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| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
2019
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| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| California | 95-3472715 | |
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | |
20800 Madrona Avenue, Torrance, California | 90503 | |
(Address of principal executive offices) | (Zip Code) | |
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
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1.300% Medium-Term Notes, Series A Due March 21, 2022 2.625% Medium-Term Notes, Series A Due October 14, 2022 |
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1.375% Medium-Term Notes, Series A Due November 10, 2022 |
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0.550% Medium-Term Notes, Series A Due March 17, 2023 0.750% Medium-Term Notes, Series A Due January 17, 2024 0.350% Medium-Term Notes, Series A Due August 26, 2022 | N/A N/A N/A N/A N/A N/A | New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange |
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment of this Form 10-K. ☒
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
Non-accelerated filer | ☒ | Smaller reporting company | ☐ | |
Emerging growth company | ☐ | |||
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declines in the financial condition or performance of Honda Motor Co., Ltd. or the sales of Honda or Acura products;
changes in economic and general business conditions;
fluctuations in interest rates and currency exchange rates;
the failure of our customers, dealers, or counterparties in the financial industry to meet the terms of any contracts with us, or otherwise fail to perform as agreed;
our inability to recover the estimated residual value of leased vehicles at the end of their lease terms;
changes or disruption in our funding sources or access to the capital markets;
changes in our, or Honda Motor Co., Ltd.’s, credit ratings;
increases in competition from other financial institutions seeking to increase their share of financing of Honda and Acura products;
changes in laws and regulations, including the result of financial services legislation, and related costs;
changes in accounting standards;
a failure or interruption in our operations; and
a security breach or cyber attack.
National Processing Center. The National Processing Center is responsible for processing customer payments that cannot be processed through our automated servicing system, providing service to our Regional Offices and other services. Lease Maturity Center. Leaseaccounts are transferred from our regional offices to the Lease Maturity Center six months prior to the end of the lease term. The Lease Maturity Center assumes responsibility for servicing the lease from this time, including providing the leaseholder with end of term options, responding to customer service issues and coordinating end of term vehicle inspections. Once a vehicle is returned to us, the Lease Maturity Center transfers the account to the Remarketing Center to arrange for the disposition of the vehicle. Remarketing Center.The Remarketing Center oversees the disposition of vehicles returned at the end of leases and after repossession. In order to minimize losses at lease maturity, we have developed remarketing strategies to maximize proceeds and minimize disposition costs on vehicles sold at lease termination. We use various channels to sell vehicles returned at lease end, including a dealer direct, on-line program referred to as the Vehicle Inter-Dealer Purchase System (VIPS) and physical auctions. The goal of our VIPS program is to increase dealer purchases of off-lease vehicles thereby reducing our disposition costs of such vehicles. Through VIPS, the dealer accepting return of the leased vehicle (also referred to as the grounding dealer) initially has the exclusive right to purchase the vehicle at the contractual residual value or a Recovery and Bankruptcy Center. TheRecovery and Bankruptcy Center is responsible for collecting the deficiency balances of charged-off accounts Recovery Policies and Procedures We seek to retain a purchase money security interest in all products that are financed pursuant to wholesale flooring loan agreements we enter into with dealers. In addition, we generally secure wholesale flooring loans with liens on the dealership’s other assets and obtain a personal guarantee from dealership owners, as well as corporate guarantees from, or on behalf of, dealership owner(s)’ other dealerships. Although the loans are typically collateralized or guaranteed, the value of the underlying collateral or guarantees may not be sufficient to cover our exposure under such agreements. We require dealerships to maintain insurance on all inventory, including peril coverage for flood, hail, wind, false pretense, liability, earthquake, vandalism, and other risks. Relationships with HMC and Other Affiliates own andhold, at all times, directly or indirectly, at least 80% of AHFC’s issued and outstanding shares of voting stock and not pledge, directly or indirectly, encumber, or otherwise dispose of any such shares or permit any of HMC’s subsidiaries to do so, except to HMC or wholly-owned subsidiaries of HMC; cause AHFC to, on the last day of each of AHFC’s fiscal years, have a positive consolidated tangible net worth (with “tangible net worth” for purposes of this discussion of the HMC-AHFC Agreement understood to mean (a) shareholders’ equity less (b) any intangible assets, as determined in accordance with U.S. generally accepted accounting principles (GAAP)); and ensure that, at all times, AHFC has sufficient liquidity and funds to meet its payment obligations under any Debt (with “Debt” for purposes of this discussion of the HMC-AHFC Agreement defined as AHFC’s debt for borrowed money that HMC has confirmed in writing is covered by the HMC-AHFC Agreement) in accordance with the terms of such Debt, or where necessary, HMC will make available to AHFC, or HMC will procure for AHFC, sufficient funds to enable AHFC to pay its Debt in accordance with its terms. The HMC-AHFC Agreement is governed by and construed in accordance with the laws of the State of New York. own and hold, at all times, directly or indirectly, at least 80% of HCFI’s issued and outstanding shares of voting stock and not pledge, directly or indirectly, encumber, or otherwise dispose of any such shares or permit any of HMC’s subsidiaries to do so, except to HMC or wholly-owned subsidiaries of HMC; cause HCFI to, on the lastday of each of HCFI’s fiscal years, have a positive consolidated tangible net worth (with “tangible net worth” for purposes of this discussion of the HMC-HCFI Agreement understood to mean (a) shareholders’ equity less (b) any intangible assets, as determined in accordance with generally accepted accounting principles in Canada); and ensure that, at all times, HCFI has sufficient liquidity and funds to meet its payment obligations under any Debt (with “Debt” for purposes of this discussion of the HMC-HCFI Agreement defined as HCFI’s debt for borrowed money that HMC has confirmed in writing is covered by the HMC-HCFI Agreement) in accordance with the terms of such Debt, or where necessary, HMC will make available to HCFI, or HMC will procure for HCFI, sufficient funds to enable HCFI to pay its Debt in accordance with its terms. Refer to Note 7—Income Taxes of Notes to Consolidated Financial Statementsfor additional information about income taxes. Management believes that AHFC is in compliance in all material respects, with the applicable federal and state laws, including consumer protection statutes and related regulations. The Truth in Lending Act and the Consumer Leasing Act place disclosure and substantive transaction restrictions on consumer credit and leasing transactions. The Equal Credit Opportunity Act is designed to prevent discrimination based on The Fair Credit Reporting Act imposes restrictions and requirements regarding our use and sharing of credit reports, the reporting of data to credit reporting agencies, credit decision notices, the accuracy and integrity of information reported to the credit reporting agencies, consumer dispute handling procedures, and identity theft prevention requirements. The Gramm-Leach-Bliley Act requires certain communications periodically with consumers on privacy matters, restricts the disclosure of nonpublic personal information about consumers by financial institutions and prohibits the sharing of account number information for certain marketing purposes. The Right to Financial Privacy Act restricts the disclosure of customers’ financial records to federal government agencies. The Telephone Consumer Protection Act governs communication methods that may be used to contact consumers and among other things, prohibits the use of automated dialers to call cellular telephones without consent of the consumer. Risks Relating To Our Business any prolonged reduction or suspension of production or sales as discussed above; discovery of defects in vehicles which could lead to recall campaigns and suspended sales; volatility in the price of automobiles, motorcycles, power equipment and marine products; currency and interest rate fluctuation affecting pricing of products sold and materials purchased and any derivative financial instruments used to hedge against these risks; extensive environmental and government regulation of the automotive, motorcycle, and power product industries; the inability to protect and preserve its valuable intellectual property; legal proceedings, which could adversely affect business, financial condition, cash flows, or results of operations; reliance on external suppliers for the provision of raw materials and parts used in the manufacturing of its products; increased costs from conducting business worldwide; inadvertent disclosures of confidential information despite internal controls and procedures; and pension costs and benefit obligations. changes in the United States or Canadian economies; changes in the overall market for consumer financing or dealer financing; changes in the United States and Canadian regulatory environment; a decline or slowdown in the new or used vehicle market; increased fuel prices; inflation; and the fiscal and monetary policies in the countries in which we issue debt. Elevated levels of market disruption and volatility could adversely affect our ability to access the global capital markets in a similar manner and at a similar cost as we have had in the past. These market conditions could also have an adverse effect on our results of operations, cash flows, and financial condition by diminishing the value of financial assets. If, as a result, we increase the rates we charge to our customers and dealers, our competitive position could be negatively affected. Our borrowing costs and access to the debt capital markets depend significantly on our credit ratings, the credit ratings of HMC and the Keep Well Agreements. We are required to apply significant judgments and assumptions in the preparation of our financial statements, and actual results may vary from those assumed in our judgments and assumptions. Changes in laws and regulations, or the application thereof, may adversely affect our business, results of operations, cash flows, and financial condition. created a liquidation framework for purposes of liquidating certain bank holding companies or other nonbank financial companies determined to be “covered financial companies,” and certain of their respective subsidiaries, defined as “covered subsidiaries,” if, among other conditions, it is determined such a company is in default or in danger of default and the resolution of such a company under other applicable law would have serious adverse effects on financial stability in the United States; created the CFPB, an agency with broad rule-making examination and enforcement authority with respect to the laws and regulations that apply to consumer financial products and services, such as the extension of credit to finance the purchase of automobiles and motorcycles; created a new framework for the regulation of over-the-counter derivatives activities; and strengthened the regulatory oversight of securities and capital markets activities by the SEC. Adverse economic conditions or changes in laws in states or provinces in which we have customer concentrations may negatively affect our results of operations, cash flows, and financial condition. Our Act of 1933, as amended. Years ended March 31, 2017 2016 2015 (U.S. dollars in millions) Consolidated Statement of Income Data Revenues: Retail loans and direct financing leases $ 1,222 $ 1,257 $ 1,401 Dealer loans 147 122 118 Operating leases 6,333 5,523 4,842 Total revenues 7,702 6,902 6,361 Depreciation on operating lease 5,056 4,421 3,838 Interest expense 728 592 580 Net revenues 1,918 1,889 1,943 Gain on disposition of lease vehicles 43 51 37 Other income 105 97 98 Total net revenues 2,066 2,037 2,078 Expenses: General and administrative expenses 434 403 398 Provision for credit losses 210 150 114 Early termination loss on operating leases 73 46 37 Impairment loss on operating leases — 8 — Loss on lease residual values 15 13 4 (Gain)/Loss on derivative instruments 315 (101 ) 326 (Gain)/Loss on foreign currency revaluation of debt (171 ) 60 (353 ) Total expenses 876 579 526 Income before income taxes 1,190 1,458 1,552 Income tax expense 437 548 560 Net income 753 910 992 Less: Net income attributable to noncontrolling interest 70 54 50 Net income attributable to American Honda Finance Corporation $ 683 $ 856 $ 942 March 31, 2017 2016 2015 (U.S. dollars in millions) Consolidated Balance Sheet Data Finance receivables, net (1): Retail loans and direct financing leases $ 31,047 $ 31,131 $ 34,307 Dealer loans 5,006 4,771 4,256 Allowance for credit losses (133 ) (93 ) (86 ) Write-down of lease residual values (16 ) (16 ) (13 ) Total finance receivables, net $ 35,904 $ 35,793 $ 38,464 Investment in operating leases, net $ 31,310 $ 28,247 $ 24,439 Total assets $ 69,854 $ 66,653 $ 64,805 Debt: Commercial paper $ 4,462 $ 4,614 $ 4,587 Related party debt 1,201 2,284 3,492 Bank loans 5,883 7,309 7,292 Medium term note programs 23,523 21,095 20,262 Other debt 2,736 1,880 1,691 Secured debt 8,422 7,594 7,365 Total debt $ 46,227 $ 44,776 $ 44,689 Total shareholder’s equity (2) $ 12,043 $ 11,378 $ 10,539 As of or for the years ended March 31, 2017 2016 2015 Other Key Consolidated Financial Data Ratio of earnings to fixed charges (3) 2.63x 3.45x 3.66x Ratio of debt to shareholder’s equity 3.84x 3.94x 4.24x Years ended March 31, 2017 2016 2015 (U.S. dollars in millions) Income before income taxes: United States segment $ 991 $ 1,302 $ 1,409 Canada segment 199 156 143 Total income before income taxes $ 1,190 $ 1,458 $ 1,552 2018 United States Segment Canada Segment Consolidated Years ended March 31, Years ended March 31, Years ended March 31, 2017 2016 2015 2017 2016 2015 2017 2016 2015 (U.S. dollars in millions) Revenues: Direct financing leases $ — $ — $ — $ 34 $ 72 $ 135 $ 34 $ 72 $ 135 Retail 1,030 1,041 1,104 158 144 162 1,188 1,185 1,266 Dealer 133 109 103 14 13 15 147 122 118 Operating leases 5,547 5,023 4,598 786 500 244 6,333 5,523 4,842 Total revenues 6,710 6,173 5,805 992 729 556 7,702 6,902 6,361 Depreciation on operating leases 4,403 4,012 3,637 653 409 201 5,056 4,421 3,838 Interest expense 638 518 485 90 74 95 728 592 580 Net revenues 1,669 1,643 1,683 249 246 260 1,918 1,889 1,943 Gain/(Loss) on disposition of lease vehicles 24 46 30 19 5 7 43 51 37 Other income 100 94 96 5 3 2 105 97 98 Total net revenues 1,793 1,783 1,809 273 254 269 2,066 2,037 2,078 Expenses: General and administrative expenses 383 356 346 51 47 52 434 403 398 Provision for credit losses 199 134 103 11 16 11 210 150 114 Early termination loss on operating leases 67 41 35 6 5 2 73 46 37 Impairment loss on operating leases — 6 — — 2 — — 8 — Loss on lease residual values — — — 15 13 4 15 13 4 (Gain)/Loss on derivative instruments 324 (116 ) 269 (9 ) 15 57 315 (101 ) 326 (Gain)/Loss on foreign currency revaluation of debt (171 ) 60 (353 ) — — — (171 ) 60 (353 ) Income before income taxes $ 991 $ 1,302 $ 1,409 $ 199 $ 156 $ 143 $ 1,190 $ 1,458 $ 1,552 the rising interest rate environment. assets. Consolidated subsidy income from AHM and HCI sponsored incentive programs increased by programs has also been rising. assets. higher average outstanding operating lease assets. leased vehicles. No impairment losses due to declines in estimated residual values were recognized during the fiscal year Years ended March 31, 2017 2016 2015 Acquired Sponsored (2) Acquired Sponsored (2) Acquired Sponsored (2) (Units (1) in thousands) United States Segment Retail loans: New auto 464 325 412 259 483 326 Used auto 88 9 71 6 55 2 Motorcycle 74 11 74 11 71 10 Other 1 — 1 — 1 — Total retail loans 627 345 558 276 610 338 Leases 514 470 498 417 467 427 Canada Segment Retail loans: New auto 67 63 56 50 50 38 Used auto 10 6 13 6 14 5 Motorcycle 6 4 6 4 6 3 Other 1 — 1 — 1 — Total retail loans 84 73 76 60 71 46 Leases 81 80 81 79 69 65 Consolidated Retail loans: New auto 531 388 468 309 533 364 Used auto 98 15 84 12 69 7 Motorcycle 80 15 80 15 77 13 Other 2 — 2 — 2 — Total retail loans 711 418 634 336 681 384 Leases 595 550 579 496 536 492 Years ended March 31, 2017 2016 2015 United States Segment New auto 59 % 57 % 61 % Motorcycle 39 % 39 % 38 % Canada Segment New auto 77 % 75 % 69 % Motorcycle 24 % 26 % 27 % Consolidated New auto 61 % 58 % 62 % Motorcycle 37 % 38 % 37 % March 31, March 31, 2017 2016 2015 2017 2016 2015 (U.S. dollars in millions) (Units (1) in thousands) United States Segment Retail loans: New auto $ 22,837 $ 23,051 $ 25,596 1,610 1,673 1,788 Used auto 3,154 2,796 2,782 234 220 233 Motorcycle 993 939 887 191 187 184 Other 51 49 55 4 5 5 Total retail loans $ 27,035 $ 26,835 $ 29,320 2,039 2,085 2,210 Securitized retail loans (2) $ 7,748 $ 7,030 $ 7,290 690 636 671 Investment in operating leases $ 27,380 $ 25,245 $ 22,790 1,294 1,196 1,086 Canada Segment Retail loans: New auto $ 3,067 $ 2,765 $ 2,531 219 196 187 Used auto 345 411 488 44 52 60 Motorcycle 73 73 65 16 15 13 Other 3 3 4 2 2 2 Total retail loans $ 3,488 $ 3,252 $ 3,088 281 265 262 Securitized retail loans (2) $ 764 $ 676 $ 64 59 45 14 Direct financing leases $ 375 $ 935 $ 1,800 34 69 116 Investment in operating leases $ 3,930 $ 3,002 $ 1,649 212 149 75 Consolidated Retail loans: New auto $ 25,904 $ 25,816 $ 28,127 1,829 1,869 1,975 Used auto 3,499 3,207 3,270 278 272 293 Motorcycle 1,066 1,012 952 207 202 197 Other 54 52 59 6 7 7 Total retail loans $ 30,523 $ 30,087 $ 32,408 2,320 2,350 2,472 Securitized retail loans (2) $ 8,512 $ 7,706 $ 7,354 749 681 685 Direct financing leases $ 375 $ 935 $ 1,800 34 69 116 Investment in operating leases $ 31,310 $ 28,247 $ 24,439 1,506 1,345 1,161 March 31, 2017 2016 2015 United States Segment Automobile 28 % 27 % 28 % Motorcycle 97 % 97 % 97 % Other 21 % 22 % 23 % Canada Segment Automobile 35 % 34 % 35 % Motorcycle 95 % 97 % 98 % Other 95 % 98 % 97 % Consolidated Automobile 29 % 28 % 30 % Motorcycle 97 % 97 % 97 % Other 24 % 24 % 26 % Years ended March 31, 2017 2016 2015 United States Segment Automobile 27 % 27 % 28 % Motorcycle 97 % 97 % 97 % Other 7 % 8 % 8 % Canada Segment Automobile 31 % 34 % 32 % Motorcycle 96 % 94 % 94 % Other 98 % 97 % 96 % Consolidated Automobile 27 % 27 % 29 % Motorcycle 97 % 97 % 97 % Other 10 % 10 % 10 % March 31, March 31, 2017 2016 2015 2017 2016 2015 (U.S. dollars in millions) (Units (1) in thousands) United States Segment Wholesale flooring loans: Automobile $ 2,823 $ 2,641 $ 2,255 111 104 90 Motorcycle 684 747 683 93 107 103 Other 64 64 62 73 71 66 Total wholesale flooring loans $ 3,571 $ 3,452 $ 3,000 277 282 259 Commercial loans $ 841 $ 793 $ 748 Canada Segment Wholesale flooring loans: Automobile $ 414 $ 363 $ 354 18 16 15 Motorcycle 86 69 75 13 11 11 Other 29 31 29 32 28 28 Total wholesale flooring loans $ 529 $ 463 $ 458 63 55 54 Commercial loans $ 65 $ 63 $ 50 Consolidated Wholesale flooring loans: Automobile $ 3,237 $ 3,004 $ 2,609 129 120 105 Motorcycle 770 816 758 106 118 114 Other 93 95 91 105 99 94 Total wholesale flooring loans $ 4,100 $ 3,915 $ 3,458 340 337 313 Commercial loans $ 906 $ 856 $ 798 losses, and ongoing reviews of the financial condition of dealers. An allowance for credit losses is maintained for management’s estimate of probable losses incurred on finance receivables. We also maintain an estimate for early termination losses on operating lease assets due to lessee defaults and an allowance for credit losses for estimated probable losses incurred on past due operating lease rental payments. The following table presents information with respect to our allowance for credit losses and credit loss experience of our finance receivables and losses related to lessee defaults on our operating leases: As of or for the years ended March 31, 2017 2016 2015 (U.S. dollars in millions) United States Segment Finance receivables: Allowance for credit losses at beginning of period $ 83 $ 77 $ 89 Provision for credit losses 177 116 86 Charge-offs, net of recoveries (136 ) (110 ) (98 ) Allowance for credit losses at end of period $ 124 $ 83 $ 77 Allowance as a percentage of ending receivable balance (1) 0.39 % 0.26 % 0.23 % Charge-offs as a percentage of average receivable balance (1) 0.43 % 0.34 % 0.28 % Delinquencies (60 or more days past due): Delinquent amount (2) $ 42 $ 47 $ 31 As a percentage of ending receivable balance (1), (2) 0.13 % 0.15 % 0.09 % Operating leases: Early termination loss on operating leases $ 67 $ 41 $ 35 Provision for past due operating lease rental payments (3) 22 18 17 Canada Segment Finance receivables: Allowance for credit losses at beginning of period $ 10 $ 9 $ 11 Provision for credit losses 10 15 11 Charge-offs, net of recoveries (11 ) (14 ) (11 ) Effect of translation adjustment — — (2 ) Allowance for credit losses at end of period $ 9 $ 10 $ 9 Allowance as a percentage of ending receivable balance (1) 0.20 % 0.21 % 0.16 % Charge-offs as a percentage of average receivable balance (1) 0.24 % 0.28 % 0.17 % Delinquencies (60 or more days past due): Delinquent amount (2) $ 7 $ 7 $ 6 As a percentage of ending receivable balance (1), (2) 0.15 % 0.14 % 0.11 % Operating leases: Early termination loss on operating leases $ 6 $ 5 $ 2 Provision for past due operating lease rental payments (3) 1 1 — Consolidated Finance receivables: Allowance for credit losses at beginning of period $ 93 $ 86 $ 100 Provision for credit losses 187 131 97 Charge-offs, net of recoveries (147 ) (124 ) (109 ) Effect of translation adjustment — — (2 ) Allowance for credit losses at end of period $ 133 $ 93 $ 86 Allowance as a percentage of ending receivable balance (1) 0.36 % 0.26 % 0.22 % Charge-offs as a percentage of average receivable balance (1) 0.41 % 0.33 % 0.26 % Delinquencies (60 or more days past due): Delinquent amount (2) $ 49 $ 54 $ 37 As a percentage of ending receivable balance (1), (2) 0.13 % 0.15 % 0.10 % Operating leases: Early termination loss on operating leases $ 73 $ 46 $ 37 Provision for past due operating lease rental payments (3) 23 19 17 losses on past due rental payments. 2018. values. Years ended March 31, 2017 2016 2015 (Units (1) in thousands) United States Segment Termination units: Sales at outstanding contractual balances (2) 267 261 249 Sales through auctions and dealer direct programs (3) 132 114 93 Total termination units 399 375 342 Canada Segment Termination units: Sales at outstanding contractual balances (2) 45 43 40 Sales through auctions and dealer direct programs (3) 8 8 6 Total termination units 53 51 46 Consolidated Termination units: Sales at outstanding contractual balances (2) 312 304 289 Sales through auctions and dealer direct programs (3) 140 122 99 Total termination units 452 426 388 In an effort to minimize liquidity risk and interest rate risk and the resulting negative effects on our margins, results of operations and cash flows, our funding strategy incorporates investor diversification and the utilization of multiple funding sources including commercial paper, medium term notes, bank loans and asset-backed securities. Liquidity and Capital Resources” as of March 31, 2019, 2018 and 2017 includes foreign currency denominated debt which was translated into U.S. dollars using the relevant exchange rates as of March 31, 2019, 2018 and 2017, as applicable. Additionally, the amounts in this section that are presented in “C$” (Canadian dollar), “€” (Euro) and “£” (Sterling) were converted into U.S. dollars solely for your convenience based on the exchange rate on March 31, 2019 of 1.3349, 1.1216 and 1.3006, respectively, per U.S. dollar. These translations should not be construed as representations that the converted amounts actually represent such U.S. dollar amounts or that they could be converted into U.S. dollars at the rates indicated. Weighted average contractual interest rate March 31, March 31, 2017 2016 2015 2017 2016 2015 (U.S. dollars in millions) United States Segment Unsecured debt: Commercial paper $ 3,609 $ 3,587 $ 3,503 1.02 % 0.54 % 0.19 % Related party debt — 900 1,915 0.00 % 0.43 % 0.17 % Bank loans 4,890 6,292 6,290 1.68 % 1.14 % 0.73 % Private MTN program 2,946 5,443 7,458 3.77 % 2.80 % 2.45 % Public MTN program 19,491 14,479 10,938 1.63 % 1.47 % 1.09 % Euro MTN programme 1,086 1,173 1,866 1.83 % 1.72 % 1.30 % Total unsecured debt 32,022 31,874 31,970 Secured debt 7,680 6,938 7,315 1.24 % 1.00 % 0.73 % Total debt $ 39,702 $ 38,812 $ 39,285 Canada Segment Unsecured debt: Commercial paper $ 853 $ 1,027 $ 1,084 0.87 % 0.82 % 0.96 % Related party debt 1,201 1,384 1,577 0.95 % 0.86 % 1.14 % Bank loans 993 1,017 1,002 1.50 % 1.45 % 1.54 % Other debt 2,736 1,880 1,691 1.90 % 1.88 % 1.85 % Total unsecured debt 5,783 5,308 5,354 Secured debt 742 656 50 1.24 % 1.19 % 1.30 % Total debt $ 6,525 $ 5,964 $ 5,404 Consolidated Unsecured debt: Commercial paper $ 4,462 $ 4,614 $ 4,587 0.99 % 0.60 % 0.37 % Related party debt 1,201 2,284 3,492 0.95 % 0.69 % 0.61 % Bank loans 5,883 7,309 7,292 1.65 % 1.18 % 0.84 % Private MTN program 2,946 5,443 7,458 3.77 % 2.80 % 2.45 % Public MTN program 19,491 14,479 10,938 1.63 % 1.47 % 1.09 % Euro MTN programme 1,086 1,173 1,866 1.83 % 1.72 % 1.30 % Other debt 2,736 1,880 1,691 1.90 % 1.88 % 1.85 % Total unsecured debt 37,805 37,182 37,324 Secured debt 8,422 7,594 7,365 1.24 % 1.01 % 0.74 % Total debt $ 46,227 $ 44,776 $ 44,689 2019. 2019. March 31, 2017 2016 2015 (U.S. dollars in millions) U.S. dollar $ 20,141 $ 18,501 $ 19,189 Euro 2,607 2,210 802 Sterling 748 357 — Japanese yen 27 27 271 Total $ 23,523 $ 21,095 $ 20,262 2019. Subordinated certificates—which are securities issued by the trusts that are retained by us and are subordinated in priority of payment to the notes. Overcollateralization—which occurs when the principal balance of securitized assets exceed the balance of securities issued by the trust. Excess interest—which allows excess interest collections to be used to cover losses on defaulted loans. Reserve funds—which are restricted cash accounts held by the trusts to cover shortfalls in payments of interest and principal required to be paid on the notes. Yield supplement accounts—which are restricted cash accounts held by the trusts to supplement interest payments on notes. The risk retention regulations in Regulation RR of the Securities Exchange Act of 1934, as amended (Exchange Act), require the sponsor to retain an economic interest in the credit risk of the securitized receivables, either directly or through one or more majority-owned affiliates. Standard risk retention options allow the sponsor to retain either an eligible vertical interest, an eligible horizontal residual interest, or a combination of both. AHFC has satisfied this obligation by retaining an eligible vertical interest of an amount equal to at least 5% of the principal amount of each class of note and certificate issued for the securitization transaction that was subject to this rule but may choose to use other structures in the future. Indebtedness of Consolidated Subsidiaries Payments due by period Total 2018 2019 2020 2021 2022 Thereafter (U.S. dollars in millions) Unsecured debt obligations (1) $ 37,885 $ 13,144 $ 7,170 $ 6,490 $ 3,026 $ 4,439 $ 3,616 Secured debt obligations (1) 8,435 4,661 2,443 1,144 187 — — Interest payments on debt (2) 1,921 655 504 322 202 123 115 Operating lease obligations 41 9 7 7 4 4 10 Total $ 48,282 $ 18,469 $ 10,124 $ 7,963 $ 3,419 $ 4,566 $ 3,741 Interest rate risk arising from changes in interest rates related to our funding, investing, and cash management activities. Our assets consist primarily of fixed rate receivables and operating lease assets, however, our liabilities consist of both floating and fixed rate debt. We utilize interest rate and basis swaps to mitigate the impact of interest rate movements on our cash flows and net interest margins. Exchange rate risk arising from changes in value of our foreign currency denominated debt in response to fluctuations in exchange rates of various currencies. We enter into cross currency swaps concurrently with the issuance of this debt to convert all interest and principal payments to either of our functional currencies, which is United States dollars in the United States segment and Canadian dollars in the Canadian segment, which effectively eliminates our foreign currency exchange rate risks. Counterparty risk arising primarily with our derivative contracts. To manage this risk, we limit our exposure to counterparties in accordance with credit rating based guidelines. We also enter into master netting agreements which help to mitigate our exposure to loss in the case of defaults. To provide a quantitative measure of the sensitivity of interest rate movements on our pre-tax cash flows, we have estimated the effect of a hypothetical 100 basis point increase and decrease to benchmark interest rates on our floating rate financial instruments for the Impact on pre-tax cash flows for the 12 months ending March 31, Hypothetical change in interest rate 2018 2017 100 basis point increase $7 million decrease $33 million increase 100 basis point decrease $8 million increase $30 million decrease 2019. Years ended March 31, 2017 2016 (U.S. dollars in thousands) Audit fees $ 8,468 $ 6,823 Audit-related fees 245 232 Tax fees - - All other fees - - Total $ 8,713 $ 7,055 /s/ /s/ Paul C. Honda and Shareholder of We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. March 31, 2017 2016 Assets Cash and cash equivalents $ 760 $ 658 Finance receivables, net 35,904 35,793 Investment in operating leases, net 31,310 28,247 Due from Parent and affiliated companies 228 132 Income taxes receivable 256 514 Vehicles held for disposition 255 216 Other assets 892 751 Derivative instruments 249 342 Total assets $ 69,854 $ 66,653 Liabilities and Equity Debt $ 46,227 $ 44,776 Due to Parent and affiliated companies 91 81 Accrued interest expense 120 110 Deferred income taxes 8,792 8,109 Other liabilities 1,389 1,293 Derivative instruments 449 216 Total liabilities 57,068 54,585 Commitments and contingencies (Note 9) Shareholder’s equity: Common stock, $100 par value. Authorized 15,000,000 shares; issued and outstanding 13,660,000 shares as of March 31, 2017 and 2016 1,366 1,366 Retained earnings 10,787 10,104 Accumulated other comprehensive loss (110 ) (92 ) Total shareholder’s equity 12,043 11,378 Noncontrolling interest in subsidiary 743 690 Total equity 12,786 12,068 Total liabilities and equity $ 69,854 $ 66,653 March 31, 2017 2016 Finance receivables, net $ 8,512 $ 7,706 Vehicles held for disposition 3 3 Other assets 367 299 Total assets $ 8,882 $ 8,008 Secured debt $ 8,422 $ 7,594 Accrued interest expense 4 3 Total liabilities $ 8,426 $ 7,597 Years ended March 31, 2017 2016 2015 Revenues: Direct financing leases $ 34 $ 72 $ 135 Retail 1,188 1,185 1,266 Dealer 147 122 118 Operating leases 6,333 5,523 4,842 Total revenues 7,702 6,902 6,361 Depreciation on operating leases 5,056 4,421 3,838 Interest expense 728 592 580 Net revenues 1,918 1,889 1,943 Gain on disposition of lease vehicles 43 51 37 Other income 105 97 98 Total net revenues 2,066 2,037 2,078 Expenses: General and administrative expenses 434 403 398 Provision for credit losses 210 150 114 Early termination loss on operating leases 73 46 37 Impairment loss on operating leases — 8 — Loss on lease residual values 15 13 4 Gain/(Loss) on derivative instruments 315 (101 ) 326 Gain/(Loss) on foreign currency revaluation of debt (171 ) 60 (353 ) Total expenses 876 579 526 Income before income taxes 1,190 1,458 1,552 Income tax expense 437 548 560 Net income 753 910 992 Less: Net income attributable to noncontrolling interest 70 54 50 Net income attributable to American Honda Finance Corporation $ 683 $ 856 $ 942 Years ended March 31, 2017 2016 2015 Net income $ 753 $ 910 $ 992 Other comprehensive loss: Foreign currency translation adjustment (35 ) (32 ) (195 ) Comprehensive income 718 878 797 Less: Comprehensive income/(loss) attributable to noncontrolling interest 53 39 (43 ) Comprehensive income attributable to American Honda Finance Corporation $ 665 $ 839 $ 840 Accumulated other Retained comprehensive Common Noncontrolling Total earnings income/(loss) stock interest Balance at March 31, 2014 $ 10,393 $ 8,306 $ 27 $ 1,366 $ 694 Net income 992 942 — — 50 Other comprehensive loss (195 ) — (102 ) — (93 ) Balance at March 31, 2015 $ 11,190 $ 9,248 $ (75 ) $ 1,366 $ 651 Net income 910 856 — — 54 Other comprehensive loss (32 ) — (17 ) — (15 ) Balance at March 31, 2016 $ 12,068 $ 10,104 $ (92 ) $ 1,366 $ 690 Net income 753 683 — — 70 Other comprehensive loss (35 ) — (18 ) — (17 ) Balance at March 31, 2017 $ 12,786 $ 10,787 $ (110 ) $ 1,366 $ 743 Years ended March 31, 2017 2016 2015 Cash flows from operating activities: Net income $ 753 $ 910 $ 992 Adjustments to reconcile net income to net cash provided by operating activities: Debt and derivative instrument valuation adjustments 161 (186 ) (189 ) Loss on lease residual values and provision for credit losses 225 163 118 Early termination loss on operating leases and impairment on operating leases 73 54 37 Depreciation and amortization 5,063 4,426 3,843 Accretion of unearned subsidy income (1,243 ) (1,089 ) (1,077 ) Amortization of deferred dealer participation and IDC 315 316 336 Gain on disposition of lease vehicles and fixed assets (43 ) (51 ) (37 ) Deferred income taxes 688 969 513 Changes in operating assets and liabilities: Income taxes receivable/payable 257 (449 ) 1 Other assets (72 ) (7 ) (23 ) Accrued interest/discounts on debt 54 44 41 Other liabilities 124 81 45 Due to/from Parent and affiliated companies (85 ) (19 ) (21 ) Net cash provided by operating activities 6,270 5,162 4,579 Cash flows from investing activities: Finance receivables acquired (16,761 ) (14,285 ) (16,115 ) Principal collected on finance receivables 16,140 16,947 18,025 Net change in wholesale loans (197 ) (467 ) 239 Purchase of operating lease vehicles (15,949 ) (15,445 ) (13,826 ) Disposal of operating lease vehicles 7,364 6,765 6,236 Cash received for unearned subsidy income 1,593 1,281 1,222 Other investing activities, net (79 ) (49 ) (9 ) Net cash used in investing activities (7,889 ) (5,253 ) (4,228 ) Cash flows from financing activities: Proceeds from issuance of commercial paper 41,162 36,995 39,823 Paydown of commercial paper (41,303 ) (36,916 ) (39,260 ) Proceeds from issuance of related party debt 12,514 19,491 40,144 Paydown of related party debt (13,567 ) (20,657 ) (41,179 ) Proceeds from issuance of medium term notes and other debt 10,488 7,951 10,166 Paydown of medium term notes and other debt (8,411 ) (6,948 ) (8,669 ) Proceeds from issuance of secured debt 5,708 4,500 4,238 Paydown of secured debt (4,868 ) (4,283 ) (5,108 ) Net cash provided by financing activities 1,723 133 155 Effect of exchange rate changes on cash and cash equivalents (2 ) (18 ) (10 ) Net increase in cash and cash equivalents 102 24 496 Cash and cash equivalents at beginning of year 658 634 138 Cash and cash equivalents at end of year $ 760 $ 658 $ 634 Supplemental disclosures of cash flow information: Interest paid $ 674 $ 536 $ 575 Income taxes paid/(received) (508 ) 32 51 Business Risks Principles of Consolidation Comprehensive Income Cash and Cash Equivalents Finance Receivables Investment in Operating Leases Allowance for Credit Losses Vehicles Held for Disposition Vehicle Service Contract Administration Securitizations and Variable Interest Entities Income Taxes Foreign Currency Translation Derivative Instruments Recently Adopted Accounting Standards standard will not have a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. 2020. since there were no designated hedge accounting relationships. March 31, 2017 Lease Retail Dealer Total (U.S. dollars in millions) Finance receivables $ 410 $ 31,103 $ 5,006 $ 36,519 Allowance for credit losses (1 ) (132 ) — (133 ) Write-down of lease residual values (16 ) — — (16 ) Unearned interest income and fees (8 ) — — (8 ) Deferred dealer participation and IDC — 371 — 371 Unearned subsidy income (10 ) (819 ) — (829 ) Finance receivables, net $ 375 $ 30,523 $ 5,006 $ 35,904 March 31, 2016 Lease Retail Dealer Total (U.S. dollars in millions) Finance receivables $ 1,011 $ 30,467 $ 4,771 $ 36,249 Allowance for credit losses (2 ) (91 ) — (93 ) Write-down of lease residual values (16 ) — — (16 ) Unearned interest income and fees (26 ) — — (26 ) Deferred dealer participation and IDC 1 361 — 362 Unearned subsidy income (33 ) (650 ) — (683 ) Finance receivables, net $ 935 $ 30,087 $ 4,771 $ 35,793 Lease Retail (U.S. dollars in millions) Year ending March 31: 2018 $ 197 $ 9,413 2019 151 7,904 2020 62 6,064 2021 — 4,340 2022 — 2,494 Thereafter — 888 Total $ 410 $ 31,103 2017. Year ended March 31, 2017 Lease Retail Dealer Total (U.S. dollars in millions) Beginning balance $ 2 $ 91 $ — $ 93 Provision 1 186 — 187 Charge-offs (2 ) (224 ) — (226 ) Recoveries — 79 — 79 Effect of translation adjustment — — — — Ending balance $ 1 $ 132 $ — $ 133 Allowance for credit losses – ending balance: Individually evaluated for impairment $ — $ — $ — $ — Collectively evaluated for impairment 1 132 — 133 Finance receivables – ending balance: Individually evaluated for impairment $ — $ — $ 1 $ 1 Collectively evaluated for impairment 392 30,655 5,005 36,052 Year ended March 31, 2016 Lease Retail Dealer Total (U.S. dollars in millions) Beginning balance $ 2 $ 84 $ — $ 86 Provision 3 129 (1 ) 131 Charge-offs (4 ) (196 ) — (200 ) Recoveries 1 74 1 76 Effect of translation adjustment — — — — Ending balance $ 2 $ 91 $ — $ 93 Allowance for credit losses – ending balance: Individually evaluated for impairment $ — $ — $ — $ — Collectively evaluated for impairment 2 91 — 93 Finance receivables – ending balance: Individually evaluated for impairment $ — $ — $ 1 $ 1 Collectively evaluated for impairment 953 30,178 4,770 35,901 Year ended March 31, 2015 Lease Retail Dealer Total (U.S. dollars in millions) Beginning balance $ 4 $ 95 $ 1 $ 100 Provision 3 92 2 97 Charge-offs (5 ) (185 ) (3 ) (193 ) Recoveries 1 83 — 84 Effect of translation adjustment (1 ) (1 ) — (2 ) Ending balance $ 2 $ 84 $ — $ 86 Allowance for credit losses – ending balance: Individually evaluated for impairment $ — $ — $ — $ — Collectively evaluated for impairment 2 84 — 86 Finance receivables – ending balance: Individually evaluated for impairment $ — $ — $ 8 $ 8 Collectively evaluated for impairment 1,815 32,492 4,248 38,555 90 days Current or Total 30 – 59 days 60 – 89 days or greater Total less than 30 finance past due past due past due past due days past due receivables (U.S. dollars in millions) March 31, 2017 Retail loans: New auto $ 162 $ 26 $ 7 $ 195 $ 25,785 $ 25,980 Used and certified auto 48 8 2 58 3,474 3,532 Motorcycle and other 10 3 2 15 1,128 1,143 Total retail 220 37 11 268 30,387 30,655 Direct financing leases 3 2 — 5 387 392 Dealer loans: Wholesale flooring 2 — — 2 4,098 4,100 Commercial loans — — — — 906 906 Total dealer loans 2 — — 2 5,004 5,006 Total finance receivables $ 225 $ 39 $ 11 $ 275 $ 35,778 $ 36,053 March 31, 2016 Retail loans: New auto $ 181 $ 29 $ 8 $ 218 $ 25,652 $ 25,870 Used and certified auto 55 8 2 65 3,163 3,228 Motorcycle and other 11 3 2 16 1,064 1,080 Total retail 247 40 12 299 29,879 30,178 Direct financing leases 6 1 — 7 946 953 Dealer loans: Wholesale flooring 1 1 — 2 3,913 3,915 Commercial loans — — — — 856 856 Total dealer loans 1 1 — 2 4,769 4,771 Total finance receivables $ 254 $ 42 $ 12 $ 308 $ 35,594 $ 35,902 Retail Retail Direct Total consumer Retail used and motorcycle financing finance new auto certified auto and other lease receivables (U.S. dollars in millions) March 31, 2017 Performing $ 25,947 $ 3,522 $ 1,138 $ 390 $ 30,997 Nonperforming 33 10 5 2 50 Total $ 25,980 $ 3,532 $ 1,143 $ 392 $ 31,047 March 31, 2016 Performing $ 25,833 $ 3,218 $ 1,075 $ 952 $ 31,078 Nonperforming 37 10 5 1 53 Total $ 25,870 $ 3,228 $ 1,080 $ 953 $ 31,131 March 31, 2017 2016 Wholesale Commercial Wholesale Commercial flooring loans Total flooring loans Total (U.S. dollars in millions) Group A $ 2,689 $ 628 $ 3,317 $ 2,707 $ 600 $ 3,307 Group B 1,411 278 1,689 1,208 256 1,464 Total $ 4,100 $ 906 $ 5,006 $ 3,915 $ 856 $ 4,771 March 31, 2017 2016 (U.S. dollars in millions) Operating lease vehicles $ 39,684 $ 35,204 Accumulated depreciation (7,136 ) (5,917 ) Deferred dealer participation and IDC 118 112 Unearned subsidy income (1,285 ) (1,092 ) Estimated early termination losses (71 ) (60 ) Investment in operating leases, net $ 31,310 $ 28,247 2017. Year ending March 31: 2018 $ 5,134 2019 3,539 2020 1,320 2021 206 2022 35 Total $ 10,234 Weighted average Contractual contractual interest rate interest rate ranges March 31, March 31, March 31, 2017 2016 2017 2016 2017 2016 (U.S. dollars in millions) Unsecured debt: Commercial paper $ 4,462 $ 4,614 0.99 % 0.60 % 0.78 - 1.15% 0.41 - 0.88% Related party debt 1,201 2,284 0.95 % 0.69 % 0.93 - 0.96% 0.42 - 0.88% Bank loans 5,883 7,309 1.65 % 1.18 % 1.28 - 2.00% 0.97 - 1.73% Private MTN program 2,946 5,443 3.77 % 2.80 % 1.50 - 7.63% 1.01 - 7.63% Public MTN program 19,491 14,479 1.63 % 1.47 % 0.07 - 2.90% 0.18 - 2.63% Euro MTN programme 1,086 1,173 1.83 % 1.72 % 1.52 - 2.23% 1.12 - 2.23% Other debt 2,736 1,880 1.90 % 1.88 % 1.28 - 2.35% 1.20 - 2.35% Total unsecured debt 37,805 37,182 Secured debt 8,422 7,594 1.24 % 1.01 % 0.77 - 2.05% 0.53 - 1.56% Total debt $ 46,227 $ 44,776 2018 2019 2020 2021 2022 Thereafter Total (U.S. dollars in millions) Unsecured debt: Commercial paper $ 4,467 $ — $ — $ — $ — $ — $ 4,467 Related party debt 1,201 — — — — — 1,201 Bank loans 650 688 1,488 1,075 1,300 694 5,895 Private MTN program 1,250 700 — 500 500 — 2,950 Public MTN program 4,875 4,984 3,750 1,000 2,339 2,595 19,543 Euro MTN programme 100 160 801 — — 27 1,088 Other debt 601 638 451 451 300 300 2,741 Total unsecured debt 13,144 7,170 6,490 3,026 4,439 3,616 37,885 Secured debt (1) 4,661 2,443 1,144 187 — — 8,435 Total debt (2) $ 17,805 $ 9,613 $ 7,634 $ 3,213 $ 4,439 $ 3,616 46,320 Unamortized discounts/fees (93 ) Total debt $ 46,227 Projected repayment schedule of secured debt. Reflects payment performance assumptions on underlying receivables. Principal amounts. $6.2 billion. March 31, 2017 2016 Notional Notional balances Assets Liabilities balances Assets Liabilities (U.S. dollars in millions) Interest rate swaps $ 54,664 $ 237 $ 193 $ 51,841 $ 272 $ 118 Cross currency swaps 3,694 12 256 2,739 70 98 Gross derivative assets/liabilities 249 449 342 216 Counterparty netting adjustment (179 ) (179 ) (128 ) (128 ) Net derivative assets/liabilities $ 70 $ 270 $ 214 $ 88 Years ended March 31, 2017 2016 2015 (U.S. dollars in millions) Interest rate swaps $ (87 ) $ (8 ) $ (12 ) Cross currency swaps (228 ) 109 (314 ) Total gain/(loss) on derivative instruments $ (315 ) $ 101 $ (326 ) Years ended March 31, Income statement 2017 2016 2015 (U.S. dollars in millions) Revenue: Subsidy income $ 1,232 $ 1,076 $ 1,065 Interest expense: Related party debt 15 16 26 Other income: VSC administration fees 103 98 95 General and administrative expenses: Support Compensation Agreement fees 20 18 17 Benefit plan expenses 11 9 8 Shared services 60 58 55 March 31, Balance Sheet 2017 2016 (U.S. dollars in millions) Assets: Finance receivables, net: Unearned subsidy income $ (820 ) $ (671 ) Investment in operating leases, net: Unearned subsidy income (1,281 ) (1,088 ) Due from Parent and affiliated companies 228 132 Liabilities: Debt: Related party debt $ 1,201 $ 2,284 Due to Parent and affiliated companies 91 81 Accrued interest expenses: Related party debt 2 2 Other liabilities: VSC unearned administrative fees 394 380 Accrued benefit expenses 66 48 Current Deferred Total (U.S. dollars in millions) Year ended March 31, 2017 Federal $ (265 ) $ 596 $ 331 State and local (18 ) 72 54 Foreign 32 20 52 Total $ (251 ) $ 688 $ 437 Year ended March 31, 2016 Federal $ (428 ) $ 861 $ 433 State and local (15 ) 88 73 Foreign 22 20 42 Total $ (421 ) $ 969 $ 548 Year ended March 31, 2015 Federal $ 14 $ 485 $ 499 State and local 12 11 23 Foreign 21 17 38 Total $ 47 $ 513 $ 560 fiscal year ended March 31, 2018. Years ended March 31, 2017 2016 2015 (U.S. dollars in millions) Computed “expected” income taxes $ 416 $ 510 $ 543 Foreign tax rate differential (17 ) (13 ) (12 ) Effect of foreign dividends and foreign tax credit 4 3 — State and local income taxes, net of federal income tax benefit 40 47 58 Change in valuation allowance (5 ) 5 — Change in estimated state tax rate, net of federal income tax benefit (8 ) 21 (27 ) Change in unrecognized tax benefit — (6 ) (3 ) Effect of state tax law changes 10 (16 ) (4 ) Other (3 ) (3 ) 5 Income tax expense $ 437 $ 548 $ 560 re-measurement of deferred tax assets and liabilities for the fiscal year ended March 31, 2019 and 2018, respectively, and a benefit of $38 million and an expense of $52 million related to the Transition Tax for fiscal year ended March 31, 2019 and 2018, respectively. The income tax credits of $52 million is primarily from the Qualified Plug-in Electronic Drive Motor Vehicle Credit on the Company's lease vehicles. The Company recognizes the benefit of these credits in the period the credits arise. Any unused credits arising in the current year that are available to offset taxable income in future years are recognized in the deferred tax assets. March 31, 2017 2016 (U.S. dollars in millions) Deferred tax assets: State income tax $ 294 $ 275 Receivable valuation 90 69 Accrued postretirement 21 20 State loss carryforwards 60 60 Other assets 69 70 Total gross deferred tax assets 534 494 Less valuation allowance — 5 Net deferred tax assets 534 489 Deferred tax liabilities: HCFI leases 274 257 AHFC leases 8,949 8,174 Derivatives 24 100 Securitizations 9 8 Other 70 59 Total gross deferred tax liabilities 9,326 8,598 Net deferred tax liabilities $ 8,792 $ 8,109 2039. The deferred tax asset related to a federal income tax credit in the amount of $64 million at March 31, 2019 will expire in the fiscal year ended March 31, 2039. Years ended March 31, 2017 2016 2015 (U.S. dollars in millions) Balance, beginning of year $ 16 $ 21 $ 25 Additions for current year tax positions — — — Additions for prior year tax positions 5 — 4 Reductions for prior year tax positions — (10 ) (6 ) Settlements — 5 (2 ) Reductions related to a lapse in the statute of limitations — — — Foreign currency translation — — — Balance, end of year $ 21 $ 16 $ 21 million, respectively. 2018, and $7 million for fiscal year ended March 31, 2017. Year ending March 31: 2018 $ 9 2019 7 2020 7 2021 4 2022 4 Thereafter 10 Total $ 41 2019. March 31, 2017 2016 (U.S. dollars in millions) Assets: Finance receivables $ 8,649 $ 7,819 Unamortized costs and subsidy income, net (125 ) (103 ) Allowance for credit losses (12 ) (10 ) Finance receivables, net 8,512 7,706 Vehicles held for disposition 3 3 Restricted cash (1) 358 291 Accrued interest receivable (1) 9 8 Total assets $ 8,882 $ 8,008 Liabilities: Secured debt $ 8,435 $ 7,605 Unamortized discounts and fees (13 ) (11 ) Secured debt, net 8,422 7,594 Accrued interest expense 4 3 Total liabilities $ 8,426 $ 7,597 In their role as servicers, AHFC and HCFI collect principal and interest payments on the underlying receivables on behalf of the securitization trusts. Cash collected during a calendar month is required to be remitted to the trusts in the following month. AHFC and HCFI are not restricted from using the cash collected for their general purposes prior to the remittance to the trusts. As of March 31, March 31, 2017 2016 (U.S. dollars in millions) Interest receivable and other assets $ 76 $ 75 Other receivables 148 99 Deferred expense 171 173 Software, net of accumulated amortization of $138 and $134 as of March 31, 2017 and 2016, respectively 33 30 Property and equipment, net of accumulated depreciation of $17 and $17 as of March 31, 2017 and 2016, respectively 8 8 Restricted cash 382 315 Other miscellaneous assets 74 51 Total $ 892 $ 751 March 31, 2017 2016 (U.S. dollars in millions) Dealer payables $ 148 $ 139 Accounts payable and accrued expenses 313 286 Lease security deposits 66 62 VSC unearned administrative fees (Note 6) 394 380 Unearned income, operating lease 330 282 Uncertain tax positions 14 14 Other liabilities 124 130 Total $ 1,389 $ 1,293 Years ended March 31, 2017 2016 2015 (U.S. dollars in millions) VSC administration (Note 6) $ 103 $ 98 $ 95 Other 2 (1 ) 3 Total $ 105 $ 97 $ 98 March 31, 2017 Level 1 Level 2 Level 3 Total (U.S. dollars in millions) Assets: Derivative instruments: Interest rate swaps $ — $ 237 $ — $ 237 Cross currency swaps — 12 — 12 Total assets $ — $ 249 $ — $ 249 Liabilities: Derivative instruments: Interest rate swaps $ — $ 193 $ — $ 193 Cross currency swaps — 256 — 256 Total liabilities $ — $ 449 $ — $ 449 March 31, 2016 Level 1 Level 2 Level 3 Total (U.S. dollars in millions) Assets: Derivative instruments: Interest rate swaps $ — $ 272 $ — $ 272 Cross currency swaps — 70 — 70 Total assets $ — $ 342 $ — $ 342 Liabilities: Derivative instruments: Interest rate swaps $ — $ 118 $ — $ 118 Cross currency swaps — 98 — 98 Total liabilities $ — $ 216 $ — $ 216 Lower-of-cost or fair value Level 1 Level 2 Level 3 Total adjustment (U.S. dollars in millions) March 31, 2017 Vehicles held for disposition $ — $ — $ 166 $ 166 $ 29 March 31, 2016 Vehicles held for disposition $ — $ — $ 134 $ 134 $ 22 March 31, 2017 Carrying Fair value value Level 1 Level 2 Level 3 Total (U.S. dollars in millions) Assets: Cash and cash equivalents $ 760 $ 760 $ — $ — $ 760 Dealer loans, net 5,006 — — 4,837 4,837 Retail loans, net 30,523 — — 30,724 30,724 Restricted cash 382 382 — — 382 Liabilities: Commercial paper $ 4,462 $ — $ 4,462 $ — $ 4,462 Related party debt 1,201 — 1,202 — 1,202 Bank loans 5,883 — 5,939 — 5,939 Medium term note programs 23,523 — 23,723 — 23,723 Other debt 2,736 — 2,761 — 2,761 Secured debt 8,422 — 8,411 — 8,411 March 31, 2016 Carrying Fair value value Level 1 Level 2 Level 3 Total (U.S. dollars in millions) Assets: Cash and cash equivalents $ 658 $ 658 $ — $ — $ 658 Dealer loans, net 4,771 — — 4,597 4,597 Retail loans, net 30,087 — — 30,295 30,295 Restricted cash 315 315 — — 315 Liabilities: Commercial paper $ 4,614 $ — $ 4,615 $ — $ 4,615 Related party debt 2,284 — 2,284 — 2,284 Bank loans 7,309 — 7,302 — 7,302 Medium term note programs 21,095 — 21,524 — 21,524 Other debt 1,880 — 1,894 — 1,894 Secured debt 7,594 — 7,601 — 7,601 Valuation United adjustments and Consolidated States Canada reclassifications Total (U.S. dollars in millions) Year ended March 31, 2017 Revenues: Direct financing leases $ — $ 34 $ — $ 34 Retail 1,030 158 — 1,188 Dealer 133 14 — 147 Operating leases 5,547 786 — 6,333 Total revenues 6,710 992 — 7,702 Depreciation on operating leases 4,403 653 — 5,056 Interest expense 638 90 — 728 Realized (gains)/losses on derivatives and foreign currency denominated debt (35 ) 17 18 — Net revenues 1,704 232 (18 ) 1,918 Gain/(Loss) on disposition of lease vehicles 24 19 — 43 Other income 100 5 — 105 Total net revenues 1,828 256 (18 ) 2,066 Expenses: General and administrative expenses 383 51 — 434 Provision for credit losses 199 11 — 210 Early termination loss on operating leases 67 6 — 73 Impairment loss on operating leases — — — — Loss on lease residual values — 15 — 15 (Gain)/Loss on derivative instruments — — 315 315 (Gain)/Loss on foreign currency revaluation of debt — — (171 ) (171 ) Income before income taxes $ 1,179 $ 173 $ (162 ) $ 1,190 March 31, 2017 Finance receivables, net $ 31,447 $ 4,457 $ — $ 35,904 Investment in operating leases, net 27,380 3,930 — 31,310 Total assets 61,328 8,526 — 69,854 Valuation United adjustments and Consolidated States Canada reclassifications Total (U.S. dollars in millions) Year ended March 31, 2016 Revenues: Direct financing leases $ — $ 72 $ — $ 72 Retail 1,041 144 — 1,185 Dealer 109 13 — 122 Operating leases 5,023 500 — 5,523 Total revenues 6,173 729 — 6,902 Depreciation on operating leases 4,012 409 — 4,421 Interest expense 518 74 — 592 Realized (gains)/losses on derivatives and foreign currency denominated debt 4 27 (31 ) — Net revenues 1,639 219 31 1,889 Gain/(Loss) on disposition of lease vehicles 46 5 — 51 Other income 94 3 — 97 Total net revenues 1,779 227 31 2,037 Expenses: General and administrative expenses 356 47 — 403 Provision for credit losses 134 16 — 150 Early termination loss on operating leases 41 5 — 46 Impairment loss on operating leases 6 2 — 8 Loss on lease residual values — 13 — 13 (Gain)/Loss on derivative instruments — — (101 ) (101 ) (Gain)/Loss on foreign currency revaluation of debt — — 60 60 Income before income taxes $ 1,242 $ 144 $ 72 $ 1,458 March 31, 2016 Finance receivables, net $ 31,080 $ 4,713 $ — $ 35,793 Investment in operating leases, net 25,245 3,002 — 28,247 Total assets 58,813 7,840 — 66,653 Valuation United adjustments and Consolidated States Canada reclassifications Total (U.S. dollars in millions) Year ended March 31, 2015 Revenues: Direct financing leases $ — $ 135 $ — $ 135 Retail 1,104 162 — 1,266 Dealer 103 15 — 118 Operating leases 4,598 244 — 4,842 Total revenues 5,805 556 — 6,361 Depreciation on operating leases 3,637 201 — 3,838 Interest expense 485 95 — 580 Realized (gains)/losses on derivatives and foreign currency denominated debt (5 ) 22 (17 ) — Net revenues 1,688 238 17 1,943 Gain/(Loss) on disposition of lease vehicles 30 7 — 37 Other income 96 2 — 98 Total net revenues 1,814 247 17 2,078 Expenses: General and administrative expenses 346 52 — 398 Provision for credit losses 103 11 — 114 Early termination loss on operating leases 35 2 — 37 Loss on lease residual values — 4 — 4 (Gain)/Loss on derivative instruments — — 326 326 (Gain)/Loss on foreign currency revaluation of debt — — (353 ) (353 ) Income before income taxes $ 1,330 $ 178 $ 44 $ 1,552 March 31, 2015 Finance receivables, net $ 33,067 $ 5,397 $ — $ 38,464 Investment in operating leases, net 22,790 1,649 — 24,439 Total assets 57,645 7,160 — 64,805 First Second Third Fourth Quarter Quarter Quarter Quarter Full Year (U.S. dollars in millions) Year ended March 31, 2017 Total revenues $ 1,846 $ 1,911 $ 1,953 $ 1,992 $ 7,702 Depreciation on operating leases 1,182 1,250 1,306 1,318 5,056 Interest expense 169 178 186 195 728 Other income 22 22 23 38 105 Total net revenues 536 504 484 542 2,066 Provision for credit losses 31 72 54 53 210 Early termination loss on operating leases 15 16 19 23 73 Net income 237 196 119 201 753 Net income attributable to American Honda Finance Corporation 223 178 98 184 683 Year ended March 31, 2016 Total revenues $ 1,663 $ 1,703 $ 1,741 $ 1,795 $ 6,902 Depreciation on operating leases 1,040 1,077 1,119 1,185 4,421 Interest expense 140 143 148 161 592 Other income 24 24 26 23 97 Total net revenues 529 515 504 489 2,037 Provision for credit losses 31 35 43 41 150 Early termination loss on operating leases 11 18 1 16 46 Impairment loss on operating leases — — — 8 8 Net income 227 240 223 220 910 Net income attributable to American Honda Finance Corporation 210 228 208 210 856 On a limited basis, we also finance customer purchases of non-Honda and non-Acura used automobiles. Retail loans may also include the financing of insurance products or vehicle service contracts. See “—Vehicle Service Contract Administration” below for more information. The terms of retail loans originated in the United States generally range from 24 to 72 months while the terms of retail loans originated in Canada generally range from 24 to 84 months. On a limited basis, we also acquire contracts for leases of used Honda and Acura automobiles and Honda motorcycles. In the case of leases originating in the United States, upon our acquisition of such leases, the dealer assigns all of its rights, title, and interest in the lease and the automobile to either our wholly-owned subsidiary, Honda Lease Trust (HLT) or its trustee, HVT, Inc., depending on the applicable state. HLT is a trust established to take assignments of and serve as holder of legal title to leased automobiles. In the case of leases originating in Canada, upon our acquisition of such leases, the dealer assigns all of its rights, title, and interest in the lease and the vehicle to our majority owned subsidiary HCFI.consumer financingconsumer-financing portfolio to evaluateensure the effectiveness of our underwriting guidelines, purchasing criteria and scorecard predictability of our customers.market basedmarket-based price. If the vehicle is not purchased by the grounding dealer, it then becomes available to Honda and Acura vehicle dealers through the VIPS online auction. If the vehicle is not sold to a Honda or Acura dealer, the auction is opened to any dealer. Off-lease vehicles that are not purchased through a VIPS auction and all repossessed vehicles are sold at physical auction sites throughout the United States. When deemed necessary, we recondition used vehicles prior to sale in order to enhance the vehicle values at auction. Additionally, vehicles to be sold at public auctions may be relocated in accordance with our goal to minimize oversupply at any given location and maximize sales proceeds.through the use ofusing outside collection agencies, locating and securing the collateral of charged-off accounts, and collecting lease end of term fees. Consumer financing contracts are transferred from our regional offices to the Recovery and Bankruptcy Center after charge-off, which occurs when they become 120 days contractually past due, payments due are no longer expected to be received, or the underlying product is sold or has been held in unsold repossessed inventory for 90 days, whichever occurs first. In addition, accounts subject to bankruptcy proceedings are assigned to the Recovery and Bankruptcy Center for tracking, monitoring and handling through the life of the loan or until the related customer is discharged from bankruptcy. If the customer is discharged or dismissed from bankruptcy, the account will return to the original regional office for servicing.through the use ofusing bonded and licensed repossession agencies. Subject to a state’sstate or provincial laws and recording, filing, and notice requirements, or other laws, we are generally permitted by applicable state lawor provincial laws to repossess automobiles or motorcycles upon default by the related customer. We typically decide whether or not to repossess a vehicle when the account is 45 to 60 or more days past due, subject to the laws and regulations governing repossession in the state or province where the automobile or motorcycle is located. sponsor incentive financing programs in the United States and Canada, respectively. These programs offer promotional rates on retail loans and leases to purchasers and lessees of Honda and Acura products. AHM or HCI, as applicable, payspay us a subsidysubsidies that enablesenable us to realize a market yield on any financing contract we indirectly finance under these programs. Market yield is based on, among other things, the credit quality of the customer and the length of the contract. Subsidy payments received on retail loans and leases are deferred and recognized as revenue over the term of the related contracts. The volume of incentive financing programs sponsored by AHM and HCI and the allocation of those programs between retail loans and leases may vary from fiscal period to fiscal period depending upon the respective marketing strategies of AHM and HCI. AHM and HCI’s marketing strategies are based in part on their business planning and control, in which we do not participate. Therefore, we cannot predict the level of incentive financing programs AHM and HCI may sponsor in the future. See “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview.” In the United States, wholesale flooring loans are also provided on a limited basis to non-Honda and non-Acura automobile dealerships whose ownership is directly affiliated with a Honda and/or Acura dealership or to multi-brand dealer organizations.product, although a grace period of three to seven days for payment may be provided to dealers.product. AHM and HCI sponsor incentive financingincentive-financing programs in the United States and Canada, respectively, to Honda and Acura dealers approved for wholesale flooring loans.typically use a third party to perform random periodic on-site physical inspections of financed dealership inventory at a frequency determined by the dealership’s scorecard and financial performance. Monitoring activities are performed more frequently for dealerships with higher levels of credit risk. and sell the repossessed assets, and seek other available legal remedies pursuant to the related wholesale flooring loan agreement and related guarantees consistent with commercially accepted practices and applicable laws. After the sale of a financed product to consumers in the ordinary course of business, we have no right to recover the product and are limited to the remedies under our wholesale flooring loan agreement with the dealer. Additionally, we have entered into agreements with AHM and HCI that provide for their repurchase at the outstanding financed amount, of new, unused, undamaged, and unregistered vehicle or equipment that have been repossessed from dealers who defaulted under the terms of its wholesale flooring agreement.Depending on a dealer’s level of credit risk, a dealer may be given a grace period of three to seven days to make payments. Collection efforts are initiated through the use ofusing our staff. We file replevin actions, send past due notices, enter into forbearance agreements, and renegotiate contracts with delinquent dealers. If we determine a dealer cannot meet the obligations under its wholesale flooring loan agreement, legal action may commence. Subject to recording, filing and notice requirements of state, provincial or other laws we are generally permitted by the applicable laws to repossess the underlying collateral that have not been sold to a buyer in the ordinary course of business.industryindustries in the United States and Canada isare very competitive. Providers of vehicle and similar product financing have traditionally competed based on the basis of interest rates charged, the quality of credit accepted, the flexibility of loan terms offered, the quality of service provided to dealers and customers, and the strength of dealer relationships.keep well agreementKeep Well Agreement (the HMC-HCFI Agreement), which became effective on September 26, 2005.incentive financingincentive-financing programs in the United States and Canada, respectively. These programs offer promotional rates on loans and leases to purchasers, lessees, and dealers of Honda and Acura products. AHM or HCI, as applicable, payspay us a subsidysubsidies that enablesenable us to realize a market yield on any financing contract we indirectly or directly finance under these programs. These subsidy payments supplement the revenues on our financing products offered under our incentive financing programs. See “—Consumer Financing—Incentive Financing Programs for Retail Loans and Leases” above for more information.AHFC issues fixed rate short-term notes to AHM to fund AHFC’s general corporate operations. As of March 31, 2017, AHFC had no outstanding notes issued to AHM. and American Honda Protection Products Corporation (AHPPC) and American Honda Service Contracts Corporation (AHSCC), a wholly-owned subsidiarysubsidiaries of AHM. HCFI performs marketing services for vehicle service contracts issued by HCI. We receive fees to perform administrative and marketing services for AHM, AHPPC, AHSCC or HCI, as applicable. entered into agreements with AHM and HCI that provide for their repurchase at the outstanding financed amount, of new, unused, undamaged, and unregistered vehicles or equipment that have been repossessed from dealers who defaulted under the terms of its wholesale flooring agreement.Geographic ConcentrationAs of March 31, 2017, for the outstanding retail loans and leases we acquired in the United States, approximately 17% and 10% were from customers residing in California and New York, respectively. Any material adverse changes to the economies or applicable laws in a given state could have a material adverse effect on our financial condition and results of operations.2017,2019, we had 1,4251,497 employees. We consider our employee relations to be satisfactory. We are not subject to any collective bargaining agreements with our employees. the basis of certain protected classes in any aspect of a credit transaction, requires the distribution of specified credit decision notices and limits the information that may be requested and considered in a credit transaction.
The Servicemembers Civil Relief Act is federal legislation that provides special protection to certain customers in military service and is designed to protect military personnel from personal hardship or loss resulting from financial obligations while in service.consumer financingconsumer-financing activities. We are also periodically subject to state audits and inquiries, which monitor our compliance with consumer and other regulations.keep well agreementsKeep Well Agreements with HMC and on the financial condition and results of operations of HMC. If these arrangements (or replacement arrangements acceptable to the rating agencies, if any) become unavailable to us, or if a credit rating of HMC is lowered, our credit ratings will also likely be adversely impacted, leading to higher borrowing costs. a recession. These periods have been accompanied by decreases in consumer demand for automobiles and other products. High unemployment, decreases in home values, and lack of availability of credit may lead to increased default rates. Significant increases in the inventory of used automobiles during periods of economic recession may also depress the prices at which returned or repossessed automobiles may be sold or delay the timing of these sales. Dealers may also be affected by an economic slowdown or recession, which in turn may increase the risk of default of certain dealers within our wholesale flooring and commercial financing portfolios. have entered into contracts to provide consumer financing, dealer financing, incentive financing, originations and servicing, all of which are exposed, in varying degrees, to changes in value due to movements in interest rates. Further, an increase in interest rates could increase our costs of providing dealer and consumer financing originations, which could, in turn, adversely affect our financing volumes because financing can be less attractive to our dealers and customers and qualifying for financing may be more difficult.onof foreign currency denominated debt in response to fluctuations in exchange rates of various currencies. Changes in exchange rates can have adverse effects on our results of operations, cash flows, and financial condition.and medium term notes, asset-backed securities, and bank loans and borrowings from AHM and HCI, as applicable.government regulations.industry standards. In the event that we are unable to raise the funds we require at reasonable rates, we may curtail our various loan origination activitiesoriginations or incur the effects of increased costs of operation. Reducing loan origination activitiesoriginations or increasing the rates we charge consumers and dealers to accommodate increased costs of operation may adversely affect our ability to remain a preferred source of financing for consumers and dealers for Honda and Acura products and will have an adverse effect on our results of operations, cash flows, and financial condition. See “—Fluctuations in interest rates could have an adverse impact on our results of operations, cash flows, and financial condition” above.keep well agreements.keep well agreementsKeep Well Agreements with HMC and on the financial condition and results of operations of HMC. If these arrangements (or replacement arrangements acceptable to the rating agencies, if any) become unavailable to us, or if a credit rating of HMC is lowered, our credit ratings will also likely be adversely impacted, leading to higher borrowing costs.rates, levels of consumer debt service burden and personal income growth rates. Our level of credit risk on our dealer financingdealer-financing portfolio is influenced primarily by the financial strength of dealers within the portfolio, the concentration of dealers demonstrating financial strength, the quality of the collateral securing the financing within the portfolio and economic factors. An increase in credit risk would increase our provision for credit losses and early termination losses on operating lease assets, which would have a negative impact on our results of operations, cash flows, and financial condition.leasing volumes acrossthose of the automotive industry have increased significantly in recent years. As a result, the supply of off-lease vehicles will continue to increase over the next several years, which could negatively impactaffect used vehicle prices. Our results of operations, cash flows, and financial condition could be adversely affected by declines in the value of returned lease vehicles.maymight be lower than the projected amount, projected, which would reduce the profitability of the lease transaction and could have the potential to adversely affect our gain or loss on the disposition of lease vehicles and our results of operations.operations, cash flows and financial condition. Refer to “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies—Determination of Lease Residual Values” for additional information regarding our estimates.as a resultbecause of trading, clearing, lending, and other relationships, and as a result, financial and political difficulties in one country or region may adversely affect financial institutions in other jurisdictions, including those with which we have relationships. The failure of any financial institutionsinstitution and other counterpartiescounterparty to which we have exposure, directly or indirectly, to perform their contractual obligations, and any losses resulting from that failure, could have a material adverse effect on our results of operations, cash flows, or financial condition. Providers of vehicle financing have traditionally competed on the basis of interest rates charged, the quality of credit accepted, the flexibility of loan terms offered, the quality of service provided to dealers and customers, and strong dealer relationships.impactaffect our business, results of operations, cash flows and financial condition.impactsaffects the offering, marketing, and regulation of consumer financial products and services offered by financial institutions. The potential impact of the Dodd-Frank Act and its rules and regulations may include supervision and examination, limitations on our ability to expand product and service offerings and new or modified disclosure requirements.consumer financingconsumer-financing activities. We are also periodically subject to state audits and inquiries, which monitor our compliance with consumer and other regulations. We expect state regulators to continue their supervision and regulation of financial products and services within their jurisdictions.and technologicaltechnology systems to help us manage and maintain our operations and are exposed to risk of loss resulting from breaches in the security or other failures of these systems. Any failure, upgrade, replacement or interruption of these systems could disrupt our normal operating procedures and have an adverse effect on our results of operations, cash flows, and financial condition.We collect and store certain personal and financial information from customers, related parties, and employees. We also store confidential business and technical information. Security breaches could expose us to a risk of loss of this information, regulatory scrutiny, claims for damages, actions, and penalties, litigation, reputational harm, and a loss of confidence that could potentially have an adverse impact on future business with current and potential customers. In addition, any upgrade or replacement of our major transaction systems could have a significant impact on our ability to conduct our core business operations and increase our risk of loss resulting from disruptions of normal operating processes and procedures that may occur during and after the implementation of new information and transaction systems. These factors could have an adverse effect on our results of operations, cash flows, and financial condition.ourinternal and third party information and technology systems. We also store confidential business, employee and technical information. A security breach or cyber attack of these systems, due to the actions of third parties, employee error, malfeasanceincluding those caused by physical or otherwise,electronic break-ins, computer virus, malware, attacks by hackers or foreign governments, disruptions from authorized access and tampering (including through social engineering such as phishing attacks) and similar breaches, could expose us to a risk of loss of this information, regulatory scrutiny, claims for damages, penalties, litigation, reputational harm, and a loss of confidence that could potentially have an adverse impact on current and future business with current and potential customers. Information security risks have increased recently because of new technologies, the use of the internet and telecommunications technologies (including mobile devices) to conduct financial and other business transactions, and the increased sophistication and activities of organized crime, perpetrators of fraud, hackers, terrorists, and others. In some cases, it may be difficult to anticipate or immediately detect security breaches and the damage they cause. We regularlymonitor and review our security systems and using a Total Quality Management methodology, we update the securityposture of our systems. these systems based on the current threat environment.orand future privacy, data protection and information security laws affecting customer or employee data to which we are subject could result in higher compliance and technology costs and could materially and adversely affect our profitability.costs. Our failure to comply with privacy, data protection and information security laws could result in potentially significant regulatory and/or governmental investigations and/or actions, litigation, fines, sanctions, and damage to our reputation.reputation and could materially and adversely affect our profitability.pensiondefined benefit plan costs and the pension coststhose of AHM and HCI may affect our financial condition, cash flows, and results of operations.andor HCI’s pensiondefined benefit plans. HMC also has a pensiondefined benefit plan but a great majority of our employees do not participate in that plan. The amount of pension benefits and lump-sum payments provided in those plans are primarily based on the combination of years of service and compensation. AHM and HCI each determine and make periodic contributions to their respective defined benefit plans pursuant to applicable regulations and we are allocated our share of pension plan costs due to the participation of our employees. Since benefit obligations and pension costs are based on many assumptions, including, but not limited to, participant mortality, discount rate, rate of salary increase, expected long-term rate of return on plan assets, differences in actual expenses and costs or changes in those assumptions could affect AHM’s, HCI’s, and our cash contributions and liquidity. Under the Employee Retirement Income Security Act of 1974 (ERISA), we are jointly and severally liable for the obligations under AHM’s plans that are subject to ERISA, even for participants in the plans that are not our employees. and there is no established public trading market for AHFC’s common stock, and there is no intention to create a public market or list the common stock on any securities exchange. As of the date of this annual report, there are no shares of AHFC common stock that are subject to outstanding options or warrants to purchase, or securities convertible into AHFC common stock. No shares of AHFC common stock can be sold pursuant to Rule 144 under the Securities Act.has notdeclared and paid dividends in the past, however we expect AHFC to paysemi-annual cash dividends to its parent, AHM, of $235 million and $271 million during the fiscal year endingended March 31, 2018.Use of Proceeds from Registered SecuritiesOn August 27, 2013, AHFC’s Registration Statement on Form 10 with respect to2019 and $141 million and $206 million during the registration of its common stock became effective. On September 6, 2013, AHFC filed an automatic shelf registration statement on Form S-3 that became effective upon its filing (Initial Registration Statement). On September 25, 2013, AHFC established a public medium term note program that registered the offer and sale of up to $5.0 billion in an aggregate principal amount of Medium Term Notes, Series A with the SEC (refer to Commission File Number 333-191021). On August 10, 2015, AHFC increased the maximum aggregate principal amount of Public Medium Term Notes authorized for issuance and sale to $30.0 billion. On August 10, 2016, AHFC filed a new automatic shelf registration on Form S-3 to register the offer and sale of its Public Medium Term Notes.The aggregate principal amount of Public Medium Term Notes offered under this program may be increased from time to time. During the period of April 1, 2016 to August 10, 2016, AHFC issued $1.8 billion aggregate principal amount of Public Medium Term Notes off of the Initial Registration Statement and the aggregate underwriting discounts and commissions, finders’ fees, and other related costs paid was approximately $6 million. AHFC has used the net proceeds received from the sale of these Public Medium Term Notes to repay other existing indebtedness, acquire retail loans and/or leases, provide wholesale flooring and commercial loans and for other general corporate purposes. The following institutions served as managing underwriters for the offering and sale of these AHFC’s Public Medium Term Notes: Barclays Capital Inc., BNP Paribas Securities Corp., Mizuho Securities USA Inc., and SMBC Nikko Securities America, Inc.20172019 and 20162018 and the consolidated statements of income data for the fiscal years ended March 31, 2017, 20162019, 2018 and 20152017 from our audited consolidated financial statements included elsewhere in this annual report. We derived the consolidated balance sheet data as of March 31, 20152017 from our audited consolidated financial statements that are not included in this annual report. Our historical results are not necessarily indicative of the results to be expected in any future period. Years ended March 31, 2019 2018 2017 (U.S. dollars in millions) Consolidated Statement of Income Data Revenues: Retail loans and direct financing leases $ 1,614 $ 1,382 $ 1,222 Dealer loans 232 175 147 Operating leases 7,253 6,890 6,333 Total revenues 9,099 8,447 7,702 Depreciation on operating leases 5,520 5,481 5,056 Interest expense 1,190 897 728 Net revenues 2,389 2,069 1,918 Gain on disposition of lease vehicles 131 93 43 Other income 71 56 105 Total net revenues 2,591 2,218 2,066 Expenses: General and administrative expenses 456 439 434 Provision for credit losses 249 244 210 Impairment loss on operating leases 14 — — Early termination loss on operating leases 101 108 73 Loss on lease residual values — 3 15 (Gain)/Loss on derivative instruments 509 (550 ) 315 (Gain)/Loss on foreign currency revaluation of debt (407 ) 494 (171 ) Total expenses 922 738 876 Income before income taxes 1,669 1,480 1,190 Income tax expense/(benefit) 428 (2,629 ) 437 Net income 1,241 4,109 753 Less: Net income attributable to noncontrolling interest 96 100 70 Net income attributable to American Honda Finance Corporation $ 1,145 $ 4,009 $ 683 March 31, 2019 2018 2017 (U.S. dollars in millions) Consolidated Balance Sheet Data Retail loans and direct financing leases $ 34,792 $ 32,649 $ 31,047 Dealer loans 5,835 5,495 5,006 Allowance for credit losses (201 ) (179 ) (133 ) Write-down of lease residual values (2 ) (9 ) (16 ) Total finance receivables, net $ 40,424 $ 37,956 $ 35,904 Investment in operating leases, net $ 32,606 $ 31,817 $ 31,310 Total assets $ 75,964 $ 72,626 $ 69,854 Debt: Commercial paper $ 5,755 $ 5,167 $ 4,462 Related party debt 749 1,085 1,201 Bank loans 4,962 5,419 5,883 Medium term note programs 25,984 24,207 23,523 Other debt 3,514 3,250 2,736 Secured debt 8,790 8,733 8,422 Total debt $ 49,754 $ 47,861 $ 46,227 $ 16,336 $ 15,730 $ 12,043 As of or for the years ended March 31, 2019 2018 2017 Other Key Consolidated Financial Data Ratio of debt to shareholder’s equity 3.05x 3.04x 3.84x (1)(1) Net of unearned interest, fees and subsidy income, and deferred origination costs. (2)(2) Excludes noncontrolling interest in subsidiary. (3)For the purposes of this ratio, earnings means consolidated income before income taxes plus fixed charges. Fixed charges consist of interest expense and the interest portion of rental expense. One-third of all rental expense is deemed to be interest.incentive financingincentive-financing programs are offered. Increases in incentive financing programs generally increase our financing penetration rates, which typically results in increased financing acquisition volumes for us. The amount of subsidy payments we receive from AHM and HCI is dependent on the terms of the incentive financing programs and the interest rate environment. Subsidy payments are received upon acquisition and recognized in revenue throughout the life of the loan or lease; therefore, a significant change in the level of incentive financing programs in a fiscal period often may not be reflected intypically only has a limited impact on our results of operations for that period. The amount of subsidy income we recognize in a fiscal period is dependent on the cumulative level of subsidized contracts outstanding that were acquired through incentive financing programs.capabilities.practices. Our cost of funds is facilitated by the diversity of our funding sources, and effective interest rate and foreign currency exchange risk management. We manage expenses to increasesupport our profitability, including adjusting staffing needs based upon our business volumes and centralizing supportcertain functions. Additionally, we use risk and compliance management practices to optimize credit and residual value risk levels and maintain compliance with our pricing, underwriting and servicing policies at the United States, Canadian, state and provincial levels.This report contains translations of certain foreign currency amounts into U.S. dollars at the rates specified below solely for your convenience. These translations should not be construed as representations that the foreign currency amounts actually represent such U.S. dollar amounts or that they could be converted into U.S. dollars at the rates indicated. U.S. dollar equivalents for “C$” (Canadian dollar), “€” (Euro) and “£” (Sterling) amounts are calculated based on the exchange rates on March 31, 2017 of 1.3318, 0.9360 and 0.7978, respectively, per U.S. dollar.2017”2019” and “fiscal year 2016”2018” refer to our fiscal year ended March 31, 20172019 and our fiscal year ended March 31, 2016,2018, respectively. Years ended March 31, 2019 2018 2017 (U.S. dollars in millions) Income before income taxes: United States segment $ 1,396 $ 1,194 $ 991 Canada segment 273 286 199 Total income before income taxes $ 1,669 $ 1,480 $ 1,190 20172019 and 2016$1,190$1,669 million in fiscal year 20172019 compared to $1,458$1,480 million in fiscal year 2016.2018. This declineincrease of $268$189 million, or 18%13%, was primarily due to a loss on derivative instruments of $315 million during fiscal year 2017 compared to a gain of $101 million during fiscal year 2016, an increase in interest expense of $136 million, an increase in provision for credit loss of $60 million, a decline in revenue from direct financing leases of $38 million, an increase in general and administrative expenses of $31 million and an increase in early termination loss on operating leases of $27 million, partially offset by a gain on the revaluation of foreign currency denominated debt of $171 million during fiscal year 2017 compared to a loss of $60 million during fiscal year 2016, an increase in operating lease revenue, net of depreciation, of $175 million and an increase in revenue from dealer loans of $25 million.Comparison of Fiscal Years Ended March 31, 2016 and 2015Our consolidated income before income taxes was $1,458 million in fiscal year 2016 compared to $1,552 million in fiscal year 2015. This decrease of $94 million, or 6%, was primarily due to a loss on foreign currency revaluation of debt of $60 million during fiscal year 2016 compared to a gain of $353 million during fiscal year 2015, a decrease in retail loan revenues of $81 million, a decrease in direct financing lease revenues of $63 million, an increase in provision for credit losses of $36 million, an increase in interest expense of $12 million, an increase in early termination loss on operating leases of $9 million, an increase in loss on lease residual values of $9 million, and an incurrence of an impairment loss on operating leases of $8 million in fiscal year 2016, which didfollowing: Years ended March 31, 2019 2018 Difference % Change (U.S. dollars in millions) Net revenues: Direct financing leases $ 4 $ 13 $ (9 ) (69 %) Retail 1,610 1,369 241 18 % Dealer 232 175 57 33 % Operating leases, net of depreciation 1,733 1,409 324 23 % Interest expense (1,190 ) (897 ) (293 ) 33 % Gain on disposition of lease vehicles 131 93 38 41 % Other income 71 56 15 27 % Total net revenues 2,591 2,218 373 17 % Expenses: General and administrative expenses 456 439 17 4 % Provision for credit losses 249 244 5 2 % Impairment loss on operating leases 14 — 14 n/m Early termination loss on operating leases 101 108 (7 ) (6 )% (Gain)/Loss on derivative instruments 509 (550 ) 1,059 (193 %) (Gain)/Loss on foreign currency revaluation of debt (407 ) 494 (901 ) (182 %) Other — 3 (3 ) (100 %) Total expenses 922 738 184 25 % Total income before income taxes $ 1,669 $ 1,480 $ 189 13 % occur in fiscal year 2015, partially offset by a gain on derivative instruments of $101 million during fiscal year 2016 compared to a loss of $326 million during fiscal year 2015, an increase in operating lease revenue, net of depreciation, of $98 million and an increase in gain on disposition of lease vehicles of $14 million.meaningful20172019 and 20162018 United States Segment Canada Segment Consolidated Years ended March 31, Years ended March 31, Years ended March 31, 2019 2018 2017 2019 2018 2017 2019 2018 2017 (U.S. dollars in millions) Revenues: Direct financing leases $ — $ — $ — $ 4 $ 13 $ 34 $ 4 $ 13 $ 34 Retail 1,406 1,181 1,030 204 188 158 1,610 1,369 1,188 Dealer 211 158 133 21 17 14 232 175 147 Operating leases 6,001 5,815 5,547 1,252 1,075 786 7,253 6,890 6,333 Total revenues 7,618 7,154 6,710 1,481 1,293 992 9,099 8,447 7,702 Depreciation on operating leases 4,520 4,598 4,403 1,000 883 653 5,520 5,481 5,056 Interest expense 1,015 770 638 175 127 90 1,190 897 728 Net revenues 2,083 1,786 1,669 306 283 249 2,389 2,069 1,918 100 66 24 31 27 19 131 93 43 Other income 63 50 100 8 6 5 71 56 105 Total net revenues 2,246 1,902 1,793 345 316 273 2,591 2,218 2,066 Expenses: 403 384 383 53 55 51 456 439 434 Provision for credit losses 242 239 199 7 5 11 249 244 210 Impairment loss on operating leases 14 — — — — — 14 — — 98 105 67 3 3 6 101 108 73 Loss on lease residual values — — — — 3 15 — 3 15 500 (514 ) 324 9 (36 ) (9 ) 509 (550 ) 315 (407 ) 494 (171 ) — — — (407 ) 494 (171 ) Income before income taxes $ 1,396 $ 1,194 $ 991 $ 273 $ 286 $ 199 $ 1,669 $ 1,480 $ 1,190 declinedincreased by $11$225 million, or 1%19%, during fiscal year 20172019 compared to fiscal year 2016.2018. The declineincrease in revenue was primarily attributable to lowerhigher yields due to the rising interest rate environment and higher average outstanding retail loans, which was partially offset by higher yields on such loans.balances. Revenue from retail loans in the Canada segment increased by $14$16 million, or 10%9%, primarilyduring fiscal year 2019 compared to fiscal year 2018. The increase in revenue was attributable to higher yields due to higher average outstanding retail loans. increased by $524 million, or 10%, in the United States segment andincreased by $286$186 million, or 57%3%, during fiscal year 2019 compared to fiscal year 2018. The increase was primarily due to higher net revenue on more recently acquired operating lease assets due to the rising interest rate environment. Operating lease revenue in the Canada segment increased by $177 million, or 16%, during fiscal year 20172019 compared to fiscal year 2016.2018. The increases inincrease was attributable to higher net revenue wereon more recently acquired operating lease assets due to the rising interest rate environment and higher average outstanding operating lease assets in both the United States and Canada segments.$38$9 million, or 53%69%, during fiscal year 20172019 compared to fiscal year 20162018 due to the continued decline in outstandingrun-off of direct financing lease assets.$24$53 million, or 22%34%, during fiscal year 20172019 compared to fiscal year 2016,2018. The increase was attributable to higher yields due to an increase inthe rising interest rate environment and higher average outstanding dealer loans and higher yields on such loans.balances. Revenue from dealer loans in the Canada segment increased by $1$4 million, or 8%24%, during fiscal year 2017 compared to fiscal year 2016,primarily due to an increase in average outstanding dealer loans.higher yields due to the rising interest rate environment.$156$192 million, or 14%13%, to $1,232$1,633 million during fiscal year 20172019 compared to $1,076$1,441 million during fiscal year 2016. This2018. The increase was primarily attributable to higher average outstandingsubsidy payments received. As a result of the rising interest rate environment, the average amount of subsidy payments necessary for us to realize market yields on incentive leases. increased by $391 million, or 10%, in the United States segment anddecreased by $244$78 million, or 60%2%, during fiscal year 2019 compared to fiscal year 2018. The decrease in depreciation was primarily due to improvements in expected used vehicle values during fiscal year 2019 compared to fiscal year 2018. Depreciation on operating lease assets in the Canada segment during fiscal year 2017 compared to fiscal year 2016. The increases in depreciation were primarilyincreased by $117 million, or 13%, due to the growth inhigher average outstanding operating lease assets in both the United States and Canada segments. The increases in depreciation were also due in part to declines in estimated used vehicle prices in both the United States and Canada segments.increased by $133 million, or 13%, in the United States segment andincreased by $42$264 million, or 46%22%, during fiscal year 2019 compared to fiscal year 2018. The increase in operating lease revenue, net of depreciation was attributable to higher net revenue on more recently acquired operating lease assets due to the rising interest rate environment and decrease in depreciation due to improvements in expected used vehicle values. Operating lease revenue, net of depreciation in the Canada segment increased by $60 million, or 31%, during fiscal year 20172019 compared to fiscal year 2016.2018. The increases were primarilyincrease in operating lease revenue, net of depreciation, was attributable to the growth in ourhigher net revenue on more recently acquired operating lease assets in bothdue to the United Statesrising interest rate environment and Canada segments.$120$245 million, or 23%32%, during fiscal year 20172019 compared to fiscal year 2016 primarily due2018. The increase was attributable to higher average interest rates.rates and an increase in average outstanding debt. Interest expense in the Canada segment increased by $16$48 million, or 22%38%, primarily due to an increase in average outstanding debt and higher average interest rates. See “—Liquidity and Capital Resources” below for more information.Gain/lossdeclinedincreased by $22$34 million, or 48%52%, during fiscal year 20172019 compared to fiscal year 2016. The lower gain was due to a decline in auction prices during the period and the impact of the delays in the disposition of returned lease vehicles that were affected by the recall announced in the fourth quarter of fiscal year 2016.2018. The gain on disposition of lease vehicles in the Canada segment increased by $14$4 million, or 280%15%. The increaseincreases in gains wasin both segments were primarily the result of higher volume of units with more favorable vehicle return rates and disposition proceeds than the assumptions that were reflected in their estimated residual values. See “—Financial Condition—Lease Residual Value Risk” below for more information.$65$3 million, or 49%1%, during fiscal year 20172019 compared to fiscal year 2016.2018. The increase in the provision was the result of higher net charge-offs and increasing our allowance for credit losses to reflect weaker credit performance of recent vintagesprimarily due in part to the rise in the provision for past due operating lease rental payments and an increase in the volume of retail loans with 72-month terms.provision for impaired dealer loans. The provision for credit losses in the Canada segment declinedincreased by $5$2 million, or 31%40%, during fiscal year 20172019 compared to fiscal year 2016, due2018. During fiscal year 2018, the reduction in the allowance for credit losses in the Canada segment in order to reflect improving credit performance resulted in a lower net charge-offs.provision for credit losses. During fiscal year 2019, there was a slight increase in the allowance for credit losses. See “—Financial Condition—Credit Risk” below for more information.Early terminationEarly termination lossesincreased by $26 million, or 63%, during fiscal year 2017 compared to fiscal year 2016. The increase in early termination losses during fiscal year 2017 was primarily2019 due to the growth in operating lease assets and an increase in the mixlower estimated residual value of leases with lower credit grades. During fiscal year 2016, we reduced our estimatecertain models of early termination losses which lowered the amount of losses we recognized during the period. Early termination losses on operating leases in the Canada segment increased by $1 million, or 20%, primarily due to the growth in operating lease assets. See “—Financial Condition—Credit Risk” below for more information.Impairment loss on operating leases2017. Impairment2018. See “ of $6 million were recognized in the United States segment and $2decreased by $7 million, or 7%, during fiscal year 2019 compared to fiscal year 2018 due to a smaller increase in estimated early termination losses. Early termination losses on operating leases in the Canada segment were flat during fiscal year 2016 due2019 compared to the expected delay in disposition of lease vehicles affected by the recall in the fourth quarter of fiscal year 2016.2018. See “—“—Financial Condition—Lease Residual ValueCredit Risk” below for more information.increaseddecreased by $2$3 million, or 15%100%, during fiscal year 20172019 compared to fiscal year 2016,2018, primarily due to higher expected loss severities.the run-off of direct financing lease assets. See “—Financial Condition—Lease Residual Value Risk” below for more information.$324$500 million during fiscal year 20172019 compared to a gain of $116$514 million during fiscal year 2016.2018. The loss in fiscal year 20172019 was attributable to lossesa loss on cross currency swaps of $486 million and pay fixed interest rate swaps of $161 million, partially offset by gains on pay float interest rate swaps of $235 million and cross currency swaps of $228 million, which were partially offset by gains on pay fixed interest rate swaps of $139$147 million. The losses on pay float interest rate swaps and gains on pay fixed interest rate swaps during fiscal year 2017 were due to a rise in interest rates. The lossesloss on cross currency swaps during fiscal year 2017 were2019 was primarily attributable to the U.S. dollar strengthening against the Euro and Sterling during the period. The losses on pay fixed interest rate swaps and gains on pay float interest rate swaps during fiscal year 2019 were primarily due to declines in applicable swap rates during the period. In the Canada segment, we recognized a gainloss on derivative instruments of $9 million during fiscal year 20172019 compared to a lossgain of $15$36 million during fiscal year 2016.2018. The gainslosses during fiscal year 20172019 were due to a risedeclines in Canadian interest rates.applicable swap rates during the period. See “—Derivatives” below for more information.$171$407 million during fiscal year 20172019 compared to a loss of $60$494 million during fiscal year 2016.2018. The gain during fiscal year 20172019 was primarily due to the U.S. dollar strengthening against the Euro and Sterling during the period.36.7%25.6% for fiscal year 20172019 and 37.6%(177.6)% for fiscal year 2016.2018. The decreaseincrease in the effective tax rate for fiscal year 20172019 was primarily due to a change in the estimated stateimpact of the new U.S. federal income tax rate and the effect of state tax law changes.Transition Tax under the Tax Cuts and Jobs Act (Tax Act). For additional information regarding income taxes, see Note 7—Income Taxes of Notes to Consolidated Financial Statements. Years ended March 31, 2019 2018 2017 Acquired Acquired Acquired United States Segment Retail loans: New auto 486 332 477 307 464 325 Used auto 123 26 104 26 88 9 Motorcycle 68 4 72 11 74 11 Other 1 — 1 — 1 — Total retail loans 678 362 654 344 627 345 Leases 495 438 452 361 514 470 Canada Segment Retail loans: New auto 63 61 70 68 67 63 Used auto 5 1 9 6 10 6 Motorcycle 7 6 8 7 6 4 Other 1 — — — 1 — Total retail loans 76 68 87 81 84 73 Leases 92 91 85 84 81 80 Consolidated Retail loans: New auto 549 393 547 375 531 388 Used auto 128 27 113 32 98 15 Motorcycle 75 10 80 18 80 15 Other 2 — 1 — 2 — Total retail loans 754 430 741 425 711 418 Leases 587 529 537 445 595 550 (1)(1) A unit represents one retail loan or lease contract, as noted, that was originated in the United States and acquired by AHFC or its subsidiaries, or that was originated in Canada and acquired by HCFI, in each case during the period shown. (2)(2) Represents the number of retail loans and leases acquired through incentive financing programs sponsored by AHM and/or HCI and only those contracts with subsidy payments. Excludes contracts where contractual rates met or exceeded ourAHFC’s yield requirements and subsidy payments were not required. Years ended March 31, 2019 2018 2017 United States Segment New auto 61 % 57 % 59 % Motorcycle 36 % 38 % 39 % Canada Segment New auto 79 % 78 % 77 % Motorcycle 29 % 32 % 24 % Consolidated New auto 63 % 59 % 61 % Motorcycle 35 % 37 % 37 % March 31, March 31, 2019 2018 2017 2019 2018 2017 (U.S. dollars in millions) United States Segment Retail loans: New auto $ 25,201 $ 23,700 $ 22,837 1,569 1,590 1,610 Used auto 4,522 3,685 3,154 318 268 234 Motorcycle 1,055 1,028 993 190 193 191 Other 49 46 51 3 4 4 Total retail loans $ 30,827 $ 28,459 $ 27,035 2,080 2,055 2,039 $ 7,896 $ 7,633 $ 7,748 765 691 690 Investment in operating leases $ 27,493 $ 27,040 $ 27,380 1,300 1,301 1,294 Canada Segment Retail loans: New auto $ 3,430 $ 3,463 $ 3,067 259 245 219 Used auto 226 309 345 29 36 44 Motorcycle 83 86 73 20 19 16 Other 3 3 3 1 2 2 Total retail loans $ 3,742 $ 3,861 $ 3,488 309 302 281 $ 1,177 $ 1,262 $ 764 93 89 59 Direct financing leases $ 28 $ 141 $ 375 4 15 34 Investment in operating leases $ 5,113 $ 4,777 $ 3,930 289 259 212 Consolidated Retail loans: New auto $ 28,631 $ 27,163 $ 25,904 1,828 1,835 1,829 Used auto 4,748 3,994 3,499 347 304 278 Motorcycle 1,138 1,114 1,066 210 212 207 Other 52 49 54 4 6 6 Total retail loans $ 34,569 $ 32,320 $ 30,523 2,389 2,357 2,320 $ 9,073 $ 8,895 $ 8,512 858 780 749 Direct financing leases $ 28 $ 141 $ 375 4 15 34 Investment in operating leases $ 32,606 $ 31,817 $ 31,310 1,589 1,560 1,506 (1)(1) A unit represents one retail loan or lease contract, as noted, that was outstanding as of the date shown. (2)(2) Securitized retail loans represent the portion of total retail loans that have been sold in securitization transactions but continue to be recognized on our balance sheet. Securitized retail loans are included in the amounts for total retail loans. 12%4% during fiscal year 2019 compared to fiscal year 2018 primarily due to the increase in non-sponsored used and leasesponsored new auto loan acquisition volumes. Lease acquisition volumes increased by 3%10% during fiscal year 20172019 compared to fiscal year 20162018 primarily due to anthe increase in incentive program volumes. AHM continued to focus its support on lease incentive programs compared with retail loan incentive programs during fiscal year 2017.increaseddecreased by 11%13% during fiscal year 20172019 compared to fiscal year 20162018 primarily due to higherthe decline in retail loan incentive volumes. Lease acquisition volumes were consistentincreased by 8% during fiscal year 20172019 compared to fiscal year 2016.2018 due to the increase in incentive program volumes. Outstanding direct financing lease assets continued to decline and operating lease assets continued to increase during fiscal year 20172019 as the result of our remaining direct financing leases maturing and all newly acquired leases being classified as operating leases. March 31, 2019 2018 2017 United States Segment Automobile 30 % 28 % 28 % Motorcycle 97 % 98 % 97 % Other 20 % 21 % 21 % Canada Segment Automobile 35 % 36 % 35 % Motorcycle 95 % 95 % 95 % Other 95 % 95 % 95 % Consolidated Automobile 31 % 30 % 29 % Motorcycle 97 % 97 % 97 % Other 22 % 23 % 24 % Years ended March 31, 2019 2018 2017 United States Segment Automobile 27 % 28 % 27 % Motorcycle 97 % 98 % 97 % Other 7 % 8 % 7 % Canada Segment Automobile 32 % 31 % 31 % Motorcycle 92 % 94 % 96 % Other 96 % 95 % 98 % Consolidated Automobile 27 % 28 % 27 % Motorcycle 96 % 97 % 97 % Other 9 % 10 % 10 % (1)A unit represents one automobile, motorcycle, power equipment, or marine engine, as applicable, financed through a wholesale flooring loan that was outstanding as of the date shown. March 31, March 31, 2019 2018 2017 2019 2018 2017 (U.S. dollars in millions) United States Segment Wholesale flooring loans: Automobile 3,308 3,075 2,823 121 113 111 Motorcycle 750 738 684 101 100 93 Other 59 60 64 63 67 73 Total wholesale flooring loans 4,117 3,873 3,571 285 280 277 Commercial loans 1,084 978 841 Canada Segment Wholesale flooring loans: Automobile 441 452 414 17 18 18 Motorcycle 95 98 86 13 13 13 Other 25 29 29 28 31 32 Total wholesale flooring loans 561 579 529 58 62 63 Commercial loans 65 65 65 Consolidated Wholesale flooring loans: Automobile 3,749 3,527 3,237 138 131 129 Motorcycle 845 836 770 114 113 106 Other 84 89 93 91 98 105 Total wholesale flooring loans 4,678 4,452 4,100 343 342 340 Commercial loans 1,149 1,043 906 rates can increase the likelihood of defaults. Declines in used vehicle prices can reduce the amount of recoveries on repossessed collateral. We manage our exposure to credit risk in retail loans and direct financing leases by monitoring and adjusting our underwriting standards, which affect the level of credit risk that we assume, pricing contracts for expected losses, and focusing collection efforts to minimize losses.entered into agreements with AHM and HCI that provide for their repurchase at the outstanding financed amount, of new, unused, undamaged and unregistered vehiclevehicles or equipment that have been repossessed from dealers who defaulted under the terms of its wholesale flooring agreement. As of or for the years ended March 31, 2019 2018 2017 (U.S. dollars in millions) United States Segment Finance receivables: Allowance for credit losses at beginning of period $ 173 $ 124 $ 83 Provision for credit losses 203 209 177 Charge-offs, net of recoveries (182 ) (160 ) (136 ) Allowance for credit losses at end of period $ 194 $ 173 $ 124 0.53 % 0.51 % 0.39 % 0.51 % 0.49 % 0.43 % Delinquencies (60 or more days past due): $ 104 $ 56 $ 42 0.28 % 0.17 % 0.13 % Operating leases: Early termination loss on operating leases $ 98 $ 105 $ 67 39 30 22 Canada Segment Finance receivables: Allowance for credit losses at beginning of period $ 6 $ 9 $ 10 Provision for credit losses 6 4 10 Charge-offs, net of recoveries (5 ) (7 ) (11 ) Effect of translation adjustment — — — Allowance for credit losses at end of period $ 7 $ 6 $ 9 0.14 % 0.13 % 0.20 % 0.12 % 0.16 % 0.24 % Delinquencies (60 or more days past due): $ 4 $ 8 $ 7 0.09 % 0.16 % 0.15 % Operating leases: Early termination loss on operating leases $ 3 $ 3 $ 6 1 1 1 Consolidated Finance receivables: Allowance for credit losses at beginning of period $ 179 $ 133 $ 93 Provision for credit losses 209 213 187 Charge-offs, net of recoveries (187 ) (167 ) (147 ) Effect of translation adjustment — — — Allowance for credit losses at end of period $ 201 $ 179 $ 133 0.49 % 0.46 % 0.36 % 0.47 % 0.44 % 0.41 % Delinquencies (60 or more days past due): $ 108 $ 64 $ 49 0.26 % 0.17 % 0.13 % Operating leases: Early termination loss on operating leases $ 101 $ 108 $ 73 40 31 23 (1)(1) Ending and average receivable balances exclude the allowance for credit losses, write-down of lease residual values, unearned subvention income related to our incentive financing programs and deferred origination costs. Average receivable balances are calculated based on the average of each month’s ending receivables balance for that fiscal year. (2)(2) For the purposes of determining whether a contract is delinquent, payment is generally considered to have been made, in the case of (i) dealer finance receivables, upon receipt of 100% of the payment when due and (ii) consumer finance receivables, upon receipt of 90% of the sum of the current monthly payment plus any overdue monthly payments. Delinquent amounts presented are the aggregated principal balances of delinquent finance receivables. (3)(3) Provisions for past due operating lease rental payments are also included in total provision for credit losses in our consolidated statements of income. $177$203 million during fiscal year 20172019 compared to $116$209 million during fiscal year 2016.2018. The increasedecline in the provision was due to a smaller increase in the result of higher net charge-offs and increasing our allowance for credit losses for retail loans during fiscal year 2019 compared to reflect weaker credit performancefiscal year 2018. Although net charge-offs of recent vintages. Default frequencies and loss severitiesretail loans during fiscal year 2019 were higher compared to fiscal year 2018, which continues the trend of increasing charge-offs that we have increasedbeen experiencing since fiscal year 2016, the rate of increase was lower compared to prior years. The increasing trend in recent vintages,charge-offs was primarily due in part to the increase in the volume of retail loans with 72-month terms.longer terms which typically have higher loan-to-value ratios and as a result, higher loss severities. The increasing trend in charge-offs was also the result of higher charge-off frequencies due to the increase in the volume of retail loans in our lowest credit grade tier and used auto loans. The decline in the provision for retail loans was partially offset by an increase in the provision for impaired dealer loans of $8 million. We recognized early termination losses on operating lease assets of $67$98 million during fiscal year 20172019 compared to $41$105 million during fiscal year 2016. The2018. Although the actual net losses we realized during fiscal year 2019 continued to increase incompared to prior years, the rate of increase has slowed. As a result, the increase to the estimated early termination losses we recognized during fiscal year 20172019 was primarily duelower compared to the growth in operating lease assets andfiscal year 2018. During fiscal year 2019, there was an increase in the mixfrequency of leases withlessee defaults which was partially offset by lower loss severities on early terminations. The increase in the frequency of lessee defaults contributed to the increase in provision for credit grades.$10$6 million during fiscal year 20172019 compared to $15$4 million during fiscal year 2016. The decline2018. During fiscal year 2018, the reduction in the allowance for credit losses in the Canada segment in order to reflect improving credit performance resulted in a lower provision for credit losseslosses. During fiscal year 2019, there was duea slight increase in part to a decline in net charge-offs.the allowance for credit losses. Early termination losses on operating lease assets was $6$3 million during fiscal year 20172019, which was flat compared to $5 million during fiscal year 2016. The increase in early termination losses was primarily due to the growth in operating lease assets.values at the end of the lease term.leasing volumes acrossthose of the automotive industry have increased significantly in recent years. As a result, the supply of off-lease vehicles will continue to increase over the next several years, which could negatively impact used vehicle prices. For operating leases, adjustments to estimated residual values are made on a straight linestraight-line basis over the remaining term of the lease and recognized as depreciation expense. For direct financing leases, downward adjustments for declines in estimated residual values deemed to be other-than-temporary are recognized as a loss on lease residual values in the period in which the estimate changed. Additional information regarding lease residual values is provided in the discussion of “—Critical Accounting Policies—Determination of Lease Residual Values” below.Certain Honda and Acura vehicles were recalled during the fourth quarter of fiscal year 2016 based on a determination of a safety related defect in driver’s airbag inflators. AHM and HCI instructed their authorized dealers to cease the sale of affected new and used vehicles until the recall repairs were completed. Tests for recoverability were performed on operating leases affected by this recall, which reflected the anticipated delays in the disposition of returned lease vehicles. For the operating lease assets that did not pass the test for recoverability, we recognized $6 million of impairment losses in the United States segment and $2 million of impairment losses in the Canada segment during fiscal year 2016. The loss on lease residual values of direct financing leases recognized in the Canada segment attributable to the expected delay in disposition of lease vehicles affected by this recall was approximately $5 million. During the second half of fiscal year 2017, we began repairing and selling the affected returned lease vehicles. Only a limited number of affected returned lease vehicles were still held for disposition as of March 31, 2017, which we expect to sell during fiscal year 2018. We did not recognize impairment losses due to declines in estimated residual values during fiscal year 2017 and fiscal year 2015. Years ended March 31, 2019 2018 2017 United States Segment Termination units: 319 264 267 155 167 132 Total termination units 474 431 399 Canada Segment Termination units: 65 49 45 6 7 8 Total termination units 71 56 53 Consolidated Termination units: 384 313 312 161 174 140 Total termination units 545 487 452 (1)(1) A unit represents one terminated lease by their method of disposition during the period shown. Unit counts do not include leases that were terminated due to lessee defaults. (2)(2) Includes vehicles purchased by lessees or dealers for the contractual residual value at lease maturity or the outstanding contractual balance if purchased prior to lease maturity. (3)(3) Includes vehicles sold through online auctions and market based pricing options under our dealer direct programs or through physical auctions. AHFC has reduced the use of related party debt as a funding source. As of March 31, 2017 AHFC had no outstanding notes issued to AHM. We incorporate a funding strategy that takes into consideration factors such as the interest rate environment, domestic and foreign capital market conditions, maturity profiles, and economic conditions. We believe that our funding sources, combined with cash provided by operating and investing activities, will provide sufficient liquidity for us to meet our debt service and working capital requirements over the next twelve months. March 31, March 31, 2019 2018 2017 2019 2018 2017 (U.S. dollars in millions) United States Segment Unsecured debt: Commercial paper $ 5,029 $ 4,437 $ 3,609 2.67 % 1.91 % 1.02 % Bank loans 3,896 4,393 4,890 3.30 % 2.52 % 1.68 % Private MTN program 999 1,698 2,946 3.84 % 5.40 % 3.77 % Public MTN program 24,117 21,398 19,491 2.35 % 1.92 % 1.63 % Euro MTN programme 868 1,111 1,086 1.89 % 1.95 % 1.83 % Total unsecured debt 34,909 33,037 32,022 Secured debt 7,671 7,521 7,680 2.41 % 1.68 % 1.24 % Total debt $ 42,580 $ 40,558 $ 39,702 Canada Segment Unsecured debt: Commercial paper $ 726 $ 730 $ 853 2.06 % 1.55 % 0.87 % Related party debt 749 1,085 1,201 2.18 % 1.64 % 0.95 % Bank loans 1,066 1,026 993 2.62 % 2.27 % 1.50 % Other debt 3,514 3,250 2,736 2.50 % 2.20 % 1.90 % Total unsecured debt 6,055 6,091 5,783 Secured debt 1,119 1,212 742 2.49 % 2.09 % 1.24 % Total debt $ 7,174 $ 7,303 $ 6,525 Consolidated Unsecured debt: Commercial paper $ 5,755 $ 5,167 $ 4,462 2.60 % 1.86 % 0.99 % Related party debt 749 1,085 1,201 2.18 % 1.64 % 0.95 % Bank loans 4,962 5,419 5,883 3.16 % 2.48 % 1.65 % Private MTN program 999 1,698 2,946 3.84 % 5.40 % 3.77 % Public MTN program 24,117 21,398 19,491 2.35 % 1.92 % 1.63 % Euro MTN programme 868 1,111 1,086 1.89 % 1.95 % 1.83 % Other debt 3,514 3,250 2,736 2.50 % 2.20 % 1.90 % Total unsecured debt 40,964 39,128 37,805 Secured debt 8,790 8,733 8,422 2.42 % 1.74 % 1.24 % Total debt $ 49,754 $ 47,861 $ 46,227 2017,2019, we had commercial paper programs in the United States of $7.0 billion and in Canada of C$2.0 billion ($1.5 billion). Interest rates on the commercial paper are fixed at the time of issuance. During fiscal year 2017,2019, consolidated commercial paper month-end outstanding principal balances ranged from $4.5$4.9 billion to $6.6 billion and the outstanding daily balance averaged $5.8$6.2 billion.AHFC issues fixed rate notes to AHM to help fund AHFC’s general corporate operations. As of March 31, 2017, AHFC had no outstanding notes issued to AHM. 2017, consolidated related party debt month-end principal balances ranged from $1.2 billion to $2.3 billion2019, AHFC did not enter into any term loan agreements and the outstanding daily balance averaged $1.9 billion.Bank LoansDuring fiscal year 2017, AHFCHCFI entered into fourone floating rate term loan agreementsagreement for an aggregate of $1.6 billion and HCFI entered into two floating rate term loan agreements for an aggregate of C$375350 million ($282262 million). As of March 31, 2017,2019, we had bank loans denominated in U.S. dollars and Canadian dollars with floating interest rates, in principal amounts ranging from $38$37 million to $600 million. As of March 31, 2017,2019, the remaining maturities of all bank loans outstanding ranged from 77235 days to approximately 5.5 years. The weighted average remaining maturitiesmaturity on all bank loans was 3.21.9 years as of March 31, 2017.2017,2019, management believes that AHFC and HCFI were in compliance with all covenants contained in our bank loans.theits Rule 144A Private MTN Program. As of March 31, 2017,2019, the remaining maturities of Private MTNs outstanding ranged from 164 days to approximately 4.5did not exceed 2.5 years. The weighted average remaining maturities of Private MTNs was 2.0 years as of March 31, 2017. Interest rates on outstanding Private MTNs were fixed. Private MTNs were issued pursuant to the terms of an issuing and paying agency agreement, which requires AHFC to comply with certain covenants, including negative pledge provisions, and includes customary events of defaults. As of March 31, 2017,2019, management believes that AHFC was in compliance with all covenants contained in the Private MTNs.MTNs. During fiscal year 2016, AHFC began issuingMTN, which includes the issuance of foreign currency denominated notes into international markets under this program.markets. The aggregate principal amount of MTNs offered under this program may be increased from time to time.2017,2019, AHFC issued $7.7$3.6 billion aggregate principal amount of MTNsU.S. dollar denominated in U.S. dollars, Euro and Sterling,fixed rate MTNs, with an original maturity ranging from 1.0 year23 months to 10.05.0 years, bearing interest at$4.3 billion aggregate principal amount of U.S. dollar denominated floating rate MTNs, with an original maturity ranging from 10 months to 3.0 years and €1.1 billion ($1.2 billion) of EUR denominated fixed and floating rates. Asrate MTNs, with an original maturity of March 31, 2017, the remaining maturities of all Public MTNs outstanding ranged from 35 days to approximately 9.43.5 years. The weighted average remaining maturities of all Public MTNs was 2.72.4 years as of March 31, 2017.2017,2019, management believes that AHFC was in compliance with all covenants under the indenture.2017,2019, the remaining maturities of Euro MTNs outstanding under this program ranged from 356 days to approximately 5.9did not exceed 3.9 years. The weighted average remaining maturities of all Euro MTNs was 2.2 years as of March 31, 2017. Interest rates on outstanding Euro MTNs are fixed or floating. Euro MTNs were issued pursuant to the terms of an agency agreement which requires AHFC to comply with certain covenants, including negative pledge provisions, and includes customary events of default. As of March 31, 2017,2019, management believes that AHFC was in compliance with all covenants contained in the Euro MTNs. March 31, 2019 2018 2017 (U.S. dollars in millions) U.S. dollar $ 21,210 $ 19,717 $ 20,141 Euro 3,969 3,623 2,607 Sterling 778 839 748 Japanese yen 27 28 27 Total $ 25,984 $ 24,207 $ 23,523 2017,2019, HCFI entered into fourthree private placement trades for an aggregate of C$1.21.4 billion ($901 million)1.0 billion). As of March 31, 2017,2019, the remaining maturities of all of HCFI’s Canadian notes outstanding ranged from 768 days to approximately 5.36.2 years. The weighted average remaining maturities of these notes was 2.52.9 years as of March 31, 2017.2017,2019, management believes that HCFI was in compliance with all covenants contained in the privately placed notes.to be legally isolated from us and the claims of our creditors. We continue to service the retail loans transferred to the trusts. Investors in the notes issued by a trust only have recourse to the assets of such trust and do not have recourse to AHFC, HCFI, or our other subsidiaries or to other trusts.2017,2019, we issued notes through asset-backed securitizations totaling $5.7$4.8 billion, which were secured by consumer finance receivables with an initial principal balance of $6.3$5.7 billion.March 2, 2018,February 28, 2020, a $2.1 billion three-year credit agreement, which expires on March 3, 2020,2021, and a $1.4 billion five-year credit agreement, which expires on March 3, 2022.2023. As of March 31, 2017,2019, no amounts were drawn upon under the AHFC credit agreements. AHFC intends to renew or replace these credit agreements prior to or on their respective expiration dates. as amended, which provides that HCFI may borrow up to C$800 million ($601599 million) on a one-year revolving basis and up to C$800 million ($601599 million) on a five-year revolving basis. The one-year tranche of the credit agreement expires on March 24, 201825, 2020 and the five-year tranche of the credit agreement expires on March 24, 2022.25, 2024. As of March 31, 2017,2019, no amounts were drawn upon under the HCFI credit agreement. HCFI intends to renew or replace the credit agreement prior to or on the expiration date of each respective tranche. respectively, to maintain a positive consolidated tangible net worth as defined in their respective credit agreements. The credit agreements, in addition to other customary events of default, include cross-default provisions and provisions for default if HMC does not maintain ownership, whether directly or indirectly, of at least 80% of the outstanding capital stock of AHFC or HCFI, as applicable. In addition, the AHFC and HCFI credit agreements contain provisions for default if HMC’s obligations under the HMC-AHFC Keep Well Agreement or the HMC-HCFI Keep Well Agreement, as applicable, become invalid, voidable, or unenforceable. All of these conditions, covenants and events of default are subject to important limitations and exceptions under the agreements governing the credit agreements. As of March 31, 2017,2019, management believes that AHFC and HCFI were in compliance with all covenants contained in the respective credit agreements.2017,2019, no amounts were drawn upon under these agreements. These agreements expire in September 2017.2019. AHFC intends to renew these credit agreements prior to or on their expiration dates.support compensation agreements,Support Compensation Agreements, dated October 1, 2005. We incurred expenses of $20$23 million $18, $22 million and $17$20 million during fiscal years 2017, 20162019, 2018 and 2015,2017, respectively, pursuant to these support compensation agreements.Support Compensation Agreements.2017,2019, AHFC and its consolidated subsidiaries had $57.1$58.7 billion of outstanding indebtedness and other liabilities, including current liabilities, of which $15.2$16.2 billion consisted of indebtedness and liabilities of our consolidated subsidiaries. None of AHFC’s consolidated subsidiaries had any outstanding preferred equity.2017:2019: Payments due by period Total 2020 2021 2022 2023 2024 Thereafter (U.S. dollars in millions) $ 41,050 $ 15,675 $ 9,099 $ 6,129 $ 5,324 $ 3,373 $ 1,450 8,803 4,678 2,573 1,222 288 42 — 2,484 986 652 380 219 128 119 Operating lease obligations 70 10 10 9 9 8 24 Total $ 52,407 $ 21,349 $ 12,334 $ 7,740 $ 5,840 $ 3,551 $ 1,593 (1)(1) Debt obligations reflect the remaining principal obligations of our outstanding debt and do not reflect unamortized debt discounts and fees. Repayment schedule of secured debt reflects payment performance assumptions on underlying receivables. Foreign currency denominated debt principal is based on exchange rates as of March 31, 2017.2019.(2)(2) Interest payments on floating rate and foreign currency denominated debt based on the applicable floating rates and/or exchange rates as of March 31, 2017.2019. —Recently Adopted Accounting Standards and Note 1(p)—Recently Issued Accounting Standards of Notes to Consolidated Financial Statements.rates, and consumer debt service burdens are also incorporated into these models. Estimated losses on operating leases expected to terminate early due to lessee defaults are also determined collectively, consistent with the methodologies used for consumer finance receivables. to be impaired when it is probable that we will be unable to collect all amounts due according to the original terms of the loan. Our determination of whether dealer loans are impaired is based on evaluations of dealership payment history, financial condition, and cash flows, and their ability to perform under the terms of the loans. Dealer loans that have not been specifically identified as impaired are collectively evaluated for impairment.fiscal year 2017,the twelve-month period ended March 31, 2019, our provision for credit losses would have increased by approximately $28$39 million during the period. Similarly, if we had experienced a 10% increase in realized losses on the disposition of repossessed operating lease vehicles during the twelve-month period ended March 31, 2017,2019, we would have recognized an additional $13$20 million in early termination losses in our consolidated statement of income during the period.leasing volumes acrossthose of the automotive industry have increased significantly in recent years. As a result, the supply of off-lease vehicles will continue to increase over the next several years which could negatively impact used vehicle prices.to be other-than-temporary are recognized as a loss on lease residual values in the period in which the estimate changed.20172019 were to decrease by $100 per unit from our current estimates, the total impact would be an increase of approximately $66$71 million in depreciation expense, which would be recognized over the remaining lease terms. If future return rates for all operating leases were to increase by one percentage point from our current estimates, the total impact would be an increase of approximately $11$12 million in depreciation expense, which would be recognized over the remaining lease terms. This sensitivity analysis may be asymmetric and is specific to the conditions in effect as of March 31, 2017.2019. Additionally, any declines in auction values are likely to have a negative effect on return rates which could affect the severity of the impact on our results of operations.Except in very limited circumstances involving counterparties with consolidated securitization trusts, we generally have not entered intoIn Canada, HCFI is a party to credit support agreements with our counterparties.12 month12-month periods ending March 31, 20182020 and 20172019 below. Our estimates were based upon our existing receivables, debt, and derivatives as of March 31, 20172019 and 2016.2018. We do not include any assumptions for reinvestment of maturing assets and refinancing of maturing debt. The estimates for a 100 basis point decrease assume that rates cannot fall below zero percent. Impact on pre-tax cash flows for the 12 months ending March 31, Hypothetical change in interest rate 2020 2019 100 basis point increase $21 million increase $17 million increase 100 basis point decrease $21 million decrease $17 million decrease changed from a net positive impactwas higher for the period ending March 31, 20172020 compared to a net negative impact for the period ending March 31, 20182019 due to anthe increase in the mix of receive float relative to pay float instruments relative to receive float instruments. For the same reason, the impact on pre-tax cash flows of a hypothetical decrease in interest rates changed from a net negative impact for the period ending March 31, 2017 to a net positive impact for the period ending March 31, 2018.2017,2019, and each has concluded that such disclosure controls and procedures are effective, at the reasonable assurance level, to ensure that information required to be disclosed in our periodic reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms, and such information is accumulated and communicated to management, including our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosures. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.2017.2017,2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Years ended March 31, 2019 2018 (U.S. dollars in thousands) Audit fees $ 6,874 $ 6,800 Audit-related fees 428 433 Tax fees — — All other fees — — Total $ 7,302 $ 7,233 provided.provided without specific pre-approval. None of the services provided were waived from pre-approval requirements pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.See the Exhibit Index beginning on page E-1 of this Form 10-K.ExhibitsDescription 4.2 American Honda Finance Corporation agrees to furnish to the Securities and Exchange Commission upon request a copy of each instrument with respect to issues of long-term debt of American Honda Finance Corporation and its subsidiaries, the authorized principal amount of which does not exceed 10% of the consolidated assets of the American Honda Finance Corporation and its subsidiaries. 4.4 4.7 Description Description XBRL Instance Document XBRL Taxonomy Extension Schema Document XBRL Taxonomy Extension Calculation Linkbase Document XBRL Taxonomy Extension Label Linkbase Document XBRL Taxonomy Extension Presentation Linkbase Document XBRL Taxonomy Extension Definition Linkbase Document (1) Incorporated herein by reference to the same numbered Exhibit filed with our registration statement on Form 10, dated June 28, 2013. (2) Incorporated herein by reference to the same numbered Exhibit filed with our registration statement on Form 10, amendment No. 1, dated August 7, 2013. (3) Incorporated herein by reference to Exhibit number 4.5 filed with our registration statement on Form 10, amendment No. 1, dated August 7, 2013. (4) Incorporated herein by reference to the same numbered Exhibit filed with our quarterly report on Form 10-Q, dated February 12, 2015. (5) Incorporated herein by reference to Exhibit number 4.1 filed with our registration statement on Form S-3, dated September 5, 2013. (6) Incorporated herein by reference to Exhibit number 4.1 filed with our current report on Form 8-K, dated February 12, 2014. (7) Incorporated herein by reference to Exhibit number 4.2 filed with our current report on Form 8-K, dated August 10, 2016. (8) Incorporated herein by reference to the same numbered Exhibit filed with our current report on Form 8-K, dated March 24, 2014. (9) Incorporated herein by reference to Exhibit number 10.1 filed with our current report on Form 8-K, dated June 30, 2014. (10) Incorporated herein by reference to Exhibit number 10.1 filed with our current report on Form 8-K, dated March 13, 2015. (11) Incorporated herein by reference to Exhibit number 10.1 filed with our current report on Form 8-K, dated March 23, 2016. (12) Incorporated herein by reference to Exhibit number 10.1 filed with our current report on Form 8-K, dated March 23, 2017. (13) Incorporated herein by reference to Exhibit number 10.1 filed with our current report on Form 8-K, dated March 3, 2017. (14) Incorporated herein by reference to Exhibit number 10.2 filed with our current report on Form 8-K, dated March 3, 2017. (15) Incorporated herein by reference to Exhibit number 10.3 filed with our current report on Form 8-K, dated March 3, 2017. (16) Incorporated herein by reference to Exhibit 10.1 filed with our registration statement on Form 10, dated June 28, 2013. (17) Incorporated herein by reference to Exhibit 10.3 filed with our registration statement on Form 10, dated June 28, 2013. (18) Incorporated herein by reference to the same numbered Exhibit filed with our quarterly report on Form 10-Q, dated February 8, 2018. (19) Incorporated herein by reference to the same numbered Exhibit filed with our annual report on Form 10-K, dated June 21, 2018. (20) Incorporated herein by reference to Exhibit number 10.8 filed with our annual report on Form 10-K, dated June 21, 2018. (21) Incorporated herein by reference to Exhibit number 10.10 filed with our annual report on Form 10-K, dated June 21, 2018. (22) Incorporated herein by reference to Exhibit number 10.12 filed with our annual report on Form 10-K, dated June 21, 2018. (23) Filed herewith. (24) Furnished herewith. 22, 201721, 2019AMERICAN HONDA FINANCE CORPORATION By:By: /s/ Paul C. Honda SignatureTitleDateSignature Title Date /s/ Hideo Moroe June 21, 2019 Hideo Moroe June 22, 2017Hideo MoroeShinji Kubaru June 21, 2019 Masahiro Nakamura June 22, 2017Shinji KubaruJune 21, 2019 Paul C. Honda June 22, 2017Paul C. HondaJune 21, 2019 /s/ David W. Paul Senior Vice President, Risk Management Officer and DirectorJune 22, 2017David W. PaulShinji Aoyama Chairman and DirectorToshiaki MikoshibaJiro Morisawa DirectorKohei Takeuchi20172019PagePage F-7F-7F-14F-19F-20F-22F-23F-26F-28F-29F-30F-31F-31F-31F-32F-35F-39The20172019 and 2016, and2018, the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended March 31, 2017. 2019, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the three-year period ended March 31, 2019, in conformity with U.S. generally accepted accounting principles.Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. Anmisstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit includesof its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.supportingregarding the amounts and disclosures in the consolidated financial statements. An auditOur audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of American Honda Finance Corporation and subsidiaries as of March 31, 2017 and 2016, and the results of their operations and their cash flows for each of the years in the three-year period ended March 31, 2017, in conformity with U.S. generally accepted accounting principles.22, 201721, 2019amounts)data) March 31, 2019 2018 Assets Cash and cash equivalents $ 795 $ 783 Finance receivables, net 40,424 37,956 Investment in operating leases, net 32,606 31,817 Due from Parent and affiliated companies 162 139 Income taxes receivable 228 16 Vehicles held for disposition 252 231 Other assets 1,117 934 Derivative instruments 380 750 Total assets $ 75,964 $ 72,626 Liabilities and Equity Debt $ 49,754 $ 47,861 Due to Parent and affiliated companies 106 87 Accrued interest expense 150 146 Income taxes payable 152 105 Deferred income taxes 6,399 6,035 Other liabilities 1,567 1,382 Derivative instruments 568 414 Total liabilities 58,696 56,030 Commitments and contingencies (Note 9) Shareholder’s equity: 1,366 1,366 Retained earnings 15,088 14,449 Accumulated other comprehensive loss (118 ) (85 ) Total shareholder’s equity 16,336 15,730 Noncontrolling interest in subsidiary 932 866 Total equity 17,268 16,596 Total liabilities and equity $ 75,964 $ 72,626 March 31, 2019 2018 Finance receivables, net $ 9,073 $ 8,895 Vehicles held for disposition 3 4 Other assets 597 452 Total assets $ 9,673 $ 9,351 Secured debt $ 8,790 $ 8,733 Accrued interest expense 8 6 Total liabilities $ 8,798 $ 8,739 Years ended March 31, 2019 2018 2017 Revenues: Direct financing leases $ 4 $ 13 $ 34 Retail 1,610 1,369 1,188 Dealer 232 175 147 Operating leases 7,253 6,890 6,333 Total revenues 9,099 8,447 7,702 Depreciation on operating leases 5,520 5,481 5,056 Interest expense 1,190 897 728 Net revenues 2,389 2,069 1,918 Gain on disposition of lease vehicles 131 93 43 Other income 71 56 105 Total net revenues 2,591 2,218 2,066 Expenses: General and administrative expenses 456 439 434 Provision for credit losses 249 244 210 Impairment loss on operating leases 14 — — Early termination loss on operating leases 101 108 73 Loss on lease residual values — 3 15 (Gain)/Loss on derivative instruments 509 (550 ) 315 (Gain)/Loss on foreign currency revaluation of debt (407 ) 494 (171 ) Total expenses 922 738 876 Income before income taxes 1,669 1,480 1,190 Income tax expense/(benefit) 428 (2,629 ) 437 Net income 1,241 4,109 753 Less: Net income attributable to noncontrolling interest 96 100 70 $ 1,145 $ 4,009 $ 683 Years ended March 31, 2019 2018 2017 Net income $ 1,241 $ 4,109 $ 753 Other comprehensive income/(loss): Foreign currency translation adjustment (63 ) 48 (35 ) Comprehensive income 1,178 4,157 718 66 123 53 $ 1,112 $ 4,034 $ 665 Total Balance at March 31, 2016 $ 12,068 $ 10,104 $ (92 ) $ 1,366 $ 690 Net income 753 683 — — 70 Other comprehensive loss (35 ) — (18 ) — (17 ) Balance at March 31, 2017 $ 12,786 $ 10,787 $ (110 ) $ 1,366 $ 743 Net income 4,109 4,009 — — 100 Other comprehensive loss 48 — 25 — 23 Dividends paid $ (347 ) $ (347 ) $ — $ — $ — Balance at March 31, 2018 $ 16,596 $ 14,449 $ (85 ) $ 1,366 $ 866 Net income 1,241 1,145 — — 96 Other comprehensive income (63 ) — (33 ) — (30 ) Dividends paid (506 ) (506 ) — — — Balance at March 31, 2019 $ 17,268 $ 15,088 $ (118 ) $ 1,366 $ 932 Years ended March 31, 2019 2018 2017 Cash flows from operating activities: Net income $ 1,241 $ 4,109 $ 753 Adjustments to reconcile net income to net cash provided by operating activities: Debt and derivative instrument valuation adjustments 104 (42 ) 161 Loss on lease residual values and provision for credit losses 249 247 225 Early termination loss on operating leases and impairment on operating leases 115 108 73 Depreciation and amortization 5,531 5,491 5,063 Accretion of unearned subsidy income (1,642 ) (1,451 ) (1,243 ) Amortization of deferred dealer participation and other deferred costs 339 318 315 Gain on disposition of lease vehicles and fixed assets (131 ) (93 ) (43 ) Deferred income taxes 374 (2,768 ) 688 Changes in operating assets and liabilities: Income taxes receivable/payable (166 ) 349 257 Other assets (62 ) (66 ) (72 ) Accrued interest/discounts on debt 64 69 54 Other liabilities 218 96 124 Due to/from Parent and affiliated companies (4 ) 88 (85 ) Net cash provided by operating activities 6,230 6,455 6,270 Cash flows from investing activities: Finance receivables acquired (19,058 ) (17,971 ) (16,761 ) Principal collected on finance receivables 16,140 15,732 16,140 Net change in wholesale loans (252 ) (337 ) (197 ) Purchase of operating lease vehicles (16,389 ) (14,268 ) (15,949 ) Disposal of operating lease vehicles 9,534 8,304 7,364 Cash received for unearned subsidy income 1,966 1,676 1,593 Other investing activities, net (7 ) (46 ) (11 ) Net cash used in investing activities (8,066 ) (6,910 ) (7,821 ) Cash flows from financing activities: Proceeds from issuance of commercial paper 33,697 36,190 41,162 Paydown of commercial paper (33,083 ) (35,520 ) (41,303 ) Proceeds from issuance of short-term debt 1,099 381 — Paydown of short-term debt (300 ) (325 ) — Proceeds from issuance of related party debt 3,812 4,135 12,514 Paydown of related party debt (4,121 ) (4,294 ) (13,567 ) Proceeds from issuance of medium term notes and other debt 9,278 7,238 10,488 Paydown of medium term notes and other debt (7,949 ) (7,174 ) (8,411 ) Proceeds from issuance of secured debt 4,764 5,149 5,708 Paydown of secured debt (4,689 ) (4,901 ) (4,868 ) Dividends paid (506 ) (347 ) — Net cash provided by financing activities 2,002 532 1,723 Effect of exchange rate changes on cash and cash equivalents (9 ) 7 (2 ) Net increase in cash and cash equivalents 157 84 170 Cash and cash equivalents at beginning of year 1,226 1,142 972 Cash and cash equivalents at end of year $ 1,383 $ 1,226 $ 1,142 Supplemental disclosures of cash flow information: Interest paid $ 985 $ 826 $ 674 Income taxes paid/(received) 141 (206 ) (508 ) March 31, 2019 2018 2017 Cash and cash equivalents 795 $ 783 $ 760 588 443 382 $ 1,383 $ 1,226 1,142 (1) Restricted cash balances relate primarily to securitization arrangements (Note 10). F-6(1)(1) Summary of Business and Significant Accounting Policies entered into agreements with AHM and HCI, which provide for their repurchase of new, unused, and unregistered vehicles or equipment that have been repossessed from a dealer who defaults on a wholesale loan. Commercial loans are used primarily for financing dealership property and working capital purposes. Commercial loans are generally secured by the associated properties, as well as corporate or personal guarantees from, or on behalf of, the related dealer’s principals.(a) F-7AMERICAN HONDA FINANCE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements(b) 20172019 and 2016)2018).(c) (d) (e) 20172019 and 2016,2018, all finance receivables were classified as held-for-investment and reported at amortized cost.F-8AMERICAN HONDA FINANCE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements(f) (g) F-9AMERICAN HONDA FINANCE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements(h) to be other-than-temporary are recognized as a loss in the period in which the estimate changed.(i) (j) (k) to be legally isolated from the Company and the claims of the Company’s creditors. The Company continues to service the retail loans transferred to the trusts. Investors in the notes issued by the trusts only have recourse to the assets of the trusts and do not have recourse to the general credit of the Company.F-10AMERICAN HONDA FINANCE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements(l) F-11AMERICAN HONDA FINANCE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statementsultimate settlement.(m) (n) the CompanyAHFC generally has not entered into credit support (collateral) agreements with its counterparties. Changes in the fair value of derivatives are recognized in earnings in the period of the change. In Canada, HCFI is a party to credit support agreements that require posting of cash collateral to mitigate credit risk on derivative positions.(o) 2016,2018, the Company adopted Accounting StandardsStandard Update (ASU) 2015-02, Consolidation (Topic 810): Amendments to2014-09 and the Consolidation Analysis. Under the amendmentssubsequent ASUs that modified ASU 2014-09, which have been codified in this update, all reporting entities are within the scope of Subtopic 810-10, Consolidation—Overall, including limited partnerships and similar legal entities, unless a scope exception applies. The adoption of this guidance did not change the entities consolidated by the Company.Effective for the fiscal year ended March 31, 2017, the Company adopted ASU 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The amendments require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. The adoption of this guidance did not have an impact on the consolidated financial statements.F-12AMERICAN HONDA FINANCE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial StatementsIn May 2014, the Financial Accounting Standards Board (FASB) issued ASU 2014-09, Codification (ASC) 606, Customers.Customers, and ASC 610-20, Gains and Losses from the Derecognition of Nonfinancial Assets. The guidance in this ASU affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The guidance in this update supersedes the revenue recognition requirements in Accounting Standards Codification (ASC) Topic 605, Revenue Recognition, and most industry-specific guidance throughout the industry topics of the codification. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which defers the effective date for the Company from April 1, 2017 to April 1, 2018 while permitting early adoption as of April 1, 2017. The FASB has also issued several other updates to ASU 2014-09 with targeted improvements and clarifications. The Company’s ongoing majorprimary sources of revenuesrevenue are from lease and loan contracts, which are not within the scope of ASC 606 as they are within the scope of other accounting standards. The Company continues to evaluateAll of the Company’s other contractsrevenue sources that are within the scope of this ASU.ASC 606 are insignificant, with the exception of revenue from Vehicle Service Contract Administration. The adoption of this standard isdid not expectedchange the timing or amount of revenue from Vehicle Service Contract Administration, see Note 6-Transactions Involving Related Parties. Gains or losses related to the sale of lease vehicles are within the scope of ASC 610-20. The adoption of this standard did not have a materialan impact on the consolidated financial statements.timing or amount of gains or losses from the disposition of lease vehicles. ASU 2014-09 was adopted using the modified retrospective transition method. The Company plansadoption of this standard did not require any adjustments to adopt the new guidance effectiveopening retained earnings as of April 1, 2018.In January 2016,FASB issuedCompany adopted ASU 2016-01, Financial Instruments—OverallInstruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments address certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The amendments are effective for the Company beginning April 1, 2018. The adoption of this standard isdid not expected to have a material impact on the consolidated financial statements.(p) Recently Issued Accounting Standards Lessor accounting remains largely unchanged from current GAAP. The primary effect of adopting theFASB also issued several updates to ASU 2016-02 with targeted improvements and clarifications. The new standard will berequire the requirementCompany to record right-of-use assets and lease liabilities for the Company’s current operating leases as a lessee. The Company continues to evaluate the application of the requirementsUpon adoption of this standard.standard, the Company expects to recognize right-of-use assets of approximately $56 million, lease liabilities of approximately $62 million, and a reduction in other liabilities of approximately $6 million for accrued rent and unamortized tenant improvement allowances. Lessor accounting remains largely unchanged except for the following limited amendments. Changes in the assessment of collectibility on operating lease receivables are required to be recognized as adjustments to lease revenue rather than through the provision for credit losses. Certain lessor costs such as property taxes paid directly to third parties and reimbursed by lessees are required to be recognized gross as an expense and lease revenue. Initial direct costs which were previously recognized as a reduction of lease revenue will be presented as an expense. These changes in lessor accounting will not have an impact on net income. The amendments arenew standard is effective for the Company beginning April 1, 2019. Early2019 and will be adopted using the modified retrospective method. The adoption is permitted. The Company plans to adoptof the new guidance effective April 1, 2019.Instruments—CreditInstruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The FASB also issued several updates to ASU 2016-13 with targeted improvements and clarifications. The amendments replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The Company is currently assessing the impact of this standard on the consolidated financial statements. In general, the allowance for credit losses is expected to increase when changing from an incurred loss to expected loss methodology. The models and methodologies that are currently used in estimating the allowance for credit losses are being evaluated to identify the changes necessary to meet the requirements of the new standard. The amendments are effective for the Company beginning April 1, 2020, with early adoption permitted as of April 1, 2019.2016,2017, the FASB issued ASU 2016-15, 2017-12, Statement of Cash FlowsDerivatives and Hedging (Topic 230)815): Classification of Certain Cash Receipts and Cash Payments, Targeted Improvements to Accounting for Hedging Activities,which addresses eight specific cash flow issues withbetter alignment between an entity’s risk management activities and financial reporting for hedging relationships through changes to both the objectivedesignation and measurement guidance for qualifying hedging relationships and the presentation of reducing the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows.hedge results. The amendments are effective for the Company beginning April 1, 2018. Early2019. The adoption is permitted, including adoption in an interim period. The Company is currently assessing the impact of this standard onwill not impact the Company’s consolidated financial statements of cash flows.November 2016,August 2018, the FASB issued ASU 2016-18, 2018-13, Statement of Cash FlowsFair Value Measurement (Topic 230)820): Restricted CashDisclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement.. The amendments address diversitymodify the disclosure requirements on fair value measurements in practice that existsTopic 820, based on FASB Concepts Statement, Conceptual Framework for Financial Reporting-Chapter 8: Notes to Financial Statements. Certain disclosure requirements were removed, modified and added in the classification and presentation of changes in restricted cash and require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents, and that an entity disclose information about the nature of such restricted amounts. The Company’s restricted cash consists primarily of reserve funds and yield supplement accounts held in securitization trusts. Net changes in these restricted cash balances are currently reported within investing activities in the Company’s statement of cash flows.Topic 820. The amendments are effective retrospectively for the Company beginning April 1, 2018.2020. Early adoption is permitted, including adoption in an interim period.permitted. The Company is currently assessing the impact of this standard on the consolidated financial statements.F-13AMERICAN HONDA FINANCE CORPORATIONAND SUBSIDIARIESNotes The Company plans to Consolidated Financial Statements(2)(2) March 31, 2019 Lease Retail Dealer Total (U.S. dollars in millions) Finance receivables $ 30 $ 35,429 $ 5,835 $ 41,294 Allowance for credit losses — (193 ) (8 ) (201 ) Write-down of lease residual values (2 ) — — (2 ) Deferred dealer participation and other deferred costs — 431 — 431 Unearned subsidy income — (1,098 ) — (1,098 ) Finance receivables, net $ 28 $ 34,569 $ 5,827 $ 40,424 March 31, 2018 Lease Retail Dealer Total (U.S. dollars in millions) Finance receivables $ 154 $ 33,140 $ 5,495 $ 38,789 Allowance for credit losses — (179 ) — (179 ) Write-down of lease residual values (9 ) — — (9 ) Unearned interest income and fees (2 ) — — (2 ) Deferred dealer participation and other deferred costs — 396 — 396 Unearned subsidy income (2 ) (1,037 ) — (1,039 ) Finance receivables, net $ 141 $ 32,320 $ 5,495 $ 37,956 $8.6$9.4 billion and $7.8$9.1 billion as of March 31, 20172019 and 2016,2018, respectively, which have been transferred to securitization trusts and are considered to be legally isolated but do not qualify for sale accounting treatment. These finance receivables are restricted as collateral for the payment of the related secured debt obligations. Refer to Note 10 for additional information.20172019 were as follows: Lease Retail (U.S. dollars in millions) Year ending March 31, 2020 $ 30 $ 9,980 2021 — 8,912 2022 — 7,413 2023 — 5,402 2024 — 2,934 Thereafter — 788 Total $ 30 $ 35,429 $78$8 million and $173$35 million at March 31, 20172019 and 2016,2018, respectively. Included in the gain or loss on disposition of lease vehicles are end of term charges on both direct financing and operating leases of $42$70 million, $27$63 million and $23$42 million for the fiscal years ended March 31, 2019, 2018 and 2017, 2016 and 2015, respectively.F-14AMERICAN HONDA FINANCE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements rates can increase the likelihood of defaults. Declines in used vehicle prices can reduce the amount of recoveries on repossessed collateral. Credit risk on dealer loans is affected primarily by the financial strength of the dealers within the portfolio.portfolio, the value of collateral securing the financings, and economic and market factors that could affect the creditworthiness of dealers. Exposure to credit risk is managed through purchasingregular monitoring and adjusting of underwriting standards, pricing of contracts for expected losses, focusing collection efforts to minimize losses, and ongoing reviews of the financial condition of dealers.thisthe historical experience provides the primary basis for estimating the allowance. Management utilizes various methodologies when estimating the allowance for credit losses, including models which incorporate vintage loss and delinquency migration analysis. These models take into consideration attributes of the portfolio including loan-to-value ratios, internal and external credit scores, collateral types, and loan terms. Market and economic factors such as used vehicle prices, unemployment, rates, and consumer debt service burdens are also incorporated into these models.to be impaired when it is probable that the Company will be unable to collect allthe amounts due according to the terms of the contract. The Company’s determination of whether dealer loans are impaired is based on evaluations of dealership payment history, financial condition, and ability to perform under the terms of the loan agreements.agreements, and collateral values as applicable. Dealer loans that have not been specifically identified as impaired are collectively evaluated for impairment.2017, 20162019, 2018 and 2015. to be troubled debt restructurings other than modifications of retail loans in reorganization proceedings pursuant to the U.S. Bankruptcy Code. Retail loans modified under bankruptcy protection were not material to the Company’s consolidated financial statements during the fiscal years ended March 31, 2017, 20162019, 2018 and 2015.2017. The Company does allow payment deferrals on consumer finance receivables. However, these payment deferrals are not considered to be troubled debt restructurings since the deferrals are deemed to be insignificant and interest continues to accrue during the deferral period.F-15AMERICAN HONDA FINANCE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statementsreceivables:F-16AMERICAN HONDA FINANCE CORPORATIONAND SUBSIDIARIESNotesreceivables, excluding the provisions related to Consolidated Financial Statements Year ended March 31, 2019 Lease Retail Dealer Total (U.S. dollars in millions) Beginning balance $ — $ 179 $ — $ 179 Provision — 202 7 209 Charge-offs — (279 ) (1 ) (280 ) Recoveries — 91 2 93 Effect of translation adjustment — — — — Ending balance $ — $ 193 $ 8 $ 201 Allowance for credit losses – ending balance: Individually evaluated for impairment $ — $ — $ 8 $ 8 Collectively evaluated for impairment — 193 — 193 Finance receivables – ending balance: Individually evaluated for impairment $ — $ — $ 150 $ 150 Collectively evaluated for impairment 30 34,762 5,685 40,477 Year ended March 31, 2018 Lease Retail Dealer Total (U.S. dollars in millions) Beginning balance $ 1 $ 132 $ — $ 133 Provision — 211 2 213 Charge-offs (1 ) (243 ) (2 ) (246 ) Recoveries — 79 — 79 Effect of translation adjustment — — — — Ending balance $ — $ 179 $ — $ 179 Allowance for credit losses – ending balance: Individually evaluated for impairment $ — $ — $ — $ — Collectively evaluated for impairment — 179 — 179 Finance receivables – ending balance: Individually evaluated for impairment $ — $ — $ 128 $ 128 Collectively evaluated for impairment 150 32,499 5,367 38,016 Year ended March 31, 2017 Lease Retail Dealer Total (U.S. dollars in millions) Beginning balance $ 2 $ 91 $ — $ 93 Provision 1 186 — 187 Charge-offs (2 ) (224 ) — (226 ) Recoveries — 79 — 79 Effect of translation adjustment — — — — Ending balance $ 1 $ 132 $ — $ 133 Allowance for credit losses – ending balance: Individually evaluated for impairment $ — $ — $ — $ — Collectively evaluated for impairment 1 132 — 133 Finance receivables – ending balance: Individually evaluated for impairment $ — $ — $ 1 $ 1 Collectively evaluated for impairment 392 30,655 5,005 36,052 (U.S. dollars in millions) March 31, 2019 Retail loans: New auto $ 213 $ 41 $ 10 $ 264 $ 28,494 $ 28,758 Used and certified auto 70 14 4 88 4,712 4,800 Motorcycle and other 12 3 2 17 1,187 1,204 Total retail 295 58 16 369 34,393 34,762 Direct financing leases 1 — — 1 29 30 Dealer loans: Wholesale flooring 1 — 17 18 4,668 4,686 Commercial loans 51 — 17 68 1,081 1,149 Total dealer loans 52 — 34 86 5,749 5,835 $ 348 $ 58 $ 50 $ 456 $ 40,171 $ 40,627 March 31, 2018 Retail loans: New auto $ 188 $ 35 $ 10 $ 233 $ 27,034 $ 27,267 Used and certified auto 59 11 2 72 3,967 4,039 Motorcycle and other 10 3 2 15 1,178 1,193 Total retail 257 49 14 320 32,179 32,499 Direct financing leases 2 — — 2 148 150 Dealer loans: Wholesale flooring 2 1 2 5 4,447 4,452 Commercial loans — — — — 1,043 1,043 Total dealer loans 2 1 2 5 5,490 5,495 $ 261 $ 50 $ 16 $ 327 $ 37,817 $ 38,144 The scoringThese systems assign internal credit scores based on various factors including the applicant’s credit bureau information and contract terms. The internal credit score provides the primary basis for credit decisions when acquiring retail loan and lease contracts. Internal credit scores are determined only at the time of origination and are not reassessed during the life of the contract.F-17AMERICAN HONDA FINANCE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statementsa currentan indication of the credit quality of consumer finance receivables. The likelihood of accounts charging off is significantly higher once an account becomes 60 days delinquent. Accounts that are current or less than 60 days past due are considered to be performing. Accounts that are 60 days or more past due are considered to be nonperforming. The table below presents the Company’s portfolio of retail loans and direct financing leases by this credit quality indicator: (U.S. dollars in millions) March 31, 2019 Performing $ 28,707 $ 4,782 $ 1,199 $ 30 $ 34,718 Nonperforming 51 18 5 — 74 Total $ 28,758 $ 4,800 $ 1,204 $ 30 $ 34,792 March 31, 2018 Performing $ 27,222 $ 4,026 $ 1,188 $ 150 $ 32,586 Nonperforming 45 13 5 — 63 Total $ 27,267 $ 4,039 $ 1,193 $ 150 $ 32,649 condition.condition and other factors. Factors including liquidity, financial strength, management effectiveness, and operating efficiency are evaluated when assessing their financial condition. Financing limits and interest rates are determined frombased upon these risk ratings. Monitoring activities including financial reviews and inventory inspections are performed more frequently for dealerships with weaker risk ratings. The financial conditions of dealerships are reviewed and their risk ratings are updated at least annually. Although the likelihood of losses can be higher for dealerships in Group B, the overall risk of losses is not considered to be significant.F-18 March 31, 2019 2018 Total Total (U.S. dollars in millions) Group A $ 3,121 $ 823 $ 3,944 $ 2,791 $ 684 $ 3,475 Group B 1,565 326 1,891 1,661 359 2,020 Total $ 4,686 $ 1,149 $ 5,835 $ 4,452 $ 1,043 $ 5,495 AMERICAN HONDA FINANCE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements(3)(3) Investment in Operating Leases March 31, 2019 2018 (U.S. dollars in millions) Operating lease vehicles $ 42,427 $ 41,285 Accumulated depreciation (8,262 ) (8,169 ) Deferred dealer participation and other deferred costs 119 117 Unearned subsidy income (1,563 ) (1,317 ) Estimated early termination losses (115 ) (99 ) Investment in operating leases, net $ 32,606 $ 31,817 $73$101 million $46, $108 million and $37$73 million of estimated early termination losses due to lessee defaults for the fiscal years ended March 31, 2017, 20162019, 2018 and 2015,2017, respectively. Actual net losses realized for the fiscal years ended March 31, 2019, 2018 and 2017 2016totaled $85 million, $80 million and 2015 totaled $62 million, $44 million and $35 million, respectively.2017, 20162019, 2018 and 20152017 are provisions related to past due receivables on operating leases in the amounts of $40 million, $31 million and $23 million, $19respectively. and $17 million, respectively. Certain Honda and Acura vehicles were recalled during the fourth quarterthe fiscal year ended March 31, 2016 based on a determination of a safety related defect in driver’s airbag inflators. AHM and HCI instructed their authorized dealers to cease the sale of affected new and used vehicles until the recall repairs are completed. Tests for recoverability were performedimpairment losses on operating leases affected by this recall, which reflected the anticipated delays in the dispositiondue to lower estimated residual values of returned lease vehicles. For the operating lease assets that did not pass the test for recoverability, the Company recognized $8 millioncertain models of impairment lossesleased vehicles for the fiscal year ended March 31, 2016.2019. No impairment losses due to declines in estimated residual values were recognized during the fiscal years ended March 31, 20172018, and 2015.20172019 were as follows (U.S. dollars in millions):Year ending March 31, 2020 $ 5,476 2021 3,665 2022 1,514 2023 246 2024 50 Total $ 10,951 F-19AMERICAN HONDA FINANCE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements(4)(4) Debt March 31, March 31, March 31, 2019 2018 2019 2018 2019 2018 (U.S. dollars in millions) Unsecured debt: Commercial paper $ 5,755 $ 5,167 2.60 % 1.86 % 1.79 - 2.71% 1.07 - 2.21% Related party debt 749 1,085 2.18 % 1.64 % 2.02 - 2.31% 1.43 - 1.72% Bank loans 4,962 5,419 3.16 % 2.48 % 2.35 - 3.50% 2.02 - 3.15% Private MTN program 999 1,698 3.84 % 5.40 % 3.80 - 3.88% 3.80 - 7.63% Public MTN program 24,117 21,398 2.35 % 1.92 % 0.35 - 3.63% 0.07 - 3.50% Euro MTN programme 868 1,111 1.89 % 1.95 % 1.88 - 2.23% 1.88 - 2.33% Other debt 3,514 3,250 2.50 % 2.20 % 1.63 - 3.44% 1.63 - 2.76% Total unsecured debt 40,964 39,128 Secured debt 8,790 8,733 2.42 % 1.74 % 1.16 - 3.30% 1.04 - 2.83% Total debt $ 49,754 $ 47,861 2017,2019, the outstanding principal balance of long-term debt with floating interest rates totaled $12.2$12.5 billion and, long-term debt with fixed interest rates totaled $27.9$29.2 billion, and short-term debt totaled $8.1 billion. As of March 31, 2016,2018, the outstanding principal balance of long-term debt with floating interest rates totaled $14.6$13.2 billion, and long-term debt with fixed interest rates totaled $23.1$27.8 billion, and short-term debt totaled $7.0 billion.nonamortizing.non-amortizing. Scheduled and projected maturities of the Company’s debt at March 31, 20172019 are summarized below: 2020 2021 2022 2023 2024 Thereafter Total (U.S. dollars in millions) Unsecured debt: Commercial paper $ 5,773 $ — $ — $ — $ — $ — $ 5,773 Related party debt 749 — — — — — 749 Bank loans 1,562 1,337 1,300 693 — 75 4,967 Private MTN program — 500 500 — — — 1,000 Public MTN program 6,300 6,400 3,805 3,705 2,961 1,000 24,171 Euro MTN programme 841 — — 27 — — 868 Other debt 450 862 524 899 412 375 3,522 Total unsecured debt 15,675 9,099 6,129 5,324 3,373 1,450 41,050 4,678 2,573 1,222 288 42 — 8,803 $ 20,353 $ 11,672 $ 7,351 $ 5,612 $ 3,415 $ 1,450 $ 49,853 Unamortized discounts/fees (99 ) Total debt, net $ 49,754 (1) (2) both March 31, 20172019 and 2016,2018, the Company had commercial paper programs that provide the Company with available funds of up to $8.5 billion and $8.6 billion, respectively, at prevailing market interest rates for terms up to one year. The commercial paper programs are supported by the Keep Well Agreements with HMC described in Note 6.F-20AMERICAN HONDA FINANCE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements$5.8 billion and $5.2$5.6 billion during both fiscal years 20172019 and 2016, respectively.2018. The maximum balance outstanding at any month-end during both fiscal years 20172019 and 20162018 was $6.6 billion and $6.1 billion, respectively.AHFC issues fixed rate short-term notes to AHM to help fund AHFC’s general corporate operations. The Company incurred interest expense on these notes totaling $3 million, $3 million and $4 million for the fiscal years ended March 31, 2017, 2016 and 2015, respectively. As of March 31, 2017, AHFC had no outstanding notes issued to AHM.The CompanyHCFI incurred interest expense on these notes totaling $12$16 million, $13$14 million and $22$12 million for the fiscal years ended March 31, 2019, 2018 and 2017, 2016 and 2015, respectively.20172019 and 2016 had2018 were either short-term or long-term, with floating interest rates.rates, and denominated in U.S. dollars or Canadian dollars. Outstanding bank loans have prepayment options. No outstanding bank loans as of March 31, 20172019 and 20162018 were supported by the Keep Well Agreements with HMC described in Note 6. Outstanding bank loans contain certain covenants, including limitations on liens, mergers, consolidations and asset sales.theits Rule 144A Private MTN Program. Notes outstanding under the Private MTN Program as of March 31, 20172019 were long-term, with fixed interest rates, and denominated in U.S. dollars. Notes under this program were issued pursuant to the terms of an issuing and paying agency agreement which contains certain covenants, including negative pledge provisions.$30.0$30.0 billion aggregate principal amount of Public MTNs. The aggregate principal amount of MTNs offered under this program may be increased from time to time. Notes outstanding under this program as of March 31, 20172019 were either long-term or short-term, with either fixed or floating interest rates, and denominated in U.S. dollars, Euros,Euro or Sterling. Notes under this program are issued pursuant to an indenture which contains certain covenants, including negative pledge provisions and limitations on mergers, consolidations and asset sales.20172019 were long-term with either fixed or floating interest rates, and denominated in U.S. dollars, Japanese Yen, or Euros.rates. Notes under this program were issued pursuant to the terms of an agency agreement which contains certain covenants, including negative pledge provisions.20172019 and 20162018 consisted of private placement debt issued by HCFI denominated in Canadian dollars,which are long-term, with either fixed or floating interest rates.rates, and denominated in Canadian dollars. Private placement debt is supported by the Keep Well Agreement with HMC described in Note 6. The notes are issued pursuant to the terms of an indenture which contains certain covenants, including negative pledge provisions.F-21AMERICAN HONDA FINANCE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements secured financing transactions that are secured by assets held by the issuing securitization trusts. The notes generally haveNotes outstanding as of March 31, 2019 and 2018 were long-term and short-term, with either fixed or floating interest rates, (a limited numberand denominated in U.S. dollars or Canadian dollars. Repayment of notes had floating interest rates). Repayment on the notes is dependent on the performance of the underlying receivables. Refer to Note 10 for additional information on the Company’s secured financing transactions.March 2, 2018,February 28, 2020, a $2.1 billion three-year credit agreement, which expires on March 3, 2020,2021, and a $1.4 billion five-year credit agreement, which expires on March 3, 2022.2023. As of March 31, 2017, 2019, no amounts were drawn upon under the AHFC credit agreements. AHFC intends to renew or replace these credit agreements prior to or on their respective expiration dates.$1.2$1.2 billion syndicated bank credit agreement, as amended,facility which provides that HCFI may borrow up to $601$599 million on a one-year and up to $601$599 million on a five-year revolving basis. The one-year tranche of the credit agreement expires on March 24, 201825, 2020 and the five-year tranche of the credit agreement expires on March 24, 2022.25, 2024. As of March 31, 2017, 2019, no amounts were drawn upon under the HCFI credit agreement. HCFI intends to renew or replace the credit agreement prior to or on the expiration date of each respective tranche.$1.0$1.0 billion in unsecured funding with multiple banks. The credit agreements contain customary covenants, including limitations on liens, mergers, consolidations and asset sales. As of March 31, 2017,2019, no amounts were drawn upon under these agreements. These agreements expire in September 2017. AHFC intends to renew these credit agreements prior to or on their expiration dates.2019.(5)(5) Derivative Instruments sheets on a gross basis by counterparty.sheets. Refer to Note 14 regarding the valuation of derivative instruments.F-22 March 31, 2019 2018 Assets Liabilities Assets Liabilities (U.S. dollars in millions) Interest rate swaps $ 58,132 $ 308 $ 307 $ 56,043 $ 465 $ 342 Cross currency swaps 5,002 72 261 4,310 285 72 Gross derivative assets/liabilities 380 568 750 414 Counterparty netting adjustment (313 ) (318 ) (372 ) (371 ) Net derivative assets/liabilities $ 67 $ 250 $ 378 $ 43 AMERICAN HONDA FINANCE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statementseffectimpact of derivative instruments is presented below. There were no derivative instruments designated as part of a hedge accounting relationship during the periods presented. Year ended March 31, 2019 2018 2017 (U.S. dollars in millions) Interest rate swaps $ (23 ) $ 126 $ (87 ) Cross currency swaps (486 ) 424 (228 ) Total gain/(loss) on derivative instruments $ (509 ) $ 550 $ (315 ) recognizedpresented within cash flows from operating activities in the consolidated statements of cash flows.The Company generally does not require or place collateral for these instruments underIn Canada, HCFI is a party to credit support agreements.agreements that require posting of cash collateral to mitigate counterparty credit risk on derivative positions.(6)(6) Transactions Involving Related Parties F-23 Years ended March 31, Income Statement 2019 2018 2017 (U.S. dollars in millions) Revenue: Subsidy income $ 1,633 $ 1,441 $ 1,232 Interest expense: Related party debt 16 14 15 Other income, net: VSC administration fees 109 107 103 Support Service Fee (34 ) (28 ) — General and administrative expenses: Support Compensation Agreement fees 23 22 20 Benefit plan expenses 11 11 11 Shared services 67 62 60 AMERICAN HONDA FINANCE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements March 31, Balance Sheet 2019 2018 (U.S. dollars in millions) Finance receivables, net: Unearned subsidy income $ (1,091 ) $ (1,030 ) Investment in operating leases, net: Unearned subsidy income (1,559 ) (1,313 ) Due from Parent and affiliated companies 162 139 Liabilities: Debt: Related party debt $ 749 $ 1,085 Due to Parent and affiliated companies 106 87 Accrued interest expense: Related party debt 3 3 Other liabilities: VSC unearned administrative fees 387 396 Accrued benefit expenses 65 71 F-24AMERICAN HONDA FINANCE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial StatementsAHFC issues short-term notes to AHM to fund AHFC’s general corporate operations. As of March 31, 2017, AHFC had no outstanding notes issued to AHM. to performfor performing the administrative services for vehicle servicewhen the contracts issued by AHM and its subsidiary. HCFI receives fees for marketing vehicle service contracts issued by HCI. are acquired.maintainedsponsored by AHM and HCI. The allocated benefit plan expenses are included in general and administrative expenses. Refer to Note 8 for additional information.20172019 and 20162018, the Company recognized $6$17 million and $11$19 million, respectively, under these programs which were reflected as proceeds on the disposition of the returned lease vehicles.As a result of the recall of certain Honda and Acura vehicles announced in the fourth quarter of the fiscal year ended March 31, 2016, the Company experienced delays in the disposition of returned lease vehicles and repossessed vehicles. HCI has compensated the Company $6 million during the fiscal year ended March 31, 2017 for certain costs resulting from the delay in disposition of affected vehicles in Canada. The Company compensated AHM $3 million during fiscal year ended March 31, 2017 for certain costs related to the disposition of affected vehicles in the United States.20172019 and 20162018 related to incentive financing program subsidies. The majority of the amounts due to the Parent and affiliated companies at March 31, 20172019 and 20162018 related to wholesale flooring invoices payable to the Parent. These receivable and payable accounts are non-interest-bearing and short-term in nature and are expected to be settled in the normal course of business.F-25AMERICAN HONDA FINANCE CORPORATIONAND SUBSIDIARIESNotesConsolidated Financial StatementsAHM for $36 million which was equal to AHSCC’s total equity as of March 31, 2017. AHSCC was not material to the Company’s operations.(7)(7) Income Taxes Current Deferred Total (U.S. dollars in millions) Year ended March 31, 2019 Federal $ (216 ) $ 432 $ 216 State and local 246 (107 ) 139 Foreign 24 49 73 Total $ 54 $ 374 $ 428 Year ended March 31, 2018 Federal $ 45 $ (2,838 ) $ (2,793 ) State and local 45 43 88 Foreign 49 27 76 Total $ 139 $ (2,768 ) $ (2,629 ) Year ended March 31, 2017 Federal $ (265 ) $ 596 $ 331 State and local (18 ) 72 54 Foreign 32 20 52 Total $ (251 ) $ 688 $ 437 2017, 20162019 and 2015, reflect the statutory extensions of2018, and 50% federal bonus depreciation due to the Protecting Americans from Tax Hikes Act of 2015 whichfor the fiscal year ended March 31, 2017. In addition, the re-measurement of deferred taxes due to the federal income tax rate reduction was signed into law on December 18, 2015 extending 50 percent bonus depreciation through 2017 before phasing down to 40 percentreflected in 2018, and 30 percentthe deferred tax expense in 2019 and the Tax Increase Prevention Act of 2014, which was signed into law on December 19, 2014. “expected”expected income taxes by applying the statutory federal corporate raterates of 35%21.00%, 31.55% and 35.00% for fiscal years ended March 31, 2019, 2018 and 2017, respectively, to income before income taxes as follows:F-26AMERICAN HONDA FINANCE CORPORATIONAND SUBSIDIARIESNotes Years ended March 31, 2019 2018 2017 (U.S. dollars in millions) Computed “expected” income taxes $ 351 $ 467 $ 416 Foreign tax rate differential 15 (14 ) (17 ) Effect of foreign dividends and foreign tax credit 3 (10 ) 4 State and local income taxes, net of federal income tax benefit 68 49 40 Change in valuation allowance 2 — (5 ) Change in estimated state tax rate, net of federal income tax benefit 39 8 2 Change in unrecognized tax benefit 48 (1 ) — Income tax credits (52 ) (3 ) — Effect of Tax Act (49 ) (3,127 ) — Other 3 2 (3 ) Income tax expense/(benefit) $ 428 $ (2,629 ) $ 437 Consolidated Financial Statements March 31, 2019 2018 (U.S. dollars in millions) Deferred tax assets: State income tax $ 197 $ 192 Receivable valuation 104 97 Accrued postretirement 16 14 State loss carryforwards 47 47 Income tax credits 64 — Derivatives 3 — Other assets 43 38 Total gross deferred tax assets 474 388 Less valuation allowance (2 ) — Net deferred tax assets 472 388 Deferred tax liabilities: HCFI leases 349 319 AHFC leases 6,456 6,035 Derivatives — 17 Securitizations 18 10 Other 48 42 Total gross deferred tax liabilities 6,871 6,423 Net deferred tax liabilities $ 6,399 $ 6,035 decreasesa decrease of $5$10 million, $5an increase of $8 million, and $32a decrease of $5 million during the fiscal years ended March 31, 2017, 20162019, 2018, and 2015,2017, respectively. The translation adjustments have been recognized as a component of other comprehensive income.Foreign undistributed earnings are generally subject to U.S. taxation when repatriated and when subject to U.S. taxation may generally be offset by foreign tax credits. To date, thehasdoes not providedprovide for federal income taxes on its share of the undistributed earnings of its foreign subsidiary, HCFI, thatwhich are intended to be indefinitely reinvested outside the United States. At March 31, 2017, 2016 and 2015, $7592019, $935 million $704 million and $651 million, respectively, of accumulated undistributed earnings of HCFI were deemedintended to be so reinvested. If the undistributed earnings as of March 31, 20172019 were to be distributed, the tax liability associated with these indefinitely reinvested earnings would be $180$58 million.State Loss Carryforwards$60$47 million, $60$47 million and $56$60 million at March 31, 2019, 2018 and 2017, 2016 and 2015, respectively. BasedThe expiration, if applicable, of these NOL carryforwards varies based on the statutes of each of the applicable states these NOL carryforwards expire at various times through March 31, 2037.2017,2019, the Company releasedestablished a valuation allowance of $5$2 million for certain state NOL carryforwards. The Company believes that it is more likely than not that the remaining deferred tax assets of $534$472 million recognized as of March 31, 20172019 will be realized.F-27AMERICAN HONDA FINANCE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements Years ended March 31, 2019 2018 2017 (U.S. dollars in millions) Balance, beginning of year $ 22 $ 21 $ 16 Additions for current year tax positions — — — Additions for prior year tax positions 64 1 5 Reductions for prior year tax positions — — — Settlements — — — Reductions related to a lapse in the statute of limitations — — — Foreign currency translation — — — Balance, end of year $ 86 $ 22 $ 21 2016 and 2015 are $84 million, $21 million $15and $21 million, and $18 million,net of the federal benefit of state taxes, respectively, the recognition of which would affect the Company’s effective tax rate in future periods. Although it is reasonably possible that the total amounts of unrecognized tax benefits could change within the next twelve months, the Company does not believe such change would be significant. As a result of the above unrecognized tax benefits and various favorable uncertain positions, the Company has recorded a net liability for uncertain tax positions, inclusive of $14interest and penalties of $89 million and $10 million as of both March 31, 20172019 and 20162018, respectively (Note 12).yearyears ended March 31, 20172019 and 2016,2018, the Company recognized interest expense of $9 million, and interest income in an amount less than $1 million, for each year, and during fiscal years ended March 31, 2015, recognized interest income of $1 millionrespectively, as a component of income tax expense. As a result of settlements during the fiscal year ended March 31, 2016 and 2015, the Company received less than $1 million and paid $1 million, respectively. There were no settlements during the fiscal year ended March 31, 2017.2019 and 2018. As of both March 31, 20172019, 2018 and 2016,2017, the Company’s consolidated balance sheets reflect accrued interest payable of $11 million, $2 million and $3 million.2017,2019, the Company is subject to examination by U.S. federal and state tax jurisdictions for returns filed for the taxable years ended March 31, 2008 through 20162018, with the exception of one state which is subject to examinationdepartmental review for returns filed for the taxable years ended March 31, 2001 through 2016.2007. The Company’s Canadian subsidiary, HCFI, is subject to examination for returns filed for the taxable years ended March 31, 20102012 through 20162018 federally, and returns filed for the taxable years ended March 31, 2009 through 20162018 provincially. The Company believes appropriate provision has been made for all outstanding issues for all open years.(8)(8) Benefit Plans maintainedsponsored by AHM and HCI (collectively referred to as the Sponsors). During the fiscal year ended March 31, 2014, the Sponsors announced various amendments to the benefit plans which became effective January 1, 2014.$6$7 million $6for the fiscal year ended March 31, 2019, and $6 million and $4 million during for both the fiscal years ended March 31, 2017, 20162018 and 2015, respectively.F-28AMERICAN HONDA FINANCE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements$7 million for the Company’sCompany's contributions to the Savings Plans of $8 million for each ofboth the fiscal years ended March 31, 2017, 20162019 and 2015. $3 million and $4 million duringfor both the fiscal years ended March 31, 2017, 20162018 and 2015, respectively.2017.(9)(9) Commitments and Contingencies approximately $10 million, $10$9 million and $11$10 million for the fiscal years ended March 31, 2017, 20162019, 2018 and 2015,2017, respectively. Annual minimum lease commitments attributable to long-term noncancelable operating leases at March 31, 20172019 were as follows (U.S. dollars in millions):Year ending March 31: 2020 $ 10 2021 10 2022 9 2023 9 2024 8 Thereafter 24 Total $ 70 $153$232 million as of March 31, 2017.2019. The Company also has commitments to finance the construction of auto dealerships.dealership facilities. The remaining unfunded balance for these construction loans was $14$22 million as of March 31, 2017.F-29AMERICAN HONDA FINANCE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements(10)(10) Securitizations and Variable Interest Entities (VIE) 20172019 and 2016,2018, the Company issued notes through asset-backed securitizations, which were accounted for as secured financing transactions totaling $5.7$4.8 billion and $4.5$5.2 billion, respectively. The notes were secured by receivables with an initial principal balance of $6.3$5.7 billion and $5.6$5.8 billion, for the fiscal years ended March 31, 2019 and 2018, respectively.trusts. The third-partytrusts and investors in the obligationsnotes issued by a trust only have recourse to the assets of the trustssuch trust and do not have recourse to the general creditassets of AHFC, HCFI, or our other subsidiaries or to other trusts. March 31, 2019 2018 (U.S. dollars in millions) Assets: Finance receivables $ 9,352 $ 9,112 Unamortized costs and subsidy income, net (265 ) (203 ) Allowance for credit losses (14 ) (14 ) Finance receivables, net 9,073 8,895 Vehicles held for disposition 3 4 588 443 9 9 Total assets $ 9,673 $ 9,351 Liabilities: Secured debt $ 8,803 $ 8,745 Unamortized discounts and fees (13 ) (12 ) Secured debt, net 8,790 8,733 Accrued interest expense 8 6 Total liabilities $ 8,798 $ 8,739 Company.Company’s consolidated balance sheets (Note 11).(1)Included with other assets in the Company’s consolidated balance sheets (Note 11).20172019 and 2016,2018, AHFC and HCFI had combined cash collections of $462$496 million and $422$466 million, respectively, which were required to be remitted to the trusts.F-30AMERICAN HONDA FINANCE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements(11)(11) Other Assets March 31, 2019 2018 (U.S. dollars in millions) Interest receivable and other assets $ 106 $ 84 Other receivables 175 144 Deferred expense 115 122 29 33 6 6 Restricted cash 588 443 Like-kind exchange assets 73 75 Other miscellaneous assets 25 27 Total $ 1,117 $ 934 $7$11 million, $5$10 million and $6$7 million for the fiscal years ended March 31, 2019, 2018 and 2017, 2016 and 2015, respectively.(12)(12) Other Liabilities March 31, 2019 2018 (U.S. dollars in millions) Dealer payables $ 241 $ 174 Accounts payable and accrued expenses 399 363 Lease security deposits 85 78 VSC unearned administrative fees (Note 6) 387 396 Unearned income, operating leases 352 347 Uncertain tax positions 89 10 Other liabilities 14 14 Total $ 1,567 $ 1,382 (13)(13) Other Income, net F-31AMERICAN HONDA FINANCE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements Years ended March 31, 2019 2018 2017 (U.S. dollars in millions) VSC administration (Note 6) $ 109 $ 107 $ 103 Other, net (38 ) (51 ) 2 Total $ 71 $ 56 $ 105 (14)(14) Fair Value Measurements March 31, 2019 Level 1 Level 2 Level 3 Total (U.S. dollars in millions) Assets: Derivative instruments: Interest rate swaps $ — $ 308 $ — $ 308 Cross currency swaps — 72 — 72 Total assets $ — $ 380 $ — $ 380 Liabilities: Derivative instruments: Interest rate swaps $ — $ 307 $ — $ 307 Cross currency swaps — 261 — 261 Total liabilities $ — $ 568 $ — $ 568 March 31, 2018 Level 1 Level 2 Level 3 Total (U.S. dollars in millions) Assets: Derivative instruments: Interest rate swaps $ — $ 465 $ — $ 465 Cross currency swaps — 285 — 285 Total assets $ — $ 750 $ — $ 750 Liabilities: Derivative instruments: Interest rate swaps $ — $ 342 $ — 342 Cross currency swaps — 72 — 72 Total liabilities $ — $ 414 $ — $ 414 ofused in measuring assets and liabilities measured at fair value on a recurring basis are described below:F-32AMERICAN HONDA FINANCE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements20172019 and 2016.2018. Refer to notes 1(n) and 5 for additional information on derivative instruments. Level 1 Level 2 Level 3 Total (U.S. dollars in millions) March 31, 2019 Vehicles held for disposition $ — $ — $ 171 $ 171 $ 33 March 31, 2018 Vehicles held for disposition $ — $ — $ 170 $ 170 $ 31 For vehicles affected by the recall announced in the fourth quarter of the fiscal year ended March 31, 2016, the fair value reflected the estimated impact of the delays in disposition.F-33AMERICAN HONDA FINANCE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial StatementsThe following describes the methodologies and assumptions used to estimate the fair value of the Company’s financial instruments not measured at fair value on a recurring basis:Cash, Cash Equivalents and Restricted CashThe carrying values reported on the consolidated balance sheets approximate fair values due to the short-term nature of the assets and negligible credit risk. Restricted cash accounts held by securitization trusts are included in other assets.F-34AMERICAN HONDA FINANCE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial StatementsThe fair values of the Company’s retail loans and dealer wholesale loans are based on estimated proceeds of hypothetical whole loan transactions. It is assumed that market participants in whole loan transactions would acquire the loans with the intent of securitizing the loans. Internally developed valuation models are used to estimate the pricing of securitization transactions, which is adjusted for the estimated costs of securitization transactions and required profit margins of market participants. The models incorporate projected cash flows of the underlying receivables, which include prepayment and credit loss assumptions. The models also incorporate current market interest rates and market spreads for the credit and liquidity risk of securities issued in the securitizations. The estimated fair values of the Company’s dealer commercial loans are based on a discounted cash flow model.DebtThe fair value of the Company’s debt is estimated based on a discounted cash flow analysis. Projected cash flows are discounted using current market interest rates and credit spreads for debt with similar maturities. The Company’s specific nonperformance risk is reflected in the credit spreads on the Company’s unsecured debt.The above fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no active market exists for a portion of the Company’s financial instruments, fair value estimates of such financial instruments are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. March 31, 2019 Fair value Level 1 Level 2 Level 3 Total (U.S. dollars in millions) Assets: Cash and cash equivalents $ 795 $ 795 $ — $ — $ 795 Dealer loans, net 5,827 — — 5,611 5,611 Retail loans, net 34,569 — — 34,857 34,857 Restricted cash 588 588 — — 588 Liabilities: Commercial paper $ 5,755 $ — $ 5,755 $ — $ 5,755 Related party debt 749 — 749 — 749 Bank loans 4,962 — 5,000 — 5,000 Medium term note programs 25,984 — 26,130 — 26,130 Other debt 3,514 — 3,535 — 3,535 Secured debt 8,790 — 8,799 — 8,799 March 31, 2018 Fair value Level 1 Level 2 Level 3 Total (U.S. dollars in millions) Assets: Cash and cash equivalents $ 783 $ 783 $ — $ — $ 783 Dealer loans, net 5,495 — — 5,299 5,299 Retail loans, net 32,320 — — 32,295 32,295 Restricted cash 443 443 — — 443 Liabilities: Commercial paper $ 5,167 $ — $ 5,167 $ — $ 5,167 Related party debt 1,085 — 1,085 — 1,085 Bank loans 5,419 — 5,480 — 5,480 Medium term note programs 24,207 — 24,176 — 24,176 Other debt 3,250 — 3,229 — 3,229 Secured debt 8,733 — 8,683 — 8,683 20172019 and 2016.2018. Although the Company is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been updated since those dates, and therefore, the current estimates of fair value at dates subsequent to those dates may differ significantly from the amounts presented herein.(15)(15) Segment Information F-35AMERICAN HONDA FINANCE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial StatementsF-36 Canada (U.S. dollars in millions) Year ended March 31, 2019 Revenues: Direct financing leases $ — $ 4 $ — $ 4 Retail 1,406 204 — 1,610 Dealer 211 21 — 232 Operating leases 6,001 1,252 — 7,253 Total revenues 7,618 1,481 — 9,099 Depreciation on operating leases 4,520 1,000 — 5,520 Interest expense 1,015 175 — 1,190 Realized (gains)/losses on derivatives and foreign currency denominated debt 15 (17 ) 2 — Net revenues 2,068 323 (2 ) 2,389 Gain/(Loss) on disposition of lease vehicles 100 31 — 131 Other income 63 8 — 71 Total net revenues 2,231 362 (2 ) 2,591 Expenses: General and administrative expenses 403 53 — 456 Provision for credit losses 242 7 — 249 Impairment loss on operating lease 14 — — 14 Early termination loss on operating leases 98 3 — 101 Loss on lease residual values — — — — (Gain)/Loss on derivative instruments — — 509 509 (Gain)/Loss on foreign currency revaluation of debt — — (407 ) (407 ) Income before income taxes $ 1,474 $ 299 $ (104 ) $ 1,669 March 31, 2019 Finance receivables, net $ 36,028 $ 4,396 $ — $ 40,424 Investment in operating leases, net 27,493 5,113 — 32,606 Total assets 66,264 9,700 — 75,964 AMERICAN HONDA FINANCE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial StatementsF-37 Canada (U.S. dollars in millions) Year ended March 31, 2018 Revenues: Direct financing leases $ — $ 13 $ — $ 13 Retail 1,181 188 — 1,369 Dealer 158 17 — 175 Operating leases 5,815 1,075 — 6,890 Total revenues 7,154 1,293 — 8,447 Depreciation on operating leases 4,598 883 — 5,481 Interest expense 770 127 — 897 Realized (gains)/losses on derivatives and foreign currency denominated debt (13 ) (1 ) 14 — Net revenues 1,799 284 (14 ) 2,069 Gain/(Loss) on disposition of lease vehicles 66 27 — 93 Other income 50 6 — 56 Total net revenues 1,915 317 (14 ) 2,218 Expenses: General and administrative expenses 384 55 — 439 Provision for credit losses 239 5 — 244 Early termination loss on operating leases 105 3 — 108 Loss on lease residual values — 3 — 3 (Gain)/Loss on derivative instruments — — (550 ) (550 ) (Gain)/Loss on foreign currency revaluation of debt — — 494 494 Income before income taxes $ 1,187 $ 251 $ 42 $ 1,480 March 31, 2018 Finance receivables, net $ 33,311 $ 4,645 $ — $ 37,956 Investment in operating leases, net 27,040 4,777 — 31,817 Total assets 62,976 9,650 — 72,626 AMERICAN HONDA FINANCE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial StatementsF-38 Canada (U.S. dollars in millions) Year ended March 31, 2017 Revenues: Direct financing leases $ — $ 34 $ — $ 34 Retail 1,030 158 — 1,188 Dealer 133 14 — 147 Operating leases 5,547 786 — 6,333 Total revenues 6,710 992 — 7,702 Depreciation on operating leases 4,403 653 — 5,056 Interest expense 638 90 — 728 Realized (gains)/losses on derivatives and foreign currency denominated debt (35 ) 17 18 — Net revenues 1,704 232 (18 ) 1,918 Gain/(Loss) on disposition of lease vehicles 24 19 — 43 Other income 100 5 — 105 Total net revenues 1,828 256 (18 ) 2,066 Expenses: General and administrative expenses 383 51 — 434 Provision for credit losses 199 11 — 210 Early termination loss on operating leases 67 6 — 73 Loss on lease residual values — 15 — 15 (Gain)/Loss on derivative instruments — — 315 315 (Gain)/Loss on foreign currency revaluation of debt — — (171 ) (171 ) Income before income taxes $ 1,179 $ 173 $ (162 ) $ 1,190 March 31, 2017 Finance receivables, net $ 31,447 $ 4,457 $ — $ 35,904 Investment in operating leases, net 27,380 3,930 — 31,310 Total assets 61,328 8,526 — 69,854 AMERICAN HONDA FINANCE CORPORATIONAND SUBSIDIARIESNotes to Consolidated Financial Statements(16)(16) Selected Quarterly Financial Data (Unaudited) Full Year (U.S. dollars in millions) Year ended March 31, 2019 Total revenues $ 2,200 $ 2,252 $ 2,300 $ 2,347 $ 9,099 Depreciation on operating leases 1,375 1,361 1,376 1,408 5,520 Interest expense 274 293 303 320 1,190 Gain on disposition of lease vehicles 47 47 24 13 131 Other income 15 17 19 20 71 Total net revenues 613 662 664 652 2,591 Provision for credit losses 44 62 75 68 249 Early termination loss on operating leases 17 39 22 23 101 Net income 310 285 348 298 1,241 284 259 326 276 1,145 Year ended March 31, 2018 Total revenues $ 2,041 $ 2,111 $ 2,140 $ 2,155 $ 8,447 Depreciation on operating leases 1,346 1,363 1,378 1,394 5,481 Interest expense 204 218 229 246 897 Gain on disposition of lease vehicles 29 34 8 22 93 Other income 14 13 14 15 56 Total net revenues 534 577 555 552 2,218 Provision for credit losses 39 83 65 57 244 Early termination loss on operating leases 17 42 22 27 108 Net income 248 222 3,370 269 4,109 221 192 3,349 247 4,009 ExhibitNumberDescription10.7(14)10.8(15)10.9(16)10.10(17)10.11(18)10.12(19)12.1(20)Statement regarding computation of ratio of earnings to fixed charges23.1(20)31.1(20)31.2(20)32.1(21)Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 135032.2(21)Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350101.INS(20)XBRL Instance Document101.SCH(20)XBRL Taxonomy Extension Schema Document101.CAL(20)XBRL Taxonomy Extension Calculation Linkbase Document101.LAB(20)XBRL Taxonomy Extension Label Linkbase Document101.PRE(20)XBRL Taxonomy Extension Presentation Linkbase Document101.DEF(20)XBRL Taxonomy Extension Definition Linkbase Document(1)Incorporated herein by reference to the same numbered Exhibit filed with our registration statement on Form 10, dated June 28, 2013.(2)Incorporated herein by reference to the same numbered Exhibit filed with our registration statement on Form 10, amendment No. 1, dated August 7, 2013.(3)Incorporated herein by reference to Exhibit number 4.5 filed with our registration statement on Form 10, amendment No. 1, dated August 7, 2013.(4)Incorporated herein by reference to the same numbered Exhibit filed with our quarterly report on Form 10-Q, dated February 12, 2015.(5)Incorporated herein by reference to Exhibit number 4.1 filed with our registration statement on Form S-3, dated September 5, 2013.(6)Incorporated herein by reference to Exhibit number 4.1 filed with our current report on Form 8-K, dated February 12, 2014.(7)Incorporated herein by reference to Exhibit number 4.2 filed with our current report on Form 8-K, dated August 10, 2016.(8)Incorporated herein by reference to the same numbered Exhibit filed with our current report on Form 8-K, dated March 24, 2014.(9)Incorporated herein by reference to Exhibit number 10.1 filed with our current report on Form 8-K, dated June 30, 2014.(10)Incorporated herein by reference to Exhibit number 10.1 filed with our current report on Form 8-K, dated March 13, 2015.(11)Incorporated herein by reference to Exhibit number 10.1 filed with our current report on Form 8-K, dated March 23, 2016.(12)Incorporated herein by reference to Exhibit number 10.1 filed with our current report on Form 8-K, dated March 23, 2017.(13)Incorporated herein by reference to Exhibit number 10.1 filed with our current report on Form 8-K, dated March 3, 2017.(14)Incorporated herein by reference to Exhibit number 10.2 filed with our current report on Form 8-K, dated March 3, 2017.(15)Incorporated herein by reference to Exhibit number 10.3 filed with our current report on Form 8-K, dated March 3, 2017.(16)Incorporated herein by reference to Exhibit 10.1 filed with our registration statement on Form 10, dated June 28, 2013.(17)Incorporated herein by reference to Exhibit 10.2 filed with our registration statement on Form 10, dated June 28, 2013.(18)Incorporated herein by reference to Exhibit 10.3 filed with our registration statement on Form 10, dated June 28, 2013.(19)Incorporated herein by reference to Exhibit 10.4 filed with our registration statement on Form 10, dated June 28, 2013.(20)Filed herewith.(21)Furnished herewith.E-3