32. Estimated Fair Value of Financial Instruments

The following information is provided to help readers gain an understanding of the relationship between amounts reported in the accompanying consolidated financial statements and the related market or fair value.

The disclosures include financial instruments and derivative financial instruments, other than investment in direct financing leases, investment in subsidiaries and affiliates, pension obligations and insurance contracts.

March 31, 2013


	Millions of yen
	Carrying amount		Estimated fair value		Level 1		Level 2		Level 3
Trading instruments
Trading securities	¥	33,041	¥	33,041	¥	2,184	¥	30,857	¥	0
Futures, Foreign exchange contracts:
Assets		147		147		147		0		0
Liabilities		0		0		0		0		0
Credit derivatives held/written:
Assets		370		370		0		370		0
Liabilities		100		100		0		100		0
Options held/written and other:
Assets		5,654		5,654		0		3,555		2,099
Liabilities		3,530		3,530		0		3,530		0
Non-trading instruments
Assets:
Cash and cash equivalents	¥	826,296	¥	826,296	¥	826,296	¥	0	¥	0
Restricted cash		106,919		106,919		106,919		0		0
Time deposits		8,356		8,356		0		8,356		0
Installment loans (net of allowance for probable loan losses)		2,602,737		2,625,132		0		82,125		2,543,007
Investment in securities:
Practicable to estimate fair value		852,550		861,570		166,398		552,394		142,778
Not practicable to estimate fair value*		208,077		208,077		0		0		0
Liabilities:
Short-term debt	¥	420,726	¥	420,726	¥	0	¥	420,726	¥	0
Deposits		1,078,587		1,081,273		0		1,081,273		0
Long-term debt		4,061,534		4,081,912		0		1,486,219		2,595,693
Futures, Foreign exchange contracts:
Assets		883		883		0		883		0
Liabilities		4,685		4,685		0		4,685		0
Foreign currency swap agreements:
Assets		2,890		2,890		0		2,890		0
Liabilities		8,263		8,263		0		8,263		0
Interest rate swap agreements:
Assets		4,654		4,654		0		4,654		0
Liabilities		1,459		1,459		0		1,459		0

*	The fair value of investment securities of ¥208,077 million was not estimated, as it was not practical.

March 31, 2014


	Millions of yen
	Carrying amount		Estimated fair value		Level 1		Level 2		Level 3
Trading instruments
Trading securities	¥	16,079	¥	16,079	¥	275	¥	15,804	¥	0
Futures, Foreign exchange contracts:
Assets		8		8		8		0		0
Liabilities		184		184		28		156		0
Credit derivatives held/written:
Assets		29		29		0		29		0
Liabilities		265		265		0		265		0
Options written and other:
Assets		5,486		5,486		0		3,000		2,486
Liabilities		3,605		3,605		0		3,605		0
Non-trading instruments
Assets:
Cash and cash equivalents	¥	827,299	¥	827,299	¥	827,299	¥	0	¥	0
Restricted cash		86,690		86,690		86,690		0		0
Time deposits		7,510		7,510		0		7,510		0
Installment loans (net of allowance for probable loan losses)		2,246,143		2,274,922		0		120,583		2,154,339
Investment in securities:
Practicable to estimate fair value		984,654		991,959		230,618		671,023		90,318
Not practicable to estimate fair value*		213,843		213,843		0		0		0
Liabilities:
Short-term debt	¥	309,591	¥	309,591	¥	0	¥	309,591	¥	0
Deposits		1,206,413		1,206,642		0		1,206,642		0
Long-term debt		3,858,874		3,865,456		0		1,235,377		2,630,079
Futures, Foreign exchange contracts:
Assets		852		852		0		852		0
Liabilities		4,782		4,782		0		4,782		0
Foreign currency swap agreements:
Assets		3,534		3,534		0		3,534		0
Liabilities		7,176		7,176		0		7,176		0
Interest rate swap agreements:
Assets		2,528		2,528		0		2,528		0
Liabilities		634		634		0		634		0

*	The fair value of investment securities of ¥213,843 million was not estimated, as it was not practical.

Input level of fair value measurement

If active market prices are available, fair value measurement is based on quoted active market prices and classified as Level 1. If active market prices are not available, fair value measurement is based on observable inputs other than quoted prices included within Level 1 such as quoted market prices of similar assets and classified as Level 2. If market prices are not available and there are no observable inputs, then fair value is estimated by using valuation models including discounted cash flow methodologies, commonly used option-pricing models and broker quotes and classified as Level 3, as the valuation models and broker quotes are based on inputs that are unobservable in the market.

Estimation of fair value

The following methods and significant assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate a value:

Cash and cash equivalents, restricted cash, time deposits and short-term debt—The carrying amounts recognized in the balance sheets were determined to be reasonable estimates of their fair values due to their short maturity.

Installment loans—The carrying amounts of floating-rate installment loans with no significant changes in credit risk and which could be repriced within a short-term period were determined to be reasonable estimates of their fair values. The carrying amounts of purchased loans were determined to be reasonable estimates of their fair values because the carrying amounts (net of allowance) are considered to properly reflect the recoverability and value of these loans. For certain homogeneous categories of medium- and long-term fixed-rate loans, such as housing loans, the estimated fair values were calculated by discounting the future cash flows using the current interest rates charged by the Company and its subsidiaries for new loans made to borrowers with similar credit ratings and remaining maturities. Concerning above, if available, estimated fair values were based on quoted market prices or quotations provided by dealers.

Investment in securities—For trading securities and available-for-sale securities other than specified bonds issued by SPEs and certain other mortgage-backed and asset-backed securities, the estimated fair values, which are also the carrying amounts recorded in the balance sheets, were generally based on quoted market prices or quotations provided by dealers. As for the specified bonds issued by the SPEs and certain other mortgage-backed and asset-backed securities included in available-for-sale securities, the Company and its subsidiaries estimated the fair value by using valuation models including discounted cash flow methodologies and broker quotes (see Note 2). For held-to-maturity securities, the estimated fair values were based on quoted market prices. For certain investment funds included in other securities, the fair values are estimated based on net asset value per share or discounted cash flow methodologies. With regard to other securities other than the investment funds described above, the Company and its subsidiaries have not estimated the fair value, as it is not practicable to do so. Those other securities mainly consist of non-marketable equity securities and preferred capital shares. Because there were no quoted market prices for such other securities and each security has a different nature and characteristics, reasonable estimates of fair values could not be made without incurring excessive costs.

Deposits—The carrying amounts of demand deposits recognized in the consolidated balance sheets were determined to be reasonable estimates of their fair values. The estimated fair values of time deposits were calculated by discounting the future cash flows. The current interest rates offered for the deposits with similar terms and remaining average maturities were used as the discount rates.

Long-term debt—The carrying amounts of long-term debt with floating rates which could be repriced within short-term periods were determined to be reasonable estimates of their fair values. For medium-and long-term fixed-rate debt, the estimated fair values were calculated by discounting the future cash flows. The borrowing interest rates that were currently available to the Company and its subsidiaries offered by financial institutions for debt with similar terms and remaining average maturities were used as the discount rates. Concerning above, if available, estimated fair values were based on quoted market prices or quotations provided by dealers.

Derivatives—For exchange-traded derivatives, fair value is based on quoted market prices. Fair value estimates for other derivatives generally reflect the estimated amounts that the Company and its subsidiaries would receive or pay to terminate the contracts at the reporting date, thereby taking into account the current unrealized gains or losses of open contracts. Discounted amounts of future cash flows using the current interest rate are used when estimating the fair values for most of the Company’s and its subsidiaries’ derivatives.