Corporate Philosophy. Operations. Equity. Debt. Accelerating Growth with a DNA of Continual Innovation. Life Insurance. Banking. Leasing.

Transcription

1 Annual Report 2012

2 Accelerating Growth with a DNA of Continual Innovation ORIX has consistently evolved as a financial service group, creating new businesses through ongoing development of advanced products and services. Since its establishment in 1964, the Company started with the leasing business, and then acquired expertise in a variety of areas as it has ventured into neighboring fields. From the beginning, ORIX has held a steadfast DNA of self-reliance and a spirit of willingness to take on new challenges. This DNA which threads through the Group is ORIX s defining feature and the cornerstone that supports its unique business model. Driven by this willingness to take on new challenges, we are accelerating the pace of business development and the shift from debt to equity, and then on to operations as a part of efforts to secure further growth. Operations Life Insurance Banking Corporate Philosophy ORIX is constantly anticipating market needs and working to contribute to society by developing leading financial services on a global scale and Equity striving to offer innovative products that create new value for customers. Debt Leasing Machinery and equipment leasing Automobile leasing Leasing and rental of precision measuring and IT-related equipment Ship/Aircraft leasing Lending Corporate finance Housing loans Card loans ORIX Corporation Annual Report 2012

3 Real Estate Development and rental Facilities operation Asset management Investment and advisory services Servicer Loan servicing Non-performing loan investment Automobiles Car rental Maintenance services Vehicle management Car sharing Ships/Aircraft Asset management Ship/Aircraft investment Environment/Energy Waste disposal and recycling Energy-saving measures Sale of solar power systems Electric business Investment Banking M&A advisory Fund management Investment Principal investment Business rehabilitation support Bond investment Venture capital ORIX Corporation Annual Report

4 Accelerating Growth with a DNA of Continual Innovation One of ORIX s core strengths is its ability to adapt to change. Overcoming dramatic fluctuations in the operating environment, from oil shocks to the bursting of the bubble economy and more recently Lehman shock, the Company consistently generates a steady stream of profits. Working toward a new stage of profit growth, ORIX is targeting net income of 100 billion yen in fiscal To this end, the Company will continue to pursue its medium- to long-term management strategies of increasing the pace of Finance + Services and embracing growth in emerging markets such as Asia. At the same time, we will constantly review and rebuild our existing business foundation while increasingly taking up the challenge of capturing new business opportunities and sustainable growth. Trend in Net Income* (Billions of yen) Fiscal year ended September 1988 Black Monday Fiscal year ended September 1974 First Oil Shock Fiscal year ended September 1979 Second Oil Shock Fiscal year ended March 1989 (Interim Results) *Net Income Attributable to ORIX Corporation 2 ORIX Corporation Annual Report 2012

5 Fiscal Year Ending March billion (Target) Fiscal Year Ended March billion Fiscal Year Ended March 2009 Lehman Shock Fiscal Year Ended March 1993 Bursting of the Economic Bubble Fiscal Year Ended March 1998 Asian Currency Crisis Fiscal Year Ended March 2002 Bursting of the IT Bubble ORIX Corporation Annual Report

6 Accelerating Growth with a DNA of Continual Innovation ORIX is made up of six business segments: Corporate Financial Services, Maintenance Leasing, Real Estate, Investment and Operation, Retail and Overseas Business. While each business makes full use of its individual strengths, every measure is taken to promote mutual cooperation and development of an extensive Group-wide operating foundation through the common sharing of customer base and information. Currently, the Company operates in 27 countries and regions worldwide and maintains a strong network and customer base abroad. ORIX s ongoing business development is underpinned by its sophisticated risk management and stable financial base. Swift action is determined based on a risk assessment that takes into consideration changes in operating conditions as well as the condition of each business segment. Sophisticated expertise in each business segment Business expertise and Group-wide capability Group network linking each business segment The ability to adapt to changes in the environment through portfolio diversification Over 40 year history of business overseas Expansive domestic and overseas network A policy of Localization and Partnership together with leading partners Products and services that address the needs of each country and region Sophisticated risk management and a stable financial base Balanced funding structure and diversified funding sources Focus on longer term funding and optimal liquidity control 4 ORIX Corporation Annual Report 2012

7 Contents 6 Financial Highlights 8 To Our Shareholders A Message from CEO Yoshihiko Miyauchi Attaining the Next Growth Stage: Advancing from Debt to Equity, and then on to Operations 12 An Interview with COO Makoto Inoue While adapting to an ever-changing business environment, we will actively transform our business model 16 Segment at a Glance 18 Segment Topics Introducing Kyuko-Lease Inc. into the Group and building a partnership with Kyudenko Corporation Aiming to combine the collective Group strength and expand the Bank s card loan activities Leveraging expertise to expand the facilities operation business Striving to provide new products and services in a growing world 24 Segment Overview 24 Corporate Financial Services 26 Maintenance Leasing 28 Real Estate 30 Investment and Operation 32 Retail 34 Overseas Business 36 An Interview with CFO Haruyuki Urata Risk Management and Financial Strategies that Support Future Growth 38 Risk Management 44 Corporate Governance 44 Management Team 49 Corporate Governance System 54 Comments from Outside Directors 57 Financial Section 68 About ORIX 68 Group Companies 70 Group Network 72 Corporate Information/Share Information ORIX Corporation Annual Report

8 Financial Highlights Performance for the Fiscal Year 2012 Group Performance Highlights Achieved 86.2 billion in Net Income, up 28% year on year Increased profit in all segments excluding Retail, achieving steady growth ORIX achieved 86.2 billion in net income during the fiscal year ended March 31, 2012, exceeding the initial forecast of 77.5 billion and achieving a 28% increase from the previous fiscal year. Segment profit increased for all segments excluding the Retail segment. Contributions from increases in the Corporate Financial Services and Maintenance Leasing segments were particularly strong. Despite continued asset reductions in the Real Estate segment, assets increased in the Maintenance Leasing, Retail and Overseas Business segments centered on automobile leasing, lending through ORIX Bank, and new investment and expanded local subsidiary leasing operations in Asia, respectively. Segment asset ROA (after tax) rose to 1.4% from 1.1% in the previous fiscal year as a result of the accumulation of quality assets and continued asset replacement. Key Performance Indicators Millions of yen Total revenues 1,112,485 1,015, , , ,884 Total expenses 927, , , , ,689 Income before income taxes, discontinued operations and extraordinary gain 245,459 11,043 56,057 93, ,484 Net income attributable to ORIX Corporation 169,597 21,924 37,757 67,275 86,150 ORIX Corporation shareholders equity 1,267,917 1,167,530 1,298,684 1,319,341 1,396,137 Total assets 8,994,970 8,369,736 7,739,800 8,581,582 8,354,874 ROE (%) ROA (%) ORIX Corporation shareholders equity ratio (%) Debt/Equity ratio (excl. Deposits)* 1 (times) Adjusted Debt/Equity ratio (excl. Deposits)* 2 (times) Interest-bearing debt* 3 6,263,017 5,919,639 5,263,104 6,075,076 5,828,967 Per share for net income attributable to ORIX Corporation (yen) (Basic) 1, (Diluted) 1, ORIX Corporation shareholders equity per share (yen) 14, , , , , Cash dividends* 4 (yen) Number of employees 18,702 18,920 17,725 17,578 17,488 *1. Consolidated Financial Statement (Short- and Long-term Debt (excluding Deposits) / ORIX Corporation Shareholders Equity) *2. Adjusted basis (Short- and Long-term Debt (excluding Deposits) / ORIX Corporation Shareholder s Equity): This ratio is calculated by long-term liabilities excluding liabilities in line with securitized transactions (ABS, CMBS), and ORIX Corporation Shareholder s Equity which excludes the effect on retained earnings of applying the new accounting standards for the consolidation of VIEs effective April 1, For a presentation of the most directly comparable financial measures calculated and presented in accordance with U.S. GAAP and a quantitative reconciliation of the U.S. GAAP and Non-GAAP financial measures, please see pages 66 and 67. *3. Short- and Long-term Debt and Deposits *4. Dividend applicable to the fiscal year per share 6 ORIX Corporation Annual Report 2012

9 Segment Performance Millions of yen Segment Revenues Corporate Financial Services 105,021 84,167 79,305 72,449 Maintenance Leasing 242, , , ,951 Real Estate 303, , , ,631 Investment and Operation 84,199 87,318 89,595 73,293 Retail 181, , , ,071 Overseas Business 167, , , ,240 Total 1,084, , , ,635 Segment Profits Corporate Financial Services (10,361) (19,481) 10,035 21,532 Maintenance Leasing 28,015 23,307 26,203 34,710 Real Estate 59, ,349 Investment and Operation (74,558) (2,350) 13,212 15,983 Retail 9,573 31,104 23,777 21,825 Overseas Business 20,066 37,142 45,639 49,768 Total 31,920 69, , ,167 Segment Assets Corporate Financial Services 1,487,585 1,140, , ,776 Maintenance Leasing 612, , , ,782 Real Estate 1,833,653 1,677,402 1,539,814 1,369,220 Investment and Operation 546, , , ,145 Retail 1,448,804 1,578,758 1,653,704 1,738,454 Overseas Business 949, , , ,762 Total 6,879,043 6,284,275 6,142,818 6,002,139 Segment Asset ROA (%)* Corporate Financial Services (0.37) (0.88) Maintenance Leasing Real Estate Investment and Operation (6.78) (0.26) Retail Overseas Business Segment Asset ROA (after tax) (%)** * {Segment Profits (1 Standard Tax Rate)} / Average Segment Assets ** Net Income Attributable to ORIX Corporation / Average Segment Assets (total) Segment Profits (Billions of yen) Segment Assets/Segment Asset ROA (Billions of yen) 7,000 (%) 2.1 6, , , , , , /3 10/3 11/3 12/3 Corporate Financial Services Maintenance Leasing Real Estate Investment and Operation Retail Overseas Business /3 10/3 11/3 12/3 Corporate Financial Services Maintenance Leasing Real Estate Investment and Operation Retail Overseas Business Segment Asset ROA (after tax) ORIX Corporation Annual Report

10 To Our Shareholders A Message from CEO Yoshihiko Miyauchi Attaining the Next Growth Stage: Advancing from Debt to Equity, and then on to Operations 8 ORIX Corporation Annual Report 2012

11 Overview of Performance in Fiscal 2012 Net income attributable to ORIX Corporation for fiscal 2012 (the fiscal year ended March 31, 2012) improved 28% compared with the previous fiscal year to 86.2 billion. This was 11% higher than our initial forecast of 77.5 billion. Despite a year of prolonged uncertainty due to such factors as instability in Europe, ORIX positioned fiscal 2012 as period in which it would reconfirm its growth trajectory. While continuing to maintain a degree of prudence, ORIX increasingly incorporated an aggressive stance toward ongoing business development. The profit levels that we have generated to date still fall well short of our full potential. I am convinced, however, that strengthening and expanding our business with the aim of increasing the pace of Finance + Services and embracing growth in emerging markets such as Asia is driving us to attain the next growth stage. The ORIX Business Model ORIX Corporation was established in 1964 as Japan s first fully fledged leasing company. Guided by the underlying principle of self-reliance and the spirit to take on new challenges, we have continued to adopt a flexible approach toward business development that extends beyond conventional leasing to expand into neighboring fields in the search for new added value. As a result, ORIX remains active across a wide range of business fields including corporate finance; automobiles; real estate; equity investment; life insurance; banking; and marine vessels and aircraft. Outside of Japan, and in similar fashion to our domestic operations, we are engaging in activities across a broad spectrum of business fields and geographic regions throughout Asia, the Middle East and North America. In this manner, ORIX has established its diversified portfolio through a natural evolution and has grown to become a company with the capability to connect each of its businesses into a larger network. Conscious of the impediment that vertical barriers between businesses place on growth, we focus on fostering a culture that facilitates mutual collaboration and the creation of synergistic effects. In adopting a multi-directional approach toward business development, we have continued to acquire specialist expertise across a wide range of fields. ORIX is currently engaged in a broad variety of businesses. The ORIX Group strives diligently to establish a firm foothold and standing in a number of areas. However, the Group is not a multitude of independent businesses such as a conglomerate. Each business seeks to develop cross-sectional ties in an effort to create value for each business in addition to the ability to create a different, newer value. By promoting the management of various businesses as a single corporate entity, we are working through a business model that strives to deliver Answers, Custom Fit that other companies are unable to emulate. This is what places us in a truly unique position. Moving forward, ORIX will continue to pursue business opportunities in neighboring fields while further enhancing our specialist expertise. At the same time, we will bolster collaboration between businesses within the Group as a part of our effort to create new added value. In this manner, we will not only secure higher levels of profitability, but also further diversify our business portfolio. This in turn will help secure increased stability particularly from a risk management perspective. Business activities are never-ending and ORIX currently stands at a single point in its ongoing development. With this in mind, we are motivated by the aspiration to continue to become a better company as we carry out our day-to-day management. Taking these factors into consideration, I sense that ORIX is on track to put in place a one-of-a-kind business model. Moving forward, we will continue to pursue this endeavor and to continue our ongoing evolution. Future Direction Economic instability throughout Europe is expected to continue for several years. Despite the impact of this instability, growth remains robust in emerging markets primarily in Asia. Also, buoyed further by full-fledged reconstruction demand in Japan, we project relatively high rates of growth for the next few years. ORIX Corporation Annual Report

12 To Our Shareholders A Message from CEO Yoshihiko Miyauchi In the aftermath of the financial crisis, finance markets have contracted, undergoing significant change. During this period, we took steps to respond flexibly to this change, working to lower our debt ratio. Taking a long-term look into the future, the finance industry will likely face increased regulation with little likelihood of a return to former days. Given this context, ORIX cannot expect to return to its former state. Moving forward, maintaining a low leverage ratio will become an increasingly essential requirement to business, which will in turn place significant pressure on finding innovative ways to employ capital. At the same time, focusing solely on the traditional finance functions of credit creation and lending operations is unlikely to generate higher growth. It will become increasingly vital to pursue new types of businesses that optimally link finance with additional services. Under these circumstances, we will look to accelerate the pace of our business flow from debt to equity and then on to operations. We will increase profitability with the strategy of further developing our debt and lending operations, and reinvigorating our investment activities. Then, we will capitalize on our expertise in operation businesses. Rather than withdraw from debt and lending operations, we will channel our energies toward the pursuit of profitability. We will increasingly utilize ORIX Bank s deposit base in our general debt and lending. In other lending operations, we will pursue higher returns with the support of the specialist knowledge inherent throughout other Group companies. We will also shift business flows from domestic to overseas operations and from finance lease to maintenance lease transactions. Put simply, we will accelerate our efforts to both enter markets that exhibit higher rates of growth and to deliver higher added value. Moreover, we will promote businesses that provide services that draw on our expertise in accepting third party capital in the form of funds and joint investment. Equity and investment activities are areas where we have both a track record and expertise such as domestic and overseas private equity investment, in addition to ship and aircraft-related operations. We will continue to focus on each of these areas while pursuing every possible opportunity for growth. Potential areas of investment activity include private equity investments in Asia, business rehabilitation investment in Japan and finance business-related investments in emerging markets. The operation business requires a high degree of specialist expertise. We will use the expertise nurtured in our debt and equity businesses to promote our own businesses. To date, ORIX has established a variety of businesses such as equipment rental (ORIX Rentec Corporation), automobile leasing and car sharing (ORIX Auto Corporation) and property management including hotels, Japanese inns, aquariums and golf courses (ORIX Real Estate Corporation). Moving forward, we will continue to nurture new businesses while creating added value. Taking into consideration the uncertainty that is expected to cloud the business environment for the foreseeable future, we recognize the need to maintain a certain measure of caution, yet proceed with an aggressive stance toward business development. In the fiscal year ending March 31, 2013, we will work to strengthen both stability and profitability with the ultimate aim of raising our capabilities and potential as a corporate entity to a higher level. Accordingly, in the current fiscal year, we will work toward achieving net income of 100 billion, a year-on-year increase of 16%. From a medium-term perspective, we target an ROE of 10%. We do not, however, believe that it is prudent to set a specific time frame for achieving this single benchmark given the current dramatic fluctuations in our Finance + Services Debt Equity Operations Thoroughly pursue profitability in the debt and lending business Capture growth potential through equity and investment activity Capitalize on expertise to pursue own operations and create added value 10 ORIX Corporation Annual Report 2012

13 business environment. Nonetheless, we have witnessed a steady improvement in ROE over recent years and will continue with efforts to achieve the 10% target going forward. Corporate Governance Since implementing an Advisory Board in 1997, ORIX has been progressive in its separation of the executive and oversight functions, introduced an outside director system and shifted toward a company-with-committees structure. These and other measures are aimed at enhancing management transparency and building a robust corporate governance system. In the context of its outside director system, all outside directors meet the specific conditions for director independence as set forth by the Nominating Committee. Moreover, the Nominating, Audit and Compensation committees are each comprised solely of outside directors. ORIX has continued to proactively strengthen those functions aimed at monitoring management. By putting in place a stringent mechanism of appropriate checks and balances, benefits accrue not only to management, but also ORIX as a whole. Shareholders Returns In determining the amount of cash dividends per share for the fiscal year ended March 31, 2012, ORIX took into consideration such factors as the almost 30% improvement in year-on-year earnings. With respect to the return of profits to shareholders, we therefore declared an annual per-share dividend of 90, up 10 from the 80 paid in fiscal Retained earnings will be utilized to realize steady growth from fiscal ORIX s management continually seeks to manage the Company with the aim of ensuring medium-to-longterm soundness and achieving future growth. It is our hope that shareholders will follow ORIX s growth with a medium-to-long-term perspective. Together with Stakeholders Corporate Management that Allows People to Fulfill Their Potential Management recognizes the critical importance of people, goods and capital in the ongoing operations of any corporate entity. As such, every effort is made to maximize the value and mix of these vital management resources. Of these, enhancing the value of people is of the utmost importance in increasing corporate value. ORIX maintains the concept of Keep Mixed, under which it seeks to create a workplace where all employees are able to utilize their talents and expertise to the fullest possible extent, regardless of nationality, age, gender or employment history. In addition, and with the cooperation of employees and a spirit to consistently take up new challenges, we go about our daily tasks with the common goal of creating ongoing benefits for ORIX. This in turn translates into benefits for society. Not only do we therefore strive for corporate growth in concert with each and every employee, but also the growth of society. Looking ahead, we will continue to engage in activities that deepen our sense of contribution to society and shareholders. ORIX remains committed to satisfying the expectations of shareholders by further increasing corporate value. July 2012 Yoshihiko Miyauchi Director, Representative Executive Officer Chairman and Chief Executive Officer ORIX Corporation Annual Report

14 An Interview with COO Makoto Inoue While adapting to an ever-changing business environment, we will actively transform our business model 12 ORIX Corporation Annual Report 2012

15 Q: Please provide us with your overview of fiscal Reflecting on the year as a whole Fiscal 2012 (the fiscal year ended March 31, 2012) was a year in which we implemented measures focusing mainly on increasing the pace of Finance + Services while Embracing Growth in Asia. Both in Japan and overseas, business conditions were affected by various events and factors. Globally, the debt crisis in Europe cast a significant shadow over economic activity. In Japan, the fiscal year began in turmoil following the Great East Japan Earthquake later recovering on the back of reconstruction demand. Despite dramatic change in the business environment, ORIX achieved a year-on-year increase of 28% in net income to 86.2 billion, well above its initial forecast of 77.5 billion set at the beginning of the period. Turning to our earnings by business segment, ORIX recorded steady year-on-year improvements across all of its operations with the exception of the Retail segment. Corporate Financial Services and Maintenance Leasing, in particular, provided substantial contributions to earnings. From a segment asset perspective, total assets as of the end of the fiscal 2012 decreased 2% to 6.0 trillion. While continuing to streamline assets in the Real Estate segment, we took steps to build up its portfolio with new quality assets. As a result, segment asset ROA climbed from 1.1% in fiscal 2011 to 1.4% on an after-tax basis. Looking at our financial position, ORIX maintained its share of long-term debt at the high level of 88%. As a part of our efforts to further diversify funding sources, we issued first straight bonds denominated in Korean Won and Thai Baht. Results by Segment In the Corporate Financial Services segment, we acquired the shares of Kyuko-Lease Inc., which helped ensure firm trends in revenues from direct financing leases, while fee income also increased. Steps were also taken over the past few years to rebuild relationships with certain customers who have defected during the financial crisis. This has resulted in a steady growth in our client base and an increase in transaction opportunities. ORIX placed particular emphasis on providing its customers with high level of expertise and service in the Maintenance Leasing segment. This helped establish a solid platform for stable earnings. Shortages in the supply of new vehicles due mainly to the earthquake disaster put adverse affect on new business volumes in the beginning of the fiscal With recovery of new auto supply, new business volumes increased and segment assets surpassed levels recorded in fiscal In the Real Estate segment, efforts to streamline assets were completed at a pace that exceeded initial plans. As a result, the balance of Real Estate segment assets as of March 31, 2012 stood at 1,370 billion, well within the original target balance of 1,450 billion. While steadily cutting back the level of assets held, ORIX continued to maintain stable yields together with low vacancy rates. In our facilities operation business activities, trends for each facility remained robust. In addition to completing business rehabilitation at Naruko Hotel (Japanese inn), we successfully opened both the Kyoto Aquarium and Sumida Aquarium and commenced operations at the ORIX Theater in Osaka. These facilities are welcome additions to our existing strong operating portfolio. In the Investment and Operation segment, we recorded stable contributions to earnings from the loan servicing business through collection and fee income. Turning to our investmentrelated activities, we benefited from profits derived from DAIKYO INCORPORATED, gains of sales of shares of Aozora Bank, Ltd., while we also made new investments. In the Retail segment, segment profits declined compared with the previous fiscal year. This was largely attributable to the write-down of our investment in Monex Group, Inc. and despite steady trends in each of the life insurance and banking business operations. Life insurance premiums contributed to earnings on the back of an increase in the number of policies in force. In addition to ongoing support from individual home loan transactions, result in our banking business benefited from contributions from corporate lending. Endeavoring to establish a third pillar of earnings in its business, ORIX Bank Corporation entered the card loan business in March Initial results augur well for a bright future. The underlying strength of our Overseas Business segment in fiscal 2012 was derived from direct financing leases in Asia, ORIX Corporation Annual Report

16 An Interview with COO Makoto Inoue automobile and aircraft operating leases as well as fee income and strong gains on sales of municipal bonds in the United States. Despite decreases in the balance of municipal bonds and loans receivable in the United States, segment assets increased year on year. This mainly reflected new investments in Asia, specifically China and Korea, the consolidation of an automobile-related service company in India and local subsidiary lease asset growth. Looking back on the fiscal year ended March 31, 2012, I am confident that our performance was sound across each business segment. Q. What do you consider to be the key issues as you progress to the next stage of growth? In the aftermath of the financial crisis, ORIX is placing considerable emphasis on lifting ROA by efficiently managing its assets, while controlling its leverage ratio, we believe that this will lead to further growth and achievement of our medium-term target of 10% ROE. Critical to these efforts, however, is the need to evolve our existing business model. At the same time, we must increase profitability by providing added-value and promote the replacement of assets that match with risks. In the finance business for example, difficulties exist in laying out a growth strategy for developed countries. For emerging countries, however, we see considerable promise in such areas as microfinance and consumer finance. I am confident that numerous areas remain where ORIX can, on a global scale, harness the financial expertise it has nurtured over many years. Recognizing the difficulties in pursuing a business line that revolves solely around finance in Japan, ORIX has revised its business model and its promoting a Finance + Services approach. It is therefore imperative that we place additional weight on the shift toward services. More importantly, it is vital that we transform our business model to focus on services that only ORIX can provide. Outside of Japan, we have adopted a pioneering approach to build a leasing network that provides a stable earnings platform. Despite our endeavors, we still lack the ability to capture the dynamic demand present in emerging markets. It is therefore vital that we set the bar high and take up the challenge of establishing a mini ORIX that is able to provide diversified products and services in response to changing business environment and customer needs in each country. While investment opportunities abound, competition is extremely fierce. It is critical that we thoroughly review each proposal and aggressively pursue opportunities that offer good risk. ORIX boasts inherent expertise across each of its business activities. While honing this expertise as a matter of course, it is important that we identify and draw out synergies to generate value added. Q. What are your performance targets for fiscal 2013? And, what specific measures do you plan to implement going forward? In the fiscal year ending March 31, 2013, we are targeting a year-on-year increase of 16% in net income to 100 billion. In Japan, we will strengthen collaboration between the ROE (%) ROA (%) ORIX Corporation Annual Report 2012

17 Corporate Financial Services and the Maintenance Leasing segment. By putting in place an optimal mix that combines the client base and solutions proposal capabilities of the Corporate Financial Services segment with the high expertise of the Maintenance Leasing business, we will focus on identifying customer issues and addressing needs. Moreover, we plan to ensure that new products, services and businesses translate into increasingly solid relations with customers. The Retail segment has grown and today accounts for 30% of all segment assets. Moving forward, we will pursue growth that ensures a stable earnings platform for the Group. ORIX Life Insurance s products continue to attract wide market acclaim. With this in mind, we will work to develop increasingly high quality products which will in turn provide the impetus for scale growth. In our banking operations, we will promote integrated management following the acquisition of all shares in ORIX Credit Corporation in June Our goal in this area is to strengthen our card loan business. We will continue to streamline assets in the Real Estate segment. By improving the profitability of each property in our facility operations activities which encompass hotels, Japanese inns, aquariums and golf courses, we will establish a stable earnings platform. As a part of our real estate development and rental operations, we will adopt a joint investment and fund approach toward third-party capital held to focus on the provision of services. Our intentions are to shift increasingly toward fee-based income. Debt/Equity Ratio (Times) In the Investment and Operation segment, we will pursue investments in environment and energy-related fields both in Japan and overseas. Striving to become an integrator that delivers comprehensive energy services in Asia, we will also work to capture growth in such renewable energy markets as solar power in Japan. Looking ahead, we aim to shift the profit structure of this segment over the medium term from one that has been centered on servicing business in recent years to a three-pronged approach that also includes the environment and energy-related business and equity investment. Turning our attention to horizons that extend beyond Japan, in the Overseas Business segment we will seek to promote further evolution of our local overseas leasing subsidiaries and expand our activities in peripheral financial areas. From a new investment perspective, we will focus our endeavors on such countries as China, India and Indonesia. Taking full advantage of our expertise in each of the aircraft and ship businesses, we will ramp up both our proprietary investment and asset management activities. In the United States, we continue to witness progress in our Finance + Services endeavors. Drawing on this progress, we will expand these efforts into other regions including South America. An operating environment that is in the throes of substantial change offers numerous and varied opportunities. To date, ORIX has consistently converted fluctuations in its operating environment into steadfast growth. Moving forward, we will continue to leverage and combine the collective expertise of the Group to again secure growth irrespective of our business environment. On a personal note, I intend to take the initiative and help drive ORIX forward bringing to fruition the next growth stage. July Note: Adjusted basis (Short- and Long-term Debt (excluding Deposits) / ORIX Corporation Shareholder s Equity): This ratio is calculated by long-term liabilities excluding liabilities in line with securitized transactions (ABS, CMBS), and ORIX Corporation Shareholder s Equity which excludes the effect on retained earnings of applying the new accounting standards for the consolidation of VIEs effective April 1, For a presentation of the most directly comparable financial measures calculated and presented in accordance with U.S. GAAP and a quantitative reconciliation of the U.S. GAAP and Non-GAAP financial measures, please see pages 66 and 67. Makoto Inoue Director, Representative Executive Officer President and Chief Operating Officer ORIX Corporation Annual Report

18 Segment at a Glance Business Segments Main Business Group Companies Number of Employees Corporate Financial Services Lending, leasing, commission business for the sale of financial products P ORIX Corporation P NS Lease Co., Ltd. 2,143 Maintenance Leasing Automobile leasing and rentals, car sharing, and precision measuring equipment and IT-related equipment rentals and leasing P ORIX Auto Corporation P ORIX Rentec Corporation 3,000 Real Estate Real estate development, rentals and financing, facility operation, REIT asset management, real estate investment and advisory services P ORIX Corporation P ORIX Real Estate Corporation P ORIX Golf Management LLC P ORIX Living Corporation P ORIX Asset Management Corporation P ORIX Real Estate Investment Advisors Corporation 4,079 Investment and Operation Loan servicing, principal investment, venture capital and environment and energy-related business P ORIX Corporation P ORIX Asset Management and Loan Services Corporation P ORIX Capital Corporation P ORIX Investment Corporation P ORIX Eco Services Corporation P ORIX Environmental Resources Management Corporation 922 Retail Life insurance, banking and card loan business P ORIX Life Insurance Corporation P ORIX Bank Corporation P ORIX Credit Corporation 1,258 Overseas Business Leasing, lending, investment in bonds, investment banking, and ship- and aircraft-related operations P ORIX Corporation P ORIX USA Corporation P ORIX Asia Limited P ORIX Leasing Malaysia Berhad P PT. ORIX Indonesia Finance P ORIX Taiwan Corporation P ORIX Australia Corporation Limited P ORIX Aviation Systems Limited P ORIX (China) Investment Co., Ltd. 4, ORIX Corporation Annual Report 2012

19 Base profit=segment profit-capital gains-(provisions+impairments) For more information, please see pages 66 and 67. Segment Profit/Base Profit Segment Assets/Segment Asset ROA Segment Performance (Billions of yen) /3 11/3 12/3 Segment Profit Base Profit (Billions of yen) /3 11/3 12/3 Segment Profit Base Profit (Billions of yen) (Billions of yen) (%) 1, /3 11/3 12/3 Segment Assets Segment Asset ROA (Billions of yen) (%) /3 11/3 12/3 Segment Assets Segment Asset ROA (Billions of yen) (%) 2,000 1, , Base profit trend has been stable primarily due to leasing and installment loan revenues. The segment experienced a loss for the fiscal year ended March 2010 due to large provisions, however, the segment profit has been increasing as provisions have declined. ROA continues to grow due to an increase in profit raised without using the assets, such as fee income. Segment profit is stable due to leasing and rental revenues, as well as service revenues such as maintenance. Stable level of high ROA has been maintained. The segment has steadily reduced the assets. Even though segment profit is minimal due to the effects of impairments and provisions, leasing revenues from real estate under operating lease and revenues from operating facilities are steadily increasing. 0 10/3 11/3 12/3 Segment Profit Base Profit (Billions of yen) /3 11/3 12/3 Segment Assets Segment Asset ROA (Billions of yen) (%) Although the segment experienced a loss due to a loss from equity method affiliate in the fiscal year ended March 2010, ROA continues to grow due to stable profits mainly servicer revenues /3 11/3 12/3 Segment Profit Base Profit (Billions of yen) /3 11/3 12/3 Segment Profit Base Profit (Billions of yen) /3 11/3 12/3 Segment Profit Base Profit /3 11/3 12/3 Segment Assets Segment Asset ROA (Billions of yen) (%) 2,000 1, , /3 11/3 12/3 Segment Assets Segment Asset ROA (Billions of yen) (%) 1, /3 11/3 12/3 Segment Assets Segment Asset ROA Segment profit increased due to gains from sales of equities of its card loan and security brokerage business in the fiscal year ended March Segment profit decreased due to write-down of Monex Group, Inc. securities in the fiscal year ended March Excluding these effects, life insurance and banking business have both recorded stable base profits. Segment profit is stable due to profit from new investments and stable profit contribution from local subsidiaries in Asia, and robust trend in fee income, as well as gains from sales of municipal bonds in the fiscal year ended March 2012, in the United States. Stable level of high ROA has been maintained. ORIX Corporation Annual Report

20 Segment Topics Growing while Constantly Creating Guided by a medium-term management strategy that entails increasing the pace of Finance + Services and embracing growth in emerging markets such as Asia, ORIX is progressing to the next growth stage by creating new value. Increasing the Pace of Finance + Services In light of structural changes to the finance-sector business environment, the ability to provide high value-added services is becoming an increasingly vital requirement to boost profitability in the existing finance market. ORIX already maintains a proven track record in such high value-added businesses as maintenance leasing and loan servicing. Moving forward, the Company will strive to enter new area of business activity and provide services that meet the diverse needs of customers by capitalizing its broad client base in Japan and overseas and its knowledge and expertise. Embracing Growth in Emerging Markets such as Asia Taking into consideration the remarkable paces of expansion enjoyed by emerging countries, ongoing efforts to develop business in such countries including Asia are essential to corporate growth. Since opening its first overseas office in Hong Kong in 1971, ORIX has continued to build a network of local subsidiaries as well as relationships with leading local partners in emerging markets focusing mainly on Asia. Leveraging its investment track record and established client base, the Company will strive to further expand its overseas business and capture a substantial share of this regional growth. [Corporate Financial Services Segment] Introducing Kyuko-Lease Inc. into the Group and building a partnership with Kyudenko Corporation Expanding Business Centered on Environment and Energy Fields In November 2011, ORIX reached an agreement to promote an alliance with Kyudenko Corporation as a strategic partner and subscribe to the shares issued by Kyuko-Lease Inc., a wholly owned subsidiary of Kyudenko. In January 2012, ORIX acquired 90% of Kyuko-Lease s outstanding shares and is continuing to deepen its relationship with Kyudenko, who retained a 10% share in Kyuko-Lease. Since its establishment in 1988 as a Kyudenko Group company, Kyuko-Lease has been providing services centered on equipment and automobile leasing mainly in Kyushu region (the third largest island of Japan) where the company has built a stable customer base. Kyuko- Lease also maintains strong business ties with the Kyudenko Group, the Kyushu Electric Power Group and governmental bodies in the Kyushu region. Since its establishment in 1944, Kyudenko has diversified its business from electric and equipment construction to include environment and energy-related and information and communication-related in addition to disaster prevention systems, wind and solar power generation. Kazuo Goto Representative Director and President Kyuko-Lease Inc. Kyuko-Lease is working to provide solutions that take full advantage of ORIX s high value-added financial services to address the diverse needs of our customers as well as Kyudenko s. At the same time, the company is delivering value-added products such as automobile maintenance leasing, telematics services, precision measuring equipment and PC rental to further upgrade, expand and strengthen its services. Through these means, Kyuko-Lease is deepening its already robust ties with customers. In addition, ORIX and Kyuko-Lease are placing considerable emphasis on creating new business opportunities particularly in environment and energy fields by combining the financial service know-how of ORIX with the business base and technological capabilities of Kyudenko. In specific terms, efforts are being channeled toward mega solar, solar and wind power generation, ESCO*, water, waste processing and recycling. Moreover, greater weight will also be placed in the future on expanding business activities beyond the Kyushu region in cooperation with Kyudenko. * ESCO (Energy Service Company) business provides comprehensive services pertaining to energy efficiency. 18 ORIX Corporation Annual Report 2012

21 New Value and Evolving [Retail Segment] Aiming to combine the collective Group strength and expand the Bank s card loan activities Akio Ushio President ORIX Bank Corporation ORIX Bank began as ORIX Group s trust bank in In the ensuing period, the bank has continued to develop its business by providing appealing financial products and services while ensuring that infrastructure costs are held to an absolute minimum. As a bank that does not maintain an office network, ORIX Bank has focused on fields in which it excels as opposed to the provision of comprehensive services. In recent years, mail-order and Internet-based time deposit, housing loans and corporate lending transactions have taken up a growing proportion of overall banking activities. With the balance of deposits hitting 1 trillion in March 2011, the decision was made to change the company s name to bring it more in line with the actual nature of activities and to build greater affinity with its wide range of customers. As a result, ORIX Trust and Banking Corporation changed its name to ORIX Bank Corporation. Entering the card loan business in March 2012 ORIX Bank believes that along with housing loans, unsecured loans to individual customers are important sources of funds supporting the daily lives of consumers. As a result, the Bank began offering ORIX Bank Card Loans in March Moving forward, the Bank will strive to expand this business as one of its core businesses alongside housing loans and corporate loans. The introduction of regulations placing limits on aggregate lending amounts, caused the consumer finance market to contract. However, the reimbursement claims for overpaid interest are calming and the decrease in outstanding loan balances are bottoming out, and ORIX Bank believes there to be significant room for recovery given the substantial contraction of the market. Expanding the card loan business through integrated management with ORIX Credit Corporation ORIX Corporation, ORIX Bank s parent company, fully consolidated ORIX Credit Corporation in June ORIX Credit maintains an edge over other companies based on its 25 years of experience managing the ORIX VIP Loan Card. ORIX is confident that by integrating the efforts of ORIX Bank and ORIX Credit, the Group as a whole is better positioned to capture new demand in the consumer finance market and to expand its card loan business. Endeavoring to become a more profitable bank Breaking free from the traditional mindset of the banking industry, ORIX Bank aspires to address customer needs with a growing spirit of innovation. In addition to providing tailor-made housing loans that match the life plans of individual borrowers as well as corporate loans that deliver solutions to key management issues, ORIX Bank will channel its energies toward building a third pillar by offering the card loan business that match individual customer needs in terms of interest rates and lending limits. Through these endeavors, ORIX Bank will strive to become a unique and highly profitable bank. ORIX Corporation Annual Report

22 Segment Topics [Real Estate Segment] Leveraging expertise to expand the facilities operation business In its Real Estate segment, ORIX maintains considerable specialist expertise in real estate development, rental, and finance. Drawing on these specialist skills, the Company is expanding its business into the high value-added asset management and facilities operation fields. In this context, ORIX is looking to rebuild its earnings base from its tangible assets (real estate business linked closely with market conditions) to intangible assets (facilities operation business by capitalizing its specialist expertise and know-how). In specific terms, ORIX Real Estate Corporation is active in the operation of a variety of facilities. Making the most of this accumulated operating know-how, steps are being taken to open new facilities. On this basis, the business is expected to expand, providing a stable earnings base. Japanese Inns: Operation and Business Rehabilitation Know-How Beginning with the Suginoi Hotel in Oita Prefecture in September 2002, ORIX has to date provided support activities in the reorganization and rehabilitation of five well-established and renowned Japanese inns across the country. In addition to putting forward wide-ranging operating and marketing initiatives, ORIX has provided management advice while overseeing new capital investment. In each case, the inn has been transformed into a facility with increased customer appeal. ORIX began providing support to the Naruko Hotel in Miyagi Prefecture from November On completing its support activities in October 2011, the hotel was re-acquired by its former management team. More recently, and Tateshina Grand Hotel Taki-no-yu after providing support from September 2011, the Tateshina Grand Hotel Taki-no-yu reopened in April While retaining its ambiance as a traditional hot-spring inn, new initiatives including a lobby fireplace, large spa facility with views of the local waterfall, and a buffet restaurant featuring local delights, all provide additional guest appeal. Dome and Theater: Hall Operation Know-How ORIX commenced operating management of the Kyocera Dome Osaka in Osaka Prefecture from September This facility not only serves as the home ground for the ORIX Buffaloes professional baseball team, but also as a venue for concerts, exhibitions, fairs as well as sporting and other events. In April 2012, the old Osaka Welfare Pension Great Hall was completely renewed and opened as ORIX Theater. Employing the latest in audio and lighting equipment, ORIX Theater is used for a myriad of purposes including popular, rock and classical concerts as well as musicals, operas and theatrical shows. ORIX Theater Aquariums: Exhibition and Attraction Know-How ORIX has operated the Enoshima Aquarium, a PFI* 1 with the Kanagawa Prefectural Government, since April The aquarium features a large tank that reproduces the environment of the Sagami Bay for an 8,000-strong school of sardines. A popular feature of the aquarium is its night tours, which allow visitors to view marine life at night. In March 2012, the Kyoto Aquarium in Kyoto Prefecture opened as Japan s first* 2 large-scale inland aquarium. The aquarium is made up of nine zones that recreate the connection of life from the source of Kyoto s rivers to the sea. Kyoto Aquarium is designed to cater to the interest of a wide range of customers and aspires to be an edutainment * 3 oriented facility where visitors can learn about nature and the local ecosystem while having fun in Kyoto. Kyoto Aquarium In May 2012, the Sumida Aquarium opened in Tokyo. Located in an urban area, the facility is open until 9:00 in the evening to cater to office workers who wish to visit after work. *1 PFI: Private Finance Initiative a funding method for major public-sector capital investments where private firms are contracted to complete and manage the project utilizing private-sector management skills and technological capabilities. *2 Source: ORIX Real Estate. A large-scale inland aquarium is defined as an aquarium that is 50km from the coast with a total floor space of more than 10,000 m 2. *3 Edutainment is a word that combines education and entertainment. It has become a popular expression in recent years for learning while having fun at museums, art galleries and similar facilities. Masahiko Taumi Director Sumida Aquarium Located inside TOKYO SKY TREE TOWN, the Sumida Aquarium is home to Japan s largest indoor open pool tank. This tank allows visitors to view up close penguins and fur seals. The Tokyo Main Tank reproduces the seas surrounding the Ogasawara Islands, a World Natural Heritage Site, letting visitors experience the beauty of the islands 1,000km away from Tokyo. The aquarium employs an artificial seawater production system developed by TAISEI CORPORATION. Following in the footsteps of the Kyoto Aquarium, also operated by ORIX, this is the second facility in Japan to apply this system for all tank water (excluding freshwater tanks). In addition to reducing inland operating costs, this system eliminates the need for seawater which in turn helps to reduce CO2 emissions associated with transportation. 20 ORIX Corporation Annual Report 2012

23 [Overseas Business Segment] Striving to provide new products and services in a growing world Based on the principle of Localization and Partnership, ORIX s Overseas Business segment has expanded its leasing-based business globally through partnerships with leading local business partners, and has created a diverse client base. Through this platform, ORIX strives to provide new products and services that meet the diverse needs of its customers, especially those in emerging markets with a rapidly changing business environment. Malaysia Supporting capital investment nationwide and actively seeking new businesses Lim Beng Chor Managing Director & CEO, ORIX Leasing Malaysia Berhad (OLM) Joined OLM in Managing Director of OLM since ORIX Leasing Malaysia Berhad (OLM) OLM was established in 1973 and is a pioneer in the asset financing and leasing industry in Malaysia. Beginning with finance leasing and a focus on the small and medium-sized enterprise (SME) sector, OLM offers a range of corporate financial services centered on hire-purchase and finance leasing of a multitude of equipment, as well as automobile and IT equipment maintenance leasing to a wide range of customers from local SMEs to large corporations and multi-national corporations (MNC) in industries and businesses spanning almost the entire spectrum of the Malaysian economy. Presently, OLM operates the largest leasing network in the country, with 15 branches nationwide and a staff force of over 650 employees. OLM s strategy in pursuing new businesses is principally predicated upon leveraging and tapping synergies from the business platform we have established over the years through the provision of various products and services. As the needs of our customers progressively change in line with and/or in response to business maturation, new business trends, and the country s economic development, we will look to the further evolution of our existing suite of products and services as well as the development of new ones to meet these changing needs. The development of new product and service offerings are underpinned by our long experience and familiarity with our customers businesses and industries in addition to our knowledge of the local markets. As an example, our MNC and large corporation clients have, as a result of the outsourcing business trend, increasingly embraced the maintenance leasing of movable assets such as automobiles and IT equipment. As such companies, in an extension of this trend, pursue an asset-light strategy of maintaining only core assets such as production plants and machinery while seeking to divest non-core assets, principally land and buildings, we see an opportunity to venture into the new, but in a way related, business area of industrial real estate investment. Additionally, as OLM has long experience and knowledge of palm oil sector accumulated through years of supporting capital investments therein, we see a good platform for venturing into oil palm cultivation ourselves as a new business activity. And with the Malaysian government s strong promotion of biomass principally palm, green technology and renewable energy, there are also new business opportunities for financing capital investments as well as investing in projects like green palm oil milling and solar photovoltaic electricity generation. Singapore Embrace regional growth as a finance hub in the ASEAN region Joanne Liau Managing Director, ORIX Leasing Singapore Limited (OLS) Joined OLS in Managing Director of OLS since ORIX Leasing Singapore Limited (OLS) OLS was established in Today, OLS s activities include leasing, hire-purchase, lending, and a vendor financing program. OLS has been able to operate successfully, by focusing on its niche activities while offering financial solutions to SMEs. It is one of the leading non-bank providers of financing for SMEs in Singapore and our customers are involved in such varied and diverse industries as construction, logistics, manufacturing, services and retail, among others. ORIX Corporation Annual Report

24 Segment Topics Singapore is a small but open, competitive and mature market. The market for financing activities is dominated by banks. In order to thrive and grow in this extremely competitive market, constant and radical changes are needed to restructure and transform existing OLS businesses. The ASEAN region with its relatively young markets, large population and economic potential presents tremendous business opportunities and potential for growth. It is a generally accepted fact that with the economic problems in the United States and Europe, Asia and ASEAN will increasingly play a major role and contribute more significantly towards global trade and economic growth. As ORIX s finance hub in the ASEAN region, OLS is in an ideal position to capture new opportunities including the development of new products and investments both in finance and non-finance related areas. Opportunities exist in the ORIX s existing markets in ASEAN as well as new markets such as Vietnam and Myanmar. We believe that with the ORIX s core competence, vast network, and strong knowledge of its customers businesses, OLS can be the catalyst to tap the numerous business opportunities and growth potential that ASEAN has to offer. This business transformation will place OLS in good stead as a preferred partner for SMEs in ASEAN in providing solutions for financing and equity investment, in addition to offering a platform for business alliances, investments and joint ventures in ASEAN. Taiwan Creating a J-T-C * platform to support customers entrance into Taiwan and Mainland China (*J-T-C: Japan-Taiwan-China) Algol Lee President, ORIX Taiwan Asset Management Company (OAMC) Joined OTC in Appointed Head of the Corporate Finance Department and NPL Department in President of OAMC since Algol Lee (center), Ryoji Nishimura (left, OAMC), Alex Chen (right, OAMC) ORIX Taiwan Asset Management Company (OAMC) ORIX Taiwan Asset Management Company (OAMC) was established in 2004 and focuses on corporate finance, non-performing loans ( NPL ), real estate, and other investment banking businesses. ORIX began operations in Taiwan in 1982, and currently has three companies. In addition to OAMC, ORIX Taiwan Corporation (OTC) provides equipment leasing and ORIX Auto Leasing Taiwan Corporation (OALT) provides the auto leasing. With an eye toward expanding ORIX s operations in Taiwan, OTC established its Corporate Finance Department in 2001 as a means for proactive involvement in project finance to help listed Taiwanese companies expand into mainland China. Since then, OTC entered into the NPL business through a joint venture with an investment bank in October 2002 in response to government policy aimed at decreasing the banking sector s NPL ratio, culminating in 2004 with the establishment of OAMC as a separate entity to handle this business. Today, OAMC is a top-tier asset management company in Taiwan, having invested a total of USD 3 billion in NPL. In order to differentiate itself from other local and overseas asset management companies in Taiwan, OAMC also looks beyond the NPL business to new and attractive business opportunities. OAMC is now constructing a J-T-C platform, integrating ORIX s expertise and networks in Taiwan, providing Taiwanese companies with financial support and services to enter into the prosperous mainland China market. In addition, OAMC continues to focus on its advisory business to help Japanese companies enter the Taiwanese market. Going forward, OAMC will begin exploring private equity investments and ways to expand its fee income. 22 ORIX Corporation Annual Report 2012

25 Saudi Arabia Expand as a financial solution provider in the Middle East rooted in the Islamic Region Shaheen Amin General Manager, Saudi ORIX Leasing Company (SOLC) Joined ORIX Leasing Pakistan (OLP) in 1986, transferred to Oman in Involved in the establishment of SOLC in General Manager of SOLC since Saudi ORIX Leasing Company (SOLC) SOLC was incorporated in 2001 as the first leasing company in Kingdom of Saudi Arabia with investment from the IFC (International Finance Corporation, a member of the World Bank Group) and licensing by the Saudi Arabian Monetary Agency (SAMA). The Saudi Investment Bank (SAIB) and Trade Development & Investment Group, Ltd. (a Saudi private investment group) also participated in our establishment. In 2009, IFC sold their stake to SAIB after seeing SOLC s growth as a leasing company after a period of eight years. ORIX Group currently has 29% shareholding in SOLC. SOLC is focusing on direct financing leases including factory machinery, automobiles, transportation equipment, construction equipment, office equipment, and real estate. In Saudi Arabia, there are only two licensed companies including SOLC, however there are many captives and finance companies not licensed by SAMA. The Saudi Arabian financial market is gradually opening, but it takes time to fully understand the market. One characteristic is the difficulty in processing non-performing loans. At SOLC we have accumulated credit screening know-how, allowing us to minimize non-performing loans, giving us a competitive advantage. Saudi Arabia has been relatively unscathed by the financial crisis and its economy has grown strongly in 2011 with a real GDP growth of 7% with a projected growth rate of 5% for the next few years. The Kingdom is actively investing in infrastructure such as universities and hospitals, increasing construction-related leasing demand. The government is promoting the creation of employment in sectors other than the oil industry and the creation of SMEs, increasing the expectations of leasing companies as financiers. Last year, ORIX introduced a Chinese heavy equipment manufacturer to SOLC and we successfully structured and executed our first syndicate lease. Chinese companies are increasing their presence in Saudi Arabia, and SOLC arranged a syndicate with a local financial institution to break into a market segment that was previously not available. We want to continue this type of cooperation with ORIX Tokyo in the future. Our funding is primarily borrowings from financial institutions. Going forward, we are engaged in the process of issuing our first SUKUK (Islamic bonds) which will be listed on Saudi stock market and will help to diversify our funding sources. Saudi Arabia is the largest market in the Middle East and we believe that it holds opportunities for new businesses. Our strategy is to take full advantage of the growing economy by increasing SOLC s footprint by leveraging its market knowledge and strong shareholder relationships. Currently we are looking beyond equipment leasing to attractive areas such as aircraft and ship finance, and truck operating leases. Looking ahead, our aim is to become a mini ORIX, by further evolving our position as a financial solution provider of ORIX Group in the Middle East. ORIX s History in the MENA* and Central Asia *Middle East and North Africa ORIX established ORIX Leasing Pakistan Limited (OLP) in 1986 with the view to establishing a foothold in the Islamic region. Thereafter, OLP established Oman ORIX Leasing Company SAOG in 1994 with IFC, a lending partner of OLP. This was followed by the joint establishment of ORIX Leasing Egypt SAE in 1997 and Saudi ORIX Leasing Company in In 2002, ORIX and OLP joined forces with a leading local firm to establish MAF ORIX Finance PJSC in the United Arab Emirates. In 2005 ORIX invested in SK Leasing JSC, a leasing company in Kazakhstan. Currently, ORIX is operating in six countries of the MENA and Central Asia. ORIX Corporation Annual Report

26 Segment Overview Corporate Financial Services Overview of Operation The Corporate Financial Services segment has its origin in the leasing business developed at the time of ORIX s establishment in 1964, and even today this segment serves as the foundation for the entire ORIX Group s sales activities. Operating through a nationwide network, ORIX provides capital through loans and leasing for capital investment and other needs to its core customer base of domestic small and medium-sized enterprises (SMEs). In order to maximize synergies, the Corporate Financial Services segment functions as the central point of contact for the entire ORIX Group in responding to needs of other segments, including business succession and overseas business development. In addition to lending and leasing, this segment serves as a specialist department that engages in commercial facility development and rental as well as construction equipment business. By promoting cross-functional tie ups with domestic and overseas business units, this segment promptly provides services backed by expertise to its clients nationwide. Segment Results Billions of yen 2010/3 2011/3 2012/3 Segment Revenues Segment Profits (19.5) Segment Assets 1, Segment Asset ROA (%) (0.9) * {Segment Profits (1 Standard Tax Rate)} / Average Segment Assets Segment Performance Segment revenues decreased 9% to 72.4 billion compared with 79.3 billion during the previous fiscal year. Despite contributions from the acquisition of Kyuko-Lease Inc. and solid trends in direct financing lease revenues, this year-on-year downturn was largely attributable to the drop in installment loan revenues, which in turn reflect the decline in average balances of installment loans resulting from ongoing selective new loan origination. Segment expenses declined compared with the previous fiscal year. This was mainly due to declines in the provision for doubtful receivables and probable loan losses as well as interest expense. Segment profits increased 115% to 21.5 billion compared with 10.0 billion in the previous fiscal year. Segment assets contracted 7% compared with March 31, 2011 to billion. Despite an increase in investment in direct financing leases, this was primarily the result of a decrease in the balance of installment loans. Characteristic of the Segment Group Platform This segment is organized to gather information such as successful customer examples through its nationwide sales network and share them with each Group company in order to quickly provide solutions to customer needs. In addition, this segment has a special team that works in conjunction with the Overseas Business segment to respond to SME customer needs when expanding overseas. We implement Group Regional Representatives across six major areas of the country (excluding Tokyo and Kanto area) in order to strengthen the cross-function of the sales framework of ORIX Group. We can respond to client needs on a more sophisticated level by improving Group strength. Number of offices in each area 1 Sapporo 2 Sendai Broad Client Base Ranging from Domestic and Overseas SME to Large Corporations Needs Answers, Custom Fit Solution Proposal 3 Tokyo, Kanto area 4 Nagoya 5 Osaka 6 Chugoku 7 Fukuoka Maintenance Leasing Retail 6 7 Corporate Financial Services 5 4 Real Estate Investment and Operation ORIX Corporation Annual Report 2012

27 Overview of Business Strategies Increase the pace of Finance + Services Expand the client base through strengthened cooperation with Group companies Capture business opportunities presented by the changing environment Operating Environment While the business environment for domestic SMEs, the segment s core client base, continued to reflect the direct and indirect effects of the Great East Japan Earthquake including plant and equipment damage as well as low production levels due to rolling blackouts, there were indications of a modest recovery during the fiscal year under review. An increase in capital expenditure was particularly obvious in the Tohoku area. Buoyed by such factors as firm personal consumption and burgeoning reconstruction demand, initial signs of positive turnaround in economic conditions especially in disaster-stricken areas are beginning to emerge. In contrast, the prolonged debt crisis in Europe, which continues to slow the pace of global economic growth, coupled with persistent appreciation in the value of the yen, is casting a shadow over the business environment. Notwithstanding little or no change in the number of corporate bankruptcies from year to year, there are concerns that as the positive effects of various policy initiatives including those under the SME Financing Facilitation Act come to an end, a considerable weight will again be placed on the results and recovery of the corporate sector. Operating Strategy Sales personnel in the Corporate Financial Services segment develop and deliver optimal solutions based on a deep understanding of their customers including their specific needs and management issues, gained through day-to-day transactions. Sales personnel are also supported where necessary by team efforts centered on the ORIX Group s high levels of expertise. As a sales platform for the Group, the Corporate Financial Services segment will continue to uncover new business opportunities in response to client needs while accelerating the pace of its Finance + Services strategy. To this end, the segment will leverage the Group s high level of expertise built on the know-how accumulated through automobile and rental business diversification, the provision of credit and servicing functions, and the competitive life insurance operation. In order to address those mounting issues and needs that have arisen from customers efforts to expand overseas in recent years, the Corporate Financial Services segment is engaging in offshore marketing, cultivating new sales channels and harnessing its overseas network to collect information and provide pertinent advice. At the same time, the segment is putting forward products and services that match each stage of an increasingly protracted reconstruction process in Japan. The Corporate Financial Services segment is committed to further expanding its client base by providing a broad spectrum of services to the Group s customers as a whole. Moving forward, the segment will take steps to unify the goals and strategies of each Group company and to combine sales, marketing and operating know-how to engage in comprehensive activities that encompass the building of robust customer relationships, uncovering issues and providing solutions as a one-stop services provider. Major News Releases 2011 Jun. 2 Jul. 7 Sep. 16 Expansion of Contractor Guarantee Factoring Service Guarantee factoring is a service where support providers guarantee subcontractor accounts receivable. Under this service, ORIX, upon screening the prime contractor, guarantees 100% of credit obligations such as construction expenses and accounts receivable of the prime contractor held by clients such as subcontractors and materials suppliers. ORIX will expand this service nationwide and increased the maximum underwriting amount from 30 million yen to 200 million yen. First Alliance with Bank for Contractor Guarantee Factoring Service Through an alliance with Okayama Prefecture-based Tomato Bank, Ltd., ORIX aims to further expand the service as well as cultivate new clients and increase orders. ORIX has continued to form alliances with The Tohoku Bank, Ltd., The Bank of Iwate, Ltd., The Kiyo Bank, Ltd., and The Nishi-Nippon City Bank, Ltd. Alliance with Kanto-Shinetsu Federation of CPTAs Cooperative Association The alliance enables approximately 6,800 certified tax accountants affiliated with these associations to recommend defined benefit corporate pension plans utilizing the Kanto-Shinetsu Federation of CPTAs Cooperative Association Corporate Pension Plan Fund to their SME clients. Going forward, ORIX and the Federation will continue to provide high value-added services that address SME clients pension issues and facilitate the implementation of employee welfare programs. Oct. 18 Nov Feb. 17 Alliance with Radishbo-ya Co., Ltd. in Financial Services for Agricultural Producers Financial services by ORIX to agricultural producers include leases, rental services and hire purchase for introducing agricultural machinery and equipment, plastic greenhouses and other facilities to agricultural producers allied with Radishbo-ya Co., Ltd., enabling them to hold down initial costs of the machinery and equipment, thereby smoothing their costs. Announcement Regarding Subscription for Shares of Kyuko-Lease Inc. Building a Partnership with Kyudenko Corporation Please see page 18 of this Annual Report for details. Alliance with IIC Partners CO., LTD. for Corporate Pension Business ORIX and IIC Partners CO., LTD. have formed a business alliance concerning ORIX s corporate pension operation outsourcing service and IICP s pension fund asset management consulting service. By complementing one another s field of specialization, the two companies aim to expand the range of services provided to customers. ORIX Corporation Annual Report

28 Segment Overview Maintenance Leasing Overview of Operation This segment consists of ORIX s automobile and rental operations, both of which possess an extremely high level of expertise. In its automobile leasing business, ORIX engages in leasing, automobile rental and car sharing activities. Automobile leasing operations began by offering leases including maintenance services to corporate clients. Today, activities include a complete range of specialized vehicle maintenance outsourcing services requiring increased expertise that encompasses solutions that meet clients compliance, environmental and safety management needs. This segment also offers a broad spectrum of tailormade services that address both corporate and individual client needs. ORIX entered the rental business in 1976 with the rental of precision measuring equipment to corporate clients. Today, the rental business covers a diverse range of services, including IT-related equipment rentals, technical support, sales of software packages, calibration and asset management. Segment Results Billions of yen 2010/3 2011/3 2012/3 Segment Revenues Segment Profits Segment Assets Segment Asset ROA (%) * {Segment Profits (1 Standard Tax Rate)} / Average Segment Assets Segment Performance Segment revenues continued to remain robust, increasing 3% to billion compared with billion during the previous fiscal year. This largely reflected solid revenues from operating leases including the sales of used automobiles. Segment expenses remained flat year on year due to a reduction in selling, general and administrative expenses offsetting the increase in costs of operating leases. Segment profits increased 32% to 34.7 billion compared with 26.2 billion during the previous fiscal year. Segment assets increased 7% compared with March 31, 2011 to billion owing mainly to increased investment in operating leases and direct financing leases. Characteristic of the Segment Evolution of the Automobile Leasing Business Business expansion and evolution from direct finance leasing to maintenance services and vehicle administration 1970s 1980s 1990s 2000s 2010s Needs Upgraded Service in Step with the Times 26 ORIX Corporation Annual Report 2012

29 Overview of Business Strategies Continue Group-wide sales activities Expand high value-added services and allocate resources to growth areas Improve profitability by streamlining operations and controlling costs Operating Environment Domestic corporate automobile operations are expected to confront continued sluggish demand from the persistent decrease in automobile investment as well as cost reductions in addition to the trend toward using smaller automobiles. Business opportunities, on the other hand, are increasing in line with changes in corporate attitudes toward vehicle management. In particular, the need for vehicle maintenance and administrative cost reductions has increased among corporations, as has interest in areas such as compliance and safety management. Furthermore, heightened awareness of environmental issues is stimulating demand for hybrid vehicles together with an increase in the number of car sharing participants. The domestic precision measuring equipment rental market is not expected to expand substantially due to such factors as the accelerated outflow of companies overseas. At the same time, the competitive landscape remains relatively stable owing to comparatively high barriers to entry caused by the need for significant initial investment and difficulties in securing personnel with specialized know-how. In the IT-related equipment field, the cloud computing market continues to grow on the back of concerns surrounding system operating costs and the need for increased flexibility. Moreover, there are signs of a shift in corporate-sector IT investment from hardware ownership to service use. Operating Strategy The Maintenance Leasing segment will continue to engage in Groupwide sales activities in an effort to cultivate new clients and to meet client needs. In the automobile leasing business, the segment will combine its leasing, automobile rental and car sharing products and services while putting forward proposals that cover modes of automobile use, which in turn lead to optimal and low-cost vehicle solutions. As of the end of the fiscal year 2012, the total number of automobiles under management amounted to approximately 950,000. The segment s corporate automobile leasing operations provide solutions based on compliance, environmental response and safety management while at the same time encompassing complete business process outsourcing that draws on the segment s high level of expertise and reliable operational quality. For example, ORIX Telematics Service offers vehicle dispatch control, a service that reduces fuel consumption, promotes efficient vehicle use and takes client employee safety into consideration, through consultations based on analysis of a broad spectrum of driving data. By actively promoting this type of high value-added business, the Maintenance Leasing segment is expanding fee income while differentiating ORIX from other companies. Moreover, we aim to streamline operations and enhance cost control to maintain profitability and competitiveness. We continue to promote products such as My Car Lease, automobile rentals and car sharing to retail clients. Especially in the car sharing business, where we lead the industry in memberships, we will seek to further increase the number of members by strengthening relationships with public offices, local government authorities, public transportation agencies, railway companies and parking lot operators. In the rental business such as precision measuring equipment, we will focus on maintaining our high market share while providing a broad scope of solutions, including technical support, sales of software packages, calibration and asset management. We will expand our lineup of products in Japan to include the rental of medical and environmental analytic equipment as well as tablets and other terminals, and work to cultivate a new set of customers by capitalizing on our Group network, centering on the Corporate Financial Services segment. Overseas, we will step up robot-related activities and the rental of chip mounter and other manufacturing equipment focusing mainly on China. As of March 31, 2012, the rental business owned more than 950,000 units of rental equipment spanning about 30,000 types. Major News Releases 2011 Jun. 22 Nov. 7 Alliance with SOFTBANK Creative Corp. on Digital Signage* Service The first digital signage displays were installed in Hakata Port International Terminal. The service then expanded to a condominium gallery, supermarket stores and a built-to order housing showroom. * Digital signage is a service where data is sent through networks to displays installed at places where people gather, such as train stations, retail facilities and sightseeing spots. Rental Service Website for Medical Facilities ORIX Rentec starts full-fledged expansion of a multi-vendor medical equipment rental service Apr. 2 May 30 Jun. 28 Industrial Robot Rental Business Commences in China ORIX Rentec opened the Shanghai Technical Center showroom through an alliance with YASKAWA ELECTRIC (CHINA) CO., LTD. By combining the industrial robotics technologies of YASKAWA Electric Corporation with the finance functions and property management expertise of ORIX Rentec, the two companies will collaborate to develop business in the expansive Chinese market. Integration of 3 Rental Car Brands to Create a Network of 1,000 Rental Shops Improving Customer Convenience by Enhancing Rental Shops Near Train Stations, Aiming to be the Chosen Rental Car Brand ORIX Auto decided to integrate its 3 rental car brands (ORIX Rent-A-Car, JAPAREN Rent-A-Car and X Rent-A- Car) into the single ORIX Rent-A-Car brand. Tablet PC Usage Service TabRen Begins TabRen is a one-stop service for corporate customers providing total support for the use of tablet PCs in business from introduction to operation. ORIX Corporation Annual Report

30 Segment Overview Real Estate Overview of Operation This segment is mainly comprised of the real estate development and rental and facilities operation businesses. In the real estate development and rental business, ORIX is involved in the development and leasing of properties (including office buildings, commercial facilities, logistics centers and residential condominiums), asset management and real estate finance. Together with this comprehensive value chain, ORIX boasts significant specialist expertise in each aspect of real estate. The development and operation of such diverse properties as hotels, Japanese inns, aquariums, golf courses, training facilities, nursing care facilities, a dome and a theater is an integral part of the facilities operation business. Segment Results Billions of yen 2010/3 2011/3 2012/3 Segment Revenues Segment Profits Segment Assets 1, , ,369.2 Segment Asset ROA (%) * {Segment Profits (1 Standard Tax Rate)} / Average Segment Assets Segment Performance Segment revenues increased 2% to billion compared with billion during the previous fiscal year. Despite a decrease in gains on sales of real estate under operating leases, this increase was largely due to an upswing in real estate sales from higher deliveries of condominium units, an increase in operating business revenues and increased operating lease revenues from enhanced leasing activities. Segment expenses were up compared with the previous fiscal year owing to increased costs of real estate sales as well as operating business expenses, which more than offset decreases in interest expense and write-downs of real estate-related securities. Segment profits for the fiscal year were 1.3 billion compared with 0.1 billion in the previous fiscal year. Segment assets decreased 11% compared with March 31, 2011 to 1,369.2 billion. This mainly reflected the decrease in investment in securities (including specified bonds), installment loans and real estate under operating leases. Characteristic of the Segment Expansion of the Operation Business Starting in 1986 with golf course operations, the operation business has expanded in terms of know-how and facilities by responding to the different values and lifestyles of the customers. Currently, 92 facilities are in operation, generating stable revenue. Trend in number of operating facilities 100 Dome and Theater Nursing Care Facilities 80 Aquariums Japanese Inns 60 Training Facilities Hotels 40 Golf Courses ORIX Corporation Annual Report 2012

31 Overview of Business Strategies Expand business based on the real estate value chain Expand the stable revenue base by improving the profitability of rental assets and strengthening the operating business Enhance the asset management business to expand fee-business and promote new joint-investment with third-party investors Operating Environment While there has been little or no movement in vacancy rates, rental rates continue to decrease in the office building market. In 2012, the completion of a significant number of properties is expected, placing existing and prospective tenants in an increasingly advantageous position. From a demand perspective, there are indications that a growing number of J-REITs and overseas investors are contemplating the acquisition of new properties. Looking at the leisure market and consumption patterns, which have a major impact on the Group s facilities operation business, the market has now contracted for two consecutive years. This is placing increased pressure on the need to ensure distinctive products and services that are finely tuned to address customers requirements. Despite concerns of a slump in the residential condominium market following the Great East Japan Earthquake, the contract completion rate in both the Tokyo and Osaka metropolitan areas remains above the key benchmark level of 70%. Looking at property prices, trends indicate an ongoing modest decline. Operating Strategy The underlying strength of the Real Estate segment rests in its comprehensive value chain that includes development, leasing, asset and property management as well as finance backed by the ORIX Group s customer base. Moving forward, this segment will capitalize on and further expand its wide-ranging real estate related expertise to increase the value of its assets while promoting the provision of new value. As one example, the segment will make full use of its value chain through such means as joint investment with outside investors to secure a high quality portfolio and to further bolster its asset management operations. Moreover, ORIX will endeavor to achieve balanced growth by controlling asset size and swiftly establishing a stable revenue base. To this end, particular emphasis will be placed on such areas as the facilities operation business that is not directly influenced by fluctuations in real estate market conditions. In the real estate development and rental business, continued efforts will be made to reduce assets. At the same time, this segment will strive to improve occupancy rates and rental income by leveraging the characteristics of its small and diversified rental property portfolio and leasing capabilities. Although real estate transactions have not seen a full-scale recovery, the segment will pursue various exit strategies such as sales to overseas investors to promote asset turnover. In the facilities operation business, the segment will establish a firm foothold within the market by developing a wide range of unique services in response to diversified needs from customers. With the opening of a large number of new facilities, the segment will continue to strengthen its ability to attract customers and increase profitability by setting a clear customer target and concept for each operating facility including hotels, Japanese inns, aquariums and golf courses. Major News Releases 2011 Jun. 17 Sep. 1 Sep. 14 Announcement the opening ORIX Theater on April 8, 2012 Renew the old Osaka Welfare Pension Great Hall, operate the theater as a foothold to send out culture of Osaka Please see page 20 of this Annual Report for details. Acquisition and Start of Operations of the Tateshina Grand Hotel Taki-no-Yu Please see page 20 of this Annual Report for details. Commencement of GRAND FRONT OSAKA OWNER S TOWER Condominium Sales A new large-scale condominium building with 48 floors, 525 units, and luxury hotel ambience will take shape in Osaka s Umekita District Feb. 13 Mar. 19 Apr. 18 Announcement the opening KYOTO AQUARIUM on March 14, 2012 Please see page 20 of this Annual Report for details. Announcement the opening SUMIDA AQUARIUM in TOKYO SKY TREE TOWN on May 22, 2012 Please see page 20 of this Annual Report for details. Transfer of Banshutoyo Golf Club Operations ORIX Golf Management LLC (OGM) has reached agreement with TOYO KIGYO GREEN KAIHATSU KABUSHIKIGAISHA regarding the transfer of operations of the Banshutoyo Golf Club (Kasai City, Hyogo Prefecture). OGM has commenced operation on June 1, Nov. 1 Naruko Hotel (Naruko Onsen) Rehabilitation Complete The Previous Management Team Resumed Management ORIX Real Estate transferred business rights and all shares of Naruko Hotel Management Corporation, holding the assets associated with the Naruko Hotel, a revered traditional hot-spring inn under rehabilitation support, to Naruko Hotel Operations Corporation established by the former management team of the Naruko Hotel. The transfer marked the completion of rehabilitation efforts. ORIX Corporation Annual Report

32 Segment Overview Investment and Operation Overview of Operation This segment began with the establishment of a venture capital business in Its ensuing development has mirrored trends in the business environment and includes a loan servicing business that invests in non-performing loans as well as commercial mortgage-backed securities (CMBS) management and collection, a principal investment business, a securities brokerage and a mergers and acquisitions and financial advisory business. In the environment and energy-related business, which was incorporated into this segment during the second quarter of the fiscal year ended March 31, 2012, ORIX has promoted the use of energy-saving measures and renewable energy in addition to making waste disposal and recycling related proposals with respect to the collection and disposal of end-of-lease assets for more than 10 years. Segment Results Billions of yen 2010/3 2011/3 2012/3 Segment Revenues Segment Profits (2.4) Segment Assets Segment Asset ROA (%) (0.3) * {Segment Profits (1 Standard Tax Rate)} / Average Segment Assets Segment Performance Segment revenues decreased 18% to 73.3 billion compared with 89.6 billion in the previous fiscal year. This mainly reflected a decrease in revenue in line with the sale of consolidated subsidiaries during the previous fiscal year, which offset gains on investment securities from the sale of Aozora Bank, Ltd. shares, as well as robust collection and fee income in the servicing business. Segment expenses declined compared with the previous fiscal year due to the effects of the sale of consolidated subsidiaries and lower write-downs of securities. Segment profits increased 21% to 16.0 billion compared with 13.2 billion in the previous fiscal year. Despite a decrease in gains on sales of subsidiaries, this was attributable to an increase in profits from equity-method affiliates. Segment assets contracted 7% compared with March 31, 2011 to billion resulting mainly from a decrease in installment loans. Characteristic of the Segment Environment and Energy Related Businesses Services provided in the field of energy, finance and service, and resources and waste Energy Renewable Energy Electric Power Energy Conservation Solar Power System Integrator Electric Power Trading Business ESCO* 2 Business Biomass Power Generation* 1 Business Bulk Electric Power Purchasing Service Greater Visibility and Automatic Control of Electric Power Finance and Services Resources and Waste ESCO Fund Sales of Carbon Credits* 3 Area Recycling Systems Carbon Offset Service Water-related Business Sophisticated Waste Processing Facility (Gasification Furnace) Tradable Green Certificates Industrial Waste Processing, Collection and Transportation *1. Biomass power generation works by the use of biomass, which is renewable organic resources derived from biological matter other than fossil fuels. *2. ESCO (Energy Service Company) business provides comprehensive services pertaining to energy efficiency. *3. Carbon credits are marketable emission rights of CO2. 30 ORIX Corporation Annual Report 2012

33 Overview of Business Strategies Capture profit opportunities capitalizing on servicer expertise and strengthen the corporate rehabilitation business Capture opportunities for new investment and reestablish the portfolio Invest in the energy and environmental field, and promote business operation Operating Environment While efforts by Japan s major banks to dispose of large-scale assets remain limited due to the effects of Japan s SME Financing Facilitation Act, there are expectations that opportunities for investment in nonperforming loans will rise as foreign corporations withdraw from Japan, funds are divested and the selection and concentration of companies accelerates. Activities in the M&A market are also anticipated to improve. In addition to a significant resurgence in cross-border transactions by Japan s corporate sector, positive operating conditions are attributable to restructuring initiatives by listed companies, the strategic de-listing of subsidiaries and business succession undertaken by SMEs. This is in turn projected to trigger increased demand for investment, finance and advisory services. In the environment and energy-related business, investment is forecast to remain robust in Japan and overseas particularly in energy related fields. Operating Strategy In this segment, ORIX is engaged in the three core activities of loan servicing, investment and the provision of environment and energy-related services both in Japan and overseas. ORIX Asset Management and Loan Services Corporation (OAMLS), the first Japanese servicer to simultaneously receive all three servicing ratings (master, primary and special servicer), in addition to receiving the highest rating (STRONG) from Standard & Poor s in the area of CMBS, has expertise in financial arrangement and servicing and a wide ranging information network through its servicing business. Capitalizing on these strengths, the segment will take advantage of opportunities to further expand its fee-based business by acting as an intermediary in the sales of collateralized properties and as a special servicer. This segment will also provide management support in such areas as business succession and corporate rehabilitation (restructuring, transfer and funding arrangement) to its wide range of clients. Looking ahead, steps will be taken to put forward a broad spectrum of solutions that match the needs of financial institutions in areas including non-performing loan investment, corporate rehabilitation fund management and joint operations of corporate rehabilitation support based on a strategic capital alliance. In its proprietary investment activities, the segment will adopt a prudent approach toward the selection of businesses taking into consideration its established track record and an assessment of risk and return. In addition to rebuilding its portfolio, the segment will look to enhance the corporate value of those companies in which it invests. Particular emphasis will be placed on expansion as well as investments that complement the segment s existing functions through such means as M&A. As a part of its ongoing environment and energy-related activities including provision of waste processing and recycling services, energy conservation services and the sale of solar power systems, as well as the development and operation of electric businesses, the segment will put forward innovative new ideas and proposals based on its accumulated know-how. Moreover, considerable energies will be channeled toward investments in and operation of water-related and mega-solar businesses at home and abroad. Major News Releases 2011 Aug. 12 Sep Feb. 14 Implement Solar Power Systems and Bulk Electric Purchasing Services ORIX Group will begin a new service to reduce electricity costs by combining its Bulk Electric Purchasing Service that lowers condominium s electricity costs with a solar power system. This service enables saving energy and reducing electricity costs. Commencement of Wood Chip Biomass Power Plant Operation ORIX has commenced operation of the Agatsuma Biomass Power Plant in Agatsuma-gun, Gunma Prefecture. The plant will be Japan s third-largest wood chip-fired thermal power station in terms of power generation capacity. Capital Participation in Leading Liquor Wholesaler Kawachiya Corporation An agreement has been reached to acquire the shares of Kawachiya Corporation ( Kawachiya ), a leading liquor wholesaler. ORIX and Kawachiya s founder and current executives aim for the further improvement of Kawachiya s service, the establishment of a sophisticated management framework and solid positioning as a leading company in its sector. Mar. 27 Apr. 4 Capital and Business Alliance between ORIX and The Towa Bank, Ltd. ORIX will form a business alliance with The Towa Bank, Ltd. ( Towa Bank ). ORIX will invest 1 billion yen in Towa Bank s wholly-owned subsidiary The Towa Phoenix, Ltd., a company that engages business rehabilitation by way of non-voting preferred shares. ORIX will also dispatch personnel and provide know-how relating to administrative improvement and business rehabilitation. Capital Participation in Restaurant Operator and Frozen Foods KINREI CORPORATION ORIX acquired all outstanding shares of KINREI CORPORATION ( KINREI ), a company that operates a Japanese cuisine restaurant chain and produces and distributes frozen foods. ORIX aims to capitalize on its expertise and business platform for the continued expansion and growth of KINREI to support in increasing the corporate value. ORIX Corporation Annual Report

34 Segment Overview Retail Overview of Operation This segment consists of the life insurance business, the banking business and the card loan business. ORIX Life Insurance Corporation was founded in 1991 and operates mainly through representative agencies and mail order sales. In the banking business, ORIX began handling housing loans in 1980 and thereafter ORIX Bank Corporation expanded the business into corporate lending and other services. More recently, ORIX Bank entered the card loan business in March Established in 1979, ORIX Credit Corporation (ORIX Credit) was managed over a continuous three-year period as a joint management with Sumitomo Mitsui Banking Corporation pursuant to an alliance established in July Since the purchase of all of ORIX Credit s shares, ORIX Credit now operates as a wholly owned subsidiary of ORIX. Segment Results Billions of yen 2010/3 2011/3 2012/3 Segment Revenues Segment Profits Segment Assets 1, , ,738.5 Segment Asset ROA (%) * {Segment Profits (1 Standard Tax Rate)} / Average Segment Assets Segment Performance Segment revenues increased 8% to billion compared with billion in the previous fiscal year. This was largely due to the increase of life insurance premiums and the increase revenues resulting from steady growth of assets in banking business. Impacted by the recognition of a write-down of the investment in the equity-method affiliate Monex Group, Inc. together with an increase in segment expenses including insurance-related as well as selling, general and administrative expenses, segment profits decreased 8% to 21.8 billion compared with 23.8 billion in the previous fiscal year. Segment assets climbed 5% compared with March 31, 2011 to 1,738.5 billion due to increases in installment loans and investment in securities which more than offset the decrease in investment in affiliates. Characteristic of the Segment ORIX Life Insurance: Strengthening Development and Sales of Retail Products ORIX Life Insurance was ranked No.1 in the recommended life insurance company ranking by a popular Japanese weekly magazine. Medical insurance CURE was ranked No.1 for four consecutive years since Whole life medical insurance category CURE ranked No.1 for four consecutive years Cancer insurance category Believe ranked No.2 Income insurance death security category Keep ranked No.2 Term life insurance category FineSave ranked No.3 Ranking in a special issue of a popular Japanese weekly magazine entitled, Reliable Insurance Number of Insurance Policies in Force 2,000,000 Apr Over 1.5 million 1,500,000 1,000, ,000 Mar Over 410 thousand Sep Over 1 million ORIX Corporation Annual Report 2012

35 Overview of Business Strategies Life Insurance: Develop distinctive new products and expand sales channels Banking: Create a balanced portfolio ORIX Credit: Expand business with current high-tier clients and pursue new guarantees Operating Environment Trends in the domestic life insurance market continue to reflect a shift toward small-lot individual insurance, an increase in the number of insurance policies and a decrease in the balance of remaining contracts. Demand is particularly sluggish for traditional life insurance products. On the other hand, customer needs are expanding for medical insurance products classified as third sector products. Moreover, sales channels continue to diversify; for example sales at banks, pure Internet play insurance companies and retail stores. Turning to the investment environment, conditions continue to make securing yields challenging. This is largely attributable to the prolonged low level of long-term interest rates. In the banking industry, deposits continue to grow as savings attract stability-oriented individuals. Despite signs of a partial recovery in corporate-sector capital expenditure demand, the need for capital in overall terms remains flat. However, even in a stagnant real estate market, capital demand by individual investors remains firm in the market for investment rental condominium units, which continue to perform strongly. In the card loan market, the number of finance providers has dropped dramatically. At the same time, there has been a continued move toward adopting a new business model. This is largely the result of the reduction in the upper limit placed on interest rates and the ceiling established on total debt. In contrast, there are indications that banks are expanding their individual unsecured lending activities. Operating Strategy This segment will maintain its strategy of developing new markets for individuals by offering products and services that provide a high level of customer satisfaction and by increasing its unique expertise and efficiency of operation in niche markets. ORIX Life Insurance, which concentrates mainly on developing and selling products for individuals, has experienced a substantial increase in the number of policies in force. ORIX Life Insurance will continue to enhance its product lineup by developing products that meet the needs of its customers, such as its medical insurance CURE series, its cancer insurance Believe and its Internet-based insurance application service Bridge, a term insurance policy available only online. Moving forward, and in similar fashion to the launch of an Internetbased insurance application service last year, ORIX Life Insurance will work to expand sales channels and its operations, while strengthening operating efficiency and fortifying its business foundation. In line with its business expansion, ORIX Bank is steadily increasing deposits through e-direct Deposits, an Internet-based fixed deposit service for retail and corporate customers. As of March 31, 2012, the deposit balance (including negotiable deposits) exceeded 1 trillion. On the lending side, ORIX Bank will continue to develop a well-balanced loan portfolio, seek to differentiate itself from other banks by further increasing its transactions with SMEs and offer consulting services that leverage the ORIX Group s collective strength. In March 2012 ORIX Bank entered the card loan business in earnest. This initiative was completed by the conversion of ORIX Credit into a wholly owned subsidiary in June Looking ahead, the Group will continue to engage in unified management to steadily expand its activities in the individual lending market with the aim of establishing a significant pillar of business. Major News Releases 2011 Sep Feb. 22 ORIX Life Insurance Launches Whole Life Insurance RISE Support ORIX Life Insurance launched whole life insurance RISE Support. RISE Support facilitates the enrollment of customers with pre-existing medical conditions or a prior record of hospitalization or surgery by limiting declarations and easing the underwriting conditions. ORIX Bank Launches ORIX Bank Card Loan ORIX Bank began offering ORIX Bank Card Loan on March 1, ORIX Bank Card Loan is a card loan product that caters to a broad range of customers. The card features an extensive range of annual percentage rates, from the industry s lowest of 3.0% to a maximum of 17.8%. It also offers a loan limit of up to 8 million yen, the industry s highest. Apr. 26 Transfer of the Shares of ORIX Credit Corporation from Sumitomo Mitsui Banking Corporation to ORIX and New Business Alliance Agreement between Four Companies Including Sumitomo Mitsui Financial Group, Inc. ORIX reached an agreement to transfer all shares of ORIX Credit held by Sumitomo Mitsui Banking Corporation ( SMBC ) to ORIX resulting in making ORIX Credit a whollyowned subsidiary of ORIX. Moreover, a new business alliance agreement was concluded between the four companies of Sumitomo Mitsui Financial Group, Inc. ( SMFG ), SMBC, ORIX and ORIX Credit. SMFG Group and ORIX Group will continue the close relationship and increase the corporate value through new business alliance. ORIX Corporation Annual Report

36 Segment Overview Overseas Business Overview of Operation In the United States, this segment places asset management at the heart of efforts to expand Finance + Services. Boasting a wealth of experience in a wide range of areas, the segment is also active in the corporate finance, securities investment, M&A advisory, loan structuring and servicing as well as fund management fields. Since first expanding into Hong Kong in 1971, ORIX has established a broad network that encompasses 290 bases spread throughout 26 countries and regions. Underpinned by a leasing, automobile leasing and corporate finance operating base that is aligned to the conditions of each country, this segment also engages in real estate-related, principal investment and non-performing loan investment activities. Complementing these activities, the segment also undertakes ship and aircraft leasing, management, investment, intermediary and sales transactions. Segment Results Billions of yen 2010/3 2011/3 2012/3 Segment Revenues Segment Profits Segment Assets Segment Asset ROA (%) * {Segment Profits (1 Standard Tax Rate)} / Average Segment Assets Segment Performance Segment revenues increased 6% to billion compared with billion in the previous fiscal year due to direct financing leases in Asia, automobile and aircraft operating leases, in addition to continued strong gains on sales of investment securities in the United States. Segment expenses remained flat year-on-year owing to a decrease in selling, general and administrative expenses offsetting the increase in interest expenses. Segment profits increased 9% to 49.8 billion compared with 45.6 billion in the previous fiscal year. Segment assets were essentially unchanged compared with March 31, 2011 at billion. This was mainly attributable to sales of municipal bonds and loans receivable in the United States, which offset investments in a water utility operator in China and a life insurance company in South Korea, in addition to the consolidation of an automobile-related service company in India. Characteristic of the Segment Overseas Network and Balanced Portfolio Established through Cooperation with Local Partners Overseas Network Segment Assets by Region (Billions of yen) Europe (11) Middle East, North Africa (22) Asia (217) United States (23) Middle East, Europe 12.8 Other Greater China United States Oceania (17) Asia, Australia Countries/290 Locations (As of March 31, 2012) 34 ORIX Corporation Annual Report 2012

37 Overview of Business Strategies United States: Continue to strengthen Finance + Services based on a high level of expertise Expansion of the leasing business and new investment centered on Asia Accumulate quality assets in the ship- and aircraftrelated businesses Operating Environment Buoyed by government stimulus measures and a lull from the effects of the debt crisis in Europe, the United States economy is experiencing a modest recovery with signs that the market is more receptive to risk. The United States financial market, on the other hand, is expected to continue to de-leverage both in the corporate and household sectors for the foreseeable future. Despite a slowdown in the pace of growth due mainly to the crisis in Europe, Asia is expected to enjoy considerable expansion on the back of stable growth mainly in the ASEAN region. As a result of high economic growth in recent years, Asia s economy has reached the stage where it consumes a wide range of products and services from developed countries, which should lead to various business opportunities going forward. In the aircraft market, conditions reflect intense competition particularly in the leasing field. At the same time, aircraft prices continue to hover at a high level. The shipping industry has provided little or no indication of a recovery with persistent imbalance in demand and supply. Against this backdrop, financial institutions both in Japan and overseas are adopting a wait-and-see attitude toward new investment. Operating Strategy In the United States, this segment has historically engaged in corporate finance. Building on these activities, the segment is taking steps to ensure the stability of its investment operations which encompass CMBS and municipal bonds. In addition to advisory and enterprise valuation, as well as loan structuring and servicing, the segment is drawing on its accumulated expertise in fund management to further bolster fee-based businesses on the provision of Finance Services. Houlihan Lokey, Inc. maintains a strong reputation in the United Sates with decades of experience in financial advisory services, financial opinion services and financial restructuring services. RED Capital Group arranges specialty loans for real estate companies and obtains fees through loan servicing. Mariner Investment Group is a major independent hedge fund manager. Both entities are quintessential examples of capturing fee revenue without using the balance sheet. Taking full advantage of its operations in the United States, ORIX will increase profitability by further expanding its services going forward. Moreover, ORIX is evaluating the possibility of re-entering the Central and South American market through the overseas business segment to seek business opportunities by leveraging the experience gained through its local business partnership developed from 1970s until 2000s. In Asia, Oceania, the Middle East and Europe, this segment continues to secure stable revenues based on its platform of leasing, lending and other financial services closely tied to local communities, and will provide high value-added services utilizing expertise accumulated in Japan and overseas. In addition to further developing new businesses, this segment will assess opportunities to acquire assets through M&A as well as purchases from European financial institutions. Looking ahead, ORIX will continue to uncover high profitability investment in such fields as financial service, automobiles, ships and aircraft. Again moving forward, this segment will work to further promote its business and capitalize on its global network by supporting Japanese companies looking to move into overseas markets and foreign companies entering Japan, and through joint investment in Japanese real estate with overseas investors. Major News Releases 2011 May 13 May 20 The First Investment by the DI Asian Industrial Fund L.P. DI Asian Industrial Fund L.P. ( DIAIF ), which is under cooperation by Dream Incubator Inc. acquired an approximate 25% stake in Dong Tam Nutrition Food Joint-Stock Company, a Vietnam-based company, as their first investment. DIAIF is a large-scale Japanese investment fund that targets Vietnam s non-listed companies. Investment in China s Water Utility Operator, China Water Affairs Group Limited ORIX will acquire approximately 14.5% of the diluted shares of China Water Affairs Group Limited, which operates its water and sewage business in mainland China, by receiving an allotment of third party rights. Sep Feb. 6 Acquisition of Majority Stakes in India s Automobilerelated Services Company ORIX executed a share purchase agreement with INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED ( IL&FS ) to acquire an additional stake of approximately 70% of ORIX Auto Infrastructure Services Limited from IL&FS. With the acquisition, ORIX has made OAIS a consolidated subsidiary. ORIX aims to strengthen its automobile-related service businesses in the Indian market. Second Investment by DI Asian Industrial Fund DIAIF has agreed to acquire 31.1% of the shares of Japan Vietnam Medical Instrument Joint Stock Company, a major Vietnamese medical equipment sales company. Jun. 22 Launch of Largest Investment Fund Established by Japanese Company in South Korea ORIX will launch the largest private investment fund established by a Japanese company in South Korea, totaling 300 billion won (approximately 22.2 billion yen), to invest in Korean life insurance company, Mirae Asset Life Insurance Co., Ltd.. Apr. 5 Establishment of Joint Auto Leasing Company with China s Largest Auto Dealer ORIX has entered into a strategic business alliance with PANG DA AUTOMOBILE TRADE CO., LTD., one of the largest auto sales companies in China, to establish a joint auto leasing company in China. ORIX will aim to expand the auto leasing business with maintenance in China, the largest market of new car sales. ORIX Corporation Annual Report

38 An Interview with CFO Haruyuki Urata Risk Management and Financial Strategies that Support Future Growth Haruyuki Urata Director, Representative Executive Officer Deputy President and Chief Financial Officer Q ORIX has continued to pursue the shift to peripheral business fields and has grown into a company that engages in wide-ranging and diverse activities. What kind of risk management do you employ to support this type of development? ORIX has nurtured a commonly shared, Group-wide corporate culture that recognizes the importance of seeking out new opportunities in the pursuit of growth while firmly identifying associated risks. These dual concepts provide the foundations for our risk management that supports ORIX s growth. Irrespective of the amount, whether large or small, investment and lending proposals are assessed and determined by top management. With an established process that ensures that the details of each proposal are shared between frontline personnel and top management, ORIX maintains the ability to take swift action even when a review of initial determinations is required due to changes in the business environment. Conducted at a variety of levels, ORIX holds meetings to ensure that information is shared throughout the entire organization. Thoroughgoing discussions are undertaken at each meeting, providing the impetus that drives ORIX s spirit and willingness to take on challenges. At the same time, ORIX s concept of identifying risks is not linked solely to the adoption of a cautious approach. In its quest for growth, ORIX is fully aware of the need to actively pursue and take up good risks. We will therefore make significant effort to adopt the necessary measures and modifications that will turn risks that are at first glance considered difficult into good risks. This corporate culture that we have nurtured since our incorporation is both an underlying strength as well as the wellspring for our continuous desire to seek out new business challenges. Q Financial and capital markets have substantially changed since the financial crisis. Please tell us about your funding policies. ORIX has continued to lower its leverage levels in response to changes in financial and capital markets following the financial crisis. We believe that market instability will continue into the foreseeable future and as such will maintain our focus on controlling low leverage levels while endeavoring to enhance funding stability. In this regard, we will concentrate on the following four points in promoting our funding policy. (1) A balanced funding structure: ORIX maintains balanced funding structure by diversifying funding methods, including borrowings from financial institutions, deposits and access to capital market (Bonds, MTN and Commercial Paper) (Graph 1). (2) Lengthening of funding and smoothing of maturity ladder: ORIX continues to promote and maintain a share of longterm debt close to 90%. We intend to continue lengthening each method of funding (Graph 2). In domestic bonds, ORIX was able to successfully smooth out the maturity ladder, and the annual redemption currently stands at around 200 billion. 36 ORIX Corporation Annual Report 2012

39 (3) Diverse funding sources: ORIX maintains robust relationships with a diverse range of financial institutions currently numbering over 200. With respect to the issuance of bonds, we focus mainly on the market in Japan. At the same time, we work to strengthen access to individual investors while promoting the funding from overseas markets in line with efforts to increase assets outside of Japan. In the fiscal year ended March 31, 2012, ORIX issued its first series of bonds denominated in Korean Won and Thai Baht. (4) Liquidity management: Taking into consideration the financial environment and other factors, the liquidity coverage ratio with respect to marketable short-term debt was held at the very high level of nearly 300% as of March 31, 2012 (Graph 3). Looking ahead, ORIX will ensure that it maintains a substantially high level. ORIX is currently following the direction of debt to equity, and then on to operations. While anticipating continued uncertainty with respect to its business environment, ORIX will take steps to carefully identify risk and to actively capture good risks for the future expansion of operations. Through these means, we will steadfastly grow into a corporate group that is capable of providing new added value. Graph 1: Breakdown of Funding (As of March 31, 2012; excluding ABS, CMBS) Deposits 22% Bonds/ MTN 28% CP 4% Borrowings from financial institutions 46% Graph 2: Trends in the Share of Long-Term Debt and Funding Costs (%) /3 09/3 10/3 11/3 12/3 Share of long-term debt (left axis)* Funding costs (%) * This ratio is calculated by long-term liabilities excluding liabilities in line with securitized transactions (ABS, CMBS). For a presentation of the most directly comparable financial measures calculated and presented in accordance with U.S. GAAP and a quantitative reconciliation of U.S. GAAP and Non-GAAP financial measures, please see pages 66 and 67. Graph 3: Trends in Liquidity vs. Short-term Liabilities (Billion of yen) (%) 1, , /3 09/3 10/3 11/3 12/3 Available commitment line (a) Cash and cash equivalents (a) Current redemptions (bonds / MTN) (b) Commercial paper (b) Liquidity coverage ratio (right axis) (a b) Expanding the Overseas Funding Platform in line with Overseas Business Expansion Cultivating New Markets and Investors The First Japanese Company to Issue Offshore RMB-Denominated Bonds In July 2010, the Chinese government relaxed various controls and regulations relating to the issue of offshore renminbi (RMB) denominated financial products through the offshore market in Hong Kong. Shortly thereafter, McDonald s Corporation became the first overseas company to issue RMB-denominated bonds in October Amid widespread and growing interest among foreign companies, ORIX commenced preparatory steps toward issuance through an existing euro MTN program. Buoyed by strong investor demand for RMB-denominated bonds and a favorable cost structure compared with procurement methods using China s onshore market, a total of 400 million RMB was successfully procured through the Hong Kong market in March As the first Japanese company to issue RMB-denominated bonds, ORIX significantly raised its profile as an issuer in the Asian securities markets. Building on this increased awareness among investors, ORIX was able to undertake a second issue in quick succession in November 2011, despite weak market conditions as a result of the economic crisis throughout Europe. Activities Going Forward Broadening and Diversifying the Investor Base while Promoting a Balanced Funding Cost Structure ORIX issued Baht-denominated Bonds in Thailand in March The actual issue was undertaken by a Group subsidiary in Thailand. Buoyed by its high local market profile, the issue was not only completed at a considerably favorable cost, but also helped to cultivate new investors. Moving forward, ORIX will pursue the procurement of funds in various countries throughout Asia including Malaysia, Singapore, Australia and Indonesia. Given the limited scale, transaction volume and investor base of the local Asian securities market compared with its global counterpart, the actual size of each issue is generally restricted. Looking at inherent benefits, however, the Asian market can offer the opportunity to procure funds at a favorable cost and is not always affected by deterioration in market conditions in Europe and the U.S. In addition to advancing an optimal funding strategy, ORIX will pursue funding methods in line with efforts to expand its business throughout Asia while broadening and diversifying its investor base. At the same time, we will look carefully at the associated costs and benefits, strive to engage in balanced funding and expand our activities in the growing finance markets of Asia. ORIX Corporation Annual Report

40 Risk Management ORIX allocates management resources by taking into account group-wide risk preference based on management strategies as well as the strategy of individual business units. Our board of directors and executives regularly review the performance of each business unit, evaluate the progress and profitability of each unit s plan being carried out based on their respective strategy, and take responsive measures they deem appropriate or necessary in light thereof. This process enables us to control the balance sheet and to allocate more management resources to business units viewed as having greater growth potential. Approach to monitoring of ORIX s business In addition to monitoring the business units, ORIX also monitors risk on an individual transaction and total portfolio basis. Further to periodical reporting to the executives, if there had been a significant change in condition or strategy, we are equipped to take swift response, after the necessary reporting to executives and discussions. Individual Transactions: The operating environment, strategy, risk and profitability are evaluated prior to the transaction, and changes to the operating environment and cash flow are monitored after execution. Total Portfolio Basis: The following characteristics are monitored: client tier, region, transaction type, risk type, debt status and concentration of major customers. Business Unit Monitoring: In addition to the above, we conduct monitoring of each business unit according to its industry characteristics. For more details, refer to Individual Business Risk Management page 41 to 43. Main Risk Management We view credit risk, market risk, business risk, risk related to fund procurement, legal risk and other operational risk as the main risks facing us. Each risk is managed according to its individual characteristics. (a) Credit Risk Management We define credit risk as uncertainty in future investment recovery caused by the fluctuation of cash flow from debtors and investees. Credit risk management mainly consists of (i) credit evaluation for each transaction, (ii) portfolio management and (iii) implementation of corrective actions for the management of problem assets. Credit evaluation for each transaction is performed by periodically monitoring such elements as performance, collateral and progress of collection. As risk management of individual debtors is especially important, we also emphasize credit evaluation prior to entering into each transaction and continuous risk monitoring of individual credit after the transaction has been made, with a focus on sufficiency of collateral and guarantees, liquidation of debt and the distribution of debtors and their business fields. In connection with each credit transaction, we perform a comprehensive customer credit evaluation based on the relevant customer s business performance, financial position and projected cash flow. The evaluation also covers the collateral or guarantees, terms and conditions, and potential profitability of the transaction. The profitability is based on the spread calculated from investment yield, default rates, preservation situation, funding cost, capital cost and administrative cost, which helps us to evaluate risk quantitatively. Regular evaluation of individual debtors, and of our comprehensive portfolio, as well as measures to set credit line limits, allow us to control exposures to markets with potentially high risks. Under the current business environment, taking prompt corrective action for the management of problem assets is the most important task. We seek to identify problem assets quickly, and we respond promptly based on various conditions of each transaction. Problem assets include credit extended to debtors who have petitioned for bankruptcy or civil rehabilitation, or other insolvency proceedings, whose bank transactions are suspended, whose bills are dishonored, whose debts are not collected for three months or more, and whose businesses have deteriorated or who are involved in fraud. In making collections, we believe an early response is extremely important. When information is received regarding the emergence of problem assets, the relevant sales and marketing departments, in cooperation with the Risk Management Headquarters, take steps to secure collateral or other guarantees and to begin the collection process. The Risk Management Headquarters plays an important role in the collection process by drawing on its accumulated experience and by working closely with our sales and marketing departments. The accumulated experience is reflected in our evaluation criteria of each credit transaction and portfolio analysis. 38 ORIX Corporation Annual Report 2012

41 (b) Market Risk Management We define market risk as the risk of negative impact on our balance sheet caused by fluctuations in market conditions, such as interest rates, exchange rates or stock prices. We monitor risks in our portfolio by quantifying the risks based on market fluctuations and defining acceptable risk levels. We establish asset liability management ( ALM ) rules and, after making quantitative and qualitative assessments of fluctuation risks of the fair value of our assets and liabilities and effects on our profit for the period caused by the volatility of interest rate and exchange rate, we endeavor to keep the overall amount of risks within a fixed range. Risks are quantified based on statistical methods including basis point value, slope point value, value at risk ( VaR ), qualitative scenario analyses, stress tests and sensitivity analyses. We analyze the risks, report the results regularly to CFO and executive officers, and take necessary actions. We manage exchange rate risk by using foreign currency loans, foreign exchange contracts, currency swaps and other instruments to hedge the exchange rate fluctuation risks that arise in connection with our business transactions in foreign currencies and overseas investments. For unhedged foreign currency-denominated assets and investments to overseas subsidiaries, we employ the same risk monitoring and management procedures as are used in managing interest rate risks, including utilizing VaR and other metrics. We may use derivatives as hedges when we decide to hedge interest rate risk and exchange rate risk according to ALM. We use derivatives to mitigate or offset changes in cash flow or the fair value of assets and liabilities. The use of derivatives exposes us to credit risk on such derivative transactions. We monitor the notional principal amounts, current prices, transaction types and other variables for each counterparty. Also, we set derivative transaction management rules and guidelines for each of our group companies based on Groupwide policies, and we have a system of internal controls for derivative transactions. Our investment departments in banking, life insurance business and in the United States monitor monetary policies, macro economic indicators and securities and financial market trends related to the assets under management and manage their portfolios analyzing on a daily basis individual security price movements and profits and losses. Market volatility is managed according to guidelines including loss-cutting and reduction of positions. Our risk management departments review and compare daily reports from investment departments against internal guidelines and macro- and microeconomic conditions to ensure the guidelines. (c) Business Risk Management Various risks are inherent to our daily business, such as the risks associated with our judgment in investments, our selection of new products for development and our competitors marketing strategies or pricing. We define business risk as risks related to entry into the market, uncertainty of future business performance caused by changes in business and competitive environment and market fluctuation risks in such as the used car and real estate markets. We monitor the scenario analyses and stress tests for each of our business risks. The evaluation and verification of the cost of withdrawal from a business is also subject to monitoring. A principal risk relating to operating leases is the risk of fluctuation in the residual value of the leased properties. In order to control fluctuations in residual value, we monitor our inventories of leased items, market environments and the overall business environment. The automobile industry has a well-established market for used cars, so we are able to resell most of our vehicles. We monitor current trends in the used car market by continuously monitoring the ratio of residual value to purchase cost, selling price trends and other indicators, thereby adjusting estimated residual value in new transactions. We primarily limit our ship and aircraft operating leases to general-purpose ships and aircraft that are comparatively easy to re-lease, as these operating lease items have high residual value risks. We monitor the market values of these ships and aircraft and sell assets as necessary or desirable to reduce our exposure to downward trends in the market or take advantage of upward trends. (d) Risk Management Relating to Fund Procurement We view liquidity risks as significant risks associated with fund procurement. Liquidity risk is the risk that we will be unable to obtain the necessary funds to meet our commitments and obligations, or that we will be forced to procure funds at unusually high interest rates, due to market turmoil, deterioration in our financial condition or other reasons. The important objective of our liquidity risk management is to create a liquidity structure that matches asset size and structure to our management s goals. To achieve this, we emphasize maintaining a highly flexible balance sheet. At the same time, we seek to diversify funding sources to reduce refinancing risks, which may be caused by large market fluctuations. Specifically, we monitor liquidity by projecting future cash flow from the maturity of assets and liabilities, conducting liquidity risk analysis including future trends and assuming such environmental stresses as financial market ORIX Corporation Annual Report

42 Risk Management turmoil and a downgrade of ORIX s credit ratings. Measures we use to manage liquidity risk include diversifying funding sources, establishing committed credit lines with financial institutions and adjusting the balance of short-term and long-term debt, taking into account prevailing market conditions. In addition, the Group Legal and Compliance Department and the Risk Management Headquarters conduct monitoring activities to prevent the violation of intellectual property rights, and to quickly take necessary measures if and when violations are discovered. (e) Legal Risk Management Transactional legal risk is a major type of legal risk that we face in our business. Transactional legal risk includes the risk that the contracts into which we enter contain unintended conditions, are not legally effective or the contemplated transactions cannot be carried out as stipulated in the contract, or that the transactions in which we participate involve activities that violate, or are not in strict compliance with, applicable laws. When we consider a new transaction, new product development or other new business activities, our risk management system requires an examination of these types of legal risks. In an attempt to avoid, prevent and mitigate such legal risks, in Japan we require, in principle, that the Group Legal and Compliance Department and the Risk Management Headquarters be involved in transactions from initial consideration through the documentation process in which transactionrelated contracts are prepared for internal review and final approval. Contracts may not be approved internally unless they follow our prescribed rules and guidelines. The Group Legal and Compliance Department and the Risk Management Headquarters are also involved in the process for the approval of such contracts in accordance with our internal rules. Depending on the size and importance of a given transaction, we may also utilize the expertise of outside lawyers. To ensure that proper legal procedures are followed in connection with legal disputes and litigation, we require that the Group Legal and Compliance Department and the Risk Management Headquarters be involved in such disputes and litigation, including lawsuits that have been, or are expected to be, brought against us and lawsuits that we bring, or expect to bring, against third parties. The status of any lawsuits is reported to the Group Executive Officer Committee regularly. In addition to establishing internal policies necessary to observe applicable laws, we also monitor potential changes in relevant laws, as new information becomes available. As necessary or appropriate, we may also initiate preparatory measures to address the requirements of new laws that are expected to take effect in the future and implement steps to ensure that we are, and continue to be, in compliance with new laws as they take effect. Overseas, each Group company works to avoid, prevent and mitigate risks through an in-house lawyer and, when necessary, with the involvement of outside lawyers and others. (f) Other Operational Risk Management As our business has expanded in recent years, operational risk management has become a significant component of our overall risk management. Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. As part of operational risk management, we are also continually seeking to strengthen our internal control and compliance functions. The Risk Management Headquarters conducts quantitative and qualitative evaluation and regular monitoring of risk. ORIX Computer Systems works to reduce operational risk by the maintenance and operational administration of internal systems. The Group Internal Audit Department monitors the effectiveness and efficiency and compliance with applicable rules and regulations by our various operations; the status of improvements to and compliance with our internal rules; and the status of each department s self-examinations based on an annual internal audit plan that focuses on material risks. As a result of monitoring, we evaluate the current status of internal controls and make improvements as necessary. Additionally, in order to raise awareness of compliance issues among employees, the Group Legal and Compliance Department has produced a compliance manual and distributed it to all employees in Japan. The department also plans and executes a compliance improvement plan for each Group company in accordance with their respective business profiles, which plans are based on annual Group-wide compliance policies. We consider the results to improve the effectiveness of our compliance systems. Regarding natural disaster risk, we have established Natural Disaster Risk Management Policies. We respond to the situation in order to protect management resources and minimize losses, while giving priority to the safety of our executives and employees. We have developed a system in which the Human Resources and Corporate Administration Headquarters supervises the coordination of recovery activities after the occurrence of a natural disaster in Japan, while the Global Business Administrative Headquarters handles the overseas function. By distributing a natural disaster manual to all executives and employees in Japan and carrying out disaster drills in accordance with these policies, we maintain a framework to respond appropriately to a natural disaster. 40 ORIX Corporation Annual Report 2012

43 Individual Business Risk Management We perform complete and transparent monitoring and control according to the characteristics of each operation. The risk situation for each business unit is analyzed both quantitatively and qualitatively on both the individual transaction and portfolio levels, and the necessary measures to minimize downside risk of profit are implemented. Contents of individual business unit level analyses are shared throughout the Group, and risk related to profit volatility is controlled by capitalizing on a diverse business portfolio through measures including managing risk through intra-business unit cooperation. (a) Corporate Financial Services Segment Credit risk is the main risk of the Corporate Financial Services segment. We reduce risk by diversifying borrowers and industries and by emphasizing credit screening at the beginning of each transaction. After a transaction has been made, the sales departments regularly monitor the performance, collateral and progress of collection of customers whose balance exceeds a certain level. The Risk Management Headquarters regularly checks customers with large credit balances. We analyze the current condition and outlook for specific industries and sectors, and also analyze the potential impact on the debtor while making decisions about future transactions in that specific industry or sector. We take appropriate actions by thoroughly analyzing the condition of each problem asset. Specifically, in transactions collateralized by real estate, we take various measures such as capitalizing on the networks of our real estate-related departments to sell properties or introduce tenants. (b) Maintenance Leasing Segment The main risk of the Maintenance Leasing segment is business risk. For instance, this segment has market fluctuation risks for property under operating leases. We continuously monitor market environments and fluctuation in the resale value of leased property, and adjust residual value estimates of leased items in new transactions accordingly. Cost fluctuation (prime cost) is the main risk of providing various services such as outsourcing. We analyze initial preconditions and performance, monitor future forecasts, and control costs at an appropriate level. Additionally, there is the risk that the quality level of our services may fall below the required level due to changes in the operating environment or changes and diversification of client needs. We monitor our service quality level quantitatively and qualitatively, and continuously strive to improve our level of service according to the operating environment. We also conduct credit monitoring on individual transactions to address credit risks. (c) Real Estate Segment In the Real Estate segment the main risk of business involving real estate development, rental, and operation is business risk, and the main risks of the real estate finance business are market and credit risks. We focus on cash flow when making investment or project decisions. We reduce risk related to real estate price fluctuations by comparing cash flow performance to the initial plan and by improving the occupancy rate. We invest mainly in small properties, and diversify risk by investing in large properties through joint ventures with partners. Furthermore, emphasis is placed on monitoring investment strategies and schedules. The strategy is reevaluated in the case of a major divergence from the initial forecast. The following factors are considered for condominiums: development and sales schedule, unit sales progress, and rate of return. The following factors are considered in the case of development and leasing properties: development and retention schedule and NOI yield. We capitalize on the Group s network in order to improve occupancy rates and promote sales. We monitor occupancy rates and rates of return and focus on creating manuals and educating employees in order to minimize operational risk in our operation business. ORIX recognizes market risk and credit risk as the major risks to the real estate finance business under a normal operating environment. Because of this, in our non-recourse loan business we monitor the loan-to-value ratio, the debt-service coverage ratio and other terms and conditions such as equity provided by other companies, interest reserve and guarantees, in addition to controlling risk through swift response to changes in the market. However, in a stress-case such as a significant drop in market liquidity, we diligently monitor the cash flow from the properties to improve the terms and conditions of our loans. In addition, capitalizing on our real estate expertise, we can flexibly respond to the changing business environment by taking on business risk as a profitable operation through the acquisition and holding of the collateral. ORIX Corporation Annual Report

44 Risk Management (d) Investment and Operation Segment Credit risk, market risk and business risk are the main risks of the principal investment business conducted by the Investment and Operation segment. When making our initial investment decision, we do a credit evaluation, analyzing the company s credit risk and assessing its cash flow. Also, we perform a multi-faceted evaluation, engaging administrative departments such as the accounting and legal departments to consider the characteristics of the operation and investment scheme. Specifically, we analyze the operating environment, corporate strategy and method for increasing corporate value, and verify the adequacy of profitability, estimated investment timeline and exit strategy scenarios. After an investment has been made, our perspective of risk management varies according to the stage of development. Credit risk is important for companies for which we are raising corporate value due to the focus on cash flow. We also pay attention to market risk as time for collection nears, due to measuring the corporate value by referencing the corporate values of similar industries. Each transaction is monitored for deviations in cash flow, increased corporate value, exit strategy, corporate strategy and business environment from the original scenario. The frequency of monitoring has been increased during these times of rapid changes in the business environment, and we are simultaneously verifying the adequacy of investment scenarios and swiftly taking the necessary actions. We are working to enhance the management of investments that have a significant impact on the profitability of ORIX through such measures as the dispatch of management personnel. The servicer business performs appropriate risk management for the collection and management of our own assets as well as for servicing operations provided to third-parties, by leveraging our know-how we have acquired over years in investing in CMBS and distressed real estate-backed loans. Specifically, we seek to reduce credit and operational risks by conducting periodical internal auditing and monitoring, and by implementing a business operation based on work procedures in accordance with the guidance of regulatory authorities. Moreover, we have formulated measures to mitigate legal risks by quickly responding to potential legal issues. We also aim to strengthen our legal and regulation compliance and, to this end, have appointed an outside lawyer as a director who also oversees legal and compliance department as a head of risk management headquarters. We manage to minimize operational risks in the environment and energy related businesses by implementing appropriate equipment and technology in addition to alliances with expert operators for renewable energy, energy conservation, and resource and waste processing operations. Furthermore, we try to sustain a high level of risk management by arranging an organizational structure that allows for flexible responses to changes in the business environment. (e) Retail Segment The main risk in the life insurance business is business risk associated with accepting insurance contracts. Before finalizing insurance contracts, ORIX Life Insurance takes thorough measures to prevent the acceptance of fraudulent contracts by rigorously examining health condition declarations and medical examination reports as well as by taking steps to check the status of other insurance contracts. These measures promote the fair and equitable treatment of policyholders and, because they are important determinants of future insurance-related profitability, ORIX Life Insurance promotes their effective execution by ensuring the hiring of sufficient staff and encouraging staff to acquire specialized know-how. ORIX Life Insurance also educates and instructs representative branch staff and agents to enhance compliance regarding the prevention of personal information leaks and regarding the solicitation of insurance. Credit risk is the main risk of the banking business. The housing loan business (for the purchase of properties for investment purposes) manages individual screenings, each of which consists of a comprehensive evaluation including the cash flows that can be derived from the property, collateral value and the client s potential to repay. Decision making for corporate loans is based on a detailed investigation of the client s performance, business plan, purpose of the loan, source of repayment as well as industry trends. In addition to individual screenings when loans are arranged, we also reduce risks by diversifying the industry and products of our portfolio. The card loan business utilizes a proprietary scoring system that utilizes a credit model. We set the levels of interest rates and credit limits in line with each customer s credit risk, after 42 ORIX Corporation Annual Report 2012

45 evaluating customer creditworthiness based on an analysis of customer attributes or past pay quality, as well as other diverse factors that may affect the borrower s ability to repay. Also, we undertake subsequent credit evaluations at regular intervals to monitor changes in the customers financial condition. (f) Overseas Business Segment Credit risk is the main risk of the leasing and loan businesses operated by local subsidiaries mainly in Asia. When making a transaction we emphasize credit evaluation and require adequate guarantees and collateral, in addition to diversifying small transactions. We monitor the portfolio by industry, location and type of collateral. We regularly monitor the performance of major credit exposure. In addition, we take appropriate actions for problem assets by thoroughly analyzing condition of each asset. The Risk Management Headquarters monitors the country risk of the overseas portfolio. In addition, it shares information regarding the portfolios of local subsidiaries, performance of major clients, condition of problem assets, and clients of particular concern. Risk management in the principal investment business, which is mainly in Asia, is conducted in a similar manner as the Investment and Operation segment. The main risk for the automobile, ship and aircraft related business is the high volatility in the residual value of operating lease assets. To address this risk, in addition to restricting leases to automobiles, ships and aircraft with general versatility, we constantly monitor the valuation of our portfolio and consider the possibility of selling each assets based on prevailing market conditions. The main risks for the investment and finance business in the United States are credit risk, market risk and operational risk. At the time of origination, we assign an internal credit rating for each investment and loan taking into consideration the credit status of the borrower or company in which we are investing and the collateral for the transaction. Subsequently we monitor the credit status and periodically reevaluate the internal credit ratings. For investments and loans with a rating requiring attention, we produce an objective evaluation regarding the possibility of collection of such investments and loans, and decide management policies such as provision and impairments. Regarding market risk, we monitor on a daily basis the market value and mark-to-market valuation of our investments and loans. In addition, we proactively manage risk by referring to the credit risk information for each investment and loan that we acquired during the credit risk management process and by conducting early exits to secure profits or minimize losses. Regarding operational risk, finance providers and managers are separated. Each acts independently according to the financing process manual. Also, the internal audit department regularly inspects the performance of our investing and lending operations. In the advisory business, we comply with operating standards set forth by authorities and managed through an internal quality control committee, maintaining quality and operational methods that meet such standards to provide high quality advisory and evaluation services. In relation to the business involving arrangement of financing for real estate companies by Fannie Mae and Federal Housing Administration (FHA) and related loan servicing, as a delegated company of public financial institutions, it is essential that we conduct our operation on the basis of designated operating procedures set forth by these institutions, and that we monitor and manage service quality through internal auditing. In regards to the asset management business, as an SEC-registered company, it is necessary for us to abide by established compliance standards, and monitor and manage our operations through an internal compliance system based on such standards. ORIX Corporation Annual Report

46 Corporate Governance Management Team Directors Yoshihiko Miyauchi Director, Representative Executive Officer, Chairman and Chief Executive Officer Makoto Inoue Director, Representative Executive Officer, President and Chief Operating Officer Haruyuki Urata Director, Representative Executive Officer, Deputy President and Chief Financial Officer Corporate Planning Department Corporate Communications Department Hiroaki Nishina Director and Vice Chairman Group Corporate Sales Group Kansai Representative Chairman, ORIX Real Estate Corporation President, ORIX Baseball Club Co., Ltd. Kazuo Kojima Director and Corporate Executive Vice President Domestic Sales Administrative Headquarters Chairman, ORIX Rentec Corporation Chairman, ORIX Auto Corporation Yoshiyuki Yamaya Director and Corporate Executive Vice President Real Estate Headquarters President, ORIX Real Estate Corporation Chairman, ORIX Golf Management LLC Tamio Umaki Director and Corporate Executive Vice President Chief Information Officer Human Resources and Corporate Administration Headquarters Hirotaka Takeuchi Outside Director Takeshi Sasaki Outside Director Eiko Tsujiyama Outside Director Robert Feldman Outside Director Takeshi Niinami Outside Director Nobuaki Usui Outside Director 44 ORIX Corporation Annual Report 2012

47 Corporate Philosophy ORIX is constantly anticipating market needs and working to contribute to society by developing leading financial services on a global scale and striving to offer innovative products that create new value for customers. Management Policy ORIX strives to meet the diverse needs of its customers and to deepen trust by constantly developing superior services. ORIX aims to strengthen its base of operations and achieve sustained growth by integrating ORIX s resources to promote synergies amongst different units. ORIX makes efforts to maintain a corporate culture that encourages a sense of fulfillment and pride by developing personnel resources through corporate programs and promoting professional development. ORIX aims to attain stable medium- and long-term growth in shareholder value by implementing these initiatives. Profit Distribution Policy ORIX believes that securing profits from its businesses primarily as retained earnings, and utilizing them for strengthening its base of operations and making investments for growth, assists in sustaining profit growth while maintaining financial stability, leading to increased shareholder value. Regarding dividends, ORIX responds to shareholder expectations through increasing shareholder value through mid- to long-term profit growth and steady distribution of profit J K L M Yoshihiko Miyauchi 2 Makoto Inoue 3 Tamio Umaki 4 Kazuo Kojima 5 Takeshi Sasaki 6 Hirotaka Takeuchi 7 Nobuaki Usui 8 Haruyuki Urata 9 Robert Feldman J Hiroaki Nishina K Yoshiyuki Yamaya L Eiko Tsujiyama M Takeshi Niinami ORIX Corporation Annual Report

48 Corporate Governance Management Team Introduction of ORIX Outside Directors Hirotaka Takeuchi Member of Nominating Committee, Compensation Committee Professor, Harvard Business School Hirotaka Takeuchi taught at the Graduate School of Business Administration at the University of California, Berkeley, Harvard Business School and Hitotsubashi University s School of Commerce before he became the Dean at the Graduate School of International Corporate Strategy in April He currently serves as Professor at Harvard Business School, a position he assumed in July Utilizing his profound knowledge relating to corporate strategy, he contributes to management oversight by participating suitably in discussions and deliberations of the Board of Directors and Committees from the standpoint of overall strategy. Takeuchi served as a Corporate Auditor from June 2000 to June 2003, and was appointed as an Outside Director in June He is independent from the management engaged in operations, and is registered as an Independent Director as determined by the securities exchanges in Japan. Takeshi Sasaki Member of Nominating Committee (Chairperson), Audit Committee, Compensation Committee Professor, Gakushuin University, Faculty of Law, Department of Political Studies Outside Director, East Japan Railway Company Takeshi Sasaki served as an Assistant Professor and Professor at The University of Tokyo, Faculty of Law, and Professor at The University of Tokyo Graduate Schools for Law and Politics before he was appointed President in April As Chairperson of the Japan Association of National Universities, he was involved as the person in charge of the incorporation of national universities. He has served as a Professor at Gakushuin University, Faculty of Law, Department of Political Studies, since April With a wealth of experience in university reform, he is knowledgeable in a wide range of issues in politics and society in general that affect the Company s management. As Chairperson of the Nominating Committee, he contributes to management oversight by leading discussions and deliberations on members of the Board of Directors and Executive Officers suitable for the Company s business operations. Sasaki was appointed as an Outside Director in June He is independent from the management engaged in operations, and is registered as an Independent Director as determined by the securities exchanges in Japan. Eiko Tsujiyama Member of Audit Committee (Chairperson), Compensation Committee Professor, Faculty of Commerce, Waseda University Dean and Professor, Graduate School of Commerce, Waseda University Corporate Auditor, Mitsubishi Corporation Corporate Auditor, Lawson, Inc. Corporate Auditor, NTT DOCOMO, INC. Corporate Auditor, Shiseido Company, Limited Eiko Tsujiyama served as an Assistant Professor at Ibaraki University, Faculty of Humanities, Assistant Professor and Professor at Musashi University, Faculty of Economics, before being appointed Dean of Musashi University s Faculty of Economics in April She currently serves as a Professor at Waseda University, Faculty of Commerce and Graduate School of Commerce. In September 2010, she became Dean of the Graduate School of Commerce, Waseda University. She also serves on government and institutional finance and accounting councils both in Japan and overseas. She has extensive knowledge and profound experience as a specialist in accounting. As Chairperson of the Audit Committee, she contributes management oversight by leading discussions on the effectiveness of the Company s internal control system. Tsujiyama was appointed as an Outside Director in June She is independent from the management engaged in operations, and is registered as an Independent Director as determined by the securities exchanges in Japan. 46 ORIX Corporation Annual Report 2012

49 Robert Feldman Member of Compensation Committee (Chairperson), Nominating Committee Managing Director, Head of Japan Economic Research Morgan Stanley MUFG Securities Co., Ltd. Robert Feldman served as Economist at the International Monetary Fund, Chief Economist at Salomon Brothers Asia Limited (now Citigroup Global Markets Japan Inc.) and Managing Director, Co-Director of Japan Research and Chief Economist at Morgan Stanley Japan Securities Co., Ltd. (now Morgan Stanley MUFG Securities Co., Ltd.), where he has been serving as Managing Director and Head of Japan Economic Research since December He has in-depth knowledge and profound experience as an economist of the environment and events in Japan and overseas that affect the corporate business environment. He contributes to management oversight by participating suitably in discussions and deliberations of the Board of Directors and Committees from a broader perspective. Feldman was appointed as an Outside Director in June He is independent from the management engaged in operations, and is registered as an Independent Director as determined by the securities exchanges in Japan. Takeshi Niinami Member of Nominating Committee, Compensation Committee President and CEO, Lawson, Inc. Outside Director, ACCESS CO., LTD. Takeshi Niinami served at Mitsubishi Corporation, where he was named Unit Manager of Lawson Business and Mitsubishi s Dining Logistical Planning Team, Consumer Industry Division. In May 2002, he became President and Executive Officer of Lawson, Inc., before assuming the role of President and CEO in He contributes to management oversight by participating suitably in discussions and deliberations of the Board of Directors and Committees utilizing his management decision-making abilities based on his broad knowledge and experience in corporate management. Niinami was appointed as an Outside Director in June He is independent from the management engaged in operations, and is registered as an Independent Director as determined by the securities exchanges in Japan. Nobuaki Usui Member of Nominating Committee, Audit Committee Corporate Auditor, KONAMI CORPORATION Nobuaki Usui served as the Director-General of the Tax Bureau, Commissioner of National Tax Agency and Administrative Vice Minister of Ministry of Finance. Thereafter, he also served as the Governor and CEO of National Life Finance Corporation and Chairman of The Japan Research Institute, Limited. Usui was newly appointed as an Outside Director in June ORIX expects him to contribute to management oversight by utilizing his profound experience and extensive knowledge as a specialist in finance and taxation. Usui is independent from the management engaged in operations, and is registered as an Independent Director as determined by the securities exchanges in Japan. ORIX Corporation Annual Report

50 Corporate Governance Management Team Executive Offi cers Corporate Executive Vice President Shintaro Agata Treasury Headquarters Corporate Senior Vice President Eiji Mitani Domestic Sales Administrative Headquarters: Head of Kinki Sales Group Kansai Deputy Representative Corporate Senior Vice President Katsutoshi Kadowaki Domestic Sales Administrative Headquarters: Head of District Sales Corporate Senior Vice President Takao Kato Accounting Headquarters President, ORIX Management Information Center Corporation Executive Officer Yuichi Nishigori Investment and Operation Headquarters Executive Officer Kazutaka Shimoura Risk Management Headquarters Executive Officer Komei Ikebukuro Group Legal and Compliance Department Group Internal Audit Department Executive Officer Hideo Ichida Global Business Administrative Headquarters Executive Officer Hideto Nishitani Deputy President, ORIX USA Corporation Group Executives Executive Officer Yasuyuki Ijiri Domestic Sales Administrative Headquarters: Head of Tokyo Sales President, NS Lease Co., Ltd. Executive Officer Shigeki Seki Human Resources and Corporate Administration Headquarters IT Planning Offi ce Executive Officer Satoru Katahira Domestic Sales Administrative Headquarters: Head of OQL Business Headquarters, Regional Business Department, Administration Center and Call Center President, ORIX Callcenter Corporation Group Senior Vice President Tetsuo Matsumoto Vice Chairman, ORIX Real Estate Corporation Group Senior Vice President Katsunobu Kamei President, ORIX Auto Corporation Group Executive Yoshitaka Fujisawa President, ORIX Computer Systems Corporation Group Executive Masatoshi Kenmochi President, ORIX Credit Corporation Group Executive Toshiyuki Ohto President, ORIX Life Insurance Corporation 48 ORIX Corporation Annual Report 2012

51 Corporate Governance System ORIX believes that a robust corporate governance system is a vital element of effective enhanced management and therefore has established sound and transparent corporate governance to carry out appropriate business activities in line with our core policies and ensure objective management. Characteristics of ORIX s Corporate Governance System 1. Separation of operation and oversight through a Company with Committees board model 2. Nominating, Audit and Compensation Committees each comprised solely of outside directors 3. All outside directors satisfy conditions for independence 4. Outside directors highly qualified in their respective fields ORIX believes that swift execution of operations is vital in order to effectively respond to changes in the business environment. Furthermore, we believe that ORIX s governance system promotes improved management transparency by creating a system in which outside directors with expertise in their respective fields monitor, and advise on legal compliance and appropriate execution of operations. ORIX adopted the Company with Committees board model in June 2003 followed by the new Company with Committees board model in line with the enactment of the Companies Act of Japan in May 2006, as outlined below, with the aim of further enhancing management and operational oversight and to accelerate management decision-making and operations. Furthermore, oversight by directors is separated from the execution of operations with the three committees (Nominating, Audit and Compensation Committees) that form the heart of the board of directors. Each committee is composed solely of outside directors to help avoid conflicts of interest with our shareholders. In addition, all outside directors must meet the specific conditions necessary for director independence as set forth by the Nominating Committee (described below under Conditions for Director Independence on page 50). History of ORIX s Corporate Governance System June 1997 Established Advisory Board June 1998 Introduced Corporate Executive Officer System June 1999 Introduced Outside Directors June 2003 Adopted the Company with Committees board model May 2006 Adopted the new Company with Committees board model in line with the enactment of the Companies Act of Japan June 2007 The three committees (Nominating, Audit and Compensation Committees) are composed solely of Outside Directors Corporate Governance Framework (As of July 1, 2012) General Meeting of Shareholders Board of Directors Executive Officers Board of Directors 6 Outside Directors 7 Internal Directors Nominating Committee: 5 Members (Outside: 5) Audit Committee: 3 Members (Outside: 3) Compensation Committee: 5 Members (Outside: 5) Reporting Reporting Instructions/ Requests Supervision Audit Committee Secretariat Reporting Instructions Disclosure Committee CEO, COO, CFO Disclosure/ Control 16 Executive Officers* 5 Group Executives (Excluding CEO, COO and CFO) Internal Control-Related Investment and Credit Committee Group Executive Officer Committee Monthly Strategy Meeting Information Technology Management Committee Operations Reporting/Supervision Independent Public Accountants Reporting Instructions/Requests Financial Auditing Group Internal Audit Department Monitoring Group Legal and Compliance Department Risk Management Headquarters Other internal control related departments Sales Support Departments Sales Headquarters Group Companies ORIX Corporation Annual Report

52 Corporate Governance Corporate Governance System Board of Directors The board of directors carries out decisions related to items that, either as a matter of law or pursuant our Articles of Incorporation, cannot be delegated to executive officers, and important items as determined by the regulations of the board of directors. The board of directors is responsible for approving and monitoring ORIX s policies on a regular basis, which include corporate planning such as capital management, fund procurement and personnel strategies. Aside from such items, the board of directors delegates decision-making regarding operational execution to representative executive officers. The board of directors also receives reports from executive officers and committees regarding the status of business operations. From April 1, 2011 through March 31, 2012, the board of directors met eight times. The attendance rate of directors for these meetings was 99%. Nominating Committee The Nominating Committee is authorized to propose the slate of director appointment or dismissal to be submitted to the annual general meeting of shareholders. Directors shall be elected and dismissed by a resolution of the annual general meeting of shareholders. In addition, the Nominating Committee deliberates on the appointment or dismissal of our executive officers, although this is not required under the Companies Act of Japan. The Nominating Committee determines whether the conditions for director independence have been met in accordance with nomination criteria for directors, which are listed below. From April 1, 2011 through March 31, 2012, the Nominating Committee met five times. The attendance rate of directors for these meetings was 100%. Membership (Outside Directors:5) Takeshi Sasaki (Chairperson) Hirotaka Takeuchi Robert Feldman Takeshi Niinami Nobuaki Usui Conditions for Director Independence No individuals, or any of their family members*, may receive a compensation of more than 10 million annually excluding compensation as an employee for family members, and excluding the individual s compensation as outside directors, from ORIX or its subsidiaries. No individuals, or any of their family members*, may be a major shareholder of ORIX (more than 10% of issued shares) or represent the interests of a major shareholder. No individuals may have served as an executive officer (including operating officers, hereinafter the same) or an employee of ORIX or its subsidiaries within the past five years. No family members* may have served as an executive officer of ORIX or its subsidiaries within the past five years. No individuals may be a principal trading partner** or executive officer or an employee of a principal trading partner of ORIX or its subsidiaries. If such circumstances existed in the past, five years must have passed since that person s retirement from office or employment. There must be no concurrent directorship relationship*** between the company for which the individual is serving as an executive officer and ORIX. No individuals may be directors, or executive officers of organizations receiving donations or assistance of large amounts (annual average of 10 million or higher over the past three years) from ORIX or its subsidiaries. There must be no material conflict of interest or any possible conflict of interest that might influence the individual s judgment in performing their duties as an outside director. * Family members include a spouse, those related within the second degree by consanguinity or affinity, or other kin living with the outside director. ** A principal trading partner refers to an entity with a business connection with the ORIX Group with a transaction amount equivalent to more than the greater of 2% of each consolidated total revenues of ORIX Group and the partner, or $1,000,000 in any fiscal year of the previous three years. *** Concurrent directorship relationship is defined as being a relationship in which the company for which the individual is serving as an executive officer has a director that is also an executive officer of ORIX or its subsidiaries. 50 ORIX Corporation Annual Report 2012

53 Audit Committee The Audit Committee monitors the operational execution of the directors and executives and creates audit reports. In addition, the Audit Committee proposes the appointment or dismissal, or the passage of resolutions refusing the reappointment of ORIX s independent certified public accountants to the annual general meeting of shareholders. The Audit Committee Secretariat (four people) was established to provide support to the Audit Committee regarding the execution of its duties. From April 1, 2011 through March 31, 2012, the Audit Committee met eight times. The attendance rate of directors for these meetings was 96%. Membership (Outside Directors: 3) Eiko Tsujiyama (Chairperson) Takeshi Sasaki Nobuaki Usui * Eiko Tsujiyama, chairperson of the Audit Committee, is qualified as a certified public accountant and has extensive knowledge in finance and accounting as a professional accountant. The Audit Committee s cooperation with the internal audit department and its relationship with internal control-related departments The Audit Committee decides the responsible person in corporate audit department or each business who will report to the Audit Committee, and it evaluates the administration of executive officers and internal controls of ORIX by considering the following five points: The Audit Committee reviews the report related to the results of the audit and items indicated for improvement that has been prepared by the executive officer responsible for the corporate audit. The Audit Committee is able to instruct the Audit Committee Secretariat and internal audit department to conduct an inspection as needed. The Audit Committee monitors the business environment through reports, obtained from the executive officer responsible for the accounting department, which cover the revenue composition of each department and any problem areas related to the business from an accounting perspective. The Audit Committee reviews and discusses based on the reports that it receives from the independent certified public accountants regarding whether there are any material items relating to the audit. The Audit Committee reviews and discusses based on reports regarding the direction of ORIX and the execution of important business matters that it receives from the representative executive officer. The Audit Committee engages in discussions which are the basis of our business strategy, after it receives explanations from the heads of each business department and presidents of group companies that focus, in particular, on risk control. Compensation Committee The Compensation Committee has the authority to set the policy for determining compensation for directors and executive officers and to set the specific compensation for each individual director and executive officer. The Compensation Committee sets Policy of Determining Compensation of Directors and Executive Officers. (See next page.) From April 1, 2011 through March 31, 2012, the Compensation Committee met six times. The attendance rate of directors for these meetings was 97%. Membership (Outside Directors: 5) Robert Feldman (Chairperson) Hirotaka Takeuchi Takeshi Sasaki Eiko Tsujiyama Takeshi Niinami ORIX Corporation Annual Report

54 Corporate Governance Corporate Governance System Policy of Determining Compensation of Directors and Executive Officers ORIX s business objective is to increase shareholder value over the medium and long term. ORIX believes in each director and executive officer responsibly performing his or her duties and in the importance of cooperation among different business units in order to achieve continued growth of the ORIX Group. The Compensation Committee believes that in order to accomplish such business objectives, directors and executive officers should place emphasis not only on performance during the current fiscal year, but also on mediumand long-term results. Accordingly, under the basic policy that compensation should provide effective incentives, ORIX takes such factors into account when making decisions regarding the compensation system and compensation levels for its directors and executive officers. Taking into consideration this basic policy, ORIX has established separate policies for the compensation of directors and that of executive officers in accordance with their respective roles. Compensation Policy for Directors The compensation policy for directors who are not also executive officers aims for a level and composition of compensation that is effective in maintaining supervisory and oversight functions of executive officers performance in business operations, which is the main duty of directors. Specifically, while aiming to maintain competitive compensation standards, ORIX s compensation structure consists of a fixed compensation component based on duties performed, and a shares component of compensation*. Fixed compensation is, in principal, a certain amount that is added to the compensation of the chairperson and member of each committee. Share-based compensation reflecting medium- to long-term performance is granted based on the number of points earned by the individual while in office, and the amount of the payment is decided according to the share price at the time of an individual director s retirement. In addition, ORIX strives to maintain a competitive level of compensation with director compensation according to the role fulfilled, and receives third party research reports on compensation for this purpose. Compensation Policy for Executive Officers The compensation policy for executive officers, including those who are also directors, aims for a level of compensation that is effective in maintaining business operation functions, while incorporating in its composition a component that is linked to current period business performance. Specifically, while aiming to maintain competitive compensation standards, ORIX s compensation structure consists of a fixed compensation component based on positions and duties performed, a performance-linked component, and a shares component of compensation*. Fixed compensation is decided for each individual based on a standard amount for each position. Compensation linked to business performance uses the level of achievement of the net income target as a performance indicator, adjusting the level-based standard amount within the range of 0% to 200%. Share-based compensation reflecting medium- to long-term performance is granted as a certain number of points while in office, and the amount of the payment is decided according to the share price at the time of an individual executive officer s retirement. In addition, and based on the outcome of a third-party compensation research agency investigation, ORIX strives to maintain a competitive level of compensation with executive officer compensation functioning as an effective incentive. * The shares component of compensation is a program in which points are annually allocated to directors and executive officers based upon prescribed standards and the compensation provided is the amount equal to the accumulated number of points multiplied by the stock price at the time of retirement. Under this program, directors and executive officers have an obligation to purchase shares from ORIX at the stock price that prevails at the time of their retirement using the after-tax compensation provided. Compensation of Directors, Executive Officers and Group Executives for the fiscal year ended March 31, 2012 Fixed Compensation Number of People Amount Paid (Millions of yen) Performance-Linked Compensation Number of People Amount Paid (Millions of yen) Share Component of Compensation Number of People Amount Paid (Millions of yen) Total (Millions of yen) Directors (Outside Directors) (6) (66) (1) (7) (74) Executive Officers Group Executives Notes: 1. In fiscal 2012, 4 executive officers were newly appointed, 3 executive officers retired and 1 group executive was newly appointed and 1 group executive retired, for a total of 13 directors (including 6 outside directors), 19 executive officers (including those serving concurrently as directors) and 5 group executives as of March 31, Figures for the number of directors and executive officers remunerated and the remuneration amount include figures for the 3 executive officers and 1 group executive that retired in fiscal In fiscal 2012, no persons serving concurrently as directors and executive officers were remunerated as directors. The total remuneration figure for 7 people serving concurrently as directors and executive officers is shown in the executive officers line. 3. Share compensation indicated above is the amount for the 1 director and 2 executive officers that retired in fiscal 2012 or by the end of the General Meeting of Shareholders held on June 25, ORIX did not provide stock options in the form of stock acquisition rights in fiscal Figures shown are rounded downward by discarding figures of less than 1 million. 52 ORIX Corporation Annual Report 2012

55 Executive Officers The representative executive officer makes ORIX s important business execution decisions after deliberations by the Investment and Credit Committee ( ICC ) in accordance with ORIX s various regulations. The business execution duties of executive officers are decided by the board of directors and the representative executive officer and these duties are carried out based upon ORIX s various regulations. Group executives are appointed by the board of directors from among directors and executive officers of Group companies. Important decision-making related to business execution, monitoring, discussions, and information sharing is carried out by the following bodies: Name (Basic Frequency of Meetings) Investment and Credit Committee (Thrice Monthly) Meets primarily to deliberate and decide on credit transactions and investments that exceed certain specified investment or credit amounts and important matters related to management of the Company and matters that have been entrusted to executive officers by the board of directors. Matters considered crucial to ORIX s operations are decided on by the ICC and reported to the board of directors as appropriate. Group Executive Officer Committee (Once Monthly) Meets to share important information related to the business execution of the ORIX Group. Monthly Strategy Meeting (Once Monthly) Meets to discuss matters such as the state of achievement of strategic targets and changes in the business environment. Matters of key importance discussed at Monthly Strategy Meeting are deliberated and decided by the ICC and reported to the board of directors as necessary. Information Technology Management Committee (Once Monthly) Meets to deliberate and decide important matters concerning fundamental policies for IT operations and IT systems. The committee determines the needs of and priorities for IT investment based on ORIX s fundamental IT strategies at the top management level, enabling ORIX to ensure that IT decisions are consistent with its business strategies and helping ORIX to pursue its goal of making IT investments that contribute to business growth and help reduce risk. Disclosure Committee (As Necessary) The committee discusses whether or not any timely disclosure is necessary, and takes steps to provide appropriate disclosure of such information upon receiving material information from individuals in charge of individual departments. The committee controls information disclosure that plays an important role in corporate governance and facilitates the appropriate and timely disclosure of information to investors. Membership Top management and the executive officer in charge of investment and credit Executive officers and group executives Top management and individuals in charge of individual departments Top management and the executive officer in charge of IT systems CFO (Chairperson) and executive officers in charge of Treasury Headquarters, Accounting Headquarters, Risk Management Headquarters, Group Legal and Compliance Department, Human Resources and Corporate Administration Headquarters, Corporate Planning Department and Corporate Communications Department The different respects from New York Stock Exchange Corporate Governance Standards Our ADRs have been listed on the New York Stock Exchange Audit, and Compensation Committees. In ORIX, Nominating (NYSE) since As an NYSE-listed company, we are required to Committee sets Conditions for Director Independence. comply with certain corporate governance standards under Section We are not required to include on our board of directors a majority 303A of the NYSE Listed Company Manual. However, as a foreign of outside directors, nor are we required to compose our committees exclusively from outside directors. In ORIX, six of our 13 private issuer, we are permitted to follow home country practice. Our corporate governance practices differ in certain respects from those directors are outside directors. In addition, each committee is that U.S. companies must adopt. A summary of these different comprised solely of outside directors. respects are as follows. We are not required to meet the NYSE s independence requirements for individuals on our board of directors or our Please see the details in our Form 20-F. Nominating, ORIX Corporation Annual Report

56 Corporate Governance Comments from Outside Directors With significant expertise and a wealth of experience across their respective fields, we asked three outside directors to comment on the Company s corporate governance. Takeshi Niinami President and CEO, Lawson, Inc. Offers broad knowledge and experience in corporate management. Outside director since Member of the Nominating and Compensation Committees. Impressions of and Thoughts about ORIX I feel that ORIX s executives are bright, independent thinkers who actively communicate. Their sheer creativity in coming up with new ideas in any environment is impressive, stemming from a perspective closer to that of the customers rather than that of the so-called finance sector. I think it is an organization where the management values diversity and steadily incor- porates new ways of thinking about things. I think that this has become the DNA of ORIX and is shared by its employees. A look at the Board of Directors makes it readily apparent that this DNA is successively passed along among its members. Regarding ORIX s Corporate Governance Its best aspect is not merely its large number of outside directors, but rather the diversity of the portfolio. This array of outside directors from diverse fields and backgrounds allows us to consider matters from diverse perspectives at Board of Directors meetings. I think this may occasionally seem time-consuming and bothersome from the perspective of the executive officers who listen to these opinions. Nevertheless, an advantage of ORIX s corporate governance that is not enjoyed by other firms is the depth and breadth of discussion of each and every transaction. I believe that this sort of corporate governance is making a positive contribution to ORIX in a number of ways. Even in situations outside the Board of Directors, such as lunch after a meeting has ended, executive officers and outside directors have discussions while enjoying a meal. I feel that the desire to capture opportunities to be creative flows throughout the entire organization. Perspectives Concerning and Future Expectations of the Board of Directors and Each Committee When appearing before the Board of Directors, I try to state opinions based on a big picture standpoint from corporate management perspective. In particular, I regularly check that management is such as to allow for continuous growth from a corporate value-based perspective. For example, when examining operations, I make statements from a perspective that takes into consideration whether a proposal is in line with ORIX s strategy, how exactly it will create unique corporate value, and whether it will improve value in the medium- to long-term. I currently think that there are opportunities to dynamically utilize the experience ORIX has gained thus far, not only domestically but also overseas. I expect that from now on the Company will be able to make a significant break from its past image as a finance sector and demonstrate its abilities as a solutions provider through operations and efforts that are unique to ORIX. It is precisely the existence of ORIX s corporate culture that allows the Company to act swiftly without adhering to the status quo. I think that the firm establishment of a mechanism for management decision-making has allowed for swiftly determining which chances to take. 54 ORIX Corporation Annual Report 2012

57 Robert Feldman Managing Director, Head of Japan Economic Research, Morgan Stanley MUFG Securities Co., Ltd. Boasts in-depth knowledge and profound experience as an economist of the environment and events in Japan and overseas that affect the corporate business environment. Outside director since Chairperson of the Compensation Committee and member of the Nominating Committee. Impressions of and Thoughts about ORIX Upon joining the Board of Directors, I felt that ORIX was an extraordinarily flexible corporation. I became an outside director in 2010 just after the world financial crisis began. The world economy, especially the finance sector, was in a state of chaos. In such times, flexibility and decision-making ability that allow for skillful distribution of capital based on a close examination of world trends are indispensable. I think that ORIX is a corporation in which shareholder profits are regularly considered, and decisions concerning how best to create added value and how the company should distribute capital have been made with a sense of urgency and consideration given to the finance business. However, a sense of urgency is not the only factor in play; rather, there is also the deliberate consideration of reasons for and reasons against doing something before acting. In short, organizations tend to have more and more reasons for not doing things with the passage of time. However, only discussing this will of course not lead to a viable business. I feel that ORIX has achieved a good balance in that respect. Regarding ORIX s Corporate Governance I think that rather than being an institutional organization, ORIX s corporate governance is an effective system in which checks and balances work reliably thanks to the corporate atmosphere, the membership of its directors, information sharing, and the like. Also, when I was requested to accept appointment as an outside director, I was told that it was actually desirable for me to say things that might seem outspoken. New ideas are created by a Board of Directors that consists of a collection of individuals with myriad positions. These individuals have a frank exchange of ideas from their diverse perspectives in an active atmosphere. Furthermore, the intermixing of a variety of information has allowed for excellent openness of communication in the corporation, and has resulted in what can be called checks. Perspectives Concerning and Future Expectations of the Board of Directors and Each Committee I am involved in both the investor and economics spheres. Thus, when something occurs here now and is applied to ORIX, I make statements from a viewpoint that emphasizes how we should think about it. Examination of the world reveals that there are many important and complex issues. In the world of economics, energy shortages are a major issue. I think that ORIX has accumulated knowledge and expertise in finance and real estate via its business development to the present, and will be able to make a variety of contributions with respect to these issues. As an economist I am exposed to different ideas and perspectives from those of a corporation, and I think that my ability to make statements from these perspectives allows for my greatest contribution to the growth of ORIX. ORIX Corporation Annual Report

58 Corporate Governance Comments from Outside Directors Eiko Tsujiyama Professor, Faculty of Commerce, Waseda University; Dean and Professor, Graduate School of Commerce, Waseda University. Has extensive knowledge and considerable experience as a specialist in accounting. Outside director since Chairperson of the Audit Committee and member of the Compensation Committee. Impressions of and Thoughts about ORIX In conducting its business, ORIX operates under the corporate philosophy: Constantly anticipate market needs and Contribute to society by striving to offer innovative products that create new value for customers. Since joining the Board of Directors, I have come to understand that each and every one of the words of this corporate philosophy is very significant to ORIX s activities. Therefore, I think it would be a mistake to view ORIX as part of the finance sector. It has a diverse range of businesses, beginning with leasing it has expanded its business areas and has constructed a business model different from that of the so-called finance sector. It truly is a corporation that provides services centered on finance. Finance is said to be the lubricant of society. I think that ORIX has succeeded in steadily functioning as this sort of lubricant, but that is not all; it also increases and cultivates value by means of investment. ORIX passes along a current business and moves on to investing in a new one capable of adding value when the opportunity arises. In this way, ORIX is always looking for segments of society that are lacking this lubricant. I feel that this is very well expressed in ORIX s corporate philosophy. Regarding ORIX s Corporate Governance ORIX s Board of Directors is not at all bound by formalities. Rather, it takes the stance of allowing for discussion starting with no preconceived notions. Instead of just functioning as a final check, the Board of Directors has been positioned as a venue in which the opinions of outside directors are given with utmost candor, and outside directors actively make statements on the business model. Prior to my appointment as an outside director, I had an uneasy sense that although ORIX is known as a Company with Committees, this might be true in name only. However, I found this to be the contrary to my expectations. I think that ORIX is a successful example of a Company with Committees. Perspectives Concerning and Future Expectations of the Board of Directors and Each Committee My main duty is that of the Audit Committee Chairperson, and I endeavor to use my own accounting and finance related expertise to make contributions in terms of settlements of accounts and accounting audits. ORIX s Audit Committee is made up entirely of outside directors, but by closely communicating with the Group Internal Audit Department and Group Legal and Compliance Department to monitor the operationside s daily activities, I contribute to the Board of Directors as the Audit Committee Chairperson. I am also conscious of the fact that outside directors are representatives of the shareholders. As shareholders cannot attend the Board of Directors meetings, I think that it is important for us to keep this in mind and speak on behalf of the shareholders. In the future, I expect ORIX to further develop overseas business and become a global operation. We must pay close attention to the matter of increased risk in terms of governance and compliance overseas. Responses that are the same as those in Japan will of course not work well due to cultural differences. I think this is an issue that is common to all corporations that develop business globally. 56 ORIX Corporation Annual Report 2012

59 Financial Section Contents 58 Eleven-Year Summary 60 Consolidated Balance Sheets 62 Consolidated Statements of Income 63 Consolidated Statements of Changes in Equity 64 Consolidated Statements of Cash Flows 65 Breakdown of Assets and Revenues by Segment 66 Guide to Non-GAAP Financial Measurement For more details, see ORIX s Form 20-F filed with the United States Securities and Exchange Commission. Investor Relations IR Library US SEC Form 20-F: ORIX Corporation Annual Report

60 Financial Section Eleven-Year Summary ORIX Corporation and Subsidiaries Years Ended March Financial Position Investment in Direct Financing Leases 1,658,669 1,572,308 1,453,575 Installment Loans 2,273,280 2,288,039 2,234,940 Allowance for Doubtful Receivables on Direct Financing Leases and Probable Loan Losses (152,887) (133,146) (128,020) Allowance/Investment in Direct Financing Leases and Installment Loans 3.9% 3.4% 3.5% Investment in Operating Leases 474, , ,702 Investment in Securities 861, , ,928 Other Operating Assets 245,897 76,343 72,049 Total Assets 6,350,219 5,931,067 5,624,957 Short-Term Debt, Long-Term Debt and Deposits 4,679,566 4,239,514 3,859,180 ORIX Corporation Shareholders Equity 502, , ,047 Revenues and Expenses Total Revenues 704, , ,330 Total Expenses 633, , ,191 Provision for Doubtful Receivables and Probable Loan Losses 51,249 52,781 47,511 Income before Income Taxes and Discontinued Operations 71,158 47, ,521 Income from Continuing Operations 39,149 26,842 53,187 Net Income Attributable to ORIX Corporation 40,269 30,243 54,020 ROA 0.67% 0.49% 0.93% ROE 8.4 % 6.0 % 10.1 % Per Share Data (yen): Net income attributable to ORIX Corporation (basic earnings per share) Net income attributable to ORIX Corporation (diluted earnings per share) ORIX Corporation shareholders equity per share 6, , , Operations Direct Financing Leases: New equipment acquisitions 980, , ,240 Installment Loans: New loans added 1,340,400 1,268,170 1,124,276 Operating Leases: New equipment acquisitions 146, , ,737 Investment in Securities: New securities added 348, , ,066 Other Operating Transactions: New assets added 204, , ,265 Number of Employees 11,271 11,833 12,481 Notes: 1. In fiscal 2002, new equipment acquisitions of direct financing leases, new loans added and new securities added included increases of 252,436 million, 5,841 million and 1,042 million, respectively, as a result of the acquisition of IFCO Inc. (merge into ORIX Auto Corp.). In addition, new loans added included 132,127 million in housing loans that were purchased from Asahi Mutual Life Insurance Company in In fiscal 2003, new equipment acquisitions of direct financing leases included an increase of 112,605 million as a result of the acquisition of Nittetsu Lease Co., Ltd. (currently NS Lease Co., Ltd.). 2. As a result of the recording of discontinued operations in accordance with FASB Accounting Standards Codification ( Presentation of Financial Statements - Discontinued Operations ), results of operations that meet the criteria for discontinued operations, of which related amounts that had been previously reported, have been reclassified as discontinued operations. Included in reported discontinued operations are the operating results of operations for the subsidiaries, the business units and certain properties sold or to be disposed of by sale without significant continuing involvements. 3. In fiscal 2011, the Company and its subsidiaries adopted FASB Statement No. 166 ( Accounting for Transfers of Financial Assets an amendment of FASB Statement No. 140 ), which was codified by Accounting Standards Update (ASC 860 ( Transfers and Servicing )) and FASB Statement No. 167 ( Amendment of FASB Interpretation No. 46(R) ), which was codified by Accounting Standards Update (ASC 810 ( Consolidation )). The effects of adopting these updates on the Company and its subsidiaries financial conditions at the initial adoption date was an increase of 1,147 billion on total assets, an increase of 1,169 billion on total liabilities and a decrease of 22 billion on retained earnings, net of tax, respectively, in the consolidated balance sheets. 58 ORIX Corporation Annual Report 2012

61 Millions of yen ,451,574 1,437,491 1,258,404 1,098, , , , ,886 2,386,597 2,926,036 3,490,326 3,766,310 3,304,101 2,464,251 2,983,164 2,769,898 (115,250) (97,002) (89,508) (102,007) (158,544) (157,523) (154,150) (136,588) 3.0% 2.2% 1.9% 2.1% 3.8% 4.9% 4.0% 3.7% 619, , ,049 1,019,956 1,226,624 1,213,223 1,270,295 1,309, , , ,581 1,121, ,140 1,104,158 1,175,381 1,147,390 82,651 91, , , , , , ,092 6,068,953 7,242,455 8,207,187 8,994,970 8,369,736 7,739,800 8,581,582 8,354,874 4,146,322 4,925,753 5,483,922 6,263,017 5,919,639 5,263,104 6,075,076 5,828, , ,646 1,194,234 1,267,917 1,167,530 1,298,684 1,319,341 1,396, , ,158 1,106,297 1,112,485 1,015, , , , , , , , , , , ,689 39,332 16,216 13,809 33,263 76,971 71,525 31,103 19, , , , ,459 11,043 56,057 93, ,484 85, , , ,772 12,692 34,967 67,158 85,853 91, , , ,597 21,924 37,757 67,275 86, % 2.50% 2.54% 1.97% 0.25% 0.47% 0.82% 1.02% 14.2 % 19.8 % 18.3 % 13.8 % 1.8 % 3.1 % 5.1 % 6.3 % 1, , , , , , , , , , , , , , , , , , , , , , , ,660 1,545,517 1,834,192 2,226,282 2,331,331 1,055, , , , , , , , , , , , , , , , , , , , , , , ,480 76,269 24,186 40,763 37,876 13,734 15,067 16,662 18,702 18,920 17,725 17,578 17,488 ORIX Corporation Annual Report

62 Financial Section Consolidated Balance Sheets ORIX Corporation and Subsidiaries As of March 31, 2011 and 2012 Millions of yen Millions of U.S. dollars* ASSETS Cash and Cash Equivalents 732, ,892 $ 9,574 Restricted Cash 118, ,295 1,500 Time Deposits 5,148 24, Investment in Direct Financing Leases 830, ,886 10,961 Installment Loans ( The amount of 19,397 million ($236 million) of installment loans as of March 31, 2012 is measured at fair value by electing the fair value option under FASB Accounting Standards Codification ) 2,983,164 2,769,898 33,701 Allowance for Doubtful Receivables on Direct Financing Leases and Probable Loan Losses (154,150) (136,588) (1,662) Investment in Operating Leases 1,270,295 1,309,998 15,939 Investment in Securities 1,175,381 1,147,390 13,960 Other Operating Assets 235, ,092 2,726 Investment in Affiliates 373, ,717 4,036 Other Receivables 182, ,108 2,289 Inventories 108,410 79, Prepaid Expenses 44,551 39, Office Facilities 102, ,338 1,501 Other Assets 574, ,577 5,385 Total Assets 8,581,582 8,354,874 $101,653 * The translations of the Japanese yen amounts into U.S. dollars are included solely using the prevailing exchange rate at March 31, 2012, which was to $ ORIX Corporation Annual Report 2012

63 LIABILITIES Millions of yen Millions of U.S. dollars* Short-Term Debt 478, ,973 $ 5,572 Deposits 1,065,175 1,103,514 13,426 Trade Notes, Accounts Payable and Other Liabilities 304, ,465 3,534 Accrued Expenses 118, ,057 1,339 Policy Liabilities 398, ,586 4,923 Income Taxes: Current 21,983 7, Deferred 160,518 97,353 1,184 Security Deposits 128, ,092 1,729 Long-Term Debt 4,531,268 4,267,480 51,922 Total Liabilities 7,206,652 6,881,369 83,725 Redeemable Noncontrolling Interests 33,902 37, Commitments and Contingent Liabilities EQUITY Common Stock: 143, ,026 1,752 Authorized Issued 259,000,000 shares 110,245,846 shares in 2011 and 110,254,422 shares in 2012 Additional Paid-in Capital 179, ,223 2,181 Retained Earnings 1,141,559 1,217,851 14,818 Accumulated Other Comprehensive Income (Loss) Net unrealized gains (losses) on investment in securities 11,503 16, Defined benefit pension plans (11,098) (14,343) (175) Foreign currency translation adjustments (95,574) (95,692) (1,164) Net unrealized gains (losses) on derivative instruments (1,011) (2,166) (26) Sub-Total (96,180) (96,056) (1,169) Treasury Stock, at Cost: (49,170) (48,907) (595) 2,747,344 shares in 2011 and 2,732,701 shares in 2012 Total ORIX Corporation Shareholders Equity 1,319,341 1,396,137 16,987 Noncontrolling Interests 21,687 39, Total Equity 1,341,028 1,435,872 17,470 Total Liabilities and Equity 8,581,582 8,354,874 $101,653 * The translations of the Japanese yen amounts into U.S. dollars are included solely using the prevailing exchange rate at March 31, 2012, which was to $1.00. ORIX Corporation Annual Report

64 Financial Section Consolidated Statements of Income ORIX Corporation and Subsidiaries For the Years Ended March 31, 2010, 2011 and 2012 Revenues Millions of yen Millions of U.S. dollars* Direct financing leases 49,893 51,211 50,934 $ 620 Operating leases 272, , ,422 3,619 Interest on loans and investment securities 135, , ,888 1,799 Brokerage commissions and net gains on investment securities 23,352 21,119 26, Life insurance premiums and related investment income 115, , ,307 1,561 Real estate sales 40,669 54,741 61, Gains on sales of real estate under operating leases 6,841 5,103 2, Other operating revenues 246, , ,178 3,141 Total revenues 890, , ,884 11,837 Expenses Interest expense 81, , ,868 1,349 Costs of operating leases 189, , ,333 2,304 Life insurance costs 92,292 91,426 95,353 1,160 Costs of real estate sales 46,757 58,930 59, Other operating expenses 135, , ,071 1,826 Selling, general and administrative expenses 211, , ,873 2,334 Provision for doubtful receivables and probable loan losses 71,525 31,103 19, Write-downs of long-lived assets 6,977 17,400 15, Write-downs of securities 23,632 21,747 16, Foreign currency transaction loss (gain), net (195) (2) Total expenses 860, , ,689 10,314 Operating Income 30,174 75, ,195 1,523 Equity in Net Income of Affiliates 8,364 16,806 1, Gains on Sales of Subsidiaries and Affiliates and Liquidation Losses, net 17,519 1,199 3, Income before Income Taxes and Discontinued Operations 56,057 93, ,484 1,588 Provision for Income Taxes 21,090 26,143 44, Income from Continuing Operations 34,967 67,158 85,853 1,045 Discontinued Operations: Income from discontinued operations, net 12,989 12,220 1, Provision for income taxes (7,019) (6,771) 1, Discontinued operations, net of applicable tax effect 5,970 5,449 2, Net Income 40,937 72,607 88,542 1,077 Net Income (Loss) Attributable to the Noncontrolling Interests 704 2,373 (332) (4) Net Income Attributable to the Redeemable Noncontrolling Interests 2,476 2,959 2, Net Income Attributable to ORIX Corporation 37,757 67,275 86,150 $ 1,048 Note: Pursuant to FASB Accounting Standards Codification ( Presentation of Financial Statements - Discontinued Operations ), the results of operations which meet the criteria for discontinued operations are reported as a separate component of income, and those related amounts that had been previously reported are reclassified. Amounts per Share of Common Stock Basic: Yen U.S. dollars* Income from continuing operations $9.51 Discontinued operations Net income attributable to ORIX Corporation Diluted: Income from continuing operations Discontinued operations Net income attributable to ORIX Corporation Cash Dividends * The translations of the Japanese yen amounts into U.S. dollars are included solely using the prevailing exchange rate at March 31, 2012, which was to $ ORIX Corporation Annual Report 2012

65 Consolidated Statements of Changes in Equity ORIX Corporation and Subsidiaries For the Years Ended March 31, 2010, 2011 and 2012 Common Stock ORIX Corporation Shareholders Equity Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total ORIX Corporation Shareholders Equity Noncontrolling Interests Millions of yen Balance at March 31, , ,313 1,071,919 (92,384) (50,534) 1,167,530 18,067 1,185,597 Cumulative effect of applying accounting for Contracts in entity s own equity 1,758 1, ,758 Balance at April 1, , ,313 1,073,677 (92,384) (50,534) 1,169,288 18,067 1,187,355 Issuance of common stock 41,677 41,347 83, ,024 Contribution to subsidiaries 0 2,473 2,473 Transaction with noncontrolling interests (32) (387) (419) 60 (359) Comprehensive income (loss), net of tax: Net income 37,757 37, ,461 Other comprehensive income (loss) Net change of unrealized gains (losses) on investment in securities 13,497 13, ,499 Net change of defined benefit pension plans 7,129 7,129 (4) 7,125 Net change of foreign currency translation adjustments (5,860) (5,860) (1,002) (6,862) Net change of unrealized gains (losses) on derivative instruments (1,454) (1,454) (6) (1,460) Total other comprehensive income (loss) 13,312 (1,010) 12,302 Total comprehensive income (loss) 51,069 (306) 50,763 Cash dividends (6,261) (6,261) (2,517) (8,778) Conversion of convertible bond Exercise of stock options Compensation cost of stock options Acquisition of treasury stock (3) (3) 0 (3) Disposal of treasury stock (531) Other, net Balance at March 31, , ,661 1,104,779 (79,459) (49,236) 1,298,684 17,777 1,316,461 Cumulative effect of applying new accounting standards for the consolidation of variable interest entities (22,495) (3,406) (25,901) 4,233 (21,668) Balance at April 1, , ,661 1,082,284 (82,865) (49,236) 1,272,783 22,010 1,294,793 Contribution to subsidiaries 0 3,864 3,864 Transaction with noncontrolling interests (2,450) (2,246) Comprehensive income (loss), net of tax: Net income 67,275 67,275 2,373 69,648 Other comprehensive income (loss) Net change of unrealized gains (losses) on investment in securities 7,605 7, ,663 Net change of defined benefit pension plans (2,006) (2,006) 0 (2,006) Net change of foreign currency translation adjustments (18,118) (18,118) (715) (18,833) Net change of unrealized gains (losses) on derivative instruments (800) (800) 18 (782) Total other comprehensive income (loss) (13,319) (639) (13,958) Total comprehensive income (loss) 53,956 1,734 55,690 Cash dividends (8,061) (8,061) (3,471) (11,532) Conversion of convertible bond Exercise of stock options Compensation cost of stock options Acquisition of treasury stock (70) (70) 0 (70) Other, net Balance at March 31, , ,137 1,141,559 (96,180) (49,170) 1,319,341 21,687 1,341,028 Contribution to subsidiaries 0 21,503 21,503 Transaction with noncontrolling interests 52 (20) 32 (502) (470) Comprehensive income (loss), net of tax: Net income 86,150 86,150 (332) 85,818 Other comprehensive income (loss) Net change of unrealized gains (losses) on investment in securities 4,642 4, ,121 Net change of defined benefit pension plans (3,245) (3,245) (2) (3,247) Net change of foreign currency translation adjustments (98) (98) (979) (1,077) Net change of unrealized gains (losses) on derivative instruments (1,155) (1,155) (15) (1,170) Total other comprehensive income (loss) 144 (517) (373) Total comprehensive income (loss) 86,294 (849) 85,445 Cash dividends (8,599) (8,599) (2,104) (10,703) Conversion of convertible bond Exercise of stock options Acquisition of treasury stock (1) (1) 0 (1) Other, net 4 (1,259) 264 (991) 0 (991) Balance at March 31, , ,223 1,217,851 (96,056) (48,907) 1,396,137 39,735 1,435,872 Note: Changes in the redeemable noncontrolling interests are not included in the table. Total Equity ORIX Corporation Annual Report

66 Financial Section Consolidated Statements of Cash Flows ORIX Corporation and Subsidiaries For the Years Ended March 31, 2010, 2011 and 2012 Millions of yen Millions of U.S. dollars* Cash Flows from Operating Activities Net income 40,937 72,607 88,542 $ 1,077 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 164, , ,233 2,047 Provision for doubtful receivables and probable loan losses 71,525 31,103 19, Increase (decrease) in policy liabilities (32,927) (11,692) 6, Deferred tax provision (benefit) (28,749) (18,790) 15, Equity in net income of affiliates (excluding interest on loans) (6,496) (14,337) (889) (11) Gains on sales of subsidiaries and affiliates and liquidation losses, net (17,519) (1,199) (3,317) (41) Gains on sales of available-for-sale securities (6,907) (4,867) (8,918) (109) Gains on sales of real estate under operating leases (6,841) (5,103) (2,215) (27) Gains on sales of operating lease assets other than real estate (7,552) (9,968) (14,721) (179) Write-downs of long-lived assets 6,977 17,400 15, Write-downs of securities 23,632 21,747 16, Decrease (increase) in restricted cash 4,520 (6,659) (5,188) (63) Decrease (increase) in trading securities (29,725) (28,372) 55, Decrease in inventories 39,061 27,596 26, Decrease (increase) in other receivables (518) 16,006 (7,893) (96) Increase (decrease) in trade notes, accounts payable and other liabilities (35,011) (22,042) 22, Other, net 30,083 (17,534) (58,482) (712) Net cash provided by operating activities 209, , ,994 4,052 Cash Flows from Investing Activities Purchases of lease equipment (389,413) (561,919) (603,060) (7,337) Principal payments received under direct financing leases 352, , ,549 4,241 Net proceeds from securitization of lease receivables, loan receivables and securities 28, Installment loans made to customers (589,814) (719,190) (741,570) (9,023) Principal collected on installment loans 937,895 1,130, ,565 11,176 Proceeds from sales of operating lease assets 162, , ,139 2,119 Investment in affiliates, net (28,256) 36,945 17, Proceeds from sales of investment in affiliates 12,532 4,622 2, Purchases of available-for-sale securities (456,364) (742,816) (654,873) (7,968) Proceeds from sales of available-for-sale securities 181, , ,367 3,399 Proceeds from redemption of available-for-sale securities 162, , ,881 4,403 Purchase of held-to-maturity securities (43,748) 0 (182) (2) Purchases of other securities (19,656) (48,538) (44,654) (543) Proceeds from sales of other securities 26,034 25,614 24, Purchases of other operating assets (4,898) (14,219) (17,282) (210) Acquisitions of subsidiaries, net of cash acquired (10,218) (46,554) (9,252) (113) Sales of subsidiaries, net of cash disposed 123,613 12,685 7, Other, net (11,853) (20,635) (22,929) (280) Net cash provided by investing activities 432, ,598 41, Cash Flows from Financing Activities Net decrease in debt with maturities of three months or less (121,399) (72,584) (59,769) (727) Proceeds from debt with maturities longer than three months 1,083,310 1,488,199 1,488,111 18,106 Repayment of debt with maturities longer than three months (1,678,649) (1,918,774) (1,782,081) (21,682) Net increase in deposits due to customers 185, ,012 40, Issuance of common stock 83, Cash dividends paid to ORIX Corporation shareholders (6,261) (8,061) (8,599) (105) Contribution from noncontrolling interests , Cash dividends paid to redeemable noncontrolling interests 0 (6,008) (1,079) (13) Net increase in call money (13,400) (8,000) (10,000) (122) Other, net 1,298 (4,472) (5,661) (69) Net cash used in financing activities (466,924) (363,590) (318,477) (3,875) Effect of Exchange Rate Changes on Cash and Cash Equivalents 3,943 (7,348) (1,509) (19) Net Increase in Cash and Cash Equivalents 179,118 93,040 54, Cash and Cash Equivalents at Beginning of Year 459, , ,127 8,908 Cash and Cash Equivalents at End of Year 639, , ,892 $ 9,574 * The translations of the Japanese yen amounts into U.S. dollars are included solely using the prevailing exchange rate at March 31, 2012, which was to $ ORIX Corporation Annual Report 2012

67 Breakdown of Assets and Revenues by Segment Fiscal year ended March 31, 2012 Millions of yen Corporate Financial Services Maintenance Leasing Real Estate Investment and Operation Retail Overseas Business Total Segment Assets 898, ,782 1,369, ,145 1,738, ,762 6,002,139 Investment in direct financing leases 297, ,230 8,745 11,951 17, , ,418 Installment loans 540,388 17, , , , ,677 2,068,910 Investment in operating leases 29, , ,470 12,389 45, ,751 1,303,799 Investment in securities 13,158 2,069 99, , , ,135 1,154,002 Other operating assets ,443 21, , ,075 Inventories , ,721 79,607 Advances for investment in operating leases , , ,621 Investment in affiliates 16, ,697 61,469 79,255 88, ,707 Segment Revenues 72, , ,631 73, , , ,635 Direct financing leases 18,286 11,612 1,560 1,065 (52) 16,286 48,757 Interest on loans and investment securities 19, ,619 21,664 28,894 30, ,219 Operating leases 23, ,772 60,993 1, , ,731 Brokerage commissions and net gains (losses) on investment securities ,395 5, ,398 26,889 Life insurance premiums and related investment income , ,979 Real estate sales , ,029 Gains on sales of real estate under operating leases , ,544 Other operating revenues 10,979 62,166 84,023 43,121 1,905 62, ,487 Note: Figures in the table above may vary from figures reported in the consolidated statements of income and the consolidated balance sheets because items considered as corporate assets and revenues are not included. Concerning the Breakdown of Assets and Revenues by Segment Operating revenues such as Direct Financing Leases, Interest on Loans and Investment Securities and Operating Leases are recorded according to the operating transactions in Investment in Direct Financing Leases, Installment Loans, Investment in Operating Leases and Investment in Securities. Life insurance business assets are included in each item of segment assets. Gains (Losses) from these assets are included as related investment income under Life Insurance Premiums and Related Investment Income. Revenues from Real Estate Sales are derived from assets held under the consolidated balance sheet item Inventories. Gains on Sales of Real Estate under Operating Leases includes gains on sales of all leased real estate assets in Investment in Operating Leases. ORIX Corporation Annual Report

68 Financial Section Guide to Non-GAAP Financial Measurement This Annual Report contains certain financial measures presented on a basis not in accordance with U.S. GAAP(commonly referred to as Non-GAAP financial measures), including (1) long-term debt, ORIX Corporation shareholders equity, as well as other measures or ratios calculated based on these measures, presented on an adjusted basis*, in addition, (2) adjusted segment profit. *The adjustment excludes payables under securitized leases, loan receivables and investment in securities and reverses the cumulative effect on retained earnings of applying the new accounting standards for the consolidation of VIEs, effective April 1, (1) Our management believes these non-gaap financial measures may provide investors with additional meaningful comparisons between our financial condition as of March 31, 2012 as compared to prior periods. Effective April 1, 2010, we adopted ASU and ASU , which changed the circumstances under which we are required to consolidate certain VIEs. Our adoption of these new accounting standards caused a significant increase in our consolidated assets and liabilities and a decrease in our retained earnings without affecting the net cash flow and economic effects of our investments in such consolidated VIEs. Accordingly, our management believes that providing certain financial measures that exclude assets and liabilities attributable to consolidated VIEs as a supplement to financial information calculated in accordance with U.S. GAAP enhances the overall picture of our current financial position and enables investors to evaluate our historical financial and business trends without the large balance sheet fluctuation caused by our adoption of these new accounting standards. (2) Our management believes that in comparing segment information as of March 31, 2012 as compared to prior periods, the provision of the non-gaap financial measure of base profit that excludes capital gains, allowance for doubtful receivables and probable loan losses, and impairments may provide investors with additional meaningful insight regarding segment profit trends. We provide these non-gaap financial measures as supplemental information to our consolidated financial statements prepared in accordance with U.S. GAAP, and they should not be considered in isolation or as a substitute for the most directly comparable U.S. GAAP measures. The tables set forth below provide reconciliations of these non- GAAP financial measures to the most directly comparable financial measures presented in accordance with U.S. GAAP as reflected in this Annual Report for the periods provided. (1) Key Ratios Years ended March 31 Millions of yen Short-Term Debt 1,120, , ,871 1,336,414 1,174,391 Long-Term Debt (a) 2,856,613 2,662,719 2,861,863 3,236,055 3,863,057 Deduct: Payables under Securitized Leases, Loan Receivables and Investment in Securities 123,396 97,707 60, , ,529 Adjusted Long-Term Debt (b) 2,733,217 2,565,012 2,801,582 3,129,722 3,602,528 Short- and Long-Term Debt (excluding deposits) (c) 3,977,047 3,566,635 3,809,734 4,572,469 5,037,448 Adjusted Long- and Short-Term Debt (excluding deposits) (d) 3,853,651 3,468,928 3,749,453 4,466,136 4,776,919 ORIX Corporation Shareholders Equity (e) 505, , , ,646 1,194,234 Deduct: The Cumulative Effect on Retained Earnings of Applying the New Accounting Standards for the Consolidation of VIEs under ASU and ASU , Effective April 1, Adjusted ORIX Corporation Shareholders Equity (f) 505, , , ,646 1,194,234 D/E Ratio (times) (c)/(e) Adjusted D/E Ratio (times) (d)/(f) Share of Long-Term Debt (a)/(c) 72% 75% 75% 71% 77% Adjusted Share of Long-Term Debt (b)/(d) 71% 74% 75% 70% 75% 66 ORIX Corporation Annual Report 2012 Millions of yen Short-Term Debt 1,330, , , , ,973 Long-Term Debt (a) 4,462,187 4,453,845 3,836,270 4,531,268 4,267,480 Deduct: Payables under Securitized Leases, Loan Receivables and Investment in Securities 374, , ,224 1,018, ,705 Adjusted Long-Term Debt (b) 4,087,267 4,094,876 3,634,046 3,513,078 3,392,775 Short- and Long-Term Debt (excluding deposits) (c) 5,792,334 5,252,012 4,409,835 5,009,901 4,725,453 Adjusted Long- and Short-Term Debt (excluding deposits) (d) 5,417,414 4,893,043 4,207,611 3,991,711 3,850,748 ORIX Corporation Shareholders Equity (e) 1,267,917 1,167,530 1,298,684 1,319,341 1,396,137 Deduct: The Cumulative Effect on Retained Earnings of Applying the New Accounting Standards for the Consolidation of VIEs under ASU and ASU , Effective April 1, (21,947) (19,248) Adjusted ORIX Corporation Shareholders Equity (f) 1,267,917 1,167,530 1,298,684 1,341,288 1,415,385 D/E Ratio (times) (c)/(e) Adjusted D/E Ratio (times) (d)/(f) Share of Long-Term Debt (a)/(c) 77% 84% 87% 90% 90% Adjusted Share of Long-Term Debt (b)/(d) 75% 84% 86% 88% 88%

69 (2) Base Profit by Segment Years ended March 31 Billions of yen Corporate Financial Services Maintenance Leasing Real Estate Segment Investment and Operation Retail Overseas Business Segment total Consolidated financial statement adjustment 2010 Segment Profit (a) (19.5) (2.4) (13.8) 56.1 (b) Capital gains* (13.5) 52.3 (c) Provisions (40.5) (2.0) (9.5) (2.3) (9.3) (7.9) (71.5) 0.0 (71.5) (d) Impairments* 2 (0.6) (0.0) (23.0) (11.8) (0.3) (9.3) (45.0) 4.6 (40.4) Base profit (e)=(a)-(b)-(c)-(d) (4.9) Segment Profit (a) (25.6) 93.3 (b) Capital gains* (13.8) 34.0 (c) Provisions (12.7) (2.0) (1.1) (6.8) (1.4) (3.2) (27.2) (3.9) (31.1) (d) Impairments* 2 (0.3) (0.4) (32.9) (9.0) (2.2) (7.1) (51.8) (1.0) (52.9) Base profit (e)=(a)-(b)-(c)-(d) (6.9) Segment Profit (a) (14.7) (b) Capital gains* (2.1) 39.4 (c) Provisions (2.3) (0.0) (3.0) (7.5) (1.1) (3.8) (17.7) (1.5) (19.2) (d) Impairments* 2 (1.1) (0.0) (28.2) (4.2) (12.7) (8.0) (54.2) 2.0 (52.3) Base profit (e)=(a)-(b)-(c)-(d) (13.0) *1 Brokerage commissions and net gains (losses) on investment securities, real estate sales (net of cost), gains (losses) on sales of real estate under operating leases, gains (losses) on sales of subsidiaries and affiliates and liquidation losses, net, and equivalent amount of real estate joint-venture equity method profit for equity in net income (loss) of affiliates. *2 Impairment losses for write-downs of long-lived assets, write-downs of securities, and equivalent amount of costs of real estate sales and equity in net income (loss) of affiliates. Total ORIX Corporation Annual Report

70 About ORIX Group Companies As of March 31, 2012 Corporate Financial Services ORIX Corporation Domestic Sales Administrative Headquarters Principal Business Leasing, Lending, Other Financial Services Established (Acquired) Direct/Indirect Investment Momiji Lease Corporation Leasing, Other Financial Services (Mar. 2002) 95% NS Lease Co., Ltd. Leasing, Lending, Other Financial Services (Jul. 2002) 100% ORIX Tokushima Corporation Leasing, Lending, Other Financial Services (Oct. 2005) 95% Tsukuba Lease Corporation Leasing (Jun. 2010) 95% Kyuko-Lease Inc. Leasing, Other Financial Services (Jan. 2012) 90% Maintenance Leasing ORIX Auto Corporation ORIX Rentec Corporation Automobile Leasing, Rental, Car Sharing and Sales of Used Automobiles Rental and Leasing of Precision Measuring and IT-Related Equipment Jun % Sep % ORIX Rentec (Singapore) Pte. Limited (Singapore) Oct % ORIX Rentec (Malaysia) Sdn. Bhd. (Malaysia) Jan % ORIX Rentec (Korea) Corporation (South Korea) Apr % ORIX Rentec (Tianjin) Corporation (China) Aug % Real Estate ORIX Corporation Real Estate Business Headquarters Real Estate Development and Rental, Financing BlueWave Corporation Hotel and Training Facility Management Aug % ORIX Interior Corporation Real Estate Rental, Manufacture and Sale of Interior Furnishings, Interior Design and Installation, Driving School Management Oct % ORIX Real Estate Corporation Real Estate Development and Rental, Facilities Operation Mar % ORIX Asset Management Corporation REIT Asset Management Sep % ORIX Golf Management LLC Golf Course Management (Nov. 2004) 100% ORIX Living Corporation Senior Housing Management Apr % ORIX Real Estate Investment Advisors Corporation Real Estate Investment and Advisory Services Sep % ORIX Aquarium Corporation Aquarium Operation Apr % Investment and Operation ORIX Corporation Investment and Operation Headquarters Principal Investment ORIX Capital Corporation Venture Capital Oct % ORIX Investment Corporation Alternative Investment Jan % ORIX Eco Services Corporation Waste Recycling Consultation, Environmental Management Support Services Apr % ORIX Asset Management and Loan Services Corporation Loan Servicing Apr % ORIX Environmental Resources Management Corporation Waste Recycling Sep % ORIX M&A Solutions Corporation M&A and Corporate Restructuring Advisory Services, Financial Advisory Services Feb % ORIX Loan Business Center Corporation Personal Loan Related Asset Management, Customer Relations May % ORIX Wholesale Securities Corporation Sale of Financial Products Feb % ORIX Electric Power Corporation Provision of Electricity to Condominiums May % Ubiteq, INC. Electronic Equipment Business, Mobile and Ubiquitous Business (Jul. 2010) 60% Retail ORIX Credit Corporation Consumer Finance Services Jun %* ORIX Life Insurance Corporation Life Insurance Apr % ORIX Bank Corporation Banking (Apr. 1998) 100% ORIX Headquarter Functions (Not included in Segment Financial Information) ORIX Insurance Services Corporation Casualty and Life Insurance Agency Sep % ORIX Computer Systems Corporation Software Engineering and Systems Management Mar % ORIX Baseball Club Co., Ltd. Professional Baseball Team Management (Oct. 1988) 100% ORIX Management Information Center Corporation Accounting and Administration Services Oct % ORIX Callcenter Corporation Call Center Nov % ORIX Business Support Corporation Business Support Services Apr % * From June 2012, ORIX Group s shareholding in ORIX Credit Corporation increased from 49% to 100%. 68 ORIX Corporation Annual Report 2012

71 Overseas Business ORIX Corporation Global Business and Investment Headquarters* Global Business Administrative Headquarters* Countries (Area) Japan Principal Business Administration of Overseas Activities, Ship-Related Services, Aircraft-Related Services, Alternative Investment Established (Acquired) Direct/Indirect Investment ORIX Maritime Corporation* Japan Ship Charter and Ship Broker Service Nov % ORIX Aircraft Corporation* Japan Aircraft Leasing May % ORIX USA Corporation USA Corporate Finance, Investment Banking Aug % Houlihan Lokey, Inc. USA Investment Banking (Jan. 2006) 54% RED Capital Group USA Loan Servicing (May 2010) 83% Mariner Investment Group LLC USA Fund Operation and Management (Dec. 2010) 59% ORIX Asia Limited Hong Kong Leasing, Automobile Leasing, Hire Purchase, Lending Sep % ORIX Taiwan Corporation Taiwan Leasing, Hire Purchase, Insurance Brokerage, Precision Measuring and IT-Related Equipment Rentals Sep % ORIX Auto Leasing Taiwan Corporation Taiwan Automobile Leasing and Rentals Mar % ORIX Taiwan Asset Management Company Taiwan NPL Investment, Loan Servicing Oct % ORIX Capital Korea Corporation South Korea Leasing, Automobile Leasing, Hire Purchase, Lending Feb % ORIX Private Equity Korea Corporation South Korea Fund Operation and Management Mar % ORIX China Corporation China Leasing Aug % CHINA RAILWAY LEASING CO., LTD. China Railway-Related Leasing (Jan. 2006) 25% ORIX (China) Investment Co., Ltd. China Leasing, Equity Investment, Other Financial Services Dec % ORIX Leasing Singapore Limited Singapore Leasing, Hire Purchase, Lending Sep % ORIX Investment and Management Private Limited Singapore Equity Investment, Lending May % ETHOZ Group Ltd. Singapore Automobile Leasing and Rentals, Leasing Sep % ORIX Leasing Malaysia Berhad Malaysia Leasing, Lending, Hire Purchase Sep % ORIX Car Rentals Sdn. Bhd. Malaysia Automobile Rentals Feb % ORIX Auto Leasing Malaysia Sdn. Bhd. Malaysia Automobile Leasing Oct % ORIX Asset Management Malaysia Sdn.Bhd. Malaysia NPL Investment Jan % PT. ORIX Indonesia Finance Indonesia Leasing, Automobile Leasing Apr % ORIX METRO Leasing and Finance Corporation Philippines Leasing, Automobile Leasing, Lending Jun % ORIX Auto Leasing Philippines Corporation Philippines Automobile Leasing Sep % Thai ORIX Leasing Co., Ltd. Indochina Capital Corporation Thailand Vietnam Leasing, Automobile Leasing and Rentals, Hire Purchase Fund Operation and Management, Real Estate Development, Finance Arrangement, Advisory Services Jun % (Nov. 2010) 25% Lanka ORIX Leasing Company PLC Sri Lanka Leasing, Automobile Leasing, Hire Purchase, Lending Mar % ORIX Leasing Pakistan Limited Pakistan Leasing, Automobile Leasing Jul % INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED India Commercialization of Infrastructure Projects, Investment Banking, Corporate Finance (Mar. 1993) 24% ORIX Auto Infrastructure Services Limited India Automobile Leasing Mar % Oman ORIX Leasing Company SAOG Oman Leasing, Automobile Leasing, Hire Purchase, Factoring Aug % ORIX Leasing Egypt SAE Egypt Leasing, Automobile Leasing Jun % Saudi ORIX Leasing Company Saudi Arabia Leasing, Automobile Leasing Jan % MAF ORIX Finance PJSC UAE Leasing, Automobile Leasing Apr % SK Leasing JSC Kazakhstan Leasing (Jun. 2005) 40% ORIX Australia Corporation Limited Australia Automobile Leasing and Truck Rentals Jul % ORIX New Zealand Limited New Zealand Leasing, Automobile Leasing and Rentals Dec % ORIX Aviation Systems Limited Ireland Aircraft Leasing, Asset Management, Aircraft-Related Technical Services Mar % ORIX Polska S.A. Poland Leasing, Automobile Leasing, Hire Purchase, Lending Oct % * ORIX Corporation s Global Business and Investment Headquarters and Global Business Administrative Headquarters as well as ORIX Maritime Corporation and ORIX Aircraft Corporation are based in Japan, but are engaged in business activities centered on the Asia, Oceania and Europe regions. Note: From May 2012, Pang Da ORIX Auto Leasing Co., Ltd. (China, automobile leasing, ORIX Group's shareholding: 50%) joined the ORIX Group. ORIX Corporation Annual Report

72 About ORIX Group Network As of March 31, 2012 Network in Japan ORIX s extensive network in Japan includes 1,222 locations. The number of offices in each region is indicated in parentheses. Hokkaido (54) ORIX (1) ORIX Auto (50) ORIX Rentec (1) BlueWave (1) ORIX Life Insurance (1) Tohoku (76) ORIX (6) ORIX Auto (66) ORIX Rentec (1) ORIX Real Estate (1) ORIX Golf Management (1) ORIX Life Insurance (1) Tokyo (147) ORIX (14) ORIX Eco Services (2) NS Lease (1) Ubiteq (2) Kyuko-Lease (1) ORIX Auto (76) ORIX Rentec (3) BlueWave (6) ORIX Interior (1) ORIX Real Estate (1) ORIX Asset Management (1) ORIX Golf Management (2) ORIX Living (7) ORIX Real Estate Investment Advisors (1) ORIX Aquarium (1) ORIX Capital (1) ORIX Investment (2) ORIX Asset Management and Loan Services (1) ORIX M&A Solutions (1) ORIX Wholesale Securities (1) ORIX Environmental Resources Management (1) ORIX Electric Power (1) ORIX Life Insurance (5) ORIX Bank (2) Houlihan Lokey, Inc. (1) ORIX Insurance Services (1) ORIX Computer Systems (2) ORIX Management Information Center (6) ORIX Business Support (1) ORIX Maritime (1) ORIX Aircraft (1) Kanto (284) ORIX (8) Tsukuba Lease (1) ORIX Auto (244) ORIX Rentec (4) BlueWave (2) ORIX Golf Management (15) ORIX Living (4) ORIX Environmental Resources Management (1) ORIX Eco Services (1) ORIX Life Insurance (4) Chubu (232) ORIX (11) ORIX Auto (207) ORIX Rentec (1) BlueWave (1) ORIX Real Estate (1) ORIX Golf Management (7) ORIX Life Insurance (3) ORIX Eco Services (1) Kinki (139) ORIX (8) Ubiteq (1) ORIX Auto (83) ORIX Rentec (2) BlueWave (2) ORIX Interior (4) ORIX Real Estate (1) ORIX Golf Management (10) ORIX Living (11) ORIX Aquarium (1) ORIX Asset Management and Loan Services (1) ORIX Loan Business Center (1) ORIX Eco Services (1) ORIX Life Insurance (5) ORIX Bank (1) ORIX Baseball Club (6) ORIX Business Support (1) Chugoku (62) ORIX (4) Momiji Lease (2) ORIX Auto (48) ORIX Rentec (1) BlueWave (1) ORIX Golf Management (4) ORIX Life Insurance (2) Shikoku (35) ORIX (3) ORIX Tokushima (1) ORIX Auto (30) ORIX Life Insurance (1) Kyushu/Okinawa (193) ORIX (8) Kyuko-Lease (7) ORIX Auto (158) ORIX Rentec (2) BlueWave (1) ORIX Golf Management (5) ORIX Asset Management and Loan Services (3) ORIX Life Insurance (4) ORIX Bank (2) ORIX Callcenter (3) 70 ORIX Corporation Annual Report 2012

73 Overseas Network ORIX has a global network outside of Japan that spans 26 countries and regions worldwide. ORIX has 290 locations throughout the United States, Asia, Oceania, the Middle East and Northern Africa, and Europe. The number of offices in each region is indicated in parentheses and includes both subsidiaries and affiliates. Ireland (1) ORIX Aviation Systems Limited (1) United Kingdom (1) Houlihan Lokey, Inc. (1) France (1) Houlihan Lokey, Inc. (1) Germany (1) Houlihan Lokey, Inc. (1) Poland (7) ORIX Polska S.A. (7) Egypt (2) ORIX Leasing Egypt SAE (2) Saudi Arabia (6) Saudi ORIX Leasing Company (6) United Arab Emirates (3) MAF ORIX Finance PJSC (3) Oman (6) Oman ORIX Leasing Company SAOG (6) Kazakhstan (5) SK Leasing JSC (5) Pakistan (33) ORIX Leasing Pakistan Limited (33) India (24) INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED (6) ORIX Auto Infrastructure Services Limited (18) Sri Lanka (31) Lanka ORIX Leasing Company PLC (31) ⓮ Malaysia (25) ORIX Leasing Malaysia Berhad (15) ORIX Car Rentals Sdn. Bhd. (4) ORIX Rentec (Malaysia) Sdn. Bhd. (4) ORIX Auto Leasing Malaysia Sdn. Bhd. (1) ORIX Asset Management Malaysia Sdn. Bhd. (1) Thailand (3) Thai ORIX Leasing Co., Ltd. (3) Singapore (6) ORIX Leasing Singapore Limited (1) ORIX Investment and Management Private Limited (2) ETHOZ Group Ltd. (1) ORIX Rentec (Singapore) Pte. Limited (1) Indochina Capital Corporation (1) Vietnam (4) ORIX Investment and Management Private Limited (1) Indochina Capital Corporation (3) Hong Kong (2) ORIX Asia Limited (1) Houlihan Lokey, Inc. (1) China (16) ORIX Rentec (Tianjin) Corporation (7) ORIX China Corporation (5) CHINA RAILWAY LEASING CO., LTD. (2) ORIX (China) Investment Co., Ltd. (2) South Korea (9) ORIX Rentec (Korea) Corporation (3) ORIX Capital Korea Corporation (5) ORIX Private Equity Korea Corporation (1) Taiwan (7) ORIX Taiwan Corporation (3) ORIX Auto Leasing Taiwan Corporation (3) ORIX Taiwan Asset Management Company (1) Philippines (46) ORIX METRO Leasing and Finance Corporation (43) ORIX Auto Leasing Philippines Corporation (3) Indonesia (11) PT. ORIX Indonesia Finance (11) Australia (12) ORIX Australia Corporation Limited (12) New Zealand (5) ORIX New Zealand Limited (5) USA (23) ORIX USA Corporation (4) Houlihan Lokey, Inc. (6) RED Capital Group (9) Mariner Investment Group LLC (4) ORIX Corporation Annual Report