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 February 2019.

Commission File Number: 001-14856

ORIX Corporation

(Translation of Registrant’s Name into English)

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

Tokyo, JAPAN

(Address of Principal Executive Offices)

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

Form 20-F  ☒        Form 40-F  ☐

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

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

Table of Document(s) Submitted

1. This is an English translation of ORIX Corporation’s quarterly financial report (shihanki houkokusho ) as filed with the Kanto Financial Bureau in Japan on February 13, 2019, which includes unaudited consolidated financial information prepared in accordance with generally accepted accounting principles in the United States as of March 31, 2018 and December 31, 2018 and for the three and nine months ended December 31, 2017 and 2018.

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: February 13, 2019	By	/s/ SHOJI TANIGUCHI
		Shoji Taniguchi
		Managing Executive Officer
		Assistant to CEO
		ORIX Corporation

CONSOLIDATED FINANCIAL INFORMATION

Notes to Translation

1. The following is an English translation of ORIX Corporation’s quarterly financial report (shihanki houkokusho) as filed with the Kanto Financial Bureau in Japan on February 13, 2019, which includes unaudited consolidated financial information prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) as of March 31, 2018 and December 31, 2018 and for the three and nine months ended December 31, 2017 and 2018.

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

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

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

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

– 1 –

1. Information on the Company and its Subsidiaries

(1) Consolidated Financial Highlights

	Millions of yen (except for per share amounts and ratios)
	Nine months ended December 31, 2017			Nine months ended December 31, 2018			Fiscal year ended March 31, 2018
Total revenues	¥	2,194,882		¥	1,796,155		¥	2,862,771
Income before income taxes		360,488			295,168			435,501
Net income attributable to ORIX Corporation shareholders		256,391			236,207			313,135
Comprehensive Income attributable to ORIX Corporation shareholders		272,442			229,249			288,148
ORIX Corporation shareholders’ equity		2,667,906			2,817,498			2,682,424
Total assets		11,551,918			12,121,792			11,425,982
Earnings per share for net income attributable to ORIX Corporation shareholders
Basic (yen)		200.05			184.53			244.40
Diluted (yen)		199.86			184.38			244.15
ORIX Corporation shareholders’ equity ratio (%)		23.1			23.2			23.5
Cash flows from operating activities		350,606			381,610			568,791
Cash flows from investing activities		(351,083	)		(697,261	)		(439,120	)
Cash flows from financing activities		178,917			246,739			141,010
Cash, Cash Equivalents and Restricted Cash at end of Period		1,323,554			1,335,199			1,405,117

Notes:	1.	Consumption tax is excluded from the stated amount of total revenues.
	2.	Prior-year amounts have been adjusted for the retrospective application of Accounting Standards Update 2016-18 (“Restricted Cash”—ASC 230 (“Statement of Cash Flows”)) on April 1, 2018.
	3.	Accounting Standards Update 2014-09 (“Revenue from Contracts with Customers”—ASC 606 (“Revenue from Contracts with Customers”)), Accounting Standards Update 2016-01 (“Recognition and Measurement of Financial Assets and Financial Liabilities”—ASC 825-10 (“Financial Instrument—Overall”)) and Accounting Standards Update 2016-16 (“Intra-Entity Transfers of Assets Other Than Inventory”—ASC 740 (“Income Taxes”)) have been adopted on April 1, 2018. For further information, see Note 2 “Significant Accounting and Reporting Policies (af) New accounting pronouncements.”

	Millions of yen (except for per share amounts)
	Three months ended December 31, 2017		Three months ended December 31, 2018
Total revenues	¥	677,086	¥	534,141
Net income attributable to ORIX Corporation shareholders		90,421		81,157
Earnings per share for net income attributable to ORIX Corporation shareholders
Basic (yen)		70.67		63.41

Notes:	1.	Consumption tax is excluded from the stated amount of total revenues.
	2.	Accounting Standards Update 2014-09 (“Revenue from Contracts with Customers”—ASC 606 (“Revenue from Contracts with Customers”)), Accounting Standards Update 2016-01 (“Recognition and Measurement of Financial Assets and Financial Liabilities”—ASC 825-10 (“Financial Instruments—Overall”)) and Accounting Standards Update 2016-16 (“Intra-Entity Transfers of Assets Other Than Inventory”—ASC 740 (“Income Taxes”)) have been adopted on April 1, 2018. For further information, see Note 2 “Significant Accounting and Reporting Policies (af) New accounting pronouncements.”

– 2 –

(2) Overview of Activities

During the nine months ended December 31, 2018, no significant changes were made in the Company and its subsidiaries’ operations.

During the three months ended December 31, 2018, in order to strengthen access to manufacturer order positions and to scale up its aircraft leasing business, the company, through its subsidiary ORIX Aviation Systems Limited (Head office: Dublin, Ireland), completed the acquisition of 30% of the total issued shares of Avolon Holdings Limited (Head office: Dublin, Ireland, hereinafter, “Avolon”) from Bohai Capital Holding Co., Ltd. (Head office: Beijing, China) and Global Aviation Leasing Co., Ltd. (Head office: Beijing, China). As a result, Avolon became an affiliate of the Company.

2. Risk Factors

Investing in the Company’s securities involves risks. You should carefully consider the information described herein as well as the risks described under “Risk Factors” in our Form 20-F for the fiscal year ended March 31, 2018 and the other information in that annual report, including, but not limited to, the Company’s consolidated financial statements and related notes and “Item 11. Quantitative and Qualitative Disclosures about Market Risk.” The Company’s business activities, financial condition and results of operations and the trading prices of the Company’s securities could be adversely affected by any of those factors or other factors.

– 3 –

3. Analysis of Financial Results and Condition

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

(1) Qualitative Information Regarding Consolidated Financial Results

Financial Highlights

Financial Results for the Nine Months Ended December 31, 2018

Total revenues	¥1,796,155 million (Down 18% year on year)
Total expenses	¥1,537,971 million (Down 20% year on year)
Income before income taxes	¥295,168 million (Down 18% year on year)
Net income attributable to ORIX Corporation Shareholders	¥236,207 million (Down 8% year on year)
Earnings per share for net income attributable to ORIX Corporation Shareholders
(Basic)	¥184.53 (Down 8% year on year)
(Diluted)	¥184.38 (Down 8% year on year)
ROE (Annualized) *1	11.5% (13.2% during the same period in the previous fiscal year)
ROA (Annualized) *2	2.67% (3.00% during the same period in the previous fiscal year)

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

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

Total revenues for the nine months ended December 31, 2018 (hereinafter, “the third consolidated period”) decreased 18% to ¥1,796,155 million compared to ¥2,194,882 million during the same period of the previous fiscal year. Services income increased due primarily to large gains from sales of property under facility operations, and an increase in sales of the environment and energy business. On the other hand, sales of goods and real estate decreased due primarily to a decrease in related revenues generated by a subsidiary in the principal investment business which had recognized significant demand during the same period of the previous fiscal year. In addition, despite an increase in life insurance premiums in line with an increase in policies in force, life insurance premiums and related investment income decreased due to a decrease in investment income from assets under variable annuity and variable life insurance contracts, as compared to the same period of the previous fiscal year during which market conditions had improved significantly.

Total expenses decreased 20% to ¥1,537,971 million compared to ¥1,921,600 million during the same period of the previous fiscal year. Services expense increased in line with the aforementioned increase in revenues. Costs of goods and real estate sold decreased in line with the aforementioned decrease in revenues. In addition, life insurance costs decreased due to a decrease in a provision of liability reserve from assets under variable annuity and variable life insurance contracts, despite the aforementioned increase in policies in force.

Equity in net income of affiliates decreased mainly due to the recognition of significant gains on sales of investments in real estate joint ventures during the same period of the previous fiscal year, and the recognition of losses in an affiliate in India during the third consolidated period. Gains on sales of subsidiaries and affiliates and liquidation losses, net decreased compared to the same period of the previous fiscal year due to significant gains on sales of subsidiaries and affiliates recorded during the same period of the previous fiscal year.

As a result of the foregoing, income before income taxes for the third consolidated period decreased 18% to ¥295,168 million compared to ¥360,488 million during the same period of the previous fiscal year. In addition, although provision for income taxes decreased due to the reversal of the deferred tax liabilities previously recorded for undistributed earnings of DAIKYO INCORPORATED (hereinafter, “DAIKYO”), net income attributable to ORIX Corporation shareholders decreased 8% to ¥236,207 million compared to ¥256,391 million during the same period of the previous fiscal year.

– 4 –

Segment Information

Total revenues and profits by segment for the nine months ended December 31, 2017 and 2018 are as follows:

	Millions of yen
	Nine months ended December 31, 2017					Nine months ended December 31, 2018						Change (revenues)						Change (profits)
	Segment Revenues			Segment Profits		Segment Revenues			Segment Profits			Amount			Percent (%)			Amount			Percent (%)
Corporate Financial Services	¥	86,194		¥	37,551	¥	71,717		¥	19,760		¥	(14,477	)		(17	)	¥	(17,791	)		(47	)
Maintenance Leasing		207,239			31,085		214,304			30,387			7,065			3			(698	)		(2	)
Real Estate		138,632			52,084		158,015			55,420			19,383			14			3,336			6
Investment and Operation		1,073,732			62,648		704,828			30,392			(368,904	)		(34	)		(32,256	)		(51	)
Retail		336,381			63,274		289,288			66,237			(47,093	)		(14	)		2,963			5
Overseas Business		360,288			109,547		365,420			95,621			5,132			1			(13,926	)		(13	)
Total		2,202,466			356,189		1,803,572			297,817			(398,894	)		(18	)		(58,372	)		(16	)
Difference between Segment Total and Consolidated Amounts		(7,584	)		4,299		(7,417	)		(2,649	)		167			0			(6,948	)		0
Total Consolidated Amounts	¥	2,194,882		¥	360,488	¥	1,796,155		¥	295,168		¥	(398,727	)		(18	)	¥	(65,320	)		(18	)
Total assets by segment as of March 31, 2018 and December 31, 2018 are as follows:
						Millions of yen
						March 31, 2018						December 31, 2018						Change
						Segment Assets			Composition ratio (%)			Segment Assets			Composition ratio (%)			Amount			Percent (%)
Corporate Financial Services						¥	991,818			9		¥	974,870			8		¥	(16,948	)		(2	)
Maintenance Leasing							847,190			7			862,354			7			15,164			2
Real Estate							620,238			5			568,082			5			(52,156	)		(8	)
Investment and Operation							856,348			8			959,049			8			102,701			12
Retail							3,174,505			28			3,396,141			28			221,636			7
Overseas Business							2,608,819			23			3,148,818			26			539,999			21
Total							9,098,918			80			9,909,314			82			810,396			9
Difference between Segment Total and Consolidated Amounts							2,327,064			20			2,212,478			18			(114,586	)		(5	)
Total Consolidated Amounts						¥	11,425,982			100		¥	12,121,792			100		¥	695,810			6

Certain line items presented in the consolidated statements of income have been changed starting from the three months ended June 30, 2018. For further information, see Note 2 “Significant Accounting and Reporting Policies (ag) Reclassifications.”

From the three months ended June 30, 2018, consolidated variable interest entities (hereinafter, “VIEs”) for securitizing financial assets such as direct financing lease receivable and loan receivable, which had been excluded from segment revenues, segment profits and segment assets until the previous fiscal year, are included in segment revenues, segment profits and segment assets of each segment. As a result of this change, the presented amounts in the financial information of the segments for the previous fiscal year have been retrospectively reclassified to conform to the presentation for the nine months ended December 31, 2018.

– 5 –

Segment information for the nine months ended December 31, 2018 is as follows:

Corporate Financial Services Segment: Loan, leasing and fee business

In this segment, we are focusing on fee businesses related to life insurance, environment and energy, auto leasing related products and services provided to domestic small- and medium-sized enterprise customers while engaging in highly competitive businesses such as leasing and lending with a focus on profitability. We aim to grow our profit by maximizing synergies with Yayoi Co., Ltd., a software service provider in the group, and by utilizing our domestic network to create new businesses.

Based on the aforementioned strategy, segment revenues decreased 17% to ¥71,717 million compared to ¥86,194 million during the same period of the previous fiscal year due to a decrease in finance revenues in line with decreases in average investment balances of direct financing leases and a decrease in gains on sales of securities, despite an increase in services income resulting from our stable fee businesses provided to domestic small- and medium-sized enterprise customers.

Segment expenses remained at the same level as the same period of the previous fiscal year.

As a result of the foregoing and due to the recognition of gains on sales of affiliates during the same period of the previous fiscal year, segment profits decreased 47% to ¥19,760 million compared to ¥37,551 million during the same period of the previous fiscal year.

Segment assets decreased 2% to ¥974,870 million compared to the end of the previous fiscal year due to a decrease in investment in direct financing leases despite an increase in investment in securities.

Although asset efficiency decreased compared to the same period of the previous fiscal year, we maintained stable profit from fee businesses due to more variety of services. Furthermore, to explore new business areas, we also engaged in online lending services for small businesses.

	Nine months ended December 31, 2017		Nine months ended December 31, 2018			Change
						Amount			Percent (%)
	(Millions of yen, except percentage data)
Segment Revenues:
Finance revenues	¥	23,378	¥	22,271		¥	(1,107	)		(5	)
Operating leases		17,408		17,809			401			2
Services income		28,377		29,154			777			3
Sales of goods and real estate, and other		17,031		2,483			(14,548	)		(85	)
Total Segment Revenues		86,194		71,717			(14,477	)		(17	)
Segment Expenses:
Interest expense		3,850		3,108			(742	)		(19	)
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities		681		558			(123	)		(18	)
Other		46,393		47,457			1,064			2
Total Segment Expenses		50,924		51,123			199			0
Segment Operating Income		35,270		20,594			(14,676	)		(42	)
Equity in Net income (Loss) of Affiliates, and others		2,281		(834	)		(3,115	)		0
Segment Profits	¥	37,551	¥	19,760		¥	(17,791	)		(47	)
	As of March 31, 2018		As of December 31, 2018			Change
						Amount			Percent (%)
	(Millions of yen, except percentage data)
Investment in direct financing leases	¥	439,329	¥	414,452		¥	(24,877	)		(6	)
Installment loans		369,882		369,888			6			0
Investment in operating leases		26,350		24,222			(2,128	)		(8	)
Investment in securities		19,208		30,262			11,054			58
Property under facility operations		15,075		16,837			1,762			12
Inventories		49		46			(3	)		(6	)
Advances for investment in operating leases		203		34			(169	)		(83	)
Investment in affiliates		16,845		16,251			(594	)		(4	)
Advances for property under facility operations		720		203			(517	)		(72	)
Goodwill and other intangible assets acquired in business combinations		104,157		102,675			(1,482	)		(1	)
Total Segment Assets	¥	991,818	¥	974,870		¥	(16,948	)		(2	)

– 6 –

Maintenance Leasing Segment: Automobile leasing and rentals, car-sharing, and test and measurement instruments and IT-related equipment rentals and leasing

In the automobile related businesses, which cover a large part of this segment, we aim to increase market share in small- and medium-sized enterprises and individuals as well as large corporate customers by enhancing our competitive advantages coming from our industry-leading number of fleets under management and one-stop automobile-related services. Furthermore, we intend to develop new products and services to adapt to the change of industrial structure and get new business opportunities. In the rental business, we strengthened our engineering solution businesses by developing new services for robots and three-dimensional (3D) printing.

Based on the aforementioned strategy, segment revenues increased 3% to ¥214,304 million compared to ¥207,239 million during the same period of the previous fiscal year due to an increase in operating leases revenues.

Segment expenses increased due to increases in costs of operating leases and mainly in personnel expenses in selling, general and administrative expenses.

As a result of the foregoing, segment profits decreased 2% to ¥30,387 million compared to ¥31,085 million during the same period of the previous fiscal year.

Segment assets increased 2% to ¥862,354 million compared to the end of the previous fiscal year due to increases in new executions of investment in operating leases and investment in direct finance leases.

Although asset efficiency decreased compared to the same period of the previous fiscal year, we have maintained stable profitability as a result of a steady number of new auto leases.

	Nine months ended December 31, 2017			Nine months ended December 31, 2018		Change
						Amount			Percent (%)
	(Millions of yen, except percentage data)
Segment Revenues:
Finance revenues	¥	10,687		¥	10,714	¥	27			0
Operating leases		142,133			147,698		5,565			4
Services income		51,588			52,409		821			2
Sales of goods and real estate, and other		2,831			3,483		652			23
Total Segment Revenues		207,239			214,304		7,065			3
Segment Expenses:
Interest expense		2,500			2,338		(162	)		(6	)
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities		114			265		151			132
Other		173,326			182,407		9,081			5
Total Segment Expenses		175,940			185,010		9,070			5
Segment Operating Income		31,299			29,294		(2,005	)		(6	)
Equity in Net income (Loss) of Affiliates, and others		(214	)		1,093		1,307			0
Segment Profits	¥	31,085		¥	30,387	¥	(698	)		(2	)
	As of March 31, 2018			As of December 31, 2018		Change
						Amount			Percent (%)
	(Millions of yen, except percentage data)
Investment in direct financing leases	¥	319,927		¥	325,650	¥	5,723			2
Investment in operating leases		505,472			515,097		9,625			2
Investment in securities		560			496		(64	)		(11	)
Property under facility operations		904			946		42			5
Inventories		461			636		175			38
Advances for investment in operating leases		197			300		103			52
Investment in affiliates		1,996			1,997		1			0
Goodwill and other intangible assets acquired in business combinations		17,673			17,232		(441	)		(2	)
Total Segment Assets	¥	847,190		¥	862,354	¥	15,164			2

– 7 –

Real Estate Segment: Real estate development and rental, facility operation, REIT asset management, and real estate investment and advisory services

In this segment, we aim to promote portfolio rebalancing by selling rental properties into favorable markets and also to expand the scale of our asset management business such as REIT and real estate investment advisory services in order to construct a portfolio that is less affected by changes in the real estate market. We also aim to gain stable profits by accumulating expertise through the operation of various facilities such as hotels and Japanese inns and to develop new businesses by taking advantage of our value chain of real estate development and rental, asset management and facility operations.

Based on the aforementioned strategy, segment revenues increased 14% to ¥158,015 million compared to ¥138,632 million during the same period of the previous fiscal year due to increases in operating leases revenues in line with an increase in gains on sales of rental properties and in services income from facilities operations which resulted from sales of property under facility operations.

Segment expenses decreased due to a decrease in write-downs of long-lived assets.

As a result of the foregoing, notwithstanding a decrease in equity in net income of affiliates due to significant gains on sales of investments in real estate joint ventures that were recognized during the same period of the previous fiscal year, segment profits increased 6% to ¥55,420 million compared to ¥52,084 million during the same period of the previous fiscal year.

Segment assets decreased 8% to ¥568,082 million compared to the end of the previous fiscal year due to sales of rental properties and property under facility operations.

Asset efficiency increased compared to the same period of the previous fiscal year as we continuously made new investments in carefully selected areas and properties.

	Nine months ended December 31, 2017		Nine months ended December 31, 2018		Change
					Amount			Percent (%)
	(Millions of yen, except percentage data)
Segment Revenues:
Finance revenues	¥	1,507	¥	1,502	¥	(5	)		(0	)
Operating leases		39,264		51,373		12,109			31
Services income		92,937		101,164		8,227			9
Sales of goods and real estate, and other		4,924		3,976		(948	)		(19	)
Total Segment Revenues		138,632		158,015		19,383			14
Segment Expenses:
Interest expense		1,751		1,717		(34	)		(2	)
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities		2,274		20		(2,254	)		(99	)
Other		103,878		104,974		1,096			1
Total Segment Expenses		107,903		106,711		(1,192	)		(1	)
Segment Operating Income		30,729		51,304		20,575			67
Equity in Net income (Loss) of Affiliates, and others		21,355		4,116		(17,239	)		(81	)
Segment Profits	¥	52,084	¥	55,420	¥	3,336			6
	As of March 31, 2018		As of December 31, 2018		Change
					Amount			Percent (%)
	(Millions of yen, except percentage data)
Investment in direct financing leases	¥	33,589	¥	35,155	¥	1,566			5
Installment loans		312		313		1			0
Investment in operating leases		247,001		202,564		(44,437	)		(18	)
Investment in securities		2,988		2,789		(199	)		(7	)
Property under facility operations		195,463		197,276		1,813			1
Inventories		2,850		3,857		1,007			35
Advances for investment in operating leases		20,524		24,201		3,677			18
Investment in affiliates		86,666		86,538		(128	)		(0	)
Advances for property under facility operations		19,351		8,854		(10,497	)		(54	)
Goodwill and other intangible assets acquired in business combinations		11,494		6,535		(4,959	)		(43	)
Total Segment Assets	¥	620,238	¥	568,082	¥	(52,156	)		(8	)

– 8 –

Investment and Operation Segment: Environment and energy, principal investment, loan servicing (asset recovery), and concession

In the environment and energy business, we aim to increase services revenue by promoting our renewable energy business and our electric power retailing business as a comprehensive energy service provider. In our solar power business, we have a secured one gigawatt of solar power capacity and are operating projects that generate approximately 780 megawatts of electricity as of December 31, 2018, making us one of the largest solar power producers in Japan. We will accelerate our renewable energy business overseas by utilizing the expertise we have gained in the domestic market. In the principal investment business, we aim to earn stable profits from investees and sustainable gains on sales through rebalancing our portfolio. We intend to diversify our investment methods and expand our target zone. Regarding our concession business, we aim to strengthen our operations in the three airports, Kansai International Airport, Osaka International Airport and Kobe Airport, and also aim to proactively engage in the operation of public infrastructure other than airports.

Based on the aforementioned strategy, segment revenues decreased 34% to ¥704,828 million compared to ¥1,073,732 million during the same period of the previous fiscal year due to a decrease in sales of goods by a subsidiary in the principal investment business which recognized significant demand during the same period of the previous fiscal year.

Segment expenses decreased compared to the same period of the previous fiscal year in line with the aforementioned decrease in revenues.

As a result of the foregoing and the recognition of significant gains on sales of shares of a subsidiary during the same period of the previous fiscal year, segment profits decreased 51% to ¥30,392 million compared to ¥62,648 million during the same period of the previous fiscal year.

Segment assets increased 12% to ¥959,049 million compared to the end of the previous fiscal year due to increases in property under facility operations in the environment and energy business, increases in inventories mainly in DAIKYO, and an acquisition in the principal investment business including the investment in CORNES AG Corporation, a major Japanese importer and seller of dairy and agricultural equipment.

Although asset efficiency decreased compared to the same period of the previous year, the operation rate of solar power generation projects has improved and profit from our concession business has steadily increased. Furthermore, we aim to grow as a comprehensive real estate group on a mid- or long-term basis. To do so, we made DAIKYO a wholly-owned subsidiary by acquiring all of its common shares through a tender offer and are deepening mutual complementary relationship within our real estate business.

	Nine months ended			Nine months ended			Change
	December 31, 2017			December 31, 2018			Amount			Percent (%)
	(Millions of yen, except percentage data)
Segment Revenues:
Finance revenues	¥	7,530		¥	7,046		¥	(484	)		(6	)
Gains on investment securities and dividends		5,739			138			(5,601	)		(98	)
Sales of goods and real estate		816,556			434,800			(381,756	)		(47	)
Services income		236,007			257,600			21,593			9
Operating leases, and other		7,900			5,244			(2,656	)		(34	)
Total Segment Revenues		1,073,732			704,828			(368,904	)		(34	)
Segment Expenses:
Interest expense		4,173			5,255			1,082			26
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities		(653	)		(62	)		591			0
Other		1,035,005			680,545			(354,460	)		(34	)
Total Segment Expenses		1,038,525			685,738			(352,787	)		(34	)
Segment Operating Income		35,207			19,090			(16,117	)		(46	)
Equity in Net income (Loss) of Affiliates, and others		27,441			11,302			(16,139	)		(59	)
Segment Profits	¥	62,648		¥	30,392		¥	(32,256	)		(51	)
	As of			As of			Change
	March 31, 2018			December 31, 2018			Amount			Percent (%)
	(Millions of yen, except percentage data)
Investment in direct financing leases	¥	25,497		¥	26,130		¥	633			2
Installment loans		59,437			50,203			(9,234	)		(16	)
Investment in operating leases		30,158			36,841			6,683			22
Investment in securities		29,928			28,611			(1,317	)		(4	)
Property under facility operations		208,106			260,147			52,041			25
Inventories		101,518			135,026			33,508			33
Advances for investment in operating leases		1,261			6,514			5,253			417
Investment in affiliates		170,449			179,940			9,491			6
Advances for property under facility operations		44,901			17,437			(27,464	)		(61	)
Goodwill and other intangible assets acquired in business combinations		185,093			218,200			33,107			18
Total Segment Assets	¥	856,348		¥	959,049		¥	102,701			12

– 9 –

Retail Segment: Life insurance, banking and card loan

In the life insurance business, we aim to increase the number of policies in force and revenues from insurance premiums by offering simple-to-understand products through sales agencies and online. In the banking business, we aim to increase finance revenues by increasing the balance of outstanding housing loans which is a core of our banking business. In the card loan business, we aim to increase revenues from guarantee fees by expanding guarantees against loans disbursed by other financial institutions. We also aim to increase finance revenues by making loans directly to our customers through our experience and expertise in credit screening while taking into account the amendments to the Money Lending Business Act for the purpose of reducing over-indebtedness.

Based on the aforementioned strategy, segment revenues decreased 14% to ¥289,288 million compared to ¥336,381 million during the same period of the previous fiscal year due to a decrease in investment income from assets under variable annuity and variable life insurance contracts. This decrease was primarily due to the significant market improvement that had occurred during the same period of the previous fiscal year, which was partially offset by increases in life insurance premiums in line with an increase in policies in force and in finance revenues in the banking business.

Segment expenses decreased due to a decrease in life insurance costs as a provision of liability reserve from assets under variable annuity and variable life insurance contracts declined.

As a result of the foregoing, segment profits increased 5% to ¥66,237 million compared to ¥63,274 million during the same period of the previous fiscal year.

Segment assets increased 7% to ¥3,396,141 million compared to the end of the previous fiscal year due primarily to an increase in investment in securities in the life insurance business and an increase in installment loans in the banking business, despite the surrender of variable annuity and variable life insurance contracts.

Asset efficiency increased compared to the same period of the previous fiscal year. We have steadily expanded our businesses by starting the sale of investment trusts for individuals in the banking business and have also achieved 4 million policies in force for individual insurance in the life insurance business.

	Nine months ended December 31, 2017			Nine months ended December 31, 2018			Change
							Amount			Percent (%)
	(Millions of yen, except percentage data)
Segment Revenues:
Finance revenues	¥	54,734		¥	57,641		¥	2,907			5
Life insurance premiums and related investment income		279,578			229,052			(50,526	)		(18	)
Services income, and other		2,069			2,595			526			25
Total Segment Revenues		336,381			289,288			(47,093	)		(14	)
Segment Expenses:
Interest expense		3,025			3,083			58			2
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities		8,663			8,410			(253	)		(3	)
Other		261,417			211,535			(49,882	)		(19	)
Total Segment Expenses		273,105			223,028			(50,077	)		(18	)
Segment Operating Income		63,276			66,260			2,984			5
Equity in Net income (Loss) of Affiliates, and others		(2	)		(23	)		(21	)		0
Segment Profits	¥	63,274		¥	66,237		¥	2,963			5
	As of March 31, 2018			As of December 31, 2018			Change
							Amount			Percent (%)
	(Millions of yen, except percentage data)
Investment in direct financing leases	¥	208		¥	73		¥	(135	)		(65	)
Installment loans		1,852,761			1,983,066			130,305			7
Investment in operating leases		44,319			29,146			(15,173	)		(34	)
Investment in securities		1,260,291			1,367,144			106,853			8
Investment in affiliates		702			488			(214	)		(30	)
Goodwill and other intangible assets acquired in business combinations		16,224			16,224			0			0
Total Segment Assets	¥	3,174,505		¥	3,396,141		¥	221,636			7

– 10 –

Overseas Business Segment: Leasing, loan, bond investment, asset management and aircraft- and ship-related operations

In the Americas, we aim to expand our business areas by engaging in fee business such as equity investment, fund management in addition to corporate finance and investment in bonds. In our aircraft-related operations, we are focusing on profit opportunities within operating lease, sales of used aircraft to domestic and overseas investors, and asset management services for the aircrafts owned by other. All of these opportunities are backed by the growing demand of passengers and aircrafts. We also aim to promote the expansion of functionality and diversification in our overseas group companies.

Based on the aforementioned strategy, segment revenues increased 1% to ¥365,420 million compared to ¥360,288 million during the same period of the previous fiscal year mainly due to increases in finance revenues through an acquisition of NXT Capital, Inc. (hereinafter, “NXT Capital”), which is involved in loan origination and asset management operations in the Americas and operating leases in the aircraft-related operation, despite a decrease in gains on investment securities and dividends.

Segment expenses increased mainly due to an increase in interest expense.

As a result of the foregoing and a decrease in equity in net income of affiliates due to the recognition of losses in an affiliate in India, segment profits decreased 13% to ¥95,621 million compared to ¥109,547 million in the same period of the previous fiscal year.

Segment assets increased 21% to ¥3,148,818 million compared to the end of the previous fiscal year due to increases in installment loans through an acquisition of NXT Capital and in investment in affiliates by an acquisition of the shares of Avolon, a leading global aircraft leasing company based in Ireland.

Although asset efficiency decreased compared to the same period of the previous fiscal year, the asset management and the aircraft- and ship-related operations have steadily developed. We also aimed to scale up our aircraft leasing business, for example, by acquiring the shares of Avolon.

	Nine months ended December 31, 2017		Nine months ended December 31, 2018		Change
					Amount			Percent (%)
	(Millions of yen, except percentage data)
Segment Revenues:
Finance revenues	¥	73,692	¥	80,536	¥	6,844			9
Gains on investment securities and dividends		13,609		5,536		(8,073	)		(59	)
Operating leases		84,952		93,598		8,646			10
Services income		179,454		179,352		(102	)		(0	)
Sales of goods and real estate, and other		8,581		6,398		(2,183	)		(25	)
Total Segment Revenues		360,288		365,420		5,132			1
Segment Expenses:
Interest expense		37,989		44,463		6,474			17
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities		4,811		5,802		991			21
Other		238,665		238,322		(343	)		(0	)
Total Segment Expenses		281,465		288,587		7,122			3
Segment Operating Income		78,823		76,833		(1,990	)		(3	)
Equity in Net income (Loss) of Affiliates, and others		30,724		18,788		(11,936	)		(39	)
Segment Profits	¥	109,547	¥	95,621	¥	(13,926	)		(13	)
	As of March 31, 2018		As of December 31, 2018		Change
					Amount			Percent (%)
	(Millions of yen, except percentage data)
Investment in direct financing leases	¥	368,721	¥	364,313	¥	(4,408	)		(1	)
Installment loans		534,586		773,858		239,272			45
Investment in operating leases		491,132		503,356		12,224			2
Investment in securities		413,440		412,086		(1,354	)		(0	)
Property under facility operations and servicing assets		43,995		46,127		2,132			5
Inventories		5,923		5,261		(662	)		(11	)
Advances for investment in operating leases		9,487		17,762		8,275			87
Investment in affiliates		314,569		565,326		250,757			80
Goodwill and other intangible assets acquired in business combinations		426,966		460,729		33,763			8
Total Segment Assets	¥	2,608,819	¥	3,148,818	¥	539,999			21

– 11 –

(2) Financial Condition

	As of March 31, 2018			As of December 31, 2018			Change
							Amount		Percent (%)
	(Millions of yen except per share, ratios and percentages)
Total assets		¥11,425,982			¥12,121,792		¥	695,810		6
(Segment assets)*1		9,098,918			9,909,314			810,396		9
Total liabilities		8,619,688			9,230,763			611,075		7
(Short- and long-term debt)		4,133,258			4,619,311			486,053		12
(Deposits)		1,757,462			1,884,576			127,114		7
ORIX Corporation shareholders’ equity		2,682,424			2,817,498			135,074		5
ORIX Corporation shareholders’ equity per share (yen)*2		2,095.64			2,201.24			105.60		5
ORIX Corporation shareholders’ equity ratio*3		23.5	%		23.2	%		—		—
D/E ratio (Debt-to-equity ratio) (Short-and long-term debt (excluding deposits) / ORIX Corporation shareholders’ equity)		1.5	x		1.6	x		—		—

*1 From the three months ended June 30, 2018, VIEs for securitizing financial assets such as lease receivables and loan receivables are included in segment assets, and the amount of segment assets for the previous fiscal year have been reclassified as a result of this change.

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

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

Total assets increased 6% to ¥12,121,792 million compared to ¥11,425,982 million as of March 31, 2018. Installment loans increased due primarily to the acquisition of NXT Capital in the Americas. Investment in securities increased due primarily to the purchase of investment in securities in the life insurance business. Investment in affiliates increased due to the acquisition of shares of Avolon, a leading global aircraft leasing company based in Ireland. Segment assets increased 9% to ¥9,909,314 million compared to the balance as of March 31, 2018.

In line with the increase in assets, long-term debt and short-term debt, and deposits in liabilities also increased compared to the balance as of March 31, 2018.

Shareholders’ equity increased 5% to ¥2,817,498 million compared to the balance as of March 31, 2018 due primarily to an increase in retained earnings.

– 12 –

(3) Liquidity and Capital Resources

We require capital resources for working capital, investment and loan in our businesses. We accordingly prioritize funding stability, maintaining adequate liquidity and reducing capital costs. We formulate and execute on funding policies that are resistant to sudden negative events in financial markets, and then conduct funding activities in accordance with actual transitions in our assets and changes in financial markets. In preparing our management plan, we project funding activities to maintain a balanced capital structure in light of projected cash flows, asset liquidity and our own liquidity situation. When implementing our management plan, we adjust our funding based on changes in the external environment and our needs in light of our business activities, and endeavor to maintain flexibility in our funding activities. We endeavor to diversify our funding sources, promote longer liability maturities, disperse interest and principal repayment dates, maintain sufficient liquidity, optimize the balance of liabilities and equity and reinforce our funding stability.

Our funding is comprised of borrowings from financial institutions, direct fund procurement from capital markets and deposits. ORIX Group’s total funding including that from short- and long-term debt and deposits on a consolidated basis was ¥6,503,887 million as of December 31, 2018. Borrowings are procured from a diverse range of financial institutions including major banks, regional banks, foreign banks and life and casualty insurance companies. The number of financial institutions from which we procured borrowings exceeded 200 as of December 31, 2018. Procurement from the capital markets is composed of bonds, medium-term notes, commercial paper, payables under securitized leases, loan receivables and other assets (including asset backed securities). The majority of deposits are attributable to ORIX Bank Corporation.

Short-term and long-term debt and deposits

(a) Short-term debt

	Millions of yen
	March 31, 2018		December 31, 2018
Borrowings from financial institutions	¥	251,860	¥	460,170
Commercial paper		54,894		188,597
Total short-term debt	¥	306,754	¥	648,767

Short-term debt as of December 31, 2018 was ¥648,767 million, which accounted for 14% of the total amount of short and long-term debt (excluding deposits) as compared to 7% as of March 31, 2018.

While the amount of short-term debt as of December 31, 2018 was ¥648,767 million, the sum of cash and cash equivalents and the unused amount of committed credit facilities as of December 31, 2018 was ¥1,469,078 million.

(b) Long-term debt

	Millions of yen
	March 31, 2018		December 31, 2018
Borrowings from financial institutions	¥	2,804,357	¥	2,826,800
Bonds		756,865		764,785
Medium-term notes		183,224		190,013
Payables under securitized lease, loan receivables and other assets		82,058		188,946
Total long-term debt	¥	3,826,504	¥	3,970,544

The balance of long-term debt as of December 31, 2018 was ¥3,970,544 million, which accounted for 86% of the total amount of short and long-term debt (excluding deposits) as compared to 93% as of March 31, 2018.

– 13 –

(c) Deposits

	Millions of yen
	March 31, 2018		December 31, 2018
Deposits	¥	1,757,462	¥	1,884,576

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

(4) Summary of Cash Flows

Cash, cash equivalents and restricted cash as of December 31, 2018 decreased by ¥69,918 million to ¥1,335,199 million compared to March 31, 2018.

Cash flows provided by operating activities were ¥381,610 million in the nine months ended December 31, 2018, up from ¥350,606 million during the same period of the previous fiscal year. This change resulted primarily from a decrease in payments for decreases in policy liabilities and policy account balances and adjustments of an increase of “Depreciation and amortization” and decreases of “Equity in net income of affiliates (excluding interest on loans)”, “Gains on sales of subsidiaries and affiliates and liquidation losses, net” and “Gains on sales of securities other than trading”, but partially offset by a decrease in proceeds from decreases in trading securities.

Cash flows used in investing activities were ¥697,261 million in the nine months ended December 31, 2018, up from ¥351,083 million during the same period of the previous fiscal year. This change resulted primarily from an increase in investment in affiliates, an increase in payments for purchases of available-for-sale debt securities and a decrease in proceeds from sales of available-for-sale debt securities, but partially offset by an increase in proceeds from sales of operating lease assets.

Cash flows provided by financing activities were ¥246,739 million in the nine months ended December 31, 2018, up from ¥178,917 million during the same period of the previous fiscal year. This change resulted primarily from an increase of net increase in debt with maturities of three months or less, but partially offset by an increase of purchases of shares of subsidiaries from noncontrolling interests due to the acquisition of common shares of DAIKYO through a tender offer.

(5) Challenges to be addressed

There were no significant changes for the nine months ended December 31, 2018.

(6) Research and Development Activity

There were no significant changes in research and development activities for the nine months ended December 31, 2018.

(7) Major Facilities

Significant changes in major facilities for the nine months ended December 31, 2018 include following:

New Construction—Certain subsidiaries finished the construction of a new solar power station in Niigata City, Niigata and a new thermal power station in Kitakyushu City, Fukuoka, respectively. The total investments for the facilities were ¥13,702 million and ¥32,485 million, respectively.

4. Material Contracts

Not applicable.

– 14 –

5. Company Stock Information

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

(1) Issued Shares, Common Stock and Capital Reserve

The number of issued shares, the amount of common stock and capital reserve for the three months ended December 31, 2018 is as follows:

In thousands		Millions of yen
Number of issued shares		Common stock		Capital reserve
Increase, net	December 31, 2018	Increase, net	December 31, 2018	Increase, net	December 31, 2018
0	1,324,629	¥0	¥221,111	¥0	¥248,290

(2) List of Major Shareholders

Not applicable (this item is not subject to disclosure in quarterly reports for the three months ended December 31, 2018).

6. Directors and Executive Officers

Between the filing date of Form 20-F for the fiscal year ended March 31, 2018 and December 31, 2018, the personnel changes of the directors and the executive officers are as follows:

(1) Departures

Name	Title	Areas of duties	The day of retirement
Shinichi Obara	Executive Officer	Head of Western Japan Sales Headquarters Group Kansai Representative	December 31, 2018
Kazunori Kataoka*1	Group Senior Managing Executive	President, ORIX Life Insurance Corporation	December 31, 2018

*1 Mr. Kataoka will continue his role as a President of ORIX Life Insurance Corporation.

– 15 –

7. Financial Information

(1) Condensed Consolidated Balance Sheets (Unaudited)

		Millions of yen
Assets		March 31, 2018			December 31, 2018
Cash and Cash Equivalents		¥	1,321,241		¥	1,215,907
Restricted Cash			83,876			119,292
Investment in Direct Financing Leases			1,194,888			1,165,792
Installment Loans			2,823,769			3,177,459
The amounts which are measured at fair value by electing the fair value option are as follows:
March 31, 2018	¥17,260 million
December 31, 2018	¥35,697 million
Allowance for Doubtful Receivables on Direct Financing Leases and Probable Loan Losses			(54,672	)		(57,343	)
Investment in Operating Leases			1,344,926			1,311,226
Investment in Securities			1,729,455			1,844,206
The amounts which are measured at fair value by electing the fair value option are as follows:
March 31, 2018	¥37,631 million
December 31, 2018	¥23,554 million
Property under Facility Operations			434,786			490,137
Investment in Affiliates			591,363			850,648
Trade Notes, Accounts and Other Receivable			294,773			261,801
Inventories			111,001			145,019
Office Facilities			112,962			108,146
Other Assets			1,437,614			1,489,502
The amounts which are measured at fair value by electing the fair value option are as follows:
March 31, 2018	¥15,008 million
December 31, 2018	¥17,802 million
Total Assets		¥	11,425,982		¥	12,121,792

Note: The assets of consolidated variable interest entities (VIEs) that can be used only to settle obligations of those VIEs are below:

	Millions of yen
	March 31, 2018		December 31, 2018
Cash and Cash Equivalents	¥	4,553	¥	5,769
Investment in Direct Financing Leases (Net of Allowance for Doubtful Receivables on Direct Financing Leases and Probable Loan Losses)		43,942		22,856
Installment Loans (Net of Allowance for Doubtful Receivables on Direct Financing Leases and Probable Loan Losses)		36,991		187,313
Investment in Operating Leases		124,998		81,201
Property under Facility Operations		108,115		150,828
Investment in Affiliates		52,450		52,107
Other		74,645		94,089
	¥	445,694	¥	594,163

– 16 –

		Millions of yen
Liabilities and Equity		March 31, 2018			December 31, 2018
Liabilities:
Short-term Debt		¥	306,754		¥	648,767
Deposits			1,757,462			1,884,576
Trade Notes, Accounts and Other Payable			262,301			233,687
Policy Liabilities and Policy Account Balances			1,511,246			1,489,650
The amounts which are measured at fair value by electing the fair value option are as follows:
March 31, 2018	¥444,010 million
December 31, 2018	¥362,073 million
Current and Deferred Income Taxes			366,947			368,045
Long-term Debt			3,826,504			3,970,544
Other Liabilities			588,474			635,494
Total Liabilities			8,619,688			9,230,763
Redeemable Noncontrolling Interests			7,420			7,679
Commitments and Contingent Liabilities
Equity:
Common Stock			220,961			221,111
Additional Paid-in Capital			267,291			257,625
Retained Earnings			2,315,283			2,470,128
Accumulated Other Comprehensive Income (Loss)			(45,566	)		(55,463	)
Treasury Stock, at Cost			(75,545	)		(75,903	)
ORIX Corporation Shareholders’ Equity			2,682,424			2,817,498
Noncontrolling Interests			116,450			65,852
Total Equity			2,798,874			2,883,350
Total Liabilities and Equity		¥	11,425,982		¥	12,121,792

Note: The liabilities of consolidated VIEs for which creditors (or beneficial interest holders) do not have recourse to the general credit of the Company and its subsidiaries are below:

	Millions of yen
	March 31, 2018		December 31, 2018
Trade Notes, Accounts and Other Payable	¥	1,102	¥	1,947
Long-term Debt		263,973		382,777
Other		8,047		12,010
	¥	273,122	¥	396,734

– 17 –

(2) Condensed Consolidated Statements of Income (Unaudited)

	Millions of yen
	Nine months ended December 31, 2017			Nine months ended December 31, 2018
Revenues:
Finance revenues	¥	171,348		¥	179,951
Gains on investment securities and dividends		33,919			4,767
Operating leases		289,967			313,321
Life insurance premiums and related investment income		278,538			228,020
Sales of goods and real estate		836,689			453,199
Services income		584,421			616,897
Total revenues		2,194,882			1,796,155
Expenses:
Interest expense		56,806			67,376
Costs of operating leases		188,777			191,493
Life insurance costs		205,030			152,799
Costs of goods and real estate sold		782,273			415,810
Services expense		358,724			375,245
Other (income) and expense, net		(1,096	)		242
Selling, general and administrative expenses		315,267			320,084
Provision for doubtful receivables and probable loan losses		11,960			14,075
Write-downs of long-lived assets		3,029			26
Write-downs of securities		830			821
Total expenses		1,921,600			1,537,971
Operating Income		273,282			258,184
Equity in Net Income of Affiliates		46,289			16,514
Gains on Sales of Subsidiaries and Affiliates and Liquidation Losses, net		40,917			20,470
Income before Income Taxes		360,488			295,168
Provision for Income Taxes		98,934			56,140
Net Income		261,554			239,028
Net Income Attributable to the Noncontrolling Interests		4,875			2,387
Net Income Attributable to the Redeemable Noncontrolling Interests		288			434
Net Income Attributable to ORIX Corporation Shareholders	¥	256,391		¥	236,207
Note:  Certain line items presented in the consolidated statements of income have been changed starting from the three months ended June 30, 2018. For further information, see Note 2 “Significant Accounting and Reporting Policies (ag) Reclassifications.”
	Yen
	Nine months ended December 31, 2017			Nine months ended December 31, 2018
Amounts per Share of Common Stock for Net Income Attributable to ORIX Corporation Shareholders:
Basic:	¥	200.05		¥	184.53
Diluted:	¥	199.86		¥	184.38

– 18 –

	Millions of yen
	Three months ended December 31, 2017		Three months ended December 31, 2018
Revenues:
Finance revenues	¥	58,002	¥	62,599
Gains on investment securities and dividends		13,442		(6,968	)
Operating leases		92,009		104,346
Life insurance premiums and related investment income		97,328		47,416
Sales of goods and real estate		220,121		122,438
Services income		196,184		204,310
Total revenues		677,086		534,141
Expenses:
Interest expense		18,885		25,528
Costs of operating leases		63,552		64,127
Life insurance costs		73,315		27,065
Costs of goods and real estate sold		202,708		110,497
Services expense		122,109		127,673
Other (income) and expense, net		368		745
Selling, general and administrative expenses		105,968		109,438
Provision for doubtful receivables and probable loan losses		3,962		5,865
Write-downs of long-lived assets		1,557		0
Write-downs of securities		407		113
Total expenses		592,831		471,051
Operating Income		84,255		63,090
Equity in Net Income of Affiliates		7,676		9,695
Gains on Sales of Subsidiaries and Affiliates and Liquidation Losses, net		15,945		1,438
Income before Income Taxes		107,876		74,223
Provision for Income Taxes		15,723		(8,186	)
Net Income		92,153		82,409
Net Income Attributable to the Noncontrolling Interests		1,592		903
Net Income Attributable to the Redeemable Noncontrolling Interests		140		349
Net Income Attributable to ORIX Corporation Shareholders	¥	90,421	¥	81,157
Note:  Certain line items presented in the consolidated statements of income have been changed starting from the three months ended June 30, 2018. For further information, see Note 2 “Significant Accounting and Reporting Policies (ag) Reclassifications.”
	Yen
	Three months ended December 31, 2017		Three months ended December 31, 2018
Amounts per Share of Common Stock for Net Income Attributable to ORIX Corporation Shareholders:
Basic:	¥	70.67	¥	63.41
Diluted:	¥	70.60	¥	63.35

– 19 –

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

	Millions of yen
	Nine months ended   December 31, 2017			Nine months ended   December 31, 2018
Net Income	¥	261,554		¥	239,028
Other comprehensive income (loss), net of tax:
Net change of unrealized gains (losses) on investment in securities		(9,926	)		(1,835	)
Net change of debt valuation adjustments		0			303
Net change of defined benefit pension plans		(583	)		5
Net change of foreign currency translation adjustments		25,882			(5,129	)
Net change of unrealized gains (losses) on derivative instruments		439			(64	)
Total other comprehensive income (loss)		15,812			(6,720	)
Comprehensive Income		277,366			232,308
Comprehensive Income Attributable to the Noncontrolling Interests		4,587			2,299
Comprehensive Income Attributable to the Redeemable Noncontrolling Interests		337			760
Comprehensive Income Attributable to ORIX Corporation Shareholders	¥	272,442		¥	229,249

	Millions of yen
	Three months ended December 31, 2017			Three months ended  December 31, 2018
Net Income	¥	92,153		¥	82,409
Other comprehensive income (loss), net of tax:
Net change of unrealized gains (losses) on investment in securities		(6,899	)		(229	)
Net change of debt valuation adjustments		0			384
Net change of defined benefit pension plans		(136	)		206
Net change of foreign currency translation adjustments		7,227			(19,918	)
Net change of unrealized gains (losses) on derivative instruments		363			(754	)
Total other comprehensive income (loss)		555			(20,311	)
Comprehensive Income		92,708			62,098
Comprehensive Income Attributable to the Noncontrolling Interests		637			496
Comprehensive Income Attributable to the Redeemable Noncontrolling Interests		155			173
Comprehensive Income Attributable to ORIX Corporation Shareholders	¥	91,916		¥	61,429

– 20 –

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

Nine months ended December 31, 2017

	Millions of yen
	ORIX Corporation Shareholders’ Equity
	Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total ORIX Corporation Shareholders’ Equity			Noncontrolling Interests			Total Equity
Beginning Balance	¥	220,524	¥	268,138		¥	2,077,474		¥	(21,270	)	¥	(37,168	)	¥	2,507,698		¥	139,927		¥	2,647,625
Contribution to subsidiaries																0			11,227			11,227
Transaction with noncontrolling interests				(1,060	)											(1,060	)		(9,679	)		(10,739	)
Comprehensive income, net of tax:
Net income							256,391									256,391			4,875			261,266
Other comprehensive income (loss)
Net change of unrealized gains (losses) on investment in securities										(9,878	)					(9,878	)		(48	)		(9,926	)
Net change of defined benefit pension plans										(584	)					(584	)		1			(583	)
Net change of foreign currency translation adjustments										26,107						26,107			(274	)		25,833
Net change of unrealized gains (losses) on derivative instruments										406						406			33			439
Total other comprehensive income (loss)																16,051			(288	)		15,763
Total comprehensive income																272,442			4,587			277,029
Cash dividends							(72,757	)								(72,757	)		(7,572	)		(80,329	)
Exercise of stock options		200		100												300			0			300
Acquisition of treasury stock													(39,110	)		(39,110	)		0			(39,110	)
Disposal of treasury stock				(180	)								253			73			0			73
Other, net				321			(1	)								320			0			320
Ending Balance	¥	220,724	¥	267,319		¥	2,261,107		¥	(5,219	)	¥	(76,025	)	¥	2,667,906		¥	138,490		¥	2,806,396
Nine months ended December 31, 2018
	Millions of yen
	ORIX Corporation Shareholders’ Equity
	Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total ORIX Corporation Shareholders’ Equity			Noncontrolling Interests			Total Equity
Balance at March 31, 2018	¥	220,961	¥	267,291		¥	2,315,283		¥	(45,566	)	¥	(75,545	)	¥	2,682,424		¥	116,450		¥	2,798,874
Cumulative effect of adopting Accounting Standards Update 2014-09							405									405			354			759
Cumulative effect of adopting Accounting Standards Update 2016-01							2,899			(2,899	)					0			0			0
Cumulative effect of adopting Accounting Standards Update 2016-16							3,772									3,772			0			3,772
Balance at April 1, 2018	¥	220,961	¥	267,291		¥	2,322,359		¥	(48,465	)	¥	(75,545	)	¥	2,686,601		¥	116,804		¥	2,803,405
Contribution to subsidiaries																0			3,420			3,420
Transaction with noncontrolling interests				(9,866	)					(40	)					(9,906	)		(48,428	)		(58,334	)
Comprehensive income, net of tax:
Net income							236,207									236,207			2,387			238,594
Other comprehensive income (loss)
Net change of unrealized gains (losses) on investment in securities										(1,835	)					(1,835	)		0			(1,835	)
Net change of debt valuation adjustments										303						303			0			303
Net change of defined benefit pension plans										4						4			1			5
Net change of foreign currency translation adjustments										(5,353	)					(5,353	)		(102	)		(5,455	)
Net change of unrealized gains (losses) on derivative instruments										(77	)					(77	)		13			(64	)
Total other comprehensive income (loss)																(6,958	)		(88	)		(7,046	)
Total comprehensive income																229,249			2,299			231,548
Cash dividends							(88,438	)								(88,438	)		(8,243	)		(96,681	)
Exercise of stock options		150		75												225			0			225
Acquisition of treasury stock													(706	)		(706	)		0			(706	)
Disposal of treasury stock				(233	)								348			115			0			115
Other, net				358												358			0			358
Ending Balance	¥	221,111	¥	257,625		¥	2,470,128		¥	(55,463	)	¥	(75,903	)	¥	2,817,498		¥	65,852		¥	2,883,350

Note: Changes in the redeemable noncontrolling interests are not included in this table. For further information, see Note 11 “Redeemable Noncontrolling Interests.”

– 21 –

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

	Millions of yen
	Nine months ended December 31, 2017			Nine months ended December 31, 2018
Cash Flows from Operating Activities:
Net income	¥	261,554		¥	239,028
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		202,704			217,993
Provision for doubtful receivables and probable loan losses		11,960			14,075
Equity in net income of affiliates (excluding interest on loans)		(43,796	)		(13,793	)
Gains on sales of subsidiaries and affiliates and liquidation losses, net		(40,917	)		(20,470	)
Gains on sales of securities other than trading		(27,387	)		(6,685	)
Gains on sales of operating lease assets		(32,482	)		(50,445	)
Write-downs of long-lived assets		3,029			26
Write-downs of securities		830			821
Decrease in trading securities		96,680			61,607
Increase in inventories		(14,723	)		(24,011	)
Decrease (Increase) in trade notes, accounts and other receivable		(4,533	)		2,486
Decrease in trade notes, accounts and other payable		(13,778	)		(28,794	)
Decrease in policy liabilities and policy account balances		(40,226	)		(21,596	)
Other, net		(8,309	)		11,368
Net cash provided by operating activities		350,606			381,610
Cash Flows from Investing Activities:
Purchases of lease equipment		(734,163	)		(759,080	)
Principal payments received under direct financing leases		349,351			351,947
Installment loans made to customers		(1,062,960	)		(1,075,480	)
Principal collected on installment loans		859,626			953,742
Proceeds from sales of operating lease assets		254,152			358,586
Investment in affiliates, net		(93,642	)		(287,822	)
Proceeds from sales of investment in affiliates		64,260			44,705
Purchases of available-for-sale debt securities		(292,363	)		(412,247	)
Proceeds from sales of available-for-sale debt securities		327,425			190,698
Proceeds from redemption of available-for-sale debt securities		85,429			59,943
Purchases of equity securities other than trading		(49,854	)		(56,741	)
Proceeds from sales of equity securities other than trading		74,402			68,030
Purchases of property under facility operations		(62,852	)		(51,139	)
Acquisitions of subsidiaries, net of cash acquired		(54,691	)		(116,545	)
Sales of subsidiaries, net of cash disposed		33,070			(39	)
Other, net		(48,273	)		34,181
Net cash used in investing activities		(351,083	)		(697,261	)
Cash Flows from Financing Activities:
Net increase in debt with maturities of three months or less		51,095			187,445
Proceeds from debt with maturities longer than three months		1,230,660			758,286
Repayment of debt with maturities longer than three months		(1,094,145	)		(677,665	)
Net increase in deposits due to customers		130,385			126,669
Cash dividends paid to ORIX Corporation shareholders		(72,757	)		(88,438	)
Acquisition of treasury stock		(39,110	)		(706	)
Contribution from noncontrolling interests		6,478			14,104
Purchases of shares of subsidiaries from noncontrolling interests		(6,651	)		(69,508	)
Net increase (decrease) in call money		(18,000	)		5,000
Other, net		(9,038	)		(8,448	)
Net cash provided by financing activities		178,917			246,739
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash		11,902			(1,006	)
Net increase (decrease) in Cash, Cash Equivalents and Restricted Cash		190,342			(69,918	)
Cash, Cash Equivalents and Restricted Cash at Beginning of Period		1,133,212			1,405,117
Cash, Cash Equivalents and Restricted Cash at End of Period	¥	1,323,554		¥	1,335,199

Notes:	1.	Prior-year amounts have been adjusted for the retrospective application of Accounting Standards Update 2016-18 (“Restricted Cash”—ASC 230 (“Statement of Cash Flows”)) on April 1, 2018.
	2.	Accounting Standards Update 2016-01 (“Recognition and Measurement of Financial Assets and Financial Liabilities”—ASC 825-10 (“Financial Instruments—Overall”)) has been applied on April 1, 2018. The amounts that had been previously reported have been reclassified for this application.
	3.	The following tables provide information about Cash, Cash Equivalents and Restricted Cash which are included in the Company’s consolidated balance sheets as of December 31, 2017 and December 31, 2018, respectively.

	Millions of yen
	December 31, 2017		December 31, 2018
Cash and Cash Equivalents	¥	1,232,874	¥	1,215,907
Restricted Cash		90,680		119,292
Cash, Cash Equivalents and Restricted Cash	¥	1,323,554	¥	1,335,199

– 22 –

Notes to Consolidated Financial Statements

1. Overview of Accounting Principles Utilized

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

These statements include all adjustments (consisting of normal recurring accruals) that we considered necessary to present a fair statement of our results of operations, financial position and cash flows. The results reported in these consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year. These consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in our March 31, 2018 consolidated financial statements on Form 20-F.

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

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

(a) Revenue recognition for revenue from contracts with customers

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

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

(b) Initial direct costs

Under U.S. GAAP, certain initial direct costs to originate leases or loans are being deferred and amortized as yield adjustments over the life of related direct financing leases or loans by using interest method.

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

(c) Operating leases

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

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

(d) Accounting for life insurance operations

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

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

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

(e) Accounting for goodwill and other intangible assets in business combination

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

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

– 23 –

(f) Accounting for pension plans

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

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

(g) Sale of the parent’s ownership interest in subsidiaries

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

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

(h) Consolidated statements of cash flows

Classification in the statements of cash flows under U.S. GAAP 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 (excluding issues and collections of loans held for sale) are included in “Cash Flows from Investing Activities” under U.S. GAAP while they are classified as “Cash Flows from Operating Activities” under Japanese GAAP.

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

(i) Transfer of financial assets

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

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

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

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

(j) Investment in securities

Under U.S. GAAP, unrealized gains and losses from all of equity securities are generally recognized in income.

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

(k) Fair value option

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

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

– 24 –

2. Significant Accounting and Reporting Policies

(a) Principles of consolidation

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

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

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

(b) Use of estimates

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

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

(d) Revenue recognition

The Company and its subsidiaries recognize revenues from only contracts with customers that are not completed on April 1, 2018, such as sales of goods and real estate, and services income, based on the following five steps;

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

Step 2: Identify the performance obligations in the contract

Step 3: Determine the transaction price

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

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

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

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

– 25 –

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

(1) Revenues from direct financing leases

Direct financing leases consist of full-payout leases for various equipment types, including office equipment, industrial machinery and transportation equipment. In providing leasing services, the Company and its subsidiaries execute supplemental services, such as paying insurance and handling taxes on leased assets on behalf of lessees. The excess of aggregate lease rentals plus the estimated unguaranteed residual value over the cost of the leased equipment constitutes the unearned lease income to be taken into income over the lease term by using the interest method. The estimated unguaranteed residual value represents estimated proceeds from the disposition of equipment at the time the lease is terminated. The estimated unguaranteed residual value is based on market value of used equipment, estimates of when and how much equipment will become obsolete, and actual recovery being experienced for similar used equipment. Initial direct costs are being deferred and amortized as a yield adjustment over the life of the related lease by using interest method. The unamortized balance of initial direct costs is reflected as a component of investment in direct financing leases.

(2) Revenues from installment loans

Interest income on installment loans is recognized on an accrual basis. Certain direct loan origination costs, net of origination fees, are being deferred and amortized over the contractual term of the loan as an adjustment of the related loan’s yield using the interest method.

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

(3) Revenues from financial guarantees

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

(4) Non-accrual policy

In common with all classes, past-due financing receivables are receivables for which principal or interest is past-due 30 days or more. Loans whose terms have been modified are not classified as past-due financing receivables if the principals and interests are not past-due 30 days or more in accordance with the modified terms. The Company and its subsidiaries suspend accruing revenues on past-due installment loans and direct financing leases when principal or interest is past-due 90 days or more, or earlier, if management determines that their collections are doubtful based on factors such as individual debtor’s creditworthiness, historical loss experience, current delinquencies and delinquency trends. Accrued but uncollected interest is reclassified to investment in direct financing leases or installment loans in the accompanying consolidated balance sheets and becomes subject to the allowance for doubtful receivables and probable loan loss process. Cash repayments received on non-accrual loans are applied first against past due interest and then any surpluses are applied to principal in view of the conditions of the contract and obligors. The Company and its subsidiaries return non-accrual loans and lease receivables to accrual status when it becomes probable that the Company and its subsidiaries will be able to collect all amounts due according to the contractual terms of these loans and receivables, as evidenced by continual payments from the debtors. The period of such continual payments before returning to accrual status varies depending on factors that we consider are relevant in assessing the debtor’s creditworthiness, such as the debtor’s business characteristics and financial conditions as well as relevant economic conditions and trends.

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

– 26 –

Operating leases—Revenues from operating leases are recognized on a straight-line basis over the contract terms. Investment in operating leases is recorded at cost less accumulated depreciation, which was ¥605,415 million and ¥616,846 million as of March 31, 2018 and December 31, 2018, respectively. Operating lease assets are depreciated over their estimated useful lives mainly on a straight-line basis. Depreciation expenses are included in costs of operating leases. Gains or losses arising from dispositions of operating lease assets are included in operating lease revenues.

Estimates of residual values are based on market values of used equipment, estimates of when and the extent to which equipment will become obsolete and actual recovery being experienced for similar used equipment.

(e) Insurance and reinsurance transactions

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

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

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

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

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

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

(f) Allowance for doubtful receivables on direct financing leases and probable loan losses

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

– 27 –

Developing the allowance for doubtful receivables on direct financing leases and probable loan losses is subject to numerous estimates and judgments. In evaluating the appropriateness of the allowance, management considers various factors, including the business characteristics and financial conditions of the obligors, current economic conditions and trends, prior charge-off experience, current delinquencies and delinquency trends, future cash flows expected to be received from the direct financing leases and loans and value of underlying collateral and guarantees. Impaired loans are individually evaluated for a valuation allowance based on the present value of expected future cash flows, the loan’s observable market price or the fair value of the collateral securing the loans if the loans are collateral-dependent. For non-impaired loans, including loans that are not individually evaluated for impairment, and direct financing leases, the Company and its subsidiaries evaluate prior charge-off experience segmented by the debtors’ industries and the purpose of the loans, and then develop the allowance for doubtful receivables on direct financing leases and probable loan losses considering the prior charge-off experience and current economic conditions.

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

(g) Impairment of long-lived assets

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

(h) Investment in securities

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

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

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

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

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

Held-to-maturity debt securities are recorded at amortized cost.

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For debt securities other than trading, where the fair value is less than the amortized cost, the Company and its subsidiaries consider whether those securities are other-than-temporarily impaired using all available information about their collectability. The Company and its subsidiaries do not consider a debt security to be other-than-temporarily impaired if (1) the Company and its subsidiaries do not intend to sell the debt security, (2) it is not more likely than not that the Company and its subsidiaries will be required to sell the debt security before recovery of its amortized cost basis and (3) the present value of estimated cash flows will fully cover the amortized cost of the security. On the other hand, the Company and its subsidiaries consider a debt security to be other-than-temporarily impaired if any of the above mentioned three conditions are not met. When the Company and its subsidiaries deem a debt security to be other-than-temporarily impaired, the Company and its subsidiaries recognize the entire difference between the amortized cost and the fair value of the debt securities in earnings if the Company and its subsidiaries intend to sell the debt security or it is more likely than not that the Company and its subsidiaries will be required to sell the debt security before recovery of its amortized cost basis less any current-period credit loss. However, if the Company and its subsidiaries do not intend to sell the debt security and it is not more likely than not that the Company and its subsidiaries will be required to sell the debt security before recovery of its amortized cost basis less any current-period credit loss, the Company and its subsidiaries separate the difference between the amortized cost and the fair value of the debt securities into the credit loss component and the non-credit loss component. The credit loss component is recognized in earnings, and the non-credit loss component is recognized in other comprehensive income (loss), net of applicable income taxes.

(i) Income taxes

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

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

The effective income tax rates for the nine months ended December 31, 2017 and 2018 were 27.4% and 19.0%, respectively. These rates are 14.6% and (11.0)% for the three months ended December 31, 2017 and 2018, respectively. The effective tax rate for the three months ended December 31, 2018 was negative mainly due to the reversal of deferred tax liabilities, which had been recorded against undistributed earnings of DAIKYO INCORPORATED (hereinafter, “DAIKYO”) to be described below. For the nine and three months ended December 31, 2017, the Company and its subsidiaries in Japan were subject to a National Corporate tax of approximately 24%, an Inhabitant tax of approximately 4% and a deductible Enterprise tax of approximately 4%, which in the aggregate result in a statutory income tax rate of approximately 31.7%. For the nine and three months ended December 31, 2018, the Company and its subsidiaries in Japan were subject to a National Corporate tax of approximately 24%, an Inhabitant tax of approximately 4% and a deductible Enterprise tax of approximately 4%, which in the aggregate result in a statutory income tax rate of approximately 31.5%. The effective income tax rate is different from the statutory tax rate primarily because of certain nondeductible expenses for tax purposes, non-taxable income for tax purposes, changes in valuation allowance, the effect of lower tax rates on certain subsidiaries and the effect of investor taxes on earnings of subsidiaries.

On December 22, 2017, the tax reform bill “Tax Cuts and Jobs Act (H.R.1 / Public Law No. 115-97)” in the United States was enacted. From January 1, 2018, the U.S. corporate tax rate reduced from 35% to 21%. Decrease of the deferred tax assets and liabilities due to this tax reform resulted in a decrease of provision for income taxes by ¥17,465 million for the nine and three months ended December 31, 2017.

As of October 26, 2018, the Company decided to acquire common shares of its domestic subsidiary, DAIKYO through a tender offer (hereinafter, “the Tender Offer”), and change the method of collecting undistributed earnings of DAIKYO from collection through a taxable transaction to collection through a tax free transaction. As of December 10, 2018, the Tender Offer was concluded and ownership percentage of the Company’s voting rights in DAIKYO increased from 67.92% to 94.07%. Along with the establishment of these events, the Company completely reversed the deferred tax liabilities previously recorded for undistributed earnings of DAIKYO during the three months ended December 31, 2018. As a result of this reversal of deferred tax liabilities, income taxes decreased by ¥27,376 million for the nine and three months ended December 31, 2018.

– 29 –

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

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

(j) Securitized assets

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

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

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

(k) Derivative financial instruments

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

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

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

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

The ineffective portion of changes in fair value of derivatives that qualify as a hedge are recorded in earnings.

– 30 –

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

(l) Pension plans

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

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

– 31 –

(m) Stock-based compensation

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

(n) Stock splits

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

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

In the United States, stock splits in comparable circumstances are considered to be stock dividends and are accounted for by transferring from retained earnings to common stock and additional paid-in capital amounts equal to the fair market value of the shares issued. Common stock is increased by the par value of the shares and additional paid-in capital is increased by the excess of the market value over par value of the shares issued. Had such stock splits made prior to October 1, 2001 been accounted for in this manner, additional paid-in capital as of December 31, 2018 would have increased by approximately ¥24,674 million, with a corresponding decrease in retained earnings. Total ORIX Corporation shareholders’ equity would remain unchanged. Stock splits on May 19, 2000 were excluded from the above amounts because the stock splits were not considered to be stock dividends under U.S. GAAP.

(o) Cash and cash equivalents

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

(p) Restricted cash

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

(q) Installment loans

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

Loans held for sale are included in installment loans, and the outstanding balances of these loans as of March 31, 2018 and December 31, 2018 were ¥18,300 million and ¥48,964 million, respectively. There were ¥17,260 million and ¥35,697 million of loans held for sale as of March 31, 2018 and December 31, 2018, respectively, measured at fair value by electing the fair value option.

(r) Property under facility operations

Property under facility operations consist primarily of operating facilities (including golf courses, hotels, training facilities and senior housings) and environmental assets (including mega solar), which are stated at cost less accumulated depreciation, and depreciation is calculated mainly on a straight-line basis over the estimated useful lives of the assets. Accumulated depreciation was ¥101,103 million and ¥113,913 million as of March 31, 2018 and December 31, 2018, respectively.

– 32 –

(s) Trade notes, accounts and other receivable

Trade notes, accounts and other receivable primarily include accounts receivables in relation to sales of assets to be leased, inventories and other assets and payment made on behalf of lessees for property tax, maintenance fees and insurance premiums in relation to lease contracts.

(t) Inventories

Inventories consist primarily of residential condominiums under development, completed residential condominiums (including those waiting to be delivered to buyers under the contract for sale), and merchandise for sale. Residential condominiums under development are carried at cost less any impairment losses, and completed residential condominiums and merchandise for sale are stated at the lower of cost or fair value less cost to sell. The cost of inventories that are unique and not interchangeable is determined on the specific identification method and the cost of other inventories is principally determined on the average method. As of March 31, 2018 and December 31, 2018, residential condominiums under development were ¥51,415 million and ¥82,326 million, respectively, and completed residential condominiums and merchandise for sale were ¥59,586 million and ¥62,693 million, respectively.

The company and its subsidiaries recorded ¥512 million and ¥269 million of write-downs principally on completed residential condominiums and merchandise for sale for the nine months ended December 31, 2017 and 2018, respectively, primarily resulting from a decrease in expected sales price. The amounts of such write-downs for the three months ended December 31, 2017 and 2018 were ¥424 million and ¥159 million, respectively. These write-downs were recorded in costs of goods and real estate sold and principally included in Investment and Operation segment.

(u) Office facilities

Office facilities are stated at cost less accumulated depreciation. Depreciation is calculated on a declining-balance basis or straight-line basis over the estimated useful lives of the assets. Accumulated depreciation was ¥51,395 million and ¥53,896 million as of March 31, 2018 and December 31, 2018, respectively.

(v) Other assets

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

– 33 –

(w) Goodwill and other intangible assets

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

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

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

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

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

The amount of goodwill was ¥368,625 million and ¥441,697 million as of March 31, 2018 and December 31, 2018, respectively.

The amount of other intangible assets was ¥439,100 million and ¥427,572 million as of March 31, 2018 and December 31, 2018, respectively.

– 34 –

(x) Trade notes, accounts and other payable

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

(y) Other Liabilities

Other liabilities include primarily accrued expenses related to interest and bonus, accrued benefit liability, advances received from lessees in relation to lease contracts, deposits received from real estate transaction, contract liabilities mainly related to automobile maintenance services and derivative liabilities.

(z) Capitalization of interest costs

The Company and its subsidiaries capitalized interest costs primarily related to specific environmental assets and long-term real estate development projects.

(aa) Advertising

The costs of advertising are expensed as incurred.

(ab) Earnings per share

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

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

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

(ad) Redeemable noncontrolling interests

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

(ae) Issuance of stock by an affiliate

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

(af) New accounting pronouncements

In May 2014, Accounting Standards Update 2014-09 (“Revenue from Contracts with Customers”—ASC 606 (“Revenue from Contracts with Customers”)) was issued, and related amendments were issued thereafter. The core principle of these Updates requires that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company and its subsidiaries adopted these Updates on April 1, 2018, using the cumulative-effect method, for only those contracts that are not completed at the date of initial adoption. The adoption primarily resulted in changes in the timing of revenue recognition for performance fees received from customers regarding asset management business, and certain project-based orders in real estate business for which the Company and its subsidiaries currently apply the percentage-of-completion or completed contract method. The effect of adopting these Updates on the Company and its subsidiaries’ financial position at the adoption date was mainly an increase of ¥405 million in retained earnings in the consolidated balance sheets. There are no material effects on the Company and its subsidiaries’ results of operations for the nine and three months ended December 31, 2018 and financial position as of December 31, 2018 by adopting these Updates, as compared to the guidance that was in effect before the change.

– 35 –

In January 2016, Accounting Standards Update 2016-01 (“Recognition and Measurement of Financial Assets and Financial Liabilities”—ASC 825-10 (“Financial Instruments—Overall”)) was issued. This Update requires an entity to measure equity investments at fair value, and requires recognizing the changes in fair value through earnings or using alternative method that requires carrying value to be adjusted by subsequent observable transactions. Additionally, this Update revises the presentation of certain fair value changes for financial liabilities measured at fair value. The Company and its subsidiaries adopted this Update on April 1, 2018. The effect of adopting this Update on the Company and its subsidiaries’ financial position at the adoption date was mainly a decrease of ¥2,899 million in accumulated other comprehensive income and an increase of ¥2,899 million in retained earnings in the consolidated balance sheets, due to reclassification of unrealized changes in fair value of equity investments from accumulated other comprehensive income to retained earnings, and reclassification of changes in fair value of financial liabilities resulting from a change in the instrument-specific credit risk when the Company and its subsidiaries have elected to measure the liabilities at fair value in accordance with the fair value option, from retained earnings to accumulated other comprehensive income.

In February 2016, Accounting Standards Update 2016-02 (ASC 842 (“Leases”)) was issued, and related amendments were issued thereafter. These Updates require a lessee to recognize most leases on the balance sheet. Lessor accounting remains substantially similar to current U.S. GAAP but with some changes. These Updates require an entity to disclose more information about leases than under the current disclosure requirements.

In July 2018, Accounting Standards Update 2018-11 (“Targeted Improvements”—ASC 842 (“Leases”)) was issued. This Update provides entities with an additional (and optional) transition method of which an entity initially applies ASC 842 (hereinafter, “new lease standard”) at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the fiscal year of adoption. Consequently, an entity’s reporting for the comparative periods presented in the financial statements in which it adopts ASC 840 will continue to be in accordance with ASC 840. This Update also provides lessors with a practical expedient, by class of underlying asset, to not separate nonlease components from the associated lease component, where the timing and pattern of transfer of the nonlease component(s) and associated lease component are the same, and the lease component, if accounting for separately, would be classified as an operating lease.

In December 2018, Accounting Standards Update 2018-20 (“Narrow-Scope Improvements for Lessors”—ASC 842 (“Leases”)) was issued as amendments of the new lease standard. The amendments in this Update (1) provide an entity with an accounting policy election to accounts for the payment for all sales (and other similar) taxes as a lessor cost; (2) require lessors to exclude from variable payments lessor costs paid by lessees directly to third parties, and also require lessors to account for costs excluded from consideration of a contract that are paid by the lessor and reimbursed by the lessee as variable payments; and (3) require lessors to allocate (rather than recognize as currently required) certain variable payments to the lease and nonlease components when the changes in facts and circumstances on which the variable payment is based occur and recognize the amount of variable payments allocated to nonlease components as income in profit or loss in accordance with other Accounting Standards, such as ASC 606.

These Updates are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early application is permitted. A modified retrospective transition approach is required, applying the new lease standard to all leases existing at the date of initial adoption. An entity may choose to use either (1) the beginning of the fiscal year of adoption or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial adoption. The Company and its subsidiaries will adopt these Updates on April 1, 2019 and use the beginning of the fiscal year of adoption as the date of initial adoption. Consequently, financial information of comparative period will not be updated and the disclosures required under the new lease standard will not be provided for periods before April 1, 2019. The new lease standard provides a number of optional practical expedients in transition. The Company and its subsidiaries will elect the “package of practical expedients”, which permits not to reassess under the new lease standard the prior conclusions about lease identification, lease classification and initial direct costs. The Company and its subsidiaries will elect the new lease standard’s available transition practical expedients. The Company and its subsidiaries will not have a significant change in the leasing activities for the period from the present to the date of adoption.

– 36 –

Based on the Company and its subsidiaries’ assessment and best estimates to date, the impact of the adoption of these Updates will likely result in gross up of right-of-use (hereinafter, “ROU”) assets and corresponding lease liabilities principally for operating leases where it is the lessee, such as land leases and office and equipment leases. The new lease standard also provides practical expedients for an entity’s ongoing accounting. The Company and its subsidiaries will elect the short-term lease recognition exemption mainly for vehicle and office equipment leases. Consequently, for those leases that qualify the requirements, the Company and its subsidiaries will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. The Company and its subsidiaries also will elect the practical expedient to not separate lease and non-lease components for part of leases as lessors. The Company and its subsidiaries will expand its disclosures regarding lessee, to explain ROU assets and corresponding lease liabilities, and lessor. Other than the impact that have been currently identified, the Company and its subsidiaries continue to evaluate the effect that the adoption of these Updates will have on the Company and its subsidiaries’ results of operations or financial position.

In June 2016, Accounting Standards Update 2016-13 (“Measurement of Credit Losses on Financial Instruments”—ASC 326 (“Financial Instruments—Credit Losses”)) was issued, and related amendments were issued thereafter. These Updates significantly change how companies measure and recognize credit impairment for many financial assets. The new current expected credit loss model requires companies to immediately recognize an estimate of credit losses expected to occur over the remaining life of the financial assets that are within the scope of these Updates. These Updates also make targeted amendments to the current impairment model for available-for-sale debt securities. These Updates are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The amendments in these Updates should be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. Early application is permitted for fiscal year beginning after December 15, 2018, including interim periods within the fiscal year. The Company and its subsidiaries will adopt these Updates on April 1, 2020. The Company and its subsidiaries continue to evaluate the effect that the adoption of these Updates will have on the Company and its subsidiaries’ results of operations or financial position, as well as changes in disclosures required by these Updates.

In August 2016, Accounting Standards Update 2016-15 (“Classification of Certain Cash Receipts and Cash Payments”—ASC 230 (“Statement of Cash Flows”)) was issued. This Update amends ASC 230 to add or clarify guidance on the classification of certain cash receipts and cash payments in the statement of cash flows. The Company and its subsidiaries adopted this Update on April 1, 2018. The adoption did not have an effect in the consolidated statements of cash flows.

In October 2016, Accounting Standards Update 2016-16 (“Intra-Entity Transfers of Assets Other Than Inventory”—ASC 740 (“Income Taxes”)) was issued. This Update eliminates the exception to defer the income tax consequences of intra-entity transfers of assets other than inventory until the assets are ultimately sold to an outside party and requires the recognition of the current and deferred tax consequences when those transfers occur. The Company and its subsidiaries adopted this Update on April 1, 2018. The effect of adopting this Update on the Company and its subsidiaries’ financial position at the adoption date was mainly an increase of ¥3,772 million in retained earnings in the consolidated balance sheets.

– 37 –

In November 2016, Accounting Standards Update 2016-18 (“Restricted Cash”—ASC 230 (“Statement of Cash Flows”)) was issued. This Update requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The Company and its subsidiaries adopted this Update on April 1, 2018, using retrospective transition approach. The effects of adopting this Update for the nine months ended December 31, 2017 and 2018 are a decrease of ¥2,662 million and an increase of ¥35,416 million, respectively, in cash and cash equivalents and restricted cash in the consolidated statements of cash flows. There are no material effects on the cash flows from operating activities, investing activities and financing activities of the Company and its subsidiaries by adopting this Update.

In January 2017, Accounting Standards Update 2017-04 (“Simplifying the Test for Goodwill Impairment”—ASC 350 (“Intangible—Goodwill and Other”)) was issued. This Update eliminates Step 2 from the current goodwill impairment test. Instead, goodwill impairments would be measured by the amount by which the carrying amount exceeds the reporting unit’s fair value. This Update also eliminates the requirement for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it is more likely than not that the goodwill is impaired, to perform Step 2 of the goodwill impairment test. This Update is effective for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019 and should be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates on or after January 1, 2017. The Company and its subsidiaries will adopt this Update on April 1, 2020. Generally, the effect of adopting this Update on the Company and its subsidiaries’ results of operation or financial position will depend on the outcomes of future goodwill impairment tests.

In August 2017, Accounting Standards Update 2017-12 (“Targeted Improvements to Accounting for Hedging Activities”—ASC 815 (“Derivatives and Hedging”)) was issued, and related amendments were issued thereafter. These Updates change the recognition and presentation requirements of hedge accounting including eliminating the requirements to separately measure and report hedge ineffectiveness and presenting the entire change in the fair value of the hedging instrument that affects earnings in the same income statement line as the hedged item. These Updates are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, including in an interim period. For cash flow hedges and net investment hedges existing at the date of adoption, an entity should apply a cumulative-effect adjustment related to eliminating the separate measurement of ineffectiveness to accumulated other comprehensive income with a corresponding adjustment to the opening balance of retained earnings as of the beginning of fiscal year that an entity adopts the amendments in these Updates. The amended presentation and disclosure guidance is required only prospectively. The Company and its subsidiaries will adopt these Updates on April 1, 2019. The Company and its subsidiaries are currently evaluating the effect that the adoption of these Updates will have on the Company and its subsidiaries’ results of operations or financial position.

In August 2018, Accounting Standards Update 2018-12 (“Targeted Improvements to the Accounting for Long-Duration Contracts”—ASC 944 (“Financial Services—Insurance”)) was issued. This Update changes the recognition, measurement, presentation and disclosure requirements for long-duration contracts issued by an insurance entity. This Update requires an insurance entity to review and, if there is a change, update cash flow assumptions at least annually and to update discount rate used for liability for future policy benefits at each reporting date for nonparticipating traditional long-duration and limited-payment contracts. This Update also requires market risk benefits to be measured at fair value, and simplifies amortization of deferred acquisition costs. Furthermore, this Update requires additional disclosures for long-duration contracts. This Update is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early application is permitted. For the liability for future policy benefits and deferred acquisition costs, this Update is applied to contracts in force as of beginning of the earliest period presented (hereinafter, “the transition date” of this Update) on a modified retrospective basis, and an insurance entity may elect to apply retrospectively. For the market risk benefits, this Update is applied retrospectively at the transition date, and the difference between fair value and carrying value requires an adjustment to retained earnings at the transition date. The cumulative effect of changes in the instrument-specific credit risk between contract inception date and the transition date should be recognized in accumulated other comprehensive income at the transition date. The Company and its subsidiaries will adopt this Update on April 1, 2021. The Company and its subsidiaries are currently evaluating the effect that the adoption of this Update will have on the Company and its subsidiaries’ results of operations or financial position, as well as changes in disclosures required by this Update.

– 38 –

In August 2018, Accounting Standards Update 2018-13 (“Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement”—ASC 820 (“Fair Value Measurement”)) was issued. This Update modifies and adds the disclosure requirements for Fair Value Measurements. This Update also removes disclosure requirements of the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels, and the valuation processes for Level 3 fair value measurements. This Update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 and early adoption is permitted. An entity is also permitted to early adopt any removed or modified disclosure requirements and delay adoption of the additional disclosure requirements until their effective date. Removals and modifications of disclosure requirements should be mainly applied retrospectively to all periods presented upon their effective date, while the additional disclosure requirements should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. The Company and its subsidiaries early adopted the removals of disclosure requirements from the three months ended September 30, 2018. The Company and its subsidiaries will adopt the modifications and additions of disclosure requirements from fiscal 2021. Since this Update relates to disclosure requirements, the adoption will not have an effect on the Company and its subsidiaries’ results of operations or financial position.

In August 2018, Accounting Standards Update 2018-14 (“Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans”—ASC 715-20 (“Compensation—Retirement Benefits—Defined Benefit Plans—General”)) was issued. This Update adds and clarifies the disclosure requirements for Pension Plans, and removes certain disclosure requirements such as the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year. This Update is effective for fiscal years ending after December 15, 2020. The amendments in this Update should be applied on a retrospective basis to all periods presented. Early adoption is permitted. The Company and its subsidiaries will adopt this Update from fiscal 2021. Since this Update relates to disclosure requirements, the adoption will not have an effect on the Company and its subsidiaries’ results of operations or financial position.

(ag) Reclassifications

Revenues from financial guarantees in the consolidated statements of income have been reclassified from “Services income” to “Finance revenues” starting from the three months ended June 30, 2018.

The change aims to reflect revenue structure of the Company and its subsidiaries more appropriately accompanying the adoption of ASC 606 (“Revenue from Contracts with Customers”). Corresponding to the change, the presented amounts in the consolidated statements of income for the nine and three months ended December 31, 2017 have been reclassified retrospectively to conform to the presentation for the nine and three months ended December 31, 2018.

In the Company’s consolidated statements of income for the nine and three months ended December 31, 2017, “Services income” in the amounts of ¥10,433 million and ¥3,564 million have been reclassified to “Finance revenues.”

3. Fair Value Measurements

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

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

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

– 39 –

The following tables present recorded amounts of major financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2018 and December 31, 2018:

March 31, 2018

	Millions of yen
	Total Carrying Value in Consolidated Balance Sheets			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Loans held for sale*1	¥	17,260		¥	0	¥	17,260	¥	0
Trading securities		422,053			35,766		386,287		0
Available-for-sale securities:		1,015,477			65,716		828,844		120,917
Japanese and foreign government bond securities*2		275,810			3,949		271,861		0
Japanese prefectural and foreign municipal bond securities		163,236			0		163,236		0
Corporate debt securities*3		366,475			8,882		354,556		3,037
CMBS and RMBS in the Americas		74,176			0		38,166		36,010
Other asset-backed securities and debt securities		82,182			0		312		81,870
Equity securities*4		53,598			52,885		713		0
Other securities:		37,879			0		0		37,879
Investment funds*5		37,879			0		0		37,879
Derivative assets:		21,831			507		19,033		2,291
Interest rate swap agreements		327			0		327		0
Options held/written and other		7,025			0		4,734		2,291
Futures, foreign exchange contracts		14,057			507		13,550		0
Foreign currency swap agreements		422			0		422		0
Netting*6		(2,105	)		0		0		0
Net derivative assets		19,726			0		0		0
Other assets:		15,008			0		0		15,008
Reinsurance recoverables*7		15,008			0		0		15,008
Total	¥	1,529,508		¥	101,989	¥	1,251,424	¥	176,095
Liabilities:
Derivative liabilities:	¥	12,400		¥	318	¥	12,082	¥	0
Interest rate swap agreements		4,924			0		4,924		0
Options held/written and other		701			0		701		0
Futures, foreign exchange contracts		3,447			318		3,129		0
Foreign currency swap agreements		3,220			0		3,220		0
Credit derivatives held		108			0		108		0
Netting*6		(2,105	)		0		0		0
Net derivative Liabilities		10,295			0		0		0
Policy Liabilities and Policy Account Balances:		444,010			0		0		444,010
Variable annuity and variable life insurance contracts*8		444,010			0		0		444,010
Total	¥	456,410		¥	318	¥	12,082	¥	444,010

– 40 –

*1 A certain subsidiary elected the fair value option on the loans held for sale. These loans are multi-family and seniors housing loans and are sold to Federal National Mortgage Association (“Fannie Mae”) or institutional investors. Included in “Other (income) and expense, net” in the consolidated statements of income were gains of ¥399 million and ¥976 million from the change in the fair value of the loans for the nine and three months ended December 31, 2017. No gains or losses were recognized in earnings during the nine months ended December 31, 2017 attributable to changes in instrument-specific credit risk. The amounts of aggregate unpaid principal balance and aggregate fair value of the loans held for sale as of March 31, 2018, were ¥16,873 million and ¥17,260 million, respectively, and the amount of the aggregate fair value exceeded the amount of aggregate unpaid principal balance by ¥387 million. As of March 31, 2018, there were no loans that are 90 days or more past due or, in non-accrual status.

*2 A certain subsidiary elected the fair value option for investments in foreign government bond securities included in available-for-sale securities. Included in “Gains on investment securities and dividends” in the consolidated statements of income were losses of ¥11 million and ¥14 million from the change in the fair value of those investments for the nine and three months ended December 31, 2017, respectively. The amount of aggregate fair value elected the fair value option was ¥719 million as of March 31, 2018.

*3 A certain subsidiary elected the fair value option for investments in foreign corporate debt securities included in available-for-sale securities. Included in “Gains on investment securities and dividends” in the consolidated statements of income were a loss of ¥49 million and a gain of ¥14 million from the change in the fair value of those investments for the nine and three months ended December 31, 2017, respectively. The amount of aggregate fair value elected the fair value option was ¥8,882 million as of March 31, 2018.

*4 A certain subsidiary elected the fair value option for certain investments in equity securities included in available-for-sale securities. Included in “Gains on investment securities and dividends” in the consolidated statements of income were gains of ¥1,309 million and ¥428 million from the change in the fair value of those investments for the nine and three months ended December 31, 2017, respectively. The amount of aggregate fair value elected the fair value option was ¥22,365 million as of March 31, 2018.

*5 Certain subsidiaries elected the fair value option for certain investments in investment funds included in other securities. Included in “Gains on investment securities and dividends” in the consolidated statements of income were gains of ¥1,276 million and ¥611 million from the change in the fair value of those investments for the nine and three months ended December 31, 2017, respectively. The amount of aggregate fair value elected the fair value option was ¥5,665 million as of March 31, 2018.

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

*7 Certain subsidiaries elected the fair value option for certain reinsurance contracts held. The fair value of the reinsurance contracts elected for the fair value option in other assets was ¥15,008 million as of March 31, 2018. For the effect of changes in the fair value of those reinsurance contracts on earnings during the nine and three months ended December 31, 2017, see Note 16 “Life Insurance Operations.”

*8 Certain subsidiaries elected the fair value option for the entire variable annuity and variable life insurance contracts held in order to match the earnings recognized for the changes in the fair value of policy liabilities and policy account balances with earnings recognized for gains or losses from the investment assets managed on behalf of variable annuity and variable life policyholders, derivative contracts and the changes in the fair value of reinsurance contracts. The fair value of the variable annuity and variable life insurance contracts elected for the fair value option in policy liabilities and policy account balances was ¥444,010 million as of March 31, 2018. For the effect of changes in the fair value of the variable annuity and variable life insurance contracts on earnings during the nine and three months ended December 31, 2017, see Note 16 “Life Insurance Operations.”

– 41 –

December 31, 2018

	Millions of yen
	Total Carrying Value in Consolidated Balance Sheets			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Loans held for sale*1	¥	35,697		¥	0	¥	35,697	¥	0
Trading debt securities		43,298			0		43,298		0
Available-for-sale debt securities:		1,152,571			20,446		1,039,420		92,705
Japanese and foreign government bond securities*2		359,597			3,461		356,136		0
Japanese prefectural and foreign municipal bond securities		178,493			0		175,195		3,298
Corporate debt securities*3		468,367			16,985		449,025		2,357
CMBS and RMBS in the Americas		58,742			0		58,742		0
Other asset-backed securities and debt securities		87,372			0		322		87,050
Equity securities*4*5		409,826			63,188		290,018		56,620
Derivative assets:		24,647			1,781		21,477		1,389
Interest rate swap agreements		341			0		341		0
Options held/written and other		10,079			0		8,690		1,389
Futures, foreign exchange contracts		12,915			1,781		11,134		0
Foreign currency swap agreements		1,311			0		1,311		0
Credit derivatives held/written		1			0		1		0
Netting*6		(2,319	)		0		0		0
Net derivative assets		22,328			0		0		0
Other assets:		17,802			0		0		17,802
Reinsurance recoverables*7		17,802			0		0		17,802
Total	¥	1,683,841		¥	85,415	¥	1,429,910	¥	168,516
Liabilities:
Derivative liabilities:	¥	19,136		¥	309	¥	18,827	¥	0
Interest rate swap agreements		10,798			0		10,798		0
Options held/written and other		2,508			0		2,508		0
Futures, foreign exchange contracts		4,747			309		4,438		0
Foreign currency swap agreements		1,033			0		1,033		0
Credit derivatives held		50			0		50		0
Netting*6		(2,319	)		0		0		0
Net derivative Liabilities		16,817			0		0		0
Policy Liabilities and Policy Account Balances:		362,073			0		0		362,073
Variable annuity and variable life insurance contracts*8		362,073			0		0		362,073
Total	¥	381,209		¥	309	¥	18,827	¥	362,073

– 42 –

*1 A certain subsidiary elected the fair value option on the loans held for sale. These loans are multi-family and seniors housing loans and are sold to Federal National Mortgage Association (“Fannie Mae”) or institutional investors. Included in “Other (income) and expense, net” in the consolidated statements of income were gains of ¥495 million and ¥294 million from the change in the fair value of the loans for the nine and three months ended December 31, 2018. No gains or losses were recognized in earnings during the nine months ended December 31, 2018 attributable to changes in instrument-specific credit risk. The amounts of aggregate unpaid principal balance and aggregate fair value of the loans held for sale as of December 31, 2018, were ¥34,797 million and ¥35,697 million, respectively, and the amount of the aggregate fair value exceeded the amount of aggregate unpaid principal balance by ¥900 million. As of December 31, 2018, there were no loans that are 90 days or more past due or, in non-accrual status.

*2 A certain subsidiary elected the fair value option for investments in foreign government bond securities included in available-for-sale debt securities. Included in “Gains on investment securities and dividends” in the consolidated statements of income were losses of ¥21 million and ¥12 million from the change in the fair value of those investments for the nine and three months ended December 31, 2018, respectively. The amount of aggregate fair value elected the fair value option was ¥643 million as of December 31, 2018.

*3 A certain subsidiary elected the fair value option for investments in foreign corporate debt securities included in available-for-sale debt securities. Included in “Gains on investment securities and dividends” in the consolidated statements of income were losses of ¥136 million and ¥393 million from the change in the fair value of those investments for the nine and three months ended December 31, 2018, respectively. The amount of aggregate fair value elected the fair value option was ¥16,985 million as of December 31, 2018.

*4 Certain subsidiaries elected the fair value option for certain investments in investment funds included in equity securities. Included in “Gains on investment securities and dividends” in the consolidated statements of income were gains of ¥906 million and ¥265 million from the change in the fair value of those investments for the nine and three months ended December 31, 2018, respectively. The amount of aggregate fair value elected the fair value option was ¥5,926 million as of December 31, 2018.

*5 The amount of ¥12,660 million of investments funds measured at net asset value per share is not included.

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

*7 Certain subsidiaries elected the fair value option for certain reinsurance contracts held. The fair value of the reinsurance contracts elected for the fair value option in other assets was ¥17,802 million as of December 31, 2018. For the effect of changes in the fair value of those reinsurance contracts on earnings during the nine and three months ended December 31, 2018, see Note 16 “Life Insurance Operations.”

*8 Certain subsidiaries elected the fair value option for the entire variable annuity and variable life insurance contracts held in order to match the earnings recognized for the changes in the fair value of policy liabilities and policy account balances with earnings recognized for gains or losses from the investment assets managed on behalf of variable annuity and variable life policyholders, derivative contracts and the changes in the fair value of reinsurance contracts. The fair value of the variable annuity and variable life insurance contracts elected for the fair value option in policy liabilities and policy account balances was ¥362,073 million as of December 31, 2018. For the effect of changes in the fair value of the variable annuity and variable life insurance contracts on earnings during the nine and three months ended December 31, 2018, see Note 16 “Life Insurance Operations.”

– 43 –

The following tables present the reconciliation of financial assets and liabilities (net) measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the nine months ended December 31, 2017 and 2018:

Nine months ended December 31, 2017

	Millions of yen
	Balance at April 1, 2017		Gains or losses (realized/unrealized)									Purchases *3		Sales			Settlements *4			Transfers in and/ or out of Level 3 (net)		Balance at December 31, 2017		Change in unrealized gains or losses included in earnings for assets and liabilities still held at December 31, 2017 *1
			Included in earnings *1			Included in other comprehensive income *2			Total
Available-for-sale securities	¥	124,516	¥	1,757		¥	1,140		¥	2,897		¥	63,290	¥	(30,542	)	¥	(22,860	)	¥	0	¥	137,301	¥	80
Corporate debt securities		1,618		0			7			7			1,850		0			(359	)		0		3,116		0
CMBS and RMBS in the Americas		57,858		1,669			(177	)		1,492			1,994		(3,468	)		(15,007	)		0		42,869		2
Other asset-backed securities and debt securities		65,040		88			1,310			1,398			59,446		(27,074	)		(7,494	)		0		91,316		78
Other securities		27,801		3,082			232			3,314			20,107		(14,490	)		0			0		36,732		3,082
Investment funds		27,801		3,082			232			3,314			20,107		(14,490	)		0			0		36,732		3,082
Derivative assets and liabilities (net)		5,233		(2,385	)		0			(2,385	)		4,135		0			(1,441	)		0		5,542		(2,385	)
Options held/written and other		5,233		(2,385	)		0			(2,385	)		4,135		0			(1,441	)		0		5,542		(2,385	)
Other asset		22,116		(12,368	)		0			(12,368	)		4,264		0			(1,178	)		0		12,834		(12,368	)
Reinsurance recoverables *5		22,116		(12,368	)		0			(12,368	)		4,264		0			(1,178	)		0		12,834		(12,368	)
Policy Liabilities and Policy Account Balances		605,520		(32,251	)		0			(32,251	)		0		0			(150,635	)		0		487,136		(32,251	)
Variable annuity and variable life insurance contracts *6		605,520		(32,251	)		0			(32,251	)		0		0			(150,635	)		0		487,136		(32,251	)

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

*2 Unrealized gains and losses from available-for-sale securities are included in “Unrealized gains (losses) on investment in securities” and “Foreign currency translation adjustments.” Additionally, unrealized gains and losses from other securities are included mainly in “Foreign currency translation adjustments.”

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

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

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

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

– 44 –

Nine months ended December 31, 2018

	Millions of yen
	Balance at April 1, 2018		Gains or losses (realized/unrealized)									Purchases *3		Sales			Settlements *4			Transfers in and/ or out of Level 3 (net)			Balance at December 31, 2018		Change in unrealized gains or losses included in earnings for assets and liabilities still held at December 31, 2018 *1
			Included in earnings *1			Included in other comprehensive income *2			Total
Available-for-sale debt securities	¥	120,917	¥	2,032		¥	288		¥	2,320		¥	36,231	¥	(22,186	)	¥	(24,476	)	¥	(20,101	)	¥	92,705	¥	304
Japanese prefectural and foreign municipal bond securities		0		0			(7	)		(7	)		0		0			0			3,305			3,298		0
Corporate debt securities		3,037		0			5			5			0		0			(685	)		0			2,357		0
CMBS and RMBS in the Americas		36,010		1,034			546			1,580			1,304		(6,711	)		(8,777	)		(23,406	)		0		0
Other asset-backed securities and debt securities		81,870		998			(256	)		742			34,927		(15,475	)		(15,014	)		0			87,050		304
Equity securities		37,879		1,957			523			2,480			34,613		(18,352	)		0			0			56,620		1,685
Investment funds		37,879		1,957			523			2,480			34,613		(18,352	)		0			0			56,620		1,685
Derivative assets and liabilities (net)		2,291		(1,377	)		0			(1,377	)		1,673		0			(1,198	)		0			1,389		(1,377	)
Options held/written and other		2,291		(1,377	)		0			(1,377	)		1,673		0			(1,198	)		0			1,389		(1,377	)
Other asset		15,008		480			0			480			2,800		0			(486	)		0			17,802		480
Reinsurance recoverables *5		15,008		480			0			480			2,800		0			(486	)		0			17,802		480
Policy Liabilities and Policy Account Balances		444,010		18,993			422			19,415			0		0			(62,522	)		0			362,073		18,993
Variable annuity and variable life insurance contracts *6		444,010		18,993			422			19,415			0		0			(62,522	)		0			362,073		18,993

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

*2 Unrealized gains and losses from available-for-sale debt securities are included in “Unrealized gains (losses) on investment in securities” and “Foreign currency translation adjustments”, unrealized gains and losses from equity securities are included mainly in “Foreign currency translation adjustments”, unrealized gains and losses from variable annuity and variable life insurance contracts are included in “Debt valuation adjustments.”

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

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

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

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

There were no transfers in or out of Level 3 in the nine months ended December 31, 2017. In the nine months ended December 31, 2018, Japanese prefectural and foreign municipal bond securities totaling ¥3,305 million were transferred from Level 2 to Level 3, since the valuation techniques to measure fair value of a certain foreign municipal bond security has been changed to discounted cash flows methodologies using unobservable inputs. The change of the valuation techniques is due to judgement that the Company and its subsidiaries cannot rely on price quotations from independent pricing service vendors and brokers considering deterioration of estimated cash flows from the security. In addition, CMBS and RMBS in Americas totaling ¥23,406 million were transferred from Level 3 to Level 2, since the inputs such as trading price and/or bid price became observable due to the market returning to active.

– 45 –

Three months ended December 31, 2017

	Millions of yen
	Balance at September 30, 2017		Gains or losses (realized/unrealized)									Purchases *3			Sales			Settlements *4			Transfers in and/ or out of Level 3 (net)		Balance at December 31, 2017		Change in unrealized gains or losses included in earnings for assets and liabilities still held at December 31, 2017 *1
			Included in earnings *1			Included in other comprehensive income *2			Total
Available-for-sale securities	¥	131,790	¥	61		¥	245		¥	306		¥	18,745		¥	(5,428	)	¥	(8,112	)	¥	0	¥	137,301	¥	(40	)
Corporate debt securities		2,785		0			2			2			450			0			(121	)		0		3,116		0
CMBS and RMBS in the Americas		49,580		39			36			75			(29	)		0			(6,757	)		0		42,869		(58	)
Other asset-backed securities and debt securities		79,425		22			207			229			18,324			(5,428	)		(1,234	)		0		91,316		18
Other securities		35,651		1,201			(136	)		1,065			6,311			(6,295	)		0			0		36,732		1,201
Investment funds		35,651		1,201			(136	)		1,065			6,311			(6,295	)		0			0		36,732		1,201
Derivative assets and liabilities (net)		5,270		(465	)		0			(465	)		763			0			(26	)		0		5,542		(465	)
Options held/written and other		5,270		(465	)		0			(465	)		763			0			(26	)		0		5,542		(465	)
Other asset		15,242		(3,460	)		0			(3,460	)		1,248			0			(196	)		0		12,834		(3,460	)
Reinsurance recoverables *5		15,242		(3,460	)		0			(3,460	)		1,248			0			(196	)		0		12,834		(3,460	)
Policy Liabilities and Policy Account Balances		517,019		(16,353	)		0			(16,353	)		0			0			(46,236	)		0		487,136		(16,353	)
Variable annuity and variable life insurance contracts *6		517,019		(16,353	)		0			(16,353	)		0			0			(46,236	)		0		487,136		(16,353	)

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

*2 Unrealized gains and losses from available-for-sale securities are included in “Unrealized gains (losses) on investment in securities” and “Foreign currency translation adjustments.” Additionally, unrealized gains and losses from other securities are included mainly in “Foreign currency translation adjustments.”

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

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

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

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

– 46 –

Three months ended December 31, 2018

	Millions of yen
	Balance at September 30, 2018		Gains or losses (realized/unrealized)								Purchases *3		Sales			Settlements *4			Transfers in and/ or out of Level 3 (net)			Balance at December 31, 2018		Change in unrealized gains or losses included in earnings for assets and liabilities still held at December 31, 2018 *1
			Included in earnings *1		Included in other comprehensive income *2			Total
Available-for-sale debt securities	¥	122,548	¥	882	¥	(4,450	)	¥	(3,568	)	¥	3,259	¥	(6,188	)	¥	(3,245	)	¥	(20,101	)	¥	92,705	¥	214
Japanese prefectural and foreign municipal bond securities		0		0		(7	)		(7	)		0		0			0			3,305			3,298		0
Corporate debt securities		2,547		0		5			5			0		0			(195	)		0			2,357		0
CMBS and RMBS in the Americas		23,996		0		(590	)		(590	)		0		0			0			(23,406	)		0		0
Other asset-backed securities and debt securities		96,005		882		(3,858	)		(2,976	)		3,259		(6,188	)		(3,050	)		0			87,050		214
Equity securities		44,559		241		(1,056	)		(815	)		17,535		(4,659	)		0			0			56,620		140
Investment funds		44,559		241		(1,056	)		(815	)		17,535		(4,659	)		0			0			56,620		140
Derivative assets and liabilities (net)		743		1,021		0			1,021			0		0			(375	)		0			1,389		1,021
Options held/written and other		743		1,021		0			1,021			0		0			(375	)		0			1,389		1,021
Other asset		11,121		6,073		0			6,073			847		0			(239	)		0			17,802		6,073
Reinsurance recoverables *5		11,121		6,073		0			6,073			847		0			(239	)		0			17,802		6,073
Policy Liabilities and Policy Account Balances		405,705		28,247		534			28,781			0		0			(14,851	)		0			362,073		28,247
Variable annuity and variable life insurance contracts *6		405,705		28,247		534			28,781			0		0			(14,851	)		0			362,073		28,247

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

*2 Unrealized gains and losses from available-for-sale debt securities are included in “Unrealized gains (losses) on investment in securities” and “Foreign currency translation adjustments”, unrealized gains and losses from equity securities are included mainly in “Foreign currency translation adjustments”, unrealized gains and losses from variable annuity and variable life insurance contracts are included in “Debt valuation adjustments.”

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

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

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

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

There were no transfers in or out of Level 3 in the three months ended December 31, 2017. In the three months ended December 31, 2018, Japanese prefectural and foreign municipal bond securities totaling ¥3,305 million were transferred from Level 2 to Level 3, since the valuation techniques to measure fair value of a certain foreign municipal bond security has been changed to discounted cash flows methodologies using unobservable inputs. The change of the valuation techniques is due to judgement that the Company and its subsidiaries cannot rely on price quotations from independent pricing service vendors and brokers considering deterioration of estimated cash flows from the security. In addition, CMBS and RMBS in Americas totaling ¥23,406 million were transferred from Level 3 to Level 2, since the inputs such as trading price and/or bid price became observable due to the market returning to active.

– 47 –

The following tables present recorded amounts of assets measured at fair value on a nonrecurring basis as of March 31, 2018 and December 31, 2018. These assets are measured at fair value on a nonrecurring basis mainly to recognize impairment:

March 31, 2018

	Millions of yen
	Total Carrying Value in Consolidated Balance Sheets		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Real estate collateral-dependent loans (net of allowance for probable loan losses)	¥	7,526	¥	0	¥	0	¥	7,526
Investment in operating leases and property under facility operations		3,916		0		0		3,916
Certain investments in affiliates		11,730		0		0		11,730
	¥	23,172	¥	0	¥	0	¥	23,172
December 31, 2018

	Millions of yen
	Total Carrying Value in Consolidated Balance Sheets		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Real estate collateral-dependent loans (net of allowance for probable loan losses)	¥	5,620	¥	0	¥	0	¥	5,620
Investment in operating leases and property under facility operations		188		0		0		188
Certain investments in affiliates		3,991		0		0		3,991
	¥	9,799	¥	0	¥	0	¥	9,799

– 48 –

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

Loans held for sale

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

Real estate collateral-dependent loans

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

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

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

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

– 49 –

Trading debt securities, Available-for-sale debt securities and Investment in affiliates

If active market prices are available, fair value measurement is based on quoted active market prices and, accordingly, these securities are classified as Level 1. If active market prices are not available, fair value measurement is based on observable inputs other than quoted prices included within Level 1, such as prices for similar assets and accordingly these securities are classified as Level 2. If market prices are not available and there are no observable inputs, then fair value is estimated by using valuation models including discounted cash flow methodologies and broker quotes. Such securities are classified as Level 3, as the valuation models and broker quotes are based on inputs that are unobservable in the market. If fair value is based on broker quotes, the Company and its subsidiaries check the validity of received prices based on comparison to prices of other similar assets and market data such as relevant bench mark indices.

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

Equity securities

If active market prices are available, fair value measurement is based on quoted active market prices and, accordingly, these securities are classified as Level 1. If active market prices are not available, fair value measurement is based on observable inputs other than quoted prices included within Level 1, such as prices for similar assets and accordingly these securities are classified as Level 2. Certain subsidiaries elected the fair value option for investments in some funds. These investment funds for which the fair value option is elected are classified as Level 3, because the subsidiaries measure their fair value using discounting to net asset value based on inputs that are unobservable in the market. A certain subsidiary measures its investment held by the investment company which is owned by the subsidiary at fair value.

– 50 –

Derivatives

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

Reinsurance recoverables

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

Variable annuity and variable life insurance contracts

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

– 51 –

Information about Level 3 Fair Value Measurements

The following tables provide information about the valuation techniques and significant unobservable inputs used in the valuation of Level 3 assets and liabilities measured at fair value on a recurring basis as of March 31, 2018 and December 31, 2018.

	March 31, 2018
	Millions of yen
	Fair value		Valuation technique(s)	Significant unobservable inputs	Range (Weighted average)
Assets:
Available-for-sale securities:
Corporate debt securities	¥	3,037	Discounted cash flows	Discount rate	0.2% – 1.7%
					(0.9%)
CMBS and RMBS in the Americas		36,010	Discounted cash flows	Discount rate	6.4% – 20.0%
					(17.6%)
				Probability of default	0.0% – 24.7%
					(3.2%)
Other asset-backed securities and debt securities		18,146	Discounted cash flows	Discount rate	1.0% – 51.2%
					(10.0%)
				Probability of default	0.6% – 1.6%
					(1.0%)
		63,724	Appraisals/Broker quotes	—	—
Other securities:
Investment funds		5,665	Internal cash flows	Discount rate	0.0% – 40.0%
					(9.9%)
		25,246	Discounted cash flows	Discount rate	3.8% – 11.6%
					(8.3%)