-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, F5ezy7sOSBX0NCZEwn7FavAf5Y17SDiLPdRGOdPb/n3kVoAuHuwR9LPv1hDRV1CC D5wk77DahBo9dlRpi4G85A== 0000950103-03-000093.txt : 20030128 0000950103-03-000093.hdr.sgml : 20030128 20030128090024 ACCESSION NUMBER: 0000950103-03-000093 CONFORMED SUBMISSION TYPE: 6-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20030121 FILED AS OF DATE: 20030128 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ORIX CORP CENTRAL INDEX KEY: 0001070304 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS BUSINESS CREDIT INSTITUTION [6159] IRS NUMBER: 000000000 FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 6-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-14856 FILM NUMBER: 03526772 BUSINESS ADDRESS: STREET 1: 3-22-8 SHIBA STREET 2: MINATO-KU CITY: TOYKO JAPAN STATE: M0 ZIP: 105 6135 BUSINESS PHONE: 81354195000 MAIL ADDRESS: STREET 1: 3-22-8 SHIBA STREET 2: MINATO-KU CITY: TOKYO JAPAN ZIP: 105 6135 6-K 1 jan1703_6k2.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 6-K REPORT OF FOREIGN PRIVATE ISSUER Pursuant to Rule 13a-16 or 15d-16 OF THE SECURITIES EXCHANGE Act of 1934 For the month of January, 2003. ORIX Corporation (Translation of Registrant's Name into English) 3-22-8 Shiba, Minato-Ku, Tokyo, JAPAN (Address of Principal Executive Offices) (Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.) Form 20-F [x] Form 40-F [ ] (Indicate by check mark whether the registrant by furnishing the information contained in this form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.) Yes [ ] No [x] Table of Documents Filed Page 1. English translation of unaudited interim consolidated financial information filed with the Kanto Local Finance Bureau and the Tokyo Stock Exchange. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ORIX Corporation Date: January 17, 2003 By /s/Masaru Hattori ----------------------------------- Masaru Hattori Corporate Senior Vice President Head of the Accounting Department ORIX Corporation THE CONSOLIDATED FINANCIAL INFORMATION 1. On December 24, 2002, ORIX Corporation ("the Company") filed its semi-annual financial report (hanki houkokusho) with the Kanto Financial Bureau and the Tokyo Stock Exchange in Japan. This document is an English translation of consolidated financial information prepared in accordance with generally accepted accounting principles in the United States ("U.S. GAAP") for the six months ended September 30, 2002, and financial information for the six months ended September 30, 2001 and the year ended March 31, 2002, in accordance with generally accepted accounting principles in Japan ("Japanese GAAP"). 2. The unaudited consolidated balance sheet as of September 30, 2001 and unaudited statement of income, unaudited statement of shareholders' equity and unaudited per share data for the six months ended September 30, 2001 prepared in accordance with U.S. GAAP are presented in SECTION I for the convenience of the readers. 3. In preparing the consolidated financial statements in SECTION II, the Company and its subsidiaries have complied with Japanese GAAP. Significant differences between U.S. GAAP and Japanese GAAP are stated in notes of "Overview of Accounting Principles Utilized" in SECTION I. 1 SECTION I 1. Information on the Company (1) Consolidated Financial Highlights (for the Six Months Ended September 30, 2002) - ------------------------------------------------------------------------------ Millions of yen - ------------------------------------------------------------------------------ Total Revenues 334,728 Income before Income Taxes 37,996 Net Income 22,763 Shareholders' Equity 499,726 Total Assets 6,050,290 Book Value Per Share (yen) 5,973.44 Basic Earnings Per Share (yen) 272.12 Diluted Earnings Per Share (yen) 256.34 Shareholders' Equity Ratio (%) 8.26 Cash Flows from Operating Activities 83,282 Cash Flows from Investing Activities 119,027 Cash Flows from Financing Activities (345,174) Cash and Cash Equivalents at End of Period 210,875 Number of Employees 11,859 - ------------------------------------------------------------------------------ (Note) Consumption tax is excluded from the stated amount of total revenues. (2) Overview of Activities ORIX's domestic operations principally are as follows: Corporate finance -- centers on direct financing leases and installment loans, other than real estate loans, to corporate customers as well as the sale of a variety of financial products and other fee business Equipmentoperating leases -- principally comprise the rental of precision measuring equipment and personal computers to corporate customers as well as the automobile rental operations Real estate-related finance -- encompasses real estate loans to corporate customers, housing loans to individuals, loan servicing, commercial mortgage-backed securities and REITs Real estate -- consists principally of condominium development and office rental activities as well as the operation of such facilities as hotels, employee dormitories and training facilities Life insurance -- consists of direct and agency life insurance sales and related activities Other -- encompasses securities transactions, venture capital operations, consumer card loan operations and other businesses 2 ORIX also operates the following operations in foreign countries: The Americas -- direct financing leases, corporate lending, securities investment, commercial mortgage-backed securities related business and real estate development Asia and Oceania -- direct financing leases, operating leases for precision measuring equipment and transportation equipment, corporate lending and securities investment Europe -- centers on aircraft operating leases, corporate loans and securities investments For the six months ended September 30, 2002, no significant change was in these principal operations as described above. The change of principal related companies is mentioned in (3) Change of Principal Related Companies. (3) Change of Principal Related Companies Change of principal related companies for the six months ended September 30, 2002 is as follows: Addition: The Company purchased and consolidated the following corporation in July 2002 with the intention of expanding domestic leasing operations. Company Name Nittetsu Lease Co., Ltd Location Koto-ku, Tokyo Capital (Y)4,000 million Main Business General Leasing ORIX Ownership 90% Relation ORIX send interlocking directors to Nittetsu Lease Co., Ltd Deletions: There were no deletions during the six months ended September 30, 2002. (4) Number of Employees The following table is total of number of employees in the Company and its subsidiaries as of September 30, 2002: - -------------------------------------------------------------------------------- Segment name Number of employees - ------------------------------------------------------------------------------- Corporate finance 3,411 Equipment operating leases 1,346 Real estate-related finance 538 Real estate 1,065 Life insurance 490 Other 964 --- Domestic operations subtotal 7,814 ----- The Americas 819 Asia and Oceania 2,094 Europe 168 --- Foreign operations subtotal 3,081 ----- Other administration sections 964 --- Total 11,859 ====== - -------------------------------------------------------------------------------- 3 2. Financial Results (1) Six Months Ended September 30, 2002 Economic Environment As indicated by the instability in the stock markets, there was much uncertainty in the U.S. economy in the six months ended September 30, 2002. Although the Asian economy experienced a slowdown in exports to the U.S., its economy performed relatively well. On the other hand, the Japanese economy experienced difficulties due to corporate bankruptcies and restructuring, in addition to a high level of unemployment and a sharp fall in stock prices. The authorities have voiced their intention of finding some ways of overcoming deflation, but the future remains uncertain. Financial Highlights: Income before Income Taxes (Y)37,996 million (up 2% year on year) Net Income (Y)22,763 million (up 14% year on year) Earnings Per Share (Basic) (Y)272.12 (up 11% year on year) Earnings Per Share (Diluted) (Y)256.34 (up 9% year on year) Book Value Per Share (Y)5,973.44 ROE 9.1% (September 30, 2001: 8.7%) ROA 0.73% (September 30, 2001: 0.69%) Revenues: (Y)334,728 million (up 1% year on year) "Interest on loans and investment securities" grew due to an increase in the balance of housing loans and consumer card loans. However, "life insurance premiums and related investment income" decreased by (Y)14 billion due to the emphasis on profitability over revenue growth. As a result, revenues were up 1% year on year to (Y)334,728 million. Expenses: (Y)300,093 million (up 2% year on year) Efficient fund procurement from the capital markets and a drop in life insurance revenues resulted in lower "interest expense" and "life insurance costs." On the other hand, "selling, general and administrative expenses" increased due to acquisitions that were made in the second half of the last fiscal year. In addition, the carrying value of a golf course was written down under "write-downs of long-lived assets" because the expected cash flows from the course decreased against the backdrop of lower market prices for golf memberships. As a result, expenses increased slightly by 2% year on year to (Y)300,093 million. Net Income:(Y)22,763 million (up 14% year on year) While operating income was down by 8% year on year, it was offset by a gain in "equity in net income (loss) of and gain (loss) on sale of affiliates" compared with a loss in the previous fiscal year combined with recognition of (Y)1,937 million due to "cumulative effect of a change in accounting principle" resulted in a 14% rise in net income year on year to (Y)22,763 million due to the adoption of FASB Statement No. 141 ("Business Combinations") on April 1, 2002. Operating Assets: (Y)5,302.7 billion Assets increased in areas related to corporate real estate-related finance and the consumer card loan operations and an increase in the balance of direct financing leases due to acquisitions. However, an overall reduction in the balance of operating assets was achieved through the listing and sale of units of a real estate investment trust (J-REIT), which reduced "other operating assets", the securitization of direct financing lease and loan assets and the reduction in the investment in securities in the life insurance operations. As a result, operating assets were (Y)5,302.7 billion. Segment Information ("Profits" refer to income before income taxes) 4 Domestic Operations Corporate Finance: Segment profits were up 3%, or (Y)656 million, compared to the six months ended September 30, 2001 to (Y)24,500 million. Both an average balance of operating assets and revenues were up as a result of acquisitions. In addition, the automobile leasing operations also enjoyed higher profits. Equipment Operating Leases: Segment profits were (Y)2,979 million compared to (Y)5,359 million in the six months ended September 30, 2001. The automobile rental operations performed well, but the rental of precision measuring equipment continued to suffer from the sluggishness in information technology-related industries. Real Estate-Related Finance: Segment profits jumped to (Y)9,910 million from (Y)403 million in the six months ended September 30, 2001 due to the continued strong contribution from corporate non-recourse loans, the acquisition of some housing loans in the second half of the last fiscal year, and proceeds from the first quarter listing and sale of a J-REIT. Real Estate: Although the condominium development continued to perform strongly and gains were made from the sale of real estate properties, this segment experienced a loss of (Y)8,807 million compared with a profit of (Y)3,433 million in the six-month period ended September 30, 2002 due to a (Y)14,665 million write-down of a golf course. Life Insurance: Segment profits came in at (Y)2,976 million compared to (Y)4,236 million in the six months ended September 30, 2001 ((Y)5,764 million for the fiscal year ended March 31, 2002). Segment profits were lower this half as a large contribution from the sale of securities was concentrated in the first half of the previous fiscal year. Other: Segment profits jumped to (Y)6,926 million compared to (Y)2,505 million in the six months ended September 30, 2001 thanks to the increase in the balance of consumer card loans as well as a contribution from the securitization of loans in the card loan business. Foreign Operations The Americas: While still profitable, the commercial mortgage-backed securities business in the United States posted lower earnings. In addition, the "provision for doubtful receivables and possible loan losses" and the "write-downs of securities" of high yield and other bonds necessitated by the instability of the U.S. economy resulted in a segment loss of (Y)1,027 million compared to a segment loss of (Y)90 million in the six months ended September 30, 2001. Asia and Oceania: The corporate lending and automobile leasing operations performed well resulting in an increase in "segment profits" to (Y)4,314 million compared to (Y)3,498 million in the six months ended September 30, 2001. 5 Europe: While the sale of investment securities contributed to profit in the six months ended September 30, 2001, no such gains were made in the first half of this fiscal year. This combined with the decrease in assets for the six months ended September 30, 2002 resulted in a segment loss of (Y)610 million compared to a "segment profit" of (Y)1,521 million in the same period of the previous year. (2) Summary of Cash flow (Six Months Ended September 30, 2002) "Cash and cash equivalents" decreased by 40.6% or (Y)143,873 million to (Y)210,875 million compared to March 2002. "Cash flows from operating activities" were (Y)83,282 million, mainly consisting of "net income" and (Y)57,229 million of "depreciation and amortization". "Cash flows from investing activities" were (Y)119,027 million, due to inflows associated with "proceeds from sales of available-for-sale securities" and "sales of subsidiaries, net of cash disposed" despite the outflows from an increase in "installment loans". (Y)345,174 million was used in "cash flows from financing activities," due to the repayment of commercial paper and debt. Please note that a "consolidated statement of cash flows" was not prepared for the six months ended September 30, 2001 and no comparisons were made regarding the cash flows for operating, investing and financing activities for that period. (Note) Consumption tax is excluded from the stated amount as described above. 6 3. Operating Results (1) Earnings Summary Total revenues and profit (loss) by segment at September 30, 2002 are as follows: Millions of yen --------------- Total Segment profit revenues (loss) -------- ------ Domestic Operations: Corporate finance 64,544 24,500 Equipment operating leases 32,967 2,979 Real estate-related finance 25,703 9,910 Real estate 45,314 (8,807) Life insurance 71,832 2,976 Other 27,159 6,926 ------ ----- Subtotal 267,519 38,484 ------- ------ Foreign Operations: The Americas 27,275 (1,027) Asia and Oceania 27,579 4,314 Europe 5,833 (610) ----- ---- Subtotal 60,687 2,677 ------ ----- Difference between Segment Total and Consolidated Amounts 6,522 (3,165) ----- ------ Consolidated Amounts 334,728 37,996 ======= ====== - ------------------------------------------------------------------------------- (2) New Business Volumes New business volumes of direct financing leases, installment loans, operating leases, investment in securities, other operating assets for the six months ended September 30, 2002 are as follows: - ------------------------------------------------------------------------------- Millions of yen - ------------------------------------------------------------------------------- Direct Financing Leases: New receivables added 563,596 New equipment acquisitions 507,941 Installment Loans: New loans added 675,208 Operating Leases: New equipment acquisitions 61,526 Investment in Securities: New securities added 95,228 Other Operating Assets: New assets added 50,559 - ------------------------------------------------------------------------------- 7 (3) Operating Assets Operating assets by segment at September 30, 2002 are as follows: - ------------------------------------------------------------------------------- Composition Millions of yen ratio --------------- ----- Domestic Operations: Corporate finance 1,981,237 37.4% Equipment operating leases 142,964 2.7 Real estate-related finance 908,115 17.1 Real estate 289,919 5.5 Life insurance 570,983 10.8 Other 372,273 7.0 ------- Subtotal 4,265,491 80.5 --------- Foreign Operations: The Americas 713,300 13.5 Asia and Oceania 431,966 8.1 Europe 86,024 1.6 ------ Subtotal 1,231,290 23.2 --------- Difference between Segment Total and Consolidated Amounts (194,055) (3.7) Consolidated Amounts 5,302,726 100.0% ========= - ------------------------------------------------------------------------------- 8 4. Overview of Facilities (1) Facilities for Rent (a) New equipment acquisitions In association with operating lease business, the Company and its subsidiaries own facilities for rent. New equipment acquisitions were (Y)61,526 million for the six months ended September 30, 2002. (b) Details of Facilities for Rent Details of facilities for rent at September 30, 2002 are as follows: Composition Millions of yen ratio --------------- ----- Transportation equipment 274,123 41.2% Measuring equipment and personal computers 145,002 21.8 Real estate and other 246,314 37.0 ------- ---- Subtotal 665,439 100.0% Accumulated depreciation (220,855) -- -------- ------ Net 444,584 -- ======= ====== - ------------------------------------------------------------------------------- (Note) "Investment in Operating Leases" in the consolidated balance sheets includes rental receivables of (Y)15,519 million at September 30, 2002. (c) Plans for acquisition and disposal of facilities For the six months ended September 30, 2002, there were no acquisition and disposal of facilities, which were planned in the previous fiscal year. (2) Office Facilities (a) Overview of Facilities Not for Rent The Company and its subsidiaries own the following facilities. Head-office building Facilities for rationalizing clerical work and welfare Golf course Training institute (b) Significant Change of Facilities Not for Rent For the six months ended September 30, 2002, a subsidiary wrote down Kimisarazu Golf Links (golf course) to its fair value under the provisions of FASB Statement No. 144 ("Accounting for the Impairment or Disposal of Long-Lived Assets") and recognized a valuation loss in amount of (Y)14,665 million as "Write-downs of Long-Lived Assets". (c) Status for acquisition and disposal of office facilities There were no acquisition and disposal plans of office facilities. 5. Information of Stocks (1) Information of Outstanding Shares, Common Stock and Additional Paid-in Capital The information of outstanding shares, common stock and additional paid-in capital during the six months ended September 30, 2002 is as follows: 9 - ------------------------------------------------------------------------------------------------ In thousands Millions of yen - ------------------------- ---------------------------------------------------- Number of Additional outstanding shares Common stock paid-in capital - ------------------------ ------------------------ ------------------------ September September September Increase, net 30, 2002 Increase, net 30, 2002 Increase, net 30, 2002 Remarks - ------------- -------- ------------- -------- ------------- -------- ------- 15 84,319 53 51,908 61 68,731 Exercise of stock acquisition rights - ------------------------------------------------------------------------------------------------ Note: Additional-paid in capital represented as the above is based on Japanese GAAP.
(2) List of Major Shareholders The following is a list of major shareholders as of September 30, 2002: - ------------------------------------------------------------------------------- Name Number of Percentage of - --------------------------------------------------- shares held total shares Address (in thousands) issued - ------------------------------------------------------------------------------- Japan Trustee Services Bank, Ltd. (Trust Account) 1-8-11, Harumi, Chuo-ku, Tokyo 8,171 9.69% The Master Trust Bank of Japan, Ltd. (Trust Account) 2-11-3, Hamamatsu-cho, Minato-ku, Tokyo 5,666 6.72 The Chase Manhattan Bank, N.A. London SL Omnibus Account WOOLGATE HOUSE, COLEMAN STREET LONDON EC2P 2HD,ENGLAND 4,821 5.72 State Street Bank and Trust Company P.O.BOX 351 BOSTON MASSACHUSETTS 02101 U.S.A 3,290 3.90 UFJ Trust Bank Limited (Trust Account A) 1-4-3, Marunouchi, Chiyoda-ku, Tokyo 3,195 3.79 Boston Safe Deposit BSDT, Treaty Clients Omnibus 31 SAINT JAMES AVENUE BOSTON, MASS 02116 U.S.A 2,963 3.51 The Chase Manhattan Bank, N.A. London WOOLGATE HOUSE, COLEMAN STREET LONDON EC2P 2HD,ENGLAND 2,237 2.65 Nippon Life Insurance Company 1-2-2, Yuraku-cho, Chiyoda-ku, Tokyo 1,534 1.82 UFJ Bank Limited 3-21-24, Nishiki, Naka-ku, Nagoyashi 1,408 1.67 Nichimen Corporation 4-1-23, Shiba, Minato-ku, Tokyo 1,200 1.42 - - - --- ----- ---- Total 34,488 40.90% ====== ===== - ------------------------------------------------------------------------------- Notes: (a) The number of shares held in relation to Trust businesses are given on the list of shareholders. (b) Capital Research and Management Company, Capital Guardian Trust Company, Capital International Limited, Capital International, Inc. and Capital International S.A jointly filed a report under Japanese regulation on August 30, 2002 that shows 10 their holding shares of the Company as of August 26, 2002. The following is the information and those are not included in the list of major shareholders as of September 30, 2002 because we could not confirm it substantially from the list of shareholders as of September 30, 2002. - ------------------------------------------------------------------------------- Number of Percentage of Name shares held total shares (in thousands) in issued - ------------------------------------------------------------------------------- Capital Research and Management Company 673 0.80% Capital Guardian Trust Company 5,380 6.38 Capital International Limited 663 0.79 Capital International, Inc. 1,668 1.98 Capital International S.A. 46 0.05 -- ---- Total 8,433 10.01% ===== ===== - ------------------------------------------------------------------------------- On October 7, 2002, these companies filed a report that the number of shares held was changed to 9,285 thousand shares (11.01% of total issued shares). 6. Financial Information (1) Condensed Consolidated Balance Sheets (Unaudited) - --------------------------------------------------------------------------------------------------------- September 30, 2002 September 30, 2001 -------------------------------------------------- Assets Millions of Composition Millions of Composition yen ratio yen ratio -------------------------------------------------- Cash and Cash Equivalents 210,875 3.5% 201,244 3.4% Restricted Cash and Cash Equivalents 20,936 0.3 22,694 0.4 Time Deposits 1,229 0.0 8,727 0.1 Investment in Direct Financing Leases 1,669,623 27.6 1,821,868 30.4 Installment Loans 2,326,189 38.4 1,996,542 33.3 Allowance for Doubtful Receivables on Direct Financing Leases and Possible Loan Losses (136,961) (2.3) (145,856) (2.5) Investment in Operating Leases 460,103 7.6 468,841 7.8 Investment in Securities 717,500 11.9 972,816 16.2 Other Operating Assets 129,311 2.1 130,409 2.2 Investment in Affiliates 102,271 1.7 59,491 1.0 Other Receivables 132,047 2.2 94,181 1.5 Advances 175,917 2.9 144,352 2.4 Prepaid Expenses 42,157 0.7 35,215 0.6 Office Facilities 76,879 1.3 78,282 1.3 Other Assets 122,214 2.1 113,209 1.9 ------------ ------------ Total 6,050,290 100.0% 6,002,015 100.0% ============ ============ - --------------------------------------------------------------------------------------------------------- 11 (1)Condensed Consolidated Balance Sheets (Unaudited) (Continued) - --------------------------------------------------------------------------------------------------------- September 30, 2002 September 30, 2001 -------------------------------------------------- Liabilities and Shareholders' Equity Millions of Composition Millions of Composition yen ratio yen ratio -------------------------------------------------- Short-Term Debt 1,397,228 23.1% 1,596,936 26.6% Deposits 266,446 4.4 207,810 3.5 Trade Notes and Accounts Payable 219,601 3.6 247,945 4.1 Accrued Expenses 88,785 1.5 78,382 1.3 Policy Liabilities 601,815 10.0 598,871 10.0 Income Taxes 145,791 2.4 144,444 2.4 Deposits from Lessees 69,241 1.1 68,190 1.1 Long-Term Debt 2,761,657 45.6 2,604,290 43.4 -------------- -------------- Total Liabilities 5,550,564 91.7 5,546,868 92.4 -------------- -------------- Common Stock 51,908 0.9 41,980 0.7 Additional Paid-in Capital 69,877 1.1 60,185 1.0 Retained Earnings: Legal reserve 2,220 0.0 2,220 0.0 Retained earnings 421,684 7.0 379,942 6.3 -------------- -------------- Subtotal 423,904 7.0 382,162 6.3 -------------- -------------- Accumulated Other Comprehensive Loss: Net unrealized gains on investment in securities 4,824 0.1 21,593 0.4 Minimum pension liability adjustments (5,826) (0.1) (4,489) (0.1) Foreign currency translation adjustments (27,918) (0.5) (29,315) (0.5) Net unrealized loss on derivative instruments (8,880) (0.1) (8,694) (0.1) -------------- -------------- Subtotal (37,800) (0.6) (20,905) (0.3) -------------- -------------- Treasury Stock, at cost (8,163) (0.1) (8,275) (0.1) -------------- -------------- Shareholders' Equity 499,726 8.3 455,147 7.6 -------------- -------------- Total 6,050,290 100.0% 6,002,015 100.0% ============== ============== - ---------------------------------------------------------------------------------------------------------
12 (2)Condensed Consolidated Statements of Income (Unaudited) - ---------------------------------------------------------------------------------------------------------- The six months ended The six months ended September 30, 2002 September 30, 2001 -------------------------------------------------- Millions of Percentage Millions of Percentage yen yen -------------------------------------------------- Revenues: Direct financing leases 63,479 58,527 Operating leases 61,079 58,643 Interest on loans and investment securities 64,041 56,758 Brokerage commissions and gains On investment securities 7,927 8,496 Life insurance premiums and related investment income 71,832 85,912 Residential condominium sales 29,742 33,019 Interest income on deposits 312 1,010 Other operating revenues 36,316 30,178 -------------- --------------- Total revenues 334,728 100.0% 332,543 100.0% -------------- --------------- Expenses: Interest expense 36,704 49,976 Depreciation - operating leases 38,853 37,383 Life insurance costs 64,424 78,929 Costs of residential condominium sales 25,712 27,536 Other operating expenses 18,149 14,304 Selling, general and administrative expenses 69,829 58,259 Provision for doubtful receivables and possible loan losses 24,967 20,188 Write-downs of long-lived assets 14,665 1,386 Write-downs of securities 5,742 7,251 Foreign currency transaction loss, net 1,048 (297) -------------- --------------- Total expenses 300,093 89.7 294,915 88.7 -------------- --------------- Operating Income. 34,635 10.3 37,628 11.3 -------------- --------------- Equity in Net Income (Loss) of and Gain (Loss) on Sales of Affiliates 3,361 1.0 (428) (0.1) -------------- --------------- Income before Income Taxes 37,996 11.3 37,200 11.2 -------------- --------------- Provision for Income Taxes 17,170 5.1 17,297 5.2 -------------- --------------- Income before Cumulative Effect of a Change in Accounting Principle 20,826 6.2 19,903 6.0 -------------- --------------- Cumulative Effect of a Change in Accounting Principle 1,937 0.6 133 0.0 -------------- --------------- Net Income 22,763 6.8% 20,036 6.0% ============== ===============
13 - ---------------------------------------------------------------------------------------------------------- Per Share Data (Unaudited) - ---------------------------------------------------------------------------------------------------------- The six The six months months ended ended September September 30, 2002 30, 2001 ------------- ------------ Yen Yen ------------- ------------ Earnings per share-Basic: Income before cumulative effect of a change in accounting principle 248.97 243.54 Cumulative effect of a change in accounting principle 23.15 1.63 Net income 272.12 245.17 Earnings per share-Diluted: Income before cumulative effect of a change in accounting principle 234.58 233.95 Cumulative effect of a change in accounting principle 21.76 1.56 Net income 256.34 235.51 - ----------------------------------------------------------------------------------------------------------
14 (3) Condensed Consolidated Statements of Shareholders' Equity (Unaudited) - --------------------------------------------------------------------------------------------------------- Millions of yen ------------------------------------- Six months ended Six months ended September 30, 2002 September 30, 2001 ------------------ ------------------- Common Stock: Beginning balance 51,854 41,820 Issuance during the year 54 160 ------------------ ------------------- Ending balance 51,908 41,980 ------------------ ------------------- Additional Paid-in Capital: Beginning balance 69,823 59,885 Issuance during the year and other increase, net 54 300 ------------------ ------------------- Ending balance 69,877 60,185 ------------------ ------------------- Legal Reserve: Beginning balance 2,220 2,090 Transfer from retained earnings - 130 ------------------ ------------------- Ending balance 2,220 2,220 ------------------ ------------------- Retained Earnings: Beginning balance 400,175 361,262 Cash dividends (1,254) (1,226) Transfer to legal reserve - (130) Net income 22,763 20,036 ------------------ ------------------- Ending balance 421,684 379,942 ------------------ ------------------- Accumulated Other Comprehensive Loss: Beginning balance (13,440) 4,552 Net decrease in net unrealized gains on investment in securities (9,932) (12,751) Net decrease in minimum pension liability adjustments 1,008 195 Net decrease in cumulative translation adjustments (13,118) (4,207) Net increase in net unrealized losses on derivative instruments (2,318) (8,694) ------------------ ------------------- Ending balance (37,800) (20,905) ------------------ ------------------- Treasury Stock: Beginning balance (8,124) (8,286) (Increase) decrease, net (39) 11 ------------------ ------------------- Ending balance (8,163) (8,275) ------------------ ------------------- Total Shareholders' Equity: Beginning balance 502,508 461,323 Decrease, net (2,782) (6,176) ------------------ ------------------- Ending balance 499,726 455,147 ================== =================== Summary of Comprehensive Loss: Net income 22,763 20,036 Other comprehensive loss (24,360) (25,457) ------------------ ------------------- Comprehensive loss (1,597) (5,421) ================== =================== - ----------------------------------------------------------------------------------------------------------
15 (4) Condensed Consolidated Statement of Cash Flows For the six months ended September 30, 2002 (Unaudited) - ------------------------------------------------------------------------------- Millions of yen ------------------- Cash Flows from Operating Activities: Net income 22,763 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 57,229 Provision for doubtful receivables and possible loan losses 24,967 Decrease in policy liabilities (849) Gains on securitization (3,665) Equity in net income of and gain on sales of affiliates (3,361) Gains on sales of available-for-sale securities (4,204) Write-downs of long-lived assets 14,665 Write-downs of securities 5,742 Increase in restricted cash and cash equivalents (1,034) Increase in other operating assets held for sales, including advance payments (13,648) Increase in prepaid expenses (3,853) Decrease in accrued expenses (195) Increase in deposit from lessees 1,148 Other, net (12,423) ------------ Net cash provided by operating activities 83,282 ------------ Cash Flows from Investing Activities: Purchases of lease equipment, including advance payments (465,874) Principal payments received under direct financing leases 389,630 Net proceeds from securitization of lease and loan receivables 92,803 Installment loans made to customers (622,872) Principal collected on installment loans 532,142 Proceeds from sales of operating lease assets 32,474 Investment in and dividends received from affiliates, net (902) Purchases of available-for-sale securities (67,406) Proceeds from sales of available-for-sale securities 144,800 Maturities of available-for-sale securities 54,256 Purchases of other securities (20,941) Proceeds from sales of other securities 17,759 Purchases of other operating assets (1,067) Proceeds from sales of other operating assets 14,830 Acquisitions of subsidiaries, net of cash acquired (10,607) Sales of subsidiaries, net of cash disposed 37,018 Other, net (7,016) ----------- Net cash provided by investing activities 119,027 ----------- 16 (Continued) - ------------------------------------------------------------------------------- Millions of yen ------------------- Cash Flows from Financing Activities: Repayment of short-term debt, net (41,950) Repayment of commercial paper, net (282,590) Proceeds from long-term debt 370,233 Repayment of long-term debt (425,885) Net increase in deposits due to customers 41,203 Issuance of common stock 108 Dividends paid (1,254) Net decrease in call money (5,000) Other, net (39) ----------- Net cash used in financing activities (345,174) ----------- Effect of Exchange Rate Changes on Cash and Cash Equivalents (1,008) ----------- Net Decrease in Cash and Cash Equivalents (143,873) Cash and Cash Equivalents at Beginning of Period 354,748 ----------- Cash and Cash Equivalents at End of Period 210,875 =========== - -------------------------------------------------------------------------------- The accompanying notes to consolidated financial statement are an integral part of this statement. Notes To Consolidated Financial Statements 1. Overview of Accounting Principles Utilized In preparing the accompanying consolidated financial statements, ORIX Corporation ("the Company") and its subsidiaries have complied with requirements of accounting principle, procedures and disclosure related to issuing American Depositary Receipts, and generally accepted accounting principles in the United States of America ("U.S. GAAP"), modified for the accounting for stock splits (see Note 2 (k)). Since the Company listed on the New York Stock Exchange in September 1998, the Company has prepared the consolidated financial statements based on terms, formats and preparations pursuant to the rules regarding issuing American Depositary Receipts and registered with the Securities and Exchange Commission. Significant differences between U.S. GAAP and generally accepted accounting principles in Japan ("Japanese GAAP") are as follows: (a) Direct financing leases Under U.S. GAAP, a lessor accounts for a lease that transfers substantially all of the benefits and risks of ownership to the lessee as a sale or a financing, the Company and its subsidiaries account for ORIX's lease transaction as a financing ("direct financing leases"). Certain direct lease origination costs ("initial direct costs") are being deferred and amortized over the lease term as a yield adjustment. Under Japanese GAAP, financing leases are accounted for as an ordinary sale in principle, while financing leases where the ownership of the property is not deemed to be transferred to a lessee can be accounted for in the same manner as operating leases if necessary information is disclosed in the notes to the consolidated financial statements. Regarding the securitization of direct financing lease receivables, under U.S. GAAP, the Company and its subsidiaries account for the securitization as a sale if it meets the conditions required in FASB Statement No. 140 ("Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities"). Under Japanese GAAP, in the case of accounting for financing leases in the same manner as operating leases, the securitization is accounted as a financing transaction secured by the future lease payments. 17 (b) Origination cost on installment loans Under U.S. GAAP, certain loan origination costs are being deferred and amortized over the loan term using the interest method. On the other hand, under Japanese GAAP, those origination costs are recognized as expenses at the inception. (c) Depreciation of operating leases properties Under U.S. GAAP, operating lease assets are depreciated over their estimated useful lives mainly on a straight-line method. On the other hand, Japanese GAAP allows that operating assets are depreciated using either constant percentage method or straight-line method. (d) Impairment of long-lived assets Under U.S. GAAP, long-lived assets and certain identifiable intangibles to be held and used by the Company and its subsidiaries are reviewed for impairment, whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. When the sum of undiscounted future cash flows expected to be generated by the assets is less than the carrying amount of the assets, impairment losses are recognized based on the fair value of the assets. It is expected that a similar accounting principal will be adopted in Japan. (e) Accounting for life insurance operations Based on FASB Statement No. 60 ("Accounting and Reporting by Insurance Enterprises"), certain costs associated with writing insurances ("deferred policy acquisition costs") are being deferred and amortized over the respective policy periods in proportion to anticipated premium revenue. Under Japanese GAAP, such costs are recorded as expenses currently in earnings in each accounting period. In addition, under U.S. GAAP, although policy liabilities for future policy benefits are established for by the net level premium method, based on actuarial estimates of the amount of future policyholder benefits, these are calculated by the methodology which relevant authorities accept in Japan. (f) Derivative Financial Instruments and Hedging In principal, under both U.S. GAAP and Japanese GAAP, derivative instruments are carried at fair value with changes included in the current period income or loss unless certain hedge accounting criteria are met. The accounting treatment for hedging differs between U.S. GAAP and Japanese GAAP (see Note 2 (i)). Under U.S. GAAP, hedging relationships must be designated individually, and accounting treatment differs between fair value hedge and cash flow hedge. On the other hand, Japanese GAAP allows the changes in fair value of hedging instruments to be deferred until the hedging relationship ceases, if derivative instruments are used for hedging purposes either as fair value hedge or cash flow hedge and meet certain hedging criteria. 18 In addition, for the leasing industry, if hedging relationships designated before March 2001 are effective in total, these transactions can be accounted for as hedging under deferral hedging accounting treatment on condition that the relationships meet certain hedging criteria. In connection with the accounting treatment of conversion options, under U.S. GAAP, conversion options are bifurcated from the convertible bonds and are recorded as stand-alone derivative contracts. On the other hand, under Japanese GAAP, convertible bonds are required to be accounted for ordinary bonds. (g) Accounting for business combinations, goodwill and other intangible assets Under U.S. GAAP, all business initiated combinations after June 30, 2001 are accounted for using the purchase method. Accounting for business combinations using the pooling of interests method is no longer allowed. Goodwill and intangible assets that have indefinite useful lives are not amortized and tested at least annually for impairment. Under Japanese GAAP, goodwill is amortized over appropriate period within twenty years. (h) Accounting for Pension Plans Under U.S. GAAP, the Company and its subsidiaries adopted FASB Statement No.87 ("Employer's Accounting for Pensions") and recorded pension costs based on amounts determined using actuarial methods. Minimum pension liabilities are recorded when the accumulated benefit obligation exceeded the fair value of plan assets and accrued pension costs. A corresponding amount is recognized as an intangible asset to the extent of the unrecognized prior service cost, and the balance is recorded as a component of accumulated other comprehensive income, net of tax. Under U.S. GAAP, unrealized net actuarial loss is amortized using a corridor test. But under Japanese GAAP, the unrealized net actuarial loss is amortized over a certain term within the average remaining service period of employees expected to receive related benefits. (i) Accounting for debt discounts and expenses U.S. GAAP requires that a bond, offset by debt discount and expenses, is recorded as liability in the statements of financial position. U.S. GAAP also requires that the amortization of debt discounts and expenses is computed using the interest method over the redemption term. In general, a bond is recorded at face value under Japanese GAAP. Also, debt discounts and expenses are deferred and amortized using the straight-line method from the effective date to the redemption date. (j) Segment Information 19 In accordance with FASB Statement No. 131 ("Disclosure about Segment of an Enterprise and Related information"), segment financial information based on that which is regularly used by management for evaluating segment performance and deciding how to allocate . Japanese GAAP requires disclosure of the information according to kind on the enterprise on the basis of products, the information according to location on the basis of the location of a selling agency, and the overseas sales information on the basis of a customer's location. (k) Classification in Consolidated Statement of Cash Flows Classification in the statement of cash flows under U.S. GAAP is based on FASB Statement No. 95 ("Statement of Cash Flows"), which differs from Japanese GAAP. As significant differences, purchase of lease equipment and principal payments received under direct financing leases, proceeds from sales of operating lease assets, installment loans made to customers and principal collected on installment loans are included in "Cash Flows from Investing Activities" in U.S. GAAP while they are classified as "Cash Flows from Operating Activities" in Japanese GAAP. In addition, net proceeds from securitization of lease receivables are accounted for as a sale, and loan receivables are classified as "Cash Flows from Investing Activities" in U.S. GAAP, while net proceeds from securitization of lease receivables and its repayments are included in "Cash Flows from Financing Activities", and net proceeds from securitization of loan receivables are classified as "Cash Flows from Operating Activities" under Japanese GAAP. 2. Significant Accounting and Reporting Policies (a) Principles of consolidation The consolidated financial statements include the accounts of the Company and all of its subsidiaries, and investments in affiliates are accounted for by using the equity method. Subsidiaries with closing dates different from that of the Company close their books with necessary adjustments for consolidation purpose at the closing date. All significant intercompany accounts and transactions have been eliminated in consolidation. (b) Use of estimates The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company has identified five areas where it believes assumptions and estimates are particularly critical to the financial statements. These are the determination of the allowance for doubtful receivables on direct financing leases and possible loan losses (see (f)), the determination of impairment of investment in securities (see (g)), the determination of impairment of long-lived assets and goodwill (see (t)), the determination and periodic reassessment of the unguaranteed residual value for direct financing leases and operating leases (see (d)), and the determination and reassessment of insurance policy liabilities and deferred policy acquisition costs (see(e)). (c) Foreign currencies translation The Company and its subsidiaries maintain their accounting records in their functional currency. Transactions in foreign currencies are recorded in the entity's functional currency based on the prevailing exchange rates on the transaction date. The financial statements of foreign subsidiaries and affiliates are translated into Japanese yen by applying the exchange rates in effect at the end of each fiscal year to all assets and liabilities. Income and expenses are translated at the average rates of exchange prevailing during the fiscal year. The currencies in which the operations of the foreign subsidiaries and affiliates are conducted are regarded as the 20 functional currencies of these companies. Foreign currency translation adjustments reflected in accumulated other comprehensive loss in shareholders' equity are from the translation of foreign currency financial statements into Japanese yen. (d) Recognition of revenues Direct financing leases--Direct financing leases consist of full-payout leases for various equipment types, including office equipment, industrial machinery and transportation equipment (aircraft, vessels and automobiles). The excess of aggregate lease rentals plus the estimated unguaranteed residual value over the cost of the leased equipment constitutes the unearned lease income to be taken into income over the lease term. The estimated residual values represent estimated proceeds from the disposition of equipment at the time the lease is terminated. Estimates of unguaranteed residual values are based on current market values of used equipment and estimates of when and how much equipment will become obsolete. Initial direct costs are being deferred and amortized over the lease term as a yield adjustment. The unamortized balance of initial direct costs is reflected as a component of investment in direct financing leases. Amortization of unearned lease income and direct finance lease origination cost is computed using the interest method. Installment loans--Interest income on installment loans is recognized on an accrual basis. Certain direct loan origination costs, offset by loan origination fees ("loan origination costs, net"), are being deferred and amortized over the contractual term of the loan as an adjustment of the related loan's yield using the interest method. Interest payments received on impaired loans are recorded as interest income unless the collection of the remaining investment is doubtful at which time payments received are recorded as reductions of principal. Non-accrual policy--Revenues on direct financing leases and installment loans are no longer accrued at the time when principal or interest is past due 180 days or more, or earlier, if management believes their collectibility is doubtful. Operating leases--Operating lease assets are recorded at cost and are depreciated over their estimated useful lives mainly on a straight-line basis. Gains or losses arising from dispositions of operating lease assets are included in operating lease revenues. Estimates of residual values are based on current market values of used equipment and estimates of when and how much equipment will become obsolete. Brokerage commissions and gains on investment securities--Brokerage commissions and gains on investment securities are recorded on a trade date basis. (e) Insurance premiums and expenses Premium income from life insurance policies are recognized as earned premiums when due. Life insurance benefits are recorded as expenses when they are incurred. Policy liabilities for future policy benefits are established for by the net level premium method, based on actuarial estimates of the amount of future policyholder benefits. FASB Statement No. 60 ("Accounting and Reporting by Insurance Enterprises") requires insurance companies to defer certain costs associated with writing insurances ("deferred policy acquisition costs") and amortize over the respective policy periods in proportion to anticipated premium revenue. Amortizations charged to income for the six months ended September 30, 2002 amounted to (Y)5,894 million. (f) Allowance for doubtful receivables on direct financing leases and possible loan losses The allowance for doubtful receivables on direct financing leases and possible loan losses is maintained at a level which, in the judgment of management, is adequate to provide for potential losses on lease and loan portfolios that can be reasonably anticipated. The allowance is increased by provisions charged to income and is decreased by charge-offs, net of recoveries. 21 Developing the allowance for doubtful receivables on direct financing leases and possible loan losses is subject to numerous estimates and judgments. In evaluating the adequacy of the allowance, management considers various factors, including the nature and characteristics of the obligor, current economic conditions, credit concentrations or deterioration in pledged collateral, historical loss experience, delinquencies and future cash flows expected to be received. Generally, large-balance non-homogeneous loans are evaluated based on the present value of expected future cash flows and the fair value of the collateral securing the loans. Smaller-balance homogeneous loans and lease receivables are evaluated considering current economic conditions and trends, the value of the collateral underlying the loans and leases, prior charge-off experience, delinquencies and non-accruals. Receivables are charged off when, in the opinion of management, the likelihood of any future collection is believed to be minimal. The Company and its subsidiaries do not have a practice of charging loans off after they are past due for a specific arbitrary period, for example, six months or one year. (g) Investment in securities Trading securities are reported at fair value with unrealized gains and losses included in income. Available-for-sale securities are reported at fair value, and unrealized gains or losses are recorded through other comprehensive income (loss), net of applicable income taxes. In principle, the Company and its subsidiaries recognize losses related to securities for which the market price has been below the acquisition cost (or current carrying value if an adjustment has been made in the past) for more than one year or if there has been a significant deterioration in a bond issuer's credit rating, an issuer's default or a similar event. In addition, the Company and its subsidiaries charge against income losses related to securities in certain other situations where, even though the market value has not remained below the carrying value for twelve months, the decline in the market value of a security is based on economic conditions and not just general declines in equity markets and where it is considered unlikely that the market value of the security will recover in the next twelve months. However, if the Company and its subsidiaries have a significant long-term business relationship with the investee, management considers the probability of the market value recovering within the following twelve months. As part of this review, the investee's operating results, net asset value and future performance forecasts as well as general market conditions are taken into consideration. If management believes, based on this review, that the market value of an equity security may realistically be expected to recover, the loss will continue to be classified as temporary. Temporary declines in market value are recorded through other comprehensive income (loss), net of applicable income taxes. If after an additional twelve months the market value is still significantly below the acquisition cost, the loss will be considered other than temporary and the decline in market value charged to income. Held-to-maturity securities are recorded at amortized cost. (h) Securitized assets The Company and its subsidiaries have securitized and sold to investors certain lease receivables, loan receivables and investment in securities. In the securitization process, the assets to be securitized are sold to special-purpose entities that issue asset-backed securities to the investors. When the Company and its subsidiaries sell the assets in a securitization transaction, the carrying value of the assets is allocated to the portion retained and the portion sold, based on relative fair values. The Company and its subsidiaries recognize gains or losses for the difference between the net proceeds received and the allocated carrying value of the assets sold. Any gain or loss from a securitization transaction is recorded as revenue of direct financing leases, interest on loans and investment securities, or brokerage commissions and gains on investment securities. Retained interests include subordinated interests, servicing assets, excess spread assets and cash collateral. Retained interests are initially recorded at allocated carrying value of the assets based on their fair value and are periodically reviewed for impairment. Fair values are estimated based on estimated future cash flows, factoring in expected credit loss, and discounted at a market rate of interest. 22 (i) Derivative financial instruments On April 1, 2001, the Company and its subsidiaries adopted FASB Statement No. 133 ("Accounting for Derivative Instruments and Hedging Activities"), as amended by FASB Statement No. 138, which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts used for hedging activities. All derivatives are required to be recorded on the balance sheet at fair value. If the derivative is designated as a fair value hedge, all changes in the fair value of the derivative and changes in the fair value of the hedged item attributable to the hedged risk are recognized in earnings. If the derivative is designated as a cash flow hedge, the effective portion of the change in the fair value of the derivative is recorded in net unrealized losses on derivative instruments, which is a part of accumulated other comprehensive income (loss) and recognized in the statements of income when the hedged item affects earnings. The ineffective portions of cash flow hedges are immediately recognized in earnings. Derivative transactions that do not qualify as hedge are carried at fair value with changes in value included currently in earnings. Realized and unrealized gains or losses in instruments that hedge net capital exposures are recorded in shareholders' equity as foreign currency translation adjustments, which is a part of accumulated other comprehensive income (loss). Trading instruments used for trading purposes are recorded at fair value, realized and unrealized gains and losses are recognized in brokerage commissions and gains on investment securities. (j) Income taxes The Company, in general, determines its income tax provisions for interim periods by applying the current estimate of the effective tax rate to be applicable for the full fiscal year to the actual year-to-date pre-tax income amount. The estimated effective tax rate is determined by dividing total estimated income tax expense for the full fiscal year by total estimated pre-tax income for the full fiscal year. (k) Stock splits Stock splits implemented prior to October 1, 2001 have been accounted for by transferring an amount equivalent to the par value of the shares from additional paid-in capital to common stock as required by the Japanese Commercial Code (the "Code"). No accounting recognition is made for stock splits when common stock already includes a portion of the proceeds from shares issued at a price in excess of par value. This method of accounting is in conformity with accounting principles generally accepted in Japan. Based on an amendment to the Code, effective on October 1, 2001, the above-mentioned method of accounting based on the regulation has become unnecessary. In the United States, stock splits in comparable circumstances are considered to be stock dividends and are accounted for by transferring from retained earnings amounts equal to the fair market value of the shares issued and by increasing additional paid-in capital by the excess of the market value over par value of the shares issued. Had such stock splits in prior years been accounted for in this manner, additional paid-in capital as of March 31, 2002 would have increased by approximately (Y)24,674 million, with a corresponding decrease in retained earnings. Total shareholders' equity would have remained unchanged. (l) Cash and cash equivalents Cash and cash equivalents include cash on hand, deposits placed with bank and short-term highly liquid investments with original maturities of three months or less. (m) Restricted cash and cash equivalents Restricted cash and cash equivalents consist of cash and securities trusts for the segregation of assets under an investor protection fund and deposits related to servicing agreements. 23 (n) Office facilities Office facilities are stated at cost less accumulated depreciation. Depreciation is calculated on a declining-balance basis or straight-line basis over the estimated useful lives of the assets. Accumulated depreciation is (Y)22,695 million as of September 30, 2002. (o) Other assets Other assets consist primarily of the unamortized excess of purchase prices over the net assets acquired in acquisitions (goodwill), deferred policy acquisition costs which are amortized over the contract periods, other intangible assets and leasehold deposits. As of September 30, 2002, the unamortized intangible assets and goodwill were (Y)22,018 million and (Y)15,846 million, respectively. (p) Impairment of long-lived assets Long-lived assets and certain identifiable intangibles to be held and used by the Company and its subsidiaries are reviewed for impairment, whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. When the sum of undiscounted future cash flows expected to be generated by the assets is less than the carrying amount of the assets, impairment losses are recognized based on the fair value of the assets. (q) Pension plans The Company and certain subsidiaries have trusted contributory and non-contributory funded pension plans covering substantially all of their employees other than directors and corporate auditors. The Company and its subsidiaries adopted FASB Statement No.87 ("Employer's Accounting for Pensions"), and the costs of pension plans are accrued based on amounts determined using actuarial methods. (r) Earnings per share Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding in each period and diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Earnings per share is adjusted for any stock splits and stock dividends retroactively. (s) New accounting pronouncement In June 2001, FASB Statement No. 141 ("Business Combinations") and FASB Statement No. 142 ("Goodwill and Other Intangible Assets") were issued. FASB Statement No. 141 revises the financial accounting and reporting for business combinations and FASB Statement No. 142 revises the financial accounting and reporting for goodwill and other intangible assets. FASB Statement No. 141 requires that all business combinations be accounted for using the purchase method. Accounting for business combinations using the pooling of interests method is no longer allowed. FASB Statement No. 141 also requires that intangible assets acquired in a business combination be recognized apart from goodwill if the intangible assets meet one of two criteria--either the contractual-legal criterion or the separability criterion. The provisions of FASB Statement No. 141 apply to all business combinations initiated after June 30, 2001 or business combinations accounted for by the purchase method for which the date of acquisition is July 1, 2001, or later. On April 1, 2002, as a result of the adoption of FASB Statement No. 141, the Company and its subsidiaries recorded a transition gain, as an effect of a change in accounting principle, due to the write-off of unamortized deferred credits of approximately (Y)1,937 million existing as of March 31, 2002. The deferred credits relate to an excess of net assets acquired over cost arising from business combinations completed and investments accounted for by the equity method acquired before July 1, 2001. FASB Statement No. 142 establishes how intangible assets (other than those acquired in a business combination) should be accounted for upon acquisition. It also addresses how goodwill and other intangible assets should be accounted for subsequent to their acquisition. Both goodwill and intangible assets that have indefinite useful lives will no longer be amortized but will be tested at least annually for impairment. Intangible assets with finite lives will continue 24 to be amortized over their useful lives. The provisions of FASB Statement No. 142 were required to be adopted in their entirety by the Company and its subsidiaries as of April 1, 2002. Impairment losses that arise due to the initial application of FASB Statement No. 142 were required to be reported as a change in accounting principle. FASB Statement No. 142 required the Company and its subsidiaries to complete the transitional goodwill impairment test by September 30, 2002. The Company and its subsidiaries have completed the transitional impairment test for goodwill. No impairment loss was recorded for goodwill upon adoption of FASB Statement No. 142. The Company and its subsidiaries ceased to amortize goodwill, including equity method goodwill, on April 1, 2002. In August 2001, the FASB issued Statement No. 144 ("Accounting for the Impairment or Disposal of Long-Lived Assets"), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. While Statement No. 144 supersedes FASB Statement No. 121 ("Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"), it retains many of the fundamental provisions of that Statement. Statement No. 144 also supersedes the accounting and reporting provisions of APB Opinion No. 30 ("Reporting the Results of Operations--Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions"), for the disposal of a segment of a business. However, it retains the requirement in Opinion No. 30 to report separately discontinued operations and extends that reporting to a component of an entity that either has been disposed of (by sale, abandonment, or in a distribution to owners) or is classified as held for sale. This Statement is effective for fiscal years beginning after December 15, 2001. This adoption did not have a significant effect on the Company and subsidiaries' operations or financial position. In April 2002, the FASB issued Statement No. 145("Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections"), which rescinds certain authoritative pronouncements and amends, clarifies the applicability of others. This Statement is effective for fiscal years beginning after May 15, 2002, but the provisions related to the amendment of Statement No.13 are effective for transactions occurring after May 15, 2002. This adoption does not have a significant effect on the Company and its subsidiaries' operations or financial position. In June 2002, FASB Statement No. 146 ("Accounting for Costs Associated with Exit or Disposal Activities") was issued. FASB Statement No. 146 requires that a liability for costs associated with exit or disposal activities be recognized when the liability is incurred. Existing generally accepted accounting principles provide for the recognition of such costs at the date of management's commitment to an exit plan. In addition, FASB Statement No. 146 requires that the liability be measured at fair value. The provisions of the new standard are effective for exit or disposal activities initiated after December 31, 2002. In October 2002, FASB Statement No. 147 ("Acquisitions of Certain Financial Institutions--an amendment of FASB Statements No. 72 and 144 and FASB Interpretation No. 9)" was issued. FASB Statement No. 72 ("Accounting for Certain Acquisitions of Banking or Thrift Institutions)" and FASB Interpretation No. 9 (Applying APB Opinions No. 16 and 17 When a Savings and Loan Association or a Similar Institution Is Acquired in a Business Combination Accounted for by the Purchase Method), provided interpretive guidance on the application of the purchase method to acquisitions of financial institutions. Except for transactions between two or more mutual enterprises, this Statement removes acquisitions of financial institutions from the scope of both FASB Statement No. 72 and Interpretation No. 9 and requires that those transactions be accounted for in accordance with FASB Statement No. 141 and FASB Statement No. 142. The provisions of the new standard are applied from October 1, 2002. Management does not expect a significant effect from this adoption to the Company and subsidiaries' operations or financial position. 3. Acquisitions In March 2002, the Company acquired approximately 22% interest in The Fuji Fire and Marine Insurance Company Limited for(Y)18,105 million. Also in July 2002, the Company acquired a 90% interest in Nittetsu Lease Co., Ltd. for(Y)4,974 million. 25 The Company has recorded its share of earnings for each entity by the equity method or consolidation, as applicable, from their respective acquisition dates forward. In this regard, the Company has reflected certain preliminary estimates of the valuation of the underlying net assets of each of the entities in the accompanying consolidated financial statements. Any required adjustments to these estimates will be recorded as valuations are finalized, including the determination of positive or negative goodwill, if any. 4. Cash Flow Information Cash payments of interest and income taxes for six months ended September 30, 2002 are as follows: - ------------------------------------------------------------------------------- Millions of yen - ------------------------------------------------------------------------------- Interest 38,396 Income taxes 14,043 - ------------------------------------------------------------------------------- 5. Investment in Direct Financing Leases Investment in direct financing leases at September 30, 2002 consists of the following: - ------------------------------------------------------------------------------- Millions of yen - ------------------------------------------------------------------------------- Minimum lease payments receivable 1,725,899 Estimated residual value 93,367 Initial direct costs 23,260 Unearned lease income (172,903) ------------------ 1,669,623 ================== - ------------------------------------------------------------------------------- At September 30, 2002, the amounts of minimum lease payments receivable (including guaranteed residual values and subordinated interests retained) due within one year and more than one year are as follows: - ------------------------------------------------------------------------------- Millions of yen - ------------------------------------------------------------------------------- Within 1 year More than 1 year Total - ------------------------------------------------------------------------------- 699,040 1,026,859 1,725,899 - ------------------------------------------------------------------------------- Gains and losses from the disposition of direct financing lease assets are not significant for the six months ended September 30, 2002. 6. Investment in Operating Leases Investment in operating leases at September 30, 2002 consists of the following: - ------------------------------------------------------------------------------- Weighted Millions of yen average useful life ------------------------------- Years ------------------------------- - ------------------------------------------------------------------------------- Transportation equipment 12 274,123 Measuring equipment and personal computers 3 145,002 Real estate and other 40 246,314 Accumulated depreciation (220,855) -------------------- Net 444,584 Rental receivables 15,519 -------------------- 460,103 ==================== - ------------------------------------------------------------------------------- 26 For the six months ended September 30, 2002, gains from the disposition of operating lease assets are (Y)3,981 million, and are included in operating lease revenues in the consolidated statements of income. The operating lease contracts include non-cancelable lease terms. The minimum future rentals on non-cancelable operating leases are as follows: - ------------------------------------------------------------------------------- Million of yen - ------------------------------------------------------------------------------- Within 1 year More than 1 year Total - ------------------------------------------------------------------------------- 44,584 75,799 120,383 - ------------------------------------------------------------------------------- 7. Installment Loans The composition of installment loans by domicile and type of borrower at September 30, 2002 is as follows: - ------------------------------------------------------------------------------- Millions of yen - ------------------------------------------------------------------------------- Domestic borrowers: Consumers-- Housing loans 551,861 Card loans 264,529 Other 38,800 ------------------ 855,190 ------------------ Commercial-- Real estate related companies 298,958 Commercial and industrial companies 757,218 ------------------ 1,056,176 ------------------ Foreign commercial, industrial and other borrowers 393,907 Loan origination costs, net 20,916 ------------------ 2,326,189 ================== - ------------------------------------------------------------------------------- In principle, all domestic installment loans, except card loans, are made under agreements which require the borrower to provide collateral or guarantors. Included in interest on loans and investment securities in the consolidated statements of income is interest income on loans of (Y)55,526 million for the Six months ended September 30, 2002. 8. Allowance for Doubtful Receivables on Direct Financing Leases and Possible Loan Losses Changes in the allowance for doubtful receivables on direct financing leases and possible loan losses for the six months ended September 30, 2002 are as follows: - ------------------------------------------------------------------------------- Millions of yen - ------------------------------------------------------------------------------- Beginning balance 152,887 Provisions charged to income 24,967 Charge-offs (43,447) Recoveries 1,033 Other* 1,521 -------------------- Ending balance 136,961 ==================== - ------------------------------------------------------------------------------- 27 *Other includes foreign currency translation adjustments and the effect of acquisitions. The balance of the allowance broken down into direct financing leases and installment loans at September 30, 2002 is as follows: - ------------------------------------------------------------------------------- Millions of yen - ------------------------------------------------------------------------------- Balance of allowance related to: Direct financing leases 46,719 Installment loans 90,242 ----------------- Total 136,961 ================== - -------------------------------------------------------------------------------- Under FASB Statement No. 114 ("Accounting by Creditors for Impairment of a Loan"), impaired loans shall be measured based on the present value of expected future cash flows discounted at the loan's original effective interest rate. As a practical expedient, impairment is measured based on the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. Certain loans, such as large groups of smaller-balance homogeneous loans that are collectively evaluated for impairment (these include individual housing loans and card loans) and lease receivables, are exempt from this measuring of individual loans. When the measure of the impaired loan is less than the recorded investment in the loan, the impairment is recorded through a valuation allowance. The recorded investments in loans considered impaired are (Y)95,689 million as of September 30, 2002. Of these amounts, it was determined that a valuation allowance was required with respect to loans which had outstanding balances of (Y)58,987 million as of September 30, 2002. The Company and its subsidiaries recorded a valuation allowance of (Y)36,353 million as of September 30, 2002. This valuation allowance is included in the allowance for doubtful receivables on direct financing leases and possible loan losses in the accompanying consolidated balance sheets. 9. Investment in Securities Investment in securities at September 30, 2002 consists of the following: - ------------------------------------------------------------------------------- Millions of yen - ------------------------------------------------------------------------------- Trading securities 13,820 Available-for-sale securities 561,822 Held-to-maturity securities 12,815 Other securities 129,043 -------------------- 717,500 ==================== - ------------------------------------------------------------------------------- Other securities consist mainly of non-marketable equity securities, preferred subscription certificates carried at cost and investment funds accounted for under the equity method. The amortized cost basis amounts, gross unrealized holding gains, gross unrealized holding losses and fair values of available-for-sale and held-to-maturity securities in each major security type at September 30, 2002 are as follows: 28 - --------------------------------------------------------------------------------------------------------- Millions of yen ----------------------------------------------------------- Gross Gross Amortized unrealized unrealized cost gains losses Fair value - --------------------------------------------- -------------- -------------- ------------- -------------- Available-for-sale: Japanese and foreign government bond securities 25,254 225 (78) 25,401 Japanese prefectural and foreign municipal bond securities 12,396 226 (881) 11,741 Corporate debt securities 366,903 3,711 (8,271) 362,343 Mortgage-backed and other asset-backed securities 114,903 4,833 (3,159) 116,577 Funds in trust 4,731 -- (593) 4,138 Equity securities 26,894 17,651 (2,923) 41,622 -------------- -------------- ------------- -------------- 551,081 26,646 (15,905) 561,822 ============== ============== ============= ============== Held-to-maturity: Japanese and foreign government bond securities 207 1 -- 208 Asset-backed securities 12,587 -- -- 12,587 Corporate debt securities 21 -- -- 21 -------------- -------------- ------------- -------------- 12,815 1 -- 12,816 ============== ============== ============= ============== - ---------------------------------------------------------------------------------------------------------
Included in interest on loans and investment securities in the consolidated statements of income is interest income on investment securities of (Y)8,515 million for the six months ended September 30, 2002. 10. Selling, General and Administrative Expenses Selling, general and administrative expenses for the six months ended September 30, 2002 are as follows: - ------------------------------------------------------------------------------- Millions of yen - ------------------------------------------------------------------------------- Personnel expenses 32,125 Selling expenses 10,881 Administrative expenses 25,244 Depreciation, amortization and other expenses 1,579 -------------------- Total 69,829 ==================== - ------------------------------------------------------------------------------- 11. Write-downs of Long-Lived Assets For the six months ended September 30, 2002, a subsidiary wrote down golf course to its fair value under the provision of FASB Statement No. 144 and recognized a valuation loss in amount of (Y)14,665 million as "Write-downs of Long-Lived Assets". The loss was included in the real estate segment in on segment information. While the revenues per player have fallen, the operations of the golf course are doing well due to successful efforts to attract more players. In consideration of the overall drop in the current market value of golf memberships, the Company decided that the possibility of offering the memberships at the price previously planned to sell in August 2003 was low. The Company, therefore, considered the probability-weighted gross cash flows including additional scenarios involving both a lower offering price and a different method of offering the memberships, for the first time, were lower than the carrying value of the golf course. Therefore, a write-down was needed. The estimated fair value of the golf course was calculated using a discounted cash flow method. 29 12. Per Share Data A reconciliation of the differences between basic and diluted earnings per share (EPS) in the six months ended of September 30, 2002 is as follows: - ------------------------------------------------------------------------------- Millions of yen - ------------------------------------------------------------------------------- Income before cumulative effect of a change in accounting principal 20,826 Cumulative effect of a change in accounting principal 1,937 ---------------- Net income 22,763 Effect of dilutive securities-- Convertible notes 43 ---------------- Net income for diluted EPS computation 22,806 ================ - ------------------------------------------------------------------------------- Thousands of share - ------------------------------------------------------------------------------- Weighted- average shares 83,653 Effect of dilutive securities-- Warrants 24 Convertible notes 5,273 Treasury stock held for stock options 17 ---------------- Weighted- average shares for diluted EPS computation 88,967 ================ - ------------------------------------------------------------------------------- Yen - ------------------------------------------------------------------------------- Basic EPS-- Income before cumulative effect of a change in accounting principal 248.97 Cumulative effect of a change in accounting principal 23.15 Net income 272.12 Diluted EPS-- Income before cumulative effect of a change in accounting principal 234.58 Cumulative effect of a change in accounting principal 21.76 Net income 256.34 - -------------------------------------------------------------------------------- The computation of diluted income before cumulative effect of a change in accounting principle per share for the six months ended September 30, 2002 uses the same weighted-average shares used for the computation of diluted EPS, and reflects the effects of assumed conversion of convertible bonds in diluted income before cumulative effect of a change in accounting principle. Book value per share at September 30, 2002 is as follows. - ------------------------------------------------------------------------------- Yen - ------------------------------------------------------------------------------- Book value per share 5,973.44 - ------------------------------------------------------------------------------- 13. Derivative Financial Instruments and Hedging The Company and its subsidiaries are party to derivative financial instruments that use in the normal course of business to reduce exposure to fluctuations in interest and foreign currency rates. (a) Cash flow hedges The Company and its subsidiaries designate interest rate swap agreements as cash flow hedges for variability of cash flows originated from floating rate borrowings. 30 (b) Fair value hedges The Company and its subsidiaries use financial instruments designated as fair value hedges to hedge their exposure to interest rate risk and foreign currency exchange risk. The Company and its subsidiaries designate foreign currency swap agreements and foreign exchange forward contracts to minimize foreign currency exposures on operating assets including lease receivables, loan receivables and borrowings. A subsidiary hedges a portion of the interest rate exposure of the fair values of certain asset-backed securities using sales of future contracts on treasury securities. The Company's subsidiaries, which issued medium-term notes, use interest rate swap contracts to hedge interest rate exposure of the fair values of these medium-term notes. In case that medium-term notes were denominated in other than the subsidiaries' local currency, foreign currency swap agreements are used to hedge foreign exchange rate exposure. (c) Hedges of net investment in foreign operations The Company uses foreign exchange forward contracts, foreign currency swap agreements and borrowings denominated in the subsidiaries' local currencies to hedge the foreign currency exposure of net investment in foreign subsidiaries. (d) Trading and other derivatives Certain of the Company's subsidiaries engage in trading activities with various future contracts. For risk management purposes, the Company and certain subsidiaries entered into interest rate swap agreements, caps and collars, which are not qualified for hedge accounting under FASB Statement No. 133. In accordance with FASB Statement No. 133, conversion options were bifurcated from the Company and certain subsidiaries' convertible bonds, and are recorded as stand-alone derivative contracts. At September 30, 2002, the total face amount was (Y)110,733 million and the fair value of conversion option was (Y)695 million. The following table provides the information of derivative instruments as of September 30, 2002. The notional amounts of derivatives do not represent amounts exchanged by the parties and, thus, are not a measure of the exposure to market risk or credit risk. - ------------------------------------------------------------------------------- Millions of yen -------------------------------------------- Estimated Notional amount Carrying amount fair value - -------------------------------------------------------------------------------- Interest rate risk management: Interest rate swap agreements 513,781 (16,272) (16,272) Options, caps, floors and collars held 28,187 (41) (41) Futures 116,801 (949) (949) Foreign exchange risk management: Foreign exchange forward contracts 59,391 (346) (346) Foreign currency swap agreements 361,930 (5,050) (5,050) Trading activities: Futures 78,561 283 283 Interest rate swap agreements 2,000 7 7 Options, caps, floors and collars held 10,543 3 3 Options, caps, floors and collars written 3,600 (2) (2) - ------------------------------------------------------------------------------- 14. Commitments and Contingent Liabilities Commitments, guarantees and contingencies--As of September 30, 2002, the Company and its subsidiaries had commitments for the purchase of equipment to be leased, having a cost of approximately (Y)19,230 million. The minimum future rentals on non-cancelable operating leases are as follows: - ------------------------------------------------------------------------------- Millions of yen - ------------------------------------------------------------------------------- Within 1 year More than 1 year Total - ------------------------------------------------------------------------------- 1,168 3,958 5,126 - ------------------------------------------------------------------------------- 31 The Company and its subsidiaries lease office space under operating lease agreements, which are primarily cancelable, and made rental payments totaling (Y)3,506 million for the six months ended September 30, 2002. The Company and its subsidiaries have commitments to fund estimated construction costs to complete ongoing real estate development projects and other commitments, amounting in total to (Y)18,423 million as of September 30, 2002. As of September 30, 2002, the Company and its subsidiaries were contingently liable as guarantor for borrowings of (Y)51,967 million by customers, principally on consumer loans, and by employees. The Company and its subsidiaries have agreements under which they are committed to execute loans as long as the agreed-upon terms are met. As of September 30, 2002, the total unused credit available amount is (Y)128,758 million. Litigation--The Company and its subsidiaries are involved in legal proceedings and claims in the ordinary course of their business. In the opinion of management, none of such proceedings and claims has a material impact on the Company's financial position or results of operations. Collateral--The short-term and long-term debt payable to financial institutions are secured by the following assets as of September 30, 2002: - ------------------------------------------------------------------------------- Millions of yen - ------------------------------------------------------------------------------- Minimum lease payments, loans and future rentals 102,865 Investment in securities 114,957 Other operating assets and office facilities, net 7,970 ------------------ 225,792 ================== - ------------------------------------------------------------------------------- As of September 30, 2002, securities and other assets of (Y)32,692 million were pledged for collateral security deposits. In addition, the payables of (Y)29,925 million as of September 30, 2002 under lease receivable securitization programs that are not accounted for as sales are included in long-term debt. The minimum lease payments receivable of (Y)29,257 million and cash collateral of (Y)2,593 million are included in investment in direct financing leases and other assets in the consolidated balance sheets as of September 30, 2002. Under agreements with customers on brokerage business, the Company and its subsidiaries received customers' securities with an approximate value of (Y)17,429 million as of September 30, 2002, that may be sold or repledged by the Company and its subsidiaries. As of September 30, 2002, (Y)11,815 million at market value of the securities are repledged as collateral for the short-term debt. Loan agreements relating to short-term and long-term debt from commercial banks and certain insurance companies provide that minimum lease payments and installment loans are subject to pledges as collateral against these debts at any time if requested by the lenders. To date, the Company has not received any such requests from the lenders. 15. Segment Information The following table presents segment financial information on the basis that is regularly used by management for evaluating segment performance and deciding how to allocate resources. The reportable segments are identified on the nature of services for domestic operations and on geographic area for foreign operations. As to the segment of corporate finance, equipment operating leases and real estate related finance in domestic operations, the Company and its subsidiaries aggregate some operating segments that are determined by region and type of operating assets for management purposes because they are similar in the nature of the services, the type of customers and the economic environment. 32 Corporate finance operations are primarily corporate direct financing leases and lending operations other than real estate lending. Equipment operating lease operations comprised operating leases over measuring equipment, information-related equipment and automobiles. Real estate related finance operations include corporate financing activities as well as personal housing loan lending operations. Real estate operations primarily comprise residential subdivision developments as well as the rental and management of office building, hotels and training facilities. Life insurance operations include direct and agency life insurance sales and related activities. The three foreign operating segments, the Americas, Asia and Oceania, and Europe, include direct financing operations. Other operations, which are not deemed by management to be sufficiently material to disclose as separate items and do not fall into the above segment categories, are reported under domestic operation, other. They primarily include securities transactions, venture capital operations and card loans. Financial information as of and for the segments for the six months ended September 30, 2002 is as follows: - ------------------------------------------------------------------------------------------------------------------- Millions of yen ---------------------------------------------------------------------------------------------------- Domestic operations Foreign operations ----------------------------------------------------------- ---------------------------- Equipment Real estate Corporate operating related Life The Asia and finance leases finance Real estate insurance Other Americas Oceania Europe Total - ------------------------------------------------------------------------------------------------------------------- Revenues 64,544 32,967 25,703 45,314 71,832 27,159 27,275 27,579 5,833 328,206 Segment profit (loss) 24,500 2,979 9,910 (8,807) 2,976 6,926 (1,027) 4,314 (610) 41,161 Segment assets 1,981,237 142,964 908,115 289,919 570,983 372,273 713,300 431,966 86,024 5,496,781 - -------------------------------------------------------------------------------------------------------------------
Accounting policies of the segments are almost the same as those described in Note 2 ("Significant Accounting and Reporting Policies") except for the treatment of income tax expenses. Since the Company and its subsidiaries evaluate performance for the segments based on profit or loss before income taxes, tax expenses are not included in segment profit or loss. Equity in net income of affiliates and minority interest income, which are recognized as net of tax on a consolidated basis, are adjusted to profit or loss before income tax. Gains and losses that management does not consider for evaluating the performance of the segments, such as write-downs of certain securities and certain foreign exchange gains or losses, are excluded from the segment profit or loss. Assets attributed to each segment are consolidated operating assets (investment in direct finance leases, installment loans, investment in operating leases, investment in securities and other operating assets), advances and investment in affiliates (not including loans). This has resulted in depreciation of office facilities being included in each segment's profit or loss while the carrying amounts of corresponding assets are not allocated to each segment's assets. However, the effect stemmed from the allocation is immaterial. 33 The reconciliation of segment totals to consolidated financial statement amounts for the six months ended September 30, 2002 is as follows: - ------------------------------------------------------------------------------- Millions of yen - ------------------------------------------------------------------------------- Revenues: Total revenues for segments 328,206 Revenue related to corporate assets 6,522 ------------------ Total consolidated revenues 334,728 ================== Segment profit: Total profit for segments 41,161 Unallocated interest expenses, general and administrative expenses (2,673) Adjustment of income tax expenses to equity in net income and minority income (450) Unallocated write-downs of securities (837) Unallocated other gain or loss 795 ------------------ Total consolidated income before income taxes 37,996 ================== Segment assets: Total assets for segments 5,496,781 Advances (175,917) Investment in affiliates (not including loans) (88,506) Corporate assets 70,368 ------------------ Total consolidated operating assets 5,302,726 ================== - ------------------------------------------------------------------------------- FASB Statement No.131 ("Disclosure about Segment of an Enterprise and Related Information") requires disclosure of information about geographic areas as enterprise-wide information. Since each segment is identified based on the nature of services for domestic operations and on geographic area for foreign operations, the information required as an enterprise-wide one is incorporated into the table. Japan and the United States of America are the countries whose revenues from external customers are material. Almost all the revenues of the Americas segment are derived from the United States of America. The basis for attributing revenues from external customers to individual countries is principally the location of the foreign subsidiaries and foreign affiliates. For the six months ended September 30, 2002, revenues from foreign customers are as follows. - -------------------------------------------------------------------------------- Millions of yen -------------------------------------- The Asia and Americas Oceania Europe Total - ------------------------------------------------------------------------------- Revenues from foreign customers 27,918 28,276 6,421 62,615 ------------------------------------- Total consolidated revenues 334,728 -------------------------------------- Ratio of revenues from foreign customers to total consolidated revenues 8.3% 8.4% 1.9% 18.7% ====================================== - ------------------------------------------------------------------------------- 34 The following is segment information for the six months ended September 30, 2001 to as reference: - ------------------------------------------------------------------------------------------------------------------- Millions of yen ---------------------------------------------------------------------------------------------------- Domestic operations Foreign operations ----------------------------------------------------------- ------------------------------------- Equipment Real estate Corporate operating related Real Life The Asia and finance leases finance estate insurance Other Americas Oceania Europe Total - ------------------------------------------------------------------------------------------------------------------- Revenues 54,317 34,123 12,853 42,399 87,304 22,521 37,638 30,350 8,569 330,074 Segment profit (loss) 23,844 5,359 403 3,433 4,236 2,505 (90) 3,498 1,521 44,709 Segment assets 2,158,006 136,713 647,889 333,394 583,579 322,082 777,428 400,978 136,441 5,496,510 - -------------------------------------------------------------------------------------------------------------------
16. Subsequent Events (a) Stock Acquisition Rights On November 5, 2002, the Company issued stock acquisition rights for 453,300 shares to directors, corporate auditors and some employees of the Company, subsidiaries and affiliated companies under a stock option plan. The exercise price of the stock acquisition rights is (Y)7,452 and the exercisable period is over eight years, from June 27, 2004 to June 26, 2012. (b) Investment in Korea Life Insurance Co., Ltd. The Company entered into a consortium with Hanwha Group (a middle-sized conglomerate in the Republic of Korea), and Macqarie Life Limited (a life insurance company in Australia). The consortium entered into a stock purchase agreement ("purchase agreement") with Korea Deposit Insurance Corporation on October 28, 2002, and acquired 51% of the outstanding shares of Korea Life Insurance Co., Ltd. ("KLI"). Pursuant to the purchase agreement, the Company acquired 17% of the outstanding shares for 275,550 million won and made the payment for half of the purchase price in the amount of 137,275 million won on December 12, 2002. With respect to the other half of the payment, the Company is required to make it in two years from the date of the Purchase Agreement. The stock Purchase Agreement also provides that the Company has the right to transfer 50% of the purchased shares and the payment obligation to Hanwha Group. The Company plans to sell two thirds of the purchased shares to third party investors. Since the Company, through the Consortium Agreement and the Shareholders Agreement, has the ability to influence the operations and the financial policies of KLI, the Company will account for this investment by the equity method. 35 SECTION II Financial Information (Japanese GAAP) (1) Consolidated Balance Sheets (Japanese GAAP) (Unaudited) - -------------------------------------------------------------------------------- September 30, 2001 March 31, 2002 ------------------------------------------- Assets Millions of yen % Millions of yen % ------------------------------------------- Current Assets: Cash and bank deposits 178,244 339,911 Installment sales receivables 337,254 291,595 Installment loans 2,318,833 2,618,032 Securities 100,349 102,583 Others 326,268 338,087 Allowance for doubtful receivables and possible loan losses (104,267) (107,970) -------- -------- Total Current Assets 3,156,682 51.1 3,582,238 54.3 --------- --------- Fixed Assets: Tangible Assets: Leasing equipment 1,594,456 1,543,899 Advances for leasing equipment 20,939 24,826 ------ ------ Subtotal 1,615,395 1,568,726 --------- --------- Other tangible assets 133,416 239,823 ------- ------- Total tangible assets 1,748,811 28.3 1,808,550 27.4 --------- --------- 14,960 0.2 16,313 0.3 Intangible Assets Investment and Other Assets: Investment in securities 944,193 836,279 Others 330,980 368,179 Allowance for doubtful receivables and possible loan losses (15,640) (18,001) ------- ------- Subtotal 1,259,532 20.4 1,186,458 18.0 --------- --------- Total Fixed Assets 3,023,304 48.9 3,011,322 45.7 --------- --------- Deferred Assets 339 0.0 120 0.0 --- --- Total 6,180,327 100.0 6,593,681 100.0 ========= ========= - ---------------------------------------------------------- ------------------ 1 (1) Consolidated Balance Sheets (Japanese GAAP) (Unaudited) (continued) - ------------------------------------------------------------------------------- September 30, 2001 March 31, 2002 ------------------------------------------- Liabilities Millions of yen % Millions of yen % ------------------------------------------- Current Liabilities: Trade notes and accounts payable 140,432 133,184 Short-term debt 657,613 631,332 Current portion of Long-term debt 285,072 311,974 Commercial paper 935,850 1,013,229 Current portion of Bonds 398,026 334,752 Others 602,219 619,415 ------- ------- Total current liabilities 3,019,214 48.9 3,043,888 46.1 --------- --------- Non-current Liabilities: Bonds 807,027 851,516 Long-term debt 1,073,442 1,283,499 Liabilities for retirement benefits 12,117 12,289 Policy liabilities 601,860 606,311 Others 399,409 475,707 ------- ------- Total non-current liabilities 2,893,857 46.8 3,229,324 49.0 --------- --------- Total Liabilities 5,913,071 95.7 6,273,213 95.1 --------- --------- Minority Interest 5,178 0.1 5,262 0.1 Shareholders' Equity: Common stock 41,980 0.7 51,854 0.8 Additional paid-in capital 58,536 0.9 68,669 1.0 Retained earnings 174,859 2.8 199,684 3.0 Net unrealized gains on investment in securities 23,064 0.4 16,309 0.3 Cumulative translation adjustments (28,089) (0.5) (13,188) (0.2) ------- ------- Subtotal 270,351 4.3 323,329 4.9 Treasury stock, at cost (8,274) (0.1) (8,123) (0.1) ------ ------ Total shareholders' equity 262,076 4.2 315,205 4.8 ------- ------- Total 6,180,327 100.0 6,593,681 100.0 ========= ========= 2 Consolidated Statements of Income (Japanese GAAP) (Unaudited) - ------------------------------------------------------------------------------- Six months ended The fiscal year ended September 30, 2001 March 31, 2002 ------------------------------------------- Liabilities Millions of yen % Millions of yen % ------------------------------------------- Revenues 685,576 100.0 1,445,925 100.0 Expenses 546,145 79.7 1,144,960 79.2 ------- --------- Gross profit 139,431 20.3 300,964 20.8 Selling, general and administrative expenses 105,450 15.4 224,879 15.6 ------- ------- Operating Income 33,981 4.9 76,084 5.2 ------- ------- Non-operating income: Interest income 3,403 6,639 Dividend income 636 1,558 Foreign exchange gains - 994 Other income 1,668 4,592 ------- ------- Subtotal 5,708 0.8 13,785 1.0 ------- ------- Non-operating expenses: Interest expenses 2,280 4,583 Foreign exchange losses 657 - Equity in net losses 160 134 Other expenses 3,489 9,661 ------- ------- Subtotal 6,587 0.9 14,379 1.0 ------ ------ Ordinary income 33,102 4.8 75,491 5.2 ------- ------- Extraordinary income: Gains on sales of subsidiaries 3,163 3,363 Gains on sales of investment in securities 855 3,414 Others 85 411 ------- ------- Subtotal 4,105 0.6 7,188 0.5 ------- ------- Extraordinary losses: Write-downs on securities 2,154 5,301 Losses on sales of investment in securities 315 2,645 Others 205 562 ------- ------- Subtotal 2,675 0.4 8,509 0.6 ------- ------- Income before income taxes and minority interest 34,532 5.0 74,170 5.1 ------- ------- Provision for income taxes 15,627 2.3 31,321 2.2 Minority interest 172 0.0 274 0.0 ------- ------- Net Income 18,732 2.7 42,574 2.9 ======= ======= 3 (3) Consolidated Statements of Retained Earnings (Japanese GAAP) (Unaudited) - ------------------------------------------------------------------------------- Millions of yen --------------- Six months ended September 30, 2001 ------------------ Balance at March 31,2001 160,000 Decrease in retained earnings: Cash dividends 1,225 Bonuses to directors 46 (included bonus paid to corporate auditors of (Y)3 million) ------------------ Decrease in retained earnings based on U.S. GAAP 2,602 ------------------ Subtotal 3,874 ------------------ Net Income 18,732 ------------------ Balance at September 30,2001 174,859 ================== ------------------ Millions of yen ------------------ The fiscal year ended March 31, 2002 ------------------ Balance at March 31,2001 160,000 Decrease in retained earnings: Cash dividends 1,225 Bonuses to directors 46 (included bonus paid to corporate auditors of (Y)3 million) ------------------ Decrease in retained earnings based on U.S. GAAP 1,618 ------------------ Subtotal 2,891 ------------------ Net Income 42,574 ------------------ Balance at March 31,2002 199,684 ================== - ------------------------------------------------------------------------------- (Note) "Decrease in retained earnings based on U.S. GAAP" in the six months ended September 30, 2001 and the fiscal year ended March 31, 2002 were related to FASB Statement No. 133 which subsidiaries in the United States of America had applied. Under the statements, the unrealized gain (loss) of the derivative instruments which meet to cash flow hedge requirements were recorded as a change in retained earnings. 4 (4) Consolidated Statements of Cash Flows (Japanese GAAP) (Unaudited) - --------------------------------------------------------------------------------------------------------- Millions of yen ---------------------------------------- Six months The fiscal year ended ended March 31, September 30, 2001 2002 - --------------------------------------------------------------------------------------------------------- Cash Flows from Operating Activities: Income before income taxes and minority interest 34,532 74,170 Depreciation and amortization 246,020 522,082 Acquisition and disposal of leasing equipments (204,152) (415,194) Decrease in installment sales (net of unrealized gross profit) 22,918 67,370 Increase in installment loans (95,718) (303,280) (Increase) decrease in securities (59,593) 71,304 Gains on sales of securities, net (539) (770) Write-downs of securities 2,154 5,301 Equity in net losses and dividends received from affiliates 415 612 Gains on sales of subsidiaries (3,163) (3,363) Decrease in allowance for doubtful receivables and possible loan losses (2,305) (788) Increase in policy liabilities 35,246 39,697 Increase in deposits due to customers 29,496 46,929 Interest and dividend income (4,039) (8,197) Interest expenses 48,849 94,826 Other, net 31,069 3,405 ---------------------------------------- Subtotal 81,190 194,104 Interest and dividend received 3,915 8,710 Interest paid (50,164) (98,242) Income taxes paid (7,368) (13,282) ---------------------------------------- Net cash provided by operating activities 27,573 91,290 ---------------------------------------- Cash Flows from Investing Activities: Proceeds from sale or redemption of securities 2,104 2,901 Purchase of investment in securities (10,564) (67,570) Proceeds from sale or redemption of investment in securities 16,879 41,124 Purchase of other tangible assets (2,432) (83,397) Acquisition of subsidiaries, net of cash acquired 9,889 3,846 Other, net 333 706 ---------------------------------------- Net cash provided (used) by investing activities 16,209 (102,390) ---------------------------------------- 5 (4) Consolidated Statements of Cash Flows (Japanese GAAP) (Unaudited) (continued) - --------------------------------------------------------------------------------------------------------- Millions of yen ---------------------------------------- Six months The fiscal year ended ended March 31, September 30, 2001 2002 - --------------------------------------------------------------------------------------------------------- Cash Flows from Financing Activities: Repayment of short-term debt, net (87,935) (183,220) Increase in commercial paper, net 21,007 101,028 Proceeds from long-term debt 217,095 590,785 Repayment of long-term debt (140,854) (307,489) Proceeds from issuance of bonds 233,585 406,749 Redemption of bonds (173,440) (411,171) Proceeds from secured borrowings 20,633 206,620 Repayment of payables under secured borrowings (86,544) (212,777) Dividend paid (1,225) (1,225) Issuance of common stock 318 19,314 Other, net 11 165 ---------------------------------------- Net cash provided by financing activities 2,651 208,779 ---------------------------------------- Effect of Exchange Rate Changes on Cash and Cash Equivalents (600) 1,658 ---------------------------------------- Net Increase in Cash and Cash Equivalents 45,833 199,337 Cash and Cash Equivalents at Beginning of Period 155,411 155,411 ---------------------------------------- Cash and Cash Equivalents at End of Period 201,244 354,748 ======================================== - ---------------------------------------------------------------------------------------------------------
6 2. Notes to Consolidated Financial Statement for the Six Months Ended September 30, 2001 and Fiscal Year Ended March 31, 2002 under Japanese GAAP Basis of Presentation and Significant Accounting Policies for Consolidated Financial Statement for the Six Months Ended September 30, 2001 1. Scope of consolidation The accompanying consolidated financial statement include 175 subsidiaries, which consist of 87 domestic and 88 foreign subsidiaries. During the six months ended September 30, 2001, 7 companies were established, 24 companies were acquired, 1 company was liquidated and 3 companies were excluded by sale. Major companies are ORIX Auto Leasing Corporation and ORIX USA Corporation. 2. Affiliates accounted for by the equity method 58 affiliates (41 domestic and 17 foreign) are accounted for by the equity method with major companies including Casco Co., Ltd. and Stockton Holdings Limited. During the six months ended September 30, 2001, 1 company was established, 3 companies were added by new investment, and 1 company was deducted by liquidation. 3. The date of subsidiaries' interim closing ORIX Leasing Pakistan Limited (interim closing date is December 31), ORIX Polska S.A. (interim closing date is June 30) and another 23 subsidiaries have different interim closing dates from the Company. These 25 subsidiaries close their books with necessary adjustments for consolidation purpose at interim closing date. 4. Accounting principles in foreign subsidiaries and affiliates Financial statement of foreign subsidiaries and affiliates have been prepared in conformity with their local commercial code and local generally accepted accounting principles. Significant differences between Japanese GAAP and those local GAAP include accounting for leases based on U.S. GAAP and International Accounting Standards. 5. Accounting Policies (1) Valuation basis and method for principal assets Investment in securities: Securities held for sale Fair value (The cost of sales is primarily calculated based on a moving average cost method.) Securities held to maturity Amortized cost method Other securities: Marketable securities- Fair value based on the market price at the end of the interim period (any balance resulting from evaluation of securities is directly entered into the capital account, while any cost of sales of marketable securities is calculated based on a moving average cost method) Non-Marketable securities- 7 The cost method on the basis of the moving average cost method for stocks and the amortized cost method for debt securities Derivative instruments Fair value Funds in trust Fair value (2) Method of depreciation of fixed assets Tangible assets: Leasing equipment: Financing lease equipment- Lease equipment is depreciated mainly over the lease contract period using straight-line method, without the estimated residual value at the end of the contract period. In addition, for the contracts for, which the future lease payments due to lessee's default are expected not to be collected, additional depreciation is recorded to cover the future losses from sales of the leased equipment. For the six months ended September 30, 2001, additional depreciation expenses were recorded in the amount of (Y)1,208 million and the accumulated depreciation was (Y)14,061 million as of September 30, 2001. Operating lease equipment- Operating lease equipment is depreciated mainly on the constant percentage method. However, aircraft are depreciated over their estimated useful lives on the straight-line method. In addition, the depreciation of buildings (other than facilities attached to the building) acquired from April 1, 1998 is computed using the straight-line method. The major estimated useful life is between 2 and 50 years for buildings and equipment. Other tangible assets: Other tangible assets are depreciated mainly using the constant percentage method. The depreciation of buildings (other than facilities attaching to the building) acquired from April 1, 1998 and the tangible assets owned by foreign subsidiaries is computed using the straight-line method. The major estimated useful life is between 3 and 50 years for buildings and equipment. Intangible assets: Intangible assets are depreciated using the straight-line method. In addition, for internal use software, amortization is computed using the straight-line method on an estimated useful life of 5 years. (3) Accounting for allowance and liabilities for retirement benefits (a) Allowance for doubtful receivables and possible loan losses The Company classifies the customers into normal, special mention, substantially bankrupt and bankrupt. General reserve for receivables from normal and special mention customers are computed based on the historical loss ratio. For effectively bankrupt and bankrupt obligors, specific reserve is calculated based on estimated 8 provable losses for every obligor. (b) Liabilities for retirement benefits Liabilities for retirement benefits to be paid to employees is accounted as an expense incurred for the six months ended September 30, 2001 based on the calculation of the estimated amount of the projected benefit obligation and the plan assets at March 31, 2002. Unrecognized prior service cost is amortized within the average remaining service period of 13 years on a straight-line method. Unrecognized actuarial net gain or loss will be amortized from the next fiscal year within the average remaining service period of 5 to 21 years using a straight-line method. (c) Allowance for directors' retirement benefits A required amount of directors' retirement benefits determined in accordance with the internal policy as of the balance sheet date is accounted in liabilities for retirement benefits. (4) Translation of assets and liabilities denominated in foreign currencies into Japanese yen Monetary assets and liabilities denominated in foreign currencies are translated into Japanese yen using the exchange rates at the balance sheet date and exchange gain or loss is charged to income. Assets, liabilities, income and expenses of subsidiaries in foreign countries are translated into Japanese yen using the exchange rates at the balance sheet date and its translation adjustments are included in "cumulative translation adjustments" in shareholders' equity. (5) Accounting for leases Financing leases other than those where the ownership of the leased property is deemed to be transferred to the lessee are accounted for in the same manner as operating leases. (6) Method for significant hedge accounting Method for hedge accounting The Company and its subsidiaries adopt principally deferral hedging accounting treatment. Certain derivative transactions are generally used to control the risks of change in the cash flows occurred from financial liabilities, which is due to the mismatch of interest structure between leases revenue based on long-term fixed rates and funding costs based on short-term variable interest rates. Deferral hedging accounting treatment for "portfolio hedge for liabilities" is applied for these derivative transactions, which is provided by "Transitional treatment in accounting and auditing regarding to applying accounting standard of financial instrument for lease industry" (The Japanese Institute of Certified Public Accountants - Audit committee report Statement 19, November 14, 2000). The transaction thereof is as follows: - ---------------------------------------------------------------------------- Millions of yen --------------------------- ----------------- Contract Type amounts Fair value Unrealized loss - ----------------------------- ----------- ---------------- ----------------- Interest rate swap agreements receive-variable, pay-fixed 61,450 (6,690) (6,690) - ---------------------------------------------------------------------------- Hedge instruments and hedged items: Hedge instruments- Borrowings denominated in foreign currencies, currency rate swaps, interest rate swaps and caps Hedged items- Equity investments in foreign subsidiaries and foreign affiliated companies, borrowings and corporate bonds 9 Hedging policies The hedging policies are based on the internal regulation of risk management in markets and the risks of change in interest rates are properly controlled through assets and liabilities management. The risk of changes in foreign currency exchange rates are controlled not through hedging but through management of currency position of assets and liabilities. Method of assessing hedge effectiveness Effectiveness of each derivative transaction and groups of derivative transaction based on the hedging categories is assessed regularly by comparing cumulative changes in cash flows and changes in market prices for both hedging instruments and hedged items. (7) Accounting for consumption tax Consumption tax is excluded from the stated amount of revenues and expenses. In addition, consumption tax payables are included in "Others" of current liabilities in the consolidated balance sheet as of September 30, 2001. 6. Cash and cash equivalents in the consolidated statement of cash flows Cash and cash equivalents in the consolidated statement of cash flows include cash on hand, deposits which can be drawn on demand and short-term highly liquid investments with original maturities of three months or less with insignificant risk of changes in the value of principal. 7. Others Securities held for operation Certain securities with fixed income are included in "Securities" in current assets and "Investment in securities" in fixed assets in the amount of (Y)73,037 million and (Y)764,721 million, respectively in the consolidated balance sheet. The gains and losses related to the securities are included in "Revenues" and "Expenses" in the consolidated statement of income. Changes in Presentation of Consolidated Financial Statement Consolidated statement of cash flows In cash flows from financing activities, "Purchase of treasury stock" is included in "Other, net" since the amount is not significant for the six months ended September 30, 2001. Notes to Consolidated Balance Sheet as of September 30, 2001 1. Promissory notes for future payments under lease and installment sales contracts deposited from the customers of (Y)115,612 million were held by the Company and its subsidiaries. 2. Accumulated depreciation of tangible fixed assets is as follows: - ------------------------------------------------------------------------------- Millions of yen - ------------------------------------------------------------------------------- Accumulated depreciation of leasing equipment 2,170,912 Accumulated depreciation of other tangible fixed asset 32,098 - ------------------------------------------------------------------------------- 10 3. (1) Installment loans and other types of assets of (Y)161,506 million were pledged for short-term debt, current maturities of long-term debt and long-term debt. In addition, the lease receivables related to leasing equipment of (Y)9,888 million were pledged as collateral. (2) Securities and other assets of (Y)20,741 million were pledged for guarantees on certain operating transactions. 4. Contingent Liabilities The Company and its subsidiaries were contingently liable as guarantor for borrowing by customer, principally on consumer loans, and by employees as follows: ------------------------------------------------------------------------------- Millions of yen - ------------------------------------------------------------------------------- Employees (principally for mortgage loan) 1,177 Others (11,437 contracts) 38,374 ------------------- Total 39,551 =================== - ------------------------------------------------------------------------------- 5. Financial institutions were closed at September 30, 2001, therefore, the following receivables and payables due on September 30, 2001 were not processed by them. They are included in the consolidated balance sheet at September 30, 2001 as follows: - ------------------------------------------------------------------------------- Millions of yen - ------------------------------------------------------------------------------- Accounts receivable for installment sales 2,462 Installment loans 7,711 Notes receivable (included in "Others" of current assets) 635 Accounts receivable for rents (included in "Others" of current assets) 22,667 Notes payable (included in "Trade notes and accounts payable") 4,634 - ------------------------------------------------------------------------------- 6. The total unused commitment amount related to loan operations, such as card loans, was (Y)101,555 million. Some contracts require credit reviews of the borrowers upon the subsequent use of the commitment. Therefore it is not certain that all of the unused commitment amount will be lent to the borrowers. 7. As part of margin transaction on brokerage business, a subsidiary received customers' securities with a fair value of (Y)17,110 million as of September 30, 2001, that may be sold or repledged by the subsidiary. As of September 30, 2001, of which (Y)6,901 million were repledged as collateral. Note to Consolidated Statement of Income for the Six Months Ended September 30, 2001 1. Selling, general and administrative expenses for the six months ended September 30, 2001 are as follows: 11 - ------------------------------------------------------------------------------- Millions of yen - ------------------------------------------------------------------------------- Selling expenses 12,199 Administrative expenses 21,667 Personnel expenses 40,215 Provision for doubtful receivables and possible loan losses 27,038 Depreciation of other tangible fixed assets 4,329 --------------- Total 105,450 =============== - ------------------------------------------------------------------------------- Note to Consolidated Statement of Cash Flows for the Six Months Ended September 30, 2001 Cash and cash equivalents recorded in the consolidated statement of cash flows and balance sheet as of September 30, 2001 are reconciled as follows: - ------------------------------------------------------------------------------- Millions of yen - ------------------------------------------------------------------------------- Cash and bank deposits in the consolidated balance sheet 178,244 Time deposits with original maturities of more than three months (8,727) Restricted cash and cash equivalents (*) (22,694) Short-term highly liquid investment in securities 54,421 ---------- Cash and cash equivalents in the consolidated statement of cash flows 201,244 ========== - ------------------------------------------------------------------------------- (*) Representing cash in customer asset reserve accounts in securities business. Lease Transactions Finance Leases Other Than Those Where the Ownership of the Leased Property is Deemed to be Transferred to the Lessee: 1. Lessee side (1) Estimated acquisition cost, estimated accumulated depreciation and estimated ending balance of leased assets are as follows: - ---------------------------------------------------------------------------- Equipment Millions of yen - ---------------------------------------------------------------------------- Estimated acquisition cost 944 Less: estimated accumulated depreciation 478 ------------------- Estimated ending balance 466 =================== - ---------------------------------------------------------------------------- Estimated acquisition cost is calculated with interest payables included since the aggregate future minimum lease payment is not significant to tangible assets as of September 30, 2001. (2) Estimated obligations under financing leases are as follows: - ------------------------------------------------------------------------------- Millions of yen - ---------------------------- ---------------------------- --------------------- Due within one year Due after one year Total - ---------------------------- ---------------------------- --------------------- 2,359 5,004 7,364 - ------------------------------------------------------------------------------- Estimated obligations under finance leases are calculated with interest payables included since the aggregate future minimum lease payment is not significant to tangible assets as of September 30, 2001 12 (3) Lease payments and estimated depreciation expense are as follows: - ------------------------------------------------------------------------------- Millions of yen - ------------------------------------------------------------------------------- Lease payments 16 Estimated depreciation expense 16 - ------------------------------------------------------------------------------- (4) Calculation of estimated depreciation expenses The estimated depreciation expenses are computed by the straight-line method with the lease term as useful life and residual value of zero. 2. Lessor side (1) Acquisition cost, accumulated depreciation and book values of leased assets as of September 30, 2001 are as follows: - ------------------------------------------------------------------------------- Millions of yen ------------------------------------------------------------- Information- Industrial and related and construction Automobile office equipment equipment and other Total ------------------------------------------------------------- Acquisition cost 1,439,413 439,690 1,256,932 3,136,035 Less: accumulated depreciation 916,487 344,586 725,223 1,986,297 -------------- ---------------- ----------------- ----------- Book value 522,925 95,103 531,708 1,149,737 ============== ================ ================= =========== - ------------------------------------------------------------------------------- (2) Future minimum lease receivables are as follows: - ------------------------------------------------------------------------------- Millions of yen - ------------------------------------------------------------------------------- Due within one year Due after one year Total - ----------------------------- --------------------------- --------------------- 463,164 828,320 1,291,485 - ------------------------------------------------------------------------------- The amount included the estimated receivables of (Y)6,789 million (receivables due within one year were (Y)2,104 million) which have been subleased and represent the obligations to the sublessor. (3) Collection of lease receivables, depreciation expense and estimated interest income are as follows: - ------------------------------------------------------------------------------- Millions of yen - ------------------------------------------------------------------------------- Collection of lease receivables 281,100 Depreciation expense 213,358 Estimated interest income 37,207 - ------------------------------------------------------------------------------- (4) Calculation of estimated interest income The estimated interest income is allocated to each period using the interest method. Operating leases: 1. Lessee side 13 Obligations under operating leases are as follows: - ------------------------------------------------------------------------------- Millions of yen - ------------------------------------------------------------------------------- Due within one year Due after one year Total - ---------------------------- -------------------------- ----------------------- 525 2,821 3,347 - ------------------------------------------------------------------------------- 2. Lessor side Receivables under operating leases are as follows: - ------------------------------------------------------------------------------- Millions of yen - ------------------------------------------------------------------------------- Due within one year Due after one year Total - ------------------------------- ---------------------------- ------------------ 41,161 72,393 113,555 - ------------------------------------------------------------------------------- Securities 1. Marketable securities held to maturity - ------------------------------------------------------------------------------- Millions of yen ------------------------------------------ Carrying amount Fair value Differences ------------- ------------- -------------- Government bonds and municipal bonds 126 132 5 Corporate debt securities 15,185 15,185 - Others - - - ------------- ------------- -------------- Total 15,311 15,317 5 ============= ============= ============== - ------------------------------------------------------------------------------- 2. Other marketable securities - ------------------------------------------------------------------------------- Millions of yen --------------------------------------- Carrying Fair value Differences amount -------------- ------------- ----------- Equity securities 38,240 64,872 26,631 Bonds: Government bonds and municipal bonds 61,778 63,571 1,792 Corporate debt securities 617,819 625,074 7,254 Others 105,143 107,991 2,847 Other securities 505 379 (125) -------------- ------------- ---------- Total 823,487 861,888 38,400 ============== ============= ========== - ------------------------------------------------------------------------------- 14 3. Non-marketable securities Other securities: - ------------------------------------------------------------------------------- Millions of yen - ------------------------------------------------------------------------------- Unlisted stocks (excluding over-the-counter stocks) 63,943 Unlisted foreign securities 5,766 Beneficiary certificates of bond investment trusts (MMF) 54,421 Preferred subscription certificates 1,569 - ------------------------------------------------------------------------------- Derivative Transactions Status of contract amounts, fair value and unrealized gain or loss - ------------------------------------------------------------------------------- Millions of yen --------------------------------------- Types of Unrealized hedged Contract gain or items Types of transaction amounts Fair value (loss) ----- -------------------- ------- ---------- ------ Currency Futures 3,568 3,556 15 Foreign exchange forward contracts 78,099 78,172 152 Swap agreements 447,597 (391) (391) Interest rate Futures 90,012 89,988 79 Swap agreements 503,483 (12,808) (12,808) Caps 83,310 0 0 Collars 3,784 (81) (81) Bonds Futures 99,607 102,264 (2,596) ------------- -------------- --------- Total - - (15,630) ============= ============== ========= - ------------------------------------------------------------------------------- Notes: 1. Calculation method of fair values For derivative transactions through the market, the fair values are calculated based on closing prices in the market thereof. For other than the above derivative transactions, the fair values are calculated based on the present values of future cash flows using proper market interest rates. 2. Supplementary explanations for hedge effectiveness Derivative transactions are used mainly to hedge risk of changes in interest rates inherent to operating and funding activities and foreign currency exchange rates related to assets and liabilities denominated in foreign currencies. Therefore, derivative transactions thereof are made in order to hedge risks of change in market quotations of interest rate or foreign currency exchange rate related to assets and liabilities hedged or risk of change in cash flow. The hedge effectiveness is assessed regularly. 3. In addition to the derivative transaction listed above, the Company and its subsidiaries entered into the derivative transactions, of which underlying is stocks or commodities. Those derivatives are immaterial as to unrealized gains or losses and the contract amounts. Segment Information 1. Information about products and services 15 - ------------------------------------------------------------------------------- Millions of yen ----------------------------------------------------------------- Lease/ Consol- installment Life Eliminations idated sales Loan insurance Other Subtotal and corporate amounts ----- ---- --------- ----- -------- ------------- ------- Net revenue Customers 438,428 69,854 92,774 84,519 685,576 - 685,576 Intersegment - - - 10,500 10,500 (10,500) - ---------------------------------------------------------------- Total 438,428 69,854 92,774 95,019 696,076 (10,500) 685,576 Operating expenses 410,720 70,441 90,956 87,366 659,484 (7,889) 651,595 ---------------------------------------------------------------- Operating income (loss) 27,707 (586) 1,817 7,653 36,591 (2,610) 33,981 ================================================================ - ------------------------------------------------------------------------------- Notes: 1. The above classification was determined based on the type of business. 2. Unallocated operating expenses in eliminations and corporate was (Y)2,610 million, which mainly consist of administrative expenses of the head office. 2. Information about geographic areas - ------------------------------------------------------------------------------------------------------------ Millions of yen ----------------------------------------------------------------------------------------- Eliminations Consolidated Japan America Oceania Europe Subtotal and corporate amounts ----- ------- ------- ------ -------- ------------- ------------ Net revenue Customers 608,524 34,949 33,646 8,455 685,576 - 685,576 Intersegment - - - - - (-) - ---------------------------------------------------------------------------------------- Total 608,524 34,949 33,646 8,455 685,576 (-) 685,576 Operating expenses 578,577 37,249 28,286 7,481 651,595 (-) 651,595 ---------------------------------------------------------------------------------------- Operating 29,947 (2,299) 5,359 974 33,981 (-) 33,981 income (loss) ======================================================================================== - -----------------------------------------------------------------------------------------------------------
Notes: 1. The classification of a country or an area is based on the degree of geographical proximity. 2. The main countries or areas other than Japan are as follows: (1) America the United States of America (2) Asia and Oceania Hong Kong, Indonesia, Singapore, Australia (3) Europe the United Kingdom, Ireland 3. Information about overseas revenue - ------------------------------------------------------------------------------- Millions of yen ------------------------------------------ Asia and America Oceania Europe Total ------- ------- ------ ----- Overseas revenue 38,124 35,084 9,131 82,340 Consolidated revenue 685,576 ------------------------------------------ The rate of the overseas revenues to consolidated revenue 5.6% 5.1% 1.3% 12.0% ========================================== - ------------------------------------------------------------------------------- Notes: 1. The classification of a country or an area is based on the degree of geographical proximity. 16 2. The main countries or areas other than Japan are as follows: (1) America the United States of America (2) Asia and Oceania Hong Kong, Indonesia, Singapore, Australia (3) Europe the United Kingdom, Ireland 3. Overseas revenues are revenues of the Company and its subsidiaries in the countries and areas other than Japan. Per Share Information - ------------------------------------------------------------------------------- Yen - ------------------------------------------------------------------------------- Book Value Per Share 3,205.91 Basic Earnings Per Share 229.22 Diluted Earnings Per Share 220.24 - ------------------------------------------------------------------------------- 17 Basis of Presentation and Significant Accounting Policies for Consolidated Financial Statement for the Fiscal Year Ended March 31, 2002 1. Scope of Consolidation The accompanying consolidated financial statement include 188 subsidiaries, which consist of 101 domestic and 87 foreign subsidiaries. For the year ended March 31, 2002, 27 companies were established, 26 companies were acquired, 8 companies were excluded by liquidation and 5 companies were excluded by sale. 2. Affiliates accounted for by the equity method 61 affiliates (44 domestic and 17 foreign) are accounted for by the equity method with major companies including Casco Co., Ltd. and Stockton Holdings Limited. For the year ended March 31, 2002, 4 companies were established, 4 companies were added by new investment, and 2 companies were excluded from group by sale and liquidation. 3. The date of subsidiaries' fiscal year closing ORIX Leasing Pakistan Limited (fiscal year-end closing date is June 30), SCGC Car Service Co., Ltd (fiscal year-end closing date is December 31) and another 30 subsidiaries have different fiscal year-end closing dates from the Company. These 32 subsidiaries close their books with necessary adjustments for consolidation purpose at fiscal year-end closing date. 4. Accounting principles in foreign subsidiaries and affiliates. Financial statement of foreign subsidiaries and affiliates have been prepared in conformity with their local commercial code and local generally accepted accounting principles. Significant differences between Japanese GAAP and those local GAAP include accounting for leases based on U.S. GAAP and International Accounting Standards. 5. Accounting Policies (1) Valuation basis and method for principal assets Investment in securities: Securities held for sale Fair Value (The cost of sales is primarily calculated based on a moving average cost method.) Securities held to maturity Amortized cost method Other securities: Marketable securities- Fair value based on the market price at the fiscal year ended (any balance resulting from evaluation of securities is directly entered into the capital account, while any cost of sales of marketable securities is calculated based on a moving average cost method) Non-Marketable securities- The cost method on the basis of the moving average cost method for stocks and the amortized cost method for debt securities Derivative instruments Fair value Funds in trust 18 Fair value (2) Method of depreciation of fixed assets Tangible assets: Leasing equipment: Financing lease equipment- Lease equipments is depreciated mainly over the lease contract period using straight-line method, without the estimated residual value at the end of the contract period. In addition, for the contracts for, which the future lease payments due to lessee's default are expected not to be collected, additional depreciation is recorded to cover the future losses from sales of the leased equipment. For the fiscal year ended March 31, 2002, additional depreciation expenses were recorded in the amount of (Y)4,955 million and the accumulated depreciation was (Y)17,436 million as of March 31, 2002. Operating lease equipment- Operating lease equipment is depreciated mainly on the constant percentage method. However, aircraft are depreciated over their estimated useful lives on the straight-line method. In addition, the depreciation of buildings (other than facilities attached to the building) acquired from April 1, 1998 is computed using the straight-line method. The major estimated useful life is between 2 and 50 years for buildings and equipment. Other tangible assets: Other tangible assets are depreciated mainly using the constant percentage method. The depreciation of buildings (other than facilities attaching to the building) acquired from April 1, 1998 and the tangible assets owned by foreign subsidiaries is computed using the straight-line method. The major estimated useful life is between 3 and 50 years for buildings and equipment. Intangible assets: Intangible assets are depreciated using the straight-line method. In addition, for internal use soft-ware, amortization is computed using the straight-line method based on an estimated useful life of 5 years. (3) Accounting for allowance and liabilities for retirement benefits (a) Allowance for doubtful receivables and possible loan losses The Company classifies the customers into normal, special mention, substantially bankrupt and bankrupt. General reserve for receivables from normal and special mention customers are computed based on the historical loss ratio. For effectively bankrupt and bankrupt obligors, specific reserve is calculated based on estimated provable losses for every obligor. (b) Liabilities for retirement benefits Liabilities for retirement benefits to be paid to employees is accounted for based on the estimated amount of the projected benefit obligation and the plan assets at March 31, 2002. Unrecognized prior service cost is amortized within the average remaining service 19 period of 12 to 17 years on a straight-line method. Unrecognized actuarial net gain or loss will be amortized from the next fiscal year within the average remaining service period of 5 to 20 years on a straight-line method. (c) Liabilities for directors' retirement benefits A required amount of directors' retirement benefits determined in accordance with the internal policy as of the balance sheet date is accounted in liabilities for retirement benefits. (4) Translation of assets and liabilities denominated in foreign currencies into Japanese yen Monetary assets and liabilities denominated in foreign currencies are translated into Japanese yen using the exchange rates at the balance sheet date and exchange gain or loss is charged to income. Assets, liabilities, income and expenses of subsidiaries in foreign countries are translated into Japanese yen using the exchange rates at the balance sheet date and its translation adjustments are included in "cumulative translation adjustments" in shareholders' equity. (5) Accounting for leases Financing leases other than those where the ownership of the leased property is deemed to be transferred to the lessee are accounted for in the same manner as operating leases. (6) Method for significant hedge accounting Method for hedge accounting The Company and its subsidiaries adopt principally deferral hedging accounting treatment. Certain derivative transactions are generally used to control the risks of change in the cash flows occurred from financial liabilities, which is due to the mismatch of interest structure between leases revenue based on long-term fixed rates and funding costs based on short-term variable interest rates. Deferral hedging accounting treatment for "portfolio hedge for liabilities" is applied for these derivative transactions, which is provided by "Transitional treatment in accounting and auditing regarding to applying accounting standard of financial instrument for lease industry" (The Japanese Institute of Certified Public Accountants - Audit committee report Statement 19, November 14, 2000). The transaction thereof is as follows: Millions of yen ----------------------------------------- Contract Type amounts Fair value Unrealized loss ---- ------- ---------- --------------- Interest rate swap agreements receive-variable, pay-fixed 76,000 (6,299) (6,299) - ------------------------------------------------------------------------------- Hedge instruments and hedged items: Hedge instruments- Borrowings denominated in foreign currencies, currency rate swaps, interest rate swaps and caps Hedged items- Equity investments in foreign subsidiaries and foreign affiliated companies, borrowings, corporate bonds 20 Hedging policies The hedging policies are based on the internal regulation of risk management in markets and the risk of changes in interest rates are properly controlled through assets and liabilities management. The risks of change in foreign currency exchange rates are controlled not through hedging but through management of currency position of assets and liabilities. Method of assessing hedge effectiveness Effectiveness of each derivative transaction and groups of derivative transaction based on the hedge categories is assessed regularly by comparing to cumulative changes in cash flows and changes in market prices for both hedging instruments and hedged items (7) Accounting for consumption tax Consumption tax is excluded from the stated amount of revenues and expenses. In addition, consumption tax payables are included in "Others" of current liabilities in the consolidated balance sheet as of March 31, 2002. 6. Cash and cash equivalents in the consolidated statement of cash flows Cash and cash equivalents in the consolidated statement of cash flows include cash on hand, deposits which can be drawn on demand and short-term highly liquid investments with original maturities of three months or less with insignificant risk of changes in the value of principal. 7. Others Securities held for operation Certain securities with fixed income are included in "Securities" in current assets and "Investment in securities" in fixed assets in the amount of (Y)100,151 million and (Y)624,898 million, respectively in the consolidated balance sheet. The gains and losses related to the securities are included in "Revenues" and "Expenses" in the consolidated statement of income. Notes to Consolidated Balance Sheet as of March 31, 2002 1. Promissory notes for future payments under lease and installment sales contracts deposited from the customers of (Y)111,541 million were held by the Company and its subsidiaries. 2. Accumulated depreciation of tangible fixed assets is as follows: Millions of yen - ------------------------------------------------------------------------------- Accumulated depreciation of leasing equipment 2,186,784 Accumulated depreciation of other tangible fixed assets 34,579 - ------------------------------------------------------------------------------- 3. (1) Installment loans and other types of assets of (Y)356,797 million were pledged for short-term debt, current maturities of long-term debt and long-term debt. In addition, the lease receivables related to leasing equipment of (Y)39,352 million were pledged as collateral. (2) Securities and other assets of (Y)22,999 million were pledged for guarantees on certain business transactions. 21 4. Contingent Liabilities The Company and its subsidiaries were contingently liable as guarantor for borrowing by customer, principally on consumer loans, and by employees as follows: - ------------------------------------------------------------------------------- Millions of yen - ------------------------------------------------------------------------------- Employees (principally for mortgage loan) 1,387 Others (15,447 contracts) 41,388 ------------------- Total 42,775 =================== - ------------------------------------------------------------------------------- 5. Financial institutions were closed at March 31, 2002, therefore, the following receivables and payables due on March 31, 2002 were not processed. They are included in the consolidated balance sheet at March 31, 2002 as follows: - ------------------------------------------------------------------------------- Millions of yen - ------------------------------------------------------------------------------- Accounts receivable for installment sales 2,353 Installment loans 9,854 Notes receivable (included in "Others" of current assets) 564 Accounts receivable for rents (included in "Others" of current assets) 22,328 Notes payable (included in " Trade notes and accounts payable") 1,633 - ------------------------------------------------------------------------------- 6. The total unused commitment amount related to loan operations, such as card loans, was (Y)123,747 million. Some contracts require credit reviews of borrowers upon the subsequent use of the commitment. Therefore it is not certain that all of the unused commitment amount will be lent to the borrowers. 7. As part of margin transaction on brokerage business, a subsidiary received customers' securities with a fair value of (Y)17,785 million as of March 31, 2002, that may be sold or repledged by the subsidiary. As of March 31, 2002, of which (Y)12,492 million at market value of the securities were repledged as collateral. Note to Consolidated Statement of Income for the Fiscal Year Ended March 31, 2002 1. Selling, general and administrative expenses for the fiscal year ended March 31, 2002 are as follows: - ------------------------------------------------------------------------------- Millions of yen - ------------------------------------------------------------------------------- Selling expenses 26,462 Administrative expenses 46,830 Personnel expenses 85,623 Provision for doubtful receivables and possible loan losses 58,178 Depreciation of other tangible fixed assets 7,784 -------------- Total 224,879 ============== - ------------------------------------------------------------------------------- 22 Note to Consolidated Statement of Cash Flows for the Fiscal Year Ended March 31, 2002 Cash and cash equivalents recorded in the consolidated statement of cash flows and balance sheet as of March 31, 2002 are reconciled as follows: - ------------------------------------------------------------------------------- Millions of yen - ------------------------------------------------------------------------------- Cash and bank deposits in the consolidated balance sheet 339,911 Time deposits with original maturities of more than three months (1,050) Restricted cash and cash equivalents (*) (20,189) Short-term highly liquid investment in securities 36,076 --------- Cash and cash equivalents in the consolidated statement of cash flows 354,748 ========= - ------------------------------------------------------------------------------- (*) Representing cash in the customer asset reserve trust accounts in securities business. Lease Transactions Finance Leases Other Than Those Where the Ownership of the Leased Property is Deemed to be Transferred to the Lessee: 1. Lessee side (1) Estimated acquisition cost, estimated accumulated depreciation, and estimated ending balance of leased assets are as follows: - ------------------------------------------------------------------------------- Equipment Millions of yen - ------------------------------------------------------------------------------- Estimated acquisition cost 502 Less: estimated accumulated depreciation 286 ------------------- Estimated ending balance 216 =================== - ------------------------------------------------------------------------------- Estimated acquisition cost is calculated with interest payables included since the aggregate future minimum lease payment is not significant to tangible assets as of March 31, 2002. (2) Estimated obligations under financing leases are as follows: - ------------------------------------------------------------------------------- Millions of yen - ------------------------------------------------------------------------------- Due within one year Due after one year Total - ---------------------------- -------------------------- ------------------- 2,288 4,416 6,704 - ---------------------------- -------------------------- ------------------- Estimated obligations under finance leases are calculated with interest payables included since the aggregate future minimum lease payment is not significant to tangible assets as of March 31, 2002. (3) Lease payments and estimated depreciation expense are as follows: - ------------------------------------------------------------------------------- Millions of yen - ------------------------------------------------------------------------------- Lease payments 72 Estimated depreciation expense 72 - ------------------------------------------------------------------------------- (4) Calculation of estimated depreciation expenses The estimated depreciation expenses are computed by the straight-line method with the lease term as useful life and residual value of zero. 2. Lessor side 23 (1) Acquisition cost, accumulated depreciation, and book values of leased assets as of March 31, 2002 are as follows: - --------------------------------------------------------------------------------------------------------- Millions of yen ------------------------------------------------------------------------------ Information- Industrial and Automobile and Total related and construction office equipment equipment other ----------------- ---------------- ----------------- ---------------- Acquisition cost 1,379,192 425,345 1,283,859 3,088,397 Less: accumulated depreciation 895,524 340,784 749,416 1,985,725 ----------------- ---------------- ----------------- ---------------- Book values 483,667 84,560 534,443 1,102,672 ================= ================ ================= ================ - ---------------------------------------------------------------------------------------------------------
(2) Future minimum lease receivables are as follows: - ------------------------------------------------------------------------------- Millions of yen - ------------------------------------------------------------------------------- Due within one year Due after one year Total - ---------------------------- -------------------------- ------------------- 455,822 802,245 1,258,067 - ------------------------------------------------------------------------------- The amount included the estimated receivables of (Y)5,964 million (receivables due within one year were (Y)2,007 million) which have been subleased and represent the obligations to the sublessor. (3) Collection of lease receivables, depreciation expense and estimated interest income are as follows: - ------------------------------------------------------------------------------- Millions of yen - ------------------------------------------------------------------------------- Collection of lease receivables 590,614 Depreciation expense 449,832 Estimated interest income 79,412 - ------------------------------------------------------------------------------- (4) Calculation of the estimated interest income The estimated interest income is allocated using the interest method to each period. Operating leases: 1. Lessee side Obligations under operating leases are as follows: - -------------------------------------------------------------------------- Millions of yen - -------------------------------------------------------------------------- Due within one year Due after one year Total - ---------------------------- ------------------------- ------------------- 1,192 4,450 5,642 - -------------------------------------------------------------------------- 2. Lessor side Receivables under operating leases are as follows: - -------------------------------------------------------------------------- Millions of yen - -------------------------------------------------------------------------- Due within one year Due after one year Total - ---------------------------- -------------------------- ------------------ 47,907 85,408 133,315 - -------------------------------------------------------------------------- 24 Securities 1. Marketable securities held to maturity - ------------------------------------------------------------------------------- Millions of yen ------------ ------------- -------------- Carrying amount Fair value Differences - -------------------------------------------------- ------------- -------------- Government bonds and municipal bonds 182 204 22 Corporate debt securities 15,825 17,513 1,687 Others - - - ------------ ------------- -------------- Total 16,008 17,718 1,709 ============ ============= ============== - ------------------------------------------------------------------------------- 2. Other marketable securities - ------------------------------------------------------------------------------- Millions of yen ---------------------------------------- Carrying Fair value Differences amount - --------------------------------------- ------------- ------------- ------------ Equity securities 25,660 52,907 27,246 Bonds: Government bonds and municipal bonds 49,402 49,617 214 Corporate debt securities 506,795 503,387 (3,407) Others 110,138 111,089 950 Other securities 505 459 (46) ------------- ------------- ------------ Total 692,502 717,461 24,958 ============= ============= ============ - ------------------------------------------------------------------------------- 3. Non-marketable securities Other securities: ----------------------------------------------------------------------------- Millions of yen ----------------------------------------------------------------------------- Unlisted stocks (excluding over-the-counter stocks) 72,281 Unlisted foreign securities 5,186 Beneficiary certificates of bond investment trusts (MMF) 36,076 Preferred subscription certificates 24,534 Beneficiary certificates of loan trust 1,000 ------------------------------------------------------------------------------ 25 Derivative Transactions Status of contract amounts, fair value and unrealized gain or loss (1) Currency related - ---------------------------------------------------------------------------------------------------------- Millions of yen --------------------------------------------------------------------- Contract amounts -------------------------------- Unrealized gain or Types Total Over 1 year Fair value (loss) - --------------------------------- -------------- -------------- -------------- --------------- Marketable transactions Futures Written U.S. Dollar 1,625 - 1,614 11 Held U.S. Dollar 2,630 - 2,650 20 Other than marketable transactions Foreign exchange forward contracts Written U.S. Dollar 74,993 43 76,261 (1,268) Others 3,527 - 4,189 (662) Held U.S. Dollar 16,608 187 16,693 85 Others 2,295 - 2,232 (63) Swap agreements Receive-Yen, pay-USD 314,203 117,500 (26,562) (26,562) Receive-USD, pay-Yen 4,121 2,733 378 378 Others 67,434 37,073 (4,344) (4,344) -------------- -------------- -------------- -------------- Total - - - (32,406) ============== ============== ============== ============== - ----------------------------------------------------------------------------------------------------------
(2) Interest rate related - ---------------------------------------------------------------------------------------------------------- Millions of yen --------------------------------------------------------------------- Contract amounts -------------------------------- Unrealized gain or Types Total Over 1 year Fair value (loss) - --------------------------------- -------------- -------------- -------------- -------------- Marketable transactions Futures Written 75,710 - 75,683 26 Held 44,150 - 44,137 (12) Other than marketable transactions Swap agreements Receive-fixed, pay-variable 77,299 60,990 4,542 4,542 Receive-variable, pay-fixed 402,415 354,780 (13,925) (13,925) Receive-variable, pay-variable 4,415 2,815 65 65 Caps Written 3,600 3,600 4 (4) Held 39,751 21,747 10 10 Collars Held 1,586 1,586 (34) (34) -------------- -------------- -------------- -------------- Total - - - (9,332) ============== ============== ============== ============== - ---------------------------------------------------------------------------------------------------------
26 (3) Bond related - ---------------------------------------------------------------------------------------------------------- Millions of yen -------------------------------------------------------------------- Contract amounts -------------------------------- Unrealized gain or Types Total Over 1 year Fair value (loss) - --------------------------------- -------------- -------------- -------------- -------------- Marketable transactions Futures Written 98,248 - 95,863 2,384 Held 3,066 - 3,068 1 -------------- -------------- -------------- -------------- Total - - - 2,386 ============== ============== ============== ============== - ----------------------------------------------------------------------------------------------------------
Notes: 1. Calculation method of fair values For derivative transactions through the market, the fair values are calculated based on closing prices in the market thereof. For other than the above derivative transactions, the fair values are calculated based on the present values of future cash flows using proper market interest rates. 2. Supplementary explanations for hedge effectiveness Derivative transactions are used mainly to hedge risk of changes in interest rates inherent to operating and funding activities and foreign currency exchange rates related to assets and liabilities denominated in foreign currencies. Therefore, derivative transactions thereof are made in order to hedge risks of change in market quotations of interest rate or foreign currency exchange rate related to assets and liabilities hedged or risk of change in cash flow. The hedge effectiveness is assessed regularly. 3. In addition to the derivative transaction listed above, the Company and its subsidiaries entered into the derivative transactions, of which underlying is stocks or commodities. Those derivatives are immaterial as to unrealized gains or losses and the contract amounts. 27 Segment Information 1. Information about products and services - -------------------------------------------------------------------------------------------------------------- Millions of yen ---------------------------------------------------------------------------------- ------------- Lease/ Consol- installment Life Eliminations idated sales Loan insurance Other Subtotal and corporate amounts ----- ---- --------- ----- -------- ------------- ---------- Net revenue Customers 952,400 153,138 165,977 174,409 1,445,925 - 1,445,925 Intersegment - - - 21,779 21,779 (21,779) - ------------------------------------------------------------------------------------------- Total 952,400 153,138 165,977 196,188 1,467,704 (21,779) 1,445,925 Operating expenses 901,966 144,966 160,169 177,715 1,384,818 (14,978) 1,369,840 ------------------------------------------------------------------------------------------- Operating income (loss) 50,433 8,171 5,807 18,472 82,885 (6,800) 76,084 =========================================================================================== - -------------------------------------------------------------------------------------------------------------- Notes: 1. The above classification was determined based on the type of business. 2. Unallocated operating expenses in eliminations and corporate was (Y)6,800 million, which mainly consisted of administration expenses of the head office.
2. Information about geographic areas - --------------------------------------------------------------------------------------------------------- Millions of yen -------------------------------------------------------------------------------------- Asia and Eliminations Consolidated Japan America Oceania Europe Sub total and corporate amounts ----- ------- ------- ------ --------- ------------- -------- Net revenue Customers 1,272,636 79,543 77,345 16,399 1,445,925 - 1,445,925 Intersegment - - - - - (-) - -------------------------------------------------------------------------------------- Total 1,272,636 79,543 77,345 16,399 1,445,925 (-) 1,445,925 Operating expenses 1,203,065 81,995 69,238 15,541 1,369,840 (-) 1,369,840 -------------------------------------------------------------------------------------- Operating 69,571 (2,452) 8,107 858 76,084 (-) 76,084 income (loss) ====================================================================================== - --------------------------------------------------------------------------------------------------------- Notes: 1. The classification of a country or an area is based on the degree of geographical proximity. 2. The main countries or areas other than Japan are as follows: (1) America the United States of America (2) Asia and Oceania Hong Kong, Indonesia, Singapore, Australia (3) Europe the United Kingdom, Ireland
3. Information about overseas revenue - ------------------------------------------------------------------------------- Millions of yen --------------------------------------------- Asian and America Oceania Europe Total ------- ------- ------ ----- Overseas revenue 84,866 79,137 17,294 181,298 Consolidated revenue 1,445,925 -------------------------------------------- The rate of the overseas revenues to consolidated revenue 5.9% 5.4% 1.2% 12.5% ============================================ - ------------------------------------------------------------------------------- Notes: 1. The classification of a country or an area is based on the degree of geographical proximity. 2. The main countries or areas other than Japan are as follows: (1) America the United States of America (2) Asia and Oceania Hong Kong, Indonesia, Singapore, Australia (3) Europe the United Kingdom, Ireland 28 3. Overseas revenues are revenues of the Company and its subsidiaries in the countries and areas other than Japan. Per Share Information - ----------------------------------------------------------------------- Yen - ----------------------------------------------------------------------- Book Value Per Share 3,768.30 Basic Earnings Per Share 517.19 Diluted Earnings Per Share 497.19 - ----------------------------------------------------------------------- Financial Highlights (Japanese GAAP) - ---------------------------------------------------------------------------------------------------------- Millions of yen ------------------------------------------------------------ The six The six The fiscal The fiscal months ended months ended year ended year ended September 2000 September 2001 March 31, 2001 March 31, 2002 - ---------------------------------------------------------------------------------------------------------- Total Revenues 677,809 685,576 1,381,137 1,445,925 Income before Income Taxes 17,740 33,102 32,288 75,491 Net Income 9,032 18,732 19,734 42,574 Shareholders' Equity 228,297 262,076 255,818 315,205 Total Assets 5,616,580 6,180,327 5,812,636 6,593,681 Book Value Per Share (yen) 2,794.61 3,205.91 3,130.95 3,768.30 Basic Earnings Per Share (yen) 110.41 229.22 241.37 517.19 Diluted Earnings Per Share (yen) 106.37 220.24 232.47 497.19 Shareholders' Equity Ratio (%) 4.06 4.24 4.40 4.78 Cash Flows from Operating Activities (32,702) 27,573 51,074 91,290 Cash Flows from Investing Activities (17,826) 16,209 (20,338) (102,390) Cash Flows from Financing Activities (69,716) 2,651 (146,966) 208,779 Cash and Cash Equivalents at End of Period 145,526 201,244 155,411 354,748 Number of Employees 9,819 11,359 9,529 11,271 - ---------------------------------------------------------------------------------------------------------- Notes: (1) Consumption tax is excluded from the stated amount of total revenues. (2) The Company completed 1.2-for-1.0 stock splits on May 19, 2000. All share and per share information reflected these stock splits.
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