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