Honda 2008 Annual Report Download - page 35
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To support the sale of its products, Honda provides financial services to its customers (including
retail lending and leasing) and wholesale financing to its dealers through financial services subsid-
iaries in Japan, the United States, Canada, the United Kingdom, Germany, Brazil and Thailand.
As a result of increased sales of automobiles, mainly in North America, credit assets and
property on operating leases of financial subsidiaries rose 3.4% from the previous fiscal year, to
¥4,967.5 billion.
In fiscal 2008, revenue rose 30.2%, to ¥533.5 billion from the previous fiscal year due mainly
to an increase in operating lease* revenue.
Operating income rose 2.0%, to ¥117.7 billion, from the previous fiscal year, due mainly to
the increased profit attributable to higher revenue benefiting from a higher loan balance in North
America, which offset the negative impact of the increased SG&A expenses caused by an in-
crease of provisions for credit losses.
* Honda’s finance subsidiaries in North America have historically accounted for all leases as direct financing leases.
However, starting in the year ended March 31, 2007, some of the leases which do not qualify for direct financing
leases accounting treatment are accounted for as operating leases. Generally, direct financing lease revenues and
interest income consist of the recognition of finance lease revenue at inception of the lease arrangement and subse-
quent recognition of the interest income component of total lease payments using the effective interest method. In
comparison, operating lease revenues include the recognition of the gross lease payment amounts on a straight-line
basis over the term of the lease arrangement, and operating lease vehicles are depreciated to their estimated residual
value on a straight-line basis over the term of the lease. It is not anticipated that the differences in accounting for oper-
ating leases and direct financing leases will have a material net impact on the Company’s results of operations overall;
however, operating lease revenues and associated depreciation of leased assets do result in differing presentation
and timing compared to those of direct financing leases.
Business Plan for Fiscal 2009
In fiscal 2009, although the slowdown in the U.S. economy will continue, customer needs for
financial services, principally in North America, are expected to increase, leading to a higher
balance of credit assets in Honda’s financial services business. Going forward, as in the past,
Honda will apply strict credit criteria when considering the approval of financing contracts and
strengthen its methods for recovering its credit exposure to maintain a high-quality portfolio of
credit assets and will work to substantially further improve its financial services.
Motorcycle Business
Power Product and Other Businesses
Automobile Business
Review of Operations
Financial Services Business
Annual Report 2008 33