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 August 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 August 13, 2019, which includes unaudited consolidated financial information prepared in accordance with generally accepted accounting principles in the United States for the three months ended June 30, 2018 and 2019.

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: August 13, 2019	By	/s/ SHOJI TANIGUCHI
		Shoji Taniguchi
		Member of the Board of Directors and Managing Executive Officer Responsible for Treasury and Accounting Headquarters 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 August 13, 2019, which includes unaudited consolidated financial information prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) for the three months ended June 30, 2018 and 2019.

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)
	Three months ended June 30, 2018			Three months ended June 30, 2019			Fiscal year ended March 31, 2019
Total revenues	¥	603,917		¥	536,980		¥	2,434,864
Income before income taxes		110,954			98,860			395,730
Net income attributable to ORIX Corporation shareholders		79,947			69,210			323,745
Comprehensive Income attributable to ORIX Corporation shareholders		75,118			48,672			310,970
ORIX Corporation shareholders’ equity		2,712,205			2,887,070			2,897,074
Total assets		11,371,902			12,404,945			12,174,917
Earnings per share for net income attributable to ORIX Corporation shareholders
Basic (yen)		62.46			54.07			252.92
Diluted (yen)		62.41			54.02			252.70
ORIX Corporation shareholders’ equity ratio (%)		23.9			23.3			23.8
Cash flows from operating activities		97,264			178,635			587,678
Cash flows from investing activities		3,570			(334,616	)		(873,951	)
Cash flows from financing activities		(180,123	)		21,572			166,647
Cash, Cash Equivalents and Restricted Cash at end of Period		1,326,933			1,142,830			1,283,580

Notes: 1. Consumption tax is excluded from the stated amount of total revenues.

2. Accounting Standards Update 2016-02 (ASC 842 (“Leases”)) (hereinafter, “new lease standard”) has been adopted since April 1, 2019. For further information, see Note 2 “Significant Accounting and Reporting Policies (ag) New accounting pronouncements.”

(2) Overview of Activities

During the three months ended June 30, 2019, no significant changes were made in the Company and its subsidiaries’ operations. Additionally, there were no changes of principal subsidiaries and affiliates.

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, 2019 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.

– 2 –

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 Three Months Ended June 30, 2019

Total revenues	¥536,980 million (Down 11% year on year)
Total expenses	¥461,329 million (Down 10% year on year)
Income before income taxes	¥98,860 million (Down 11% year on year)
Net income attributable to ORIX Corporation Shareholders	¥69,210 million (Down 13% year on year)
Earnings per share for net income attributable to ORIX Corporation Shareholders
(Basic)	¥54.07 (Down 13% year on year)
(Diluted)	¥54.02 (Down 13% year on year)
ROE (Annualized) *1	9.6% (11.9% during the same period in the previous fiscal year)
ROA (Annualized) *2	2.25% (2.81% 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 three months ended June 30, 2019 decreased 11% to ¥536,980 million compared to ¥603,917 million during the same period of the previous fiscal year due to a decrease in sales of goods and real estate due primarily to decreasing revenues generated by subsidiaries in the principal investment business, despite increases in finance revenues.

Total expenses decreased 10% to ¥461,329 million compared to ¥511,922 million during the same period of the previous fiscal year due to a decrease in costs of goods and real estate sold in line with the aforementioned decreased revenues, despite an increase in selling, general and administrative expenses.

In addition, although in equity in net income of affiliates increased, income taxes for the three months ended June 30, 2019 decreased 11% to ¥98,860 million compared to ¥110,954 million during the same period of the previous fiscal year, and net income attributable to ORIX Corporation shareholders decreased 13% to ¥69,210 million compared to ¥79,947 million during the same period of the previous fiscal year.

– 3 –

Segment Information

The Company made DAIKYO INCORPORATED (hereinafter, “DAIKYO”) a wholly-owned subsidiary in fiscal 2019 to complement their respective real estate businesses and to jointly aim for medium- and long-term growth as a comprehensive real estate business. Accordingly, the Company changed the segment classification of DAIKYO from Investment and Operation segment to Real Estate segment. As a result of this change, segment amounts during the same period of the previous fiscal year have been retrospectively reclassified.

The Company and its subsidiaries adopted the new lease standard on April 1, 2019. The impact of the adoption has resulted in gross up of right-of-use assets of investment in operating leases and property under facility operations principally for operating leases, where it is the lessee, such as land leases and office and equipment leases in all of our segments except for Retail segment. Additionally, the amounts of investment in direct financing leases reclassified to net investment in the leases. For further information, see Note 2 “Significant Accounting and Reporting Policies (ag) New accounting pronouncements.”

Total revenues and profits by segment for the three months ended June 30, 2018 and 2019 are as follows:

	Millions of yen
	Three months ended June 30, 2018						Three months ended June 30, 2019						Change (revenues)						Change (profits)
	Segment Revenues			Segment Profits			Segment Revenues			Segment Profits			Amount			Percent (%)			Amount			Percent (%)
Corporate Financial Services	¥	25,004		¥	7,820		¥	21,715		¥	4,066		¥	(3,289	)		(13	)	¥	(3,754	)		(48	)
Maintenance Leasing		69,858			9,696			72,581			7,919			2,723			4			(1,777	)		(18	)
Real Estate		113,377			20,494			93,257			4,468			(20,120	)		(18	)		(16,026	)		(78	)
Investment and Operation		175,269			13,630			116,665			14,231			(58,604	)		(33	)		601			4
Retail		102,815			21,785			108,679			21,589			5,864			6			(196	)		(1	)
Overseas Business		118,479			40,006			126,500			48,068			8,021			7			8,062			20
Total		604,802			113,431			539,397			100,341			(65,405	)		(11	)		(13,090	)		(12	)
Difference between Segment Total and Consolidated Amounts		(885	)		(2,477	)		(2,417	)		(1,481	)		(1,532	)		—			996			—
Total Consolidated Amounts	¥	603,917		¥	110,954		¥	536,980		¥	98,860		¥	(66,937	)		(11	)	¥	(12,094	)		(11	)

Total assets by segment as of March 31, 2019 and June 30, 2019 are as follows:

	Millions of yen
	March 31, 2019				June 30, 2019				Change
	Segment Assets		Composition ratio (%)		Segment Assets		Composition ratio (%)		Amount			Percent (%)
Corporate Financial Services	¥	959,725		8	¥	1,000,150		8	¥	40,425			4
Maintenance Leasing		873,775		7		880,680		7		6,905			1
Real Estate		720,221		6		813,695		7		93,474			13
Investment and Operation		733,612		6		750,321		6		16,709			2
Retail		3,571,437		29		3,735,056		30		163,619			5
Overseas Business		3,138,928		26		3,094,468		25		(44,460	)		(1	)
Total		9,997,698		82		10,274,370		83		276,672			3
Difference between Segment Total and Consolidated Amounts		2,177,219		18		2,130,575		17		(46,644	)		(2	)
Total Consolidated Amounts	¥	12,174,917		100	¥	12,404,945		100	¥	230,028			2

– 4 –

Segment information for the three months ended June 30, 2019 is as follows:

Corporate Financial Services Segment: Finance 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, a software service provider in the group, and by utilizing our domestic network to create new businesses.

Segment revenues decreased 13% to ¥21,715 million compared to the same period of the previous fiscal year due to decreases in finance revenues and in services income in line with a decrease in fee income related to life insurance.

As a result of the foregoing and an increase in selling, general and administrative expenses by the adoption of the new lease standard that changed the recognition of some lease related costs from deferred depreciation to one-time expenses, segment profits decreased 48% to ¥4,066 million compared to the same period of the previous fiscal year.

Segment assets increased 4% to ¥1,000,150 million compared to the end of the previous fiscal year due to an increase in investment in operating leases by the adoption of the new lease standard despite a decrease in investment in securities.

Although asset efficiency decreased compared to the same period of the previous fiscal year, we continue diversification of the services income.

	Three months ended June 30, 2018			Three months ended June 30, 2019			Change
							Amount			Percent (%)
	(Millions of yen, except percentage data)
Segment Revenues:
Finance revenues	¥	7,712		¥	5,949		¥	(1,763	)		(23	)
Gains on investment securities and dividends		238			555			317			133
Operating leases		6,012			5,632			(380	)		(6	)
Sales of goods and real estate		1,036			1,369			333			32
Services income		10,006			8,210			(1,796	)		(18	)
Total Segment Revenues		25,004			21,715			(3,289	)		(13	)
Segment Expenses:
Interest expense		1,109			936			(173	)		(16	)
Costs of operating leases		3,539			3,659			120			3
Costs of goods and real estate sold		427			514			87			20
Services expense		2,146			2,601			455			21
Selling, general and administrative expenses		9,585			10,791			1,206			13
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities		246			350			104			42
Other		(17	)		(23	)		(6	)		—
Total Segment Expenses		17,035			18,828			1,793			11
Segment Operating Income		7,969			2,887			(5,082	)		(64	)
Equity in Net income (Loss) of Affiliates, and others		(149	)		1,179			1,328			—
Segment Profits	¥	7,820		¥	4,066		¥	(3,754	)		(48	)
	As of March 31, 2019			As of June 30, 2019			Change
							Amount			Percent (%)
	(Millions of yen, except percentage data)
Investment in direct financing leases	¥	403,639		¥	0		¥	(403,639	)		(100	)
Net investment in the leases		0			396,483			396,483			100
Installment loans		364,818			361,366			(3,452	)		(1	)
Investment in operating leases		24,143			79,885			55,742			231
Investment in securities		31,522			20,300			(11,222	)		(36	)
Property under facility operations		16,973			19,860			2,887			17
Inventories		51			123			72			141
Advances for finance lease and operating lease		122			62			(60	)		(49	)
Investment in affiliates		16,276			16,776			500			3
Goodwill, intangible assets acquired in business combinations		102,181			105,295			3,114			3
Total Segment Assets	¥	959,725		¥	1,000,150		¥	40,425			4

– 5 –

Maintenance Leasing Segment: Automobile leasing and rentals, car-sharing; 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 relating to robots and three-dimensional (3D) printing.

Segment revenues increased 4% to ¥72,581 million compared to the same period of the previous fiscal year due to an increase in operating leases revenues.

Segment profits decreased 18% to ¥7,919 million compared to the same period of the previous fiscal year due to an increase in selling, general and administrative expenses by the adoption of the new lease standard that changed the recognition of some lease related costs from deferred depreciation to one-time expenses.

Segment assets increased 1% to ¥880,680 million compared to the end of the previous fiscal year due to an increase in investment in operating leases by the adoption of the new lease standard.

Although asset efficiency decreased compared to the same period of the previous fiscal year, we have maintained stable profitability excluding the impact by the adoption of the new lease standard.

	Three months ended June 30, 2018			Three months ended June 30, 2019			Change
							Amount			Percent (%)
	(Millions of yen, except percentage data)
Segment Revenues:
Finance revenues	¥	3,439		¥	3,705		¥	266			8
Operating leases		47,915			49,973			2,058			4
Services income		17,422			17,448			26			0
Other		1,082			1,455			373			34
Total Segment Revenues		69,858			72,581			2,723			4
Segment Expenses:
Interest expense		812			716			(96	)		(12	)
Costs of operating leases		37,206			39,469			2,263			6
Services expense		9,864			10,187			323			3
Selling, general and administrative expenses		11,448			13,055			1,607			14
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities		53			78			25			47
Other		761			1,145			384			50
Total Segment Expenses		60,144			64,650			4,506			7
Segment Operating Income		9,714			7,931			(1,783	)		(18	)
Equity in Net income (Loss) of Affiliates, and others		(18	)		(12	)		6			—
Segment Profits	¥	9,696		¥	7,919		¥	(1,777	)		(18	)
	As of March 31, 2019			As of June 30, 2019			Change
							Amount			Percent (%)
	(Millions of yen, except percentage data)
Investment in direct financing leases	¥	328,424		¥	0		¥	(328,424	)		(100	)
Net investment in the leases		0			325,954			325,954			100
Investment in operating leases		525,392			535,265			9,873			2
Investment in securities		506			493			(13	)		(3	)
Property under facility operations		988			991			3			0
Inventories		587			677			90			15
Advances for finance lease and operating lease		669			260			(409	)		(61	)
Investment in affiliates		33			21			(12	)		(36	)
Goodwill, intangible assets acquired in business combinations		17,176			17,019			(157	)		(1	)
Total Segment Assets	¥	873,775		¥	880,680		¥	6,905			1

– 6 –

Real Estate Segment: Real estate development, rental and management; facility operation; real estate investment management

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 proceed mutual complementation between Daikyo and ORIX real estate businesses, and 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.

Segment revenues decreased 18% to ¥93,257 million compared to the same period of the previous fiscal year due to a decrease in services income from significant gains on a sale of property under facility operations that were recognized during the same period of the previous fiscal year.

Segment profits decreased 78% to ¥4,468 million compared to the same period of the previous fiscal year.

Segment assets increased 13% to ¥813,695 million compared to the end of the previous fiscal year due to increases in investment in operating leases and in property under facility operations by the adoption of the new lease standard.

Although asset efficiency decreased compared to the same period of the previous fiscal year, we continuously made new investments in carefully selected areas and properties.

	Three months ended June 30, 2018			Three months ended June 30, 2019			Change
							Amount			Percent (%)
	(Millions of yen, except percentage data)
Segment Revenues:
Finance revenues	¥	491		¥	671		¥	180			37
Operating leases		12,871			12,986			115			1
Sales of goods and real estate		19,445			15,363			(4,082	)		(21	)
Services income		79,766			64,449			(15,317	)		(19	)
Other		804			(212	)		(1,016	)		—
Total Segment Revenues		113,377			93,257			(20,120	)		(18	)
Segment Expenses:
Interest expense		629			415			(214	)		(34	)
Costs of operating leases		6,444			6,448			4			0
Costs of goods and real estate sold		18,348			15,383			(2,965	)		(16	)
Services expense		58,794			54,967			(3,827	)		(7	)
Selling, general and administrative expenses		11,395			11,879			484			4
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities		13			29			16			123
Other		(197	)		142			339			—
Total Segment Expenses		95,426			89,263			(6,163	)		(6	)
Segment Operating Income		17,951			3,994			(13,957	)		(78	)
Equity in Net income (Loss) of Affiliates, and others		2,543			474			(2,069	)		(81	)
Segment Profits	¥	20,494		¥	4,468		¥	(16,026	)		(78	)
	As of March  31, 2019			As of June 30, 2019			Change
							Amount			Percent (%)
	(Millions of yen, except percentage data)
Investment in direct financing leases	¥	35,420		¥	0		¥	(35,420	)		(100	)
Net investment in the leases		0			35,285			35,285			100
Installment loans		316			316			0			—
Investment in operating leases		242,022			299,844			57,822			24
Investment in securities		8,038			7,741			(297	)		(4	)
Property under facility operations		146,100			177,550			31,450			22
Inventories		80,920			91,704			10,784			13
Advances for finance lease and operating lease		29,946			29,316			(630	)		(2	)
Investment in affiliates		107,072			102,072			(5,000	)		(5	)
Advances for property under facility operations		6,790			6,902			112			2
Goodwill, intangible assets acquired in business combinations		63,597			62,965			(632	)		(1	)
Total Segment Assets	¥	720,221		¥	813,695		¥	93,474			13

– 7 –

Investment and Operation Segment: Environment and energy, private equity 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 secured abundant solar power capacity and are operating many projects, 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 private equity 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 the 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 infrastructures other than airports.

Segment revenues decreased 33% to ¥116,665 million compared to the same period of the previous fiscal year due to a decrease in sales of goods by a subsidiary in the private equity business.

Segment profits increased 4% to ¥14,231 million compared to the same period of the previous fiscal year due to the recognition of gains on sales of shares of a subsidiary.

Segment assets increased 2% to ¥750,321 million compared to the end of the previous fiscal year due to an increase in property under facility operations by the adoption of the new lease standard.

Asset efficiency increased compared to the same period of the previous year, and the solar power business in Japan has grown steadily and profit from the concession business has also steadily increased.

	Three months ended June 30, 2018			Three months ended June 30, 2019			Change
							Amount			Percent (%)
	(Millions of yen, except percentage data)
Segment Revenues:
Finance revenues	¥	2,501		¥	1,787		¥	(714	)		(29	)
Gains on investment securities and dividends		683			318			(365	)		(53	)
Sales of goods and real estate		131,248			68,038			(63,210	)		(48	)
Services income		40,683			46,177			5,494			14
Other		154			345			191			124
Total Segment Revenues		175,269			116,665			(58,604	)		(33	)
Segment Expenses:
Interest expense		1,692			1,866			174			10
Costs of goods and real estate sold		121,992			57,683			(64,309	)		(53	)
Services expense		30,439			34,552			4,113			14
Selling, general and administrative expenses		11,622			12,700			1,078			9
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities		(306	)		(29	)		277			—
Other		(261	)		231			492			—
Total Segment Expenses		165,178			107,003			(58,175	)		(35	)
Segment Operating Income		10,091			9,662			(429	)		(4	)
Equity in Net income (Loss) of Affiliates, and others		3,539			4,569			1,030			29
Segment Profits	¥	13,630		¥	14,231		¥	601			4
	As of March  31, 2019			As of June 30, 2019			Change
							Amount			Percent (%)
	(Millions of yen, except percentage data)
Investment in direct financing leases	¥	25,696		¥	0		¥	(25,696	)		(100	)
Net investment in the leases		0			25,455			25,455			100
Installment loans		47,573			44,651			(2,922	)		(6	)
Investment in operating leases		5,474			5,431			(43	)		(1	)
Investment in securities		25,786			24,329			(1,457	)		(6	)
Property under facility operations		264,994			298,105			33,111			12
Inventories		30,776			29,147			(1,629	)		(5	)
Advances for finance lease and operating lease		1,340			1,256			(84	)		(6	)
Investment in affiliates		161,966			164,736			2,770			2
Advances for property under facility operations		11,291			12,994			1,703			15
Goodwill, intangible assets acquired in business combinations		158,716			144,217			(14,499	)		(9	)
Total Segment Assets	¥	733,612		¥	750,321		¥	16,709			2

– 8 –

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.

Based on the aforementioned strategy, segment revenues increased 6% to ¥108,679 million compared to the same period of the previous fiscal year due to increases in life insurance premiums of the life insurance business and finance revenues of the banking business increased with the growth of the businesses.

Segment profits decreased 1% to ¥21,589 million compared to the same period of the previous fiscal year due to an increase in selling, general and administrative expenses of the life insurance business, including improvement of customer service system.

Segment assets increased 5% to ¥3,735,056 million compared to the end of the previous fiscal year due to increases in investment in securities with the growth of the life insurance business and in installment loans with the growth of the banking business.

Although asset efficiency decreased compared to the same period of the previous fiscal year, we have steadily expanded our businesses by increasing the balance of housing loans in the banking business and the number of insurance policies in force in the life insurance business.

	Three months ended June  30, 2018			Three months ended June  30, 2019			Change
							Amount			Percent (%)
	(Millions of yen, except percentage data)
Segment Revenues:
Finance revenues	¥	18,693		¥	19,457		¥	764			4
Life insurance premiums and related investment income		83,203			88,044			4,841			6
Other		919			1,178			259			28
Total Segment Revenues		102,815			108,679			5,864			6
Segment Expenses:
Interest expense		1,010			1,017			7			1
Life insurance costs		57,348			62,293			4,945			9
Selling, general and administrative expenses		18,454			19,427			973			5
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities		3,182			3,074			(108	)		(3	)
Other		1,033			1,274			241			23
Total Segment Expenses		81,027			87,085			6,058			7
Segment Operating Income		21,788			21,594			(194	)		(1	)
Equity in Net income (Loss) of Affiliates, and others		(3	)		(5	)		(2	)		—
Segment Profits	¥	21,785		¥	21,589		¥	(196	)		(1	)
	As of March  31, 2019			As of June 30, 2019			Change
							Amount			Percent (%)
	(Millions of yen, except percentage data)
Investment in direct financing leases	¥	42		¥	0		¥	(42	)		(100	)
Net investment in the leases		0			19			19			100
Installment loans		2,049,980			2,129,798			79,818			4
Investment in operating leases		29,810			29,677			(133	)		(0	)
Investment in securities		1,474,750			1,558,771			84,021			6
Investment in affiliates		631			567			(64	)		(10	)
Goodwill, intangible assets acquired in business combinations		16,224			16,224			0			—
Total Segment Assets	¥	3,571,437		¥	3,735,056		¥	163,619			5

– 9 –

Overseas Business Segment: Asset management, aircraft- and ship-related operations, private equity and finance

In the United States, we aim to expand our business areas by engaging in equity investments and fee businesses such as fund management in addition to corporate finance and investments 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 aircraft owned by others. All of these opportunities are backed by the growing demand of passengers and for aircraft. We also aim to promote the expansion of functionality and diversification in our overseas group companies.

Based on the aforementioned strategy, segment revenues increased 7% to ¥126,500 million compared to the same period of the previous fiscal year due to increases in finance revenues in the United States through the acquisition of NXT Capital Group, LLC (hereinafter, “NXT Capital”) which we acquired in the previous fiscal year and in gains on investment securities through selling an investee in Asia.

As a result of the foregoing and an increase in equity in net income of affiliates from Avolon Holdings Limited (hereinafter, “Avolon”), a leading global aircraft leasing company located in Ireland whose shares we acquired in the previous fiscal year, segment profits increased 20% to ¥48,068 million compared to the same period of the previous fiscal year.

Segment assets decreased 1% to ¥3,094,468 million compared to the end of the previous fiscal year due to decreases in investment in securities and in investment in affiliates in the United States.

Asset efficiency kept the same level compared to the same period of the previous fiscal year. we have steadily expanded the asset management business in the United States including NXT Capital, and aircraft-related operations including Avolon.

	Three months ended June 30, 2018		Three months ended June 30, 2019		Change
					Amount			Percent (%)
	(Millions of yen, except percentage data)
Segment Revenues:
Finance revenues	¥	23,669	¥	30,993	¥	7,324			31
Gains on investment securities and dividends		5,602		12,851		7,249			129
Operating leases		29,408		28,235		(1,173	)		(4	)
Services income		58,627		53,966		(4,661	)		(8	)
Other		1,173		455		(718	)		(61	)
Total Segment Revenues		118,479		126,500		8,021			7
Segment Expenses:
Interest expense		12,548		18,372		5,824			46
Costs of operating leases		15,429		15,940		511			3
Services expense		16,596		14,585		(2,011	)		(12	)
Selling, general and administrative expenses		42,832		44,160		1,328			3
Provision for doubtful receivables and probable loan losses and write-downs of long-lived assets and securities		1,808		1,234		(574	)		(32	)
Other		2,194		389		(1,805	)		(82	)
Total Segment Expenses		91,407		94,680		3,273			4
Segment Operating Income		27,072		31,820		4,748			18
Equity in Net income (Loss) of Affiliates, and others		12,934		16,248		3,314			26
Segment Profits	¥	40,006	¥	48,068	¥	8,062			20
	As of March 31, 2019		As of June 30, 2019		Change
					Amount			Percent (%)
	(Millions of yen, except percentage data)
Investment in direct financing leases	¥	362,391	¥	0	¥	(362,391	)		(100	)
Net investment in the leases		0		350,811		350,811			100
Installment loans		814,847		835,720		20,873			3
Investment in operating leases		509,117		509,252		135			0
Investment in securities		385,339		363,440		(21,899	)		(6	)
Property under facility operations and servicing assets		44,149		43,874		(275	)		(1	)
Inventories		3,161		3,299		138			4
Advances for finance lease and operating lease		10,932		7,718		(3,214	)		(29	)
Investment in affiliates		556,682		536,192		(20,490	)		(4	)
Goodwill, intangible assets acquired in business combinations		452,310		444,162		(8,148	)		(2	)
Total Segment Assets	¥	3,138,928	¥	3,094,468	¥	(44,460	)		(1	)

– 10 –

(2) Financial Condition

	As of March 31, 2019			As of June 30, 2019			Change
							Amount			Percent (%)
	(Millions of yen except per share, ratios and percentages)
Total assets	¥	12,174,917		¥	12,404,945		¥	230,028			2
(Segment assets)		9,997,698			10,274,370			276,672			3
Total liabilities		9,211,936			9,449,469			237,533			3
(Short- and long-term debt)		4,495,771			4,448,993			(46,778	)		(1	)
(Deposits)		1,927,741			1,987,341			59,600			3
ORIX Corporation shareholders’ equity		2,897,074			2,887,070			(10,004	)		(0	)
ORIX Corporation shareholders’ equity per share (yen) *1		2,263.41			2,255.59			(7.82	)		(0	)
ORIX Corporation shareholders’ equity ratio *2		23.8	%		23.3	%		—			—
D/E ratio (Debt-to-equity ratio) (Short-and long-term debt (excluding deposits) / ORIX Corporation shareholders’ equity)		1.6	x		1.5	x		—			—

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

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

Total assets increased 2% to ¥12,404,945 million compared to the balance as of March 31, 2019 due to not only an increase in installment loans, but also increases in investment in operating leases, property under facility operations and office facilities by the adoption of the new lease standard. In addition, segment assets increased 3% to ¥10,274,370 million compared to the balance as of March 31, 2019.

Total liabilities increased due to not only increases in short-term debt and deposits, but also an increase in other liabilities by the adoption of the new lease standard compared to the balance as of March 31, 2019.

Shareholders’ equity remained flat at ¥2,887,070 million compared to the balance as of March 31, 2019.

– 11 –

(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 ¥6,436,334 million as of June 30, 2019. 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 June 30, 2019. Procurement from the capital markets is composed of bonds, medium-term notes, commercial paper, payables under securitized lease and 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, 2019		June 30, 2019
Borrowings from financial institutions	¥	268,488	¥	267,462
Commercial paper		41,061		69,254
Total short-term debt	¥	309,549	¥	336,716

Short-term debt as of June 30, 2019 was ¥336,716 million, which accounted for 8% of the total amount of short and long-term debt (excluding deposits) as compared to 7% as of March 31, 2019.

While the amount of short-term debt as of June 30, 2019 was ¥336,716 million, the sum of cash and cash equivalents and the unused amount of committed credit facilities as of June 30, 2019 was ¥1,365,515 million.

(b) Long-term debt

	Millions of yen
	March 31, 2019		June 30, 2019
Borrowings from financial institutions	¥	3,010,880	¥	2,968,929
Bonds		807,460		801,000
Medium-term notes		190,082		179,139
Payables under securitized lease and loan receivables and other assets		177,800		163,209
Total long-term debt	¥	4,186,222	¥	4,112,277

The balance of long-term debt as of June 30, 2019 was ¥4,112,277 million, which accounted for 92% of the total amount of short and long-term debt (excluding deposits) as compared to 93% as of March 31, 2019.

– 12 –

(c) Deposits

	Millions of yen
	March 31, 2019		June 30, 2019
Deposits	¥	1,927,741	¥	1,987,341

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 June 30, 2019 decreased by ¥140,750 million to ¥1,142,830 million compared to March 31, 2019. New lease standard has been adopted since April 1, 2019. For further information, see Note 2 “Significant Accounting and Reporting Policies (ag) New accounting pronouncements.”

Cash flows provided by operating activities were ¥178,635 million in the three months ended June 30, 2019, up from ¥97,264 million during the same period of the previous fiscal year, primarily resulting an increase in principal payments received under net investment in the leases.

Cash flows used in investing activities were ¥334,616 million in the three months ended June 30, 2019, compared to the inflow of ¥3,570 million during the same period of the previous fiscal year. This change resulted primarily from a decrease in principal payments received under direct financing leases, and a decrease in principal collected on installment loans.

Cash flows provided by financing activities were ¥21,572 million in the three months ended June 30, 2019 compared to the outflow of ¥180,123 million during the same period of the previous fiscal year. This change resulted primarily from a change from a decrease to an increase in debt with maturities of three months or less, and an increase in proceeds from debt with maturities longer than three months.

(5) Challenges to be addressed

There were no significant changes for the three months ended June 30, 2019.

(6) Research and Development Activity

There were no significant changes in research and development activities for the three months ended June 30, 2019.

(7) Major Facilities

There were no significant changes in major facilities for the three months ended June 30, 2019.

4. Material Contracts

Not applicable.

– 13 –

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 June 30, 2019 is as follows:

In thousands		Millions of yen
Number of issued shares		Common stock		Capital reserve
Increase, net	June 30, 2019	Increase, net	June 30, 2019	Increase, net	June 30, 2019
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 June 30, 2019).

6. Directors and Executive Officers

Between the filing date of Form 20-F for the fiscal year ended March 31, 2019 and June 30, 2019, there were no changes of directors and executive officers.

– 14 –

7. Financial Information

(1) Condensed Consolidated Balance Sheets (Unaudited)

		Millions of yen
Assets		March 31, 2019			June 30, 2019
Cash and Cash Equivalents		¥	1,161,032		¥	1,025,879
Restricted Cash			122,548			116,951
Investment in Direct Financing Leases			1,155,632			0
Net Investment in the Leases			0			1,134,033
Installment Loans			3,277,670			3,371,984
The amounts which are measured at fair value by electing the fair value option are as follows:
March 31, 2019	¥38,671 million
June 30, 2019	¥33,720 million
Allowance for Doubtful Receivables on Finance Leases and Probable Loan Losses			(58,011	)		(54,808	)
Investment in Operating Leases			1,335,959			1,454,598
Investment in Securities			1,928,916			1,977,887
The amounts which are measured at fair value by electing the fair value option are as follows:
March 31, 2019	¥27,367 million
June 30, 2019	¥23,943 million
Property under Facility Operations			441,632			509,001
Investment in Affiliates			842,760			820,455
Trade Notes, Accounts and Other Receivable			280,590			288,087
Inventories			115,695			125,188
Office Facilities			108,390			186,603
Other Assets			1,462,104			1,449,087
The amounts which are measured at fair value by electing the fair value option are as follows:
March 31, 2019	¥12,449 million
June 30, 2019	¥11,916 million
Total Assets		¥	12,174,917		¥	12,404,945

Notes: 1. Accounting Standards Update 2016-02 (ASC 842 (“Leases”)) (hereinafter, “new lease standard”) has been adopted since April 1, 2019, and the amounts of investment in direct financing leases have been reclassified to net investment in the leases. For further information, see Note 2 “Significant Accounting and Reporting Policies (ag) New accounting pronouncements.”

2. 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, 2019		June 30, 2019
Cash and Cash Equivalents	¥	4,437	¥	3,227
Investment in Direct Financing Leases (Net of Allowance for Doubtful Receivables on Finance Leases and Probable Loan Losses)		15,058		0
Net Investment in the Leases (Net of Allowance for Doubtful Receivables on Finance Leases and Probable Loan Losses)		0		11,399
Installment Loans (Net of Allowance for Doubtful Receivables on Finance Leases and Probable Loan Losses)		185,988		208,062
Investment in Operating Leases		82,405		62,365
Property under Facility Operations		203,933		226,450
Investment in Affiliates		52,079		52,028
Other		100,101		98,211
	¥	644,001	¥	661,742

– 15 –

		Millions of yen
Liabilities and Equity		March 31, 2019			June 30, 2019
Liabilities:
Short-Term Debt		¥	309,549		¥	336,716
Deposits			1,927,741			1,987,341
Trade Notes, Accounts and Other Payable			293,480			221,843
Policy Liabilities and Policy Account Balances			1,521,355			1,535,631
The amounts which are measured at fair value by electing the fair value option are as follows:
March 31, 2019	¥360,198 million
June 30, 2019	¥347,173 million
Current and Deferred Income Taxes			355,843			368,004
Long-Term Debt			4,186,222			4,112,277
Other Liabilities			617,746			887,657
Total Liabilities			9,211,936			9,449,469
Redeemable Noncontrolling Interests			9,780			9,513
Commitments and Contingent Liabilities
Equity:
Common Stock			221,111			221,111
Additional Paid-in Capital			257,625			257,911
Retained Earnings			2,555,585			2,565,833
Accumulated Other Comprehensive Income (Loss)			(61,343	)		(81,881	)
Treasury Stock, at Cost			(75,904	)		(75,904	)
ORIX Corporation Shareholders’ Equity			2,897,074			2,887,070
Noncontrolling Interests			56,127			58,893
Total Equity			2,953,201			2,945,963
Total Liabilities and Equity		¥	12,174,917		¥	12,404,945

Notes: 1. New lease standard has been adopted since April 1, 2019. For further information, see Note 2 “Significant Accounting and Reporting Policies (ag) New accounting pronouncements.”

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

	Millions of yen
	March 31, 2019		June 30, 2019
Short-term Debt	¥	580	¥	580
Trade Notes, Accounts and Other Payable		7,339		2,217
Long-term Debt		418,631		396,615
Other		16,480		43,098
	¥	443,030	¥	442,510

– 16 –

(2) Condensed Consolidated Statements of Income (Unaudited)

	Millions of yen
	Three months ended June 30, 2018		Three months ended June 30, 2019
Revenues:
Finance revenues	¥	56,559	¥	62,497
Gains on investment securities and dividends		7,507		13,543
Operating leases		95,279		95,591
Life insurance premiums and related investment income		82,859		87,690
Sales of goods and real estate		154,455		87,152
Services income		207,258		190,507
Total revenues		603,917		536,980
Expenses:
Interest expense		20,149		26,166
Costs of operating leases		62,737		65,096
Life insurance costs		57,013		61,761
Costs of goods and real estate sold		142,721		75,432
Services expense		118,111		117,326
Other (income) and expense, net		1,063		(596	)
Selling, general and administrative expenses		105,156		111,408
Provision for doubtful receivables and probable loan losses		4,946		4,716
Write-downs of long-lived assets		26		20
Write-downs of securities		0		0
Total expenses		511,922		461,329
Operating Income		91,995		75,651
Equity in Net Income of Affiliates		5,173		12,983
Gains on Sales of Subsidiaries and Affiliates and Liquidation Losses, net		13,786		9,204
Bargain Purchase Gain		0		1,022
Income before Income Taxes		110,954		98,860
Provision for Income Taxes		30,922		28,956
Net Income		80,032		69,904
Net Income Attributable to the Noncontrolling Interests		34		385
Net Income Attributable to the Redeemable Noncontrolling Interests		51		309
Net Income Attributable to ORIX Corporation Shareholders	¥	79,947	¥	69,210

	Yen
	Three months ended June 30, 2018		Three months ended June 30, 2019
Amounts per Share of Common Stock for Net Income Attributable to ORIX Corporation Shareholders:
Basic:	¥	62.46	¥	54.07
Diluted:	¥	62.41	¥	54.02

– 17 –

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

	Millions of yen
	Three months ended June 30, 2018			Three months ended June 30, 2019
Net Income	¥	80,032		¥	69,904
Other comprehensive income (loss), net of tax:
Net change of unrealized gains (losses) on investment in securities		238			5,235
Net change of debt valuation adjustments		(3	)		132
Net change of defined benefit pension plans		(13	)		339
Net change of foreign currency translation adjustments		(4,736	)		(23,940	)
Net change of unrealized gains (losses) on derivative instruments		(30	)		(3,879	)
Total other comprehensive income (loss)		(4,544	)		(22,113	)
Comprehensive Income		75,488			47,791
Comprehensive Income (Loss) Attributable to the Noncontrolling Interests		23			(903	)
Comprehensive Income Attributable to the Redeemable Noncontrolling Interests		347			22
Comprehensive Income Attributable to ORIX Corporation Shareholders	¥	75,118		¥	48,672

– 18 –

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

Three months ended June 30, 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			1,417			1,417
Transaction with noncontrolling interests				141					(1	)					140			6,883			7,023
Comprehensive income, net of tax:
Net income						79,947									79,947			34			79,981
Other comprehensive income (loss)
Net change of unrealized gains (losses) on investment in securities									238						238			0			238
Net change of debt valuation adjustments									(3	)					(3	)		0			(3	)
Net change of defined benefit pension plans									(12	)					(12	)		(1	)		(13	)
Net change of foreign currency translation adjustments									(5,015	)					(5,015	)		(17	)		(5,032	)
Net change of unrealized gains (losses) on derivative instruments									(37	)					(37	)		7			(30	)
Total other comprehensive income (loss)															(4,829	)		(11	)		(4,840	)
Total comprehensive income															75,118			23			75,141
Cash dividends						(49,984	)								(49,984	)		(2,382	)		(52,366	)
Exercise of stock options		150		75											225			0			225
Acquisition of treasury stock												(0	)		(0	)		0			(0	)
Other, net				106		(1	)								105			0			105
Balance at June 30, 2018	¥	221,111	¥	267,613	¥	2,352,321		¥	(53,295	)	¥	(75,545	)	¥	2,712,205		¥	122,745		¥	2,834,950
Three months ended June 30, 2019
	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, 2019	¥	221,111	¥	257,625	¥	2,555,585		¥	(61,343	)	¥	(75,904	)	¥	2,897,074		¥	56,127		¥	2,953,201
Contribution to subsidiaries															0			5,348			5,348
Transaction with noncontrolling interests				74											74			(1,154	)		(1,080	)
Comprehensive income (loss), net of tax:
Net income						69,210									69,210			385			69,595
Other comprehensive income (loss)
Net change of unrealized gains (losses) on investment in securities									5,238						5,238			(3	)		5,235
Net change of debt valuation adjustments									132						132			0			132
Net change of defined benefit pension plans									339						339			0			339
Net change of foreign currency translation adjustments									(22,382	)					(22,382	)		(1,271	)		(23,653	)
Net change of unrealized gains (losses) on derivative instruments									(3,865	)					(3,865	)		(14	)		(3,879	)
Total other comprehensive income (loss)															(20,538	)		(1,288	)		(21,826	)
Total comprehensive income (loss)															48,672			(903	)		47,769
Cash dividends						(58,962	)								(58,962	)		(525	)		(59,487	)
Exercise of stock options															0			0			0
Acquisition of treasury stock												(0	)		(0	)		0			(0	)
Other, net				212											212			0			212
Balance at June 30, 2019	¥	221,111	¥	257,911	¥	2,565,833		¥	(81,881	)	¥	(75,904	)	¥	2,887,070		¥	58,893		¥	2,945,963

Note: Changes in the redeemable noncontrolling interests are not included in this table. For further information, see Note 12 “Redeemable Noncontrolling Interests.”

– 19 –

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

	Millions of yen
	Three months ended June 30, 2018			Three months ended June 30, 2019
Cash Flows from Operating Activities:
Net income	¥	80,032		¥	69,904
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		70,803			74,117
Principal payments received under net investment in the leases		0			113,164
Provision for doubtful receivables and probable loan losses		4,946			4,716
Equity in net income of affiliates (excluding interest on loans)		(4,271	)		(12,153	)
Gains on sales of subsidiaries and affiliates and liquidation losses, net		(13,786	)		(9,204	)
Bargain purchase gain		0			(1,022	)
Gains on sales of securities other than trading		(5,336	)		(11,743	)
Gains on sales of operating lease assets		(10,265	)		(10,036	)
Write-downs of long-lived assets		26			20
Write-downs of securities		0			0
Decrease in trading securities		27,056			10,672
Increase in inventories		(11,295	)		(7,813	)
Decrease in trade notes, accounts and other receivable		9,004			9,361
Decrease in trade notes, accounts and other payable		(20,698	)		(46,555	)
Increase (Decrease) in policy liabilities and policy account balances		(553	)		14,276
Other, net		(28,399	)		(19,069	)
Net cash provided by operating activities		97,264			178,635
Cash Flows from Investing Activities:
Purchases of lease equipment		(206,576	)		(218,563	)
Principal payments received under direct financing leases		116,113			0
Installment loans made to customers		(321,154	)		(382,872	)
Principal collected on installment loans		336,482			249,368
Proceeds from sales of operating lease assets		71,969			66,324
Investment in affiliates, net		(8,470	)		3,818
Proceeds from sales of investment in affiliates		26,675			18,221
Purchases of available-for-sale debt securities		(170,907	)		(199,916	)
Proceeds from sales of available-for-sale debt securities		95,734			95,385
Proceeds from redemption of available-for-sale debt securities		32,090			47,439
Purchases of equity securities other than trading		(27,810	)		(9,824	)
Proceeds from sales of equity securities other than trading		36,960			13,530
Purchases of property under facility operations		(16,229	)		(5,305	)
Acquisitions of subsidiaries, net of cash acquired		74			(56	)
Sales of subsidiaries, net of cash disposed		350			7,190
Other, net		38,269			(19,355	)
Net cash provided by (used in) investing activities		3,570			(334,616	)
Cash Flows from Financing Activities:
Net increase (decrease) in debt with maturities of three months or less		(83,711	)		18,151
Proceeds from debt with maturities longer than three months		156,779			204,258
Repayment of debt with maturities longer than three months		(241,706	)		(209,787	)
Net increase in deposits due to customers		32,860			59,857
Cash dividends paid to ORIX Corporation shareholders		(49,984	)		(58,962	)
Acquisition of treasury stock		(0	)		(0	)
Contribution from noncontrolling interests		9,006			4,719
Purchases of shares of subsidiaries from noncontrolling interests		(918	)		(709	)
Net increase in call money		0			5,000
Other, net		(2,449	)		(955	)
Net cash provided by (used in) financing activities		(180,123	)		21,572
Effect of Exchange Rate Changes on Cash, Cash Equivalents and Restricted Cash		1,105			(6,341	)
Net decrease in Cash, Cash Equivalents and Restricted Cash		(78,184	)		(140,750	)
Cash, Cash Equivalents and Restricted Cash at Beginning of Period		1,405,117			1,283,580
Cash, Cash Equivalents and Restricted Cash at End of Period	¥	1,326,933		¥	1,142,830

Notes:	1.	New lease standard has been adopted since April 1, 2019, and the amounts of investment in direct financing leases have been reclassified to net investment in the leases. For further information, see Note 2 “Significant Accounting and Reporting Policies (ag) New accounting pronouncements.”
	2.	The following tables provide information about Cash, Cash Equivalents and Restricted Cash which are included in the Company’s consolidated balance sheets as of June 30, 2018 and June 30, 2019, respectively.

	Millions of yen
	June 30, 2018		June 30, 2019
Cash and Cash Equivalents	¥	1,228,846	¥	1,025,879
Restricted Cash		98,087		116,951
Cash, Cash Equivalents and Restricted Cash	¥	1,326,933	¥	1,142,830

– 20 –

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, 2019 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, initial direct costs of sales-type leases and direct financing leases are mainly being deferred and amortized as a yield adjustment over the life of the related lease by using interest method. Initial direct costs of operating leases are being deferred and amortized as a straight-line basis over the life of the related lease.

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.

(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.

– 21 –

(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, 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.

(l) Lessee’s lease

Under U.S. GAAP, right-of-use (hereinafter, “ROU”) assets and lease liabilities from the lessee’s lease transaction are generally recognized on the balance sheet.

Under Japanese GAAP, operating leases from the lessee’s lease transaction are off-balanced.

– 22 –

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 finance leases and operating leases, the determination and reassessment of insurance policy liabilities and deferred policy acquisition costs, the determination of the allowance for doubtful receivables on finance leases and probable loan losses, 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, 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

– 23 –

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.

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

(1) Revenues from finance leases

Lessor leases consist of leases for various equipment types, including office equipment, industrial machinery, transportation equipment and real estates. Net investment in the leases includes sales-type leases and direct-financing leases. Interest income on net investment in the leases is recognized over the life of each respective lease using the interest method. Sales-type leases and direct financing leases are full-payout leases. Leases not qualifying as sales-type leases or direct financing leases are accounted for as operating leases and related revenue is recognized on an equality over the lease term. In providing leasing services, the Company and its subsidiaries execute supplemental businesses, such as paying insurance and handling taxes on leased assets on behalf of lessees. The estimated unguaranteed residual value represents estimated proceeds from the disposition of equipment at the time the lease is terminated. Initial direct costs of sales-type leases and direct financing leases are being deferred and amortized as a yield adjustment over the life of the related lease. The unamortized balance of initial direct costs of sales-type leases and direct financing leases is reflected as a component of net investment in the 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 finance leases when principal or interest is past-due 90 days or more, or earlier, if management determines that their collections are doubtful based on factors such as individual debtors’ creditworthiness, historical loss experience, current delinquencies and delinquency trends. Accrued but uncollected interest is reclassified to net investment in the 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 debtors’ creditworthiness, such as the debtors’ business characteristics and financial conditions as well as relevant economic conditions and trends.

– 24 –

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

Operating leases—Revenues from operating leases are recognized on a straight-line basis over the contract terms. Investment in operating leases is recorded at cost less accumulated depreciation, which was ¥634,478 million and ¥636,369 million as of March 31, 2019 and June 30, 2019, 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 investment in securities in the consolidated balance sheets. These investment assets are measured at fair value with realized and unrealized gains or losses recognized in life insurance premiums and related investment income in the consolidated statements of income. The subsidiary elected the fair value option for the entire variable annuity and variable life insurance contracts with changes in the fair value recognized in life insurance costs.

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

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

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

– 25 –

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

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

Developing the allowance for doubtful receivables on finance 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 finance 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 finance 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 finance leases and probable loan losses considering the prior charge-off experience and primarily current economic conditions.

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

(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, mega solar 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.

– 26 –

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

The effective income tax rates for the three months ended June 30, 2018 and 2019 were approximately 27.9% and 29.3%, respectively. 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.

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.

– 27 –

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, 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 are recorded in the foreign currency translation adjustments account within other comprehensive income (loss), net of applicable income taxes.

Starting from this fiscal year, the Company and its subsidiaries select either the amortization approach or the fair value approach, depending on the type of hedging activity, for the initial value of the component excluded from the assessment of effectiveness, and recognize it through the consolidated statements of income. When the amortization approach is adopted, the change in fair value is recognized in earnings using a systematic and rational method over the life of the hedging instrument and then any difference between the change in fair value and the amount recognized in earnings is recognized in other comprehensive income (loss), net of applicable income taxes. When the fair value approach is adopted, the change in the fair value is immediately recognized through the consolidated statements of income. In the past fiscal year, the change in fair value of the component excluded from the assessment of effectiveness and the ineffective portion of qualified hedges were immediately recognized through the consolidated statements of income.

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.

– 28 –

(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.

(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 on 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 June 30, 2019 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, 2019 and June 30, 2019 were ¥54,311 million and ¥47,999 million, respectively. There were ¥38,671 million and ¥33,720 million of loans held for sale as of March 31, 2019 and June 30, 2019, respectively, measured at fair value by electing the fair value option.

– 29 –

(r) Property under facility operations

Property under facility operations consist primarily of operating facilities (including 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 ¥102,185 million and ¥100,485 million as of March 31, 2019 and June 30, 2019, respectively.

(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, 2019 and June 30, 2019, residential condominiums under development were ¥55,860 million and ¥65,253 million, respectively, and completed residential condominiums and merchandise for sale were ¥59,835 million and ¥59,935 million, respectively.

The Company and its subsidiaries recorded ¥41 million and ¥99 million of write-downs principally on completed residential condominiums and merchandise for sale for the three months ended June 30, 2018 and 2019, respectively, primarily resulting from a decrease in expected sales price. These write-downs were recorded in costs of goods and real estate sold and included in Real Estate segment and 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 ¥54,499 million and ¥61,386 million as of March 31, 2019 and June 30, 2019, respectively.

(v) Right-of-use assets

The Company and its subsidiaries record the ROU assets recognized from the lessee’s lease transaction as investment in operating leases, property under facility operations and office facilities. Lease liabilities are included in other liabilities.

ROU assets are stated at cost less accumulated amortization. ROU assets of finance leases are amortized mainly on a straight-line basis over the lease term. ROU assets of operating leases are amortized over the lease term by the fixed term operating cost minus the interest cost. Amortization of ROU assets of finance leases and operating leases expenses are included in costs of operating leases, services expenses, selling, general and administrative expenses.

(w) 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, contract assets related to real estate contract works and deferred tax assets.

(x) 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.

– 30 –

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

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

The amount of goodwill was ¥430,679 million and ¥419,688 million as of March 31, 2019 and June 30, 2019, respectively.

The amount of other intangible assets was ¥427,098 million and ¥416,901 million as of March 31, 2019 and June 30, 2019, respectively.

(y) 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.

(z) Other Liabilities

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

(aa) 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.

– 31 –

(ab) Advertising

The costs of advertising are expensed as incurred.

(ac) 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.

(ad) 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.

(ae) 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.

(af) Issuance of stock by an affiliate

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

(ag) New accounting pronouncements

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. The Company and its subsidiaries adopted these Updates, including Accounting Standards Update 2019-01, on April 1, 2019 and used the beginning of the fiscal year of adoption as the date of initial adoption. Consequently, financial information of comparative periods has not been updated and the disclosures required under the new lease standard are not 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 have elected the “package of practical expedients”, which permits the Company and its subsidiaries to not reassess under the new lease standard the prior conclusions about lease identification, lease classification and initial direct costs. The Company and its subsidiaries have elected other new lease standard’s available transitional practical expedients. The new lease standard also provides practical expedients for an entity’s ongoing accounting. The Company and its subsidiaries have elected the short-term lease recognition exemption mainly for vehicle and office equipment leases. Consequently, for those leases that meet the requirements, the Company and its subsidiaries have not recognized 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 have elected the practical expedient to not separate lease and non-lease components for part of leases as lessors. The Company and its subsidiaries have expanded their disclosures regarding lessee and lessor.

– 32 –

The impact of the adoption of these Updates has resulted in a gross up of ROU assets and corresponding lease liabilities principally for operating leases, such as land leases and office and equipment leases where it is the lessee. The effect of the adoption of these Updates on the Company and its subsidiaries’ financial position at the adoption date was increases of ROU assets of ¥ 134,345 million in investment in operating leases, ¥ 77,989 million in property under facility operations, ¥ 75,805 million in office facilities and lease liabilities of ¥ 284,867 million in other liabilities in the consolidated balance sheet as of April 1, 2019. ROU assets in investment in operating leases, property under facility operations and office facilities were ¥ 130,670 million, ¥ 76,454 million and ¥ 74,574 million, respectively, and lease liabilities in other liabilities were ¥ 277,935 million as of June 30, 2019. In the consolidated statements of cash flows, cash receipts from lessor’s finance leases have been reclassified from principal payments received under direct financing leases of cash flows from investing activities to principal payments received under net investment in the leases of cash flows from operating activities.

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. Although the allowance for credit losses is expected to increase by adopting these Updates, 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 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. The Company and its subsidiaries adopted these Updates on April 1, 2019. The adoption of these Updates had no material effect 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. The effect of updating the discount rate is recognized in other comprehensive income (loss). 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.

– 33 –

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.

– 34 –

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.

– 35 –

The following tables present recorded amounts of major financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2019 and June 30, 2019:

March 31, 2019

	Millions of yen
	Total Carrying Value in Consolidated Balance Sheets			Quoted Prices in Active Markets for Identical Assets or Liabilities (Level  1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Loans held for sale *1	¥	38,671		¥	0	¥	38,671	¥	0
Trading debt securities		1,564			0		1,564		0
Available-for-sale debt securities:		1,264,244			24,831		1,138,966		100,447
Japanese and foreign government bond securities *2		430,851			3,227		427,624		0
Japanese prefectural and foreign municipal bond securities		193,305			0		190,417		2,888
Corporate debt securities *3		487,997			21,604		459,235		7,158
CMBS and RMBS in the Americas		61,479			0		61,479		0
Other asset-backed securities and debt securities		90,612			0		211		90,401
Equity securities *4*5		425,593			68,631		295,769		61,193
Derivative assets:		15,495			299		9,924		5,272
Interest rate swap agreements		138			0		138		0
Options held/written and other		11,140			0		5,868		5,272
Futures, foreign exchange contracts		3,007			299		2,708		0
Foreign currency swap agreements		1,203			0		1,203		0
Credit derivatives written		7			0		7		0
Netting *6		(1,497	)		0		0		0
Net derivative assets		13,998			0		0		0
Other assets:		12,449			0		0		12,449
Reinsurance recoverables *7		12,449			0		0		12,449
Total	¥	1,758,016		¥	93,761	¥	1,484,894	¥	179,361
Liabilities:
Derivative liabilities:	¥	25,958		¥	522	¥	25,436	¥	0
Interest rate swap agreements		17,439			0		17,439		0
Options held/written and other		2,809			0		2,809		0
Futures, foreign exchange contracts		5,336			522		4,814		0
Foreign currency swap agreements		364			0		364		0
Credit derivatives held		10			0		10		0
Netting *6		(1,497	)		0		0		0
Net derivative Liabilities		24,461			0		0		0
Policy Liabilities and Policy Account Balances:		360,198			0		0		360,198
Variable annuity and variable life insurance contracts *8		360,198			0		0		360,198
Total	¥	386,156		¥	522	¥	25,436	¥	360,198

– 36 –

June 30, 2019

	Millions of yen
	Total Carrying Value in Consolidated Balance Sheets			Quoted Prices in Active Markets for Identical Assets or Liabilities (Level  1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Loans held for sale *1	¥	33,720		¥	0	¥	33,720	¥	0
Trading debt securities		2,267			0		2,267		0
Available-for-sale debt securities:		1,326,614			20,977		1,226,236		79,401
Japanese and foreign government bond securities *2		525,542			3,139		522,403		0
Japanese prefectural and foreign municipal bond securities		183,374			0		180,569		2,805
Corporate debt securities *3		492,739			17,838		470,925		3,976
CMBS and RMBS in the Americas		52,131			0		52,131		0
Other asset-backed securities and debt securities		72,828			0		208		72,620
Equity securities *4 *5		415,936			68,675		285,361		61,900
Derivative assets:		26,889			28		12,846		14,015
Interest rate swap agreements		58			0		58		0
Options held/written and other		16,830			0		2,815		14,015
Futures, foreign exchange contracts		7,412			28		7,384		0
Foreign currency swap agreements		2,589			0		2,589		0
Netting *6		(4,193	)		0		0		0
Net derivative assets		22,696			0		0		0
Other assets:		11,916			0		0		11,916
Reinsurance recoverables *7		11,916			0		0		11,916
Total	¥	1,817,342		¥	89,680	¥	1,560,430	¥	167,232
Liabilities:
Derivative liabilities:	¥	42,616		¥	477	¥	42,139	¥	0
Interest rate swap agreements		25,565			0		25,565		0
Options held/written and other		13,724			0		13,724		0
Futures, foreign exchange contracts		2,932			477		2,455		0
Foreign currency swap agreements		378			0		378		0
Credit derivatives held		17			0		17		0
Netting *6		(4,193	)		0		0		0
Net derivative Liabilities		38,423			0		0		0
Policy Liabilities and Policy Account Balances:		347,173			0		0		347,173
Variable annuity and variable life insurance contracts *8		347,173			0		0		347,173
Total	¥	389,789		¥	477	¥	42,139	¥	347,173

– 37 –

*1 A certain subsidiary elected the fair value option on certain loans held for sale. These loans are multi-family and seniors housing loans and are sold to Federal National Mortgage Association (“Fannie Mae”) or institutional investors. Included in “Other (income) and expense, net” in the consolidated statements of income were gains of ¥183 million and ¥536 million from the change in the fair value of the loans for the three months ended June 30, 2018 and 2019, respectively. No gains or losses were recognized in earnings during the three months ended June 30, 2018 and 2019 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, 2019, were ¥37,865 million and ¥38,671 million, respectively, and the amount of the aggregate fair value exceeded the amount of aggregate unpaid principal balance by ¥806 million. The amounts of aggregate unpaid principal balance and aggregate fair value of the loans held for sale as of June 30, 2019, were ¥32,412 million and ¥33,720 million, respectively, and the amount of the aggregate fair value exceeded the amount of aggregate unpaid principal balance by ¥1,308 million. As of March 31, 2019 and June 30, 2019, 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 ¥19 million and ¥1 million from the change in the fair value of those investments for the three months ended June 30, 2018 and 2019, respectively. The amounts of aggregate fair value elected the fair value option were ¥420 million and ¥402 million as of March 31, 2019 and June 30, 2019, respectively.

*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 gains of ¥39 million and ¥444 million from the change in the fair value of those investments for the three months ended June 30, 2018 and 2019, respectively. The amounts of aggregate fair value elected the fair value option were ¥21,136 million and ¥17,838 million as of March 31, 2019 and June 30, 2019, respectively.

*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 ¥254 million and ¥209 million from the change in the fair value of those investments for the three months ended June 30, 2018 and 2019, respectively. The amounts of aggregate fair value elected the fair value option were ¥5,811 million and ¥5,703 million as of March 31, 2019 and June 30, 2019, respectively.

*5 The amounts of investment funds measured at net asset value per share which are not included in the above tables were ¥12,100 million and ¥12,251 million as of March 31, 2019 and June 30, 2019, respectively.

*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 were ¥12,449 million and ¥11,916 million as of March 31, 2019 and June 30, 2019, respectively. For the effect of changes in the fair value of those reinsurance contracts on earnings during the three months ended June 30, 2018 and 2019, see Note 17 “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 were ¥360,198 million and ¥347,173 million as of March 31, 2019 and June 30, 2019, respectively. For the effect of changes in the fair value of the variable annuity and variable life insurance contracts on earnings during the three months ended June 30, 2018 and 2019, see Note 17 “Life Insurance Operations.”

– 38 –

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 three months ended June 30, 2018 and 2019:

Three months ended June 30, 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 June 30, 2018		Change in unrealized gains or losses included in earnings  for assets and liabilities still held at June 30, 2018 *1
			Included in earnings *1			Included in other comprehensive income *2			Total
Available-for-sale debt securities	¥	120,917	¥	1,129		¥	(3,730	)	¥	(2,601	)	¥	320	¥	0		¥	(4,541	)	¥	0	¥	114,095	¥	16
Corporate debt securities		3,037		0			2			2			0		0			(194	)		0		2,845		0
CMBS and RMBS in the Americas		36,010		1,089			(11,225	)		(10,136	)		0		0			0			0		25,874		(20	)
Other asset-backed securities and debt securities		81,870		40			7,493			7,533			320		0			(4,347	)		0		85,376		36
Equity securities		37,879		159			635			794			14,639		(10,039	)		0			0		43,273		81
Investment funds		37,879		159			635			794			14,639		(10,039	)		0			0		43,273		81
Derivative assets and liabilities (net)		2,291		(2,261	)		0			(2,261	)		1,226		0			(786	)		0		470		(2,261	)
Options held/written and other		2,291		(2,261	)		0			(2,261	)		1,226		0			(786	)		0		470		(2,261	)
Other asset		15,008		(2,315	)		0			(2,315	)		1,018		0			(146	)		0		13,565		(2,315	)
Reinsurance recoverables *5		15,008		(2,315	)		0			(2,315	)		1,018		0			(146	)		0		13,565		(2,315	)
Policy Liabilities and Policy Account Balances		444,010		(147	)		(3	)		(150	)		0		0			(24,705	)		0		419,455		(146	)
Variable annuity and variable life insurance contracts *6		444,010		(147	)		(3	)		(150	)		0		0			(24,705	)		0		419,455		(146	)

– 39 –

Three months ended June 30, 2019

	Millions of yen
	Balance at April 1, 2019		Gains or losses (realized/unrealized)									Purchases *3		Sales			Settlements *4			Transfers in and/ or out of Level 3 (net)			Balance at June 30, 2019		Change in unrealized gains or losses included in earnings  for assets and liabilities still held at June 30, 2019 *1
			Included in earnings *1			Included in other comprehensive income *2			Total
Available-for-sale debt securities	¥	100,447	¥	1,021		¥	(1,696	)	¥	(675	)	¥	6,151	¥	(3,822	)	¥	(19,709	)	¥	(2,991	)	¥	79,401	¥	289
Japanese prefectural and foreign municipal bond securities		2,888		0			(83	)		(83	)		0		0			0			0			2,805		0
Corporate debt securities		7,158		0			3			3			0		(194	)		0			(2,991	)		3,976		0
Other asset-backed securities and debt securities		90,401		1,021			(1,616	)		(595	)		6,151		(3,628	)		(19,709	)		0			72,620		289
Equity securities		61,193		872			(1,821	)		(949	)		2,900		(831	)		(413	)		0			61,900		456
Investment funds		61,193		872			(1,821	)		(949	)		2,900		(831	)		(413	)		0			61,900		456
Derivative assets and liabilities (net)		5,272		9,077			(334	)		8,743			0		0			0			0			14,015		9,077
Options held/written and other		5,272		9,077			(334	)		8,743			0		0			0			0			14,015		9,077
Other asset		12,449		(1,249	)		0			(1,249	)		788		0			(72	)		0			11,916		(1,249	)
Reinsurance recoverables *5		12,449		(1,249	)		0			(1,249	)		788		0			(72	)		0			11,916		(1,249	)
Policy Liabilities and Policy Account Balances		360,198		313			184			497			0		0			(12,528	)		0			347,173		312
Variable annuity and variable life insurance contracts *6		360,198		313			184			497			0		0			(12,528	)		0			347,173		312

*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 “Net change of unrealized gains (losses) on investment in securities” and “Net change of foreign currency translation adjustments”, unrealized gains and losses from equity securities are included mainly in “Net change of foreign currency translation adjustments”, unrealized gains and losses from policy liabilities and policy account balances are included in “Net change of debt valuation adjustments.”

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

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

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

*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 June 30, 2018. In the three months ended June 30, 2019, corporate debt securities totaling ¥2,991 million were transferred from Level 3 to Level 2, since the inputs became observable.

– 40 –

The following tables present recorded amounts of assets measured at fair value on a nonrecurring basis during year ended March 31, 2019 and the three months ended June 30, 2019. These assets are measured at fair value on a nonrecurring basis mainly to recognize impairment:

Year ended March 31, 2019

	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	¥	3,839	¥	0	¥	3,839	¥	0
Real estate collateral-dependent loans (net of allowance for probable loan losses)		6,630		0		0		6,630
Investment in operating leases and property under facility operations		12,901		0		0		12,901
Certain investments in affiliates		2,897		0		0		2,897
	¥	26,267	¥	0	¥	3,839	¥	22,428

Three months ended June 30, 2019

	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	¥	820	¥	0	¥	820	¥	0
Real estate collateral-dependent loans (net of allowance for probable loan losses)		3,753		0		0		3,753
	¥	4,573	¥	0	¥	820	¥	3,753

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.

– 41 –

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.

Trading debt securities and available-for-sale debt securities

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

– 42 –

Equity 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. Certain subsidiaries elected the fair value option for investments in some funds. In addition, a certain subsidiary measures its investment held by the investment company which is owned by the subsidiary at fair value. These investment funds are classified as Level 3, because the subsidiaries measure their fair value based on discounted cash flow methodologies using inputs that are unobservable in the market and broker quotes.

Derivatives

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

Reinsurance recoverables

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

Variable annuity and variable life insurance contracts

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

– 43 –

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, 2019 and June 30, 2019.

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	March 31, 2019
	Millions of yen
	Fair value		Valuation technique(s)	Significant unobservable inputs	Range (Weighted average)
Assets:
Available-for-sale debt securities:
Japanese prefectural and foreign municipal bond securities	¥	2,888	Discounted cash flows	Discount rate	8.5%
					(8.5%)
Corporate debt securities		2,162	Discounted cash flows	Discount rate	0.1% – 1.3%
					(0.8%)
		4,996	Appraisals/Broker quotes	—	—
Other asset-backed securities and debt securities		23,651	Discounted cash flows	Discount rate	0.2% – 51.2%
					(8.3%)
				Probability of default	0.6% – 1.6%
					(0.8%)
		66,750	Appraisals/Broker quotes	—	—
Equity securities:
Investment funds		6,012	Internal cash flows	Discount rate	0.0% – 65.0%
					(11.3%)
		32,702	Discounted cash flows	Discount rate	3.8% – 17.0%
					(14.1%)
		22,479	Appraisals/Broker quotes	—	—
Derivative assets:
Options held/written and other		5,005	Discounted cash flows	Discount rate	0.0% – 15.0%
					(8.6%)
		267	Appraisals/Broker quotes	—	—
Other assets:
Reinsurance recoverables		12,449	Discounted cash flows	Discount rate	(0.1)% – 0.4%
					(0.1%)
				Mortality rate	0.0% – 100.0%
					(1.3%)
				Lapse rate	1.5% – 24.0%