ORIX CORP — Interim / Quarterly Report 2003

Oct 29, 2003

6-K 1 k00523e6vk.htm ORIX CORPORATION ORIX Corporation PAGEBREAK

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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 October, 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 o

(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 o No x

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TABLE OF CONTENTS

SIGNATURES
Consolidated Financial Results
Summary of Consolidated Financial Results
Consolidated Financial Highlights
Condensed Consolidated Statements of Income
Condensed Consolidated Balance Sheets
Condensed Consolidated Statements of Shareholders’ Equity
Condensed Consolidated Statements of Cash Flows
Segment Information

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Table of Documents Filed

Page

1. ORIX’s Interim Consolidated Financial Results (April 1, 2003 — September 30, 2003) filed with the Tokyo Stock Exchange on Monday, October 27, 2003.

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link1 "SIGNATURES"

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: October 27, 2003	By /s/ Masaru Hattori
	Masaru Hattori
	Corporate Senior Vice President
	Head of the Accounting Department
	ORIX Corporation

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link1 "Consolidated Financial Results"

Consolidated Financial Results

April 1, 2003 — September 30, 2003

October 27, 2003

In preparing its consolidated financial information, ORIX Corporation and its subsidiaries have complied with accounting principles generally accepted in the United States of America, except as modified to account for stock splits in accordance with the usual practice in Japan.

U.S. Dollar amounts have been calculated at Yen 111.25 to $1.00, the approximate exchange rate prevailing at September 30, 2003.

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

The Company expects that it will be a “passive foreign investment company” under the U.S. Internal Revenue Code. A U.S. holder of the shares of the Company is therefore subject to special rules of taxation in respect of certain dividend, gain or other income on such shares. Investors should consult their tax advisors with respect to such rules, which are summarized in the Company’s annual report.

For further information please contact:

Corporate Communications ORIX Corporation 3-22-8 Shiba, Minato-ku, Tokyo 105-8683 JAPAN Tel: (03) 5419-5102 Fax: (03) 5419-5901 E-mail: leslie_hoy@orix.co.jp

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Consolidated Financial Results from April 1, 2003 to September 30, 2003 (U.S. GAAP Financial Information for ORIX Corporation and its Subsidiaries)

Corporate Name:	ORIX Corporation
Listed Exchanges:	Tokyo Stock Exchange (Securities No. 8591)
	Osaka Securities Exchange
	Nagoya Stock Exchange
	New York Stock Exchange (Trading Symbol: IX)
Head Office:	Tokyo JAPAN
	Tel:(03)5419-5102

Date Approved by Board of Directors: October 27, 2003

1. Performance Highlights for the Six Months Ended September 30, 2003 and 2002, and the Year Ended March 31, 2003 (1) Performance Highlights — Operating Results (Unaudited)

Total	Year-on-Year	Operating	Year-on-Year		Income before	Year-on-Year
Revenues	Change	Income	Change		Income Taxes*2	Change
September 30, 2003	345,871	3.3 %	46,729	34.9	%	58,256	53.3 %
September 30, 2002	334,728	0.7 %	34,635	(8.0	%)	37,996	2.1 %
March 31, 2003	683,645	—	38,083	—		46,288	—

Net Income	Change	Earnings Per Share	Earnings Per Share
September 30, 2003	31,419	38.0 %	375.42	353.65
September 30, 2002	22,763	13.6 %	272.12	256.34
March 31, 2003	30,243	—	361.44	340.95

| 1. | Equity in Net Income of Affiliates was a net gain of JPY 11,923 million for the six months ended September 30, 2003, a net gain of JPY 3,359 million for the six months ended September 30, 2002 and a net gain of JPY 6,203 million for the year ended March 31, 2003. | | --- | --- | | 2. | The average number of shares was 83,691,862 for the six months ended September 30, 2003, 83,652,980 for the six months ended September 30, 2002 and 83,672,434 for the year ended March 31, 2003. | | 3. | Changes in Accounting Principles Yes (x) (new accounting adoption) No ( ) |

| *Note 1: | Unless otherwise stated, all amounts shown herein are in millions of Japanese yen or millions of U.S. dollars, except for Per Share amounts which are in single yen. | | --- | --- | | Note 2: | “Income before Income Taxes” as used throughout the report represents “Income before Extraordinary Gain, Cumulative Effect of a Change in Accounting Principle and Income Taxes.” |

(2) Performance Highlights — Financial Position (Unaudited)

Total Assets	Equity	Equity Ratio	Equity Per Share
September 30, 2003	5,684,598	541,078	9.5 %	6,456.22
September 30, 2002	6,050,290	499,726	8.3 %	5,973.44
March 31, 2003	5,931,067	505,458	8.5 %	6,039.43

1. The number of outstanding shares was 83,690,699 as of September 30, 2003, 83,658,128 as of September 30, 2002 and 83,693,009 as of March 31, 2003.

(3) Performance Highlights — Cash Flows (Unaudited)

From Operating Activities	From Investing Activities	From Financing Activities		At End of Period
September 30, 2003	71,813	117,408	(225,059	)	168,347
September 30, 2002	83,282	119,027	(345,174	)	210,875
March 31, 2003	210,150	182,950	(542,040	)	204,677

(4) Number of Consolidated Subsidiaries and Affiliates

Consolidated Subsidiaries	197
Non-consolidated Subsidiaries	0
Affiliates	72	(Of which 72 are accounted for by the equity method)

(5) Changes in Accounting Treatment

Additions to and deletions from consolidated subsidiaries and affiliates

Additions: Consolidated Subsidiaries 3, Affiliates 1

Deletions: Consolidated Subsidiaries 4, Affiliates 1

2. Forecasts for the Year Ending March 31, 2004 (Unaudited)

Fiscal Year	Total — Revenues	Income before — Income Taxes	Net Income
March 31, 2004	730,000	87,000	48,000

Note: Basic Earnings Per Share is forecasted to be JPY 573.54.

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Group Position

The ORIX Group consists of ORIX Corporation, 197 subsidiaries and 72 affiliates, and is developing various operations. The main contents of each operation and the positioning of ORIX Corporation and its subsidiaries are given below. The following classification is the same as that used in the classification of information by segment.

Operations in Japan

(1)
This business 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.

[Main related companies] ORIX Corporation, ORIX Alpha Corporation, ORIX Auto Leasing Corporation, IFCO Inc., Nittetsu Lease Co., Ltd.

(2)
This business principally comprises the rental of precision measuring
equipment and personal computers to corporate customers as well as
automobile rental operations.

[Main related companies] ORIX Rentec Corporation, ORIX Rent-A-Car Corporation

(3)
This business encompasses real estate loans to corporate customers and
housing loans to individuals. ORIX is also expanding its business
involving loan servicing, commercial mortgage-backed securities (CMBS),
and REITs.

[Main related companies] ORIX Corporation, ORIX Trust and Banking Corporation, ORIX Asset Management & Loan Services Corporation

(4)
This business consists principally of condominium development and
office rental activities as well as the operation of such facilities as
hotels, employee dormitories, and training facilities.

[Main related companies] ORIX Corporation, ORIX Estate Corporation, ORIX Real Estate Corporation

(5)
This segment consists of direct and agency life insurance sales and
related activities conducted by ORIX Life Insurance.

[Main related companies] ORIX Life Insurance Corporation

(6)
The other segment encompasses securities transactions, venture capital
operations, consumer card loan operations, and new businesses.

[Main related companies] ORIX Corporation, ORIX Credit Corporation, ORIX Capital Corporation, ORIX Securities Corporation, ORIX Baseball Club Co., Ltd., ORIX COMMODITIES Corporation, ORIX Club Corporation, ORIX Investment Corporation

Overseas Operations

(1)
Principal businesses in the Americas segment are direct financing
leases, corporate lending, securities investment, commercial
mortgage-backed securities (CMBS) related business, and real estate
development.

[Main related companies] ORIX USA Corporation, ORIX Real Estate Equities, Inc., ORIX Financial Services, Inc., ORIX Capital Markets, LLC, Stockton Holdings Limited

(2)
Principal businesses in Asia and Oceania involve direct financing
leases, operating leases for precision measuring equipment and
transportation equipment, corporate lending, and securities investment.

[Main related companies] ORIX Investment and Management Private Limited, ORIX Asia Limited, ORIX Australia Corporation Limited,ORIX Taiwan Corporation, PT. ORIX Indonesia Finance, ORIX Leasing Malaysia Berhad, ORIX Leasing Pakistan Limited, ORIX Leasing Singapore Limited, INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED

(3)
Principal businesses in Europe center on aircraft operating leases,
corporate loans, and securities investments.

[Main related companies] ORIX Europe Limited, ORIX Ireland Limited, ORIX Aviation Systems Limited

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link1 "Summary of Consolidated Financial Results"

Summary of Consolidated Financial Results

Management Policies

Objectives

ORIX has continued to provide value-added financial products and services to meet its customers’ needs. To meet the increasingly sophisticated requirements of our customers, we have increased the number and quality of financial solutions that we provide. As a result, ORIX’s financial services have expanded from leasing, rentals and lending to include life insurance, real estate finance and investment banking activities. As new business opportunities arise in the future, we plan to build on our accumulated knowledge and experience to continue to develop creative and innovative value-added financial solutions.

ORIX aims to achieve the optimum growth in long-term shareholder value and contribute to society by taking the lead in discovering customers’ needs in order to provide new value-added financial services. This is the basis of ORIX’s management philosophy and we will further strive to focus on areas that fully utilize the specialization of the entire ORIX Group in order to meet our customers’ needs.

In addition, ORIX has placed the utmost importance on profitability by carefully selecting businesses and concentrating its resources to achieve maximum growth in shareholder value. However, in the Japanese financial market, it is quite difficult to achieve a level of risk-adjusted return that is comparable to global standards. In light of this reality, ORIX is striving to increase the efficiency of its asset-based business and is concentrating more of its resources on investment banking activities with the present goal of increasing profitability without increasing assets.

Dividend Policy

We believe we should use retained earnings mainly to invest in new growth opportunities as we strive to achieve returns for shareholders by increasing our corporate value over the long run.

Unit Shares

ORIX’s basic policy is to periodically review the number of common shares that make up one trading unit in order to promote a broad participation of investors. With regards to the number of shares that make one unit, ORIX will consider demands from the market and weigh the costs and benefits associated with any changes to the present trading unit.

Corporate Governance

ORIX has strengthened its corporate governance structure in order to more objectively ensure that business activities are being carried out to maximize shareholder value. For example, ORIX established an

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Advisory Board in 1997, introduced a Corporate Executive Officer system in 1998, and welcomed independent directors to the Board and set up the Executive Nomination and Compensation Committee in 1999. In order to take further steps to strengthen its corporate governance structure, ORIX received approval from shareholders at the 40th Annual General Meeting of Shareholders on June 25, 2003 to adopt a “Company with Committees” board model, which became possible on April 1, 2003 as a result of revisions to the Japanese Commercial Code. In addition, ORIX believes that compliance is a foundation of strong corporate governance and continues to strengthen its compliance based on the spirit of EC21, which is our guide to continue to be an “Excellent Company” in the 21st Century. We have established a Compliance Coordination Office and we are actively promoting our Corporate Action Principles and Employee Action Principles as part of compliance.

Financial Results

1. Six Months Ended September 30, 2003

Economic Environment

The pace of recovery of the U.S. economy was boosted thanks to an increase in consumer spending, however, there were still concerns about employment. Asia experienced a general slowdown in certain economies due to the lower level of exports to the United States and sluggish consumer spending in some of the more developed countries of the region. The Japanese economy continued to suffer from deflation with still no clear signs of recovery in consumer spending, however, the rise in stock prices and improvement in corporate earnings has resulted in less pessimism about the future.

Financial Highlights
Income before Income Taxes	58,256 million yen (up 53% year on year)
Net Income	31,419 million yen (up 38% year on year)
Earnings Per Share (Basic)	375.42 yen (up 38% year on year)
Earnings Per Share (Diluted)	353.65 yen (up 38% year on year)
Shareholders’ Equity Per Share	6,465.22 yen (up 7% from March 31, 2003)
ROE (annualized)	12.0% (September 30, 2002: 9.1%)
ROA (annualized)	1.08% (September 30, 2002: 0.73%)

Revenues: 345,871 million yen (up 3% year on year)

As we continued to focus on the profitability of each transaction, we carefully selected new leasing and loan transactions. As a result of a lower balance of assets and fewer gains from securitization, revenues from “direct financing leases” and “interest on loans and investment securities” were down compared to the same period of the previous fiscal year. However, revenues from “operating leases” increased compared to the same period of the previous fiscal year due primarily to the improvement of the precision measuring

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equipment rental business and gains from the sale of some office buildings. “Residential condominium sales” performed strongly due primarily to the increase in the number of condominiums sold to buyers during the period. While brokerage commissions increased due primarily to the strong performance of the Japanese stock market, net gains on investment securities declined compared to the same period of the previous fiscal year resulting in an overall year-on-year decline in “brokerage commissions and net gains on investment securities.” Total revenues were up 3% year on year to 345,871 million yen.

Expenses: 299,142 million yen (unchanged)

“Interest expense” was down 13% year on year due mainly to lower asset levels and the resulting lower level of debt overseas. “Costs of residential condominium sales” increased in line with the growth in revenues from “residential condominium sales” and “selling, general and administrative expenses” increased mainly due to the increase in the number of consolidated companies, while “write-downs of long-lived assets” and “write-downs of securities” were lower compared to the same period of the previous fiscal year. As a result, expenses were flat year on year at 299,142 million yen.

Net Income: 31,419 million yen (up 38% year on year)

“Operating income” grew 35% year on year to 46,729 million yen. “Equity in net income of affiliates” increased 255% to 11,923 million yen due mainly to the recognition of deferred tax assets at Korea Life Insurance Co., Ltd. (refer to page 8, “5. Additional Information”). As a result, “income before extraordinary gain, cumulative effect of a change in accounting principle and income taxes” increased 53% year on year to 58,256 million yen and “net income” rose 38% year on year to 31,419 million yen.

Operating Assets: 4,937,086 million yen (down 4% from March 31, 2003)

“Operating assets” were down 4% to 4,937,086 million yen compared with March 31, 2003 as a result of a careful selection of new assets, the sale of certain assets and the appreciation of the yen against the U.S. dollar.

Segment Information (“Profits” refer to income before income taxes)

Operations in Japan

Corporate Finance: While the automobile leasing operations continued to perform relatively strongly, the cautious selection of new assets and the resulting lower level of segment assets compared with the first half of the previous fiscal year in operations other than automobile leasing led to a decrease in segment profits to 21,919 million yen from the 24,500 million yen recorded in the same period of the previous fiscal year.

Equipment Operating Leases: The improvement of the precision measuring equipment rental business contributed to an increase in segment profits to 3,456 million yen compared to 2,979 million yen in the first half of the previous fiscal year.

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Real Estate-Related Finance: Segment assets decreased year on year as a portion of the housing loan portfolio was sold off. Although gains from the housing loan operations and the increase in revenues from the loan servicing operations contributed to earnings, segment profits were 9,119 million yen for the first half of this fiscal year compared to 9,910 million yen for the same period of the previous fiscal year. The figures for the last fiscal year included a gain of 3,174 million yen from the sale of shares of a J-REIT to the public in June 2002.

Real Estate: The condominium development business made a strong contribution to segment profits due primarily to an increase in the number of condominiums sold to buyers. In addition, gains from the sale of some office buildings and other real estate, and revenues from building maintenance operations contributed to segment profits of 6,329 million yen in the first half of this fiscal year, up from a loss of 8,807 million yen that resulted primarily from “write-downs of long-lived assets” of 14,665 million yen in the same period of the previous fiscal year.

Life Insurance: Revenues were lower as a result of the continued shift to insurance-only life insurance products. Segment profits for the first half of this fiscal year were 2,507 million yen compared to 2,976 million yen in the same period of the previous fiscal year, due to lower life insurance related investment income.

Other: Although the consumer card loan operations continued to perform well, fewer gains were realized at our venture capital and other operations, and segment profits were 2,828 million yen in the first half of this fiscal year down from 6,926 million yen in the same period of the previous fiscal year.

Overseas Operations

The Americas: Segment profits improved to 3,912 million yen in the first half of this fiscal year compared to a loss of 1,027 million yen in the same period of the previous fiscal year due largely to lower provisions and fewer write-downs of securities.

Asia and Oceania: Strong performance of the corporate lending and automobile leasing operations of each company in the region and the earnings contribution from Korea Life Insurance Co., Ltd. (refer to page 8, “5. Additional Information”), an equity method affiliate, resulted in a large increase in segment profits to 13,939 million yen in the first half of this fiscal year compared to 4,314 million yen in the same period of the previous fiscal year.

Europe: Segment profits experienced a loss of 1,899 million yen, compared to a loss of 610 million yen in the same period of the previous fiscal year due to the decrease in segment assets and the recording of losses on certain equity method investments.

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2. Summary of Cash flows (Six Months Ended September 30, 2003)

“Cash and cash equivalents” decreased by 18%, or 36,330 million yen, to 168,347 million yen compared to March 31,2003.

“Cash flows from operating activities,” which included a decrease stemming from “equity in net income of and gain on sales of affiliates” of 11,527 million yen, were 71,813 million yen in the first half of this fiscal year, down from the 83,282 million yen in the first half of the previous fiscal year, which included an increase associated with the recording of 14,665 million yen of “write-downs of long-lived assets.”

“Cash flows from investing activities” were 119,027 million yen in the first half of the previous fiscal year and 117,408 million yen in the first half of this fiscal year, due to inflows associated with “proceeds from sales of available-for-sale securities” and “proceeds from sales of other securities”.

345,174 million yen was used in “cash flows from financing activities” in the first half of the previous fiscal year, while 225,059 million yen was used in the first half of this fiscal year due to the decrease of commercial paper and repayment of debt.

3. Summary of Second Quarter (Three Months Ended September 30, 2003)

In the second quarter, revenues increased 1,183 million yen year on year. Revenues from “direct financing leases” and “interest on loans and investment securities” were down compared to the same period of the previous fiscal year owing to a lower balance of assets and fewer gains from securitization. “Life insurance premiums and related investment income” was also down as a result of the continued shift to insurance-only life insurance products. On the other hand, “residential condominium sales” continued to perform well as more condominiums were sold to buyers, and our building maintenance operations recorded under “other operating revenues” also increased. Overall expenses were down 13,074 million yen compared to the previous second quarter due to the decrease in “interest expense” and “life insurance costs” as well as a drop in “write-downs of long-lived assets,” which were 14,665 million yen in the second quarter of the previous fiscal year. This resulted in an increase in “operating income” by 14,257 million yen to 24,193 million yen compared with the previous second quarter. As a result, “income before extraordinary gain, cumulative effect of a change in accounting principle and income taxes” and “net income” for the second quarter rose by 20,662 million yen and 11,443 million yen, respectively, compared with the previous second quarter.

4. Outlook and Forecasts for the Fiscal Year Ending March 31, 2004

For the fiscal year ending March 31, 2004, we maintain our forecasts for “revenues” of 730,000 million yen (up 7% compared with the fiscal year ended March 31, 2003), “income before income taxes” of 87,000 million yen (up 88%), and “net income” of 48,000 million yen (up 59%).

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5. Additional Information

“Equity in net income of affiliates” for the period ended September 30, 2003 included 9,911 million yen from Korea Life Insurance Co., Ltd. (“KLI”). This amount included ORIX’s proportionate interest in the ordinary operating results of KLI and our proportionate interest in the recognition of deferred tax assets of 5,380 million yen attributable to a change in tax rules in Korea.

The change in Korean tax rules in May 2003 will enable KLI to apply certain historical losses to reduce future taxable income. As a result of this change, KLI recorded a tax benefit in earnings and a corresponding deferred tax asset in the first quarter of its current fiscal year ending March 31, 2004. ORIX recorded a proportionate interest in income reported by KLI in the second quarter of our fiscal year ending March 31, 2004 in accordance with the Company’s policy of recording its equity in the income of KLI on a one-quarter lag basis.

ORIX has plans to sell a portion of its interest in KLI in the near future. However, no definitive agreements of sale have been arranged at the time of this announcement. The corresponding increase in the carrying value of ORIX’s ownership interest as a result of the recording of the above recognition of deferred tax assets in KLI is not necessarily reflective of an increase in the fair value of our equity interest in the event of a sale to a third party. We believe that there is a possibility that we will be unable to sell our portion of KLI at or above the carrying value of our investment at the time of sale. In such an event, we will record a loss on the sale in the period in which a definitive agreement of sale is arranged.

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link1 "Consolidated Financial Highlights"

Consolidated Financial Highlights (For the Six Months Ended September 30, 2003 and 2002, and the Year Ended March 31, 2003) (Unaudited)

	Change	Year		Year		Year
	From	-On-		-On-		-On-
September 30,	March 31,	Year	September 30,	Year	March 31,	Year
2003	2003	Change	2002	Change	2003	Change
Operating Assets
Investment in Direct Financing Leases	1,542,172	98 %	92 %	1,669,623	92 %	1,572,308	95 %
Installment Loans	2,224,486	97 %	96 %	2,326,189	117 %	2,288,039	101 %
Investment in Operating Leases	487,613	92 %	106 %	460,103	98 %	529,044	111 %
Investment in Securities	589,918	87 %	82 %	717,500	74 %	677,435	79 %
Other Operating Assets	92,897	92 %	72 %	129,311	99 %	101,481	39 %
Total	4,937,086	96 %	93 %	5,302,726	98 %	5,168,307	93 %
Operating Results
Total Revenues	345,871	—	103 %	334,728	101 %	683,645	104 %
Income before Extraordinary Gain, Cumulative
Effect of a change in Accounting Principle
and Income Taxes	58,256	—	153 %	37,996	102 %	46,288	63 %
Net Income	31,419	—	138 %	22,763	114 %	30,243	75 %
Earnings
Per Share Income before Extraordinary Gain
and Cumulative Effect of a Change
in Accounting Principle
Basic	372.51	—	150 %	248.97	102 %	299.88	62 %
Diluted	350.91	—	150 %	234.58	100 %	283.04	61 %
Net Income
Basic	375.42	—	138 %	272.12	111 %	361.44	74 %
Diluted	353.65	—	138 %	256.34	109 %	340.95	73 %
Shareholders’ Equity Per Share	6,465.22	107 %	108 %	5,973.44	107 %	6,039.43	101 %
Financial Position
Shareholders’ Equity	541,078	107 %	108 %	499,726	110 %	505,458	101 %
Number of Outstanding Shares (‘000)	83,691	100 %	100 %	83,658	102 %	83,693	100 %
Long-and Short-Term Debt and Deposits	3,977,021	94 %	90 %	4,425,331	100 %	4,239,514	91 %
Total Assets	5,684,598	96 %	94 %	6,050,290	101 %	5,931,067	93 %
Shareholders’ Equity Ratio	9.5 %	—	—	8.3 %	—	8.5 %	—
Return on Equity (annualized)	12.0 %	—	—	9.1 %	—	6.0 %	—
New Business Volumes
Direct
Financing Leases New Receivables Added	398,545	—	71 %	563,596	88 %	1,000,896	92 %
New Equipment Acquisitions	354,928	—	70 %	507,941	88 %	895,848	91 %
Installment Loans	529,423	—	78 %	675,208	125 %	1,268,170	95 %
Operating Leases	74,532	—	121 %	61,526	72 %	173,567	119 %
Investment in Securities	69,477	—	73 %	95,228	50 %	231,294	66 %
Other Operating Assets	77,018	—	152 %	50,559	126 %	116,736	57 %

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link1 "Condensed Consolidated Statements of Income"

Condensed Consolidated Statements of Income (For the Six Months Ended September 30, 2003 and 2002, and the Year Ended March 31, 2003) (Unaudited)

		Year		Year		Year
Six Months		-On-	Six Months	-On-		-On-
Ended		Year	Ended	Year	Year Ended	Year	U.S. Dollars
September		Change	September	Change	March	Change	September
30, 2003		(%)	30, 2002	(%)	31, 2003	(%)	30, 2003
Total Revenues:	345,871		103	334,728	101	683,645	104	3,109
Direct Financing Leases	56,865		90	63,479	108	122,928	101	511
Operating Leases	72,241		118	61,079	104	127,608	106	649
Interest on Loans and Investment Securities	59,577		93	64,041	113	131,590	108	536
Brokerage Commissions and Net Gains on Investment Securities	7,569		95	7,927	93	10,857	59	68
Life Insurance Premiums and Related
Investment Income	65,153		91	71,832	84	138,511	91	586
Residential Condominium Sales	42,535		143	29,742	90	71,165	123	382
Interest Income on Deposits	263		84	312	31	526	38	2
Other Operating Revenues	41,668		115	36,316	120	80,460	126	375
Total Expenses:	299,142		100	300,093	102	645,562	110	2,689
Interest Expense	31,865		87	36,704	73	71,990	80	286
Depreciation

• Operating Leases | 41,569 | | 107 | 38,853 | 104 | 80,565 | 105 | 374 | | | Life Insurance Costs | 58,243 | | 90 | 64,424 | 82 | 125,684 | 90 | 524 | | | Costs of Residential Condominium Sales | 37,673 | | 147 | 25,712 | 93 | 60,769 | 123 | 339 | | | Other Operating Expenses | 21,746 | | 120 | 18,149 | 127 | 41,359 | 140 | 195 | | | Selling, General and Administrative Expenses | 77,470 | | 111 | 69,829 | 120 | 144,271 | 114 | 697 | | | Provision for Doubtful Receivables and Probable Loan Losses | 23,843 | | 95 | 24,967 | 124 | 54,706 | 107 | 214 | | | Write-downs of Long-Lived Assets | 4,202 | | 29 | 14,665 | 1,058 | 50,682 | 1,866 | 38 | | | Write-downs of Securities | 2,057 | | 36 | 5,742 | 79 | 14,325 | 73 | 18 | | | Foreign Currency Transaction Loss, Net | 474 | | 45 | 1,048 | — | 1,211 | — | 4 | | | Operating Income | 46,729 | | 135 | 34,635 | 92 | 38,083 | 52 | 420 | | | Equity in Net Income of Affiliates | 11,923 | | 355 | 3,359 | — | 6,203 | — | 107 | | | Gain (Loss) on Sales of Affiliates | (396 | ) | — | 2 | 4 | 2,002 | 1682 | (3 | ) | | Income before Extraordinary Gain, Cumulative Effect of a Change in Accounting Principle and Income Taxes | 58,256 | | 153 | 37,996 | 102 | 46,288 | 63 | 524 | | | Provision for Income Taxes | 27,080 | | 158 | 17,170 | 99 | 21,196 | 64 | 244 | | | Income before Extraordinary Gain and Cumulative Effect of a Change in Accounting Principle | 31,176 | | 150 | 20,826 | 105 | 25,092 | 63 | 280 | | | Extraordinary Gain, Net of Applicable Tax Effect | 243 | | — | — | — | 3,214 | — | 2 | | | Cumulative Effect of a Change in Accounting Principle, Net of Applicable Tax Effect | — | | — | 1,937 | 1,456 | 1,937 | 1,456 | — | | | Net Income | 31,419 | | 138 | 22,763 | 114 | 30,243 | 75 | 282 | |

Note:
2. On April 1,2002, as a result of the adoption of FASB Statement No. 141
(“Business Combinations”), the Company and its subsidiaries recorded a
transition gain arising from the write-off of “Negative Goodwill” of
JPY1,937 million as of March 31,2002 as the “Cumulative Effect of a Change
in Accounting Principle, Net of Applicable Tax Effect.”

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Condensed Consolidated Statements of Income (For the Three Months Ended September 30, 2003 and 2002) (Unaudited)

| | | | | (millions of JPY, millions of US$) | | | | --- | --- | --- | --- | --- | --- | --- | | | | Year | | | | | | Three Months | | -on- | Three Months | | | | | ended | | year | ended | U.S. dollars | | | | September | | Change | September | September | | | | 30, 2003 | | (%) | 30, 2002 | 30, 2003 | | | | Total Revenues: | 174,954 | | 101 | 173,771 | 1,573 | | | Direct Financing Leases | 28,349 | | 87 | 32,737 | 255 | | | Operating Leases | 34,363 | | 112 | 30,545 | 309 | | | Interest on Loans and Investment Securities | 31,263 | | 94 | 33,284 | 281 | | | Brokerage Commissions and Net Gains on Investment Securities | 4,323 | | 154 | 2,800 | 39 | | | Life Insurance Premiums and Related Investment Income | 34,563 | | 89 | 38,886 | 311 | | | Residential Condominium Sales | 19,359 | | 107 | 18,076 | 174 | | | Interest Income on Deposits | 102 | | 76 | 135 | 1 | | | Other Operating Revenues | 22,632 | | 131 | 17,308 | 203 | | | Total Expenses: | 150,761 | | 92 | 163,835 | 1,355 | | | Interest Expense | 15,607 | | 88 | 17,730 | 140 | | | Depreciation — Operating Leases | 20,872 | | 107 | 19,424 | 188 | | | Life Insurance Costs | 28,917 | | 83 | 34,775 | 260 | | | Costs of Residential Condominium Sales | 17,301 | | 110 | 15,727 | 156 | | | Other Operating Expenses | 11,529 | | 118 | 9,770 | 104 | | | Selling, General and Administrative Expenses | 39,981 | | 112 | 35,666 | 358 | | | Provision for Doubtful Receivables and Probable Loan Losses | 11,875 | | 98 | 12,164 | 107 | | | Write-downs of Long-Lived Assets | 4,202 | | 29 | 14,665 | 38 | | | Write-downs of Securities | 551 | | 15 | 3,576 | 5 | | | Foreign Currency Transaction (Gain) Loss, Net | (74 | ) | — | 338 | (1 | ) | | Operating Income | 24,193 | | 243 | 9,936 | 218 | | | Equity in Net Income of Affiliates | 8,539 | | 492 | 1,736 | 77 | | | Gain (Loss) on Sales of Affiliates | (396 | ) | — | 2 | (4 | ) | | Income before Extraordinary Gain, Cumulative Effect of a Change in Accounting Principle and Income Taxes | 32,336 | | 277 | 11,674 | 291 | | | Provision for Income Taxes | 15,258 | | 263 | 5,796 | 137 | | | Income before Extraordinary Gain and Cumulative Effect of a Change in Accounting Principle | 17,078 | | 291 | 5,878 | 154 | | | Extraordinary Gain, Net of Applicable Tax Effect | 243 | | — | — | 2 | | | Cumulative Effect of a Change in Accounting Principle, Net of Applicable Tax Effect | — | | — | — | — | | | Net Income | 17,321 | | 295 | 5,878 | 156 | |

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link1 "Condensed Consolidated Balance Sheets"

Condensed Consolidated Balance Sheets (As of September 30, 2003 and 2002, and March 31, 2003) (Unaudited)

						U.S. dollars
September		September		March		September
30, 2003		30, 2002		31, 2003		30, 2003
Assets
Cash and Cash Equivalents	168,347		210,875		204,677		1,513
Restricted Cash	27,698		20,936		18,671		249
Time Deposits	534		1,229		1,184		5
Investment in Direct Financing Leases	1,542,172		1,669,623		1,572,308		13,862
Installment Loans	2,224,486		2,326,189		2,288,039		19,995
Allowance for Doubtful Receivables on
Direct Financing Leases and Probable
Loan Losses	(130,015	)	(136,961	)	(133,146	)	(1,169	)
Investment in Operating Leases	487,613		460,103		529,044		4,383
Investment in Securities	589,918		717,500		677,435		5,303
Other Operating Assets	92,897		129,311		101,481		835
Investment in Affiliates	158,122		102,271		144,974		1,421
Other Receivables	140,399		132,047		146,650		1,262
Advances	122,907		175,917		119,645		1,105
Prepaid Expenses	44,318		42,157		41,494		398
Office Facilities	74,440		76,879		77,043		669
Other Assets	140,762		122,214		141,568		1,267
Total	5,684,598		6,050,290		5,931,067		51,098
Liabilities and Shareholders’ Equity
Short-Term Debt	967,182		1,397,228		1,120,434		8,694
Deposits	282,116		266,446		262,467		2,536
Trade Notes, Accounts Payable and Other
Liabilities	242,227		219,601		252,453		2,177
Accrued Expenses	78,995		88,785		82,012		710
Policy Liabilities	607,591		601,815		608,553		5,461
Current and Deferred Income Taxes	165,374		145,791		163,711		1,487
Deposits from Lessees	72,312		69,241		79,366		650
Long-Term Debt	2,727,723		2,761,657		2,856,613		24,519
Total Liabilities	5,143,520		5,550,564		5,425,609		46,234
Common Stock	52,067		51,908		52,067		468
Additional Paid-in Capital	70,002		69,877		70,002		629
Retained Earnings:
Legal Reserve	2,220		2,220		2,220		20
Retained Earnings	458,490		421,684		429,163		4,121
Accumulated Other Comprehensive Loss	(33,438	)	(37,800	)	(39,747	)	(300	)
Treasury Stock, at cost	(8,263	)	(8,163	)	(8,247	)	(74	)
Shareholders’ Equity	541,078		499,726		505,458		4,864
Total	5,684,598		6,050,290		5,931,067		51,098

September		September		March		September
30,2003		30,2002		31,2003		30, 2003
Note: Accumulated Other Comprehensive Loss
Net unrealized gains on investment in securities	15,674		4,824		1,917		141
Minimum pension liability adjustments	(3,910	)	(5,826	)	(4,182	)	(35	)
Foreign currency translation adjustments	(40,033	)	(27,918	)	(29,919	)	(360	)
Net unrealized losses on derivative instruments	(5,169	)	(8,880	)	(7,563	)	(46	)

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link1 "Condensed Consolidated Statements of Shareholders’ Equity"

Condensed Consolidated Statements of Shareholders’ Equity (For the Six Months Ended September 30, 2003 and 2002, and the Year Ended March 31, 2003) (Unaudited)

Six months		Six months
ended		ended		Year ended		U.S. dollars
September		September		March		September
30, 2003		30, 2002		31, 2003		30, 2003
Common Stock:
Beginning balance	52,067		51,854		51,854		468
Issuance during the year	—		54		213		—
Ending balance	52,067		51,908		52,067		468
Additional Paid-in Capital:
Beginning balance	70,002		69,823		69,823		629
Issuance during the year and other, net	—		54		179		—
Ending balance	70,002		69,877		70,002		629
Legal Reserve:
Beginning balance	2,220		2,220		2,220		20
Ending balance	2,220		2,220		2,220		20
Retained Earnings:
Beginning balance	429,163		400,175		400,175		3,858
Cash dividends	(2,092	)	(1,254	)	(1,255	)	(19	)
Net income	31,419		22,763		30,243		282
Ending balance	458,490		421,684		429,163		4,121
Accumulated Other Comprehensive Loss:
Beginning balance	(39,747	)	(13,440	)	(13,440	)	(357	)
Net increase (decrease) in net unrealized
gains on investment in securities	13,757		(9,932	)	(12,839	)	124
Net decrease in minimum pension
liability adjustments	272		1,008		2,652		2
Net increase in foreign
currency translation adjustments	(10,114	)	(13,118	)	(15,119	)	(91	)
Net (increase) decrease in net unrealized
losses on derivative instruments	2,394		(2,318	)	(1,001	)	22
Ending balance	(33,438	)	(37,800	)	(39,747	)	(300	)
Treasury Stock:
Beginning balance	(8,247	)	(8,124	)	(8,124	)	(74	)
Increase, net	(16	)	(39	)	(123	)	(0	)
Ending balance	(8,263	)	(8,163	)	(8,247	)	(74	)
Total Shareholders’ Equity:
Beginning balance	505,458		502,508		502,508		4,544
Increase (decrease), net	35,620		(2,782	)	2,950		320
Ending balance	541,078		499,726		505,458		4,864
Summary of Comprehensive Income (Loss):
Net income	31,419		22,763		30,243		282
Other comprehensive income (loss)	6,309		(24,360	)	(26,307	)	57
Comprehensive income (loss)	37,728		(1,597	)	3,936		339

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link1 "Condensed Consolidated Statements of Cash Flows"

Condensed Consolidated Statements of Cash Flows (For the Six Months Ended September 30, 2003 and 2002, and the Year Ended March 31, 2003) (Unaudited)

Six months		Six months				U.S. dollars
ended		ended		Year ended		Six months
September		September		March		ended September
30, 2003		30, 2002		31, 2003		30, 2003
Cash Flows from Operating Activities:
Net income	31,419		22,763		30,243		282
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization	58,595		57,229		118,097		527
Provision for doubtful receivables and probable loan losses	23,843		24,967		54,706		214
(Decrease) increase in policy liabilities	(962	)	(849	)	5,889		(9	)
Gains from securitization transactions	(276	)	(3,665	)	(9,649	)	(2	)
Equity in net income of and gain on sales of affiliates	(11,527	)	(3,361	)	(8,205	)	(104	)
Gains on sales of available-for-sale securities	(2,275	)	(4,204	)	(7,588	)	(20	)
Write-downs of long-lived assets	4,202		14,665		50,682		38
Write-downs of securities	2,057		5,742		14,325		18
(Increase) decrease in restricted cash	(9,349	)	(1,034	)	1,195		(84	)
Increase in other operating assets, including advance payments	(3,981	)	(13,648	)	(21,894	)	(36	)
Increase in prepaid expenses	(2,773	)	(3,853	)	(2,975	)	(25	)
Decrease in accrued expenses	(2,360	)	(195	)	(2,370	)	(21	)
(Decrease) increase in deposits from lessees	(6,597	)	1,148		4,303		(59	)
Other, net	(8,203	)	(12,423	)	(16,609	)	(73	)
Net cash provided by operating activities	71,813		83,282		210,150		646
Cash Flows from Investing Activities:
Purchases of lease equipment, including advance payments	(423,989	)	(465,874	)	(923,483	)	(3,811	)
Principal payments received under direct financing leases	348,787		389,630		742,183		3,135
Net proceeds from securitization of lease and loan receivables	15,212		92,803		239,050		137
Installment loans made to customers	(529,363	)	(622,872	)	(1,214,672	)	(4,758	)
Principal collected on installment loans	540,238		532,142		1,071,841		4,856
Proceeds from sales of operating lease assets	81,724		32,474		62,323		735
Investment in and dividends received from affiliates, net	2,297		(902	)	(23,208	)	21
Purchases of available-for-sale securities	(59,988	)	(67,406	)	(193,580	)	(539	)
Proceeds from sales of available-for-sale securities	110,309		144,800		264,021		992
Maturities of available-for-sale securities	41,990		54,256		95,187		377
Purchases of other securities	(10,313	)	(20,941	)	(23,674	)	(93	)
Proceeds from sales of other securities	1,118		17,759		21,413		10
Purchases of other operating assets	(5,357	)	(1,067	)	(2,847	)	(48	)
Proceeds from sales of other operating assets	7,822		14,830		63,596		70
Acquisitions of subsidiaries, net of cash acquired	(7,339	)	(10,607	)	(13,669	)	(66	)
Sales of subsidiaries, net of cash disposed	—		37,018		36,469		—
Other, net	4,260		(7,016	)	(18,000	)	37
Net cash provided by in investing activities	117,408		119,027		182,950		1,055
Cash Flows from Financing Activities:
Repayment of short-term debt, net	(5,957	)	(41,950	)	(122,365	)	(54	)
Repayment of commercial paper, net	(132,250	)	(282,590	)	(485,288	)	(1,189	)
Proceeds from long-term debt	395,601		370,233		811,334		3,556
Repayment of long-term debt	(499,994	)	(425,885	)	(776,959	)	(4,494	)
Net increase in deposits due to customers	19,649		41,203		37,224		177
Issuance of common stock	—		108		392		—
Dividends paid	(2,092	)	(1,254	)	(1,255	)	(19	)
Net decrease in call money	—		(5,000	)	(5,000	)	—
Other, net	(16	)	(39	)	(123	)	(0	)
Net cash used in financing activities	(225,059	)	(345,174	)	(542,040	)	(2,023	)
Effect of Exchange Rate Changes on Cash and Cash Equivalents	(492	)	(1,008	)	(1,131	)	(5	)
Net Decrease in Cash and Cash Equivalents	(36,330	)	(143,873	)	(150,071	)	(327	)
Cash and Cash Equivalents at Beginning of Period	204,677		354,748		354,748		1,840
Cash and Cash Equivalents at End of Period	168,347		210,875		204,677		1,513

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link1 "Segment Information"

Segment Information (For the Six Months Ended September 30, 2003 and 2002, and the Year Ended March 31, 2003) (Unaudited)

Six months ended September 30, 2003					Six months ended September 30, 2002					Year ended March 31, 2003
	Income (Loss)					Income (Loss)					Income (Loss)
	before					before					before
	Income		Operating			Income		Operating			Income		Operating
Revenues	Taxes*		Assets		Revenues	Taxes*		Assets		Revenues	Taxes*		Assets
Operations in Japan
Corporate Finance	64,262	21,919		1,845,251		64,544	24,500		1,981,237		125,560	44,158		1,893,422
Equipment Operating Leases	34,697	3,456		140,987		32,967	2,979		142,964		67,655	4,402		144,397
Real Estate-Related Finance	23,948	9,119		879,964		25,703	9,910		908,115		51,589	19,572		931,513
Real Estate	67,160	6,329		275,967		45,314	(8,807	)	289,919		104,454	(39,441	)	303,838
Life Insurance	64,563	2,507		570,013		71,832	2,976		570,983		138,511	4,791		579,805
Other	32,629	2,828		406,076		27,159	6,926		372,273		61,238	8,452		387,978
Sub-Total	287,259	46,158		4,118,258		267,519	38,484		4,265,491		549,007	41,934		4,240,953
Overseas Operations
The Americas	23,229	3,912		541,036		27,275	(1,027	)	713,300		57,909	1,332		618,148
Asia and Oceania	26,671	13,939		434,584		27,579	4,314		431,966		55,425	9,765		437,874
Europe	5,327	(1,899	)	64,524		5,833	(610	)	86,024		13,311	(736	)	75,207
Sub-Total	55,227	15,952		1,040,144		60,687	2,677		1,231,290		126,645	10,361		1,131,229
Segment Total	342,486	62,110		5,158,402		328,206	41,161		5,496,781		675,652	52,295		5,372,182
Difference between Segment totals
and Consolidated Amounts	3,385	(3,854	)	(221,316	)	6,522	(3,165	)	(194,055	)	7,993	(6,007	)	(203,875	)
Consolidated Amounts	345,871	58,256		4,937,086		334,728	37,996		5,302,726		683,645	46,288		5,168,307

U.S. dollars September 30, 2003
	Income (Loss)
	before
	Income		Operating
Revenues	Taxes*		Assets
Operations in Japan
Corporate Finance	578	197		16,587
Equipment Operating Leases	312	31		1,267
Real Estate-Related Finance	215	82		7,910
Real Estate	604	57		2,481
Life Insurance	580	23		5,124
Other	293	25		3,649
Sub-Total	2,582	415		37,018
Overseas Operations
The Americas	209	35		4,863
Asia and Oceania	239	125		3,906
Europe	48	(17	)	580
Sub-Total	496	143		9,349
Segment Total	3,078	558		46,367
Difference between Segment totals
and Consolidated Amounts	31	(34	)	(1,989	)
Consolidated Amounts	3,109	524		44,378

*Note: “Income (Loss) before Income Taxes” represents “Income before Extraordinary Gain, Cumulative Effect of a Change in Accounting Principle and Income Taxes.”

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Basis of presentation and significant accounting policies

In preparing the accompanying consolidated financial statements, ORIX Corporation (the Company) and its subsidiaries have followed with accounting principles generally accepted in the United States of America, except as modified to account for stock splits in accordance with the usual practice in Japan.

The significant differences between U.S. and Japanese accounting policies and practices are as follows: Accounting for direct financing leases, accounting for the impairment of long-lived assets and long-lived assets to be disposed of, the use of the straight-line method of depreciation for operating lease equipment, deferral of life insurance policy acquisition costs and the calculation of policy liabilities, accounting for derivative instruments and hedging activities, accounting for goodwill and intangible assets resulting from business combinations, accounting for pension plans, and a reflection of the income tax effect on such adjustments. Segment information is prepared in accordance with FASB Statement No. 131. The basis of presentation and significant accounting policies are as follows.

1. Consolidated subsidiaries

The accompanying consolidated financial statements include the accounts of the Company, 112 domestic subsidiaries and 85 foreign subsidiaries (all 197 subsidiaries). The accounts of certain variable interest entities created after January 31, 2003 are also included pursuant to FASB Interpretation No.46 (“Consolidation of Variable Interest Entities”). Major subsidiaries are ORIX Auto Leasing Corporation, ORIX USA Corporation and others.

1. Affiliates accounted for by the equity method

Investment in 47 domestic affiliates and 25 foreign affiliates (all 72 affiliates) are accounted for by using equity method. Major affiliates are The Fuji Fire and Marine Insurance Company Limited, Stockton Holdings Limited and others.

1. The date of subsidiaries interim closing

Subsidiaries where interim closing date differs from that of the Company close their books with necessary adjustments for consolidation purpose at the interim closing date.

1. Accounting policies

(1) Use of estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America 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.

(2) Recognition of revenues

Direct financing leases—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 using the interest method. Certain direct lease origination costs are being deferred and amortized over the lease term as a yield adjustment.

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Operating leases—Revenues from operating leases are recognized on a straight-line basis over the contract terms. Operating lease assets are recorded at cost and are depreciated over their estimated useful lives mainly on a straight-line basis.

Insurance premium 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. Certain costs associated with writing insurance are deferred and amortized over the respective policy periods in proportion to anticipated premium revenue.

(3) 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 accumulated other comprehensive income (loss), net of applicable income taxes. However, the Company and its subsidiaries recognize losses related to securities for which the market price has been below the acquisition cost and not considered temporary in nature. Held-to-maturity securities are recorded at amortized cost.

(4) 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.

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

The allowance for doubtful receivables on direct financing leases and probable loan losses is maintained at a level which, in the judgment of management, is adequate to provide for probable losses on lease and loan portfolios that can be reasonably anticipated.

(6) Prepaid benefit cost (Accrued benefit liability)

The Company and its subsidiaries follow FASB Statement No.87 (“Employer’s Accounting for Pensions”).

(7) 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.

(8) Hedge accounting

The Company and its subsidiaries follow FASB Statement No. 133 (“Accounting for Derivative Instruments and Hedging Activities”), as amended by FASB Statement No. 138 (“Accounting for Certain Derivative Instruments and Certain Hedging Activities—an amendment of FASB Statement No. 133”). All derivatives are recorded on the balance sheet at fair value.

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(9) Goodwill and intangible assets resulting from business combinations

Goodwill and intangible assets that have indefinite useful lives are not amortized. Impairment tests are required on an annual basis and between annual tests when events or circumstances indicate impairment.

(10) 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.

1. Cash and cash equivalents in the accompanying consolidated statements of cash flows

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

Revenues from foreign customers

Revenues from foreign customers are as follows.

Millions of JPY
The	Asia and
Americas	Oceania	Europe	Total
Revenues from foreign customers	23,620	27,809	6,035	57,464
Total consolidated revenues				345,871
Ratio of revenues from foreign
customers to total consolidated revenues	6.8 %	8.0 %	1.8 %	16.6 %

Millions of JPY
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 %

Millions of JPY
The	Asia and
Americas	Oceania	Europe	Total
Revenues from foreign customers	58,592	57,467	14,748	130,807
Total consolidated revenues				683,645
Ratio of revenues from foreign
customers to total consolidated revenues	8.5 %	8.4 %	2.2 %	19.1 %

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Millions of U.S. dollars
The	Asia and
Americas	Oceania	Europe	Total
Revenues from foreign customers	212	250	55	517
Total consolidated revenues				3,109
Ratio of revenues from foreign
customers to total consolidated revenues	6.8 %	8.0 %	1.8 %	16.6 %

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"Investment in Securities"

Investment in Securities

Investment in securities at September 30, 2003 and 2002, and March 31, 2003 consists of the following:

September	September	March 31,	September
30, 2003	30, 2002	2003	30, 2003
Trading securities	14,256	13,820	12,154	128
Available-for-sale securities	445,053	561,822	537,888	4,000
Held-to-maturity securities	7,116	12,815	10,638	64
Other securities	123,493	129,043	116,755	1,111
	589,918	717,500	677,435	5,303

Other securities consist mainly of non-marketable equity securities, preferred capital shares 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, 2003 and 2002, and March 31, 2003 are as follows:

Millions of JPY
	Gross	Gross
Amortized	unrealized	unrealized
cost	gains	losses		Fair Value
Available-for-sale:
Japanese and foreign government
bond securities	21,159	94	(119	)	21,134
Japanese prefectural and
foreign municipal bond securities	18,621	43	(43	)	18,621
Corporate debt securities	230,468	1,724	(3,811	)	228,381
Mortgage-backed and
other asset-backed securities	129,027	5,390	(3,206	)	131,211
Equity securities	21,655	25,808	(1,757	)	45,706
	420,930	33,059	(8,936	)	445,053
Held-to-maturity:
Asset-backed securities	7,116	329	(14	)	7,431
	7,116	329	(14	)	7,431

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Millions of JPY
	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

Millions of JPY
	Gross	Gross
Amortized	unrealized	unrealized
cost	gains	losses		Fair Value
Available-for-sale:
Japanese and foreign government
bond securities	41,466	173	(100	)	41,539
Japanese prefectural and
foreign municipal bond securities	13,826	91	(51	)	13,866
Corporate debt securities	309,551	2,281	(4,633	)	307,199
Mortgage-backed and
other asset-backed securities	133,812	5,344	(3,355	)	135,801
Funds in trust	4,606	—	(942	)	3,664
Equity securities	25,476	12,956	(2,613	)	35,819
	528,737	20,845	(11,694	)	537,888
Held-to-maturity:
Asset-backed securities	10,638	397	(5	)	11,030
	10,638	397	(5	)	11,030

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Millions of U.S. dollars
	Gross	Gross
Amortized	unrealized	unrealized
cost	gains	losses		Fair Value
Available-for-sale:
Japanese and foreign government
bond securities	190	1	(1	)	190
Japanese prefectural and
foreign municipal bond securities	167	0	(0	)	167
Corporate debt securities	2,072	16	(35	)	2,053
Mortgage-backed and
other asset-backed securities	1,160	48	(29	)	1,179
Equity securities	195	232	(16	)	411
	3,784	297	(81	)	4,000
Held-to-maturity:
Asset-backed securities	64	3	(0	)	67
	64	3	(0	)	67

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"Derivative Financial Instruments"

Derivative Financial Instruments

The Company and its subsidiaries are parties to derivative financial instruments that they generally 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 originating from floating rate borrowings.

(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. One subsidiary hedges a portion of the interest rate exposure of the fair values of certain asset-backed securities using sales of future contracts and forward contracts on U.S. treasury securities. Certain subsidiaries, which issued medium-term notes with fixed interest rates, use interest rate swap contracts to hedge interest rate exposure of the fair values of these medium-term notes. In case where the 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 the net investment in foreign subsidiaries.

(d) Trading and other derivatives

Certain subsidiaries engage in trading activities with various future contracts. The Company and certain subsidiaries entered into interest rate swap agreements, caps and collars for risk management purposes but 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, 2003 and 2002, March 31, 2003, the total face amount were JPY54,819 million (US$493 million), JPY110,733 million and JPY82,000 million, respectively, and the fair value of conversion option were JPY504 million (US$5 million), JPY695 million, and JPY187 million, respectively.

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The following table provides notional amount, carrying amount and estimated fair value information about derivative instruments as of September 30, 2003 and 2002, March 31, 2003.

	Millions of JPY
			Estimated
September 30, 2003	Notional amount	Carrying amount	fair value
Interest rate risk management:
Interest rate swap agreements	447,516	(10,239	)	(10,239	)
Options, caps, floors and collars held	40,725	91		91
Forward contracts	85,952	(1,144	)	(1,144	)
Foreign exchange risk management:
Foreign exchange forward contracts	95,265	1,425		1,425
Foreign currency swap agreements	255,798	13,576		13,576
Trading activities:
Futures	147,562	440		440
Options, caps, floors and collars held	3,852	9		9
Options, caps, floors and collars written	3,878	(8	)	(8	)
Foreign exchange forward contracts	1,476	24		24

	Millions of JPY
			Estimated
September 30, 2002	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	)

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	Millions of JPY
			Estimated
March 31, 2003	Notional amount	Carrying amount	fair value
Interest rate risk management:
Interest rate swap agreements	459,208	(14,431	)	(14,431	)
Options, caps, floors and collars held	30,462	(18	)	(18	)
Forward contracts	75,726	(1,084	)	(1,084	)
Foreign exchange risk management:
Foreign exchange forward contracts	88,436	(256	)	(256	)
Foreign currency swap agreements	303,051	(2,659	)	(2,659	)
Trading activities:
Futures	95,121	73		73
Interest rate swap agreements	2,000	1		1
Options, caps, floors and collars held	6,278	153		153
Options, caps, floors and collars written	5,361	(43	)	(43	)
Foreign exchange forward contracts	1,876	2		2

	Millions of U.S. dollars
			Estimated
September 30, 2003	Notional amount	Carrying amount	fair value
Interest rate risk management:
Interest rate swap agreements	4,023	(92	)	(92	)
Options, caps, floors and collars held	366	1		1
Forward contracts	773	(10	)	(10	)
Foreign exchange risk management:
Foreign exchange forward contracts	856	13		13
Foreign currency swap agreements	2,299	122		122
Trading activities:
Futures	1,326	4		4
Options, caps, floors and collars held	35	0		0
Options, caps, floors and collars written	35	(0	)	(0	)
Foreign exchange forward contracts	13	0		0

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Key Quarterly Financial Data (Unaudited)
	Fiscal 2003									Fiscal 2004
Balance Sheet Data	Q1 (02/4-6)	Q2 (02/7-9)		Q3 (02/10-12)		Q4 (03/1-3)		Q1 (03/4-6)		Q2 (03/7-9)
1) Investment in Direct Financing Leases	1,646,932		1,669,623		1,634,494		1,572,308		1,582,153		1,542,172
Japan	1,283,552		1,305,846		1,278,175		1,237,141		1,242,600		1,237,347
Overseas	363,380		363,777		356,319		335,167		339,553		304,825
2) Installment Loans	2,327,354		2,326,189		2,374,664		2,288,039		2,302,005		2,224,486
Japan	1,898,108		1,932,184		1,986,182		1,954,640		1,969,694		1,922,105
Overseas	429,246		394,005		388,482		333,399		332,311		302,381
3) Investment in Operating Leases	451,012		460,103		454,468		529,044		523,413		487,613
Japan	327,391		339,403		340,997		369,489		358,596		333,527
Overseas	123,621		120,700		113,471		159,555		164,817		154,086
4) Investment in Securities	759,406		717,500		695,319		677,435		697,926		589,918
Japan	565,409		520,005		505,995		497,829		528,184		440,598
Overseas	193,997		197,495		189,324		179,606		169,742		149,320
5) Other Operating Assets	143,064		129,311		142,856		101,481		96,479		92,897
Japan	132,217		118,558		132,847		91,851		87,217		84,695
Overseas	10,847		10,753		10,009		9,630		9,262		8,202
Total Operating Assets	5,327,768		5,302,726		5,301,801		5,168,307		5,201,976		4,937,086
Allowance for Doubtful Receivables on Direct Financing Leases
and Probable Loan Losses	(150,264	)	(136,961	)	(136,833	)	(133,146	)	(134,740	)	(130,015	)
Allowance/Investment in Direct Financing Leases
and Installment Loans	3.8	%	3.4	%	3.4	%	3.4	%	3.5	%	3.5	%
Total Assets	6,091,100		6,050,290		6,025,781		5,931,067		5,923,307		5,684,598
Short-Term Debt, Long-Term Debt and Deposits	4,489,605		4,425,331		4,393,599		4,239,514		4,232,175		3,977,021
Policy Liabilities	600,144		601,815		598,832		608,553		604,830		607,591
Total Liabilities	5,592,427		5,550,564		5,519,176		5,425,609		5,396,760		5,143,520
Shareholders’ Equity	498,673		499,726		506,605		505,458		526,547		541,078
Total Liabilities & Shareholders’ Equity	6,091,100		6,050,290		6,025,781		5,931,067		5,923,307		5,684,598
Income Statement Data	Q1 (02/4-6)	Q2 (02/7-9)		Q3 (02/10-12)		Q4 (03/1-3)		Q1 (03/4-6)		Q2 (03/7-9)
Revenues
1) Direct Financing Leases	30,742		32,737		29,880		29,569		28,516		28,349
Japan	21,987		24,854		22,503		22,099		21,906		21,865
Overseas	8,755		7,883		7,377		7,470		6,610		6,484
2) Operating Leases	30,534		30,545		30,675		35,854		37,878		34,363
Japan	22,012		21,808		21,321		22,511		28,064		23,789
Overseas	8,522		8,737		9,354		13,343		9,814		10,574
3) Interest on Loans and Investment Securities	30,757		33,284		31,395		36,154		28,314		31,263
Interest on loans	26,203		29,323		27,634		32,450		25,729		29,001
Japan	19,795		22,089		21,506		25,678		21,082		23,958
Overseas	6,408		7,234		6,128		6,772		4,647		5,043
Interest on investment securities	4,554		3,961		3,761		3,704		2,585		2,262
Japan	319		162		180		205		173		295
Overseas	4,235		3,799		3,581		3,499		2,412		1,967
4)
Brokerage Commissions and Net Gains on Investment Securities	5,127		2,800		1,355		1,575		3,246		4,323
Brokerage commissions	774		569		536		521		691		1,167
Net Gains on investment securities	4,353		2,231		819		1,054		2,555		3,156
5) Life
Insurance Premiums and Related Investment Income	32,946		38,886		28,321		38,358		30,590		34,563
Life insurance premiums	28,745		34,503		25,184		34,531		27,524		31,114
Related investment income	4,201		4,383		3,137		3,827		3,066		3,449
6) Residential Condominium Sales	11,666		18,076		21,982		19,441		23,176		19,359
Japan	11,666		18,076		21,982		19,441		23,176		19,359
Overseas	—		—		—		—		—		—
7) Interest Income on Deposits	177		135		98		116		161		102
8) Other Operating Revenues	19,008		17,308		19,463		24,681		19,036		22,632
Japan	17,015		14,867		16,243		22,420		16,952		19,698
Overseas	1,993		2,441		3,220		2,261		2,084		2,934
Total Revenues	160,957		173,771		163,169		185,748		170,917		174,954

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	Fiscal 2003				Fiscal 2004
Income Statement Data	Q1(02/4-6)	Q2(02/7-9)	Q3(02/10-12)	Q4(03/1-3)	Q1(03/4-6)	Q2(03/7-9)
Expenses
1) Interest Expense	18,974	17,730	17,555	17,731		16,258	15,607
2) Depreciation—Operating Leases	19,429	19,424	19,744	21,968		20,697	20,872
3) Life Insurance Costs	29,649	34,775	26,792	34,468		29,326	28,917
4) Costs of Residential Condominium Sales	9,985	15,727	17,596	17,461		20,372	17,301
5) Other Operating Expenses	8,379	9,770	10,114	13,096		10,217	11,529
6) Selling, General and Administrative Expenses	34,163	35,666	35,270	39,172		37,489	39,981
7)
Provision for Doubtful Receivables and Probable Loan Losses	12,803	12,164	12,421	17,318		11,968	11,875
8) Write-downs of Long-Lived Assets	—	14,665	—	36,017		—	4,202
9) Write-downs of Securities	2,166	3,576	2,174	6,409		1,506	551
10) Foreign Currency Transaction (Gain) Loss, Net	710	338	516	(353	)	548	(74	)
Total Expenses	136,258	163,835	142,182	203,287		148,381	150,761
Operating Income (Loss)	24,699	9,936	20,987	(17,539	)	22,536	24,193
Equity in Net Income of Affiliates	1,623	1,736	2,315	529		3,384	8,539
Gain (Loss) on Sales of Affiliates	—	2	—	2,000		—	(396	)
Income (Loss) before Extraordinary Gain, Cumulative Effect
of a Change in Accounting Principle and Income Taxes	26,322	11,674	23,302	(15,010	)	25,920	32,336
Income Taxes Provision (Benefit)	11,374	5,796	10,853	(6,827	)	11,822	15,258
Income (Loss) before Extraordinary Gain and Cumulative
Effect of a Change in Accounting Principle	14,948	5,878	12,449	(8,183	)	14,098	17,078
Extraordinary Gain, Net of Applicable Tax Effect	—	—	—	3,214		—	243
Cumulative Effect of a Change in Accounting Principle, Net of
Applicable Tax Effect							1,937
Net Income (Loss)	16,885	5,878	12,449	(4,969	)	14,098	17,321

New Business Volumes — Direct Financing Leases: New receivables added	237,779	325,817	213,620	223,680	212,175	186,370
Japan	172,957	274,881	149,193	161,755	158,176	139,969
Overseas	64,822	50,936	64,427	61,925	53,999	46,401
Direct Financing Leases: New equipment acquisitions	210,819	297,122	187,555	200,352	188,194	166,734
Japan	151,062	251,883	128,093	144,525	138,479	121,963
Overseas	59,757	45,239	59,462	55,827	49,715	44,771
Installment Loans: New loans added	341,138	334,070	295,622	297,340	270,959	258,464
Japan	273,867	300,963	261,815	264,242	225,042	223,315
Overseas	67,271	33,107	33,807	33,098	45,917	35,149
Operating Leases: New equipment acquisitions	20,870	40,656	27,513	84,528	40,810	33,722
Japan	14,128	33,517	20,667	74,688	29,880	20,354
Overseas	6,742	7,139	6,846	9,840	10,930	13,368
Investment in Securities: New securities added	48,907	46,321	25,894	110,172	57,370	12,107
Japan	38,346	44,804	23,520	107,807	53,835	11,020
Overseas	10,561	1,517	2,374	2,365	3,535	1,087
Other Operating Assets: New assets added	20,768	29,791	28,197	37,980	28,655	48,363
Japan	15,475	29,403	23,504	30,948	28,655	48,301
Overseas	5,293	388	4,693	7,032	—	62

Key Ratios, Per Share Data, and Employees — Return on Equity (ROE)*	13.5 %	4.7 %	9.9 %	(3.9	)%	10.9 %	13.0 %
Return on Assets (ROA)*	1.09 %	0.39 %	0.82 %	(0.33	)%	0.95 %	1.19 %
Shareholders’ Equity Ratio	8.2 %	8.3 %	8.4 %	8.5	%	8.9 %	9.5 %
Debt-to-Equity Ratio (times)	9.0	8.9	8.7	8.4		8.0	7.4
Shareholders’ Equity Per Share (yen)	5,961.30	5,973.44	6,053.07	6,039.43		6,291.50	6,465.22
Basic EPS (yen)	201.85	70.27	148.76	(59.38	)	168.45	206.96
Diluted EPS (yen)	189.95	66.32	140.18	(59.38	)	158.71	194.94
Number of Employees	11,820	11,859	11,977	11,833		11,621	11,723

• annualized

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	Fiscal 2003							Fiscal 2004
Segment Information	Q1(02/4-6)	Q2(02/7-9)		Q3(02/10-12)		Q4(03/1-3)		Q1(03/4-6)		Q2(03/7-9)
Operations in Japan Corporate Finance	31,465		33,079		31,147		29,869		30,993		33,269
Equipment Operating Leases	16,233		16,734		16,899		17,789		16,980		17,717
Real Estate-Related Finance	13,995		11,708		11,252		14,634		10,937		13,011
Real Estate	18,983		26,331		30,305		28,835		37,239		29,921
Life Insurance	32,946		38,886		28,321		38,358		30,590		33,973
Other	12,773		14,386		15,000		19,079		16,231		16,398
Sub-Total	126,395		141,124		132,924		148,564		142,970		144,289
Overseas
Operations The Americas	14,739		12,536		13,012		17,622		11,313		11,916
Asia and Oceania	13,741		13,838		13,802		14,044		12,857		13,814
Europe	3,091		2,742		3,760		3,718		2,606		2,721
Sub-Total	31,571		29,116		30,574		35,384		26,776		28,451
Total Segment Revenues	157,966		170,240		163,498		183,948		169,746		172,740
Operations
in Japan Corporate Finance	10,411		14,089		11,562		8,096		9,345		12,574
Equipment Operating Leases	1,271		1,708		1,593		(170	)	1,520		1,936
Real Estate-Related Finance	6,106		3,804		2,754		6,908		3,018		6,101
Real Estate	2,735		(11,542	)	4,341		(34,975	)	8,160		(1,831	)
Life Insurance	1,282		1,694		(27	)	1,842		(392	)	2,899
Other	2,554		4,372		3,229		(1,703	)	1,177		1,651
Sub-Total	24,359		14,125		23,452		(20,002	)	22,828		23,330
Overseas
Operations The Americas	1,229		(2,256	)	437		1,922		2,131		1,781
Asia and Oceania	1,673		2,641		1,545		3,906		4,204		9,735
Europe	(545	)	(65	)	(112	)	(14	)	(258	)	(1,641	)
Sub-Total	2,357		320		1,870		5,814		6,077		9,875
Total Segment Profits
(Income (Loss) before
Income Taxes)	26,716		14,445		25,322		(14,188	)	28,905		33,205
Operations in Japan
Corporate Finance	2,008,152		1,981,237		1,963,548		1,893,422		1,910,425		1,845,251
Equipment Operating Leases	141,905		142,964		145,234		144,397		142,189		140,987
Real Estate-Related Finance	906,193		908,115		908,821		931,513		932,999		879,964
Real Estate	293,189		289,919		307,599		303,838		295,663		275,967
Life Insurance	497,593		570,983		578,744		579,805		592,987		570,013
Other	389,605		372,273		398,435		387,978		395,184		406,076
Sub-Total	4,236,637		4,265,491		4,302,381		4,240,953		4,269,447		4,118,258
Overseas
Operations The Americas	695,351		713,300		691,100		618,148		604,167		541,036
Asia and Oceania	467,456		431,966		454,123		437,874		461,345		434,584
Europe	98,200		86,024		78,376		75,207		70,657		64,524
Sub-Total	1,261,007		1,231,290		1,223,599		1,131,229		1,136,169		1,040,144
Total Segment Assets	5,497,644		5,496,781		5,525,980		5,372,182		5,405,616		5,158,402

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