of our group companies have obtained Construction Business Licenses from MoLIT for constructing buildings and conducting interior finishing work. Furthermore, ORIX and certain of our group companies, including ORIX Real Estate Corporation and DAIKYO, are required to be licensed by MoLIT or relevant prefectural governors under the Building Lots and Buildings Transaction Business Act to engage in activities such as the buying and selling land and buildings in Japan, and their operations are regulated by such laws, including the maintenance of registered real estate transaction managers on staff and the duty to provide and deliver material information to counterparties.
In addition, lodging facilities, such as Japanese inns and hotels, operated by ORIX Hotel Management Corporation have licenses from relevant prefectural governors under the Inns and Hotels Act, etc.
 
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ORIX’s wholly owned subsidiaries ORIX Asset Management Corporation (“OAM”) and ORIX Real Estate Investment Advisors Corporation (“ORIA”) are each registered with the Prime Minister under the Financial Instruments and Exchange Act as an investment manager. Under the Financial Instruments and Exchange Act, any entity possessing voting rights in an investment manager at or above a specified threshold is considered a major shareholder and must report its shareholding to the Prime Minister. ORIX has filed such report as a major shareholder of OAM and ORIA.
ORIA is registered with the Prime Minister under the Financial Instruments and Exchange Act to engage in the investment advisory and agency business and regulated by the FSA.
3. PE Investment and Concession
ORIX conducts investment activities in a broad range of fields without regard for the specific industry. Due to this, we are subject to a wide variety of regulations, including those that are applicable to our investment activities and those that apply due to the type of business conducted by our investees. ORIX generally does not directly involve itself in the management of its investees, but it is necessary for us to pay attention to regulations that apply to our investees so that we can monitor their management.
4. Environment and Energy
The businesses that comprise our renewable energy business, such as our solar power generation business, are subject to and must comply with various requirements and regulations in the jurisdictions where they operate, including the Electricity Business Act, Environmental Impact Assessment Act and Act on Special Measures Concerning Procurement of Electricity from Renewable Energy Sources by Electricity Utilities in Japan and similar laws and regulations in other jurisdictions, when setting up a power generation facility, including business notification requirements, regulations relating to the facility location, and other various regulations, such as those designed to protect the environment and visual landscape and ensure safety from the perspective of disaster prevention.
5. Insurance
In order to engage in the life insurance business, ORIX Life Insurance has obtained and maintains a license from the Prime Minister under the Insurance Business Act. The relevant supervisory authority, the FSA, has the power to conduct broad supervision and guidance of the life insurance industry and to issue business improvement orders, suspend all or part of an insurance company’s activities, or to revoke the license of an insurance company that has violated the law or that has been determined to have an insufficient internal management system, depending on the severity of the violation or insufficiency. It is also generally necessary to receive FSA approval for the sale of new products and to revise pricing terms for existing products.
Any entity attempting to acquire voting rights in an insurance company at or above a specified threshold must receive permission from the Prime Minister in accordance with the Insurance Business Act. ORIX has received such permission as a major shareholder of ORIX Life Insurance.
6. Banking and Credit
ORIX Bank is licensed by the Prime Minister to engage in the banking and trust business and is regulated under the Banking Act and the Act on Engagement in Trust Business by Financial Institutions. The Banking Act governs the general banking business and the Act on Engagement in Trust Business by Financial Institutions and the Trust Business Act govern the trust business. A bank must establish a system for the protection of customers’ interests, which is supervised by the FSA.
 
24

In addition, any entity that attempts to obtain voting rights in a bank at or above a specified threshold must receive permission from the Prime Minister in accordance with the Banking Act. ORIX has received such permission as a major shareholder of ORIX Bank.
ORIX Credit is engaged in the business of providing moneylending services to consumers and licensed as a moneylender. For information on regulations applicable to moneylenders, see “—
1.
Corporate Financial Services and Maintenance Leasing
” above.
7. Aircraft and Ships
The business of leasing aircraft and ships generally does not require a license, however it is necessary to register the ownership of aircraft and ships. In most jurisdictions, the lessee under an aircraft lease is responsible for registering the aircraft, while the lessor under a ship lease registers the ship with the appropriate flag state. In the case of ship leases, there are certain regulations that we must comply with because they apply directly not just to the lessee but also the lessor, such environmental regulations.
8. ORIX USA
Certain of our businesses in our ORIX USA segment are subject to extensive regulation in the United States and Brazil. Certain subsidiaries of ORIX Corporation USA manage investment funds and separately managed accounts and are registered as investment advisers with the SEC under the U.S. Investment Advisers Act of 1940, as amended (“Advisers Act”) and are subject to the requirements and regulations of the Advisers Act. Such requirements relate to, among other things, fiduciary duties to advisory clients, maintaining an effective compliance program and code of ethics, operational and marketing requirements, recordkeeping and reporting requirements, disclosure obligations and general anti-fraud prohibitions.
Lument Securities, a wholly owned subsidiary of ORIX Corporation USA, through which we conduct an investment banking and municipal securities business, is registered as a broker-dealer with the SEC and the Financial Industry Regulatory Authority (“FINRA”). Lument Securities is a municipal securities dealer registered with the SEC and the Municipal Securities Rulemaking Board (“MSRB”), and hence is subject to regulation and oversight by the SEC, FINRA, and the MSRB. Lument Securities is registered as a broker-dealer in 37 states, and as a result is a member of and is subject to regulation by FINRA, a self-regulatory organization subject to oversight by the SEC that adopts and enforces rules governing the conduct, and examines the activities, of its member firms. State securities regulators also have regulatory oversight authority over Lument Securities. Broker-dealers are subject to regulations that cover all aspects of the securities business, including, among others, the implementation of a supervisory control system over the securities business, advertising and sales practices, conduct of and compensation in connection with public securities offerings, maintenance of adequate net capital, record keeping and the conduct and qualifications of employees.
By virtue of their involvement in the multifamily and seniors housing mortgage lending business, Lument and its mortgage company subsidiaries must comply with rules and regulations administered by the Government National Mortgage Association, the Federal National Mortgage Association, the Department of Housing and Urban Development/Federal Housing Administration, the United States Department of Agriculture, and the Federal Home Loan Mortgage Corporation.
Certain of ORIX Corporation USA’s subsidiaries are licensed California Finance Lenders.
Boston Financial Investment Management, LP (“BFIM”), a subsidiary of ORIX Corporation USA, is a provider of syndication services as well as asset and portfolio management in the U.S.
Low-Income
Housing Tax Credits industry in connection with financing for the construction and rehabilitation of affordable housing. As the beneficiary of tax credits and often other subsidy and loan programs, a
Low-Income
Housing Tax Credits property is typically regulated at the U.S. federal, state, and local levels.
Day-to-day
responsibility of the
 
25

property resides with a third party general partner, who in addition to directing the agent that manages the property, has responsibility for compliance with applicable laws and regulations. As the general partner of a limited partnership, BFIM monitors such compliance on behalf of the other limited partners.
RB Capital Empreendimentos S.A. (“RB Capital”), a majority-owned subsidiary of ORIX Corporation USA headquartered in Sao Paulo, is a Brazilian capital markets and asset management platform. RB Capital and its subsidiaries’ financial and investment activities are regulated by the Central Bank of Brazil and the Securities and Exchange Commission of Brazil and RB Capital is a member of the Brazilian Financial and Capital Markets Association.
9. ORIX Europe
Certain of our businesses in our ORIX Europe segment, which includes entities and businesses that are organized in or operating in jurisdictions outside of Europe, are subject to extensive regulation in various jurisdictions across Europe, the United States and Asia.
Dutch subsidiaries of OCE are subject to European financial supervisory regulation, including, amongst others and as the case may be, the Alternative Investment Fund Managers Directive, the Undertakings for Collective Investment in Transferable Securities (“UCITS”) Directive, the Markets in Financial Instruments Directive, the European Market Infrastructure Regulation, the Market Abuse Regulation, the 5th Anti-Money Laundering Directive, the Benchmark Regulation, the Securities Financing Transactions Regulation and the Shareholder Rights Directive II.
UK-regulated
subsidiaries of OCE are subject to the UK FCA Conduct of Business Sourcebook. U.S. subsidiaries of OCE are subject to regulation, primarily at the federal level, by, as the case may be, the SEC, Department of Labor, Federal Reserve, Office of the Comptroller of the Currency, FINRA, National Futures Association (“NFA”), Department of Justice, Commodity Futures Trading Commission (“CFTC”) and New Hampshire Banking Commission (“NHBC”), as well as being subject to the Advisers Act.
Robeco Institutional Asset Management B.V. (“RIAM”), a subsidiary of OCE, is registered as an alternative investment fund manager (“AIFM”) and fund manager of UCITS in the Netherlands and regulated by the Dutch Authority for the Financial Markets (“AFM”) and the Dutch Central Bank (“DNB”). RIAM has branches and representative offices worldwide, including in Dubai, Germany, Spain, Italy and the United Kingdom, each of which either benefits from RIAM’s European passport or is subject to local regulatory supervision.
Robeco Schweiz AG, a subsidiary of OCE, is authorized and regulated by the Swiss Financial Market Supervisory Authority (“FINMA”). Robeco Schweiz is subject to Swiss legislation, including amongst others, the Federal Act on Collective Investment Schemes, the Federal Ordinance on Collective Investment Schemes , the Financial Services Act , the Financial Institutions Act, the FINMA Collective Investment Schemes Ordinance, the Anti-Money Laundering Act , the FINMA Anti-Money Laundering Ordinance, the FINMA Circular Outsourcing 18/3, the FINMA Circular 2013/08 Market Conduct Rules, the FINMA Circular 2010/1 on Remuneration Principles, the Code of Conduct from the Swiss Asset Management Association and their respective industry Guidelines, which are currently under review.
Certain other subsidiaries of OCE located across Europe, the United States and Asia that are affiliated with the Robeco group are registered, licensed or approved, as the case may be, by regulators in the jurisdictions in which they operate and subject to local regulations regarding their businesses. Such regulators include the AFM, SEC, Securities & Futures Commission of Hong Kong, Financial Services Commission of Korea (“FSC”), Australian Securities and Investments Commission, Asset Management Association of China and Monetary Authority of Singapore.
Transtrend B.V., a wholly owned subsidiary of OCE that offers asset management and commodity trading advisory services, is registered as an AIFM in the Netherlands and regulated by the AFM and DNB. Transtrend is also registered with the NFA and regulated by the CFTC.
 
26

Boston Partners Global Investors, Inc. (“Boston Partners”) is a subsidiary of OCE and registered with the SEC as an investment adviser. Boston Partners is also a member of the NFA and is registered as a commodity pool operator and as a commodity trading adviser with the CFTC. Furthermore, Boston Partners is registered with the FSC. Certain subsidiaries of Boston Partners located in the United States and the United Kingdom are also registered with the SEC, NHBC and the UK Financial Conduct Authority (“FCA”).
Harbor Capital Advisors, Inc. (“Harbor”) is a subsidiary of OCE and is registered with the SEC as an investment adviser. Certain subsidiaries of Harbor are registered with the SEC and NHBC.
Gravis Capital Management Limited (“Gravis”) is a UK asset manager and registered as an investment adviser with the FCA. OCE acquired 70% of the shares in Gravis in January 2021.
10. Asia and Australia
Our group companies in our Asia and Australia segment are subject to the laws and regulations of the various jurisdictions across Asia and Oceania in which they operate. Many of the businesses are also subject to oversight by regulatory authorities in those jurisdictions due to the industries in which they operate, particularly those businesses that offer of financial services, such as leasing, lending and banking. Regulatory authorities in these jurisdictions have authority with respect to financial services and can grant, suspend or cancel licenses or registrations that are necessary for our businesses to conduct certain of their operations.
Among group companies in the segment, ORIX Asia Limited is registered with the Hong Kong Monetary Authority as a restricted license bank. A wholly owned subsidiary of ORIX Leasing Malaysia Berhad has a money lending license from the Malaysia Ministry of Housing and Local Government, and is registered with Bank Negara Malaysia. PT. ORIX Indonesia Finance has a financial institution business license and is regulated by the Indonesia Financial Services Authority. ORIX Australia Corporation Limited is registered with the Australian Prudential Regulation Authority as a registered finance corporation. ORIX Capital Korea Corporation is registered with the Korea Financial Supervisory Service as a specialized credit finance business company.
LEGAL PROCEEDINGS
We are a plaintiff or a defendant in various lawsuits arising in the ordinary course of our business. We aggressively manage our pending litigation and assess appropriate responses to lawsuits in light of a number of factors, including the potential impact of the actions on the conduct of our operations. In the opinion of management, none of the pending legal matters is expected to have a material adverse effect on our financial condition or results of operations. However, there can be no assurance that an adverse decision in one or more of these lawsuits will not have a material adverse effect.
Item 4A. Unresolved Staff Comments
None.
 
27

Item 5. Operating and Financial Review and Prospects
Table of Contents for Item 5
 
   
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OVERVIEW
The following discussion provides management’s explanation of factors and events that have significantly affected our financial condition and results of operations. Also included is management’s assessment of factors and trends which are anticipated to have a material effect on our financial condition and results of operations in the future. However, please be advised that our financial condition and results of operations in the future may also be affected by factors other than those discussed here. This discussion should be read in conjunction with “Item 3. Key Information—Risk Factors” and “Item 18. Financial Statements” included in this annual report.
Basic approach to financial and capital strategy
Regarding funding activities, we strive to maintain a high ratio of long-term funds procured and staggered repayment periods, keeping in mind the diversification and balance of fund procurement methods and sources. We strive to ensure that liquidity on hand is at an appropriate level through stress testing and other means. With regard to shareholders’ equity, we measure risk in all assets using our own method, and strive to monitor the ratio of use of shareholders’ equity at an appropriate level while considering the balance between flexibility and financial soundness for new investments.
We aim to keep maximum effort to maintain A grade. ORIX is working to achieve its goals by measuring and evaluating its capital adequacy, financing conditions, and asset quality internally, and by regularly confirming evaluations from credit rating agencies.
The issuer ratings (or counterparty ratings) that the ORIX Group has obtained from rating agencies as of the filing date of this annual report are
“A-”
for S&P Global Ratings Japan,
“A-”
for Fitch Ratings Japan, “A3” for Moody’s Investors Service, and
“AA-”
for Rating and Investment Information, Inc. (R&I).
Major Use of funding
The ORIX Group’s major uses of funding include purchases of leased assets, such as office equipment, automobiles, IT equipment, measuring equipment, real estate, and aircraft, loans to customers, investments in affiliates, acquisition of subsidiaries, purchases of investment securities, and purchases of business assets.
 
28

Results Overview
In fiscal 2021, net income attributable to ORIX corporation shareholders decreased 36% to ¥192.4 billion compared to the previous fiscal year resulting from the impact of restrictions on economic and social activities due to the spread of
COVID-19
affecting some of our businesses. For fiscal 2021, ROE was 6.4%.
The following is a summary of the main factors behind the consolidated business results for fiscal 2021.
The segment profit in fiscal 2021 decreased 28% to ¥318.9 billion to compared to the previous fiscal year due to a decrease in segment profit in Corporate Financial Services and Maintenance Leasing, Real Estate, PE Investment and Concession, Aircraft and Ships, ORIX USA, ORIX Europe, and Asia and Australia, despite an increase in segment profit in Environment and Energy, Insurance, and Banking and Credit.
Corporate Financial Services and Maintenance Leasing Segment’s profit decreased due to a decrease in finance revenues resulting from a decrease in financial assets and a decrease in operating leases revenues in the automobile-related businesses resulting from a decrease in car rental demand.
Real Estate Segment’s profit decreased due to a decrease in services income from our facility operations business resulting from temporary closure and low occupancy rates due to the impact of
COVID-19.
PE Investment and Concession Segment’s profit decreased due to a decrease in equity in net income of affiliates resulting from a substantial decrease in the number of passengers and flights at our three airports in Kansai due to the impact of
COVID-19
and due to the absence of gains on the sale of a subsidiary in our private equity business, which had been recorded during the previous fiscal year.
Environment and Energy Segment’s profit increased mainly due to the recording of gains on sales of an investee involved in wind power generation business in India.
Insurance Segment’s profit increased due to the recording of reversals of policy liability reserves related to variable life insurance contracts.
Banking and Credit Segment’s profit increased due to a decrease in provision for credit losses, which was primarily due to the impacts of a decrease in Consumer loans and Consumer loans guarantee as well as low default rates in ORIX Credit.
Aircraft and Ships Segment’s profit decreased due to a decrease in operating leases revenues, fee income, and equity in net income of affiliates from Avolon due to the impact of
COVID-19.
ORIX USA Segment’s profit decreased due to the absence of gains on sales of equity interests of Houlihan Lokey, Inc., etc., which had been recorded during the previous fiscal year.
ORIX Europe Segment’s profit decreased due to the absence of gains on sale of certain business units which had been recorded during the previous fiscal year.
Asia and Australia Segment’s profit remained substantially unchanged compared to the previous fiscal year despite the absence of losses on valuation of investment securities of an investee in Asia which had been recorded during the previous fiscal year, as well as the recognition of gains on sales of subsidiaries and affiliates in Asia, due to the decrease in equity in net income of affiliates due to the recording of an impairment loss on an investment in an affiliate.
 
29

CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Accounting estimates are an integral part of the financial statements prepared by management and are based upon management’s current judgments. Note 1 of “Item 18. Financial Statements” includes a summary of the significant accounting policies used in the preparation of our consolidated financial statements. Certain accounting estimates are particularly sensitive because of their significance to the consolidated financial statements and the possibility that future events affecting the estimates may differ significantly from management’s current judgments. We consider the accounting estimates discussed in this section to be critical for us for two reasons. First, the estimates require us to make assumptions about matters that are highly uncertain at the time the accounting estimates are made. Second, different estimates that we reasonably could have used in the relevant period, or changes in the accounting estimates that are reasonably likely to occur from period to period, could have a material impact on the presentation of our financial condition, changes in financial condition or results of operations. We believe the following represent our critical accounting policies and estimates.
In addition, we carefully considered the future outlook regarding the spread of the
COVID-19.
As of March 31, 2021, there was no significant impact on our accounting estimates. However, the outlook for future outbreaks of
COVID-19
and the resulting global economic slowdown is uncertain and it may change rapidly. Therefore our accounting estimates may change over time.
FAIR VALUE MEASUREMENTS
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, a number of significant judgments, assumptions and estimates may be required. If observable market prices are not available, we use internally-developed valuation techniques, such as discounted cash flow methodologies, to measure fair value. These valuation techniques involve determination of assumptions that market participants would use in pricing the asset or liability. This determination involves significant judgment, and the use of different assumptions and/or valuation techniques could have a material impact on our financial condition or results of operations. Significant assumptions used in measuring fair values have a pervasive effect on various estimates, such as estimates of the allowance for real estate collateral-dependent loans, measurement of impairment of investments in securities, measurement of impairment of goodwill and indefinite-lived intangible assets, measurement of impairment of long-lived assets and recurring measurements of loans held for sale, investments in securities and derivative instruments.
The Company and its subsidiaries classify and prioritize inputs used in valuation techniques to measure fair value into the following three levels:
 
  
Level 1—Inputs of quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
 
  
Level 2—Inputs other than quoted prices included within Level 1 that are observable for the assets or liabilities, either directly or indirectly.
 
  
Level 3—Unobservable inputs for the assets or liabilities.
The Company and its subsidiaries differentiate between those assets and liabilities required to be carried at fair value at every reporting period (recurring) and those assets and liabilities that are only required to be adjusted to fair value under certain circumstances (nonrecurring). We mainly measure certain loans held for sale, trading debt securities,
available-for-sale
debt securities, certain equity securities, derivatives, certain reinsurance recoverables in other assets and variable annuity and variable life insurance contracts in policy liabilities and policy account balances at fair value on a recurring basis. Certain subsidiaries measure certain loans held for sale, certain foreign government bond securities and foreign corporate debt securities included in
available-for-sale
debt securities, certain investment funds included in equity securities, certain reinsurance contracts, and variable annuity and variable life insurance contracts at fair value on a recurring basis as they elected the fair value option.
 
30

The following table presents recorded amounts of major financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2021:
 
   
March 31, 2021
 
   
Total Carrying
Value in
Consolidated
Balance Sheets
   
Quoted Prices
in Active
Markets for
Identical Assets
or Liabilities
(Level 1)
   
Significant
Other
Observable
Inputs
(Level 2)
   
Significant
Unobservable
Inputs
(Level 3)
 
   
(Millions of yen)
 
Financial Assets:
        
Loans held for sale
  ¥63,272   ¥0   ¥63,272   ¥0 
Trading debt securities
   2,654    0    2,654    0 
Available-for-sale
debt securities
   2,003,917    6,012    1,864,448    133,457 
Equity securities
   396,465    82,039    223,016    91,410 
Derivative assets
   22,696    352    8,521    13,823 
Other assets
   6,297    0    0    6,297 
  
 
 
   
 
 
   
 
 
   
 
 
 
Total
  ¥2,495,301   ¥88,403   ¥2,161,911   ¥244,987 
  
 
 
   
 
 
   
 
 
   
 
 
 
Financial Liabilities:
        
Derivative liabilities
  ¥71,034   ¥475   ¥70,526   ¥33 
Policy Liabilities and Policy Account Balances
   266,422    0    0    266,422 
  
 
 
   
 
 
   
 
 
   
 
 
 
Total
  ¥337,456   ¥475   ¥70,526   ¥266,455 
  
 
 
   
 
 
   
 
 
   
 
 
 
Compared to financial assets classified as Level 1 and Level 2, measurements of financial assets classified as Level 3 are particularly sensitive because of their significance to the financial statements and the possibility that future events affecting the fair value measurements may differ significantly from management’s current measurements.
As of March 31, 2021, financial assets measured at fair value on a recurring basis and classified as Level 3 and the percentages of total assets are as follows:
 
   
March 31, 2021
 
   
Significant
Unobservable
Inputs
(Level 3)
   
Percentage of
Total Assets
(%)
 
   
(Millions of yen, except
percentage data)
 
Level 3 Assets:
    
Available-for-sale
debt securities
  ¥133,457    1 
Japanese prefectural and foreign municipal bond securities
   2,761    0 
Corporate debt securities
   1,021    0 
Other asset-backed securities and debt securities
   129,675    1 
  
 
 
   
Equity securities
   91,410    1 
Investment funds
   91,410    1 
  
 
 
   
Derivative assets
   13,823    0 
Options held/written and other
   13,823    0 
  
 
 
   
Other assets
   6,297    0 
Reinsurance recoverables
   6,297    0 
  
 
 
   
Total Level 3 financial assets
  ¥244,987    2 
  
 
 
   
Total assets
  ¥13,563,082    100 
 
31

As of March 31, 2021, the amount of financial assets classified as Level 3 was ¥244,987 million, among financial assets that we measured at fair value on a recurring basis. Level 3 assets represent 2% of our total assets.
Other asset-backed securities and debt securities, and Investment funds classified as Level 3 were ¥129,675 million and ¥91,410 million respectively, as of March 31, 2021, which are 53% and 37% of total Level 3 financial assets, respectively.
Investment funds classified as Level 3 are investments held by the investment companies which are owned by a certain Americas subsidiary, and certain investments in investment funds for which certain subsidiaries elected the fair value option. With respect to investments held by the investment companies which are owned by a certain Americas subsidiary, fair value measurement is based on the combination of discounted cash flow methodologies and market multiple valuation methods, or broker quotes. Discounted cash flow methodologies use future cash flows to be generated from investees, weighted average cost of capital (WACC) and others. Market multiple valuation methods use earnings before interest, taxes, depreciation and amortization (EBITDA) multiples based on actual and projected cash flows, comparable peer companies, and comparable precedent transactions and others. With respect to certain investments in investment funds for which certain subsidiaries elected the fair value option, the subsidiaries measure their fair value using discounting to net asset value based on inputs that are unobservable in the market, or broker quotes.
With respect to the other asset-backed securities, we determined that due to the lack of observable trades for older vintage and below investment grade securities, we continue to limit the reliance on independent pricing service vendors and brokers. As a result, we established internally developed pricing models using valuation techniques such as discounted cash flow methodologies using Level 3 inputs in order to estimate fair value of these debt securities and classified them as Level 3. Under the models, we use anticipated cash flows of the security discounted at a risk-adjusted discount rate that incorporates our estimate of credit risk and liquidity risk that a market participant would consider. The cash flows are estimated based on a number of assumptions such as default rate and prepayment speed, as well as seniority of the security. An increase (decrease) in the discount rate or default rate would result in a decrease (increase) in the fair value of other asset-backed securities.
In determining whether the inputs are observable or unobservable, we evaluate various factors such as the lack of recent transactions, price quotations that are not based on current information or vary substantially over time or among market makers, a significant increase in implied risk premium, a wide
bid-ask
spread, significant decline in new issuances, little or no public information (e.g., a
principal-to-principal
market) and other factors.
For more discussion, see Note 2 of “Item 18. Financial Statements.”
ALLOWANCE FOR CREDIT LOSSES
We estimate all credit losses expected to occur in future over the remaining life of financial assets, and allowance for credit losses is recognized. This evaluation process is subject to management’s estimates and judgments. The estimate made in determining the allowance for credit losses is a critical accounting estimate for all of our segments.
In developing the allowance for credit losses, we consider, among other things, the following factors:
 
  
business characteristics and financial conditions of obligors;
 
  
prior
charge-off
experience;
 
  
current delinquencies and delinquency trends;
 
  
value of underlying collateral and guarantees; and
 
  
current economic conditions and trends and expected outlook in future.
 
32

There are two methods for estimating the allowance for credit losses; collective evaluation and individual evaluation. We also recognize allowances for
off-balance
sheet credit exposures.
Collective evaluation
When certain financial assets have similar risk characteristics to other financial assets, we collectively evaluate these financial assets as a pool. The forecasted future economic indicators correlated with the prior
charge-off
experience are reflected to the estimate of the allowance for credit losses. Economic indicators correlated with prior
charge-off
experience are determined over the reasonable and supportable forecasted period. Economic indicators include GDP growth rates, consumer price indices, unemployment rates, and government bond interest rates. We also consider forward-looking scenarios of how the selected economic indicators will change in the future. We use the latest economic forecasts available from the economic reports published by the government and the Financial Services Agency, the Bank of Japan and third-party information providers as economic indicators.
Individual evaluation
When financial assets do not have similar risk characteristics to other financial assets, we evaluate individually the financial assets. In the individual assessment the allowance for credit losses is estimated individually based on the present value of expected future cash flows, the loan’s observable market price or the fair value of the collateral securing the loans if the loans are collateral-dependent.
For
non-recourse
loans and purchased loans, in principle, the estimated collectible amount is determined based on the fair value of the collateral securing the loans as they are collateral-dependent. Further for certain
non-recourse
loans and purchased loans the estimated collectible amount is determined based on the present value of expected future cash flows.
The fair value of the real estate collateral securing the loans is determined using appraisals prepared by independent third-party appraisers or our own staff of qualified appraisers based on recent transactions involving sales of similar assets or other valuation techniques such as discounted cash flows methodologies using future cash flows estimated to be generated from operation of the existing assets or completion of development projects, as appropriate. We generally obtain a new appraisal once a fiscal year. In addition, we periodically monitor circumstances of the real estate collateral and then obtain a new appraisal in situations involving a significant change in economic and/or physical conditions which may materially affect its fair value.
We charge off doubtful receivables when the likelihood of any future collection is believed to be minimal considering debtor’s creditworthiness and the liquidation status of collateral.
Allowance for
off-balance
sheet credit exposures
If the entity has a present contractual obligation to extend the credit and the obligation is not unconditionally cancelable by the entity, credit losses related the loan commitments of card loans and installment loans and financial guarantees are in the scope of the allowance for credit losses.
For loan commitments of card loans and installment loans, credit losses are recognized on the loan commitments for the portion expected to be drawn.
For financial guarantees, the allowance is recognized for the contingent obligation which generates credit risk exposures.
These allowance for
off-balance
sheet credit exposures is measured using the same measurement objectives as the allowance for loans and net investment leases, considering quantitative and qualitative factors including historical loss experience, current conditions and reasonable and supportable forecasts.
 
33

The allowance for these
off-balance
sheet credit exposures is recorded in other liabilities on the consolidated balance sheets.
While management considers the allowance is adequate based on the currently available information, additional provisions may be required due to future uncertain events and factors.
IMPAIRMENT OF INVESTMENT IN SECURITIES
We make decisions about impairment of investment in debt securities other than trading and investment in equity securities elected for the measurement alternative as follows.
Credit Losses Standard has been adopted to the impairment of
available-for-sale
debt securities since April 1, 2020. If the fair value is less than the amortized cost, the debt securities are impaired. We identify per each impaired security whether the decline of fair value is due to credit losses component or
non-credit
losses component. Impairment related to credit losses is recognized in earnings through an allowance for credit losses. Impairment related to other factors than credit losses is recognized in other comprehensive income (loss), net of applicable income taxes. In estimating an allowance for credit losses, we consider that credit losses exist when the present value of estimated cash flows is less than the amortized cost basis. When we intend to sell the debt securities for which an allowance for credit losses is previously established or it is more likely than not that we will be required to sell the debt securities before recovery of the amortized cost basis, the allowance for credit losses is fully written off and the amortized cost is reduced to the fair value after recognizing additional impairment in earnings. In addition, we recognize in earnings the full difference between the amortized cost and the fair value of the debt securities by direct write-down, without any allowance for credit losses, if the debt securities are expected to be sold and the fair value is less than the amortized cost.
In assessing whether
available-for-sale
debt securities are impaired, we consider all available information relevant to the collectability of the debt security, including but not limited to the following factors:
 
  
the extent to which the fair value is less than the amortized cost basis;
 
  
continuing analysis of the underlying collateral, age of the collateral, business climate, economic conditions and geographical considerations;
 
  
trends in delinquencies and charge-offs;
 
  
payment structure and subordination levels of the debt security; and
 
  
changes to the rating of the security by a rating agency.
Held-to-maturity
debt securities are in the scope of Credit Losses Standard, see Note 1 “Significant Accounting and Reporting Policies (h) Allowance for credit losses” of “Item 18. Financial Statements.”
For equity securities elected for the measurement alternative, we determine that the investment shall be written down to its fair value with losses included in income if a qualitative assessment indicates that the investment is impaired and the fair value of the investment is less than its carrying value.
In assessing whether equity securities elected for the measurement alternative are impaired, we make a qualitative assessment considering impairment indicators, including but not limited to the following factors:
 
  
a significant deterioration in the earnings performance, credit rating, asset quality, or business prospects of the investee;
 
  
a significant adverse change in the regulatory, economic, or technological environment of the investee;
 
  
a significant adverse change in the general market condition of either the geographical area or the industry in which the investee operates;
 
34

  
a bona fide offer to purchase, an offer by the investee to sell, or a completed auction process for the same or similar investment for an amount less than the carrying amount of that investment; and
 
  
factors that raise significant concerns about the investee’s ability to continue as a going concern, such as negative cash flows from operations, working capital deficiencies, or noncompliance with statutory capital requirements or debt covenants.
Determinations of whether investments in securities are impaired often involve estimating the outcome of future events that are highly uncertain at the time the estimates are made. Management judges whether there are any facts that an impairment loss should be recognized, based primarily on objective factors.
If the financial condition of an investee deteriorates, its forecasted performance is not met or actual market conditions are less favorable than those projected by management, we may charge against income additional losses on investment in securities.
The accounting estimates relating to impairment of investment in securities could affect all segments.
IMPAIRMENT OF GOODWILL AND INDEFINITE-LIVED INTANGIBLE ASSETS
We perform an impairment test for goodwill and any indefinite-lived intangible assets at least annually. Additionally, if events or changes in circumstances indicate that the asset might be impaired, we test for impairment whenever such events or changes occur.
Accounting Standard Update
2017-04
(“Simplifying the Test for Goodwill Impairment”—ASC 350 (“Intangible—Goodwill and Other”)) has been adopted since April 1, 2020. We have the option to perform a qualitative assessment to determine whether to calculate the fair value of a reporting unit under the goodwill impairment test. We perform the qualitative assessment for some goodwill but bypass the qualitative assessment and proceed directly to the impairment test for other goodwill. For the goodwill for which the qualitative assessment is performed, if, after assessing the totality of events or circumstances, we determine that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then we do not perform the impairment test. However, if we conclude otherwise or determine to bypass the qualitative assessment, we proceed to perform the impairment test. The goodwill impairment test calculates the fair value of the reporting unit and compares the fair value with the carrying amount of the reporting unit. If the fair value of the reporting unit falls below its carrying amount, an impairment loss is recognized in an amount equal to the difference. We test the goodwill either at the operating segment level or one level below the operating segments.
We have the option to perform a qualitative assessment to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired. We perform the qualitative assessment for some indefinite-lived intangible assets but bypass the qualitative assessment and perform the quantitative assessment for other indefinite-lived intangible assets. For those indefinite-lived intangible assets for which the qualitative assessment is performed, if, after assessing the totality of events and circumstances, we conclude that it is not more likely than not that the indefinite-lived intangible asset is impaired, then we do not perform the quantitative impairment test. However, if we conclude otherwise, we calculate the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test. If the carrying amount of the indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. We perform the qualitative assessment for some indefinite-lived intangible assets but bypass the qualitative assessment and perform the quantitative assessment for other indefinite-lived intangible assets.
The fair value of a reporting unit under the goodwill impairment test is determined by estimating the outcome of future events and assumptions made by management. Similarly, estimates and assumptions are used in determining the fair value of any indefinite-lived intangible assets. When necessary, we refer to an evaluation by a third party in determining the fair value of a reporting unit; however, such determinations are often made by
 
35

using discounted cash flows analyses performed by us. This approach uses numerous estimates and assumptions, including projected future cash flows of a reporting unit, discount rates reflecting the inherent risk, and growth rates. For example, determining the fair value of an asset management contract included in indefinite-lived intangible assets involves the estimated balances of assets under management of the underlying investment funds that provides the asset management service, and estimates and assumptions regarding the WACC. Management believes that the assumptions used in estimating fair value used to determine impairment are reasonable, but we may charge additional losses to income if actual cash flows or any items which affect a fair value are less favorable than those projected by management due to economic conditions or our own risk in the reporting unit.
The accounting estimates relating to impairment of goodwill and any indefinite-lived intangible assets could affect all segments.
IMPAIRMENT OF LONG-LIVED ASSETS
We periodically perform an impairment review for long-lived assets held and used in operations, including tangible assets and intangible assets being depreciated or amortized, consisting primarily of office buildings, condominiums, aircraft, ships, mega solar facilities and other properties under facility operations. The assets are tested for recoverability whenever events or changes in circumstances indicate that those assets might be impaired, including, but not limited to, the following:
 
  
significant decline in the market value of an asset;
 
  
significant deterioration in the usage range and method, or physical condition, of an asset;
 
  
significant deterioration of legal regulatory or business environments, including an adverse action or assessment by a relevant regulator;
 
  
acquisition and construction costs substantially exceeding estimates;
 
  
continued operating loss or actual or potential loss of cash flows; or
 
  
potential loss on a planned sale.
When we determine that assets might be impaired based upon the existence of one or more of the above factors or other factors, we estimate the future cash flows expected to be generated by those assets. For example, we estimate the future cash flows expected to be generated by aircraft mainly based on the underlying operating lease contracts and the appraisals obtained from independent third-party appraisers. Our estimates of the future cash flows are based upon historical trends adjusted to reflect our best estimate of future market and operating conditions. Our estimates also include the expected future periods in which future cash flows are expected. As a result of the recoverability test, when the sum of the estimated future undiscounted cash flows expected to be generated by those assets is less than its carrying amount, and when its fair value is less than its carrying amount, we determine the amount of impairment based on the fair value of those assets.
If the asset is considered impaired, an impairment charge is recorded for the amount by which the carrying amount of the asset exceeds fair value. We determine the fair value using appraisals prepared by independent third-party appraisers or our own staff of qualified appraisers based on recent transactions involving sales of similar assets or other valuation techniques, as appropriate. Although management believes that the expected future cash flows and the calculations of fair value used to determine impairment are reasonable, if actual market and operating conditions under which assets are operated are less favorable than those projected by management, resulting in lower expected future cash flows or shorter expected future periods to generate such cash flows, additional impairment charges may be required. In addition, changes in estimates resulting in lower fair values due to unanticipated changes in business or operating assumptions could adversely affect the valuations of long-lived assets.
The accounting estimates relating to impairment of long-lived assets could affect all segments.
 
36

UNGUARANTEED RESIDUAL VALUE FOR FINANCE LEASES AND OPERATING LEASES
We estimate unguaranteed residual values of leased equipment (such as automobiles, office equipment, etc.) when we calculate unearned lease income to be recognized as income over the lease term for finance leases and when we calculate depreciation amounts for operating leases that carry inherently higher obsolescence and resale risks. Our estimates are based upon current market values of used equipment and estimates of when and how much equipment will become obsolete, and actual recovery being experienced for similar used equipment. If actual demand for
re-lease
or actual market conditions of used equipment is less favorable than that projected by management, write-downs of unguaranteed residual value may be required.
The accounting estimates relating to unguaranteed residual value for finance leases and operating leases affect mainly Corporate Financial Services and Maintenance Leasing segment, and Asia and Australia segment.
INSURANCE POLICY LIABILITIES AND DEFERRED POLICY ACQUISITION COSTS
A certain subsidiary writes life insurance policies to customers. Policy liabilities and policy account balances for future policy benefits are measured using the net level premium method, based on actuarial estimates of the amount of future policyholder benefits. The policies are characterized as long-duration policies and mainly consist of whole life, term life, endowments, medical insurance and individual annuity insurance contracts. For policies other than individual annuity insurance contracts, computation of policy liabilities necessarily includes assumptions about mortality, morbidity, lapse rates, future yields on related investments and other factors applicable at the time the policies are written. The subsidiary continually evaluates the potential for changes in the estimates and assumptions applied in determining policy liabilities, both positive and negative, and uses the results of these evaluations to adjust recorded liabilities as well as underwriting criteria and product offerings. If actual assumption data, such as mortality, morbidity, lapse rates, investment returns and other factors, do not properly reflect future policyholder benefits, we may establish a premium deficiency reserve.
A certain subsidiary elected the fair value option for the entire variable annuity and variable life insurance contracts with changes in the fair value recognized in earnings. The changes in fair value of the variable annuity and variable life insurance contracts are linked to the fair value of the investment in securities managed on behalf of variable annuity and variable life policyholders. Additionally, the subsidiary provides minimum guarantees to variable annuity and variable life policyholders under which it is exposed to the risk of compensating losses incurred by the policyholders to the extent contractually required. Therefore, the subsidiary adjusts the fair value of the underlying investments by incorporating changes in fair value of the minimum guarantee risk in the evaluation of the fair value of the entire variable annuity and variable life insurance contracts. The fair value of the minimum guarantee risk is measured using discounted cash flow methodologies based on discount rates, mortality, lapse rates, annuitization rates and other factors.
Certain subsidiaries ceded a portion of its minimum guarantee risk related to variable annuity and variable life insurance contracts to reinsurance companies in order to mitigate the risk and elected the fair value option for the reinsurance contracts with the remaining risk economically hedged through derivative contracts. The reinsurance contracts do not relieve the subsidiary from the obligation as the primary obligor to compensate certain losses incurred by the policyholders, and the default of the reinsurance companies may impose additional losses on the subsidiary.
Policy liabilities and policy account balances for fixed annuity insurance contracts are measured based on the single-premiums plus interest based on expected rate and fair value adjustments relating to the acquisition of a subsidiary, less withdrawals, expenses and other charges.
Certain costs related directly to the successful acquisition of new or renewal insurance contracts, or deferred policy acquisition costs, are deferred and amortized over the respective policy periods in proportion to anticipated premium revenue. These deferred policy acquisition costs consist primarily of first-year commissions,
 
37

except for recurring policy maintenance costs and certain variable costs and expenses for underwriting policies. Periodically, deferred policy acquisition costs are reviewed to determine whether relevant insurance and investment income are expected to recover the unamortized balance of the deferred acquisition costs. When such costs are expected to be unrecoverable, they are charged to income in that period. If the historical data, such as lapse rates, investment returns, mortality, morbidity and expense margins, which we use to calculate these assumptions, do not properly reflect future profitability, additional amortization may be required.
The accounting estimates relating to insurance policy liabilities and deferred policy acquisition costs affect Insurance segment.
ASSESSING HEDGE EFFECTIVENESS
We use foreign currency swap agreements, interest rate swap agreements and foreign exchange contracts for hedging purposes and apply fair value hedge, cash flow hedge or net investment hedge accounting to measure and account for subsequent changes in their fair value.
To qualify for hedge accounting, details of the hedging relationship are formally documented at the inception of the arrangement, including the risk management objective, hedging strategy, hedged item, specific risks that are to be hedged, the derivative instrument and how effectiveness is being assessed. Derivatives for hedging purposes must be highly effective in offsetting either changes in fair value or cash flows, as appropriate, for the risk being hedged and effectiveness needs to be assessed at the inception of the relationship.
Hedge effectiveness is assessed quarterly on a retrospective and prospective basis. If specified criteria for the assumption of effectiveness are not met at hedge inception or upon quarterly testing, then hedge accounting is discontinued. To assess effectiveness, we use techniques including regression analysis and the cumulative dollar offset method.
The accounting estimates used to assess hedge effectiveness could affect mainly Insurance segment and Asia and Australia segment.
PENSION PLANS
The determination of our projected benefit obligation and expense for our employee pension benefits is mainly dependent on the size of the employee population, actuarial assumptions, expected long-term rate of return on plan assets and the discount rate used in the accounting.
Pension expense is directly related to the number of employees covered by the plans. Increased employment through internal growth or acquisition would result in increased pension expense.
In estimating the projected benefit obligation, actuaries make assumptions regarding mortality rates, turnover rates, retirement rates and rates of compensation increase. Actual results that differ from the assumptions are accumulated and amortized over future periods and, therefore, affect expense in future periods.
We determine the expected long-term rate of return on plan assets annually based on the composition of the pension asset portfolios and the expected long-term rate of return on these portfolios. The expected long-term rate of return is designed to approximate the long-term rate of return actually earned on the plans’ assets over time to ensure that funds are available to meet the pension obligations that result from the services provided by employees. We use a number of factors to determine the reasonableness of the expected rate of return, including actual historical returns on the asset classes of the plans’ portfolios and independent projections of returns of the various asset classes.
 
38

We use March 31 as a measurement date for our pension assets and projected benefit obligation balances under all of our material plans. If we were to assume a 1% increase or decrease in the expected long-term rate of return, holding the discount rate and other actuarial assumptions constant, pension expense for fiscal 2021 would decrease or increase, respectively, by approximately ¥2,543 million.
Discount rates are used to determine the present value of our future pension obligations. The discount rates are reflective of rates available on long-term, high-quality fixed-income debt instruments with maturities that closely correspond to the timing of defined benefit payments. Discount rates are determined annually on the measurement date.
If we were to assume a 1% increase in the discount rate, and keep the expected long-term rate of return and other actuarial assumptions constant, pension expense for fiscal 2021 would decrease by approximately ¥1,976 million. If we were to assume a 1% decrease in the discount rate, and keep other assumptions constant, pension expense for fiscal 2021 would increase by approximately ¥2,799 million.
While we believe the estimates and assumptions used in our pension accounting are appropriate, differences in actual results or changes in these assumptions or estimates could adversely affect our pension obligations and future expenses.
INCOME TAXES
In preparing the consolidated financial statements, we make estimates relating to income taxes of the Company and its subsidiaries in each of the jurisdictions in which we operate. The process involves estimating our actual current income tax position together with assessing temporary differences resulting from different treatment of items for income tax reporting and financial reporting purposes. Such differences result in deferred tax assets and liabilities, which are included within the consolidated balance sheets. We must then assess the likelihood of whether our deferred tax assets will be recovered from future taxable income, and, to the extent we believe that realizability is not more likely than not, we must establish a valuation allowance. When we establish a valuation allowance or increase this allowance during a period, we must include an expense within the provision for income taxes in the consolidated statements of income.
Significant management judgments are required in determining our provision for income taxes, current income taxes, deferred tax assets and liabilities and any valuation allowance recorded against our deferred tax assets. We file tax returns in Japan and certain foreign tax jurisdictions and recognize the financial statement effects of a tax position taken or expected to be taken in a tax return when it is more likely than not, based on the technical merits, that the position will be sustained upon tax examination, including resolution of any related appeals or litigation processes, and measure tax positions that meet the recognition threshold at the largest amount of tax benefit that is greater than 50 percent likely to be realized upon settlement with the taxing authority. Management judgments, including the interpretations about the application of the complex tax laws of Japan and certain foreign tax jurisdictions, are required in the process of evaluating tax positions; therefore, these judgments may differ from the actual results. We have recorded a valuation allowance due to uncertainties about our ability to utilize certain deferred tax assets, primarily certain tax loss carryforwards, before they expire. The valuation allowance is primarily recognized for deferred tax assets of consolidated subsidiaries with tax loss carryforwards. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible and tax loss carryforwards are utilizable. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and
tax-planning
strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that all of the deferred tax assets, net of the valuation allowance, will be realized. The valuation allowance is based on our estimates of taxable income by jurisdiction in which we operate and the period over
 
39

which our deferred tax assets will be recoverable. If actual results differ from these estimates or if we adjust these estimates in future periods, we may need to establish additional valuation allowances, which could materially impact the consolidated financial position and results of operations.
DISCUSSION WITH AND REVIEW BY THE AUDIT COMMITTEE
Our management discussed the development and selection of each critical accounting estimate with our Audit Committee.
FAIR VALUE OF INVESTMENT AND RENTAL PROPERTY
We own real estate such as rental office buildings, rental logistics centers, rental commercial facilities other than office buildings, rental condominiums and land which is utilized for development as operating leases. A large portion of our real estate held for investment and rental is located around major cities in Japan such as Tokyo. The following table sets forth the carrying amount of investment and rental property as of the beginning and end of fiscal 2021, as well as the fair value as of the end of fiscal 2021.
 
Year ended March 31, 2021
Carrying amount*
1
   
Balance at
April 1, 2020
  
Change amount
  
Balance at
March 31, 2021
  
Fair value at
March 31, 2021*
2
   
(Millions of yen)
   
¥309,343  ¥41,456  ¥350,799  ¥410,858
 
  
 
  
 
  
 
 
*
1
 
Carrying amounts are stated as cost less accumulated depreciation and accumulated impairment loss.
*
2
 
Fair value is either obtained from appraisal reports by external qualified appraisers, calculated by internal appraisal department in accordance with “Real estate appraisal standards,” or calculated by other reasonable internal calculation utilizing similar methods.
Investment and rental property revenue and expense for fiscal 2021 were as follows:
 
Year Ended March 31, 2021
 
Revenue*
1
  
Expense*
2
   
Net
 
   
(Millions of yen)
     
¥52,200  ¥31,710   ¥20,490 
 
  
 
 
   
 
 
 
 
*
1
 
Revenue consists of revenue from leases and gains on sales of real estate under operating leases. Revenue from leases is composed of real estate-related revenues from “Operating leases” and “Life insurance premiums and related investment income.”
*
2
 
Expense consists of costs related to the above revenue such as rental payment, depreciation expense, repair cost, insurance cost, tax and duty which are included in “Costs of operating leases,” and “Write-downs of long-lived assets.”
RESULTS OF OPERATIONS
GUIDE TO OUR CONSOLIDATED STATEMENT OF INCOME
The following discussion and analysis provide information that management believes to be relevant to an understanding of our consolidated financial condition and results of operations. This discussion should be read in conjunction with our consolidated financial statements, including the notes thereto, included in this annual report. See “Item 18. Financial Statements.”
 
40

Our consolidated results of operations are presented in the accompanying financial statements with
sub-categorization
of revenues and expenses designed to enable the reader to better understand the diversified operating activities contributing to our overall operating performance.
As further described in “Item 4. Information on the Company,” after developing the Japanese leasing market in 1964, we extended the scope of our operations into various types of businesses which have become significant contributors to our consolidated operating results. Our initial leasing business has expanded into the provision of broader financial services, including direct lending to our lessees and other customers. Initial direct lending broadened into diversified finance such as real estate loans for consumers, loans secured by real estate, unsecured loans and
non-recourse
loans. Through our lending experience, we developed a loan servicing business and a loan securitization business. Through experience gained by our focusing on real estate as collateral for loans, we also developed our real estate leasing, development and management operations.
Furthermore, we also expanded our business by adding securities-related operations, to generate capital gains. Thereafter, we established and acquired a number of subsidiaries and affiliates in Japan and overseas to expand our operations into businesses such as banking, life insurance, real estate and asset management. Investment and Operation Headquarters selectively invests in companies and actively seeks to fulfill the needs of companies involved in or considering M&A activity, including, among other things, management buyouts, privatization or carve-outs of subsidiaries or business units and business succession.
The diversified nature of our operations is reflected in our presentation of operating results through the categorization of our revenues and expenses to align with operating activities. We categorize our revenues into finance revenues, gains on investment securities and dividends, operating leases, life insurance premiums and related investment income, sales of goods and real estate and services income, and these revenues are summarized into a subtotal of “Total revenues” consisting of our “Operating Income” on our consolidated statements of income.
The following provides supplemental explanation of certain account captions on our consolidated statements of income:
Finance revenues include primarily finance leases, interest on loans and interest on investment securities because we believe that capital we deploy is fungible and, whether used to provide financing in the form of loans and leases or through investment in debt securities, the decision to deploy the capital is a banking-type operation that shares the common objective of managing earning assets to generate a positive spread over our cost of borrowings. In addition, revenues from guarantees, which are from commission income by guarantees against loans disbursed by other financial institutions, are also included in finance revenues.
Securities investment activities originated by the Company were extended to certain group companies, including our subsidiaries operating in the Americas.
Sales of goods and real estate consists of revenues from sales of real estate and various types of goods, including precious metals and jewels.
Services income consists of revenues derived from various operations that are considered a part of our recurring operating activities, such as asset management and servicing, automobile related services, facilities operation, environment and energy services, real estate management, brokerage and contract work, maintenance services of software, measurement equipment and other, and fee business.
Similar to our revenues, we categorize our expenses based on our diversified operating activities. “Total expenses” includes mainly interest expense, costs of operating leases, life insurance costs, costs of goods and real estate sold, services expense and selling, general and administrative expenses.
 
41

Services expense is directly associated with the sales and revenues separately reported within services income. Interest expense is based on monies borrowed mainly to fund revenue-generating assets, including to purchase equipment for leases, extend loans and invest in securities and real estate operations. We also consider the principal part of selling, general and administrative expenses to be directly related to the generation of revenues. Therefore, they have been included within “Total expenses” deducted to derive “Operating Income.” We similarly view the provision for doubtful receivables and probable loan losses and provision for credit losses to be directly related to our finance activities and accordingly have included it within “Total expenses.” As our principal operations consist of providing financial products and/or finance-related services to our customers, these expenses are directly related to the potential risks and changes in these products and services. See “Year Ended March 31, 2021 Compared to Year Ended March 31, 2020” and “Year Ended March 31, 2020 Compared to Year Ended March 31, 2019.”
We have historically reflected write-downs of long-lived assets under “Operating Income” as related assets, primarily real estate assets, representing significant operating assets under management or development. Accordingly, the write-downs were considered to represent an appropriate component of “Operating Income” derived from the related real estate investment activities. Similarly, as we have identified investment in securities to represent an operating component of our financing activities, write-downs of securities are presented under “Operating Income.”
We believe that our financial statement presentation, as explained above, with the expanded presentation of revenues and expenses, aids in the comprehension of our diversified operating activities in Japan and overseas and supports the fair presentation of our consolidated statements of income.
YEAR ENDED MARCH 31, 2021 COMPARED TO YEAR ENDED MARCH 31, 2020
Performance Summary
Financial Results
 
   
Year ended March 31,
  
Change
 
   
2020
  
2021
  
Amount
  
Percent (%)
 
   
(Millions of yen, except ratios, per Share data and percentages)
 
Total revenues
  ¥  2,280,329  ¥  2,292,708  ¥12,379   1 
Total expenses
   2,010,648   2,033,894   23,246   1 
Income before Income Taxes
   412,561   287,561   (125,000  (30
Net Income Attributable to ORIX Corporation Shareholders
   302,700   192,384   (110,316  (36
Earnings per Share (Basic)
   237.38   155.54   (81.84  (34
(Diluted)
   237.17   155.39   (81.78  (34
ROE*
1
   10.3       6.4       (3.9)     —   
ROA*
2
   2.40   1.44   (0.96  —   
 
*
1
 
ROE is the ratio of Net Income Attributable to ORIX Corporation Shareholders for the period to average ORIX Corporation Shareholders’ Equity based on fiscal year beginning and ending balances.
*
2
 
ROA is the ratio of Net Income Attributable to ORIX Corporation Shareholders for the period to average Total Assets based on fiscal year beginning and ending balances.
Total revenues for fiscal 2021 increased 1% to ¥2,292,708 million compared to fiscal 2020 due to increases in life insurance premiums and related investment income, and gains on investment securities and dividends despite decreases in services income, and operating leases revenues.
Total expenses for fiscal 2021 increased 1% to ¥2,033,894 million compared to fiscal 2020 due to an increase in life insurance costs despite decreases in interest expense, and services expense.
 
42

On the other hand, equity in net income of affiliates for fiscal 2021 decreased 99% to ¥481 million compared to fiscal 2020 and gains on sales of subsidiaries and affiliates and liquidation losses, net for fiscal 2021 decreased 69% to ¥23,300 million compared to fiscal 2020.
Due to the above results and the impact of
COVID-19,
income before income taxes for fiscal 2021 decreased 30% to ¥287,561 million compared to fiscal 2020 and net income attributable to ORIX Corporation shareholders decreased 36% to ¥192,384 million compared to fiscal 2020.
Balance Sheet data
 
   
As of March 31,
  
Change
 
   
        2020        
  
        2021        
  
        Amount        
  
Percent (%)
 
   
(Millions of yen except ratios, per share and percentages)
 
Total Assets
  ¥13,067,528  ¥13,563,082  ¥495,554   4 
(Segment assets)
   10,883,545   11,341,789   458,244   4 
Total Liabilities
   9,991,362   10,459,938   468,576   5 
(Short-term and Long-term debt)
   4,616,186   4,724,102   107,916   2 
(Deposits)
   2,231,703   2,317,785   86,082   4 
ORIX Corporation Shareholders’ Equity
   2,993,608   3,028,456   34,848   1 
ORIX Corporation Shareholders’ Equity per share
   2,386.35   2,487.77   101.42   4 
ORIX Corporation Shareholders’ Equity ratio*
   22.9  22.3  (0.6)%   —   
D/E ratio
(Debt-to-equity
ratio) (Short-term and Long-term debt (excluding deposits) / ORIX Corporation Shareholders’ Equity)
   1.5  1.6  0.1  —   
 
*
ORIX Corporation Shareholders’ Equity ratio is the ratio as of the period end of ORIX Corporation Shareholder’s Equity to total assets.
Total assets increased 4% to ¥13,563,082 million compared to the balance as of March 31, 2020 due to an increase in investment in securities despite decreases in net investment in leases, installment loans and property under facility operations, and furthermore, an increase in allowance for credit losses compared to allowance for doubtful receivables on finance leases and probable loan losses as of March 31, 2020 as a result of the adoption the Credit Losses Standard. In addition, segment assets increased 4% to ¥11,341,789 million compared to the balance as of March 31, 2020.
Total liabilities increased 5% to ¥10,459,938 million compared to the balance as of March 31, 2020 due to increases in deposits, long-term debt, and policy liabilities and policy account balances despite decreases in short-term debt and trade notes, accounts and other payable.
Shareholders’ equity increased 1% to ¥3,028,456 million compared to the balance as of March 31, 2020.
Details of Operating Results
The following is a discussion of certain items in the consolidated statements of income, operating assets in the consolidated balance sheets and other selected financial information, including on a segment by segment basis.
Segment Information
Our operating segments used by the chief operating decision maker to make decisions about resource allocations and assess performance are organized into ten segments based on our business management organization which is classified by the nature of major products and services, customer base, regulations, and
 
43

business areas. The ten segments are Corporate Financial Services and Maintenance Leasing, Real Estate, PE Investment and Concession, Environment and Energy, Insurance, Banking and Credit, Aircraft and Ships, ORIX USA, ORIX Europe, and Asia and Australia. Since April 1, 2020, the reporting segments have been changed to the aforementioned segments. As a result of this change for fiscal 2021, segment data as of the end of and for fiscal 2020 has been retrospectively restated.
Financial information about the operating segments reported below is that which is available by segment and regularly reviewed by the chief operating decision maker to make decisions about resource allocations and assess performance. The chief operating decision maker evaluates the performance of the segments based on income before income taxes, net income attributable to noncontrolling interests and net income attributable to redeemable noncontrolling interests before applicable tax effect. Tax expenses are excluded from the segment profits.
Since April 1, 2020, the selling, general and administrative expenses that should be borne by ORIX Group as a whole, which were initially charged directly to its respective segments, have been included in the difference between segment total profits and consolidated amounts for fiscal 2021. As a result of this change, segment data for fiscal 2020 has been retrospectively restated.
Since April 1, 2020, Credit Losses Standard has been adopted, and the amounts of provision for doubtful receivables and probable loan losses have been reclassified to provision for credit losses. For further information, see Note 1 of “Item 18. Financial Statements.”
For a description of the business activities of our segments, see “Item 4. Information on the Company—Business Segments.” See Note 34 of “Item 18. Financial Statements” for additional segment information, a discussion of how we prepare our segment information and the reconciliation of segment totals to consolidated financial statement amounts.
 
   
Year ended March 31,
  
Change
 
   
2020
  
2021
  
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Segment Revenues:
     
Corporate Financial Services and Maintenance Leasing
  ¥428,036  ¥429,799  ¥1,763   0 
Real Estate
   468,086   359,798   (108,288  (23
PE Investment and Concession
   296,365   331,222   34,857   12 
Environment and Energy
   148,423   143,187   (5,236  (4
Insurance
   371,387   491,894   120,507   32 
Banking and Credit
   84,355   83,724   (631  (1
Aircraft and Ships
   64,650   31,617   (33,033  (51
ORIX USA
   135,709   138,017   2,308   2 
ORIX Europe
   148,524   160,798   12,274   8 
Asia and Australia
   137,797   128,309   (9,488  (7
  
 
 
  
 
 
  
 
 
  
Segment Total
   2,283,332   2,298,365   15,033   1 
  
 
 
  
 
 
  
 
 
  
Difference between Segment Total and Consolidated Amounts
   (3,003  (5,657  (2,654  —   
  
 
 
  
 
 
  
 
 
  
Consolidated Amounts
  ¥  2,280,329  ¥  2,292,708  ¥12,379   1 
  
 
 
  
 
 
  
 
 
  
 
44

   
Year ended March 31,
  
Change
 
   
2020
  
2021
  
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Segment Profits:
     
Corporate Financial Services and Maintenance Leasing
  ¥62,978  ¥59,149  ¥(3,829  (6
Real Estate
   80,182   24,684   (55,498  (69
PE Investment and Concession
   44,110   3,431   (40,679  (92
Environment and Energy
   11,625   28,563   16,938   146 
Insurance
   44,833   55,119   10,286   23 
Banking and Credit
   39,096   48,030   8,934   23 
Aircraft and Ships
   45,287   3,755   (41,532  (92
ORIX USA
   56,690   43,614   (13,076  (23
ORIX Europe
   43,778   37,886   (5,892  (13
Asia and Australia
   14,673   14,660   (13  (0
  
 
 
  
 
 
  
 
 
  
Segment Total
   443,252   318,891   (124,361  (28
  
 
 
  
 
 
  
 
 
  
Difference between Segment Total and Consolidated Amounts
   (30,691  (31,330  (639  —   
  
 
 
  
 
 
  
 
 
  
Consolidated Amounts
  ¥412,561  ¥287,561  ¥(125,000  (30
  
 
 
  
 
 
  
 
 
  
   
As of March 31,
  
Change
 
   
2020
  
2021
  
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Segment Assets:
     
Corporate Financial Services and Maintenance Leasing
  ¥1,789,693  ¥1,658,571  ¥(131,122  (7
Real Estate
   821,194   872,095   50,901   6 
PE Investment and Concession
   322,522   378,698   56,176   17 
Environment and Energy
   478,796   506,666   27,870   6 
Insurance
   1,580,158   1,959,521   379,363   24 
Banking and Credit
   2,603,736   2,690,627   86,891   3 
Aircraft and Ships
   585,304   601,762   16,458   3 
ORIX USA
   1,374,027   1,220,081   (153,946  (11
ORIX Europe
   317,847   369,546   51,699   16 
Asia and Australia
   1,010,268   1,084,222   73,954   7 
  
 
 
  
 
 
  
 
 
  
Segment Total
   10,883,545   11,341,789   458,244   4 
  
 
 
  
 
 
  
 
 
  
Difference between Segment Total and Consolidated Amounts
   2,183,983   2,221,293   37,310   2 
  
 
 
  
 
 
  
 
 
  
Consolidated Amounts
  ¥13,067,528  ¥13,563,082  ¥495,554   4 
  
 
 
  
 
 
  
 
 
  
Corporate Financial Services and Maintenance Leasing
Segment revenues totaled ¥429,799 million, remaining substantially unchanged from fiscal 2020. This was due to an increase in operating leases revenues from the rental of
IT-related
equipment, mostly offset by lower finance revenues resulting from a decrease in financial assets and lower sales of goods.
Segment profits decreased 6% to ¥59,149 million due to an increase in costs of operating leases and services expense, and the absence of bargain purchase gains recorded in relation to companies acquired in our corporate financial services business during fiscal 2020.
 
45

Segment assets decreased 7% to ¥1,658,571 million compared to the end of fiscal 2020. This decrease was mainly due to decreases in net investment in leases, installment loans, and investment in operating leases.
Asset efficiency declined compared to fiscal 2020.
 
   
Year ended March 31,
   
Change
 
   
2020
   
2021
   
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Finance revenues
  ¥61,402   ¥57,780   ¥(3,622  (6
Gains on investment securities and dividends
   111    1,616    1,505   —   
Operating leases
   243,977    247,190    3,213   1 
Sales of goods and real estate
   11,536    10,348    (1,188  (10
Services income
   111,010    112,865    1,855   2 
  
 
 
   
 
 
   
 
 
  
Total Segment Revenues
   428,036    429,799    1,763   0 
  
 
 
   
 
 
   
 
 
  
Interest expense
   6,203    5,594    (609  (10
Costs of operating leases
   194,162    199,774    5,612   3 
Costs of goods and real estate sold
   6,814    6,832    18   0 
Services expense
   53,020    56,447    3,427   6 
Selling, general and administrative expenses
   87,333    85,662    (1,671  (2
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities
   1,189    0    (1,189  —   
Provision for credit losses and write-downs of long-lived assets and securities
   0    1,405    1,405   —   
Other
   17,648    16,129    (1,519  (9
  
 
 
   
 
 
   
 
 
  
Total Segment Expenses
   366,369    371,843    5,474   1 
  
 
 
   
 
 
   
 
 
  
Segment Operating Income
   61,667    57,956    (3,711  (6
  
 
 
   
 
 
   
 
 
  
Equity in Net income (Loss) of Affiliates, and others
   1,311    1,193    (118  (9
  
 
 
   
 
 
   
 
 
  
Segment Profits
  ¥62,978   ¥59,149   ¥(3,829  (6
  
 
 
   
 
 
   
 
 
  
   
As of March 31,
   
Change
 
   
2020
   
2021
   
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Net investment in leases
  ¥648,627   ¥592,874   ¥(55,753  (9
Installment loans
   379,541    330,917    (48,624  (13
Investment in operating leases
   572,492         548,677    (23,815  (4
Investment in securities
   28,616    30,318    1,702     6 
Property under facility operations
   19,992    18,726    (1,266  (6
Inventories
   736    630    (106  (14
Advances for finance lease and operating lease
   293    500    207   71 
Investment in affiliates
   18,347    18,049    (298  (2
Advances for property under facility operations
   760    0    (760  —   
Goodwill, intangible assets acquired in business combinations
   120,289    117,880    (2,409  (2
  
 
 
   
 
 
   
 
 
  
Total Segment Assets
  ¥  1,789,693   ¥1,658,571   ¥(131,122  (7
  
 
 
   
 
 
   
 
 
  
 
46

Real Estate
Our operating facilities have experienced temporary closure and low occupancy rates during fiscal 2021 due to the impact of
COVID-19.
Consequently, services income from our facility operations business decreased. Also, DAIKYO experienced a decrease in services income from real estate contract work due to the dissipation of increased last-minute demand before the consumption tax hike in Japan during fiscal 2020, as well as a decrease in sales of real estate. In addition, there was a decrease in gains on sales of real estate under operating leases. As a result, segment revenues decreased 23% to ¥359,798 million compared to fiscal 2020.
Due to the above-mentioned reasons as well as the absence of gains on the sale of a subsidiary which operates senior housings, which had been recorded during fiscal 2020, segment profits decreased 69% to ¥24,684 million compared to fiscal 2020 despite a decrease in services expense and costs of goods and real estate sold.
Investment in operating leases decreased due to the sales of real estate under operating leases. However, this decrease was offset by increases in inventories and advances for finance lease and operating lease. As a result, segment assets increased 6% to ¥872,095 million compared to the end of fiscal 2020.
Asset efficiency declined compared to fiscal 2020.
 
   
Year ended March 31,
  
Change
 
   
2020
  
2021
  
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Finance revenues
  ¥6,723  ¥6,206  ¥(517  (8
Operating leases
   63,149   46,022   (17,127  (27
Sales of goods and real estate
   122,230   91,348   (30,882  (25
Services income
   276,123   215,805   (60,318  (22
Other
   (139  417   556   —   
  
 
 
  
 
 
  
 
 
  
Total Segment Revenues
   468,086   359,798   (108,288  (23
  
 
 
  
 
 
  
 
 
  
Interest expense
   1,849   2,441   592   32 
Costs of operating leases
   26,654   24,929   (1,725  (6
Costs of goods and real estate sold
   108,637   76,071   (32,566  (30
Services expense
   239,096   202,269   (36,827  (15
Selling, general and administrative expenses
   38,590   35,701   (2,889  (7
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities
   545   0   (545  —   
Provision for credit losses and write-downs of long-lived assets and securities
   0   1,994   1,994   —   
Other
   1,267   (2,170  (3,437  —   
  
 
 
  
 
 
  
 
 
  
Total Segment Expenses
        416,638        341,235   (75,403  (18
  
 
 
  
 
 
  
 
 
  
Segment Operating Income
   51,448   18,563   (32,885  (64
  
 
 
  
 
 
  
 
 
  
Equity in Net income (Loss) of Affiliates, and others
   28,734   6,121   (22,613  (79
  
 
 
  
 
 
  
 
 
  
Segment Profits
  ¥80,182  ¥24,684  ¥(55,498  (69
  
 
 
  
 
 
  
 
 
  
 
47

   
As of March 31,
   
Change
 
   
2020
   
2021
   
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Net investment in leases
  ¥73,279   ¥66,371   ¥(6,908  (9
Investment in operating leases
   319,550    291,877    (27,673  (9
Investment in securities
   7,274    8,543    1,269   17 
Property under facility operations
   140,416    149,479    9,063   6 
Inventories
   82,762    94,429    11,667   14 
Advances for finance lease and operating lease
   37,272    98,820      61,548   165 
Investment in affiliates
   91,835    99,105    7,270   8 
Advances for property under facility operations
   7,327    4,089    (3,238  (44
Goodwill, intangible assets acquired in business combinations
   61,479    59,382    (2,097  (3
  
 
 
   
 
 
   
 
 
  
Total Segment Assets
  ¥     821,194   ¥     872,095   ¥50,901   6 
  
 
 
   
 
 
   
 
 
  
PE Investment and Concession
Segment revenues increased 12% to ¥331,222 million compared to fiscal 2020. This increase was primarily due to the increase in sales of goods by our investees, despite a decrease in services income resulting from the sale of a subsidiary during fiscal 2020.
Due to the impact of
COVID-19,
the number of passengers and flights at our three airports in Kansai decreased substantially, resulting in a decrease in equity in net income of affiliates in our concession business. Also, due to the absence of gains on the sale of a subsidiary in our private equity business, which had been recorded during fiscal 2020, segment profits decreased 92% to ¥3,431 million compared to fiscal 2020.
Segment assets increased 17% to ¥378,698 million compared to the end of fiscal 2020. This increase was mainly due to increases in goodwill and investment in operating leases associated with the acquisition of subsidiaries during fiscal 2021.
 
48

Asset efficiency declined compared to fiscal 2020.
 
   
Year ended March 31,
  
Change
 
   
2020
   
2021
  
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Finance revenues
  ¥124   ¥152  ¥28    23 
Gains on investment securities and dividends
   585    846   261   45 
Sales of goods and real estate
   261,475    301,732      40,257   15 
Services income
   32,465    22,030   (10,435  (32
Other
   1,716    6,462   4,746    277 
  
 
 
   
 
 
  
 
 
  
Total Segment Revenues
   296,365    331,222   34,857   12 
  
 
 
   
 
 
  
 
 
  
Interest expense
   1,187    1,736   549   46 
Costs of goods and real estate sold
   229,905         259,740   29,835   13 
Services expense
   22,021    15,947   (6,074  (28
Selling, general and administrative expenses
   33,517    35,454    1,937   6 
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities
   98    0   (98  —   
Provision for credit losses and write-downs of long-lived assets and securities
   0    3,622   3,622   —   
Other
   802    3,365   2,563   320 
  
 
 
   
 
 
  
 
 
  
Total Segment Expenses
   287,530    319,864   32,334   11 
  
 
 
   
 
 
  
 
 
  
Segment Operating Income
   8,835    11,358   2,523   29 
  
 
 
   
 
 
  
 
 
  
Equity in Net income (Loss) of Affiliates, and others
   35,275    (7,927  (43,202  —   
  
 
 
   
 
 
  
 
 
  
Segment Profits
  ¥       44,110   ¥       3,431  ¥(40,679  (92
  
 
 
   
 
 
  
 
 
  
 
   
As of March 31,
   
Change
 
   
2020
   
2021
   
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Net investment in leases
  ¥141   ¥1,541   ¥1,400   993 
Investment in operating leases
   9,367    23,455    14,088   150 
Investment in securities
   17,916    12,918    (4,998  (28
Property under facility operations
   43,735    43,972    237   1 
Inventories
   40,263    45,597    5,334   13 
Investment in affiliates
   68,603    55,421    (13,182  (19
Advances for property under facility operations
   245    6,732    6,487   —   
Goodwill, intangible assets acquired in business combinations
   142,252    189,062    46,810   33 
  
 
 
   
 
 
   
 
 
  
Total Segment Assets
  ¥     322,522   ¥     378,698   ¥   56,176   17 
  
 
 
   
 
 
   
 
 
  
Environment and Energy
Segment revenues decreased 4% to ¥143,187 million compared to fiscal 2020 due to a decrease in services income resulting from a decrease in electricity sales.
Segment profits increased 146% to ¥28,563 million compared to fiscal 2020. This increase was mainly due to the recording of gains of sales of an investee involved in wind power generation business in India.
 
49

Segment assets increased 6% to ¥506,666 million compared to the end of fiscal 2020. This increase was due to an increase in investments in affiliates, despite a decrease in business assets.
Asset efficiency improved compared to fiscal 2020.
 
   
Year ended March 31,
  
Change
 
   
2020
  
2021
  
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Finance revenues
  ¥1,959  ¥2,531  ¥572    29 
Services income
   141,714   136,360   (5,354  (4
Other
   4,750   4,296   (454  (10
  
 
 
  
 
 
  
 
 
  
Total Segment Revenues
   148,423   143,187   (5,236  (4
  
 
 
  
 
 
  
 
 
  
Interest expense
   7,732   10,423   2,691   35 
Services expense
   111,143    106,299    (4,844  (4
Selling, general and administrative expenses
   11,807   11,929          122   1 
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities
   2,081   0   (2,081  —   
Provision for credit losses and write-downs of long-lived assets and securities
   0   567   567   —   
Other
   3,047   1,009   (2,038  (67
  
 
 
  
 
 
  
 
 
  
Total Segment Expenses
   135,810   130,227   (5,583  (4
  
 
 
  
 
 
  
 
 
  
Segment Operating Income
   12,613   12,960   347   3 
  
 
 
  
 
 
  
 
 
  
Equity in Net income (Loss) of Affiliates, and others
   (988  15,603   16,591   —   
  
 
 
  
 
 
  
 
 
  
Segment Profits
  ¥       11,625  ¥       28,563  ¥16,938   146 
  
 
 
  
 
 
  
 
 
  
   
As of March 31,
  
Change
 
   
2020
  
2021
  
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Net investment in leases
  ¥25,355  ¥26,470  ¥1,115   4 
Investment in operating leases
   1,958   2,051            93   5 
Investment in securities
   191   814   623   326 
Property under facility operations
   338,695   262,016   (76,679  (23
Inventories
   394   396   2   1 
Advances for finance lease and operating lease
   1,861   1,392   (469  (25
Investment in affiliates
   82,253   180,492   98,239   119 
Advances for property under facility operations
   12,229   19,963   7,734   63 
Goodwill, intangible assets acquired in business combinations
   15,860   13,072   (2,788  (18
  
 
 
  
 
 
  
 
 
  
Total Segment Assets
  ¥478,796  ¥506,666  ¥27,870   6 
  
 
 
  
 
 
  
 
 
  
Insurance
Segment revenues increased 32% to ¥491,894 million compared to fiscal 2020. This increase was due to an increase in life insurance premiums in line with an increase in new insurance contracts, as well as an increase in life insurance related investment income from variable life insurance contracts.
 
50

Due to the above-mentioned reasons as well as the recording of reversals of policy liability reserves related to variable life insurance contracts, etc., segment profits increased 23% to ¥55,119 million compared to fiscal 2020.
Segment assets increased 24% to ¥1,959,521 million compared to the end of fiscal 2020 due to an increase in investment in securities.
Asset efficiency declined compared to fiscal 2020.
 
   
Year ended March 31,
   
Change
 
   
2020
   
2021
   
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Finance revenues
  ¥220   ¥242   ¥22   10 
Life insurance premiums and related investment income
   370,144    489,985    119,841   32 
Other
   1,023    1,667    644   63 
  
 
 
   
 
 
   
 
 
  
Total Segment Revenues
   371,387    491,894    120,507   32 
  
 
 
   
 
 
   
 
 
  
Interest expense
   1    6    5   500 
Life insurance costs
   271,943    374,394    102,451   38 
Selling, general and administrative expenses
   54,216    62,193    7,977   15 
Provision for credit losses and write-downs of long-lived assets and securities
   0    7    7   —   
Other
   408    184    (224  (55
  
 
 
   
 
 
   
 
 
  
Total Segment Expenses
   326,568    436,784    110,216   34 
  
 
 
   
 
 
   
 
 
  
Segment Operating Income
   44,819    55,110    10,291   23 
  
 
 
   
 
 
   
 
 
  
Equity in Net income (Loss) of Affiliates, and others
   14    9    (5  (36
  
 
 
   
 
 
   
 
 
  
Segment Profits
  ¥44,833   ¥55,119   ¥10,286   23 
  
 
 
   
 
 
   
 
 
  
   
As of March 31,
   
Change
 
   
2020
   
2021
   
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Installment loans
  ¥17,720   ¥17,315   ¥(405  (2
Investment in operating leases
   29,271    28,909    (362  (1
Investment in securities
   1,528,042    1,908,148    380,106   25 
Goodwill, intangible assets acquired in business combinations
   5,125    5,149             24   0 
  
 
 
   
 
 
   
 
 
  
Total Segment Assets
  ¥  1,580,158   ¥  1,959,521   ¥  379,363   24 
  
 
 
   
 
 
   
 
 
  
Banking and Credit
Segment revenues decreased 1% to ¥83,724 million compared to fiscal 2020. This decrease was primarily due to a decrease in finance income due to a decrease in installment loans in ORIX Credit notwithstanding increases in services income generated from the mortgage bank business of ORIX Credit and finance revenues derived from real estate investment loans in our banking business.
Segment profits increased 23% to ¥48,030 million compared to fiscal 2020 resulting from a decrease in provision for credit losses during fiscal 2021, which was primarily due to the impacts of a decrease in new loan executions as well as low default rates in ORIX Credit.
 
51

Segment assets increased 3% to ¥2,690,627 million compared to the end of fiscal 2020 due to an increase in the balance of real estate investment loans in our banking business.
Asset efficiency improved compared to fiscal 2020.
 
   
Year ended March 31,
   
Change
 
   
2020
   
2021
   
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Finance revenues
  ¥80,868   ¥78,071   ¥(2,797  (3
Other
   3,487    5,653    2,166   62 
  
 
 
   
 
 
   
 
 
  
Total Segment Revenues
   84,355    83,724    (631  (1
  
 
 
   
 
 
   
 
 
  
Interest expense
   4,488    4,931    443   10 
Selling, general and administrative expenses
   23,639    24,504    865   4 
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities
   11,971    0      (11,971  —   
Provision for credit losses and write-downs of long-lived assets and securities
   0    508    508   —   
Other
   5,164    5,754    590   11 
  
 
 
   
 
 
   
 
 
  
Total Segment Expenses
   45,262    35,697    (9,565  (21
  
 
 
   
 
 
   
 
 
  
Segment Operating Income
   39,093    48,027    8,934   23 
  
 
 
   
 
 
   
 
 
  
Equity in Net income (Loss) of Affiliates, and others
   3    3    0   —   
  
 
 
   
 
 
   
 
 
  
Segment Profits
  ¥39,096   ¥48,030   ¥8,934   23 
  
 
 
   
 
 
   
 
 
  
   
As of March 31,
   
Change
 
   
2020
   
2021
   
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Installment loans
  ¥2,318,347   ¥2,402,916   ¥84,569   4 
Investment in securities
   273,218    275,740    2,522   1 
Investment in affiliates
   400    200    (200  (50
Goodwill, intangible assets acquired in business combinations
   11,771    11,771               0   —   
  
 
 
   
 
 
   
 
 
  
Total Segment Assets
  ¥  2,603,736   ¥  2,690,627   ¥86,891   3 
  
 
 
   
 
 
   
 
 
  
Aircraft and Ships
Segment revenues decreased 51% to ¥31,617 million compared to fiscal 2020. This was due to a decrease in operating leases revenues resulting from decreases in both the number of aircraft owned and the number of aircraft sold, a decrease in fee income resulting from the decrease in the number of aircraft sold to investors in our aircraft leasing business, and the absence of gains on sales of ships, which had been recorded during fiscal 2020.
Due to the above-mentioned decrease in revenues and a decrease in equity in net income of affiliates from Avolon, segment profits decreased 92% to ¥3,755 million compared to fiscal 2020.
Segment assets increased 3% to ¥601,762 million compared to the end of fiscal 2020. This increase was mainly due to an increase in installment loans and investment in operating leases in our ship-related business, as well as an increase in investment in affiliates.
 
52

Asset efficiency declined compared to fiscal 2020.
 
   
Year ended March 31,
  
Change
 
   
2020
   
2021
  
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Finance revenues
  ¥2,478   ¥1,172  ¥(1,306  (53
Operating leases
   49,271    27,105   (22,166  (45
Services income
   10,216    3,340   (6,876  (67
Other
   2,685    0   (2,685  —   
  
 
 
   
 
 
  
 
 
  
Total Segment Revenues
   64,650    31,617   (33,033  (51
  
 
 
   
 
 
  
 
 
  
Interest expense
   18,402    14,292   (4,110  (22
Costs of operating leases
   15,070    14,188   (882  (6
Services expense
   4,379    655   (3,724  (85
Selling, general and administrative expenses
   9,399    6,863   (2,536  (27
Provision for credit losses and write-downs of long-lived assets and securities
   0    (159  (159  —   
Other
   789    372   (417  (53
  
 
 
   
 
 
  
 
 
  
Total Segment Expenses
   48,039    36,211   (11,828  (25
  
 
 
   
 
 
  
 
 
  
Segment Operating Income
   16,611    (4,594  (21,205  —   
  
 
 
   
 
 
  
 
 
  
Equity in Net income (Loss) of Affiliates, and others
   28,676    8,349   (20,327  (71
  
 
 
   
 
 
  
 
 
  
Segment Profits
  ¥45,287   ¥3,755  ¥  (41,532  (92
  
 
 
   
 
 
  
 
 
  
   
As of March 31,
  
Change
 
   
2020
   
2021
  
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Net investment in leases
  ¥1,839   ¥2,994  ¥1,155   63 
Installment loans
   24,088    30,757       6,669   28 
Investment in operating leases
   253,717    262,482   8,765   3 
Advances for finance lease and operating lease
   4,990    578   (4,412  (88
Investment in affiliates
   284,453    293,469   9,016   3 
Goodwill, intangible assets acquired in business combinations
   16,217    11,482   (4,735  (29
  
 
 
   
 
 
  
 
 
  
Total Segment Assets
  ¥     585,304   ¥     601,762  ¥16,458   3 
  
 
 
   
 
 
  
 
 
  
ORIX USA
Segment revenues increased 2% to ¥138,017 million compared to fiscal 2020. This increase was due to an increase in finance revenues from an increase in the number of new executions in our real estate loan origination and servicing business and an increase in gains on investment securities and dividends in our private equity investing business in the Americas, despite a decrease in services income resulting from a sale of an asset management-related business.
Due to the absence of gains on sales of equity interests of Houlihan Lokey, etc., which had been recorded during fiscal 2020, segment profits decreased 23% to ¥43,614 million compared to fiscal 2020.
Segment assets decreased 11% to ¥1,220,081 million compared to the end of fiscal 2020 due to a decrease in installment loans.
 
53

Asset efficiency declined compared to fiscal 2020.
 
   
Year ended March 31,
   
Change
 
   
2020
  
2021
   
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Finance revenues
  ¥79,973  ¥87,172   ¥7,199   9 
Gains on investment securities and dividends
   15,956   24,510    8,554   54 
Services income
   37,116   22,546    (14,570  (39
Other
   2,664   3,789    1,125   42 
  
 
 
  
 
 
   
 
 
  
Total Segment Revenues
   135,709   138,017    2,308   2 
  
 
 
  
 
 
   
 
 
  
Interest expense
   25,143   16,280    (8,863  (35
Services expense
   3,235   2,765    (470  (15
Selling, general and administrative expenses
   66,931   68,081    1,150   2 
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities
   8,251   0    (8,251  —   
Provision for credit losses and write-downs of long-lived assets and securities
   0   13,480    13,480   —   
Other
   (219  1,496    1,715   —   
  
 
 
  
 
 
   
 
 
  
Total Segment Expenses
   103,341   102,102    (1,239  (1
  
 
 
  
 
 
   
 
 
  
Segment Operating Income
   32,368   35,915    3,547   11 
  
 
 
  
 
 
   
 
 
  
Equity in Net income (Loss) of Affiliates, and others
   24,322   7,699    (16,623  (68
  
 
 
  
 
 
   
 
 
  
Segment Profits
  ¥56,690  ¥43,614   ¥(13,076  (23
  
 
 
  
 
 
   
 
 
  
   
As of March 31,
   
Change
 
   
2020
  
2021
   
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Net investment in leases
  ¥1,172  ¥458   ¥(714  (61
Installment loans
   778,249   617,822    (160,427  (21
Investment in operating leases
   9,148   5,317    (3,831  (42
Investment in securities
   320,217   342,631      22,414   7 
Property under facility operations and servicing assets
   66,416   72,094    5,678   9 
Inventories
   1,442   603    (839  (58
Advances for finance lease and operating lease
   1,259   378    (881  (70
Investment in affiliates
   52,361   43,816    (8,545  (16
Goodwill, intangible assets acquired in business combinations
   143,763   136,962    (6,801  (5
  
 
 
  
 
 
   
 
 
  
Total Segment Assets
  ¥  1,374,027  ¥  1,220,081   ¥(153,946  (11
  
 
 
  
 
 
   
 
 
  
ORIX Europe
Segment revenues increased 8% to ¥160,798 million compared to fiscal 2020. This increase was due to an increase in gains on investment securities and dividends.
Segment profits decreased 13% to ¥37,886 million due to the absence of gains on sale of some business unit which had been recorded during fiscal 2020, despite a decrease in selling, general and administrative expenses.
 
54

Segment assets increased 16% to ¥369,546 million compared to the end of fiscal 2020. This was mainly due to an increase in investment in securities, as well as increases in goodwill, intangible assets acquired in business combinations due to the effect of changes in foreign exchange rates.
Asset efficiency declined compared to fiscal 2020.
 
   
Year ended March 31,
  
Change
 
   
2020
  
2021
  
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Finance revenues
  ¥559  ¥171  ¥(388  (69
Gains on investment securities and dividends
   (2,079  10,239   12,318   —   
Services income
   150,044   150,388   344   0 
  
 
 
  
 
 
  
 
 
  
Total Segment Revenues
   148,524   160,798   12,274   8 
  
 
 
  
 
 
  
 
 
  
Interest expense
   1,136   1,125   (11  (1
Services expense
   35,624   39,877   4,253   12 
Selling, general and administrative expenses
   81,383   73,526   (7,857  (10
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities
   (17  0   17   —   
Provision for credit losses and write-downs of long-lived assets and securities
   0   34            34   —   
Other
   (62  6,836   6,898   —   
  
 
 
  
 
 
  
 
 
  
Total Segment Expenses
   118,064   121,398   3,334   3 
  
 
 
  
 
 
  
 
 
  
Segment Operating Income
   30,460   39,400   8,940   29 
  
 
 
  
 
 
  
 
 
  
Equity in Net income (Loss) of Affiliates, and others
   13,318   (1,514  (14,832  —   
  
 
 
  
 
 
  
 
 
  
Segment Profits
  ¥43,778  ¥37,886  ¥(5,892  (13
  
 
 
  
 
 
  
 
 
  
   
As of March 31,
  
Change
 
   
2020
  
2021
  
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Investment in securities
  ¥38,057  ¥45,540  ¥7,483   20 
Investment in affiliates
   1,495   1,770   275   18 
Goodwill, intangible assets acquired in business combinations
   278,295   322,236   43,941   16 
  
 
 
  
 
 
  
 
 
  
Total Segment Assets
  ¥     317,847  ¥     369,546  ¥51,699   16 
  
 
 
  
 
 
  
 
 
  
Asia and Australia
Segment revenues decreased 7% to ¥128,309 million compared to fiscal 2020. The decrease was due to decreases in services income and finance revenues, as well as the absence of gains on investment securities of an investee in Asia which had been recorded during fiscal 2020.
In addition to the above-mentioned reasons, despite the absence of losses on valuation of investment securities of an investee in Asia which had been recorded during fiscal 2020, as well as the recognition of gains on sales of subsidiaries and affiliates in Asia, due to the decrease in equity in net income of affiliates due to the recording of an impairment loss on an investment in an affiliate, segment profits remained substantially unchanged compared to fiscal 2020 at ¥14,660 million.
Segment assets increased 7% to ¥1,084,222 million compared to the end of fiscal 2020. The increase was mainly due to an increase in installment loans and investment in operating leases.
 
55

Asset efficiency declined compared to fiscal 2020.
 
   
Year ended March 31,
  
Change
 
   
2020
   
2021
  
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Finance revenues
  ¥43,694   ¥39,931  ¥(3,763  (9
Gains on investment securities and dividends
   8,971    7,578   (1,393  (16
Operating leases
   66,322    68,104   1,782   3 
Services income
   18,323    12,631   (5,692  (31
Other
   487    65   (422  (87
  
 
 
   
 
 
  
 
 
  
Total Segment Revenues
   137,797    128,309   (9,488  (7
  
 
 
   
 
 
  
 
 
  
Interest expense
   23,329    18,043   (5,286  (23
Costs of operating leases
   49,529    50,954   1,425   3 
Services expense
   13,082    8,881   (4,201  (32
Selling, general and administrative expenses
   27,012    25,854   (1,158  (4
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities
   15,318    0   (15,318  —   
Provision for credit losses and write-downs of long-lived assets and securities
   0    3,514   3,514   —   
Other
   1,986    1,003   (983  (49
  
 
 
   
 
 
  
 
 
  
Total Segment Expenses
   130,256    108,249   (22,007  (17
  
 
 
   
 
 
  
 
 
  
Segment Operating Income
   7,541    20,060   12,519   166 
  
 
 
   
 
 
  
 
 
  
Equity in Net income (Loss) of Affiliates, and others
   7,132    (5,400  (12,532  —   
  
 
 
   
 
 
  
 
 
  
Segment Profits
  ¥14,673   ¥14,660  ¥(13  (0
  
 
 
   
 
 
  
 
 
  
   
As of March 31,
  
Change
 
   
2020
   
2021
  
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Net investment in leases
  ¥330,346   ¥338,603  ¥8,257   2 
Installment loans
   222,465    271,038     48,573   22 
Investment in operating leases
   195,660    235,182   39,522   20 
Investment in securities
   29,248    32,804   3,556   12 
Property under facility operations
   2,600    1,284   (1,316  (51
Inventories
   242    377   135   56 
Advances for finance lease and operating lease
   1,742    3,064   1,322   76 
Investment in affiliates
   221,853    195,413   (26,440  (12
Goodwill, intangible assets acquired in business combinations
   6,112    6,457   345   6 
  
 
 
   
 
 
  
 
 
  
Total Segment Assets
  ¥  1,010,268   ¥  1,084,222  ¥73,954   7 
  
 
 
   
 
 
  
 
 
  
 
Revenues, New Business Volumes and Investments
 
Finance revenues
 
 
 
   
Year ended March 31,
  
Change
 
   
2020
   
2021
  
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Finance revenues:
      
Finance revenues
  ¥276,864   ¥271,194  ¥(5,670  (2
 
56

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

March 31,
   
Change
 
   
2020
   
2021
   
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Net investment in leases:
       
New equipment acquisitions
  ¥444,841   ¥346,518   ¥(98,323  (22
Japan
   244,087    192,708    (51,379  (21
Overseas
   200,754    153,810    (46,944  (23
Net investment in leases
     1,080,964      1,029,518      (51,446  (5
New equipment acquisitions related to net investment in leases decreased 22% to ¥346,518 million compared to fiscal 2020. In Japan, new equipment acquisitions decreased 21% in fiscal 2021 compared to fiscal 2020 due to a decreasing trend in new acquisition including auto leases. In overseas, new equipment acquisitions decreased 23% in fiscal 2021 compared to fiscal 2020 due to decreases in Asia.
Net investment in leases as of March 31, 2021 decreased 5% to ¥1,029,518 million compared to March 31, 2020 mainly due to decreases in assets in Japan.
As of March 31, 2021, no single lessee represented more than 1% of the balance of net investment in leases. As of March 31, 2021, 67% of our net investment in leases were to lessees in Japan, while 33% were to overseas lessees. 7% and 5% of our net investment in leases were to lessees in China and Malaysia, respectively. No other overseas country represented more than 5% of our total portfolio of net investment in leases.
 
   
As of March 31,
   
Change
 
   
2020
   
2021
   
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Net investment in leases by category:
                                                                    
Transportation equipment
  ¥457,405   ¥437,759   ¥(19,646  (4
Industrial equipment
   210,248    212,655         2,407       1 
Electronics
   134,775    121,021    (13,754  (10
Information-related and office equipment
   104,218    95,708    (8,510  (8
Commercial services equipment
   45,062    42,339    (2,723  (6
Other
   129,256    120,036    (9,220  (7
  
 
 
   
 
 
   
 
 
  
Total
  ¥  1,080,964   ¥  1,029,518   ¥(51,446  (5
  
 
 
   
 
 
   
 
 
  
For further information, see Note 6 and 7 of “Item 18. Financial Statements.”
 
57

Installment loans
 
   
As of and for the year ended

March 31,
   
Change
 
   
2020
   
2021
   
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Installment loans:
                                                                    
New loans added
  ¥1,529,175   ¥1,198,028   ¥(331,147  (22
Japan
   1,134,586    862,930    (271,656  (24
Overseas
   394,589    335,098    (59,491  (15
Installment loans
     3,740,486      3,670,784    (69,702  (2
 
Note:
The balance of installment loans related to our life insurance operations is included in installment loans in our consolidated balance sheets; however, income and losses on these loans are recorded in life insurance premiums and related investment income in our consolidated statements of income.
New loans added decreased 22% to ¥1,198,028 million compared to fiscal 2020. In Japan, new loans added decreased 24% to ¥862,930 million in fiscal 2021 compared to fiscal 2020. In Overseas, new loans added decreased 15% to ¥335,098 million compared to fiscal 2020 mainly due to decreased lending activity in the Americas.
The balance of installment loans as of March 31, 2021 decreased 2% to ¥3,670,784 million compared to March 31, 2020, mainly due to the collection amount exceeded the new loans added.
 
   
As of March 31,
   
Change
 
   
2020
   
2021
   
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Installment loans:
       
Consumer borrowers in Japan
       
Real estate loans
  ¥1,842,131   ¥1,995,031   ¥152,900   8 
Card loans
   223,651    188,547    (35,104  (16
Other
   32,618    27,698    (4,920  (15
  
 
 
   
 
 
   
 
 
  
Subtotal
   2,098,400    2,211,276    112,876   5 
  
 
 
   
 
 
   
 
 
  
Corporate borrowers in Japan
       
Real estate companies
   300,984    279,046    (21,938  (7
Non-recourse
loans
   48,566    47,956    (610  (1
Commercial, industrial and other companies
   255,309    203,890    (51,419  (20
  
 
 
   
 
 
   
 
 
  
Subtotal
   604,859    530,892    (73,967  (12
  
 
 
   
 
 
   
 
 
  
Overseas
       
Real estate companies
   250,195    197,074    (53,121  (21
Non-recourse
loans
   83,515    113,129    29,614   35 
Commercial, industrial companies and other
   690,299    606,062    (84,237  (12
  
 
 
   
 
 
   
 
 
  
Subtotal
   1,024,009    916,265    (107,744  (11
  
 
 
   
 
 
   
 
 
  
Purchased loans*
   13,218    12,351    (867  (7
  
 
 
   
 
 
   
 
 
  
Total
  ¥  3,740,486   ¥  3,670,784   ¥(69,702  (2
  
 
 
   
 
 
   
 
 
  
 
*
Purchased loans represent loans with evidence of deterioration of credit quality since origination and for which it is probable at acquisition that collection of all contractually required payments from the debtors is unlikely.
As of March 31, 2021, ¥17,315 million, or 0.6%, of our portfolio of installment loans to consumer and corporate borrowers in Japan related to our life insurance operations. We reflect income from these loans as life insurance premiums and related investment income in our consolidated statements of income.
 
58

As of March 31, 2021, ¥476,120 million, or 13%, of the balance of installment loans were to real estate companies in Japan and overseas.
The balance of installment loans to consumer borrowers in Japan as of March 31, 2021 increased 5% to ¥2,211,276 million compared to the balance as of March 31, 2020, primarily due to an increase in the balance of real estate loans for consumer. The balance of installment loans to corporate borrowers in Japan as of March 31, 2021 decreased 12% to ¥530,892 million compared to the balance as of March 31, 2020, mainly due to the collection amount exceeded the new loans added. The balance of installment loans in Overseas as of March 31, 2021 decreased 11% to ¥916,265 million compared to the balance as of March 31, 2020 in line with the aforementioned increase in the Americas.
For further information, see Note 9 of “Item 18. Financial Statements.”
Asset quality
Net investment in leases
 
   
As of March 31,
 
   
      2020      
  
      2021      
 
   
(Millions of yen, except
percentage data)
 
90+ days
past-due
net investment in
leases/Non-performing
net investment in leases and allowances for doubtful receivables/credit losses on net investment in leases:
   
90+ days
past-due
net investment in
leases/Non-performing
net investment in leases
  ¥15,346  ¥18,925 
90+ days
past-due
net investment in
leases/Non-performing
net investment in leases as a percentage of the balance of net investment in leases
   1.42  1.84
Provision for doubtful receivables/credit losses as a percentage of the average balance of net investment in leases*
   0.29  0.31
Allowance for doubtful receivables/credit losses on net investment in leases
  ¥11,692  ¥16,522 
Allowance for doubtful receivables/credit losses on net investment in leases as a percentage of the balance of net investment in leases
   1.08  1.60
The ratio of charge-offs as a percentage of the average balance of net investment in leases*
   0.25  0.25
 
Notes:
Credit Losses Standard has been adopted since April 1, 2020, and the amounts of allowance for doubtful receivables on finance leases have been reclassified to allowance for credit losses on net investment in leases. In addition, 90+ days
past-due
net investment in leases have been changed to
Non-performing
net investment in leases.
*
Average balances are calculated on the basis of fiscal year’s beginning balance and fiscal
quarter-end
balances.
The balance of
non-performing
net investment in leases as of March 31, 2021 increased ¥3,579 million to ¥18,925 million compared to the balance of 90+ days
past-due
net investment in leases as of March 31, 2020. As a result, the
non-performing
net investment in leases as a percentage of net investment in leases as of March 31, 2021 increased 0.42% to 1.84% from the 90+ days
past-due
net investment in leases as a percentage of net investment in leases as of March 31, 2020. Due to the change in the method of estimation of allowance for credit losses due to application of the Credit Losses Standard, the balance of allowance for credit losses on net investment in leases as of March 31, 2021 was ¥16,522 million, and as a percentage of the balance of net investment in leases as of March 31, 2021 increase 1.60% from allowance for doubtful receivables on net investment in leases as a percentage of the balance of net investment in leases as of March 31, 2020.
 
59

We believe that the ratio of allowance for credit losses to the balance of investment in net investment in leases provides a reasonable indication that our allowance for credit losses was appropriate as of March 31, 2021 for the following reasons:
 
  
lease receivables are generally diversified and the amount of realized loss on any particular contract is likely to be relatively small; and
 
  
all lease contracts are secured by collateral consisting of the underlying leased assets, and we can expect to recover at least a portion of the outstanding lease receivables by selling the collateral.
Loans not individually assessed for credit losses
 
   
As of March 31,
 
   
      2020      
  
      2021      
 
   
(Millions of yen, except
percentage data)
 
90+ days
past-due
loans not individually evaluated for
impairment/Non-performing
loans not individually assessed for credit losses and allowance for probable loan losses/credit losses on installment loans not individually assessed for credit losses:
   
90+ days
past-due
loans not individually evaluated for
impairment/Non-performing
loans not individually assessed for credit losses
  ¥10,264  ¥28,181 
90+ days
past-due
loans not individually evaluated for
impairment/Non-performing
loans not individually assessed for credit losses as a percentage of the balance of installment loans not individually assessed for credit losses
   0.28  0.78
Provision for probable loan losses/credit losses as a percentage of the average balance of installment loans not individually assessed for credit losses*
   0.43  0.02
Allowance for probable loan losses/credit losses on installment loans not individually assessed for credit losses
  ¥31,697  ¥44,064 
Allowance for probable loan losses/credit losses on installment loans not individually assessed for credit losses as a percentage of the balance of installment loans not individually assessed for credit losses
   0.87  1.22
The ratio of charge-offs as a percentage of the average balance of loans not individually assessed for credit losses*
   0.43  0.37
 
Notes:
Credit Losses Standard has been adopted since April 1, 2020, and the amounts of allowance for probable loan losses have been reclassified to allowance for credit losses. In addition, 90+ days
past-due
loans not individually evaluated for impairment have been changed to
Non-performing
loans not individually assessed for credit losses.
*
Average balances are calculated on the basis of fiscal year’s beginning balance and fiscal
quarter-end
balances.
The provision as a percentage of the average balance of installment loans not individually assessed for credit losses in fiscal 2021 compared to fiscal 2020 decreased due to the reversal occurred in fiscal 2021, mainly because of the improvement of forecasted future economic indicators such as GDP growth rates and unemployment rates in the Americas compared to the beginning of the year.
 
60

The balance of
non-performing
loans not individually assessed that are estimated for credit losses by using installment loans with similar risk characteristics as one pool was ¥28,181 million as of March 31, 2021.
 
   
As of March 31,
 
   
        2020        
   
        2021        
 
   
(Millions of yen)
 
90+ days
past-due
loans not individually evaluated for
impairment/Non-performing
loans not individually assessed for credit losses:
    
Consumer borrowers
    
Real estate loans
  ¥1,370   ¥1,633 
Card loans
   1,708    1,132 
Other
   7,025    6,823 
  
 
 
   
 
 
 
Subtotal
   10,103    9,588 
  
 
 
   
 
 
 
Corporate borrowers in Japan
    
Real estate companies
   0    31 
  
 
 
   
 
 
 
Subtotal
   0    31 
  
 
 
   
 
 
 
Consumer borrowers in Overseas
    
Real estate companies
   0    14,505 
Non-recourse
loans
   0    542 
Commercial, industrial and other companies
   161    3,515 
  
 
 
   
 
 
 
Subtotal
   161    18,562 
  
 
 
   
 
 
 
Total
  ¥10,264   ¥28,181 
  
 
 
   
 
 
 
Due to the application of Credit Losses Standard, certain installment loans have been changed to not individually assessed for credit losses from individually evaluated, mainly in the Americas and Asia.
We recognize allowances for real estate loans, card loans and other loans to individual borrowers after careful evaluation of the value of collateral underlying the loans, past loss experience and any economic conditions that we believe may affect the default rate. We determine the allowance for our other items on the basis of past loss experience, general economic conditions and the current portfolio composition.
Loans individually assessed for credit losses
 
   
As of March 31,
 
   
        2020        
   
        2021        
 
   
(Millions of yen)
 
Non-performing
loans individually assessed for credit losses and allowance for probable loan losses/credit losses on installment loans individually assessed for credit losses:
    
Non-performing
installment loans individually assessed for credit losses
  ¥85,820   ¥59,757 
Allowance for probable loan losses/credit losses on installment loans individually assessed for credit losses*
   13,447    13,404 
 
*
The allowance is individually evaluated based on the present value of expected future cash flows, the loan’s observable market price or the fair value of the collateral securing the loans if the loans are collateral dependent.
The provision for probable loan losses/credit losses on installment loans individually assesses for credit losses was ¥6,201 million and ¥15,248 million, respectively, in fiscal 2020 and fiscal 2021. The
charge-off
of impaired loans individually assessed for credit losses was ¥6,478 million and ¥16,356 million, respectively, in
 
61

fiscal 2020 and fiscal 2021. The provision of probable loan losses/credit losses for installment loans individual assessed for credit losses increased ¥9,047 million compared to fiscal 2020.
Charge-off
of installment loans individual assessed for credit losses increased ¥9,878 million compared to fiscal 2020.
The table below sets forth the outstanding balance of
non-performing
loans individually assessed for credit losses by region and type of borrower as of the dates indicated. Consumer loans in Japan primarily consist of restructured smaller-balance homogeneous loans individually assessed for credit losses. The balance of individually assessed
non-performing
loans of real estate companies and commercial, industrial and other companies in Overseas decreased due to a decrease in the Americas.
 
   
As of March 31,
 
   
        2020        
   
        2021        
 
   
(Millions of yen)
 
Non-performing
loans individually assessed for credit losses:
    
Consumer borrowers in Japan
    
Real estate loans
  ¥5,758   ¥8,006 
Card loans
   3,932    3,693 
Other
   16,426    16,963 
  
 
 
   
 
 
 
Subtotal
   26,116    28,662 
  
 
 
   
 
 
 
Corporate borrowers in Japan
    
Real estate companies
   3,501    1,711 
Commercial, industrial and other companies
   12,480    7,263 
  
 
 
   
 
 
 
Subtotal
   15,981    8,974 
  
 
 
   
 
 
 
Overseas
    
Real estate companies
   12,491    0 
Non-recourse
loans
   2,466    774 
Commercial, industrial companies and other
   27,161    19,524 
  
 
 
   
 
 
 
Subtotal
   42,118    20,298 
  
 
 
   
 
 
 
Purchased loans
   1,605    1,823 
  
 
 
   
 
 
 
Total
  ¥85,820   ¥59,757 
  
 
 
   
 
 
 
Due to the application of Credit Losses Standard, certain installment loans have been changed to not individually assessed for credit losses from individually evaluated, mainly in the Americas and Asia.
Troubled debt restructuring
A troubled debt restructuring is defined as a restructuring of a financing receivable in which the creditor grants a concession to the debtor for economic or other reasons related to the debtor’s financial difficulties. The balance of
pre-modification
outstanding recorded investment of troubled debt restructurings for financing receivables occurred during fiscal 2020 and 2021 were ¥16,826 million and ¥24,002 million, respectively. And the balance of post-modification outstanding recorded investment were ¥13,804 million and ¥19,776 million for fiscal 2020 and 2021, respectively.
While there were certain other payment deferral requests for financing receivables which we accepted, due to the spread of the
COVID-19,
those receivables are not included in the troubled debt restructuring as we determined those deferrals did not meet the definition of troubled debt restructuring.
For further information, see Note 10 and 11 of “Item 18. Financial Statements.”
 
62

Allowance for doubtful receivables and probable loan losses and allowance for credit losses
We recognize allowances for doubtful receivables and probable loan losses and allowances for credit losses.
 
   
As of March 31,
  
Change
 
   
2020
  
2021
  
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Allowance for doubtful receivables on net investment in leases and probable loan losses on installment loans and allowance for credit losses:
     
Beginning balance
  ¥58,011  ¥55,687  ¥(2,324  (4
Cumulative Effect of Adopting Accounting Standards Update
2016-13
   0   30,376   30,376   —   
(Adjusted) Beginning balance
   58,011   86,063   28,052   48 
Net investment in leases
   12,049   15,242   3,193   27 
Loans not individually assessed for credit losses
   32,231   57,685   25,454   79 
Loans individually assessed for credit losses
   13,731   13,136   (595  (4
Provision (Reversal)
   24,425   19,113   (5,312  (22
Net investment in leases
   3,304   3,285   (19  (1
Loans not individually assessed for credit losses
   14,920   580   (14,340  (96
Loans individually assessed for credit losses
   6,201   15,248   9,047   146 
Charge-offs (net)
   (24,132  (32,395  (8,263  34 
Net investment in leases
   (2,835  (2,658  177   (6
Loans not individually assessed for credit losses
   (14,819  (13,381  1,438   (10
Loans individually assessed for credit losses
   (6,478  (16,356  (9,878  152 
Other*
   (1,468  1,209   2,677   —   
Net investment in leases
   (826  653   1,479   —   
Loans not individually assessed for credit losses
   (635  (820  (185  29 
Loans individually assessed for credit losses
   (7  1,376   1,383   —   
Ending balance
   56,836   73,990   17,154   30 
Net investment in leases
   11,692   16,522   4,830   41 
Loans not individually assessed for credit losses
   31,697   44,064   12,367   39 
Loans individually assessed for credit losses
          13,447          13,404   (43  (0
 
Notes:
Credit Losses Standard has been adopted since April 1, 2020, and the amounts of both allowance for doubtful receivables on net investment in leases and allowance for probable loan losses on installment loans have been reclassified to allowance for credit losses.
*
Other mainly includes foreign currency translation adjustments and a decrease in allowance related to a sale of a subsidiary.
Credit Losses Standard has been adopted since April 1, 2020, and the allowance for credit losses is estimated for all credit losses expected to occur in future over the remaining life of net investment in leases and installment loans, and is recognized adequately based on management judgement. We adopted Credit Losses Standard through a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption.
The provision for probable loan losses on installment loans not individually assessed for credit losses was ¥14,920 million in fiscal 2020 while the provision for credit losses on installment loans not individually assessed for credit losses was ¥580 million in fiscal 2021. The provision in fiscal 2021 compared to fiscal 2020 decreased due to the reversal occurred in fiscal 2021, mainly because of the improvement of forecasted future economic indicators such as GDP growth rates and unemployment rates in the Americas compared to the beginning of the year.
For further information, see Note 10 and 11 of “Item 18. Financial Statements.”
 
63

Investment in Securities
 
   
As of and for the year ended

March 31,
  
Change
 
   
2020
  
2021
  
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Investment in securities:
     
New securities added
  ¥765,589  ¥765,663  ¥74   0 
Japan
   653,228    698,555     45,327   7 
Overseas
   112,361   67,108   (45,253  (40
Investment in securities
     2,245,323     2,660,443     415,120     18 
 
Note:
The balance of investment in securities related to our life insurance operations are included in investment in securities in our consolidated balance sheets; however, income and losses on these investment in securities are recorded in life insurance premiums and related investment income in our consolidated statements of income.
New securities added increased to ¥765,663 million in fiscal 2021 compared to fiscal 2020. New securities added in Japan increased 7% in fiscal 2021 compared to fiscal 2020 primarily due to an increase in investments in government bond securities, municipal bond securities and corporate debt securities. New securities added overseas decreased 40% in fiscal 2021 compared to fiscal 2020 primarily due to a decrease in investments in municipal bond securities and CMBS and RMBS in the Americas.
The balance of our investment in securities as of March 31, 2021 increased 18% to ¥2,660,443 million compared to March 31, 2020.
 
   
As of March 31,
   
Change
 
   
2020
   
2021
   
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Investment in securities by security type:
       
Equity securities
  ¥492,902   ¥540,082   ¥47,180   10 
Trading debt securities
   7,431    2,654    (4,777  (64
Available-for-sale
debt securities
   1,631,185    2,003,917    372,732   23 
Held-to-maturity
debt securities
   113,805    113,790    (15  (0
  
 
 
   
 
 
   
 
 
  
Total
  ¥  2,245,323   ¥  2,660,443   ¥ 415,120   18 
  
 
 
   
 
 
   
 
 
  
Investments in equity securities as of March 31, 2021 increased 10% to ¥540,082 million compared to March 31, 2020 primarily due to an increase in investment in equity securities with readily determinable fair value in the Europe and fund investment in the Americas. Investments in trading debt securities as of March 31, 2021 decreased 64% to ¥2,654 million compared to March 31, 2020 due to a decrease in investments in CMBS and RMBS in the Americas. Investments in
available-for-sale
debt securities as of March 31, 2021 increased 23% to ¥2,003,917 million compared to March 31, 2020 primarily due to an increase in investments in government bond securities, municipal bond securities and corporate debt securities in Japan.
Held-to-maturity
debt securities mainly consist of our life insurance business’s investment in Japanese government bonds.
For further information, see Note 12 of “Item 18. Financial Statements.”
 
64

Gains on investment securities and dividends
 
   
Year ended March 31,
  
Change
 
   
2020
  
2021
  
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Gains on investment securities and dividends:
     
Net gains on investment securities
  ¥20,204  ¥44,622  ¥   24,418   121 
Dividends income
   2,295    1,475    (820  (36
  
 
 
  
 
 
  
 
 
  
Total
  ¥       22,499  ¥       46,097  ¥23,598   105 
  
 
 
  
 
 
  
 
 
  
 
Notes:  1.  Income and losses on investment in securities related to our life insurance operations are recorded in life insurance premiums and related investment income in our consolidated statements of income.
          2.  Unrealized changes in fair value of investments in equity securities have been included in “Net gains on investment securities”.
Net gains on investment securities increased 121% to ¥44,622 million in fiscal 2021 compared to fiscal 2020 due to an increase in net unrealized holding gains on equity securities. Dividends income decreased 36% to ¥1,475 million in fiscal 2021 compared to fiscal 2020. Gains on investment securities and dividends increased 105% to ¥46,097 million in fiscal 2021 compared to fiscal 2020 due to an increase in net unrealized holding gains on equity securities despite a decrease in dividends income.
As of March 31, 2021, gross unrealized gains on
available-for-sale
debt securities, including those held in connection with our life insurance operations, were ¥25,291 million, compared to ¥36,017 million as of March 31, 2020. As of March 31, 2021, gross unrealized losses on
available-for-sale
debt securities, including those held in connection with our life insurance operations, were ¥48,021 million, compared to ¥41,712 million as of March 31, 2020.
Operating leases
 
   
As of and for the year

ended March 31,
  
Change
 
   
2020
  
2021
  
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Operating leases:
     
Operating lease revenues
  ¥430,665  ¥397,065  ¥(33,600  (8
Costs of operating leases
   289,604   295,628        6,024      2 
New equipment acquisitions
   493,666    302,835    (190,831  (39
Japan
   234,188   174,116   (60,072  (26
Overseas
   259,478   128,719   (130,759  (50
Investment in operating leases
     1,400,001     1,408,189   8,188   1 
Revenues from operating leases in fiscal 2021 decreased 8% to ¥397,065 million compared to fiscal 2020 primarily due to not only decreases in both the number of aircraft owned and the number of aircraft sold in the aircraft leasing business, but also a decrease in gains on sales of real estate under operating leases. In fiscal 2020 and 2021, gains from the disposition of operating lease assets were ¥51,072 million and ¥26,358 million, respectively.
Costs of operating leases increased 2% to ¥295,628 million in fiscal 2021 compared to fiscal 2020 primarily due to an increase in depreciation expenses resulting from a year on year increase in the average balance of investment in the rental business of electronic measuring instruments and
IT-related
equipment.
New equipment acquisitions related to operating leases decreased 39% to ¥302,835 million in fiscal 2021 compared to fiscal 2020 primarily due to a decrease in purchases of aircraft overseas.
 
65

Investment in operating leases as of March 31, 2021 increased 1% to ¥1,408,189 million compared to March 31, 2020.
 
   
As of March 31,
  
Change
 
   
2020
   
2021
  
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Investment in operating leases by category:
      
Transportation equipment
  ¥847,376   ¥873,697  ¥   26,321   3 
Measuring and information-related equipment
   125,897    118,758   (7,139  (6
Real estate
   269,483    249,225   (20,258  (8
Other
   10,308    24,291   13,983   136 
Right-of-use
assets
   121,553    114,268   (7,285  (6
Accrued rental receivables
   25,384    28,259   2,875   11 
Allowance for doubtful receivables on operating leases*
   0    (309  (309  —   
  
 
 
   
 
 
  
 
 
  
Total
  ¥  1,400,001   ¥  1,408,189  ¥8,188   1 
  
 
 
   
 
 
  
 
 
  
 
*
Credit Losses Standard has been adopted since April 1, 2020, and the allowance for doubtful accrued rental receivables on operating leases, which was previously recorded in allowance for doubtful receivables on finance leases and probable loan losses, has been reclassified to the balance of investment in operating leases.
Investment in transportation equipment operating leases as of March 31, 2021 increased 3% to ¥873,697 million compared to March 31, 2020 primarily due to an increase in new equipment acquisitions in the ship-related business, and an increase in investment in the automobile leasing business resulting from the effect of changes in foreign exchange rates. Investment in measuring and information-related equipment operating leases as of March 31, 2021 decreased 6% to ¥118,758 million compared to March 31, 2020 primarily due to depreciation of equipment held for operating leases in the rental business. Investment in real estate operating leases as of March 31, 2021 decreased 8% to ¥249,225 million compared to March 31, 2020 primarily due to continuous sales of real estate under operating leases in Japan. Investment in other operating leases as of March 31, 2021 increased 136% to ¥24,291 million compared to March 31, 2020 primarily due to an increase resulting from the acquisition of subsidiaries.
For further information, see Note 6 of “Item 18. Financial Statements.”
Life insurance
We reflect all income and losses (other than provision for doubtful receivables and probable loan losses and provision for credit losses) that we recognize on securities, installment loans, real estate under operating leases and other investments held in connection with our life insurance operations as life insurance premiums and related investment income in our consolidated statements of income.
 
   
Year ended March 31,
   
Change
 
   
2020
   
2021
   
Amount
   
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Life insurance premiums and related investment income and life insurance costs:
        
Life insurance premiums
  ¥     360,583   ¥     403,799   ¥43,216    12 
Life insurance-related investment income
   7,195    83,751    76,556    —   
  
 
 
   
 
 
   
 
 
   
Total
  ¥367,778   ¥487,550   ¥  119,772    33 
  
 
 
   
 
 
   
 
 
   
Life insurance costs
  ¥269,425   ¥374,348   ¥104,923    39 
  
 
 
   
 
 
   
 
 
   
 
66

   
Year ended March 31,
  
Change
 
   
2020
  
2021
  
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Breakdown of life insurance-related investment income (loss):
     
Net income on investment securities
  ¥8,674  ¥94,029  ¥85,355   984 
Losses recognized in income on derivative
   (1,910  (10,680  (8,770  459 
Interest on loans, income on real estate under operating leases, and others
   431   402   (29  (7
  
 
 
  
 
 
  
 
 
  
Total
  ¥         7,195  ¥       83,751  ¥    76,556   —   
  
 
 
  
 
 
  
 
 
  
Life insurance premiums and related investment income increased 33% to ¥487,550 million in fiscal 2021 compared to fiscal 2020.
Life insurance premiums increased 12% to ¥403,799 million in fiscal 2021 compared to fiscal 2020 due to an increase in the number of policies in force.
Life insurance-related investment income increased to ¥83,751 million in fiscal 2021 compared to ¥7,195 million in fiscal 2020. Net income on investment securities increased mainly due to an increase in investment income from assets under variable annuity and variable life insurance contracts.
Life insurance costs increased 39% to ¥374,348 million in fiscal 2021 compared to fiscal 2020 due to the aforementioned increase in the number of policies in force.
 
   
As of March 31,
   
Change
 
   
2020
   
2021
   
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Investments by life insurance operations:
       
Equity securities
  ¥264,625   ¥269,167   ¥4,542   2 
Available-for-sale
debt securities
   1,149,612    1,525,191    375,579   33 
Held-to-maturity
debt securities
   113,805    113,790    (15  (0
  
 
 
   
 
 
   
 
 
  
Total investment in securities
   1,528,042    1,908,148    380,106   25 
  
 
 
   
 
 
   
 
 
  
Installment loans, real estate under operating leases and other investments
   46,991    46,224    (767  (2
  
 
 
   
 
 
   
 
 
  
Total
  ¥  1,575,033   ¥  1,954,372   ¥  379,339   24 
  
 
 
   
 
 
   
 
 
  
Investment in securities as of March 31, 2021 increased 25% to ¥1,908,148 million compared to March 31, 2020 due to an increase in
available-for-sale
debt securities as a result of an increase in investments in government bond securities and corporate debt securities, as well as an increase in equity securities as a result of new investments.
Installment loans, real estate under operating leases and other investments as of March 31, 2021 decreased 2% to ¥46,224 million compared to March 31, 2020.
For further information, see Note 26 of “Item 18. Financial Statements.”
 
67

Sales of goods and real estate, Inventories
 
   
Year ended March 31,
   
Change
 
   
2020
   
2021
   
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Sales of goods and real estate, Inventories:
       
Sales of goods and real estate
  ¥     406,511   ¥     410,953   ¥4,442   1 
Costs of goods and real estate sold
   354,006    347,721    (6,285  (2
New real estate added
   82,442    81,854    (588  (1
Inventories
   126,013    142,156       16,143   13 
Sales of goods and real estate increased 1% to ¥410,953 million compared to fiscal 2020 mainly due to an increase in sales of goods of investees, partially offset by a decrease in sales of real estate.
Costs of goods and real estate sold decreased 2% to ¥347,721 million compared to fiscal 2020 due to a decrease in costs of real estate sold. We recognized ¥863 million and ¥2,510 million of write-downs for fiscal 2020 and 2021, respectively, which were included in costs of goods and real estate sold. Costs of goods and real estate sold include the upfront costs associated with advertising and creating model rooms.
New real estate added decreased 1% to ¥81,854 million in fiscal 2021 compared to fiscal 2020.
Inventories as of March 31, 2021 increased 13% to ¥142,156 million compared to March 31, 2020.
For further information, see Note 4 of “Item 18. Financial Statements.”
Services, Property under Facility Operations
 
   
As of and for the year ended

March 31,
   
Change
 
   
2020
   
2021
   
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Services, Property under Facility Operations
       
Services income
  ¥776,012   ¥679,849   ¥(96,163)   (12
Services expense
   483,914    439,233    (44,681  (9
New assets added
   34,181    30,143    (4,038  (12
Japan
   33,312    30,053    (3,259  (10
Overseas
   869    90    (779  (90
Property under Facility Operations
        562,485         491,855      (70,630  (13
Services income decreased 12% to ¥679,849 million in fiscal 2021 compared to fiscal 2020 mainly due to the temporary closure of operating facilities and the sales of a subsidiary and an asset management-related business in fiscal 2020.
Services expense decreased 9% to ¥439,233 million in fiscal 2021 compared to fiscal 2020 mainly due to the temporary closure of operating facilities and the sale of the subsidiary in fiscal 2020, similar to the aforementioned decrease in services income.
New assets added for property under facility operations decreased 12% to ¥30,143 million in fiscal 2021 compared to fiscal 2020 due to the decrease in investments in electric power facilities.
Property under facility operations as of March 31, 2021 decreased 13% to ¥491,855 million compared to March 31, 2020, largely attributed to the sales of investees involved in wind power generation business in India.
For further information, see Note 4 of “Item 18. Financial Statements.”
 
68

Expenses
Interest expense
Interest expense decreased 21% to ¥78,068 million in fiscal 2021 compared to ¥99,138 million in fiscal 2020. Our total outstanding short-term debt, long-term debt and deposits as of March 31, 2021 increased 3% to ¥7,041,887 million compared to ¥6,847,889 million as of March 31, 2020.
The average interest rate on our short-term debt, long-term debt and deposits in domestic currency, calculated on the basis of average monthly balances, remained flat in fiscal 2021 at 0.4% compared to 0.4% in fiscal 2020. The average interest rate on our short-term debt, long-term debt and deposits in foreign currency, calculated on the basis of average monthly balances, decreased 0.8% to 2.5% in fiscal 2021 compared to 3.3% in fiscal 2020. For more information regarding our interest rate risk, see “Item 3. Key Information—Risk Factors.” For more information regarding our outstanding debt, see “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Short-term and long-term debt and deposits.”
Other (income) and expense
Other (income) and expense included a net expense of ¥14,925 million during fiscal 2020 and a net expense of ¥17,125 million during fiscal 2021. Foreign currency transaction losses (gains) included in other (income) and expense included gains of ¥1,805 million during fiscal 2021 compared to losses of ¥1,679 million during fiscal 2020. We recognized impairment losses on goodwill and other intangible assets included in other (income) and expense in the amount of ¥2,652 million during fiscal 2021 compared to no impairment losses on goodwill and other intangible assets during fiscal 2020. For further information on our goodwill and other intangible assets, see Note 16 of “Item 18. Financial Statements.”
Selling, general and administrative expenses
 
   
Year ended March 31,
   
Change
 
   
2020
   
2021
   
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Selling, general and administrative expenses:
       
Personnel expenses
  ¥256,931   ¥263,026   ¥6,095   2 
Selling expenses
   75,860    64,749    (11,111  (15
Administrative expenses
   119,694    120,751         1,057   1 
Depreciation of office facilities
   7,714    8,269    555   7 
  
 
 
   
 
 
   
 
 
  
Total
  ¥     460,199   ¥     456,795   ¥(3,404  (1
  
 
 
   
 
 
   
 
 
  
Employee salaries and other personnel expenses accounted for 58% of selling, general and administrative expenses in fiscal 2021, and the remaining portion consists of other expenses, such as rent for office space, communication expenses and travel expenses. Selling, general and administrative expenses in fiscal 2021 decreased 1% year on year.
Write-downs of long-lived assets
As a result of impairment reviews we performed in fiscal 2021 for long-lived assets in Japan and overseas, such as office buildings, commercial facilities other than office buildings, condominiums, hotels, and land undeveloped or under construction, write-downs of long-lived assets decreased 1% to ¥3,020 million in fiscal 2021 compared to ¥3,043 million in fiscal 2020. These write-downs, which are reflected as write-downs of long-lived assets, consisted of impairment losses of ¥331 million on one office building, ¥1,256 million on six commercial facilities other than office buildings, ¥64 million on two condominiums, ¥98 million on two pieces of land undeveloped or under construction and ¥1,271 million on other long-lived assets, because the assets were
 
69

classified as held for sale or the carrying amount exceeded the estimated undiscounted future cash flows. In addition, write-downs of other long-lived assets in fiscal 2021 include a write-down of ¥1,099 million of three hotels. For further information, see Note 27 of “Item 18. Financial Statements.”
Write-downs of securities
Write-downs of securities in fiscal 2021 were mainly in connection with foreign
available-for-sale
debt securities and
non-marketable
equity securities. Write-downs of securities decreased to ¥5,935 million in fiscal 2021 compared to ¥11,969 million in fiscal 2020. For further information, see Note 12 of “Item 18. Financial Statements.”
Equity in net income of affiliates
Equity in net income of affiliates decreased in fiscal 2021 to ¥481 million compared to ¥67,924 million in fiscal 2020 due to decreases in the number of passengers and flights at our three airports in Kansai, and equity in net income of affiliates from Avolon. For further information, see Note 15 of “Item 18. Financial Statements.”
Gains on sales of subsidiaries and affiliates and liquidation losses, net
Gains on sales of subsidiaries and affiliates and liquidation losses, net decreased to ¥23,300 million in fiscal 2021 compared to ¥74,001 million in fiscal 2020, due to the favorable profit from sales in Japan, the Americas and the Europe in fiscal 2020. For further information, see Note 3 of “Item 18. Financial Statements.”
Bargain Purchase Gain
In fiscal 2021, we recognized bargain purchase gains of ¥4,966 million associated with two of the acquisitions executed in fiscal 2020 compared to bargain purchase gains of ¥955 million in fiscal 2020. For further information, see Note 3 of “Item 18. Financial Statements.”
Provision for income taxes
Provision for income taxes decreased to ¥90,747 million in fiscal 2021 compared to ¥105,837 million in fiscal 2020 primarily due to lower income before income taxes. For further information, see Note 19 of “Item 18. Financial Statements.”
Net income attributable to the noncontrolling interests
Net income attributable to the noncontrolling interests was recorded as a result of the noncontrolling interests in earnings of certain of our subsidiaries. Net income attributable to the noncontrolling interests in fiscal 2021 was ¥4,453 million, compared to ¥3,640 million in fiscal 2020.
Net income attributable to the redeemable noncontrolling interests
Net income attributable to the redeemable noncontrolling interests was recorded as a result of the noncontrolling interests in the earnings of our subsidiaries that issued redeemable stock. Net income attributable to the redeemable noncontrolling interests in fiscal 2020 was ¥384 million. Net loss attributable to the redeemable noncontrolling interests in fiscal 2021 was ¥23 million. For further information, see Note 21 of “Item 18. Financial Statements.”
 
70

YEAR ENDED MARCH 31, 2020 COMPARED TO YEAR ENDED MARCH 31, 2019
Performance Summary
Financial Results
 
   
Year ended March 31,
   
Change
 
   
2019
   
2020
   
Amount
  
Percent (%)
 
   
(Millions of yen, except ratios, per Share data and percentages)
 
Total revenues
  ¥  2,434,864   ¥  2,280,329   ¥(154,535  (6
Total expenses
   2,105,426    2,010,648    (94,778  (5
Income before Income Taxes
   395,730    412,561         16,831   4 
Net Income Attributable to ORIX Corporation Shareholders
   323,745    302,700    (21,045  (7
Earnings per Share (Basic)
   252.92    237.38    (15.54  (6
(Diluted)
   252.70    237.17    (15.53  (6
ROE*
1
   11.6    10.3    (1.3  —   
ROA*
2
   2.74    2.40    (0.34  —   
 
*
1
 
ROE is the ratio of Net Income Attributable to ORIX Corporation Shareholders for the period to average ORIX Corporation Shareholders’ Equity based on fiscal year beginning and ending balances.
*
2
 
ROA is the ratio of Net Income Attributable to ORIX Corporation Shareholders for the period to average Total Assets based on fiscal year beginning and ending balances.
Total revenues for fiscal 2020 decreased 6% to ¥2,280,329 million compared to fiscal 2019 as a result of a decrease in sales of goods and real estate due primarily to a decrease in related revenues from subsidiaries in the private equity business.
Total expenses for fiscal 2020 decreased 5% to ¥2,010,648 million compared to fiscal 2019 due primarily to a decrease in costs of goods and real estate sold in line with the aforementioned decrease in revenues.
Income before income taxes for fiscal 2020 increased 4% to ¥412,561 million compared to fiscal 2019 as a result of increases in equity in net income of affiliates and gains on sales of subsidiaries and affiliates and liquidation losses, net. On the other hand, net income attributable to ORIX Corporation shareholders decreased 7% to ¥302,700 million compared to fiscal 2019 as a result of a decrease in provision for income taxes during fiscal 2019 due to the reversal of the deferred tax liabilities previously recorded for undistributed earnings of DAIKYO.
There was no significant impact on the business performance for fiscal 2020 due to the spread of
COVID-19.
 
71

Balance Sheet data
 
   
As of March 31,
  
Change
 
   
2019
  
2020
  
Amount
  
Percent (%)
 
   
(Millions of yen except ratios, per share and percentages)
 
Total Assets
  ¥12,174,917  ¥13,067,528  ¥  892,611   7 
(Segment assets)
   9,986,916   10,883,545   896,629   9 
Total Liabilities
   9,211,936   9,991,362   779,426   8 
(Short-term and Long-term debt)
   4,495,771   4,616,186   120,415   3 
(Deposits)
   1,927,741   2,231,703   303,962   16 
ORIX Corporation Shareholders’ Equity
   2,897,074   2,993,608   96,534   3 
ORIX Corporation Shareholders’ Equity per share
   2,263.41   2,386.35   122.94   5 
ORIX Corporation Shareholders’ Equity ratio*
   23.8  22.9  (0.9)%   —   
D/E ratio
(Debt-to-equity
ratio) (Short-term and Long-term debt (excluding deposits) / ORIX Corporation Shareholders’ Equity)
   1.6  1.5  (0.1)x   —   
 
*
ORIX Corporation Shareholders’ Equity ratio is the ratio as of the period end of ORIX Corporation Shareholder’s Equity to total assets.
Total assets increased 7% to ¥13,067,528 million compared to the balance as of March 31, 2019 due primarily to not only increases in installment loans and investment in securities, but also increases in investment in operating leases, property under facility operations and office facilities as a result of our adoption of the New Lease Standard. In addition, segment assets increased 9% to ¥10,883,545 million compared to the balance as of March 31, 2019.
Total liabilities increased 8% to ¥9,991,362 million compared to the balance as of March 31, 2019 due primarily to not only increases in long-term debt and deposits, but also an increase in other liabilities as a result of our adoption of the New Lease Standard.
Shareholders’ equity increased 3% to ¥2,993,608 million compared to the balance as of March 31, 2019 due primarily to an increase in retained earnings.
Details of Operating Results
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 operating segments used by the chief operating decision maker to make decisions about resource allocations and assess performance are organized into ten segments based on our business management organization which is classified by the nature of major products and services, customer base, regulations, and business areas. The ten segments are Corporate Financial Services and Maintenance Leasing, Real Estate, PE Investment and Concession, Environment and Energy, Insurance, Banking and Credit, Aircraft and Ships, ORIX USA, ORIX Europe, and Asia and Australia. Since April 1, 2020, the reporting segments have been changed to the aforementioned segments. As a result of this change for fiscal 2021, segment data as of the end of and for fiscal 2020 has been retrospectively restated.
Financial information about the operating segments reported below is that which is available by segment and regularly reviewed by the chief operating decision maker to make decisions about resource allocations and assess performance. The chief operating decision maker evaluates the performance of the segments based on
 
72

income before income taxes, net income attributable to noncontrolling interests and net income attributable to redeemable noncontrolling interests before applicable tax effect. Tax expenses are excluded from the segment profits.
The New Lease Standard has been adopted since April 1, 2019. This adoption has resulted in a gross up of ROU assets of investment in operating leases and property under facility operations related to operating leases of land, office and equipment, where the Company is the lessee, as segment assets in all of our segments except for Insurance, Banking and Credit, and ORIX Europe. In addition, segment revenues and segment expenses mainly in Corporate Financial Service and Maintenance Leasing increased as a result of a gross up of revenues and expenses of certain lessor costs. For further information, see Note 1 of “Item 18. Financial Statements.”
Since April 1, 2020, the selling, general and administrative expenses that should be borne by ORIX Group as a whole, which were initially charged directly to its respective segments, have been included in the difference between segment total profits and consolidated amounts for fiscal 2021. As a result of this change, segment data for fiscal 2019 and fiscal 2020 has been retrospectively restated.
For a description of the business activities of our segments, see “Item 4. Information on the Company—Business Segments.” See Note 34 of “Item 18. Financial Statements” for additional segment information, a discussion of how we prepare our segment information and the reconciliation of segment totals to consolidated financial statement amounts.
 
   
Year ended March 31,
  
Change
 
   
2019
  
2020
  
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Segment Revenues:
     
Corporate Financial Services and Maintenance Leasing
  ¥378,767  ¥428,036  ¥49,269   13 
Real Estate
   531,622   468,086   (63,536  (12
PE Investment and Concession
   467,042   296,365   (170,677  (37
Environment and Energy
   139,654   148,423   8,769   6 
Insurance
   350,954   371,387   20,433   6 
Banking and Credit
   78,904   84,355   5,451   7 
Aircraft and Ships
   71,062   64,650   (6,412  (9
ORIX USA
   122,064   135,709   13,645   11 
ORIX Europe
   169,889   148,524   (21,365  (13
Asia and Australia
   128,101   137,797   9,696   8 
  
 
 
  
 
 
  
 
 
  
Segment Total
   2,438,059   2,283,332   (154,727  (6
  
 
 
  
 
 
  
 
 
  
Difference between Segment Total and Consolidated Amounts
   (3,195  (3,003  192   —   
  
 
 
  
 
 
  
 
 
  
Consolidated Amounts
  ¥  2,434,864  ¥  2,280,329  ¥(154,535  (6
  
 
 
  
 
 
  
 
 
  
 
73

   
Year ended March 31,
  
Change
 
   
2019
  
2020
  
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Segment Profits:
     
Corporate Financial Services and Maintenance Leasing
  ¥78,310  ¥62,978  ¥(15,332  (20
Real Estate
   93,748   80,182   (13,566  (14
PE Investment and Concession
   23,061   44,110   21,049   91 
Environment and Energy
   12,144   11,625   (519  (4
Insurance
   51,544   44,833   (6,711  (13
Banking and Credit
   36,434   39,096   2,662   7 
Aircraft and Ships
   36,422   45,287   8,865   24 
ORIX USA
   50,056   56,690   6,634   13 
ORIX Europe
   35,629   43,778   8,149   23 
Asia and Australia
   7,521   14,673   7,152   95 
  
 
 
  
 
 
  
 
 
  
Segment Total
   424,869   443,252   18,383   4 
  
 
 
  
 
 
  
 
 
  
Difference between Segment Total and Consolidated Amounts
   (29,139  (30,691  (1,552  —   
  
 
 
  
 
 
  
 
 
  
Consolidated Amounts
  ¥395,730  ¥412,561  ¥16,831   4 
  
 
 
  
 
 
  
 
 
  
   
As of March 31,
  
Change
 
   
2019
  
2020
  
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Segment Assets:
     
Corporate Financial Services and Maintenance Leasing
  ¥1,841,791  ¥1,789,693  ¥(52,098  (3
Real Estate
   759,466   821,194   61,728   8 
PE Investment and Concession
   279,915   322,522   42,607    15 
Environment and Energy
   395,606   478,796   83,190   21 
Insurance
   1,254,471   1,580,158   325,687   26 
Banking and Credit
   2,316,738   2,603,736   286,998   12 
Aircraft and Ships
   646,284   585,304   (60,980  (9
ORIX USA
   1,152,891   1,374,027   221,136   19 
ORIX Europe
   343,080   317,847   (25,233  (7
Asia and Australia
   996,674   1,010,268   13,594   1 
  
 
 
  
 
 
  
 
 
  
Segment Total
   9,986,916   10,883,545   896,629   9 
  
 
 
  
 
 
  
 
 
  
Difference between Segment Total and Consolidated Amounts
   2,188,001   2,183,983   (4,018  (0
  
 
 
  
 
 
  
 
 
  
Consolidated Amounts
  ¥12,174,917  ¥13,067,528  ¥892,611   7 
  
 
 
  
 
 
  
 
 
  
Corporate Financial Services and Maintenance Leasing
Segment revenues increased 13% to ¥428,036 million compared to fiscal 2019 due to increases in operating leases revenues and finance leases revenues in our automobile-related business as a result of the adoption of the New Lease Standard.
Segment profits decreased 20% to ¥62,978 million compared to fiscal 2019 due to an increase in the cost of operating leases and other expenses as a result of the adoption of the New Lease Standard mainly in our automobile-related business, as well as an increase in selling, general and administrative expenses resulting from both the adoption of the New Lease Standard which has changed the recognition of some lease related costs from
 
74

deferred amortization to expensing as they incurred in our automobile-related business and the acquisition of new investees in our corporate financial services business.
Despite an increase in investment in operating leases as a result of our adoption of the New Lease Standard, segment assets decreased 3% to ¥1,789,693 million compared to the end of fiscal 2019 due to decreases in installment loans and investment in securities.
Asset efficiency declined compared to fiscal 2019.
 
   
Year ended March 31,
   
Change
 
   
2019
  
2020
   
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Finance revenues
  ¥46,564  ¥61,402   ¥14,838   32 
Gains on investment securities and dividends
   (744  111    855   —   
Operating leases
   213,403   243,977    30,574   14 
Sales of goods and real estate
   9,771   11,536    1,765   18 
Services income
   109,773   111,010    1,237   1 
  
 
 
  
 
 
   
 
 
  
Total Segment Revenues
   378,767   428,036    49,269   13 
  
 
 
  
 
 
   
 
 
  
Interest expense
   6,832   6,203    (629  (9
Costs of operating leases
   161,539   194,162    32,623   20 
Costs of goods and real estate sold
   6,115   6,814    699   11 
Services expense
   47,977   53,020    5,043   11 
Selling, general and administrative expenses
   76,282   87,333    11,051   14 
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities
   1,760   1,189    (571  (32
Other
   271   17,648    17,377   —   
  
 
 
  
 
 
   
 
 
  
Total Segment Expenses
   300,776   366,369    65,593   22 
  
 
 
  
 
 
   
 
 
  
Segment Operating Income
   77,991   61,667    (16,324  (21
  
 
 
  
 
 
   
 
 
  
Equity in Net income (Loss) of Affiliates, and others
   319   1,311    992   311 
  
 
 
  
 
 
   
 
 
  
Segment Profits
  ¥78,310  ¥62,978   ¥(15,332  (20
  
 
 
  
 
 
   
 
 
  
   
As of March 31,
   
Change
 
   
2019
  
2020
   
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Investment in direct financing leases
  ¥688,567  ¥0   ¥(688,567  —   
Net investment in leases
   0   648,627    648,627   —   
Installment loans
   412,363   379,541    (32,822  (8
Investment in operating leases
   546,563   572,492    25,929   5 
Investment in securities
   38,935   28,616    (10,319  (27
Property under facility operations
   17,974   19,992    2,018   11 
Inventories
   638   736    98   15 
Advances for finance lease and operating lease
   765   293    (472  (62
Investment in affiliates
   16,536   18,347    1,811   11 
Advances for property under facility operations
   0   760    760   —   
Goodwill, intangible assets acquired in business combinations
   119,450   120,289    839   1 
  
 
 
  
 
 
   
 
 
  
Total Segment Assets
  ¥     1,841,791  ¥     1,789,693   ¥(52,098  (3
  
 
 
  
 
 
   
 
 
  
 
75

Real Estate
Segment revenues decreased 12% to ¥468,086 million compared to fiscal 2019 due to a decrease in services income, which is associated with sale of significant properties under facility operations during fiscal 2019, as well as a decrease in sales of real estate resulting from a decrease in condominium delivered by DAIKYO.
Although there was a recognition of gains on sales of shares of a subsidiary which operates senior housings, segment profits decreased 14% to ¥80,182 million compared to fiscal 2019 due to the above reasons.
Segment assets increased 8% to ¥821,194 million compared to the end of fiscal 2019 due to an increase in investment in operating leases resulting from the adoption of the New Lease Standard.
Asset efficiency declined compared to fiscal 2019.
 
   
Year ended March 31,
  
Change
 
   
2019
  
2020
  
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Finance revenues
  ¥6,265  ¥6,723  ¥458   7 
Operating leases
   72,309   63,149   (9,160  (13
Sales of goods and real estate
   141,489   122,230   (19,259  (14
Services income
   311,590   276,123   (35,467  (11
Other
   (31  (139  (108  —   
  
 
 
  
 
 
  
 
 
  
Total Segment Revenues
   531,622   468,086   (63,536  (12
  
 
 
  
 
 
  
 
 
  
Interest expense
   2,633   1,849   (784  (30
Costs of operating leases
   27,676   26,654   (1,022  (4
Costs of goods and real estate sold
   121,414   108,637   (12,777  (11
Services expense
   262,749   239,096   (23,653  (9
Selling, general and administrative expenses
   38,367   38,590   223   1 
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities
   1,662   545   (1,117  (67
Other
   723   1,267   544   75 
  
 
 
  
 
 
  
 
 
  
Total Segment Expenses
   455,224   416,638   (38,586  (8
  
 
 
  
 
 
  
 
 
  
Segment Operating Income
   76,398   51,448   (24,950  (33
  
 
 
  
 
 
  
 
 
  
Equity in Net income (Loss) of Affiliates, and others
   17,350   28,734   11,384   66 
  
 
 
  
 
 
  
 
 
  
Segment Profits
  ¥      93,748  ¥      80,182  ¥(13,566  (14
  
 
 
  
 
 
  
 
 
  
 
76

   
As of March 31,
   
Change
 
   
2019
   
2020
   
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Investment in direct financing leases
  ¥78,739   ¥0   ¥(78,739  —   
Net investment in leases
   0    73,279    73,279   —   
Installment loans
   316    0    (316  —   
Investment in operating leases
   241,981    319,550    77,569   32 
Investment in securities
   8,039    7,274    (765  (10
Property under facility operations
   141,949    140,416    (1,533  (1
Inventories
   80,920    82,762    1,842   2 
Advances for finance lease and operating lease
   29,973    37,272    7,299   24 
Investment in affiliates
   107,072    91,835    (15,237  (14
Advances for property under facility operations
   6,790    7,327    537   8 
Goodwill, intangible assets acquired in business combinations
   63,687    61,479    (2,208  (3
  
 
 
   
 
 
   
 
 
  
Total Segment Assets
  ¥     759,466   ¥     821,194   ¥61,728   8 
  
 
 
   
 
 
   
 
 
  
PE Investment and Concession
Segment revenues decreased 37% to ¥296,365 million compared to fiscal 2019 primarily due to a decrease in sales of goods by an investee in our private equity business.
Segment profits increased 91% to ¥44,110 million compared to fiscal 2019 due to the recognition of gains on sales of investees in our private equity business.
Segment assets increased 15% to ¥322,522 million compared to the end of fiscal 2019. This was primarily due to increases in property under facility operations and inventories resulting from the acquisition of a subsidiary, and an increase in investment in operating leases from an investee in our private equity business. In addition, there was an increase in investment in affiliates in our concession business.
 
77

Asset efficiency improved compared to fiscal 2019.
 
   
Year ended March 31,
   
Change
 
   
2019
  
2020
   
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Finance revenues
  ¥116  ¥124   ¥8   7 
Gains on investment securities and dividends
   850   585    (265  (31
Sales of goods and real estate
   429,447   261,475    (167,972  (39
Services income
   36,629   32,465    (4,164  (11
Other
   0   1,716    1,716   —   
  
 
 
  
 
 
   
 
 
  
Total Segment Revenues
   467,042   296,365    (170,677  (37
  
 
 
  
 
 
   
 
 
  
Interest expense
   1,235   1,187    (48  (4
Costs of goods and real estate sold
   395,502   229,905    (165,597  (42
Services expense
   25,183   22,021    (3,162  (13
Selling, general and administrative expenses
   35,543   33,517    (2,026  (6
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities
   154   98    (56  (36
Other
   (163  802    965   —   
  
 
 
  
 
 
   
 
 
  
Total Segment Expenses
   457,454   287,530    (169,924  (37
  
 
 
  
 
 
   
 
 
  
Segment Operating Income
   9,588   8,835    (753  (8
  
 
 
  
 
 
   
 
 
  
Equity in Net income (Loss) of Affiliates, and others
   13,473   35,275    21,802   162 
  
 
 
  
 
 
   
 
 
  
Segment Profits
  ¥23,061  ¥44,110   ¥21,049   91 
  
 
 
  
 
 
   
 
 
  
   
As of March 31,
   
Change
 
   
2019
  
2020
   
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Investment in direct financing leases
  ¥163  ¥0   ¥(163  —   
Net investment in leases
   0   141    141   —   
Installment loans
   23   0    (23  —   
Investment in operating leases
   0   9,367    9,367   —   
Investment in securities
   17,798   17,916    118   1 
Property under facility operations
   25,568   43,735    18,167   71 
Inventories
   30,217   40,263    10,046   33 
Investment in affiliates
   59,913   68,603    8,690   15 
Advances for property under facility operations
   244   245    1   0 
Goodwill, intangible assets acquired in business combinations
   145,989   142,252    (3,737  (3
  
 
 
  
 
 
   
 
 
  
Total Segment Assets
  ¥     279,915  ¥     322,522   ¥42,607   15 
  
 
 
  
 
 
   
 
 
  
Environment and Energy
Segment revenues increased 6% to ¥148,423 million compared to fiscal 2019 due to an increase in services income.
Segment profits decreased 4% to ¥11,625 million compared to fiscal 2019 due to a decrease in equity in net income of affiliates, and others.
 
78

Segment assets increased 21% to ¥478,796 million compared to the end of fiscal 2019 due to an increase in property under facility operations resulted from the acquisition of wind power generation companies as wholly-owned subsidiaries and the adoption of the New Lease Standard.
Asset efficiency declined compared to fiscal 2019.
 
   
Year ended March 31,
  
Change
 
   
2019
   
2020
  
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Finance revenues
  ¥1,362   ¥1,959  ¥597   44 
Services income
   132,108    141,714   9,606   7 
Other
   6,184    4,750   (1,434  (23
  
 
 
   
 
 
  
 
 
  
Total Segment Revenues
   139,654    148,423   8,769   6 
  
 
 
   
 
 
  
 
 
  
Interest expense
   5,651    7,732   2,081   37 
Services expense
   106,264    111,143   4,879   5 
Selling, general and administrative expenses
   11,172    11,807   635   6 
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities
   162    2,081   1,919   —   
Other
   5,460    3,047   (2,413  (44
  
 
 
   
 
 
  
 
 
  
Total Segment Expenses
   128,709    135,810   7,101   6 
  
 
 
   
 
 
  
 
 
  
Segment Operating Income
   10,945    12,613   1,668   15 
  
 
 
   
 
 
  
 
 
  
Equity in Net income (Loss) of Affiliates, and others
   1,199    (988  (2,187  —   
  
 
 
   
 
 
  
 
 
  
Segment Profits
  ¥12,144   ¥11,625  ¥(519  (4
  
 
 
   
 
 
  
 
 
  
   
As of March 31,
  
Change
 
   
2019
   
2020
  
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Investment in direct financing leases
  ¥25,533   ¥0  ¥(25,533  —   
Net investment in leases
   0    25,355   25,355   —   
Installment loans
   5    0   (5  —   
Investment in operating leases
   2,030    1,958   (72  (4
Investment in securities
   1,080    191   (889  (82
Property under facility operations
   239,413    338,695   99,282   41 
Inventories
   559    394   (165  (30
Advances for finance lease and operating lease
   1,340    1,861   521   39 
Investment in affiliates
   102,053    82,253   (19,800  (19
Advances for property under facility operations
   11,047    12,229   1,182   11 
Goodwill, intangible assets acquired in business combinations
   12,546    15,860   3,314   26 
  
 
 
   
 
 
  
 
 
  
Total Segment Assets
  ¥     395,606   ¥     478,796  ¥83,190   21 
  
 
 
   
 
 
  
 
 
  
Insurance
Segment revenues increased 6% to ¥371,387 million compared to fiscal 2019 due to an increase in life insurance premiums in line with an increase in new insurance contracts.
 
79

Segment profits decreased 13% to ¥44,833 million compared to fiscal 2019 due to an increase in life insurance costs, such as policy liability reserves and insurance payment, which are related to the increase in new insurance contracts, as well as a decrease in investment return, which is associated with significant gains recognized on a sale of real estate property during fiscal 2019.
Segment assets increased 26% to ¥1,580,158 million compared to the end of fiscal 2019 due to increases in investment in securities with the growth of the life insurance business.
Asset efficiency declined compared to fiscal 2019.
 
   
Year ended March 31,
   
Change
 
   
2019
  
2020
   
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Finance revenues
  ¥221  ¥220   ¥(1  (0
Life insurance premiums and related investment income
   349,207   370,144    20,937   6 
Other
   1,526   1,023    (503  (33
  
 
 
  
 
 
   
 
 
  
Total Segment Revenues
   350,954   371,387    20,433   6 
  
 
 
  
 
 
   
 
 
  
Interest expense
   1   1    0   —   
Life insurance costs
   247,809   271,943    24,134   10 
Selling, general and administrative expenses
   51,985   54,216    2,231   4 
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities
   29   0    (29  —   
Other
   (414  408    822   —   
  
 
 
  
 
 
   
 
 
  
Total Segment Expenses
   299,410   326,568    27,158   9 
  
 
 
  
 
 
   
 
 
  
Segment Operating Income
   51,544   44,819    (6,725  (13
  
 
 
  
 
 
   
 
 
  
Equity in Net income (Loss) of Affiliates, and others
   0   14    14   —   
  
 
 
  
 
 
   
 
 
  
Segment Profits
  ¥51,544  ¥44,833   ¥(6,711  (13
  
 
 
  
 
 
   
 
 
  
   
As of March 31,
   
Change
 
   
2019
  
2020
   
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Investment in direct financing leases
  ¥42  ¥0   ¥(42  —   
Installment loans
   11,778   17,720    5,942   50 
Investment in operating leases
   29,810   29,271    (539  (2
Investment in securities
   1,208,389   1,528,042    319,653   26 
Goodwill, intangible assets acquired in business combinations
   4,452   5,125    673   15 
  
 
 
  
 
 
   
 
 
  
Total Segment Assets
  ¥     1,254,471  ¥     1,580,158   ¥325,687   26 
  
 
 
  
 
 
   
 
 
  
Banking and Credit
Segment revenues increased 7% to ¥84,355 million compared to fiscal 2019 due to an increase in finance revenues derived from real estate investment loans in the banking business, and an increase in other income primarily due to an increase in services income of the mortgage bank business.
Despite increases in expenses such as other expenses and selling, general and administrative expenses, due to the above reason, segment profits increased 7% to ¥39,096 million compared to fiscal 2019.
 
80

Segment assets increased 12% to ¥2,603,736 million compared to the end of fiscal 2019 primarily due to an increase in installment loans as a result of increasing new executions of real estate investment loans.
Asset efficiency declined compared to fiscal 2019.
 
   
Year ended March 31,
   
Change
 
   
2019
   
2020
   
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Finance revenues
  ¥76,473   ¥80,868   ¥4,395   6 
Other
   2,431    3,487    1,056   43 
  
 
 
   
 
 
   
 
 
  
Total Segment Revenues
   78,904    84,355    5,451   7 
  
 
 
   
 
 
   
 
 
  
Interest expense
   4,078    4,488    410   10 
Selling, general and administrative expenses
   22,924    23,639    715   3 
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities
   11,512    11,971    459   4 
Other
   3,959    5,164    1,205   30 
  
 
 
   
 
 
   
 
 
  
Total Segment Expenses
   42,473    45,262    2,789   7 
  
 
 
   
 
 
   
 
 
  
Segment Operating Income
   36,431    39,093    2,662   7 
  
 
 
   
 
 
   
 
 
  
Equity in Net income (Loss) of Affiliates, and others
   3    3    0   —   
  
 
 
   
 
 
   
 
 
  
Segment Profits
  ¥36,434   ¥39,096   ¥2,662   7 
  
 
 
   
 
 
   
 
 
  
   
As of March 31,
   
Change
 
   
2019
   
2020
   
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Installment loans
  ¥2,038,202   ¥2,318,347   ¥280,145   14 
Investment in securities
   266,361    273,218    6,857   3 
Investment in affiliates
   404    400    (4  (1
Goodwill, intangible assets acquired in business combinations
   11,771    11,771    0   —   
  
 
 
   
 
 
   
 
 
  
Total Segment Assets
  ¥     2,316,738   ¥     2,603,736   ¥286,998   12 
  
 
 
   
 
 
   
 
 
  
Aircraft and Ships
Segment revenues decreased 9% to ¥64,650 million compared to fiscal 2019. This was primarily due to a decrease in operating leases revenues resulting from decreases in both the number of aircraft owned and the number of aircraft sold, and a decrease in fee income resulting from the decrease in the number of aircraft sold to investors in our aircraft leasing business, despite an increase in operating leases revenues resulting from an increase in the number of ships delivered in the ship-related business.
Segment profits increased 24% to ¥45,287 million compared to fiscal 2019 due to an increase in equity in net income of affiliates from Avolon, a leading global aircraft leasing company located in Ireland whose shares were acquired in fiscal 2019.
Segment assets decreased 9% to ¥585,304 million compared to the end of fiscal 2019. This is primarily due to a decrease in investment in operating leases resulting from the decrease in the number of aircraft owned.
 
81

Asset efficiency increased compared to fiscal 2019.
 
   
Year ended March 31,
   
Change
 
   
2019
  
2020
   
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Finance revenues
  ¥3,095  ¥2,478   ¥(617  (20
Operating leases
   52,625   49,271    (3,354  (6
Services income
   12,406   10,216    (2,190  (18
Other
   2,936   2,685    (251  (9
  
 
 
  
 
 
   
 
 
  
Total Segment Revenues
   71,062   64,650    (6,412  (9
  
 
 
  
 
 
   
 
 
  
Interest expense
   13,848   18,402    4,554   33 
Costs of operating leases
   13,511   15,070    1,559   12 
Services expense
   4,178   4,379    201   5 
Selling, general and administrative expenses
   10,246   9,399    (847  (8
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities
   323   0    (323  —   
Other
   3,261   789    (2,472  (76
  
 
 
  
 
 
   
 
 
  
Total Segment Expenses
   45,367   48,039    2,672   6 
  
 
 
  
 
 
   
 
 
  
Segment Operating Income
   25,695   16,611    (9,084  (35
  
 
 
  
 
 
   
 
 
  
Equity in Net income (Loss) of Affiliates, and others
   10,727   28,676    17,949   167 
  
 
 
  
 
 
   
 
 
  
Segment Profits
  ¥36,422  ¥45,287   ¥8,865   24 
  
 
 
  
 
 
   
 
 
  
   
As of March 31,
   
Change
 
   
2019
  
2020
   
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Investment in direct financing leases
  ¥(1 ¥0   ¥1   —   
Net investment in leases
   0   1,839    1,839   —   
Installment loans
   33,868   24,088    (9,780  (29
Investment in operating leases
   295,982   253,717    (42,265  (14
Investment in securities
   134   0    (134  —   
Inventories
   558   0    (558  —   
Advances for finance lease and operating lease
   7,625   4,990    (2,635  (35
Investment in affiliates
   285,896   284,453    (1,443  (1
Goodwill, intangible assets acquired in business combinations
   22,222   16,217    (6,005  (27
  
 
 
  
 
 
   
 
 
  
Total Segment Assets
  ¥  646,284  ¥  585,304   ¥  (60,980  (9
  
 
 
  
 
 
   
 
 
  
ORIX USA
Segment revenues increased 11% to ¥135,709 million compared to fiscal 2019. This is primary due to an increase in finance revenues derived from NXT Capital Group, LLC (hereinafter, “NXT Capital”) acquired in the fiscal 2019 and Hunt Real Estate Capital (hereinafter, “HREC”) acquired in this fiscal 2020.
Segment profits increased 13% to ¥56,690 million compared to fiscal 2019 due to an increase in gains on sales of shares of subsidiaries and affiliates and a decrease in other expenses.
Segment assets increased 19% to ¥1,374,027 million compared to the end of fiscal 2019 due to an increase in installment loans in NXT Capital and HREC.
 
82

Asset efficiency declined compared to fiscal 2019.
 
   
Year ended March 31,
  
Change
 
   
2019
   
2020
  
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Finance revenues
  ¥65,366   ¥79,973  ¥14,607   22 
Gains on investment securities and dividends
   16,013    15,956   (57  (0
Services income
   33,895    37,116   3,221   10 
Other
   6,790    2,664   (4,126  (61
  
 
 
   
 
 
  
 
 
  
Total Segment Revenues
   122,064    135,709   13,645   11 
  
 
 
   
 
 
  
 
 
  
Interest expense
   22,921    25,143   2,222   10 
Services expense
   6,156    3,235   (2,921  (47
Selling, general and administrative expenses
   55,425    66,931   11,506   21 
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities
   5,761    8,251   2,490   43 
Other
   2,773    (219  (2,992  —   
  
 
 
   
 
 
  
 
 
  
Total Segment Expenses
   93,036    103,341   10,305   11 
  
 
 
   
 
 
  
 
 
  
Segment Operating Income
   29,028    32,368   3,340   12 
  
 
 
   
 
 
  
 
 
  
Equity in Net income (Loss) of Affiliates, and others
   21,028    24,322   3,294   16 
  
 
 
   
 
 
  
 
 
  
Segment Profits
  ¥50,056   ¥56,690  ¥6,634   13 
  
 
 
   
 
 
  
 
 
  
   
As of March 31,
  
Change
 
   
2019
   
2020
  
Amount
  
Percent (%)
 
   
(Millions of yen, except percentage data)
 
Investment in direct financing leases
  ¥1,631   ¥0  ¥(1,631  —   
Net investment in leases
   0    1,172   1,172   —   
Installment loans
   594,264    778,249   183,985   31 
Investment in operating leases
   13,022    9,148   (3,874  (30
Investment in securities