HSBC 2006 Annual Report Download - page 400

HSBC HOLDINGS PLC
Notes on the Financial Statements (continued)
Notes 42, 43 and 44
398
42 Lease commitments
Finance lease commitments
HSBC leases land and buildings (including branches) and equipment from third parties under finance lease
arrangements to support its operations.
2006 2005
US$m US$m
Total future minimum payments:
– no later than one year ................................................................................................................ 60 50
– later than one year and no later than five years ........................................................................ 145 152
– later than five years ................................................................................................................... 707 630
912 832
Less: future interest charges .............................................................................................................. (205) (193)
Present value of finance lease commitments ..................................................................................... 707 639
At 31 December 2006, future minimum sublease payments of US$163 million (2005: US$26 million) are expected to
be received under non-cancellable subleases at the balance sheet date.
Operating lease commitments
At 31 December 2006, HSBC was obligated under a number of non-cancellable operating leases for properties, plant
and equipment on which the future minimum lease payments extend over a number of years.
2006 2005
Land and
buildings Equipment
Land and
buildings Equipment
US$m US$m US$m US$m
Future minimum lease payments under non-cancellable
operating leases:
– no later than one year ........................................... 789 10 712 32
– later than one year and no later than five years ... 2,290 21 1,730 24
– later than five years .............................................. 1,198 – 1,452 –
4,277 31 3,894 56
In 2006, US$781 million (2005: US$704 million; 2004: US$588 million) was charged to ‘General and administrative
expenses’ in respect of lease and sublease agreements, of which US$762 million (2005: US$683 million; 2004:
US$567 million) related to minimum lease payments, US$19 million (2005: US$21 million; 2004: US$21 million) to
contingent rents, and nil (2005: nil; 2004: nil) to sublease payments.
The contingent rent represents escalation payments made to landlords for operating, tax and other escalation
expenses.
Finance lease receivables
HSBC leases a variety of assets to third parties under finance leases, including transport assets (such as aircraft),
property and general plant and machinery. At the end of lease terms, assets may be sold to third parties or leased for
further terms. Lessees may participate in any sales proceeds achieved. Lease rentals arising during the lease terms
will either be fixed in quantum or be varied to reflect changes in, for example, tax or interest rates. Rentals are
calculated to recover the cost of assets less their residual value, and earn finance income.