Honda 2011 Annual Report Download - page 46

attributable to increased net sales. Selling, general and administrative
expenses increased by ¥2.4 billion, or 4.6%, to ¥55.2 billion. R&D
expenses increased by ¥0.7 billion, or 2.5%, to ¥29.9 billion.
The operating loss including that of other business was ¥5.5
billion, an improvement of ¥11.1 billion from the previous fiscal year,
due mainly to an increase in income attributable to increased net
sales of power products, which was partially offset by increased
selling, general and administrative expenses and negative foreign
currency effects.
Financial Services Business
To support the sale of its products, Honda provides retail lending
and leasing to customers and wholesale financing to dealers through
our finance subsidiaries in Japan, the United States, Canada, the
United Kingdom, Germany, Brazil, Thailand and other countries.
The total amount of finance subsidiaries–receivables and property
on operating leases of finance subsidiaries increased by ¥67.9 billion,
or 1.4%, to ¥4,837.6 billion from the previous fiscal year, due mainly
to an increase of finance subsidiaries–receivables attributable to the
adoption of new accounting standards, which was partially offset by
negative foreign currency translation effects. Honda estimates that by
applying Japanese yen exchange rates of the previous fiscal year to
the current fiscal year, the total amount of finance subsidiaries–
receivables and property on operating leases of finance subsidiaries
as of the end of the year would have increased by approximately
¥595.9 billion, or 12.5%, compared to the increase as reported of
¥67.9 billion, which includes negative foreign currency translation
effects.
Revenue from external customers in a financial services business
decreased ¥44.4 billion, or 7.3%, to ¥561.8 billion from the previous
fiscal year. Honda estimates that by applying Japanese yen exchange
rates of the previous fiscal year to the current fiscal year, revenue for
the year would have decreased by approximately ¥1.2 billion, or
0.2%, compared to the decrease as reported of ¥44.4 billion, which
includes negative foreign currency translation effects. Revenue
including intersegment sales decreased ¥45.3 billion, or 7.3%, to
¥573.4 billion from the previous fiscal year.
Operating costs and expenses decreased ¥36.7 billion, or 8.7%,
to ¥387.1 billion from the previous fiscal year. Cost of sales decreased
¥11.6 billion, or 3.6%, to ¥309.8 billion from the previous fiscal year,
due mainly to a decrease in costs related to lease residual values.
Selling, general and administrative expenses decreased ¥25.0
billion, or 24.5%, to ¥77.3 billion from the previous fiscal year, due
mainly to a decrease in provisions for credit losses.
Operating income decreased ¥8.6 billion, or 4.4%, to ¥186.2
billion from the previous fiscal year, due mainly to negative foreign
currency effects, which was partially offset by a decrease in
provisions for credit losses and losses on lease residual values.
Our 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 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 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
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
operating leases and direct financing leases will have a material net
impact on Honda’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.
Honda consolidated former qualifying special-purpose entities
(QSPEs) that were not consolidated as of March 31, 2010. As a
result, previously derecognized finance subsidiaries–receivables
held by former QSPEs increased in the Company’s consolidated
balance sheet as of April 1, 2010. In addition, Honda does not
recognize certain gains or losses related to securitization transactions,
such as gains or losses attributable to the change in the fair value of
retained interests since the year ended March 31, 2011.
Geographical Information
Japan
In Japan, revenue from domestic and export sales increased ¥305.4
billion, or 9.2%, to ¥3,611.2 billion from the previous fiscal year, due
mainly to an increase in revenue in automobile business and revenue
related to licensing agreements. Operating income was ¥66.1 billion,
an increase of ¥95.2 billion of operating income from the previous
fiscal year, due mainly to an increase in income attributable to
increased net sales and model mix, continuing cost reductions and
income related to licensing agreements, which was partially offset
by increased selling, general and administrative expenses and R&D
expenses, negative foreign currency effects and the impact of the
Earthquake.
North America
In North America, which mainly consists of the United States,
revenue increased ¥239.6 billion, or 6.1%, to ¥4,147.8 billion from
the previous fiscal year, due mainly to an increase in revenue in
automobile business, which was partially offset by negative foreign
currency translation effects. Operating income increased ¥64.5
billion, or 27.3%, to ¥300.9 billion from the previous fiscal year, due
mainly to an increase in income attributable to increased net sales
and model mix, and a decrease in fixed costs per unit as a result of
increased production, which was partially offset by increased selling,
general and administrative expenses and negative foreign currency
effects.
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