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Orix Corp – ‘20-F’ for 3/31/03

On:  Friday, 7/25/03, at 8:18am ET   ·   For:  3/31/03   ·   Accession #:  1145549-3-912   ·   File #:  1-14856

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 1: 20-F        Orix Corporation Form 20-F                          HTML   2.94M 
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Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Form 20-F

Commission file number: 001-14856

ORIX KABUSHIKI KAISHA

ORIX CORPORATION

Japan

3-22-8 Shiba, Minato-ku

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Securities registered or to be registered pursuant to Section 12(g) of the Act:

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock

As of March 31, 2003, 84,365,914 Shares and 984,920 ADSs are outstanding.

      Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ          No o

      Indicate by check mark which financial statement item the Registrant has elected to follow.

*Not for trading, but only in connection with the registration of American Depositary Shares.

Table of Contents

TABLE OF CONTENTS

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CERTAIN DEFINED TERMS, CONVENTIONS AND PRESENTATION OF

      As used in this annual report, unless the context otherwise requires, “Company” and “ORIX” refer to ORIX Corporation and “we,” “us,” “our” and similar terms refer to ORIX Corporation and its subsidiaries.

      In this annual report, “subsidiary” and “subsidiaries” refer to consolidated subsidiaries of ORIX, companies in which ORIX owns more than 50%, and “affiliate” and “affiliates” refer to all of our affiliates accounted for by the equity method, companies in which ORIX owns 20-50% and has the ability to exercise significant influence over their operations.

      The consolidated financial statements of ORIX have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Unless otherwise stated or the context otherwise requires, all amounts in such financial statements are expressed in Japanese yen.

      References in this annual report to “yen” or “¥” are to Japanese yen and references to “US$”, “$” or “dollars” are to United States dollars.

      Certain monetary amounts included in this annual report have been subject to rounding adjustments; accordingly, figures shown as totals in certain tables may not be equal to the arithmetic sum of the figures which precede them.

      The Company’s fiscal year ends on March 31. The fiscal year ended March 31, 2003 is referred to throughout this annual report as fiscal 2003 or the 2003 fiscal year, and other fiscal years are referred to in a corresponding manner. References to years not specified as being fiscal years are to calendar years.

FORWARD LOOKING STATEMENTS

      This annual report contains statements that constitute “forward-looking statements” within the meaning of Section 21(E) of the Securities Exchange Act of 1934. When included in this annual report, the words, “will,” “should,” “expects,” “intends,” “anticipates,” “estimates” and similar expressions, among others, identify forward looking statements. Such statements, which include, but are not limited to, statements contained in “Item 3. Key Information — Risk Factors,” “Item 5. Operating and Financial Review and Prospects” and “Item 11. Quantitative and Qualitative Disclosure About Market Risk,” inherently are subject to a variety of risks and uncertainties that could cause actual results to differ materially from those set forth in such statements. These forward looking statements are made only as of the date of this annual report. The Company expressly disclaims any obligation or undertaking to release any update or revision to any forward looking statement contained herein to reflect any change in the Company’s expectations with regard thereto or any change in events, conditions or circumstances on which any statement is based.

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PART I

      Not applicable.

Item 2.     Offer Statistics and Expected Timetable.

      Not applicable.

Item 3.     Key Information.

Selected Financial Data

      The following selected consolidated financial information has been derived from our consolidated financial statements as of each of the dates and for each of the periods indicated below. This information should be read in conjunction with and is qualified in its entirety by reference to our consolidated financial statements, including the notes thereto, included in this annual report, which have been audited by Asahi & Co., a member firm of KPMG International, a Swiss nonoperating association.

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      In certain parts of this annual report, we have translated Japanese yen amounts into U.S. dollars for the convenience of readers. The rate that we used for translations was ¥120.20 = US$1.00, which was the approximate exchange rate in Japan on March 31, 2003 using the telegraphic transfer rate of the Bank of Tokyo-Mitsubishi, Ltd. The following table provides the noon buying rates for Japanese yen expressed in Japanese yen per US$1.00 during the periods indicated. No representation is made that the Japanese yen or U.S. dollar amounts referred to herein could have been or could be converted into U.S. dollars or Japanese yen, as the case may be, at any particular rate or at all.

      The following table provides the high and low noon buying rates for Japanese yen per $1.00 during the months indicated.

Risk Factors

      Our business may continue to be adversely affected by the recession in Japan. The recession may affect our new business origination volume, the credit quality of our assets, the valuation of our long-lived assets and margins on operating assets.

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      The Japanese economy has shown slow growth or negative growth for most of the last decade. Although from 1995 to early 1997 the economy recovered to some extent, since 1997 recessionary conditions have prevailed.

      As a result of adverse economic conditions in Japan, we may be unable to originate more leases and loans and our non-performing assets may increase. Our allowance for doubtful receivables on direct financing leases and probable loan losses may prove to be inadequate. Adverse economic conditions may prevent our customers from meeting their financial obligations. The value of collateral securing our loans and the value of equipment that we lease to customers may decline. Our ability to re-lease or remarket equipment on favorable terms may also be limited by adverse economic conditions in Japan. In addition, we may not be able to sell the residential condominiums or other properties that we build, or we may be forced to sell the properties below cost at a loss.

      In the fiscal year ended March 31, 2003 we recorded write-downs of long-lived assets totaling ¥50,682 million for real estate assets including golf courses, rental condominiums, office buildings, hotels, corporate dormitories and other properties in Japan. Based on segment information, we had a total of ¥635,233 million of long-lived assets in Japan and overseas as of March 31, 2003. Deflation or other adverse conditions in Japan or overseas may affect the value of long-lived assets we own and we may be required to write-down additional assets if it is unlikely that we are able to recover the carrying value of such assets. Any such event may have an adverse effect on our results of operations and financial condition.

      At March 31, 2003, we had loans outstanding of ¥327,697 million to real estate-related companies and construction companies. Of that amount, we maintained an allowance for probable loan losses of ¥20,394 million. Our allowance for doubtful receivables on direct financing leases and probable loan losses may be inadequate to cover credit losses on our loans to real estate-related companies and construction companies.

      Japanese real estate-related companies and construction companies have been severely affected by the collapse of the bubble economy in Japan. Because of the large declines in real estate prices, these companies have suffered enormous losses on investments in real estate. Some of these losses have been recognized in the financial statements of these companies and some have not. Companies in these sectors are suffering from other difficult business conditions resulting from the collapse of the bubble economy, including the lack of liquidity in the real estate market and a decrease in major development projects. Therefore, these companies may have difficulty paying amounts due on loans. In addition, the value of real estate collateral securing our loans from real estate-related companies and construction companies may further decline. This may prevent us from fully recovering our loans to those companies if they default on their obligations.

      A substantial portion of our revenue is derived from our operations in the United States, and we have significant investments in securities of U.S. issuers, and loans and leases to U.S. companies. The economic conditions in the United States have remained uncertain during the last fiscal year. Our operations have been and may continue to be adversely affected by deteriorated economic conditions in the United States. Adverse effects on our U.S. operations might include:

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      As of March 31, 2003, we had approximately ¥120 billion of bonds, installment loans, operating leases and investments related to the airline industry. Due to the deterioration of operating conditions of the airline industry, we made provisions for doubtful receivables and probable loan losses of approximately ¥5.3 billion and recorded approximately ¥900 million in write-downs of securities in the fiscal year ended March 31, 2003. The airline industry continues to experience financial difficulties worldwide, particularly in North America. A number of airlines have declared bankruptcy, and there may be additional bankruptcies in the near future. Our results of operations and financial condition have been adversely affected and may continue to be adversely affected by the adverse conditions in the airline industry.

      Most of our exposure to the airline industry is collateralized, mainly by aircraft. If the value of the collateral declines, we may record additional losses. In addition, since our exposure to the airline industry is not fully collateralized, we are also exposed to the general credit risk of airlines.

      The economies of Hong Kong, Indonesia, Malaysia, Korea and other Asian countries where we operate have experienced problems since the second half of 1997. In 2003, there has also been an outbreak of Severe Acute Respiratory Syndrome (“SARS”) which may further exacerbate the economic conditions of these Asian countries. We may suffer losses on investments in these countries and poor operating results on our businesses in these countries if these countries experience

      These and other factors could result in

      We are subject to risks relating to changes in market rates of interest and currency exchange rates.

      Significant increases in market interest rates, or the perception that an increase may occur, could adversely affect our ability to originate new transactions, including direct financing leases and loans, and our ability to grow.

      On the other hand, a decrease in interest rates could result in faster prepayments of loans. In addition, changes in market interest rates could affect the interest income that we receive on interest-earning assets

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      Not all of our assets and liabilities are matched by currency. As a consequence, rapid or significant changes in currency exchange rates could have an adverse impact on our assets and our financial condition and results of operations.

      We hold large investments in debt and equity securities, mainly in Japan and the United States. As of March 31, 2003, the carrying amount of our investments in securities was ¥677,435 million. We may suffer losses on these investments because of changes in market prices, defaults or other reasons. 5.3% of our investment in securities as of March 31, 2003 was marketable equity securities, mainly common stock of Japanese listed companies. The market values of these equity securities are volatile and have declined substantially in recent years. Unrealized gains and losses on debt and equity securities classified as available-for-sale securities are recorded in shareholders’ equity, net of income taxes, and are not directly charged to income. However, declines in market value on available-for-sale securities and held-to-maturity securities are charged to income if we believe that these declines are other than temporary. We recorded ¥19,742 million in charges of this kind in the year ended March 31, 2002 and ¥14,325 million in charges of this kind in the year ended March 31, 2003. We may have to record more charges of this kind in the future.

      We have substantial investments in debt securities, mainly long-term corporate bonds with fixed interest rates. We may realize losses on investments in debt securities as a result of issuer defaults or deterioration in issuers’ credit quality. We may also realize losses on our investment portfolio if market interest rates increase. Current market interest rates for yen-denominated obligations are particularly low.

      We lease equipment under direct financing leases and operating leases. In both cases there is a risk that we will suffer losses at the end of the lease if we are unable to realize the residual value of the equipment that is estimated at the beginning of the lease. This risk is particularly significant in operating leases, because the lease term is much shorter than the useful life of the equipment. If we are unable to sell or re-lease the equipment at the end of the lease, we may not recover our investment in the equipment and we may suffer losses. Our estimates of the residual value of equipment are based on current market values of used equipment and estimates of when and how much equipment will become obsolete. If equipment values and product market trends differ from our expectations, such estimates may prove to be wrong.

      We maintain an allowance for doubtful receivables on direct financing leases and probable loan losses. This allowance reflects our judgment of the loss potential, after considering factors such as:

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      We cannot be sure that our allowance for doubtful receivables on direct financing leases and probable loan losses will be adequate over time to cover credit losses in these portfolios. This allowance may turn out to be inadequate if adverse changes in the Japanese economy or other economies in which we compete or discrete events adversely affect specific customers, industries or markets. If our allowance for doubtful receivables on direct financing leases and probable loan losses is insufficient to cover these changes or events, we could be adversely affected.

      We compete primarily on the basis of pricing, terms and transaction structure. Other important competitive factors include industry experience, client service and relationships. From time to time, our competitors seek to compete aggressively on the basis of pricing and terms and we may lose market share if we are unwilling to match our competitors because we want to maintain our interest margins. Because some of our competitors are larger than us and have access to capital at a lower cost than we have, they may be better able to maintain profitable interest margins while still reducing prices. To the extent that we match our competitors’ pricing or terms, we may experience lower interest margins.

      Our primary sources of funds are cash flows from operations, borrowings from banks and other institutional lenders, and funding from the capital markets, such as offerings of commercial paper, medium-term notes, straight bonds, asset-backed securitizations and other debt securities. A downgrade in our credit ratings could result in an increase in our interest expense and could have an adverse impact on our ability to access the commercial paper market or the public and private debt markets, which could have an adverse effect on our financial position and liquidity. Even if we are unable to access these markets on acceptable terms, we have access to other sources of liquidity, including bank borrowings, cash flows from our operations and sales of our assets. We cannot be sure, however, that these other sources will be adequate if our credit ratings are downgraded or other adverse conditions arise.

      We continue to rely significantly on short-term funding from Japanese commercial banks. Only a portion of this funding is provided under committed facilities. We also rely on the capital markets as a funding source, including the commercial paper and corporate bond markets. We are taking steps to reduce refinancing risks by diversifying our funding sources and establishing committed credit facilities from Japanese banks and foreign banks. Despite these efforts, committed credit facilities and loans are subject to financial and other covenants and conditions to drawdown, including minimum net worth requirements, and the risk that we will be unable to roll over other short-term funding remains.

      Many companies in Japan have announced plans to reduce their cross-shareholdings in other companies. Our own dispositions of other companies’ shares could encourage those companies to dispose of Shares. Dispositions by other companies of Shares may adversely affect market prices for the Shares.

      We expect, for the purpose of U.S. federal income taxes, to be treated as a passive foreign investment company because of the composition of our assets and the nature of our income. If an investor in our securities is a U.S. person, because we are a passive foreign investment company, such investor will be subject to special U.S. federal income tax rules that may have negative tax consequences on a disposition of such securities or on receipt of certain distributions on such securities and will require annual reporting.

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      100 shares constitute one “unit.” Each unit of our shares has one vote. A holder who owns fewer than 100 shares, or ADRs evidencing fewer than 200 ADSs, will own less than a whole unit. The Japanese Commercial Code restricts the rights of a shareholder who holds shares of less than a whole unit. In general, holders of shares constituting less than a unit do not have the right to vote. Transfers of shares constituting less than one unit are significantly limited. Under the unit share system, holders of shares constituting less than a unit have the right to require us to purchase their shares and the right to require us to sell them additional shares to create a whole unit of 100 shares. However, holders of ADRs are unable to withdraw underlying shares representing less than one unit. Therefore, as a practical matter, they cannot require us to purchase these underlying shares. As a result, holders of ADRs with shares in lots of less than one unit may not have access to the Japanese markets through the withdrawal mechanism to sell their shares. The unit share system does not affect the transfer of ADSs, which may be transferred in lots of any size.

      Market prices for the ADNs or ADSs may fall if the value of the yen declines against the U.S. dollar. In addition, the amount of principal, interest and other payments made to holders of ADNs or cash dividends and other cash payments made to holders of ADSs would be reduced if the value of the yen declines against the U.S. dollar.

Item 4.     Information on the Company

General

      ORIX Corporation is a corporation (kabushiki kaisha) formed under Japanese law. Our principal place of business is at 3-22-8 Shiba, Minato-ku, Tokyo 105-8683, 813-5419-5000. E-mail: koho@orix.co.jp; URL: www.orix.co.jp

Corporate History

      ORIX Corporation was established on April 17, 1964 in Osaka, Japan as Orient Leasing Co., Ltd. by three trading companies and five banks that include Nichimen Corporation, Nissho and Iwai (presently Nissho Iwai Corporation, which is part of the Nissho Iwai-Nichimen Holdings Corporation), the Sanwa Bank (presently UFJ Holdings, Inc.), Toyo Trust & Banking (presently UFJ Trust and Bank Limited), the Industrial Bank of Japan and Nippon Kangyo Bank (presently Mizuho Bank, Ltd., Mizuho Holdings, Inc.), and the Bank of Kobe (presently Sumitomo Mitsui Banking Corporation). While these companies remain business partners, they now hold only a limited number of ORIX’s Shares.

      Our initial development occurred during the period of sustained economic growth in Japan during the 1960s and lasted through to the early 1970s. During this time, strong capital spending by the corporate sector fueled demand for equipment, and led to the first wave of newly established leasing companies in Japan. Under the leadership of the late Tsuneo Inui, who served as President from 1967 to 1980, we capitalized on the growing demand in this period by expanding our portfolio of leasing assets.

      It was also during this time that our marketing strategy shifted from a focus on using the established networks of the trading companies and other initial shareholders, to one that concentrated on independent marketing as the number of branches expanded. In April 1970, we listed our shares on the second section of the Osaka Securities Exchange, which at the time was the fastest listing by a new company in post-World War II Japan. Since February 1973, our shares have been listed on the first sections of the Tokyo and Nagoya Stock Exchanges and the Osaka Securities Exchange.

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      The 1970s saw the gradual maturing of the Japanese leasing industry and the Japanese economy was adversely affected by the two oil shocks of 1973 and 1979, resulting in reduced growth in capital spending and increased volatility in foreign exchange rates. Despite these difficulties, ORIX continued to grow rapidly by expanding and diversifying its range of products and services to include ship and aircraft leasing along with real estate-related finance and development. Beginning in 1972 with the establishment of ORIX Alpha Corporation (“ORIX Alpha”), which concentrated on leasing furnishings and fixtures to retailers, hotels, restaurants and other users, ORIX set up a number of specialized leasing companies to tap new market potential, including ORIX Auto Leasing Corporation (“ORIX Auto Leasing”) in 1973 and ORIX Rentec Corporation (“ORIX Rentec”) in 1976. With the establishment of ORIX Credit Corporation (“ORIX Credit”) in 1979, we began our move into the retail market by offering financing services to individuals.

      It was also during the 1970s that we began our overseas expansion, commencing with the establishment of our first overseas office in Hong Kong in 1971, followed by Singapore (1972), Malaysia (1973), the United States (1974), Indonesia (1975), South Korea (1975) and the Philippines (1977).

      Yoshihiko Miyauchi became President and CEO in 1980. During this decade, we continued to expand our range of products and services, and placed increased emphasis on strengthening synergies among group companies by emphasizing knowledge sharing and cooperation to make optimal use of corporate resources. This included the focus on cross-selling a variety of products and services to our customers that continues to this day.

      During the 1980s, we began using mergers and acquisitions to expand operations and made our initial investment in ORIX Securities Corporation (“ORIX Securities”— formerly Akane Securities K.K.) and ORIX Estate Corporation (“ORIX Estate”— formerly ORIX Ichioka Corporation), which is involved in real estate and leisure facility management, in order to expand our array of financial products and services.

      In 1988, we acquired one of 12 professional baseball teams in Japan, now called ORIX BlueWave, which has helped raise our name recognition and promote our corporate image. In 1989, we introduced a corporate identity program and changed our name to ORIX Corporation from Orient Leasing Co., Ltd. to reflect our increasingly international profile and diversification into financial services other than leasing.

      In the 1990s, the Japanese economy experienced a protracted period of industrial stagnation, and in the latter half of the decade, instability within the financial sector. Nevertheless, we continued to further develop our financial activities. For example, in 1991, we entered the life insurance business through ORIX Life Insurance Corporation (“ORIX Life Insurance”) (originally the Japanese operations of United of Omaha Life Insurance Company of the United States) and steadily increased our operations in this field. In addition, we entered the commercial mortgage backed securities business through a joint venture with Bank One Corporation of the United States in 1997 (presently a 100% ORIX-owned subsidiary called ORIX Capital Markets, LLC).

      The 1990s was also a decade in which we started to concentrate more efforts on developing our retail business. ORIX Life Insurance commenced sales of a new range of directly marketed life insurance products— ORIX Direct Life Insurance— in September 1997, targeting the consumer life insurance market. In addition, ORIX Trust and Banking Corporation (“ORIX Trust and Banking”— the former Yamaichi Trust & Bank, Ltd.) was acquired in 1998 and has since concentrated primarily on housing loans. With deregulation of brokerage commissions in 1999, ORIX Securities began ORIX ONLINE, an Internet-based brokerage aimed at individuals.

      In 1999, in order to increase the efficiency of our real estate-related operations, we established the Real Estate Finance Headquarters to concentrate primarily on real estate-related finance and ORIX Real Estate Corporation (“ORIX Real Estate”), which focuses on the development, operation and management of real estate in Japan. After this reorganization, we expanded our activities to include loan servicing, real estate investment trusts, commercial mortgage-backed securities, building maintenance and asset management in Japan.

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      With the establishment of our Investment Banking Headquarters in 1999, we are attempting to expand our investment banking operations, which include principal investments, corporate rehabilitation and consulting activities.

Strategy

      Our business model over the years has been based primarily on acquiring quality financial and other assets and aiming for interest spreads that compensate us for the risks involved. However, we are now pursuing a strategy of attempting to increase profits without growing assets as we focus on raising profitability and strengthening our balance sheet. We are pursuing a mid-term strategy to achieve this goal using two basic methods. First, we are attempting to increase the spreads and profitability of traditional asset-based activities like leasing and lending by focusing on specialized or niche markets. Second, we are trying to increase our fee and other income not generated primarily by interest spreads by providing investment-banking services to our core customer base of mainly small and medium-sized companies.

      ORIX Auto Leasing is a specialist automobile lessor. By using our specialization in managing fleets of automobiles, we are providing a cost effective and convenient way for customers to outsource their automobile fleets.

      Our consumer card loan business, where we have concentrated on the niche of providing short-term loans to relatively high income individuals, and our housing loan business, focusing on individuals looking to purchase condominiums for investment purposes, provide two examples of our attempt to generate good returns by focusing on niche areas within the financial services industry. As we continue to attempt to increase spreads in our traditional asset businesses of corporate leasing and lending, we would like to put even more emphasis on specialized and niche businesses to increase our profitability.

      Our real estate business provides an example of our emphasis on generating returns by turning assets over. Through our expertise in refurbishing real estate, we believe that we are able to add value to properties such as office and commercial buildings that we purchase. We are also able to use our extensive client base to search for potential tenants to fill these properties. We then attempt to sell off the renovated and leased buildings for a profit.

      Our real estate-related finance business also generates income by accumulating good assets and then selling them off for a gain. We have been an active player in the market for some transactions like non-recourse loans, which can be pooled together and then securitized in the form of commercial mortgage-backed securities (“CMBS”). Other examples include the purchase of distressed loans, where we exercise our rights to the collateral backing such loans, add value to the properties, and then sell them to a third party.

      Up to now, we have developed some fee income by cross-selling insurance, investment and other financial products to our core base of about 500,000 mainly small and medium-sized companies in Japan. Recently, we have taken advantage of our expertise in real estate-related finance to increase our fee income though our building maintenance and loan servicing operations. We also act as the asset manager for a real estate investment trust (“JREIT”) that was listed in June 2002. In addition, we are starting to see more opportunities to develop new types of fee businesses by providing financial solutions such as M&A advisory services to small and medium-sized companies that are looking to restructure or expand their operations.

Overview of Activities

      Our operations presently consist of five major areas: corporate finance, real estate-related businesses, life insurance and retail finance in Japan, and international operations. Corporate finance is primarily the

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Profile of Business by Revenues and Operating Assets

      Our activities can be viewed in two primary ways using our consolidated financial information. One is based upon the individual items for revenues and operating assets in our consolidated statements of income and consolidated balance sheets. The other is a breakdown based on segment information. The following provides an explanation of each business based on the first method. For an explanation of each business based on the second method see “—Profile of Business by Segment.”

      The following table shows revenues by revenue type.

      81% of revenues came from our operations in Japan in fiscal 2003, and 19% were generated from operations overseas.

      No single customer accounted for 10% or more of total revenues for fiscal 2001, 2002 and 2003.

      Except for revenues from fees and commissions and revenue recognized from the sale of some real estate developments such as residential condominiums in which assets are recorded as advances, revenues are generated from the operating assets as shown in the table below.

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      As of March 31, 2003, 80% of operating assets were in Japan, and 20% overseas.

Direct Financing Leases

      The typical direct financing lease is for one specific user and is generally non-cancelable during the lease term. ORIX purchases the equipment on behalf of the user who usually makes monthly payments of a fixed amount and the financial terms are designed to recover most, if not all, of the initial cost of the equipment, interest and other costs during the initial contractual lease term. In Japan, we usually retain ownership of the equipment and can lease the equipment again or sell it in the secondary markets after the initial lease contract expires. In certain cases, the lessee has an option to purchase the equipment after the lease contract expires, or in the case of what are called hire-purchases, the ownership rights of the equipment transfer to the lessee upon completion of the contract.

      A direct financing lease is treated as a financial asset. When we receive lease payments from lessees, only the interest component and fee component is recorded as revenues on the consolidated statements of income, while the portion of the lease payment attributable to the principal is recognized only in the consolidated statement of cash flows. For more information on revenue recognition of direct financing lease revenues, see Note 1(e) in “Item 18. Financial Statements.”

      Direct financing leases made up 18% of total revenues and 30% of total operating assets in the fiscal year ended March 31, 2003.

      We engage in direct financing lease operations in Japan and in most countries in which we have operations. Our direct financing lease operations cover most types of equipment, broadly categorized into information-related and office equipment, industrial equipment, commercial services equipment, transportation equipment, and other equipment.

      Information-related and office equipment includes computers and office automation equipment such as photocopy machines. Much of this equipment is leased by the ORIX OQL Headquarters through a program in Japan called “ORIX Quick Lease,” in which independent vendors act as agents to lease these small-ticket items. We have systematized the contract process and automated credit evaluation to improve the efficiency of our origination activities.

      Industrial equipment primarily consists of construction and heavy equipment, and pulp and paper milling equipment. The main companies providing these leases are ORIX in Japan and ORIX Financial Services, Inc. (“OFS”) in the United States.

      Commercial services equipment includes vending machines, gaming machines, showcases and point-of-sales systems. The main company providing these leases is ORIX in Japan.

      Transportation equipment within the direct financing lease portfolio consists primarily of automobile fleet leasing to corporate clients. ORIX Auto Leasing and IFCO Inc. (“IFCO”) are our main companies handling operations in Japan. We also have subsidiaries in the United States and in several countries in Asia and Oceania that lease automobiles.

      Other equipment that we lease includes telecommunications and medical equipment. Most of these leases are made in Japan.

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Operating Leases

      Operating leases differ from direct financing leases in that they are generally cancelable by the lessee. We usually do not substantially recoup the initial cost of the item through lease payments during the initial lease term. Therefore, we usually lease out the same item sequentially to more than one customer (or to the same customer under successive lease contracts) during its useful life. We record the entire payments made by customers as revenues and there is a corresponding expense called “Depreciation— Operating Leases.”

      In the Japanese marketplace, operating leases are often referred to as rentals. As the lessor of an operating lease, we bear the inventory risk. This means that we must always maintain strong links to secondary markets for the purchase and sale of used equipment. The principal participants in these informal, unregulated markets are brokers and dealers who specialize in the purchase and sale of used equipment.

      Operating leases made up 19% of consolidated revenues and 10% of total operating assets as of and for the year ended March 31, 2003.

      Our operating leases operations are broadly classified into three principal types of equipment: transportation equipment, precision measuring equipment and personal computers, and real estate and other.

      Transportation equipment that we lease out under operating leases consists mainly of aircraft, automobiles and oceangoing vessels. Our fleet of aircraft as of March 31, 2003 stood at 20 owned and 50 managed aircraft. These are leased principally to European, North American and Asian carriers. We own 18 Airbus 320s, one Airbus 340 and one Boeing 737. We have limited our investment to these types of aircraft due to their relative liquidity in the leasing market. Our aircraft lease operations are managed by ORIX Aviation Systems Corporation (“ORIX Aviation”), based in Ireland. Our two principal markets for automobile operating leases, including car rentals, are Japan and Australia, although we also maintain automobile operating lease operations in several Asian countries.

      Our specialist subsidiary, ORIX Rentec rents precision measuring equipment and personal computers in Japan and selected overseas markets. Our customers include major Japanese and overseas electronics companies.

      Our measuring and diagnostic equipment is used mainly in manufacturing facilities and research and development centers. This includes:

      ORIX Rentec maintains a website for the auction of used personal computers and measuring equipment.

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      Real estate and other consists primarily of the rental of office buildings, corporate dormitories and residential condominiums. We maintain a portfolio of 55 rental dormitories, 44 owned and 11 managed, which we rent to major corporations in Japan for use by their staff. We also own and operate for rental purposes office buildings, approximately 1,800 apartment units, and a number of other real estate properties, located mainly in or near Tokyo and Osaka.

Installment Loans and Investment Securities

      ORIX earns interest income on the installment loans it makes both in Japan and overseas to individuals and corporations. ORIX also earns interest income on its investment in primarily available-for-sale securities. Interest on loans and investment securities accounted for 19% of consolidated revenues for the year ended March 31, 2003. Installment loans made up approximately 44% and investment in securities made up approximately 13% of consolidated operating assets as of March 31, 2003.

      The consolidated balance sheets figures for the balance of installment loans and investment in securities include the operating assets of our life insurance operations, but the consolidated statements of income figures for interest on loans and investment securities exclude revenues from life insurance operating assets. Income stemming from investment related to the life insurance business, including interest income from installment loans and investment securities, and gains on the sale of investment securities, as well as real estate income related to the life insurance operations, is included in life insurance premiums and related investment income in the consolidated statements of income.

      We have three distinct categories of consumer lending in Japan: housing loans, card loans and other lending. We have been providing housing loans since 1980 and new housing loans have been made by ORIX Trust and Banking since 1999. A portion of these loans are to individuals who purchase real estate for investment purposes and a portion are loans to individuals who purchase real estate for self-occupancy purposes. These loans are mainly secured by first or second mortgages. The card loans are uncollateralized revolving loans with a maximum limit of ¥3 million. The other category refers principally to loans made in connection with our securities brokerage operations.

      Loans to corporate borrowers in Japan include loans to real estate-related companies, as well as general corporate lending. Corporate lending covers the spectrum of Japanese corporate lending, including loans to the amusement industry, loans to consumer finance companies, and loans to the Japanese retail sector. These loans are secured primarily by real estate collateral.

      Our overseas installment loans include corporate loans, in particular commercial mortgages, in the United States, as well as ship finance out of Hong Kong and Singapore.

      We maintain a sizable investment in various securities. The largest segment of this portfolio is the investment of a substantial portion of the reserves in our life insurance operations, which is approximately 50% of our total investment in securities as of March 31, 2003. These reserves are generally invested in yen-denominated corporate debt. Overseas, we also have substantial holdings in corporate debt in the United States, and to a lesser extent, emerging markets in Latin America, Eastern Europe and Southeast Asia. A substantial portion of the interest income on investment securities was made on commercial mortgage-backed securities and high yield bonds which are held in the United States.

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      All non-interest income and losses (other than foreign currency transaction gain or loss and write-downs of securities) that we recognize on securities held in connection with operations other than life insurance are reflected in our consolidated statements of income as brokerage commissions and net gains on investment securities. These include the brokerage commissions of ORIX Securities and the net gains on sales of securities other than those sold by ORIX Life Insurance. Traditionally, “net gains on investment securities” has made up the majority of revenues in this category.

Life Insurance Operations

      Life insurance premiums and related investment income come from ORIX Life Insurance, which is a full-line life insurance underwriter, with the total value of insurance contracts in force at March 31, 2003 amounting to ¥3,749 billion. Life insurance premiums and related investment income accounted for 20% of consolidated revenues for the year ended March 31, 2003. A corresponding expense called “life insurance costs” includes provisions for reserves and the amortization and other costs associated with the life insurance operations.

      Premiums from the sale of life insurance are recorded as life insurance premiums, while interest on loans and investment securities, net gains on the sale of securities, and real estate income related to the life insurance operations are included in life insurance related investment income. For details on the assets and revenues associated with the life insurance related investment income, see “Item 5. Operating and Financial Review and Prospects— Results of Operations— Life insurance premiums and related investment income.”

Residential Condominium Sales

      ORIX Real Estate develops and sells residential condominiums and single dwelling homes in Japan. In the fiscal year ended March 31, 2003 residential condominium sales made up 10% of consolidated revenues. The gross proceeds from the sale of these properties are recognized as revenue in the consolidated statements of income with a corresponding expense item called “costs of residential condominium sales” when the property is transferred to the buyer.

      The assets associated with residential condominium development are primarily advances, which are not included in operating assets.

Interest Income on Deposits

      Interest income on deposits not included in other categories of revenues includes principally interest on bank deposits.

Other Operations

      Other operating revenues are generated from a variety of businesses that include commissions for the sale of insurance and other financial products, revenues from loan servicing and building maintenance, gains on the sale of primarily real estate acquired for the purpose of resale, and revenues from golf courses, a training facility and hotels.

      The revenues from these operations are recorded on our consolidated statements of income as other operating revenues and made up approximately 12% of consolidated revenues in the fiscal year ended March 31, 2003. There is also a corresponding expense called “other operating expenses”.

      The assets associated with other operations are other operating assets such as hotels, golf courses, a training facility and real estate or other assets bought for the purpose of resale, and advances in connection with property developments.

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Profile of Business by Segment

      Our reportable segments are based on Financial Accounting Standards Board, or “FASB,” Statement No. 131. They are identified based on the nature of services for operations in Japan and on geographic area for overseas operations. For discussion of the basis for the breakdown of segments, refer to Note 29 in “Item 18. Financial Statements.”

      The following table shows a breakdown of revenues by segment for the years ended March 31, 2001, 2002 and 2003.

Business Segments in Japan

      Operations in Japan are conducted by ORIX and a number of subsidiaries and affiliates. In general, our sales staff in Japan sells the full range of our products, including the cross-selling of products of subsidiaries such as ORIX Auto Leasing, ORIX Rentec and ORIX Life Insurance. However, other subsidiaries, such as our real estate subsidiary, serve more specialized functions. Products and services of these subsidiaries are handled by their dedicated sales staff, whose specialized training and experience are required in the markets they serve.

      Our main customer base is comprised of small and medium-sized companies. However, we have expanded our client base to include large corporations in some business segments, such as the rental of precision measuring equipment and real estate-related finance. We have also targeted individual customers as a growth area in various business segments, such as consumer card loans, housing loans, car rentals and life insurance.

Corporate Finance

      ORIX’s corporate finance operations are primarily direct financing leases and installment loans, other than real estate loans, to corporate customers as well as the sale of a variety of financial products and other fee business. The activities in this segment are conducted primarily through the four sales headquarters of ORIX Corporation— the Tokyo Sales Headquarters, the Kinki (Osaka) Sales Headquarters, the District Sales Headquarters and the OQL Sales Headquarters. ORIX Auto Leasing and IFCO are major subsidiaries in this segment specializing in automobile leasing.

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      The sales people in the four sales headquarters form the core of our sales and distribution network in Japan. Leasing and lending activities are often the first contact we have with our customers. These activities provide us with the opportunity to get to know our clients, make an assessment of their particular needs, and offer a variety of solutions responding to the varying needs of our customers, including leases, loans, life and non-life insurance, investment products and building maintenance. As this cross-selling strategy has evolved in recent years, we have attempted to develop capabilities to provide financial solutions that investment banks provide to help companies liquidate assets, merge with other companies or restructure their operations.

      As of March 31, 2003, we had a total of approximately 423,000 vehicles under lease in Japan. Based on the year ended March 31, 2002 data of the Japan Automotive Leasing Association, we had a market share of approximately 15% of the automobile leasing industry in Japan, which we believe made us the largest automobile lessor in Japan.

      In order to diversify our access to secondary markets and increase the returns on the eventual sales of vehicles from our fleet when leases expire, we have established four specialist automobile auction sites in Japan. We sold approximately 40,000 used vehicles in fiscal 2003 through these sites.

Equipment Operating Leases

      The equipment operating lease business principally comprises the rental of precision measuring equipment and personal computers to corporate customers as well as automobile rental operations. The operations are conducted primarily by ORIX Rentec and ORIX Rent-A-Car Corporation (“ORIX Rent-A-Car”).

      We have developed a strong position in the precision measuring equipment and personal computer rental sector in Japan through our subsidiary ORIX Rentec, which has an inventory of more than 380,000 pieces of precision measuring and diagnostic equipment. Our customers include major Japanese and overseas electronics companies. We have also established subsidiaries in Singapore, Malaysia, South Korea and the United Kingdom to provide such services to clients overseas. For a description of the types of equipment leased, see “Item 4.— Operating Leases.”

      ORIX Rent-A-Car, together with our other car rental subsidiaries, owned a total of 28,900 vehicles in Japan, serviced by a network of 357 branches as of March 31, 2003, which makes us the second largest car rental company in Japan according to data of the All Japan Rent-A-Car Association.

Real Estate-Related Finance

      ORIX’s real estate-related finance business encompasses real estate loans to corporate customers and housing loans to individuals. Loans to most corporate customers not in the real estate business are included in the corporate finance segment, even when these loans are secured by real estate. ORIX is also expanding its business involving loan servicing, non-recourse loans, commercial mortgage-backed securities, and real estate investment trusts. The activities in this segment are conducted primarily by the Real Estate Finance Headquarters of ORIX, ORIX Trust and Banking, ORIX Asset Management and Loan Services Corporation and ORIX Asset Management Corporation.

      In April 1998, we acquired ORIX Trust and Banking (then Yamaichi Trust & Bank, Ltd.). This acquisition provided us with a general banking license, which allows us to accept deposits, and a trust business license. The bank’s major operations include the provision of housing loans, including loans to individuals looking to purchase real estate for investment purposes. As of March 31, 2003, ORIX Trust and Banking had deposits of ¥262 billion and housing loan assets of ¥325 billion.

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      The market for real estate finance in Japan has undergone substantial changes since the latter half of the 1990s as a result of deregulation and structural changes in the economy. Our activities in this area have followed these changes and in recent years the Real Estate Finance Headquarters has focused on non-recourse lending and commercial mortgage-backed securities, while specialist subsidiaries such as ORIX Asset Management and Loan Services Corporation and ORIX Asset Management Corporation are active in loan servicing and asset management of real estate investment trusts, respectively.

Real Estate

      ORIX’s real estate business consists of both the development and sale of real estate, as well as the management, operation and maintenance of real estate properties. ORIX Real Estate is the subsidiary primarily responsible for activities in this segment.

      We own, operate and provide management services, including tenant and rental income management, for a number of commercial and other properties in Japan, including a corporate training facility, golf courses and hotels. Our real estate development activities cover both residential and commercial property markets in Japan. We sold approximately 1,900 residential apartment units in the year ended March 31, 2002 and approximately 2,300 units in the year ended March 31, 2003. We have also been involved in the development of commercial facilities and office buildings. The expertise that we have accumulated in the Japanese real estate market for nearly two decades coupled with our financing capabilities allow us to provide one-stop development packages.

      Following our acquisition of Nihon Jisho Corporation (“Nihon Jisho”) in April 2001, we also own office building and residential property owned and operated by Nihon Jisho and land for subdivision development, and have subsidiaries involved in building maintenance and real estate appraisal business. In August 2001, we acquired a majority interest of Kansai Maintenance Corporation (“Kansai Maintenance”), a building maintenance company through a tender offer and in March 2002, we acquired the remaining shares of the company through a share exchange. The building maintenance subsidiary of Nihon Jisho and Kansai Maintenance were combined under a new company called ORIX Facilities Corporation (“ORIX Facilities”) in May 2002.

Life Insurance

      The life insurance segment consists of direct and agency life insurance sales and related activities conducted by ORIX Life Insurance. ORIX Life Insurance traditionally sold its insurance products through agents, including ORIX as well as independent agents, to primarily corporate customers.

      In September 1997, ORIX Life Insurance initiated ORIX Direct, which was Japan’s first life insurance offered through direct channels. Since this insurance is sold via newspaper advertisements, the Internet, and other direct channels, administration expenses such as agent fees and marketing office expenses are lower than for agency-based businesses. In an attempt to further strengthen marketing activities and improve administrative efficiency, ORIX Financial Alliance Corporation (“OFA”) was established in October 2002 as an agency for both life and casualty insurance products, including those from ORIX Life Insurance. OFA also offers financial advisory and financial planning services that cover both corporate and retail customers.

Other

      The other segment encompasses consumer card loan operations, venture capital operations, securities transactions and new businesses. The activities in this segment are conducted primarily by ORIX Credit, ORIX Club Corporation (“ORIX Club”), ORIX Capital Corporation (“ORIX Capital”) and ORIX Securities.

      The largest single business in this segment in terms of revenues and operating assets is the consumer card loan operations of ORIX Credit and ORIX Club. The main product of ORIX Credit is its uncollateralized revolving card loans, in particular the VIP Loan Card, which offers customers reasonable

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      In 1983, we established ORIX Capital to provide venture capital and related consulting services to companies that are potential candidates for initial public offerings in Japan. As of March 31, 2003, assets under ORIX Capital’s management were ¥24,071 million, consisting mainly of equity securities.

      ORIX Securities is engaged primarily in equity and other securities brokerage activities. Taking advantage of the deregulation of brokerage commissions in October 1999, ORIX Securities offers discount brokerage services to individual investors. As part of this move to further develop our activities, ORIX Securities in May 1999 began to offer “ORIX ONLINE,” an equity trading service available via telephone and the Internet. ORIX Securities has seats on the Tokyo Stock Exchange and the Osaka Securities Exchange.

      A major affiliate in this segment is The Fuji Fire and Marine Insurance Company, Ltd (“Fuji Fire and Marine”). For details of our investment in this company, see Note 11 in “Item 18. Financial Statements.”

Overseas Business Segments

      Since the establishment of our first overseas subsidiary in Hong Kong in 1971, we have competed in selected international markets through subsidiaries and investments in joint ventures as affiliates. As of March 31, 2003, we operated in 22 countries outside Japan through 110 subsidiaries and affiliates. Our overseas operations employ approximately 3,100 employees, and include a network of 175 offices.

The Americas

      ORIX’s principal businesses in the Americas segment are direct financing leases, corporate lending, commercial mortgage-backed securities-related business, real estate development and securities investment.

      After opening a representative office in 1974, we commenced formal operations in the United States in 1981 when we established a wholly-owned subsidiary, ORIX USA Corporation (“OUC”). OUC acts as the holding company for other operations in the United States and has operations in global finance, trade finance and venture finance.

      ORIX Real Estate Equities, Inc. (“OREE”) is a real estate development and management company we acquired in 1987 and its operations focus on three main activities:

      These activities cover properties in our own portfolio as well as third party properties.

      OFS, formerly ORIX Credit Alliance, Inc., specializes in equipment finance and corporate lending. Operations of OFS are conducted by four major business groups.

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      ORIX Capital Markets, LLC (“OCM”) (formerly known as ORIX Real Estate Capital Markets, LLC) was established in 1997 as a joint venture between ORIX and Bank One Corporation, a major U.S. super-regional bank. In 1999, OCM became a 100% subsidiary of ORIX. OCM’s major activities include:

      In addition to the 100%-owned subsidiaries in the United States, we own 29% of Stockton Holdings Limited (“SHL”), a company headquartered in Bermuda. SHL is active in reinsurance and investment.

Asia and Oceania

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

      In 1971 we established our first overseas office in Hong Kong, and had 63 subsidiaries and affiliates in this segment, which includes the Middle East and North Africa, as of March 31, 2003. These companies do business in 18 countries. During about 30 years that we have maintained a presence in Asia, ORIX Asia, based in Hong Kong, has been the base for our expansion and operations in the region. Singapore has been another center for our activity in the region, and we have substantial operations in Australia, Malaysia and Indonesia as well.

      Some of the specialist leasing operations that we have developed in Japan are also being developed in markets in this segment. For example, we have specialized auto leasing operations in countries such as Australia, Indonesia, Singapore, Taiwan, Malaysia and Thailand. In December 2002, we also made an investment in Korea Life Insurance Co., Ltd. (“Korea Life”), which is accounted for by the equity method. For details of this investment, see Note 11 in “Item 18. Financial Statements.”

      We have also expanded our activities into and throughout the Middle East and North Africa through our affiliate ORIX Leasing Pakistan Limited.

Europe

      ORIX’s principal businesses in Europe center on aircraft operating leases, corporate loans, and securities investments.

      We initiated our activities in Europe in 1974, when we established a liaison office in London. We conduct our current European operations principally through ORIX Europe Limited, ORIX Ireland Limited, established in 1988 as a finance vehicle for our European operations, ORIX Aviation in Ireland which has marketing, technical, legal and administrative teams to develop our international aircraft operating lease business, and ORIX Polska S.A., an equipment leasing company in Poland.

      The following is a directory of divisions of ORIX Corporation, and our major subsidiaries and affiliates, broken down by segments. The table includes the name of each division or company, their principal business, the year in which the company was established or acquired and the percent of equity owned by ORIX.

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Directory (By Segments)

      Unless otherwise indicated, the following companies are incorporated in Japan.