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To support the sale of its products, Honda provides retail lending
and leasing services (including loans, operating leases and direct
finance leases) to customers and financing to dealers (wholesale
finance) through its finance subsidiaries in Japan, the United
States, Canada, the United Kingdom, Germany, Brazil, Thailand
and elsewhere.
The total amount of finance subsidiaries—receivables
and property on operating leases of finance subsidiaries amount-
ed to ¥4,769.6 billion at the end of the fiscal year under review,
which was 1.9% lower than at the end of the previous fiscal
year. Honda estimates that, had the exchange rate remained
unchanged from the previous year, total amount of finance
subsidiaries—receivables and property on operating leases of
finance subsidiaries would have increased about 0.1%.
Revenue from external customers in the financial
services business increased ¥24.0 billion, or 4.1%, to ¥606.3
billion. Honda estimates that, had the exchange rate remained
unchanged from the previous year, revenue would have in-
creased about ¥71.9 billion, or 12.4% from the prior year.
Operating income for the fiscal year under review in-
creased ¥114.2 billion, or 141.6%, to ¥194.9 billion, because
of declines in provisions for credit losses and losses on lease
residual values and a decrease in funding costs.
Acura MDX (North America) Acura ZDX (North America) Acura TL (North America)
Honda’s finance subsidiaries in North America have
historically accounted for all leases as direct financing leases.
However, starting in the fiscal year ended March 31, 2007,
some of the leases that do not qualify for direct financing lease
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 the incep-
tion of the lease arrangement and subsequent 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 ar-
rangement, 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 operating leases and direct financing leases will
have a material net impact on Honda’s results of operations
overall; however, operating lease revenues and the associated
depreciation of leased assets do result in differing presentation
and timing compared to those of direct financing leases.
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