UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

☒

☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31, ~~2018~~

2019

☐

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-36111

AMERICAN HONDA FINANCE CORPORATION

(Exact name of registrant as specified in its charter)

~~California~~		~~95-3472715~~

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)

(310) 972-2555

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
~~2.125% Medium-Term Notes, Series A~~ ~~Due October 10, 2018~~		~~New York Stock Exchange~~
~~Floating Rate Medium-Term Notes, Series A~~ ~~Due March 11, 2019~~		~~New York Stock Exchange~~
1.300% Medium-Term Notes, Series A Due March 21, 2022 2.625% Medium-Term Notes, Series A Due October 14, 2022		~~New York Stock Exchange~~ ~~New York Stock Exchange~~
1.375% Medium-Term Notes, Series A Due November 10, 2022		~~New York Stock Exchange~~
0.550% Medium-Term Notes, Series A Due March 17, 2023		~~New York Stock Exchange~~
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

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☒ Yes ☐ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒ No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). ☒ Yes ☐ No

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. ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒ ~~(Do not check if a smaller reporting company)~~	Smaller reporting company	☐

Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

As of May 31, ~~2018,~~2019, the number of outstanding shares of common stock of the registrant was 13,660,000 all of which shares were held by American Honda Motor Co., Inc. None of the shares are publicly traded.

Documents incorporated by reference: None

REDUCED DISCLOSURE FORMAT

American Honda Finance Corporation, a wholly-owned subsidiary of American Honda Motor Co., Inc., which in turn is a wholly-owned subsidiary of Honda Motor Co., Ltd., meets the requirements set forth in General Instruction I(1)(a) and (b) of Form 10-K and is therefore filing this Form with the reduced disclosure format.

AMERICAN HONDA FINANCE CORPORATION

ANNUAL REPORT ON FORM 10-K

For the fiscal year ended March 31, ~~2018~~

2019

Table of Contents

				~~Page~~

		Page
PART I			1
Item 1.	Business		1
Item 1A.	Risk Factors		10 11
Item 1B.	Unresolved Staff Comments		17
Item 2.	Properties		17 18
Item 3.	Legal Proceedings		17 18
Item 4.	Mine Safety Disclosures		17 18

PART II			18 19
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		18 19
Item 6.	Selected Financial Data		18 19
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		20 21
	Overview		20 21
	Results of Operations		21 22
	Financial Condition		26
	Liquidity and Capital Resources		34 33
	Derivatives		40 38
	Off-Balance Sheet Arrangements		40 38
	Contractual Obligations		40 38
	New Accounting Standards		40 38
	Critical Accounting Policies		41 39
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		42 40
Item 8.	Financial Statements and Supplementary Data		43 41
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		44 41
Item 9A.	Controls and Procedures		44 41
Item 9B.	Other Information		44 42

PART III			45 43
Item 10.	Directors, Executive Officers and Corporate Governance		45 43
Item 11.	Executive Compensation		45 43
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		45 43
Item 13.	Certain Relationships and Related Transactions, and Director Independence		45 43
Item 14.	Principal Accounting Fees and Services		45 43

PART IV			46 44
Item 15.	Exhibits, Financial Statement Schedules		46 44
	Exhibit Index		47 44
Item 16.	Form 10-K Summary		49 46
Signatures			50 47
Index to Financial Statements			F-1

Cautionary Statement Regarding Forward-Looking Statements

Certain statements included herein constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 that involve a number of risks and uncertainties. Certain such forward-looking statements can be identified by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “scheduled,” or “anticipates” or similar expressions or the negative thereof or other variations thereof or comparable terminology, or by discussions of strategy, plans, or intentions. In addition, all information included herein with respect to projected or future results of operations, cash flows, financial condition, financial performance, or other financial or statistical matters constitute forward-looking statements. Such forward-looking statements are necessarily dependent on assumptions, data, or methods that may be incorrect or imprecise and that may be incapable of being realized. The following factors, among others, could cause actual results and other matters to differ materially from those in such forward-looking statements:

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;~~

conditions, both domestically and internationally, including changes in international trade policy;

fluctuations in interest rates and currency exchange rates;

the failure of our customers, dealers, or counterparties 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.

Additional information regarding these and other risks and uncertainties to which our business is subject is ~~set forth~~contained in “Part I, Item 1A. Risk Factors” in this Annual Report on Form 10-K, as such risks and uncertainties may be amended, supplemented or superseded from time to time by other reports we file with the Securities and Exchange Commission, including subsequent Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q. We do not intend, and undertake no obligation to, update any forward-looking information to reflect actual results or future events or circumstances, except as required by applicable law.

PART I

Item 1. Business

Overview

American Honda Finance Corporation (AHFC) is a California corporation that was incorporated on February 6, 1980. Unless otherwise indicated by the context, all references to the “Company”, “we”, “us”, and “our” in this report include AHFC and its consolidated subsidiaries, and references to “AHFC” refer solely to American Honda Finance Corporation (excluding its subsidiaries). AHFC is a wholly-owned subsidiary of American Honda Motor Co., Inc. (AHM). Honda Canada Finance Inc. (HCFI) is a majority-owned subsidiary of AHFC. Noncontrolling interest in HCFI is held by Honda Canada Inc. (HCI), an ~~affiliate.~~affiliate of AHFC. AHM is a wholly-owned subsidiary and HCI is an indirect wholly-owned subsidiary of Honda Motor Co., Ltd. (HMC). AHM and HCI are the sole authorized distributors of Honda and Acura products, including motor vehicles, parts, and accessories in the United States and Canada. AHFC’s principal executive offices are located at 20800 Madrona Avenue, Torrance, California 90503.

We provide various forms of financing in the United States and Canada to purchasers and lessees of Honda and Acura products and authorized independent dealers of Honda and Acura products. Our primary focus, in collaboration with AHM and HCI, is to provide support for the sale of Honda and Acura products ~~in the United States and Canada~~ and maintain customer and dealer satisfaction and loyalty. Our business is substantially dependent upon the sale of those Honda and Acura products in the United States and Canada and the percentage of those sales financed by us.

We acquire retail loans, primarily installment sale contracts, and leases made to retail customers of Honda and Acura products and we offer wholesale flooring and commercial loans to dealers of Honda and Acura products.

We acquire and offer, as applicable, substantially similar products and services throughout many different regions, provinces, and territories, subject to local legal restrictions and market conditions. We divide our business segments between our business in the United States and in Canada. For additional financial information regarding our operations by business segment, see Note 15—Segment Information of Notes to Consolidated Financial Statements and “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview.” In the United States and Canada, we provide our financing products under the brand names Honda Financial Services and Acura Financial Services.

Public Filings

Our filings with the Securities and Exchange Commission (SEC) may be found by accessing the SEC website at www.sec.gov ~~under “Company Filings”.~~ The SEC website contains reports, registration statements, and other information regarding issuers that file with the ~~SEC. The public may obtain additional information by calling the “SEC Toll-Free Investor Information Service” line at 1-800-SEC-0330 (1-800-732-0330).~~SEC, including us. A direct link to the SEC website and certain of our filings isare contained on our website located at www.hondafinancialservices.com under “Investor Relations, SEC Filings”. Additionally, we have made available on our website, without charge, electronic copies of our periodic and current reports that have been filed with the SEC.

Investors and others should note that we announce material financial information using the Investor Relations, SEC Filings section of our corporate website (http://www.hondafinancialservices.com). We use our website and press releases to communicate with our investors, customers and the general public about our company, our services and other matters. While not all of the information that we post on our website is of a material nature, some information could be material. Therefore, we encourage investors, the media, and others interested in our company to review the information we post on the Investor Relations, SEC Filings section of our website. Currently, we do not use any social media channels for purposes of communicating such information to the public. Any changes to our communication channels will be posted on the Investor Relations, SEC Filings section of our website. We are not incorporating any of the information set forth on our website into this filing on Form 10‑K.

Consumer Financing

Retail Loans

We provide indirect financing to retail customers of Honda and Acura products by acquiring retail loans originated by Honda and Acura dealers. Retail loans are acquired in accordance with our underwriting standards. See “—Underwriting and Pricing of Consumer Financing” below for a description of our underwriting process. The products that we finance consist primarily of new and used Honda and Acura automobiles and Honda motorcycles, power equipment, and marine engines. 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.

We service all of the retail loans we acquire. We generally hold a security interest in the products purchased through our retail loans. As a result, if our collection efforts fail to bring a delinquent customer’s payments current, we generally can repossess the customer’s vehicle, after satisfying local legal requirements, and sell it at auction. We may waive late payment fees and other fees assessed in the ordinary course of servicing the retail loans and allow payment deferrals by extending the loan’s term. See “—Servicing of Consumer Financing” below for more information.

We require customers that purchase Honda and Acura products through retail loans acquired by us to obtain adequate physical damage, comprehensive and collision insurance.

Retail Leases

We acquire closed-end vehicle lease contracts between Honda and Acura dealers and their customers primarily for leases of new Honda and Acura automobiles. 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.

Leases are acquired in accordance with our underwriting standards. See “—Underwriting and Pricing of Consumer Financing” below for a description of our underwriting process. Terms of the leases generally range from 24 to 60 months. We service the leases we acquire. We may waive late payment fees and other fees assessed in the ordinary course of servicing the leases, extend the lease term, or offer end-of-lease incentives. See “—Servicing of Consumer Financing” below for more information.

We require the lessee to obtain insurance with adequate public liability and physical damage coverage for the entire lease term.

Underwriting and Pricing of Consumer Financing

Dealers submit customer credit applications electronically through our online system. In addition, AHFC customers are able to submit their own credit applications for pre-approval directly through our website. If our requirements are met, an application received from a dealer is approved automatically. Our system is programmed to review application information for purchase policy and legal compliance. Applications that are not automatically approved are routed to credit buyers located in our regional offices, who will evaluate and make purchase decisions within the framework of our purchase policy and legal requirements.

We utilize our proprietary credit scoring system to evaluate the credit risk of applicants. Factors used by our credit scoring system to develop a customer’s credit grade include the term of the contract, the loan or lease-to-value ratio, the customer’s debt ratios, and credit bureau attributes, number of trade lines, utilization ratio, and number of credit inquiries. A customer’s credit grade is determined only at the time of origination and is not reassessed during the life of the contract. We utilize different scorecards depending on the type of product we finance and we regularly review and analyze our consumer-financing portfolio to ensure the effectiveness of our underwriting guidelines, purchasing criteria and scorecard predictability of our customers.

In the United States, AHFC utilizes a tiered pricing structure based on customer Fair Isaac Corporation/FICO scores. In Canada, HCFI has a single tiered pricing structure.

Servicing of Consumer Financing

We have eight regional offices in the United States that are responsible for the acquisition, servicing, collection, and customer service activities related to our automobile retail loans and leases. These offices are located in California, Texas, Massachusetts, Illinois, North Carolina, Delaware, and Georgia. We also have one office in Georgia that is responsible for the underwriting of motorcycle, power equipment, and marine engine loans, customer service related to those contracts and collection efforts for past due accounts on a national basis.

In addition to our servicing regions, we have centralized certain operational functions in the United States relating to our automobile retail loans and leases at the National Service Center located in Texas, which contains our National Processing Center, Lease Maturity Center, Remarketing Center, and Recovery and Bankruptcy Center, which are described below:

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 market-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.

Recovery and Bankruptcy Center. TheRecovery and Bankruptcy Center is responsible for collecting the deficiency balances of charged-off accounts using 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.

In Canada, we have two regional offices that are responsible for acquisition, servicing, collection, and customer service activities related to our retail loans and leases. These offices are located in Quebec and Ontario. Similar to our United States operations, in addition to our servicing regions, we have centralized certain operational functions for our Canadian retail loans and leases. These centralized functions are located in Ontario and include our Customer Retention Centre, Recovery Centre, Collections Centre, Customer Service Centre, and Auctions/Remarketing Centre. The services provided by these centralized functions are comparable to the services provided by our National Service Center in the United States.

Recovery Policies and Procedures

We use an account servicing system and an automated dialer system that prioritize collection efforts, generate past due notices, and signal our collections personnel to make telephone contact with delinquent customers. For the purpose of determining whether a retail loan or lease is delinquent, payment is generally considered to have been made upon receipt of 90% of the sum of the current monthly payment due plus any overdue monthly payments.

If necessary, repossession action is taken using bonded and licensed repossession agencies. Subject to a ~~state’s~~state or provincial laws and recording, filing, and notice requirements, ~~or other laws,~~ we are generally permitted by applicable state ~~law~~or 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.

Incentive Financing Programs for Retail Loans and Leases

A substantial portion of our consumer financing business is acquired through incentive financing programs sponsored by AHM and HCI ~~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, pay us subsidies that enable 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.”

Honda Aviation Financing

Honda Aviation Finance Company LLC, a wholly-owned subsidiary of AHFC, provides financing and account servicing for customers of Honda Aircraft Company LLC, a subsidiary of AHM, in the United States. Customers submit a credit application and if our underwriting policies and legal requirements are met, the retail loan is approved.

Dealer Financing

Wholesale Flooring Loans

We provide wholesale flooring loans to dealers of Honda and Acura automobiles and Honda motorcycles, power equipment, and marine engines through our Dealer Financial Services (DFS) business unit.

Wholesale flooring financing is available primarily through revolving lines of credit and may only be used by dealers to finance the purchase of inventory. AHFC will finance new automobiles and motorcycles up to 100% of the dealer invoice price and used automobiles and motorcycles up to 80% of the applicable market value determined in accordance with industry pricing guides in the United States. HCFI will finance new automobiles and motorcycles up to 100% of the dealer invoice price and used automobiles and motorcycles up to the current market value determined in accordance with industry pricing guides in Canada. Dealers pay a variable interest rate on wholesale flooring loans. Wholesale flooring loans must be prepaid at specified intervals and increments and generally must be paid in full upon the sale of the ~~product, although a grace period of three to seven days for payment may be provided to dealers.~~product. AHM and HCI sponsor incentive-financing programs in the United States and Canada, respectively, to Honda and Acura dealers approved for wholesale flooring loans.

In establishing a wholesale flooring loan, we conduct a comprehensive review of the dealership, including a review of its business operations and management, any credit reports, financial statements, tax returns, bank references, and/or other available historical credit information and a review of the personal financial statements of the dealership’s individual owner(s). This data is organized into an electronic scorecard which supports our determination of whether we will provide a wholesale flooring loan and, if so, the amount of the loan and the interest rate. Once a wholesale flooring loan has been approved, we maintain an ongoing review process of the dealerships we finance. We 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.

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.

In the event of a default on a wholesale flooring loan, we may repossess the financed product, 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 agreements with AHM and HCI that provide for their repurchase 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.

A wholesale flooring loan is considered delinquent when any payment is contractually past due. ~~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 using 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.

In the United States, wholesale flooring loans are serviced at AHFC’s regional offices in California, Texas, Massachusetts, Illinois, North Carolina, Delaware, and Georgia. In Canada, wholesale flooring loans are serviced at HCFI’s headquarters in Ontario.

Commercial Loans

We provide commercial loans to Honda and Acura automobile dealers through our DFS business unit. This commercial financing is available primarily through term loans and are used primarily for financing dealership property, equipment, construction, facility improvements, and working capital. Dealers generally pay a variable interest rate on commercial loans in the United States. In Canada, dealers pay both fixed rates and variable rates on commercial loans.

In establishing a commercial loan, we conduct a comprehensive review of the dealership, including a review of its business operations and management, appraisals of dealership property, credit reports, financial statements, tax returns, bank references, and/or other available historical credit information and a review of the personal financial statements of the dealership’s individual owner(s). Once the loan has been approved, we maintain an ongoing review process of the dealership we finance, which we believe is consistent with industry practices.

Commercial loans are generally secured by the associated properties, inventory, and other dealership assets. In addition, we generally obtain a personal guarantee from dealership owners, as well as corporate guarantees from, or on behalf of, dealership individual owner(s)’ other dealerships. Although our commercial loans are typically collateralized or guaranteed, the value of the underlying collateral or guarantees may not be sufficient to cover our exposure. Commercial loans are considered delinquent when any payment is contractually past due.

In the United States, commercial loans are serviced at AHFC’s headquarters in California. In Canada, commercial loans are serviced at HCFI’s headquarters in Ontario.

Competition

The automobile financing industries in the United States and Canada are very competitive. Providers of vehicle and similar product financing have traditionally competed based on 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.

National and regional commercial banks, credit unions, savings and loan associations, finance companies, and other captive finance companies provide consumer financing for new and used Honda and Acura products. Commercial banks, finance companies, and captive finance companies of other manufacturers also provide inventory financing for Honda and Acura dealers. Our primary competition in the wholesale motorcycle, power equipment, and marine engine financing business tends to be local banks and specialty finance firms that are familiar with the particular characteristics of these businesses. In Canada, commercial banks are strong competitors in the automobile consumer financing business.

Relationships with HMC and Other Affiliates

The following is a description of certain relationships with HMC and other affiliates.

HMC and AHFC Keep Well Agreement

HMC and AHFC are parties to a keep well agreement (the HMC-AHFC Agreement), which became effective on September 9, 2005.

Under the terms of the HMC-AHFC Agreement, HMC has agreed to:

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 not a guarantee by HMC of any Debt or other obligation, indebtedness, or liability of any kind of AHFC.

The HMC-AHFC Agreement includes AHFC’s agreement that it will use any funds made available to it by HMC thereunder solely for fulfilling AHFC’s payment obligations in respect of Debt. Any claims of HMC arising from any provisions of funds to AHFC by HMC shall be subordinated to the claims of all holders of Debt with respect to such Debt, whether or not such claims exist at the time such funds are made available to AHFC, and HMC will not demand payment of such claims from AHFC unless and until all outstanding Debt has been paid in full.

HMC or AHFC may each terminate the HMC-AHFC Agreement upon giving to the other party 30 days’ prior written notice and the HMC-AHFC Agreement may be modified or amended only by the written agreement of HMC and AHFC and upon 30 days’ prior written notice to each rating agency rating any covered Debt. However, such termination, modification, or amendment will not be effective with respect to any Debt outstanding at the time of such termination, modification, or amendment unless: (i) such termination, modification, or amendment is permitted under the documentation governing such Debt, (ii) all affected holders of such Debt (or, in the case of Debt incurred pursuant to documentation that permits the HMC-AHFC Agreement to be terminated, modified, or amended with the consent of less than all of the holders of such Debt, the requisite holders of such Debt) otherwise consent in writing, or (iii) with respect to Debt that is rated by one or more rating agencies at the request of HMC or AHFC, each such rating agency confirms in writing that the rating assigned to such Debt will not be withdrawn or reduced because of the proposed action.

An amendment, modification, or termination of the HMC-AHFC Agreement (except as permitted by its terms) would constitute an event of default under certain of AHFC’s Debt and failure by HMC to meet its obligations under the HMC-AHFC Agreement would constitute an event of default under such Debt if the failure continued for 30 days and was continuing at the time the default was declared.

Under its terms, the HMC-AHFC Agreement is not enforceable against HMC by anyone other than: (i) AHFC or (ii) if any case is commenced under the United States Bankruptcy Code (11 USC §§101 et seq.), or any successor statutory provisions, or the Bankruptcy Code, in respect of AHFC, the debtor in possession or trustee appointed by the court having jurisdiction over such proceeding. In the event of (1) a breach by HMC in performing a provision of the HMC-AHFC Agreement and (2) the commencement of such a case under the Bankruptcy Code in respect of AHFC while any Debt is outstanding, the remedies of a holder of Debt shall include the right, if no proceeding in respect of AHFC has already been commenced in such case, to file a petition in respect of AHFC thereunder with a view to the debtor in possession, or the trustee appointed by the court having jurisdiction over such proceeding, pursuing AHFC’s rights under the HMC-AHFC Agreement against HMC. However, all holders of outstanding Debt may (i) demand in writing that AHFC enforce its rights under the HMC-AHFC Agreement and (ii) proceed directly against HMC to enforce compliance by HMC with its obligations under the HMC-AHFC Agreement if AHFC fails or refuses to take action to enforce its rights under that agreement within 30 days following AHFC’s receipt of demand for such enforcement by such holder.

The HMC-AHFC Agreement is governed by and construed in accordance with the laws of the State of New York.

HMC and HCFI Keep Well Agreement

HMC and HCFI are parties to a ~~keep well agreement~~Keep Well Agreement (the HMC-HCFI Agreement), which became effective on September 26, 2005.

Under the terms of the HMC-HCFI Agreement, HMC has agreed to:

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.

The HMC-HCFI Agreement is not a guarantee by HMC of any Debt or other obligation, indebtedness, or liability of any kind of HCFI.

The HMC-HCFI Agreement includes HCFI’s agreement that it will use any funds made available to it by HMC thereunder solely for the purposes of fulfilling HCFI’s payment obligations in respect of Debt. Any claims of HMC arising from any provisions of funds to HCFI by HMC shall be subordinated to the claims of all holders of Debt with respect to such Debt, whether or not such claims exist at the time such funds are made available to HCFI, and HMC will not demand payment of such claims from HCFI unless and until all outstanding Debt has been paid in full.

HMC or HCFI may each terminate the HMC-HCFI Agreement upon giving to the other party 30 days’ prior written notice and the HMC-HCFI Agreement may be modified or amended only by the written agreement of HMC and HCFI and upon 30 days’ prior written notice to each rating agency rating any covered Debt. However, such termination, modification, or amendment will not be effective with respect to any Debt outstanding at the time of such termination, modification, or amendment unless: (i) such termination, modification, or amendment is permitted under the documentation governing such Debt, (ii) all affected holders of such Debt (or, in the case of Debt incurred pursuant to documentation that permits the HMC-HCFI Agreement to be terminated, modified, or amended with the consent of less than all of the holders of such Debt, the requisite holders of such Debt) otherwise consent in writing, or (iii) with respect to Debt that is rated by one or more rating agencies at the request of HMC or HCFI, each such rating agency confirms in writing that the rating assigned to such Debt will not be withdrawn or reduced because of the proposed action.

An amendment, modification, or termination of the HMC-HCFI Agreement (except as permitted by its terms) would constitute an event of default under certain of HCFI’s Debt and failure by HMC to meet its obligations under the HMC-HCFI Agreement would constitute an event of default under such Debt if the failure continued for 30 days and was continuing at the time the default was declared.

Under its terms, the HMC-HCFI Agreement is not enforceable against HMC by anyone other than: (i) HCFI or (ii) if any case is commenced under the Canadian Bankruptcy and Insolvency Act, the Canadian Companies’ Creditors Arrangement Act, or the Canadian Winding Up and Restructuring Act by or against HCFI, the debtor in possession or trustee or receiver appointed by the court having jurisdiction over such proceeding. In the event of (1) a breach by HMC in performing a provision of the HMC-HCFI Agreement and (2) the insolvency of HCFI while any Debt is outstanding, the remedies of a holder of Debt shall include the right, if no proceeding in respect of HCFI has already been commenced in such proceeding, to file an application in respect of HCFI for the appointment of a trustee or receiver by the court having jurisdiction over such proceeding in order to pursue HFCI’s rights under the HMC-HCFI Agreement against HMC. However, all holders of outstanding Debt may (i) demand in writing that HCFI enforce its rights under the HMC-HCFI Agreement and (ii) proceed directly against HMC to enforce compliance by HMC with its obligations under the HMC-HCFI Agreement if HCFI fails or refuses to take action to enforce its rights under that agreement within 30 days following HCFI’s receipt of demand for such enforcement by such holder.

The HMC-HCFI Agreement is governed by and construed in accordance with the laws of the State of New York.

Incentive Financing Programs

AHM and HCI sponsor incentive-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, pay us subsidies that enable 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.

Related Party Debt

~~AHFC no longer issues fixed rate short-term notes to AHM to fund AHFC’s general corporate operations. As of March 31, 2018, AHFC had no outstanding notes to AHM.~~

HCFI issues fixed rate short-term notes to HCI to fund HCFI’s general corporate operations. See Note 4—Debt of Notes to Consolidated Financial Statementsfor further information regarding our related party debt.

Vehicle Service Contract Administration

Our Consumer Assurance Products and Service Group is responsible for the administration of vehicle service contracts issued by AHM, American Honda Protection Products Corporation (AHPPC) and American Honda Service Contracts Corporation (AHSCC), wholly-owned subsidiaries 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.

A vehicle service contract is a contractual agreement between the dealer, manufacturer or an independent third party, and the dealer’s customer. The contract provides for certain repairs, mechanical breakdown coverage, roadside assistance, and/or oil changes for the customer’s new or used automobile. A vehicle service contract can be obtained on both Honda and Acura automobiles.

As the administrator, we approve claims and provide customer service to purchasers of vehicle service contracts. We do not provide the maintenance or roadside assistance provided by the vehicle service contracts.

Shared Services

Honda North America, Inc. (HNA), a wholly-owned subsidiary of HMC, provides services to Honda’s North American operations. HNA provides us with information technology, legal, internal audit, and other services pursuant to a shared services agreement. HNA is paid a compensation fee for these services.

In Canada, we also share certain common expenditures with HCI, including professional services, data processing services, insurance policies, software development and facilities.

Benefit Plans

Our employees participate in various employee benefit plans that are sponsored by AHM and HCI, respectively. Refer to Note 8—Benefit Plans of Notes to Consolidated Financial Statementsfor additional information about employee benefit plans.

Income taxes

AHFC and its United States subsidiaries are included in the consolidated United States federal income tax returns of AHM and many consolidated or combined state and local income tax returns of AHM. In some cases AHFC and its United States subsidiaries file tax returns separately as required by certain state and local jurisdictions. AHFC and its United States subsidiaries pay for their share of the consolidated or combined income tax on a modified separate return basis pursuant to an intercompany tax allocation agreement with AHM. AHFC and its applicable United States subsidiaries file a separate California return based on California’s worldwide income and apportionment rules. To the extent AHFC and its United States subsidiaries have taxable losses in AHM’s consolidated federal and consolidated or combined state and local tax returns, AHM reimburses AHFC and its United States subsidiaries, as applicable, to the extent the losses are utilized by AHM or another member of the consolidated or combined group under the terms of the intercompany tax allocation agreement. All but an insignificant amount of the federal and state taxes payable or receivable shown on the consolidated balance sheets are due to or from AHM, pursuant to the intercompany tax allocation agreement.

Our Canadian subsidiary, HCFI, files Canadian federal and provincial income tax returns based on the separate legal entity financial statements. HCFI does not file federal, state or local income tax returns in the United States. Consequently, HCFI does not participate in the intercompany tax allocation agreement that AHFC and its United States subsidiaries have with AHM.

Refer to Note 7—Income Taxes of Notes to Consolidated Financial Statementsfor additional information about income taxes.

Repurchase Agreements

We have agreements with AHM and HCI that provide for their repurchase 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 Concentration~~

As of March 31, 2018, for the outstanding retail loans and leases we acquired in the United States, approximately 18% 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.

Seasonality

We are subject to seasonal variations in credit losses, which are historically higher in the first and fourth quarters of the calendar year. This seasonality does not have a significant impact on our results of operations.

Employee Relations

At March 31, ~~2018,~~2019, we had ~~1,477~~1,497 employees. We consider our employee relations to be satisfactory. We are not subject to any collective bargaining agreements with our employees.

Governmental Regulations

Our consumer financing and dealer financing operations are subject to regulation, supervision, and licensing under various United States, Canadian, state, provincial, and local statutes, ordinances and regulations. In recent years, regulators have increased their focus on the regulation of the financial services industry and consumer financing in particular. As a result, there have been and may continue to be proposals for laws and regulations that could increase the scope and nature of laws and regulations that are currently applicable to us. We actively monitor proposed changes to relevant legal and regulatory requirements in order to maintain our compliance. The cost of our ongoing compliance efforts in our consumer financing and dealer financing operations has not had a material adverse effect on our results of operations, cash flows, or financial condition to date, although future compliance efforts may have such an effect.

United States

Our consumer financing operations in the United States are regulated under both federal and state laws, including consumer protection statutes and related regulations. 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.

Federal Regulation

We are subject to extensive federal regulation, including the regulations discussed below. These laws, in part, require us to provide certain disclosures prior to and throughout the duration of consumer retail and lease financing transactions and prohibit certain credit and collection practices.

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 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 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 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.

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.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), which was enacted in 2010, has broad implications for the financial services industries, including automotive financing, securitizations and derivatives, and requires the development, adoption, and implementation of many regulations which will impact the offering, marketing, and regulation of consumer financial products and services offered by financial institutions. Agencies have issued rules establishing a comprehensive framework for the regulation of derivatives, providing for the regulation of non-bank financial institutions that pose systemic risk, and requiring sponsors of asset-backed securities to retain an ownership stake in securitization transactions. Although we have analyzed these and other rulemakings, the absence of final rules in some cases and the complexity of some of the proposed rules make it difficult for us to estimate the financial, compliance and operational impacts.

The Dodd-Frank Act created the Consumer Financial Protection Bureau (CFPB), which has broad rule-making, examination and enforcement authority with respect to the laws and regulations that apply to consumer financial products and services. The CFPB has supervisory, examination and enforcement authority over certain non-depository institutions, including those entities that are larger participants of a market for consumer financial products or services, as defined by rule. We are subject to the CFPB’s supervisory authority with respect to our compliance with applicable consumer protection laws.

State Regulation

We are also subject to laws and regulations that vary among the states. A majority of states have enacted legislation establishing licensing requirements to conduct consumer-financing activities. We are also periodically subject to state audits and inquiries, which monitor our compliance with consumer and other regulations.

State rules and regulations generally include requirements as to the form and content of finance contracts and limitations on the maximum rate of consumer finance charges, including interest rate. In periods of high interest rates, interest rate limitations could have an adverse effect on our operations if we are unable to pass on our increased costs to our customers or dealers. State rules and regulations also restrict collection practices and creditor’s rights regarding our consumer accounts.

Canada

The consumer financing and dealer financing operations of HCFI are regulated under both Canadian federal and provincial law. Management believes that HCFI is in compliance in all material respects with the applicable statutes and regulations of the federal government of Canada, its jurisdiction of incorporation, as well as applicable provincial statutes and regulations.

Item 1A. Risk Factors

We are exposed to certain risks and uncertainties that could have a material adverse effect on our business, results of operations, cash flows, financial condition, or on our ability to service our indebtedness. There may be additional risks and uncertainties (either currently unknown or not currently believed to be material) that could have a material adverse effect on our business, results of operations, cash flows, financial condition, or on our ability to service our indebtedness.

Risks Relating To Our Business

Our results of operations, cash flows, and financial condition are substantially dependent upon HMC and the sale of Honda and Acura products and any decline in the financial condition of HMC or the sales of Honda and Acura products could have a materially unfavorable impact on our financial condition, cash flows, and results of operations.

Our results of operations, cash flows, and financial condition are substantially dependent upon the sale of Honda and Acura products in the United States and Canada. Any prolonged reduction or suspension of HMC’s production or sales of Honda or Acura products in the United States or Canada resulting from a decline in demand, a change in consumer preferences, a decline in the actual or perceived quality, safety, or reliability of Honda and Acura products, a reduction of incentive financing programs, volatility in fuel prices, sustained economic stagnation or the occurrence of a recession, a financial crisis, a work stoppage, governmental action, including a change in regulation, trade policies, adverse publicity, a recall, a war, a use of force by foreign countries, a terrorist attack, a multinational conflict, a natural disaster, an epidemic, or similar events could have a substantially unfavorable effect on us.

The production and sale of HMC’s products will depend significantly on HMC’s ability to continue its capital expenditure and product development programs and to market its vehicles successfully. This ability is subject to several risks, including:

any prolonged reduction or suspension of production or sales as discussed above;

rapid changes in HMC’s industry, including advancement of technology and the introduction of new types of competitors who may possess various innovations;

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.

Additionally, our credit ratings depend, in large part, on the existence of the ~~keep well agreements~~Keep 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.

Because our operations are heavily dependent on retail sales of motor vehicles and other retail products, a decline in general business and economic conditions can have a significant adverse impact on our results of operations, cash flows, and financial condition.

Because our operations are heavily dependent on retail sales of motor vehicles and other retail products, general business and economic conditions have a significant impact on our operations. In particular, changes in the following events can adversely affect our results of operations, cash flows, and financial condition:

changes in the United States or Canadian economies;

changes in the overall market for consumer financing or dealer financing;

changes in consumer trends and preferences within the automotive industry

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.

Additionally, the United States and Canada have experienced periods of economic slowdown and 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.

Fluctuations in interest rates could have an adverse impact on our results of operations, cash flows, and financial condition.

Our results of operations, cash flows, and financial condition could be adversely affected during any period of changing interest rates, possibly to a material degree. Interest rate risks arise from the mismatch between assets and the related liabilities used for funding. We 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.

We monitor the interest rate environment and enter into various financial instruments, including interest rate and basis swaps, to manage our exposure to the risk of interest rate fluctuations. However, our hedging strategies may not fully mitigate the impact of changes in interest rates. Further, these instruments contain an element of risk in the event the counterparties are unable to meet the terms of the agreements. For example, in July 2017, the U.K. Financial Conduct Authority, which regulates LIBOR, announced that it intends to stop persuading or compelling banks to submit rates for the calculation of LIBOR after 2021.At this time, it is unclear if LIBOR will continue to exist, if new methods of calculating LIBOR will be established or if a new alternative reference rate will replace LIBOR. The potential impact of changes to LIBOR or a possible new alternative reference rate is unknown and could adversely affect the market valuation of LIBOR-linked securities, loans and other financial obligations, the interest rates on our current or future cost of funds and/or access to capital markets. See “—The failure or commercial soundness of our counterparties and other financial institutions may have an adverse effect on our results of operations, cash flows, or financial condition”below.

Our results of operations, cash flows, and financial condition may be adversely affected because of currency risk.

Currency risk or exchange rate risk refers to potential changes of value of financial assets, including Canadian dollar denominated finance receivables, foreign currency denominated debt or derivatives used to manage exposure of 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.

We monitor the exchange rate environment and enter into various financial instruments, including currency swap agreements, to manage our exposure to the risk of exchange rate fluctuations. However, our hedging strategies may not fully mitigate the impact of changes in exchange rates. Further, these instruments contain an element of risk in the event the counterparties are unable to meet the terms of the agreements. See “—The failure or commercial soundness of our counterparties and other financial institutions may have an adverse effect on our results of operations, cash flows, or financial condition”below.

We need substantial capital to finance our operations and a disruption in our funding sources and access to the capital markets would have an adverse effect on our results of operations, cash flows, and financial condition.

We depend on a significant amount of financing to operate our business. Our business strategies utilize diverse sources to fund our operations, including the issuance of commercial paper, medium term notes, asset-backed securities, bank loans and borrowings from AHM and HCI, as applicable.

The availability of these financing sources at the prices we desire may depend on factors outside of our control, including our credit ratings, disruptions to the capital markets, the fiscal and monetary policies of government, government regulations and ~~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 originations or incur the effects of increased costs of operation. Reducing loan originations or increasing the rates we charge consumers and dealers 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.

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.~~

Keep Well Agreements.

The cost and availability of financing is influenced by credit ratings, which are intended to be an indicator of the creditworthiness of a particular company, security, or obligation. Our credit ratings depend, in large part, on the existence of the ~~keep well agreements~~Keep 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.

Credit rating agencies that rate the credit of HMC and its affiliates, including AHFC, may qualify, alter, or terminate their ratings at any time. For example, S&P Global Ratings downgraded the credit rating of Honda Motor Co., Ltd. and its subsidiaries, including us, on February 6, 2019. Global economic conditions and other geopolitical factors may directly or indirectly affect such ratings. Any downgrade in the sovereign credit ratings of the United States, Japan, or Canada may directly or indirectly have a negative effect on the ratings of HMC and AHFC. Downgrades, the change to a negative outlook, or placement on review for possible downgrades of such ratings could result in an increase in our borrowing costs as well as reduced access to global debt capital markets. These factors would have a negative impact on our business, including our competitive position, results of operations, cash flows and financial condition.

We are subject to consumer and dealer credit risk, which could adversely impact our results of operations, cash flows, and financial condition.

Credit risk is the risk of loss arising from the failure of a consumer or dealer to meet the terms of any contract with us or otherwise fail to perform as agreed. Credit losses are an expected cost of extending credit. The majority of our credit risk is with consumer financing, and to a lesser extent, with dealer financing. Our level of credit risk on our consumer financing portfolios is influenced primarily by two factors: the total number of contracts that default, and the amount of loss per occurrence, net of recoveries, which in turn are influenced by various factors, such as the used vehicle market, our purchase quality mix, contract term lengths, operational changes, and certain economic factors such as unemployment, levels of consumer debt service burden and personal income growth rates. Our level of credit risk on our dealer-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.

We manage credit risk by managing the credit quality of our consumer financing and dealer financing portfolios, pricing contracts for expected losses and focusing collection efforts to minimize losses. However, our monitoring of credit risk and our efforts to mitigate credit risk may not be sufficient to prevent a material adverse effect on our results of operations, cash flows, and financial condition.

We are exposed to residual value risk on the vehicles we lease.

Customers of leased vehicles typically have an option to return the vehicle to the dealer at the end of the lease term or to buy the vehicle for the contractual residual value (or if purchased prior to lease maturity, for the outstanding contractual balance). Returned lease vehicles can be purchased by the grounding dealer for the contractual residual value (or if purchased prior to lease maturity, for the outstanding contractual balance) or a market based price. Returned lease vehicles that are not purchased by the grounding dealer are sold through online and physical auctions. Residual value risk is the risk that the contractual residual value determined at lease inception will not be recoverable at the end of the lease term. When the market value of a leased vehicle at contract maturity is less than its contractual residual value, there is a higher probability that the vehicle will be returned to us. As a result, we are exposed to risk of loss on the disposition of leased vehicles to the extent that sales proceeds are not sufficient to cover the carrying value of the leased asset at termination. Among the factors that can affect the value of returned lease vehicles are the volume of vehicles returned, adverse economic conditions, preferences for particular types of vehicles, new vehicle pricing, new vehicle incentive financing programs, new vehicle sales, the actual or perceived quality, safety, or reliability of vehicles, recalls, future plans for new Honda and Acura product introductions, competitor actions and behavior, product attributes of popular vehicles, the mix of used vehicle supply, the level of current used vehicle values, and fuel prices. Our leasing volumes and those 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 affect 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.

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.

Certain of our accounting policies require the application of our most difficult, subjective, or complex judgments, often requiring us to make estimates about the effects of matters that are inherently uncertain and may change in subsequent periods, or for which the use of different estimates that could have reasonably been used in the current period would have had a material impact on the presentation of our financial condition and results of operations.

We maintain an allowance for credit losses for management’s estimate of probable losses incurred on our 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 on past due operating lease rental payments. Our allowance for credit losses and early termination losses on operating leases requires significant judgment about inherently uncertain factors. Actual losses may differ from the original estimates due to actual results varying from those assumed in our estimates, which may have a negative impact on our results of 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—Credit Losses” for additional information regarding our estimates.

We maintain projections for expected residual values and return volumes of the vehicles we lease. Actual proceeds realized by us upon sales of returned leased vehicles at lease termination might be lower than the projected amount, 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.

The failure or commercial soundness of our counterparties and other financial institutions may have an adverse effect on our results of operations, cash flows, or financial condition.

We have exposure to many different financial institutions, and we routinely execute transactions with counterparties in the financial industry. Our debt, derivative and investment transactions, and our ability to borrow under committed and uncommitted credit facilities, could be adversely affected by the creditworthiness, actions, and commercial soundness of these financial institutions. Deterioration of social, political, labor, or economic conditions along with increased regulation in a specific country or region may also adversely affect the ability of financial institutions, including our derivative counterparties and lenders, to perform their contractual obligations. Financial institutions are interrelated because 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 ~~institutions~~institution and other ~~counterparties~~counterparty 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.

If we are unable to compete successfully or if competition continues to increase in the businesses in which we operate, our results of operations, cash flows, and financial condition could be materially and adversely affected.

The finance industries in the United States and Canada are highly competitive. We compete with national and regional commercial banks, credit unions, savings and loan associations, finance companies, and other captive finance companies that provide consumer financing for new and used Honda and Acura products. Additionally, Canadian commercial banks are strong competitors in the automobile consumer financing markets. Commercial banks, finance companies, and captive finance companies of other manufacturers also provide wholesale flooring financing for Honda and Acura dealers. Our primary competition in the wholesale motorcycle, power equipment, and marine engine financing business tends to be local banks and specialty finance firms that are familiar with the particular characteristics of these businesses. Changes in the financial services industry resulting from technological innovations and changes in consumer preferences in how they seek financing may also result in increased competition. Our ability to maintain and expand our market share is contingent upon, among other things, us offering competitive pricing, the quality of credit accepted, the flexibility of loan terms offered, the quality of service provided to dealers and customers and strong dealer relationships. Our inability to compete successfully, as well as increases in competitive pressures, could have an adverse impact on our contract volume, market share, revenues, and margins and have a material adverse effect on us.

Our results of operations may be adversely affected by the rate of prepayment of our financing and leasing contracts.

Our financing and leasing contracts may be repaid by borrowers at any time at their option. Early repayment of contracts will limit the amount of earnings we would have otherwise generated under those contracts and we may not be able to reinvest the portions repaid early immediately into new loans and new leases or loans and leases with similar pricing.

Changes in laws and regulations, or the application thereof, may adversely affect our business, results of operations, cash flows, and financial condition.

Our operations are subject to regulation, supervision, and licensing under various United States, Canadian, state, provincial, and local statutes, ordinances, and regulations. A failure to comply with applicable regulatory, supervisory, or licensing requirements may adversely affect our business, results of operations, cash flows, and financial condition. Due to events in the global financial markets, regulators have increased their focus on the regulation of the financial services industry. As a result, there have been and may continue to be proposals for laws and regulations that could increase the scope and nature of laws and regulations that are currently applicable to us. Any change in such laws and regulations, whether in the form of new or amended laws or regulations, regulatory policies, supervisory action, or the application of any of the above, may adversely affect our business, results of operations, cash flows, and financial condition by increasing our costs to comply with the new laws, prohibiting or limiting the amount of certain revenues we currently receive, or constraining certain collection or collateral recovery action which are currently available to us.

Financial or consumer regulations may adversely affect our business, results of operations, cash flows and financial condition.

The Dodd-Frank Act is extensive and significant legislation that, among other things:

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.

The scope of the Dodd-Frank Act has broad implications for the financial services industry, including us, and requires the implementation of numerous rules and regulations. The Dodd-Frank Act affects 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.

The CFPB has supervisory, examination and enforcement authority over certain non-depository institutions, including those entities that are larger participants of a market for consumer financial products or services, as defined by rule. We are subject to the CFPB’s supervisory authority with respect to our compliance with applicable consumer protection laws. For example, in July 2015 we reached a settlement with the CFPB and the U.S. Department of Justice and entered into consent orders related to their investigation of, and allegations regarding pricing practices by dealers originating automobile retail installment sales contracts that we purchased. As a part of the consent orders, we implemented a new dealer compensation policy and agreed to maintain general compliance management systems reasonably designed to assure compliance with all relevant federal consumer financial laws. Over the past few years, the CFPB has become active in investigating the products, services and operations of credit providers. The CFPB’s investigations of, and initiation of enforcement actions against, credit providers, whether on its own initiative or jointly with other agencies and regulators, may continue for the foreseeable future.

We are also subject to state laws and regulations that vary among the states. A majority of states have enacted legislation establishing licensing requirements to conduct consumer-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.

Compliance with the regulations under the Dodd-Frank Act or the oversight of the SEC, CFPB, state regulators or other governmental entities and enforcement actions, if any, may impose costs on, create operational constraints for, or place limits on pricing with respect to, finance companies such as us. Such compliance and enforcement actions may result in monetary penalties, increase our compliance costs, require changes in our business practices, affect our competitiveness, reduce our profitability, affect our reputation, or otherwise adversely affect our business.

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.

We are exposed to geographic concentration risk in our consumer financing operations. Factors adversely affecting the economy and applicable laws in various states or provinces where we have concentration risk, such as California and New York, could have an adverse effect on our results of operations, cash flows, and financial condition.

A failure or interruption in our operations could adversely affect our results of operations and financial condition.

Operational risk is the risk of loss resulting from, among other factors, inadequate or failed processes, systems or internal controls, theft, fraud, cybersecurity breaches, or natural disasters. Operational risk can occur in many forms including, but not limited to, errors, business interruptions, failure of controls, inappropriate behavior or misconduct by our employees or those contracted to perform services for us, and vendors that do not perform in accordance with their contractual agreements. These events can potentially result in financial losses, regulatory inquiries or other damage to us, including damage to our reputation.

We rely on internal and external information technology 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 also rely on a framework of internal controls designed to provide a sound and well-controlled operating environment. Due to the complexity of our business and the challenges inherent in implementing control structures across large organizations, control issues could be identified in the future that could have a material adverse effect on us.

A security breach or a cyber attack may adversely affect our business, results of operations and financial condition.

A security breach or cyber attack of our systems could interrupt, damage or harm our operations or result in the slow performance or unavailability of our information systems for some customers. We collect, analyze and retain certain types of personally identifiable and other information pertaining to our customers and employees through ~~our~~internal and third party information technology systems. We also store confidential business, employee and technical information. A security breach or cyber attack of these systems, including those caused by physical or 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 monitor and review our security systems and using a Total Quality Management methodology, we update the posture of these systems based on the current threat environment.

We may not be able to anticipate or implement effective preventative measures against all security breaches of these types, especially because the techniques used change frequently and because attacks can originate from a wide variety of sources. It is also possible that our safety and security measures will not prevent the systems’ improper functioning or damage, or the improper access or disclosure of personally identifiable information such as in the event of cyber-attacks. The occurrence of any of these events could have a material adverse effect on our business.

We are subject to various privacy, data protection and information security laws, including requirements concerning security breach notification. Compliance with current and 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. 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, damage to our reputation and could materially and adversely affect our ~~profitability..~~

profitability.

Our defined benefit plan costs and those of AHM and HCI may affect our financial condition, cash flows, and results of operations.

Our employees may participate in either AHM’s or HCI’s defined benefit plans. HMC also has a defined 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.

Vehicle recalls and other announcements may impact our business

From time to time, AHM and/or HCI may recall, suspend sales and production of, or initiate market actions on certain Honda or Acura products to address performance, customer satisfaction, compliance or safety-related issues. Because our business is substantially dependent upon the sale of Honda and Acura products such actions may negatively impact our business. A decrease in the level of vehicle sales would negatively impact our financing volume. Additionally, recalls may affect the demand for used recalled vehicles, or impact our timely disposal of repossessed and returned lease vehicles, which may affect the sales proceeds of those vehicles. For example, during fiscal years 2016 and 2017, we experienced delays in the disposition of returned lease vehicles due to a recall of certain Honda and Acura vehicles. The delays in disposition resulted in the recognition of impairment losses, additional depreciation expense, and lower gains on the disposition of lease vehicles due to the negative impact on the sales proceeds of the affected vehicles.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Our headquarters are located in Torrance, California. Our United States operations have regional offices and national servicing centers located in California, Georgia, Texas, Massachusetts, Illinois, North Carolina, and Delaware. HCFI’s headquarters are located in Markham, Ontario, Canada and our Canadian operations have regional offices and national servicing centers located in Quebec and Ontario. All premises are occupied pursuant to lease agreements.

We believe that our properties are suitable to meet the requirements of our business.

Item 3. Legal Proceedings

For information on our legal proceedings, see Note 9—Commitments and Contingencies—Legal Proceedings and Regulatory Matters of Notes to Consolidated Financial Statements, which is incorporated by reference herein.

Item 4. Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

All of the outstanding common stock of AHFC is owned by AHM. Accordingly, shares of our common stock are not listed on any national securities exchange, 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 of 1933, as amended.

Dividends are declared and paid by AHFC if, when, and as determined by its Board of Directors. AHFC declared and paid semi-annual cash dividends ~~of $141 million and $206 million~~ to its parent, AHM, of $235 million and $271 million during the fiscal year ended March 31, ~~2018. No dividends were declared or paid~~2019 and $141 million and $206 million during the fiscal year ended March 31, ~~2017.~~

2018.

Item 6. Selected Financial Data

The following information is a historical summary only and should be read in conjunction with, and is qualified in its entirety by reference to, the information contained in “Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operation” and our consolidated financial statements and related notes included elsewhere in this annual report.

We derived the consolidated balance sheet data as of March 31, ~~2018~~2019 and ~~2017~~2018 and the consolidated statements of income data for the fiscal years ended March 31, 2019, 2018 ~~2017~~ and ~~2016~~2017 from our audited consolidated financial statements included elsewhere in this annual report. We derived the consolidated balance sheet data as of March 31, ~~2016~~2017 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,

2018

2017

2016

(U.S. dollars in millions)

Consolidated Statement of Income Data

Revenues:

Retail loans and direct financing leases
$
1,382

$
1,222

$
1,257

Dealer loans

175

147

122

Operating leases

6,890

6,333

5,523

Total revenues

8,447

7,702

6,902

Depreciation on operating leases

5,481

5,056

4,421

Interest expense

897

728

592

Net revenues

2,069

1,918

1,889

Gain on disposition of lease vehicles

93

43

51

Other income

56

105

97

Total net revenues

2,218

2,066

2,037

Expenses:

General and administrative expenses

439

434

403

Provision for credit losses

244

210

150

Early termination loss on operating leases

108

73

46

Impairment loss on operating leases

—

—

8

Loss on lease residual values

3

15

13

(Gain)/Loss on derivative instruments

(550
)

315

(101
)
(Gain)/Loss on foreign currency revaluation of debt

494

(171
)

60

Total expenses

738

876

579

Income before income taxes

1,480

1,190

1,458

Income tax expense/(benefit)

(2,629
)

437

548

Net income

4,109

753

910

Less: Net income attributable to noncontrolling interest

100

70

54

Net income attributable to American Honda Finance Corporation
$
4,009

$
683

$
856



	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,

2018

2017

2016

(U.S. dollars in millions)

Consolidated Balance Sheet Data

Finance receivables, net⁽¹⁾:

Retail loans and direct financing leases
$
32,649

$
31,047

$
31,131

Dealer loans

5,495

5,006

4,771

Allowance for credit losses

(179
)

(133
)

(93
)
Write-down of lease residual values

(9
)

(16
)

(16
)
Total finance receivables, net
$
37,956

$
35,904

$
35,793

Investment in operating leases, net
$
31,817

$
31,310

$
28,247

Total assets
$
72,626

$
69,854

$
66,653

Debt:

Commercial paper
$
5,167

$
4,462

$
4,614

Related party debt

1,085

1,201

2,284

Bank loans

5,419

5,883

7,309

Medium term note programs

24,207

23,523

21,095

Other debt

3,250

2,736

1,880

Secured debt

8,733

8,422

7,594

Total debt
$
47,861

$
46,227

$
44,776

Total shareholder’s equity⁽²⁾
$
15,730

$
12,043

$
11,378

As of or for the years ended March 31,

2018

2017

2016

Other Key Consolidated Financial Data

Ratio of earnings to fixed charges ⁽³⁾
2.64x

2.63x

3.45x

Ratio of debt to shareholder’s equity
3.04x

3.84x

3.94x



	March 31,
	2019			2018			2017

	(U.S. dollars in millions)
Consolidated Balance Sheet Data
Finance receivables, net ⁽¹⁾:
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
Total shareholder’s equity ⁽²⁾	$	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 interest.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Our primary focus, in collaboration with AHM and HCI, is to provide support for the sale of Honda and Acura products and maintain customer and dealer satisfaction and loyalty. To deliver this support effectively, we seek to maintain competitive cost of funds, efficient operations, and effective risk and compliance management. The primary factors influencing our results of operations, cash flows, and financial condition include the volume of Honda and Acura sales and the portion of those sales that we finance, our cost of funds, competition from other financial institutions, consumer credit defaults, and used motor vehicle prices.

A substantial portion of our consumer financing business is acquired through incentive financing programs sponsored by AHM and HCI. The volume of these incentive financing programs 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. Our consumer financing acquisition volumes are substantially dependent on the extent to which incentive-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 typically 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.

We seek to maintain high quality consumer and dealer account portfolios, which we support with strong underwriting standards, risk-based pricing, and effective collection 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 support our profitability, including adjusting staffing needs based upon our business volumes and centralizing certain 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.

In our business operations, we incur costs related to funding, credit loss, residual value loss, and general and administrative expenses, among other expenses.

We analyze our operations in two business segments defined by geography: the United States and Canada. We measure the performance of our United States and Canada segments on a pre-tax basis before the effect of valuation adjustments on derivative instruments and revaluations of foreign currency denominated debt. For additional information regarding our segments, see Note 15—Segment Information of Notes to Consolidated Financial Statements. The following tables and the related discussion are presented based on our geographically segmented consolidated financial statements.

References in this report to our “fiscal year ~~2018”~~2019” and “fiscal year ~~2017”~~2018” refer to our fiscal year ended March 31, ~~2018~~2019 and our fiscal year ended March 31, ~~2017,~~2018, respectively.

~~Recent Developments~~

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (Tax Act). The Tax Act makes broad and complex changes to the U.S. tax code that affect our fiscal year ended March 31, 2018, including among other things, (1) reducing the U.S. federal corporate tax rate, (2) requiring a one-time tax (Transition Tax) on the deemed repatriation of earnings of foreign subsidiaries, (3) eliminating like-kind exchange for personal property disposed after December 31, 2017 and (4) increasing bonus depreciation to allow for full expensing of qualified property. The Tax Act reduced the federal corporate tax rate to

21 percent, effective January 1, 2018. In accordance with Section 15 of the Internal Revenue Code, our fiscal year ended March 31, 2018 has a blended federal corporate tax rate of 31.55 percent, which is based on the applicable tax rates, prorated based on the number of days prior to and subsequent to the January 1, 2018 effective date. The impact of certain changes in tax law to future periods is still being evaluated. For the impact on the current period, please refer to Note 7—Income Taxes of ~~Notes to Consolidated Financial Statements~~.

International-related taxes included in the Tax Act that could affect our tax provision beginning in the fiscal year ending March 31, 2019 are: (1) a new base erosion and anti-abuse tax (BEAT) applicable to certain foreign related-party payments, (2) a global intangible low-taxed income (GILTI) tax applicable to certain income of controlled foreign corporations, and (3) a reduced tax rate on foreign-derived intangible income related to certain U.S. export sales. Interpretive guidance on these, and other provisions of the Tax Act continues to be issued by the U.S. Internal Revenue Service and relevant authorities. We are continuing to evaluate the impact of these new provisions, and monitoring ongoing developments closely.

We are required to make a policy decision regarding whether to record deferred taxes on GILTI within the twelve-month measurement period afforded by Staff Accounting Bulletin No. 118 (SAB 118). The policy decision has not been determined as of the reporting date.

Results of Operations

The following table presents our income before income taxes:

Years ended March 31,

2018

2017

2016

(U.S. dollars in millions)

Income before income taxes:

United States segment
$
1,194

$
991

$
1,302

Canada segment

286

199

156

Total income before income taxes
$
1,480

$
1,190

$
1,458



	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

Comparison of Fiscal Years Ended March 31, ~~2018~~2019 and ~~2017~~

2018

Our consolidated income before income taxes was $1,669 million in fiscal year 2019 compared to $1,480 million in fiscal year ~~2018 compared to $1,190 million in fiscal year 2017.~~2018. This increase of ~~$290~~$189 million, or ~~24%~~13%, was due to the following:


													Years ended March 31,
	Years ended March 31,												2019			2018			Difference			% Change
	2018			2017			Difference			% Change
	(U.S. dollars in millions)												(U.S. dollars in millions)
Net revenues:
Direct financing leases	$	13		$	34		$	(21	)		(62	%)	$	4		$	13		$	(9	)	(69	%)
Retail		1,369			1,188			181			15	%	1,610			1,369			241			18	%
Dealer		175			147			28			19	%	232			175			57			33	%
Operating lease, net of depreciation		1,409			1,277			132			10	%
Operating leases, net of depreciation													1,733			1,409			324			23	%
Interest expense		(897	)		(728	)		(169	)		23	%	(1,190		)	(897		)	(293		)	33	%
Gain on disposition of lease vehicles		93			43			50			116	%	131			93			38			41	%
Other income		56			105			(49	)		(47	%)	71			56			15			27	%
Total net revenues		2,218			2,066			152			7	%	2,591			2,218			373			17	%
Expenses:
General and administrative expenses													456			439			17			4	%
Provision for credit losses		244			210			34			16	%	249			244			5			2	%
Impairment loss on operating leases													14			—			14			n/m
Early termination loss on operating leases		108			73			35			48	%	101			108			(7		)	(6	)%
(Gain)/Loss on derivative instruments		(550	)		315			(865	)		(275	%)	509			(550		)	1,059			(193	%)
(Gain)/Loss on foreign currency revaluation of debt		494			(171	)		665			(389	%)	(407		)	494			(901		)	(182	%)
Other		442			449			(7	)		(2	%)	—			3			(3		)	(100	%)
Total expenses		738			876			(138	)		(16	%)	922			738			184			25	%
Total income before income taxes	$	1,480		$	1,190		$	290			24	%	$	1,669		$	1,480		$	189		13	%

~~Comparison of Fiscal Years Ended March 31, 2017 and 2016~~

~~Our consolidated income before income taxes was $1,190 million in fiscal year 2017 compared to $1,458 million in fiscal year 2016. This decline of $268 million, or 18%, was due to the following:~~

Years ended March 31,

2017

2016

Difference

% Change

(U.S. dollars in millions)

Net revenues:

Direct financing leases
$
34

$
72

$
(38
)

(53
%)
Dealer

147

122

25

20
%
Operating lease, net of depreciation

1,277

1,102

175

16
%
Interest expense

(728
)

(592
)

(136
)

23
%
Other

1,336

1,333

3

0
%
Total net revenues

2,066

2,037

29

1
%
Expenses:

General and administrative expenses

434

403

31

8
%
Provision for credit losses

210

150

60

40
%
(Gain)/Loss on derivative instruments

315

(101
)

416

(412
%)
(Gain)/Loss on foreign currency revaluation of debt

(171
)

60

(231
)

(385
%)
Other

88

67

21

31
%
Total expenses

876

579

297

51
%
Total income before income taxes
$
1,190

$
1,458

$
(268
)

(18
%)
n/m= not meaningful

Segment Results—Comparison of Fiscal Years Ended March 31, ~~2018~~2019 and ~~2017~~

2018

Results of operations for the United States segment and the Canada segment are summarized below:

United States Segment

Canada Segment

Consolidated

Years ended March 31,

Years ended March 31,

Years ended March 31,

2018

2017

2016

2018

2017

2016

2018

2017

2016

(U.S. dollars in millions)

Revenues:

Direct financing leases
$
—

$
—

$
—

$
13

$
34

$
72

$
13

$
34

$
72

Retail

1,181

1,030

1,041

188

158

144

1,369

1,188

1,185

Dealer

158

133

109

17

14

13

175

147

122

Operating leases

5,815

5,547

5,023

1,075

786

500

6,890

6,333

5,523

Total revenues

7,154

6,710

6,173

1,293

992

729

8,447

7,702

6,902

Depreciation on operating leases

4,598

4,403

4,012

883

653

409

5,481

5,056

4,421

Interest expense

770

638

518

127

90

74

897

728

592

Net revenues

1,786

1,669

1,643

283

249

246

2,069

1,918

1,889

Gain on disposition of lease
     vehicles

66

24

46

27

19

5

93

43

51

Other income

50

100

94

6

5

3

56

105

97

Total net revenues

1,902

1,793

1,783

316

273

254

2,218

2,066

2,037

Expenses:

General and administrative
     expenses

384

383

356

55

51

47

439

434

403

Provision for credit losses

239

199

134

5

11

16

244

210

150

Early termination loss on
     operating leases

105

67

41

3

6

5

108

73

46

Impairment loss on operating
     leases

—

—

6

—

—

2

—

—

8

Loss on lease residual values

—

—

—

3

15

13

3

15

13

(Gain)/Loss on derivative
     instruments

(514
)

324

(116
)

(36
)

(9
)

15

(550
)

315

(101
)
(Gain)/Loss on foreign
     currency revaluation of
          debt

494

(171
)

60

—

—

—

494

(171
)

60

Income before income taxes
$
1,194

$
991

$
1,302

$
286

$
199

$
156

$
1,480

$
1,190

$
1,458



	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
Gain on disposition of lease vehicles	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:
General and administrative 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			—			—
Early termination loss on operating leases	98			105			67			3		3			6			101			108			73
Loss on lease residual values	—			—			—			—		3			15			—			3			15
(Gain)/Loss on derivative instruments	500			(514		)	324			9		(36		)	(9		)	509			(550		)	315
(Gain)/Loss on foreign currency revaluation of debt	(407		)	494			(171		)	—		—			—			(407		)	494			(171		)
Income before income taxes	$	1,396		$	1,194		$	991		$	273	$	286		$	199		$	1,669		$	1,480		$	1,190

Revenues

Revenue from retail loans in the United States segment increased by ~~$151~~$225 million, or ~~15%~~19%, during fiscal year ~~2018~~2019 compared to fiscal year ~~2017.~~2018. The increase in revenue was attributable to higher yields due to the rising interest rate environment ~~the increase in volume of retail loans with longer terms which typically have higher interest rates,~~ and higher average outstanding balances. Revenue from retail loans in the Canada segment increased by ~~$30~~$16 million, or ~~19%~~9%, during fiscal year 2019 compared to fiscal year 2018. The increase in revenue was attributable to higher yields due to ~~higher average outstanding balances, higher yields and~~ the ~~effect of foreign currency translation adjustments.~~

rising interest rate environment.

Operating lease revenue in the United States segment increased by ~~$268~~$186 million, or 5%3%, during ~~the~~ fiscal year ~~2018~~2019 compared to fiscal year ~~2017~~2018. The increase was primarily due to higher ~~average outstanding~~net revenue on more recently acquired operating lease ~~assets.~~assets due to the rising interest rate environment. Operating lease revenue in the Canada segment increased by ~~$289~~$177 million, or ~~37%~~16%, during fiscal year 2019 compared to fiscal year 2018. The increase was attributable to higher net revenue on more recently acquired operating lease assets due to the rising interest rate environment and higher average outstanding operating lease ~~assets and the effect of foreign currency translation adjustments.~~

assets.

Direct financing lease revenue, which is generated only in Canada, declined by ~~$21~~$9 million, or ~~62%~~69%, during fiscal year ~~2018~~2019 compared to fiscal year ~~2017~~2018 due to the run-off of direct financing lease assets.

Revenue from dealer loans in the United States segment increased by ~~$25~~$53 million, or ~~19%~~34%, during fiscal year ~~2018~~2019 compared to fiscal year ~~2017 primarily~~2018. The increase was attributable to higher yields due to the rising interest rate environment and higher ~~yields.~~average outstanding balances. Revenue from dealer loans in the Canada segment increased by $3$4 million, or ~~21%~~24%, primarily due to higher yields ~~higher average outstanding balances and~~due to the ~~effect of foreign currency translation adjustments.~~

rising interest rate environment.

Consolidated subsidy income from AHM and HCI sponsored incentive programs increased by ~~$209~~$192 million, or ~~17%~~13%, to $1,633 million during fiscal year 2019 compared to $1,441 million during fiscal year ~~2018 compared to $1,232 million during fiscal year 2017.~~2018. The increase was attributable to higher average ~~outstanding~~subsidy 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 and incentive retail loans.~~

programs has also been rising.

Depreciation on operating leases

Depreciation on operating leases in the United States segment ~~increased~~decreased by ~~$195~~$78 million, or 4%2%, during fiscal year ~~2018~~2019 compared to fiscal year ~~2017,~~2018. The decrease in depreciation was primarily due to ~~higher average outstanding operating lease assets.~~improvements in expected used vehicle values during fiscal year 2019 compared to fiscal year 2018. Depreciation on operating lease assets in the Canada segment increased by ~~$230~~$117 million, or ~~35%~~13%, due to higher average outstanding operating lease ~~assets and the effect of foreign currency translation adjustments.~~

assets.

Operating lease revenue, net of depreciation ~~increased by $73 million, or 6%,~~ in the United States segment ~~and~~increased by ~~$59~~$264 million, or ~~44%~~22%, ~~in the Canada segment~~ during fiscal year ~~2018~~2019 compared to fiscal year ~~2017.~~2018. The ~~increases~~increase in operating lease revenue, net of depreciation ~~were~~was attributable to ~~higher average outstanding operating lease assets and~~ higher net revenue on more recently acquired operating lease assets due to the rising interest rate environment and decrease in ~~both~~depreciation due to improvements in expected used vehicle values. Operating lease revenue, net of depreciation in the ~~United States~~Canada segment increased by $60 million, or 31%, 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 ~~Canada segments.~~

higher average outstanding operating lease assets.

Interest expense

Interest expense in the United States segment increased by ~~$132~~$245 million, or ~~21%~~32%, during fiscal year ~~2018~~2019 compared to fiscal year ~~2017 primarily due~~2018. 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 ~~$37~~$48 million, or ~~41%~~38%, primarily due to higher average interest ~~rates, an increase in average outstanding debt and the effect of foreign currency translation adjustments.~~rates. See “—Liquidity and Capital Resources” below for more information.

Gain on disposition of lease vehicles

The gain on disposition of lease vehicles in the United States segment increased by ~~$42~~$34 million, or ~~175%~~52%, during fiscal year ~~2018~~2019 compared to fiscal year ~~2017.~~2018. The gain on disposition of lease vehicles in the Canada segment increased by $8$4 million, or ~~42%~~15%. The increases in gains in both segments were primarily the result of higher volume of units with more favorable disposition proceeds than the assumptions that were reflected in their estimated residual ~~values including proceeds from AHM sponsored lease termination programs in the United States.~~values. See “—Financial Condition—Lease Residual Value Risk” below for more information.

Provision for credit losses

The provision for credit losses in the United States segment increased by ~~$40~~$3 million, or ~~20%~~1%, during fiscal year ~~2018~~2019 compared to fiscal year ~~2017.~~2018. The increase in the provision was primarily due to the ~~trend in increasing charge-offs~~rise in the ~~United States segment we have been experiencing since fiscal year 2016.~~provision for past due operating lease rental payments and an increase in the provision for impaired dealer loans. The provision for credit losses in the Canada segment ~~declined~~increased by $6$2 million, or ~~55%~~40%, ~~due~~during fiscal year 2019 compared to ~~a decline in net charge-offs and a~~fiscal year 2018. During fiscal year 2018, the reduction in the allowance for credit losses in the Canada segment in order to reflect improving credit ~~performance.~~performance resulted in a lower 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.

Impairment loss on operating leases

Impairment loss on operating leases of $14 million was recognized in the United States segment during fiscal year 2019 due to lower estimated residual value of certain models of leased vehicles. No impairment losses due to declines in estimated residual values were recognized during the fiscal year 2018. See “—Financial Condition—Lease Residual Value Risk” below for more information.

Early termination loss on operating leases

Early termination losses on operating leases in the United States segment ~~increased~~decreased by ~~$38~~$7 million, or ~~57%~~7%, during fiscal year ~~2018~~2019 compared to fiscal year ~~2017. The increase was primarily~~2018 due to ~~the growth in operating lease assets and an~~a smaller increase in ~~the mix of leases with lower credit grades.~~estimated early termination losses. Early termination losses on operating leases in the Canada segment ~~declined by $3 million, or 50%. The decrease was primarily due~~were flat during fiscal year 2019 compared to ~~the reduction in the estimate of early termination losses as a result of improving credit performance.~~fiscal year 2018. See “—Financial Condition—Credit Risk” below for more information.

Loss on lease residual values

Loss on lease residual values in the Canada segment decreased by ~~$12~~$3 million, or ~~80%~~100%, during fiscal year ~~2018~~2019 compared to fiscal year ~~2017,~~2018, primarily due to the run-off of direct financing lease assets. See “—Financial Condition—Lease Residual Value Risk” below for more information.

Gain/loss on derivative instruments

In the United States segment, we recognized a ~~gain~~loss on derivative instruments of $500 million during fiscal year 2019 compared to a gain of $514 million during fiscal year ~~2018 compared~~2018. The loss in fiscal year 2019 was attributable to a loss ~~of $324 million during fiscal year 2017. The gain in fiscal year 2018 was attributable to gains~~ on cross currency swaps of ~~$424~~$486 million and pay fixed interest rate swaps of ~~$224~~$161 million, partially offset by ~~losses~~gains on pay float interest rate swaps of ~~$134~~$147 million. The ~~gains~~loss on cross currency swaps during fiscal year ~~2018 were~~2019 was primarily attributable to the U.S. dollar ~~weakening~~strengthening against the Euro and Sterling during the period. The ~~gains~~losses on pay fixed interest rate swaps and ~~losses~~gains on pay float interest rate swaps during fiscal year ~~2018~~2019 were primarily due to ~~increase~~declines in applicable swap rates during the period. In the Canada segment, we recognized a ~~gain~~loss on derivative instruments of $9 million during fiscal year 2019 compared to a gain of $36 million during fiscal year ~~2018 compared to a gain of $9 million~~2018. The losses during fiscal year ~~2017. The gains during fiscal year 2018~~2019 were due to ~~a rise~~declines in ~~Canadian~~applicable swap ~~rates.~~rates during the period. See “—Derivatives” below for more information.

Gain/loss on foreign currency revaluation of debt

In the United States segment, we recognized a ~~loss~~gain on the revaluation of foreign currency denominated debt of $407 million during fiscal year 2019 compared to a loss of $494 million during fiscal year ~~2018 compared to a~~2018. The gain ~~of $171 million~~ during fiscal year ~~2017. The loss during fiscal year 2018~~2019 was primarily due to the U.S. dollar ~~weakening~~strengthening against the Euro and Sterling during the period.

Income tax expense

Our consolidated effective tax rate was 25.6% for fiscal year 2019 and (177.6)% for fiscal year ~~2018 and 36.7% for fiscal year 2017.~~2018. The ~~decrease~~increase in the effective tax rate for fiscal year ~~2018~~2019 was primarily due to the impact of the new U.S. federal income tax rate ~~change~~ and the Transition Tax under the Tax ~~Act.~~ Cuts and Jobs Act (Tax Act). For additional information regarding income taxes, see Note 7—Income Taxes of Notes to Consolidated Financial Statements.

The U.S. federal tax rate of 31.55% in fiscal year ended March 31, 2018 is a result of the 35% tax rate under prior U.S. federal tax law and the current 21% tax rate, each prorated based on the number of days prior to and subsequent to the January 1, 2018 effective date of the Tax Act. ~~For additional information regarding income taxes, see Note 7—Income Taxes of~~ ~~Notes to Consolidated Financial Statements~~.

Financial Condition

Consumer Financing

Consumer Financing Acquisition Volumes

The following table summarizes the number of retail loans and leases we acquired and the number of such loans and leases acquired through incentive financing programs sponsored by AHM and HCI:

Years ended March 31,

2018

2017

2016

Acquired

Sponsored ⁽²⁾

Acquired

Sponsored ⁽²⁾

Acquired

Sponsored ⁽²⁾

(Units⁽¹⁾ in thousands)

United States Segment

Retail loans:

New auto

477

307

464

325

412

259

Used auto

104

26

88

9

71

6

Motorcycle

72

11

74

11

74

11

Other

1

—

1

—

1

—

Total retail loans

654

344

627

345

558

276

Leases

452

361

514

470

498

417

Canada Segment

Retail loans:

New auto

70

68

67

63

56

50

Used auto

9

6

10

6

13

6

Motorcycle

8

7

6

4

6

4

Other

—

—

1

—

1

—

Total retail loans

87

81

84

73

76

60

Leases

85

84

81

80

81

79

Consolidated

Retail loans:

New auto

547

375

531

388

468

309

Used auto

113

32

98

15

84

12

Motorcycle

80

18

80

15

80

15

Other

1

—

2

—

2

—

Total retail loans

741

425

711

418

634

336

Leases

537

445

595

550

579

496



	Years ended March 31,
	2019		2018		2017
	Acquired	Sponsored ⁽²⁾	Acquired	Sponsored ⁽²⁾	Acquired	Sponsored ⁽²⁾

	(Units ⁽¹⁾ in thousands)
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 AHFC’s yield requirements and subsidy payments were not required.

Consumer Financing Penetration Rates

The following table summarizes the percentage of AHM and/or HCI sales of new automobiles and motorcycles that were financed either with retail loans or leases that we acquired:

Years ended March 31,

2018

2017

2016

United States Segment

New auto

57
%

59
%

57
%
Motorcycle

38
%

39
%

39
%

Canada Segment

New auto

78
%

77
%

75
%
Motorcycle

32
%

24
%

26
%

Consolidated

New auto

59
%

61
%

58
%
Motorcycle

37
%

37
%

38
%



	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	%

Consumer Financing Asset Balances

The following table summarizes our outstanding retail loan and lease asset balances and units:

March 31,

March 31,

2018

2017

2016

2018

2017

2016

(U.S. dollars in millions)
(Units⁽¹⁾ in thousands)

United States Segment

Retail loans:

New auto
$
23,700

$
22,837

$
23,051

1,590

1,610

1,673

Used auto

3,685

3,154

2,796

268

234

220

Motorcycle

1,028

993

939

193

191

187

Other

46

51

49

4

4

5

Total retail loans
$
28,459

$
27,035

$
26,835

2,055

2,039

2,085

Securitized retail loans⁽²⁾
$
7,633

$
7,748

$
7,030

691

690

636

Investment in operating leases
$
27,040

$
27,380

$
25,245

1,301

1,294

1,196

Canada Segment

Retail loans:

New auto
$
3,463

$
3,067

$
2,765

245

219

196

Used auto

309

345

411

36

44

52

Motorcycle

86

73

73

19

16

15

Other

3

3

3

2

2

2

Total retail loans
$
3,861

$
3,488

$
3,252

302

281

265

Securitized retail loans⁽²⁾
$
1,262

$
764

$
676

89

59

45

Direct financing leases
$
141

$
375

$
935

15

34

69

Investment in operating leases
$
4,777

$
3,930

$
3,002

259

212

149

Consolidated

Retail loans:

New auto
$
27,163

$
25,904

$
25,816

1,835

1,829

1,869

Used auto

3,994

3,499

3,207

304

278

272

Motorcycle

1,114

1,066

1,012

212

207

202

Other

49

54

52

6

6

7

Total retail loans
$
32,320

$
30,523

$
30,087

2,357

2,320

2,350

Securitized retail loans⁽²⁾
$
8,895

$
8,512

$
7,706

780

749

681

Direct financing leases
$
141

$
375

$
935

15

34

69

Investment in operating leases
$
31,817

$
31,310

$
28,247

1,560

1,506

1,345



	March 31,						March 31,
	2019		2018		2017		2019	2018	2017

	(U.S. dollars in millions)						(Units ⁽¹⁾ in thousands)
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
Securitized retail loans ⁽²⁾	$	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
Securitized retail loans ⁽²⁾	$	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
Securitized retail loans ⁽²⁾	$	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.

In the United States segment, retail loan acquisition volumes increased by 4% during fiscal year ~~2018~~2019 compared to fiscal year ~~2017~~2018 primarily due to the increase in non-sponsored used ~~auto loan incentive financing program volumes~~ and ~~the increase in non-sponsored~~sponsored new auto loan acquisition volumes. Lease acquisition volumes ~~declined~~increased by ~~12%~~10% during fiscal year ~~2018~~2019 compared to fiscal year ~~2017~~2018 primarily due to the ~~23% reduction~~increase in incentive program volumes.

In the Canada segment, retail loan acquisition volumes ~~increased~~decreased by 4%13% during fiscal year ~~2018~~2019 compared to fiscal year ~~2017~~2018 primarily due to ~~higher~~the decline in retail loan incentive volumes. Lease acquisition volumes increased by 5%8% during fiscal year ~~2018~~2019 compared to fiscal year ~~2017.~~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 ~~2018~~2019 as the result of our remaining direct financing leases maturing and all newly acquired leases being classified as operating leases.

Dealer Financing

Wholesale Flooring Financing Penetration Rates

The following table summarizes the number of dealerships with wholesale flooring financing agreements as a percentage of total Honda and Acura dealerships in the United States and/or Canada, as applicable:

March 31,

2018

2017

2016

United States Segment

Automobile

28
%

28
%

27
%
Motorcycle

98
%

97
%

97
%
Other

21
%

21
%

22
%

Canada Segment

Automobile

36
%

35
%

34
%
Motorcycle

95
%

95
%

97
%
Other

95
%

95
%

98
%

Consolidated

Automobile

30
%

29
%

28
%
Motorcycle

97
%

97
%

97
%
Other

23
%

24
%

24
%



	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	%

Wholesale Flooring Financing Percentage of Sales

The following table summarizes the percentage of AHM unit sales in the United States and/or HCI unit sales in Canada, as applicable, that we financed through wholesale flooring loans with dealerships:

Years ended March 31,

2018

2017

2016

United States Segment

Automobile

28
%

27
%

27
%
Motorcycle

98
%

97
%

97
%
Other

8
%

7
%

8
%

Canada Segment

Automobile

31
%

31
%

34
%
Motorcycle

94
%

96
%

94
%
Other

95
%

98
%

97
%

Consolidated

Automobile

28
%

27
%

27
%
Motorcycle

97
%

97
%

97
%
Other

10
%

10
%

10
%



	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	%

Dealer Financing Asset Balances

The following table summarizes our outstanding dealer financing asset balances and units:

March 31,

March 31,

2018

2017

2016

2018

2017

2016

(U.S. dollars in millions)
(Units⁽¹⁾ in thousands)

United States Segment

Wholesale flooring loans:

Automobile
$
3,075

$
2,823

$
2,641

113

111

104

Motorcycle

738

684

747

100

93

107

Other

60

64

64

67

73

71

Total wholesale flooring loans
$
3,873

$
3,571

$
3,452

280

277

282

Commercial loans
$
978

$
841

$
793

Canada Segment

Wholesale flooring loans:

Automobile
$
452

$
414

$
363

18

18

16

Motorcycle

98

86

69

13

13

11

Other

29

29

31

31

32

28

Total wholesale flooring loans
$
579

$
529

$
463

62

63

55

Commercial loans
$
65

$
65

$
63

Consolidated

Wholesale flooring loans:

Automobile
$
3,527

$
3,237

$
3,004

131

129

120

Motorcycle

836

770

816

113

106

118

Other

89

93

95

98

105

99

Total wholesale flooring loans
$
4,452

$
4,100

$
3,915

342

340

337

Commercial loans
$
1,043

$
906

$
856

~~(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)			(Units ⁽¹⁾ in thousands)
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

________________________

(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.

Credit Risk

Credit losses are an expected cost of extending credit. The majority of our credit risk is in consumer financing and to a lesser extent in dealer financing. Credit risk of our portfolio of consumer finance receivables can be affected by general economic conditions. Adverse changes such as a rise in unemployment 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.~~

losses, and ongoing reviews of the financial condition of dealers.

We are also exposed to credit risk on our portfolio of operating lease assets. We expect a portion of our operating leases to terminate prior to their scheduled maturities when lessees default on their contractual obligations. Losses are generally realized upon the disposition of the repossessed operating lease vehicles. The factors affecting credit risk on our operating leases and our management of the risk are similar to that of our retail loans and direct financing leases.

Credit risk on dealer loans is affected primarily by the financial strength of the dealers within the portfolio, the value of collateral securing the financings, and economic and market factors that could affect the creditworthiness of dealers. We manage our exposure to credit risk in dealer financing by performing comprehensive reviews of dealers prior to establishing financing arrangements and monitoring the payment performance and creditworthiness of these dealers on an ongoing basis. In the event of default by a dealer, we seek all available legal remedies pursuant to related dealer agreements, guarantees, security interests on collateral, or liens on dealership assets. Additionally, we have agreements with AHM and HCI that provide for their repurchase 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.

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.

Additional information regarding credit losses is provided in the discussion of “—Critical Accounting Policies—Credit Losses” below.

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,

2018

2017

2016

(U.S. dollars in millions)

United States Segment

Finance receivables:

Allowance for credit losses at beginning of period
$
124

$
83

$
77

Provision for credit losses

209

177

116

Charge-offs, net of recoveries

(160
)

(136
)

(110
)
Allowance for credit losses at end of period
$
173

$
124

$
83

Allowance as a percentage of ending receivable balance⁽¹⁾

0.51
%

0.39
%

0.26
%
Charge-offs as a percentage of average receivable balance⁽¹⁾

0.49
%

0.43
%

0.34
%
Delinquencies (60 or more days past due):

Delinquent amount⁽²⁾
$
56

$
42

$
47

As a percentage of ending receivable balance^{(1), (2)}

0.17
%

0.13
%

0.15
%
Operating leases:

Early termination loss on operating leases
$
105

$
67

$
41

Provision for past due operating lease rental payments⁽³⁾

30

22

18

Canada Segment

Finance receivables:

Allowance for credit losses at beginning of period
$
9

$
10

$
9

Provision for credit losses

4

10

15

Charge-offs, net of recoveries

(7
)

(11
)

(14
)
Effect of translation adjustment

—

—

—

Allowance for credit losses at end of period
$
6

$
9

$
10

Allowance as a percentage of ending receivable balance⁽¹⁾

0.13
%

0.20
%

0.21
%
Charge-offs as a percentage of average receivable balance⁽¹⁾

0.16
%

0.24
%

0.28
%
Delinquencies (60 or more days past due):

Delinquent amount⁽²⁾
$
8

$
7

$
7

As a percentage of ending receivable balance^{(1), (2)}

0.16
%

0.15
%

0.14
%
Operating leases:

Early termination loss on operating leases
$
3

$
6

$
5

Provision for past due operating lease rental payments⁽³⁾

1

1

1

Consolidated

Finance receivables:

Allowance for credit losses at beginning of period
$
133

$
93

$
86

Provision for credit losses

213

187

131

Charge-offs, net of recoveries

(167
)

(147
)

(124
)
Effect of translation adjustment

—

—

—

Allowance for credit losses at end of period
$
179

$
133

$
93

Allowance as a percentage of ending receivable balance⁽¹⁾

0.46
%

0.36
%

0.26
%
Charge-offs as a percentage of average receivable balance⁽¹⁾

0.44
%

0.41
%

0.33
%
Delinquencies (60 or more days past due):

Delinquent amount⁽²⁾
$
64

$
49

$
54

As a percentage of ending receivable balance^{(1), (2)}

0.17
%

0.13
%

0.15
%
Operating leases:

Early termination loss on operating leases
$
108

$
73

$
46

Provision for past due operating lease rental payments⁽³⁾

31

23

19



	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
Allowance as a percentage of ending receivable balance ⁽¹⁾	0.53		%	0.51		%	0.39		%
Charge-offs as a percentage of average receivable balance ⁽¹⁾	0.51		%	0.49		%	0.43		%
Delinquencies (60 or more days past due):
Delinquent amount ⁽²⁾	$	104		$	56		$	42
As a percentage of ending receivable balance ^{(1), (2)}	0.28		%	0.17		%	0.13		%
Operating leases:
Early termination loss on operating leases	$	98		$	105		$	67
Provision for past due operating lease rental payments ⁽³⁾	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
Allowance as a percentage of ending receivable balance ⁽¹⁾	0.14		%	0.13		%	0.20		%
Charge-offs as a percentage of average receivable balance ⁽¹⁾	0.12		%	0.16		%	0.24		%
Delinquencies (60 or more days past due):
Delinquent amount ⁽²⁾	$	4		$	8		$	7
As a percentage of ending receivable balance ^{(1), (2)}	0.09		%	0.16		%	0.15		%
Operating leases:
Early termination loss on operating leases	$	3		$	3		$	6
Provision for past due operating lease rental payments ⁽³⁾	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
Allowance as a percentage of ending receivable balance ⁽¹⁾	0.49		%	0.46		%	0.36		%
Charge-offs as a percentage of average receivable balance ⁽¹⁾	0.47		%	0.44		%	0.41		%
Delinquencies (60 or more days past due):
Delinquent amount ⁽²⁾	$	108		$	64		$	49
As a percentage of ending receivable balance ^{(1), (2)}	0.26		%	0.17		%	0.13		%
Operating leases:
Early termination loss on operating leases	$	101		$	108		$	73
Provision for past due operating lease rental payments ⁽³⁾	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.

In the United States segment, the provision for credit losses on our finance receivables was $203 million during fiscal year 2019 compared to $209 million during fiscal year ~~2018 compared to $177 million during fiscal year 2017.~~2018. The ~~increase~~decline in the provision was due to a smaller increase in the allowance for credit losses for retail loans during fiscal year 2019 compared to fiscal year 2018. Although net charge-offs of retail loans during fiscal year 2019 were higher compared to fiscal year 2018, which continues the trend inof increasing charge-offs that we have been experiencing since fiscal year ~~2016.~~2016, the rate of increase was lower compared to prior years. The ~~increase~~increasing trend in charge-offs iswas primarily due to the increase in the volume of retail loans with longer terms which typically have higher loan-to-value ratios and as a result, higher loss severities. The ~~increase~~increasing trend in charge-offs was also the result of higher charge-off frequencies due ~~in part~~ to the increase in the volume of retail loans in our lowest credit grade tier ~~which has contributed to higher charge-off frequencies. Changes~~and used auto loans. The decline in ~~general economic conditions, a rise~~the provision for retail loans was partially offset by an increase in ~~unemployment, and declines in used vehicle prices could result in increases in our credit losses. Our allowance~~the provision for ~~credit losses as a percentage~~impaired dealer loans of ~~the ending receivable balance as of March 31, 2018 was increased to 0.51% as compared to 0.39% as of March 31, 2017 to reflect the weaker credit performance.~~$8 million. We recognized early termination losses on operating lease assets of $98 million during fiscal year 2019 compared to $105 million during fiscal year ~~2018 compared to $67 million~~2018. Although the actual net losses we realized during fiscal year ~~2017. The~~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 ~~2018~~2019 was ~~due~~lower compared to ~~the growth in operating lease assets and~~fiscal year 2018. During fiscal year 2019, there was an increase in the ~~mix~~frequency of ~~leases with~~lessee 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.~~

losses on past due rental payments.

In the Canada segment, the provision for credit losses on our finance receivables was $6 million during fiscal year 2019 compared to $4 million during fiscal year ~~2018 compared to $10 million during~~2018. During fiscal year ~~2017. The decline in~~2018, the ~~provision for credit losses was due to a decline in net charge-offs and a~~ reduction in the allowance for credit losses in the Canada segment in order to reflect improving credit ~~performance.~~performance resulted in a lower provision for credit losses. During fiscal year 2019, there was a slight increase in the allowance for credit losses. Early termination losses on operating lease assets was $3 million during fiscal year ~~2018~~2019, which was flat compared to ~~$6 million during~~ fiscal year ~~2017. The decrease was primarily due to the reduction in our estimate of early termination losses as a result of improving credit performance.~~

2018.

Lease Residual Value Risk

We assess our estimates for end of lease term market values of leased vehicles, at minimum, on a quarterly basis. The primary factors affecting the estimates are the percentage of leased vehicles that we expect to be returned by the lessee at the end of lease term and expected loss severities. Factors considered in this evaluation include, among other factors, economic conditions, historical trends, and market information on new and used vehicles. Our leasing volumes and those 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-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 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.

We also review our investment in operating leases for impairment whenever events or changes in circumstances indicate that the carrying values may not be recoverable. If impairment conditions are met, impairment losses are measured by the amount carrying values exceed their fair values.

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. As of September 30, 2017, we had disposed all of the vehicles affected by this recall. ~~We did not recognize impairment losses due to declines in estimated residual values~~ ~~during fiscal years 2018 and 2017.~~

The following table summarizes our number of lease terminations and the method of disposition:

Years ended March 31,

2018

2017

2016

(Units⁽¹⁾ in thousands)

United States Segment

Termination units:

Sales at outstanding contractual balances⁽²⁾

264

267

261

Sales through auctions and dealer direct programs⁽³⁾

167

132

114

Total termination units

431

399

375

Canada Segment

Termination units:

Sales at outstanding contractual balances⁽²⁾

49

45

43

Sales through auctions and dealer direct programs⁽³⁾

7

8

8

Total termination units

56

53

51

Consolidated

Termination units:

Sales at outstanding contractual balances⁽²⁾

313

312

304

Sales through auctions and dealer direct programs⁽³⁾

174

140

122

Total termination units

487

452

426



	Years ended March 31,
	2019	2018	2017

	(Units ⁽¹⁾ in thousands)
United States Segment
Termination units:
Sales at outstanding contractual balances ⁽²⁾	319	264	267
Sales through auctions and dealer direct programs ⁽³⁾	155	167	132
Total termination units	474	431	399
Canada Segment
Termination units:
Sales at outstanding contractual balances ⁽²⁾	65	49	45
Sales through auctions and dealer direct programs ⁽³⁾	6	7	8
Total termination units	71	56	53
Consolidated
Termination units:
Sales at outstanding contractual balances ⁽²⁾	384	313	312
Sales through auctions and dealer direct programs ⁽³⁾	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.

Liquidity and Capital Resources

Our liquidity strategy is to fund current and future obligations through our cash flows from operations and our diversified funding programs in a cost and risk effective manner. Our cash flows are generally impacted by cash requirements related to the volume of finance receivable and operating lease acquisitions and various operating and funding costs incurred, which are largely funded through payments received on our assets and our funding sources outlined below. As noted, the levels of incentive financing sponsored by AHM and HCI can impact our financial results and liquidity from period to period. Increases or decreases in incentive financing programs typically increase or decrease our financing penetration rates, respectively, which result in increased or decreased acquisition volumes and increased or decreased liquidity needs, respectively. At acquisition, we receive the subsidy payments, which reduce the cost of consumer loan and lease contracts acquired, and we recognize such payments as revenue over the term of the loan or lease.

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. 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.

The summary of outstanding debt presented in the tables below in this section “—Liquidity and Capital Resources” as of March 31, 2019, 2018 and 2017 ~~and 2016 include~~includes foreign currency denominated debt which ~~were~~was translated into U.S. dollars using the relevant exchange rates as of March 31, 2019, 2018 ~~2017~~ and ~~2016,~~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, ~~2018~~2019 of ~~1.2900, 1.2322~~1.3349, 1.1216 and ~~1.4034,~~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.

Summary of Outstanding Debt

The table below presents a summary of our outstanding debt by various funding sources:

Weighted average

contractual interest rate

March 31,

March 31,

2018

2017

2016

2018

2017

2016

(U.S. dollars in millions)

United States Segment

Unsecured debt:

Commercial paper
$
4,437

$
3,609

$
3,587

1.91
%

1.02
%

0.54
%
Related party debt

—

—

900

—
%

—
%

0.43
%
Bank loans

4,393

4,890

6,292

2.52
%

1.68
%

1.14
%
Private MTN program

1,698

2,946

5,443

5.40
%

3.77
%

2.80
%
Public MTN program

21,398

19,491

14,479

1.92
%

1.63
%

1.47
%
Euro MTN programme

1,111

1,086

1,173

1.95
%

1.83
%

1.72
%
Total unsecured debt

33,037

32,022

31,874

Secured debt

7,521

7,680

6,938

1.68
%

1.24
%

1.00
%
Total debt
$
40,558

$
39,702

$
38,812

Canada Segment

Unsecured debt:

Commercial paper
$
730

$
853

$
1,027

1.55
%

0.87
%

0.82
%
Related party debt

1,085

1,201

1,384

1.64
%

0.95
%

0.86
%
Bank loans

1,026

993

1,017

2.27
%

1.50
%

1.45
%
Other debt

3,250

2,736

1,880

2.20
%

1.90
%

1.88
%
Total unsecured debt

6,091

5,783

5,308

Secured debt

1,212

742

656

2.09
%

1.24
%

1.19
%
Total debt
$
7,303

$
6,525

$
5,964

Consolidated

Unsecured debt:

Commercial paper
$
5,167

$
4,462

$
4,614

1.86
%

0.99
%

0.60
%
Related party debt

1,085

1,201

2,284

1.64
%

0.95
%

0.69
%
Bank loans

5,419

5,883

7,309

2.48
%

1.65
%

1.18
%
Private MTN program

1,698

2,946

5,443

5.40
%

3.77
%

2.80
%
Public MTN program

21,398

19,491

14,479

1.92
%

1.63
%

1.47
%
Euro MTN programme

1,111

1,086

1,173

1.95
%

1.83
%

1.72
%
Other debt

3,250

2,736

1,880

2.20
%

1.90
%

1.88
%
Total unsecured debt

39,128

37,805

37,182

Secured debt

8,733

8,422

7,594

1.74
%

1.24
%

1.01
%
Total debt
$
47,861

$
46,227

$
44,776



							Weighted average contractual interest rate
	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

Commercial Paper

As of March 31, ~~2018,~~2019, we had commercial paper programs in the United States of $7.0 billion and in Canada of C$2.0 billion ($~~1.6~~1.5 billion). Interest rates on the commercial paper are fixed at the time of issuance. During fiscal year ~~2018,~~2019, consolidated commercial paper month-end outstanding principal balances ranged from ~~$4.3~~$4.9 billion to $6.2 billion.

Related Party Debt

~~AHFC no longer issues fixed rate notes to AHM to help fund AHFC’s general corporate operations. As of March 31, 2018, AHFC had no outstanding notes to AHM.~~

HCFI issues fixed rate notes to HCI to help fund HCFI’s general corporate operations. Interest rates are based on prevailing rates of debt with comparable terms. Generally, the term of these notes is less than 120 days.

Bank Loans

During fiscal year ~~2018,~~2019, AHFC did not enter into any term loan ~~agreements.~~agreements and HCFI entered into ~~two~~one floating rate term loan ~~agreements~~agreement for an aggregate of C$~~200~~350 million ($~~155~~262 million). As of March 31, ~~2018,~~2019, we had bank loans denominated in U.S. dollars and Canadian dollars with floating interest rates, in principal amounts ranging from ~~$39~~$37 million to $600 million. As of March 31, ~~2018,~~2019, the remaining maturities of all bank loans outstanding ranged from ~~124~~235 days to approximately ~~6.5~~5.5 years. The weighted average remaining ~~maturities~~maturity on all bank loans was ~~2.6~~1.9 years as of March 31, ~~2018.~~

2019.

Our bank loans contain customary restrictive covenants, including limitations on liens, mergers, consolidations and asset sales, and a financial covenant that requires us to maintain positive consolidated tangible net worth. In addition to other customary events of default, the bank loans 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. All of these covenants and events of default are subject to important limitations and exceptions under the agreements governing the bank loans. As of March 31, ~~2018,~~2019, management believes that AHFC and HCFI were in compliance with all covenants contained in our bank loans.

Medium Term Note (MTN) Programs

Private MTN Program

AHFC no longer issues MTNs under its Rule 144A Private MTN Program. As of March 31, ~~2018,~~2019, the remaining maturities of Private MTNs outstanding did not exceed ~~3.5~~2.5 years. 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, ~~2018,~~2019, management believes that AHFC was in compliance with all covenants contained in the Private MTNs.

Public MTN Program

AHFC is a well-known seasoned issuer under SEC rules and issues Public MTNs pursuant to a registration statement on Form S-3 filed with the SEC. In August 2016, AHFC filed a registration statement with the SEC under which it may issue from time to time up to $30.0 billion aggregate principal amount of Public ~~MTNs. During fiscal year 2016, AHFC began issuing~~MTN, 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.

The Public MTNs may have original maturities of 9 months or more from the date of issue, may be interest bearing with either fixed or floating interest rates, or may be discounted notes. During fiscal year ~~2018,~~2019, AHFC issued ~~$3.1~~$3.6 billion aggregate principal amount of U.S. dollar denominated fixed rate MTNs, with an original maturity ranging from ~~2.0~~23 months to 5.0 years, ~~to 10.0 years, $2.8~~$4.3 billion aggregate principal amount of U.S. dollar denominated floating rate MTNs, with an original maturity ranging from ~~1.0 years~~10 months to ~~5.0~~3.0 years and ~~€500 million~~€1.1 billion ($~~616 million)~~1.2 billion) of EUR denominated fixed rate MTNs, with an original maturity of ~~5.0~~3.5 years. The weighted average remaining maturities of all Public MTNs was ~~2.7~~2.4 years as of March 31, ~~2018.~~

2019.

The Public MTNs are issued pursuant to an indenture, which requires AHFC to comply with certain covenants, including negative pledge provisions and restrictions on AHFC’s ability to merge, consolidate or transfer substantially all of its assets or the assets of its subsidiaries, and includes customary events of default. As of March 31, ~~2018,~~2019, management believes that AHFC was in compliance with all covenants under the indenture.

Euro MTN Programme

The Euro MTN Programme was retired in August 2014. Notes under this program that are currently listed on the Luxembourg Stock Exchange will remain listed through their maturity. As of March 31, ~~2018,~~2019, the remaining maturities of Euro MTNs outstanding under this program did not exceed ~~4.9~~3.9 years. 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, ~~2018,~~2019, management believes that AHFC was in compliance with all covenants contained in the Euro MTNs.

The table below presents a summary of outstanding debt issued under our MTN Programs by currency:

March 31,

2018

2017

2016

(U.S. dollars in millions)

U.S. dollar
$
19,717

$
20,141

$
18,501

Euro

3,623

2,607

2,210

Sterling

839

748

357

Japanese yen

28

27

27

Total
$
24,207

$
23,523

$
21,095



	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

Other Debt

HCFI issues privately placed Canadian dollar denominated notes, with either fixed or floating interest rates. During fiscal year ~~2018,~~2019, HCFI entered into ~~four~~three private placement trades for an aggregate of C$1.4 billion ($1.0 billion). As of March 31, ~~2018,~~2019, the remaining maturities of all of HCFI’s Canadian notes outstanding ranged from 6568 days to approximately ~~4.9~~6.2 years. The weighted average remaining maturities of these notes was ~~2.7~~2.9 years as of March 31, ~~2018.~~

2019.

The notes are issued pursuant to the terms of an indenture, which requires HCFI to comply with certain covenants, including negative pledge provisions, and includes customary events of default. As of March 31, ~~2018,~~2019, management believes that HCFI was in compliance with all covenants contained in the privately placed notes.

Secured Debt

Asset-Backed Securities

We enter into securitization transactions for funding purposes. Securitization transactions involve transferring pools of retail loans to trusts. The trusts are special-purpose entities that we establish to accommodate securitization structures. Securitization trusts have the limited purpose of acquiring assets, issuing asset-backed securities, and making payments on the securities. Assets transferred to securitization trusts are considered 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.

Our securitizations are structured to provide credit enhancements to investors in the notes issued by the trusts. Credit enhancements can include the following:

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.

We are required to consolidate the securitization trusts in our financial statements, which results in the securitizations being accounted for as on-balance sheet secured financings. The securitized receivables remain on our consolidated balance sheet along with the notes issued by the trusts. The notes are secured solely by the assets of the applicable trust and not by any of our other assets or those of other trusts. The assets of a trust are the only source of funds for repayment on the notes of such trust.

During fiscal year ~~2018,~~2019, we issued notes through asset-backed securitizations totaling ~~$5.2~~$4.8 billion, which were secured by consumer finance receivables with an initial principal balance of ~~$5.8~~$5.7 billion.

Credit Agreements

Syndicated Bank Credit Facilities

AHFC maintains a $3.5 billion 364-day credit agreement, which expires on ~~March 1, 2019,~~February 28, 2020, a $2.1 billion ~~three-year~~ credit agreement, which expires on March 3, 2021, and a $1.4 billion ~~five-year~~ credit agreement, which expires on March 3, 2023. As of March 31, ~~2018,~~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.

HCFI maintains a C$1.6 billion ($1.2 billion) credit agreement which provides that HCFI may borrow up to C$800 million ($~~620~~599 million) on a one-year revolving basis and up to C$800 million ($~~620~~599 million) on a five-year revolving basis. The one-year tranche of the credit agreement expires on March ~~24, 2019~~25, 2020 and the five-year tranche of the credit agreement expires on March ~~24, 2023.~~25, 2024. As of March 31, ~~2018,~~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.

The credit agreements contain customary conditions to borrowing and customary restrictive covenants, including limitations on liens and limitations on mergers, consolidations and asset sales. The credit agreements also require AHFC and HCFI ~~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, ~~2018,~~2019, management believes that AHFC and HCFI were in compliance with all covenants contained in the respective credit agreements.

Other Credit Agreements

AHFC maintains other committed lines of credit that allow the Company access to an additional $1.0 billion in unsecured funding with multiple banks. The credit agreements contain customary covenants, including limitations on liens, mergers, consolidations and asset sales and a requirement for AHFC to maintain a positive consolidated tangible net worth. As of March 31, ~~2018,~~2019, no amounts were drawn upon under these agreements. These agreements expire in September ~~2018.~~2019. AHFC intends to renew these credit agreements prior to or on their expiration dates.

Keep Well Agreements

HMC has entered into separate Keep Well Agreements with AHFC and HCFI. For additional information, refer to “Part I, Item 1. Business—Relationships with HMC and Affiliates—HMC and AHFC Keep Well Agreement” and “Part I, Item 1. Business—Relationships with HMC and Affiliates—HMC and HCFI Keep Well Agreement.”

As consideration for HMC’s obligations under the Keep Well Agreements, we have agreed to pay HMC a quarterly fee based on the amount of outstanding Debt pursuant to ~~support compensation agreements,~~Support Compensation Agreements, dated October 1, 2005. We incurred expenses of ~~$22~~$23 million ~~$20~~, $22 million and ~~$18~~$20 million during fiscal years 2019, 2018 ~~2017~~ and ~~2016,~~2017, respectively, pursuant to these ~~support compensation agreements.~~

Support Compensation Agreements.

Indebtedness of Consolidated Subsidiaries

As of March 31, ~~2018,~~2019, AHFC and its consolidated subsidiaries had ~~$56.0~~$58.7 billion of outstanding indebtedness and other liabilities, including current liabilities, of which ~~$16.0~~$16.2 billion consisted of indebtedness and liabilities of our consolidated subsidiaries. None of AHFC’s consolidated subsidiaries had any outstanding preferred equity.

Derivatives

We utilize derivative instruments to mitigate exposures to fluctuations in interest rates and foreign currency exchange rates. The types of derivative instruments include interest rate swaps, basis swaps, and cross currency swaps. Interest rate and basis swap agreements are used to mitigate the effects of interest rate fluctuations of our floating rate debt relative to our fixed rate finance receivables and operating lease assets. Cross currency swap agreements are used to manage currency and interest rate risk exposure on foreign currency denominated debt. The derivative instruments contain an element of credit risk in the event the counterparties are unable to meet the terms of the agreements.

All derivative financial instruments are recorded on our consolidated balance sheet as assets or liabilities, and carried at fair value. Changes in the fair value of derivatives are recognized in our consolidated statements of income in the period of the change. Since we do not elect to apply hedge accounting, the impact to earnings resulting from these valuation adjustments as reported under GAAP is not representative of our results of operations as evaluated by management. Realized gains and losses on derivative instruments, net of realized gains and losses on foreign currency denominated debt, are included in the measure of net revenues when we evaluate segment performance. Refer to Note 15—Segment Information of Notes to Consolidated Financial Statementsfor additional information about segment information and Note 5—Derivative Instruments of Notes to Consolidated Financial Statements for additional information on derivative instruments.

Off-Balance Sheet Arrangements

We are not a party to off-balance sheet arrangements.

Contractual Obligations

The following table summarizes our contractual obligations, excluding lending commitments to dealers and derivative obligations, by fiscal year payment period, as of March 31, ~~2018:~~

2019:

Payments due by period

Total

2019

2020

2021

2022

2023

Thereafter

(U.S. dollars in millions)

Unsecured debt obligations ⁽¹⁾
$
39,212

$
14,669

$
7,583

$
5,570

$
4,911

$
4,285

$
2,194

Secured debt obligations⁽¹⁾

8,745

4,660

2,604

1,193

240

48

—

Interest payments on debt⁽²⁾

2,225

822

560

364

211

118

150

Operating lease obligations

79

9

10

10

9

9

32

Total
$
50,261

$
20,160

$
10,757

$
7,137

$
5,371

$
4,460

$
2,376



	Payments due by period
	Total		2020		2021		2022		2023		2024		Thereafter

	(U.S. dollars in millions)
Unsecured debt obligations ⁽¹⁾	$	41,050	$	15,675	$	9,099	$	6,129	$	5,324	$	3,373	$	1,450
Secured debt obligations ⁽¹⁾	8,803		4,678		2,573		1,222		288		42		—
Interest payments on debt ⁽²⁾	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, ~~2018.~~ 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, ~~2018.~~ 2019.

The obligations in the above table do not include certain lending commitments to dealers since the amount and timing of future payments is uncertain. Refer to Note 9—Commitments and Contingencies of Notes to Consolidated Financial Statements for additional information on these commitments.

Our contractual obligations on derivative instruments are also excluded from the table above because our future cash obligations under these contracts are inherently uncertain. We recognize all derivative instruments on our consolidated balance sheet at fair value. The amounts recognized as fair value do not represent the amounts that will be ultimately paid or received upon settlement under these contracts. Refer to Note 5—Derivative Instruments of Notes to Consolidated Financial Statements for additional information on derivative instruments.

New Accounting Standards

Refer to Note 1(o)—Recently Issued Accounting Standards of Notes to Consolidated Financial Statements.

Critical Accounting Policies

Critical accounting policies are those accounting policies that require the application of our most difficult, subjective, or complex judgments, often requiring us to make estimates about the effects of matters that are inherently uncertain and may change in subsequent periods, or for which the use of different estimates that could have reasonably been used in the current period would have had a material impact on the presentation of our financial condition, cash flows, and results of operations. The impact and any associated risks related to these estimates on our financial condition, cash flows, and results of operations are discussed throughout “Management’s Discussion and Analysis of Financial Condition and Results of Operation” where such estimates affect reported and expected financial results. Different assumptions or changes in economic circumstances could result in additional changes to the determination of the allowance for credit losses and the determination of lease residual values.

Credit Losses

Consumer finance receivables are collectively evaluated for impairment. Delinquencies and losses are monitored on an ongoing basis and this 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, 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.

Dealer finance receivables are individually evaluated for impairment when specifically identified as impaired. Dealer finance receivables are considered 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.

Refer to Note 1(e)—Finance Receivables, Note 1(f)—Investment in Operating Leases and Note 1(i)—Vehicles Held for Disposition of Notes to Consolidated Financial Statementsfor additional information regarding charge-offs or write-downs of contractual balances of retail and dealer finance receivables and operating leases.

Our allowance for credit losses and early termination losses on operating leases requires significant judgment about inherently uncertain factors. The estimates are based on management’s evaluation of many factors, including our historical credit loss experience, the value of the underlying collateral, delinquency trends, and economic conditions. The estimates are based on information available as of each reporting date. Actual losses may differ from the original estimates due to actual results varying from those assumed in our estimates.

Sensitivity Analysis

If we had experienced a 10% increase in net charge-offs of finance receivables during the twelve-month period ended March 31, ~~2018,~~2019, our provision for credit losses would have increased by approximately ~~$35~~$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, ~~2018,~~2019, we would have recognized an additional ~~$18~~$20 million in early termination losses in our consolidated statement of income during the period.

Determination of Lease Residual Values

Contractual residual values of lease vehicles are determined at lease inception based on expectations of future used vehicle values, taking into consideration external industry data and our own historical experience. Lease customers have the option at the end of the lease term to return the vehicle to the dealer or to buy the vehicle at the contractual residual value (or if purchased prior to lease maturity, for the outstanding contractual balance). Returned lease vehicles can be purchased by the grounding dealer at the contractual residual value (or if purchased prior to lease maturity, for the outstanding contractual balance) or a market based price. Returned lease vehicles that are not purchased by the grounding dealer are sold through online and physical auctions. We are exposed to risk of loss on the disposition of returned lease vehicles when the proceeds from the sale of the vehicles are less than the contractual residual values at the end of lease term. We assess our estimates for end of term market values of the leased vehicles, at minimum, on a quarterly basis. The primary factors affecting the estimates are the percentage of leased vehicles that we expect to be returned by the lessee at the end of lease term and expected loss severities. Factors considered in this evaluation include, among other factors, economic conditions, historical trends and market information on new and used vehicles. Our leasing volumes and those 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-line basis over the remaining term of each lease and recognized as depreciation expense. For direct financing leases, downward adjustments for declines in estimated residual values deemed other-than-temporary are recognized as a loss on lease residual values in the period in which the estimate changed.

Sensitivity Analysis

If future estimated auction values for all outstanding operating leases as of March 31, ~~2018~~2019 were to decrease by $100 per unit from our current estimates, the total impact would be an increase of approximately ~~$76~~$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 ~~$13~~$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, ~~2018.~~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.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to various market risks. Our financial condition, cash flows, and results of operations depend on the extent to which we effectively identify and manage these risks. The principal types of risk to our business include:

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. In Canada, HCFI is a party to credit support agreements that require posting of cash collateral to mitigate credit risk on derivative positions.

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 12-month periods ending March 31, ~~2019~~2020 and ~~2018~~2019 below. Our estimates were based upon our existing receivables, debt, and derivatives as of March 31, ~~2018~~2019 and ~~2017.~~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

2019

2018
100 basis point increase

$17 million increase

$7 million decrease
100 basis point decrease

$17 million decrease

$8 million increase



	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

The net impact on pre-tax cash flows of a hypothetical increase or decrease in interest rates ~~changed from a net negative impact~~was higher for the period ending March 31, ~~2018~~2020 compared to ~~a net positive impact for~~ the period ending March 31, 2019 due to the increase in the mix of receive float relative to pay float instruments. For the same reason, the impact on pre-tax cash flows of a hypothetical decrease in interest rates changed from a net positive impact for the period ending March 31, 2018 to a net negative impact for the period ending March 31, 2019.

Item 8. Financial Statements and Supplementary Data

Our consolidated financial statements, the accompanying notes to consolidated financial statements, and the Report of Independent Registered Public Accounting Firm that are filed as part of this Form 10-K are listed under “Part IV, Item 15. Exhibits, Financial Statement Schedules” and are set forth beginning on page F-1 immediately following the Signatures page of this Form 10-K.

The required supplementary financial information is disclosed in Note 16—Selected Quarterly Financial Data (Unaudited) of Notes to Consolidated Financial Statements.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our Principal Executive Officer and Principal Financial Officer have performed an evaluation of our disclosure controls and procedures, as that term is defined in Rule 13a-15(e) of the Exchange Act, as of March 31, ~~2018,~~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.

Management’s Annual Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as that term is defined in Rule 13a-15(f) of the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or because the degree of compliance with policies or procedures may deteriorate.

Management conducted, under the supervision of our Principal Executive Officer and Principal Financial Officer, an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework (2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission, commonly referred to as the “COSO” criteria. Based on the assessment performed, management concluded that our internal control over financial reporting was effective as of March 31, ~~2018.~~

2019.

This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report is not subject to attestation by our independent registered public accounting firm pursuant to rules of the SEC applicable to non-accelerated filers.

Changes in Internal Control over Financial Reporting

There were no changes in the internal control over financial reporting during the quarter ended March 31, ~~2018,~~2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

None.

PART III

P~~ART III~~

Item 10. Directors, Executive Officers and Corporate Governance

We have omitted this section pursuant to General Instruction I(2) of Form 10-K.

Item 11. Executive Compensation

We have omitted this section pursuant to General Instruction I(2) of Form 10-K.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

We have omitted this section pursuant to General Instruction I(2) of Form 10-K.

Item 13. Certain Relationships and Related Transactions, and Director Independence

We have omitted this section pursuant to General Instruction I(2) of Form 10-K.

Item 14. Principal Accounting Fees and Services

The following table represents aggregate costs for fees and services provided to us by our independent registered public accounting firm, KPMG LLP.

Years ended March 31,

2018

2017

(U.S. dollars in thousands)

Audit fees
$
6,800

$
8,468

Audit-related fees

433

245

Tax fees

-

-

All other fees

-

-

Total
$
7,233

$
8,713



	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

Audit fees are for audit services, which are professional services provided by independent auditors for the audit or review of our financial statements or for services that are normally provided by independent auditors with respect to any submissions required under applicable laws and regulations.

Audit-related fees are for audit-related services, which are assurance and related services by independent auditors that are reasonably related to the performance of the audit or review of our financial statements and other related services. This category includes fees for agreed upon procedures and other services related to our securitization transactions.

Auditor Pre-Approval Policy

We comply with pre-approval policies and procedures established by HMC which, among other things, list particular audit services and non-audit services that may be ~~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.

PART IV

Item 15. Exhibits, Financial Statement Schedules

(1) Our consolidated financial statements, the accompanying notes to consolidated financial statements, and the Report of Independent Registered Public Accounting Firm that are filed as part of this Form 10-K are set forth beginning on page F-1 immediately following the Signatures page of this Form 10-K.

(2) Financial statement schedules have been omitted because they are not applicable, the information required to be contained in them is disclosed in Note 2—Finance Receivables of Notes to Consolidated Financial Statements or the amounts involved are not sufficient to require submission.

(3) Exhibits

~~Exhibit~~ ~~Number~~		~~Description~~

Exhibit Number	Description
3.1⁽¹⁾	Articles of Incorporation of American Honda Finance Corporation, dated February 6, 1980, and Certificates of Amendment to the Articles of Incorporation, dated March 29, 1984, November 13, 1988, December 4, 1989, July 2, 1991, April 3, 1997, November 30, 1999, and December 17, 2003.
3.2⁽¹⁾	Amended and Restated Bylaws of American Honda Finance Corporation, dated April 27, 2010.
4.1⁽¹⁾	Form of Specimen Common Stock of American Honda Finance Corporation.
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.
4.3⁽²⁾	Amended and Restated Issuing and Paying Agency Agreement between American Honda Finance Corporation and The Bank of New York Mellon, dated as of August 27, 2012.
4.4	Trust Indenture between Honda Canada Finance Inc., as issuer, and BNY Trust Company of Canada (as successor to CIBC Mellon Trust Company), as trustee, dated as of September 26, 2005⁽³⁾, as supplemented by supplemental indentures from time to time, and the Form of Debenture⁽⁴⁾.
4.5⁽⁵⁾	Indenture, dated September 5, 2013, between American Honda Finance Corporation and Deutsche Bank Trust Company Americas, as ~~trustee~~trustee..
4.6^(20)(18)	First Supplemental Indenture, dated February 8, 2018, between American Honda Finance Corporation and Deutsche Bank Trust Company Americas, as trustee.
4.7	Form of Fixed Rate Medium-Term Note, Series A⁽⁶⁾ and Form of Floating Rate Medium-Term Note, Series A⁽⁷⁾.
4.8⁽²³⁾	Description of 1.300% Medium-Term Notes, Series A, due March 21, 2022
4.9⁽²³⁾	Description of 2.625% Medium-Term Notes, Series A, due October 14,2022
4.10⁽²³⁾	Description of 1.375% Medium-Term Notes, Series A, due November 10,2022
4.11⁽²³⁾	Description of 0.550% Medium-Term Notes, Series A, due March 17,2023
4.12⁽²³⁾	Description of 0.750% Medium-Term Notes, Series A, due January 17,2024
4.13⁽²³⁾	Description of 0.350% Medium-Term Notes, Series A, due August 26,2022
10.1⁽⁸⁾	$1,300,000,000 Second Amended and Restated Credit Agreement, dated as of March 24, 2014, among HCFI, as the borrower, the lenders party thereto, and Canadian Imperial Bank of Commerce, as administrative agent, joint bookrunner and co-lead arranger, RBC Capital Markets, as joint bookrunner and co-lead arranger, BMO Capital Markets, as co-lead arranger, The Toronto-Dominion Bank, as co-arranger and co-syndication agent, Bank of Tokyo-Mitsubishi UFJ (Canada), as co-arranger and co-syndication agent, Bank of Montreal, as co-syndication agent, Royal Bank of Canada, as co-syndication agent, and Mizuho Corporate Bank, Ltd., Canada Branch, as documentation agent.



Exhibit Number		Description
10.2⁽⁹⁾		Amendment, dated as of June 30, 2014, between HCFI and Canadian Imperial Bank of Commerce, as administrative agent, for and behalf of the banks party to the Credit Agreement.
10.3⁽¹⁰⁾		Second Amendment, dated as of March 13, 2015, between HCFI and Canadian Imperial Bank of Commerce, as administrative agent, for and behalf of the banks party to the Credit Agreement.
10.4⁽¹¹⁾		Third Amendment, dated as of March 23, 2016, between HCFI and Canadian Imperial Bank of Commerce, as administrative agent, for and behalf of the banks party to the Credit Agreement.
10.5⁽¹²⁾		Fourth Amendment dated as of March 23, 2017 between HCFI and Canadian Imperial Bank of Commerce, as administrative agent, for and on behalf of the banks party to the Credit Agreement.
10.6^(21)(19)		Fifth Amendment dated as of March 13, 2018 between HCFI and Canadian Imperial Bank of Commerce, as administrative agent, for and on behalf of the banks party to the Credit Agreement.
10.7⁽²³⁾		Sixth Amendment, dated as of March 12, 2019 between HCFI and Canadian Imperial Bank of Commerce, as administrative agent, for and on behalf of the banks party to the Credit Agreement.
10.8⁽¹³⁾		$3,500,000,000 364-day unsecured revolving credit facility pursuant to a 364 Day Credit Agreement, dated March 3, 2017, among American Honda Finance Corporation, as the borrower, the lenders party thereto, and The Bank of Tokyo-Mitsubishi UFJ, Ltd., as administrative agent and auction agent, JPMorgan Chase Bank, N.A., as syndication agent, Bank of America, N.A., Barclays Bank PLC, BNP Paribas and Citibank, N.A., as documentation agents and The Bank of Tokyo-Mitsubishi UFJ, Ltd., J.P. Morgan Chase Bank, N.A., Barclays Bank PLC, BNP Paribas Securities Corp, Citigroup Global Markets Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as joint lead arrangers and joint bookrunners.
10.9⁽²⁰⁾
~~10.8~~⁽²¹⁾		First Amendment dated as of January 26, 2018 between American Honda Finance Corporation and The Bank of Tokyo-Mitsubishi UFJ, Ltd., as administrative agent, for and on behalf of the banks party to the Credit Agreement.

~~Exhibit~~

~~Number~~

~~Description~~

~~10.9~~

10.10⁽¹⁴⁾

$2,100,000,000 three year unsecured revolving credit facility pursuant to a Three Year Credit Agreement, dated March 3, 2017, among American Honda Finance Corporation, as the borrower, the lenders party thereto, and The Bank of Tokyo-Mitsubishi UFJ, Ltd., as administrative agent and auction agent, JPMorgan Chase Bank, N.A., as syndication agent, Bank of America, N.A., Barclays Bank PLC, BNP Paribas and Citibank, N.A., as documentation agents and The Bank of Tokyo-Mitsubishi UFJ, Ltd., J.P. Morgan Chase Bank, N.A., Barclays Bank PLC, BNP Paribas Securities Corp, Citigroup Global Markets Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as joint lead arrangers and joint bookrunners.

~~10.10~~

10.11⁽²¹⁾

First Amendment dated as of January 26, 2018 between American Honda Finance Corporation and The Bank of Tokyo-Mitsubishi UFJ, Ltd., as administrative agent, for and on behalf of the banks party to the Credit Agreement.

~~10.11~~

10.12⁽¹⁵⁾

$1,400,000,000 five year unsecured revolving credit facility pursuant to a Five Year Credit Agreement, dated March 3, 2017, among American Honda Finance Corporation, as the borrower, the lenders party thereto, and The Bank of Tokyo-Mitsubishi UFJ, Ltd., as administrative agent and auction agent, JPMorgan Chase Bank, N.A., as syndication agent, Bank of America, N.A., Barclays Bank PLC, BNP Paribas and Citibank, N.A., as documentation agents and The Bank of Tokyo-Mitsubishi UFJ, Ltd., J.P. Morgan Chase Bank, N.A., Barclays Bank PLC, BNP Paribas Securities Corp, Citigroup Global Markets Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as joint lead arrangers and joint bookrunners.

~~10.12~~

10.13^(21)(22)

~~10.13~~

10.14⁽¹⁶⁾

Keep Well Agreement between Honda Motor Co., Ltd. and American Honda Finance Corporation, dated September 9, 2005.

~~10.14~~

10.15^(17)(23)

Support Compensation Agreement, between Honda Motor Co., Ltd. and American Honda Finance Corporation, dated as of ~~October~~April 1, ~~2005.~~2019.

~~10.15~~

10.16^(18)(17)

Keep Well Agreement between Honda Motor Co., Ltd. and Honda Canada Finance Inc., dated September 26, 2005.

~~10.16~~

10.17^(19)(23)

Support Compensation Agreement, between Honda Motor Co., Ltd. and Honda Canada Finance Inc., dated as of ~~October~~April 1, ~~2005.~~2019.

~~12.1~~

23.1^(21)(23)

~~Statement regarding computation of ratio of earnings to fixed charges~~

~~23.1~~⁽²¹⁾

Consent of KPMG LLP

31.1^(21)(23)

Certification of Principal Executive Officer

31.2^(21)(23)

Certification of Principal Financial Officer



Exhibit Number		Description
32.1^(22)(24)		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350
32.2^(22)(24)		Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350
101.INS^(21)(23)		XBRL Instance Document
101.SCH^(21)(23)		XBRL Taxonomy Extension Schema Document
101.CAL^(21)(23)		XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB^(21)(23)		XBRL Taxonomy Extension Label Linkbase Document
101.PRE^(21)(23)		XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF^(21)(23)		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)~~
(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)~~
(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)~~
(4)	Incorporated herein by reference to the same numbered Exhibit filed with our quarterly report on Form 10-Q, dated February 12, 2015.

~~(5)~~
(5)	Incorporated herein by reference to Exhibit number 4.1 filed with our registration statement on Form S-3, dated September 5, 2013.

~~(6)~~
(6)	Incorporated herein by reference to Exhibit number 4.1 filed with our current report on Form 8-K, dated February 12, 2014.

~~(7)~~
(7)	Incorporated herein by reference to Exhibit number 4.2 filed with our current report on Form 8-K, dated August 10, 2016.

~~(8)~~
(8)	Incorporated herein by reference to the same numbered Exhibit filed with our current report on Form 8-K, dated March 24, 2014.

~~(9)~~
(9)	Incorporated herein by reference to Exhibit number 10.1 filed with our current report on Form 8-K, dated June 30, 2014.

~~(10)~~
(10)	Incorporated herein by reference to Exhibit number 10.1 filed with our current report on Form 8-K, dated March 13, 2015.

~~(11)~~
(11)	Incorporated herein by reference to Exhibit number 10.1 filed with our current report on Form 8-K, dated March 23, 2016.

~~(12)~~
(12)	Incorporated herein by reference to Exhibit number 10.1 filed with our current report on Form 8-K, dated March 23, 2017.

~~(13)~~
(13)	Incorporated herein by reference to Exhibit number 10.1 filed with our current report on Form 8-K, dated March 3, 2017.

~~(14)~~
(14)	Incorporated herein by reference to Exhibit number 10.2 filed with our current report on Form 8-K, dated March 3, 2017.

~~(15)~~
(15)	Incorporated herein by reference to Exhibit number 10.3 filed with our current report on Form 8-K, dated March 3, 2017.

~~(16)~~
(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)~~

(17)

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)~~

(18)

Incorporated herein by reference to the same numbered Exhibit filed with our quarterly report on Form 10-Q, dated February 8, 2018.

~~(21)~~
(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.

~~(22)~~
(24)	Furnished herewith.

Item 16. Form 10-K Summary

None.

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: June 21, ~~2018~~

2019



AMERICAN HONDA FINANCE CORPORATION
~~By:~~
By:	/s/ Paul C. Honda
	Paul C. Honda
	Vice President and Assistant Secretary (Principal Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

~~Signature~~						~~Title~~	~~Date~~

Signature	Title		Date
/s/ Hideo Moroe	President and Director		June 21, 2019
Hideo Moroe	(Principal Executive Officer)
/s/ Masahiro Nakamura	Vice President, Treasurer and Director		June 21, ~~2018~~ 2019
~~Hideo Moroe~~ Masahiro Nakamura	(Principal Financial Officer)
/s/ Paul C. Honda	Vice President and Assistant Secretary		June 21, 2019
Paul C. Honda	(Principal Accounting Officer)			~~June 21, 2018~~
~~Paul C. Honda~~				~~June 21, 2018~~
~~/s/ Masahiro Nakamura~~		~~Vice President, Treasurer and Director~~			~~June 21, 2018~~
~~Masahiro Nakamura~~ /s/ Ferrell Kemp		~~(Principal Financial Officer)~~ Vice President and Director		June 21, ~~2018~~ 2019
Ferrell Kemp
	Director
Shinji Aoyama
	Director
~~Eiji Fujimura~~ Jiro Morisawa

AMERICAN HONDA FINANCE CORPORATION

AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS

For the fiscal year ended March 31, ~~2018~~

2019

		~~Page~~

	Page
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets	F-3
Consolidated Statements of Income	F-4
Consolidated Statements of Comprehensive Income	F-4
Consolidated Statements of Changes in Equity	F-5
Consolidated Statements of Cash Flows	F-6
Notes to Consolidated Financial Statements	~~F-7~~ F-8
Note 1 – Summary of Business and Significant Accounting Policies	~~F-7~~ F-8
Note 2 – Finance Receivables	~~F-14~~ F-15
Note 3 – Investment in Operating Leases	~~F-18~~ F-21
Note 4 – Debt	~~F-19~~ F-22
Note 5 – Derivative Instruments	~~F-22~~ F-24
Note 6 – Transactions Involving Related Parties	~~F-23~~ F-25
Note 7 – Income Taxes	~~F-25~~ F-28
Note 8 – Benefit Plans	~~F-28~~ F-32
Note 9 – Commitment and Contingencies	~~F-29~~ F-32
Note 10 – Securitizations and Variable Interest Entities	~~F-30~~ F-33
Note 11 – Other Assets	~~F-31~~ F-34
Note 12 – Other Liabilities	~~F-31~~ F-34
Note 13 – Other Income	~~F-31~~ F-35
Note 14 – Fair Value Measurements	~~F-32~~ F-35
Note 15 – Segment Information	~~F-35~~ F-38
Note 16 – Selected Quarterly Financial Data (Unaudited)	~~F-39~~ F-41

F-1

R~~eport~~

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholder of

American Honda Finance Corporation:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of American Honda Finance Corporation, a wholly-owned subsidiary of American Honda Motor Co., Inc., and subsidiaries (the Company), as of March 31, ~~2018~~2019 and ~~2017,~~2018, 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, ~~2018,~~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, ~~2018~~2019 and ~~2017,~~2018, and the results of its operations and its cash flows for each of the years in the three-year period ended March 31, ~~2018,~~2019, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. 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.

We conducted our audits in accordance with the standards of the 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, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of 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.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ KPMG LLP

We have served as the Company’s auditor since 1989.

Los Angeles, California

June 21, ~~2018~~

2019

F-2

AMERICAN HONDA FINANCE CORPORATION

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(U.S. dollars in millions, except share ~~amounts)~~

data)

March 31,

2018

2017

Assets

Cash and cash equivalents
$
783

$
760

Finance receivables, net

37,956

35,904

Investment in operating leases, net

31,817

31,310

Due from Parent and affiliated companies

139

228

Income taxes receivable

16

256

Vehicles held for disposition

231

255

Other assets

934

892

Derivative instruments

750

249

Total assets
$
72,626

$
69,854

Liabilities and Equity

Debt
$
47,861

$
46,227

Due to Parent and affiliated companies

87

91

Accrued interest expense

146

120

Income taxes payable

105

—

Deferred income taxes

6,035

8,792

Other liabilities

1,382

1,389

Derivative instruments

414

449

Total liabilities

56,030

57,068

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, 2018 and 2017

1,366

1,366

Retained earnings

14,449

10,787

Accumulated other comprehensive loss

(85
)

(110
)
Total shareholder’s equity

15,730

12,043

Noncontrolling interest in subsidiary

866

743

Total equity

16,596

12,786

Total liabilities and equity
$
72,626

$
69,854



	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:
Common stock, $100 par value. Authorized 15,000,000 shares; issued and outstanding 13,660,000 shares as of March 31, 2019 and 2018	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

The following table presents the assets and liabilities of consolidated variable interest entities. These assets and liabilities are included in the consolidated balance sheets presented above. Refer to Note 10 for additional information.

March 31,

2018

2017

Finance receivables, net
$
8,895

$
8,512

Vehicles held for disposition

4

3

Other assets

452

367

Total assets
$
9,351

$
8,882

Secured debt
$
8,733

$
8,422

Accrued interest expense

6

4

Total liabilities
$
8,739

$
8,426



	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

See accompanying notes to consolidated financial statements.

F-3

AMERICAN HONDA FINANCE CORPORATION

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(U.S. dollars in millions)

Years ended March 31,

2018

2017

2016

Revenues:

Direct financing leases
$
13

$
34

$
72

Retail

1,369

1,188

1,185

Dealer

175

147

122

Operating leases

6,890

6,333

5,523

Total revenues

8,447

7,702

6,902

Depreciation on operating leases

5,481

5,056

4,421

Interest expense

897

728

592

Net revenues

2,069

1,918

1,889

Gain on disposition of lease vehicles

93

43

51

Other income

56

105

97

Total net revenues

2,218

2,066

2,037

Expenses:

General and administrative expenses

439

434

403

Provision for credit losses

244

210

150

Early termination loss on operating leases

108

73

46

Impairment loss on operating leases

—

—

8

Loss on lease residual values

3

15

13

(Gain)/Loss on derivative instruments

(550
)

315

(101
)
(Gain)/Loss on foreign currency revaluation of debt

494

(171
)

60

Total expenses

738

876

579

Income before income taxes

1,480

1,190

1,458

Income tax expense/(benefit)

(2,629
)

437

548

Net income

4,109

753

910

Less: Net income attributable to noncontrolling interest

100

70

54

Net income attributable to
American Honda Finance Corporation
$
4,009

$
683

$
856



	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
Net income attributable to American Honda Finance Corporation	$	1,145		$	4,009		$	683

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(U.S. dollars in millions)

Years ended March 31,

2018

2017

2016

Net income
$
4,109

$
753

$
910

Other comprehensive income/(loss):

Foreign currency translation adjustment

48

(35
)

(32
)
Comprehensive income

4,157

718

878

Less: Comprehensive income attributable to
noncontrolling interest

123

53

39

Comprehensive income attributable to
American Honda Finance Corporation
$
4,034

$
665

$
839



	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
Less: Comprehensive income attributable to noncontrolling interest	66			123		53
Comprehensive income attributable to American Honda Finance Corporation	$	1,112		$	4,034	$	665

See accompanying notes to consolidated financial statements.

F-4

AMERICAN HONDA FINANCE CORPORATION

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(U.S. dollars in millions)

Accumulated

other

Retained

comprehensive

Common

Noncontrolling

Total

earnings

income/(loss)

stock

interest

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

Net income

4,109

4,009

—

—

100

Other comprehensive income

48

—

25

—

23

Dividends paid

(347
)

(347
)

—

—

—

Balance at March 31, 2018
$
16,596

$
14,449

$
(85
)

$
1,366

$
866



	Total			Retained earnings			Accumulated other comprehensive income/(loss)			Common stock		Noncontrolling interest
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

See accompanying notes to consolidated financial statements.

F-5

AMERICAN HONDA FINANCE CORPORATION

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(U.S. dollars in millions)

Years ended March 31,

2018

2017

2016

Cash flows from operating activities:

Net income
$
4,109

$
753

$
910

Adjustments to reconcile net income to net cash provided by operating activities:

Debt and derivative instrument valuation adjustments

(42
)

161

(186
)
Loss on lease residual values and provision for credit losses

247

225

163

Early termination loss on operating leases and impairment on operating leases

108

73

54

Depreciation and amortization

5,491

5,063

4,426

Accretion of unearned subsidy income

(1,451
)

(1,243
)

(1,089
)
Amortization of deferred dealer participation and other deferred costs

318

315

316

Gain on disposition of lease vehicles and fixed assets

(93
)

(43
)

(51
)
Deferred income taxes

(2,768
)

688

969

Changes in operating assets and liabilities:

Income taxes receivable/payable

349

257

(449
)
Other assets

(43
)

(72
)

(7
)
Accrued interest/discounts on debt

69

54

44

Other liabilities

96

124

81

Due to/from Parent and affiliated companies

88

(85
)

(19
)
Net cash provided by operating activities

6,478

6,270

5,162

Cash flows from investing activities:

Finance receivables acquired

(17,971
)

(16,761
)

(14,285
)
Principal collected on finance receivables

15,732

16,140

16,947

Net change in wholesale loans

(337
)

(197
)

(467
)
Purchase of operating lease vehicles

(14,268
)

(15,949
)

(15,445
)
Disposal of operating lease vehicles

8,304

7,364

6,765

Cash received for unearned subsidy income

1,676

1,593

1,281

Other investing activities, net

(130
)

(79
)

(49
)
Net cash used in investing activities

(6,994
)

(7,889
)

(5,253
)
Cash flows from financing activities:

Proceeds from issuance of commercial paper

36,190

41,162

36,995

Paydown of commercial paper

(35,520
)

(41,303
)

(36,916
)
Proceeds from issuance of short-term debt

381

—

—

Paydown of short-term debt

(325
)

—

—

Proceeds from issuance of related party debt

4,135

12,514

19,491

Paydown of related party debt

(4,294
)

(13,567
)

(20,657
)
Proceeds from issuance of medium term notes and other debt

7,238

10,488

7,951

Paydown of medium term notes and other debt

(7,174
)

(8,411
)

(6,948
)
Proceeds from issuance of secured debt

5,149

5,708

4,500

Paydown of secured debt

(4,901
)

(4,868
)

(4,283
)
Dividends paid

(347
)

—

—

Net cash provided by financing activities

532

1,723

133

Effect of exchange rate changes on cash and cash equivalents

7

(2
)

(18
)
Net increase in cash and cash equivalents

23

102

24

Cash and cash equivalents at beginning of year

760

658

634

Cash and cash equivalents at end of year
$
783

$
760

$
658

Supplemental disclosures of cash flow information:

Interest paid
$
826

$
674

$
536

Income taxes paid/(received)

(206
)

(508
)

32



	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		)

F-6

AMERICAN HONDA FINANCE CORPORATION

AND SUBSIDIARIES

The following table provides a reconciliation of cash and cash equivalents and restricted cash from the Consolidated Balance Sheets to the Consolidated Statements of Cash Flows.



	March 31,
	2019		2018		2017
Cash and cash equivalents	795		$	783	$	760
Restricted cash included in other assets ⁽¹⁾	588		443		382
	$	1,383	$	1,226	1,142


(1)	Restricted cash balances relate primarily to securitization arrangements (Note 10).

See accompanying notes to consolidated financial statements.

F-7

AMERICAN HONDA FINANCE CORPORATION

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

~~(1)~~
(1)	Summary of Business and Significant Accounting Policies

American Honda Finance Corporation (AHFC) is a wholly-owned subsidiary of American Honda Motor Co., Inc. (AHM or the Parent). Honda Canada Finance Inc. (HCFI) is a majority-owned subsidiary of AHFC. Noncontrolling interest in HCFI is held by Honda Canada Inc. (HCI), an affiliate of AHFC. AHM is a wholly-owned subsidiary and HCI is an indirect wholly-owned subsidiary of Honda Motor Co., Ltd. (HMC). AHM and HCI are the sole authorized distributors of Honda and Acura products, including motor vehicles, parts, and accessories in the United States and Canada.

Unless otherwise indicated by the context, all references to the “Company” , "we", "us", and "our" in this report include AHFC and its consolidated subsidiaries (refer Note 1(b) Principles of Consolidation below), and references to “AHFC” refer solely to American Honda Finance Corporation (excluding AHFC’s subsidiaries).

The Company provides various forms of financing to authorized independent dealers of Honda and Acura products and their customers in the United States and Canada. The Company also finances a limited number of vehicles other than Honda and Acura products. The Company’s financing products include the following categories:

Retail Loans– The Company acquires retail installment contracts from dealers who originate the contracts with consumers. Retail loans are collateralized by liens on the related vehicles or equipment. Retail loan terms range primarily from two to six years.

Retail Leases– The Company acquires closed-end vehicle lease contracts between dealers and their customers. The dealer assigns all of its rights, title, and interest in the lease and motor vehicle to the Company upon acquisition. Lease terms range primarily from two to five years.

Dealer Loans– The Company provides wholesale and commercial loans to dealers. Wholesale loans are used by dealers to finance the purchase of inventory. The Company retains purchase money security interest in all inventory financed; however, the Company has no right to recover a product sold to consumers in the ordinary course of business. The Company has 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.

The Company’s finance receivables and investment in operating leases are geographically diversified throughout the United States and Canada.

The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP). In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the consolidated balance sheets and revenues and expenses for the applicable periods. Those estimates include, among other things, the residual value estimates of lease vehicles and estimates for the allowances for credit losses and early termination losses on operating leases. Actual results could differ significantly from these estimates.


(a)	Business Risks

The Company’s business is substantially dependent upon the sale of Honda and Acura products. The financing business is also highly competitive. The Company’s competitors and potential competitors include national, regional, and local finance companies and other types of financial services companies, such as commercial banks, savings and loan associations, leasing companies, and credit unions. The Company’s future profitability will be largely dependent upon its ability to provide cost-competitive, quality financial products and services to its customers and to the availability and cost of its capital in relation to that of its competitors. The Company’s liquidity is largely dependent on access to credit markets. The Company has been able to meet funding needs through diversified funding sources.

F-8

Higher than expected credit losses and lower than anticipated lease residual values due to prolonged periods of negative economic and market conditions can adversely affect the Company’s financial position, results of operations, and related cash flows. The Company manages these risks with purchasing and residual value setting standards, collection efforts, and lease remarketing programs. Refer to Note 1(g) for additional discussion on the allowance for credit losses and Note 1(h) for additional discussion on the determination of lease residual values.

The Company is exposed to market risks, principally interest rate and foreign currency risks, and utilizes derivative instruments to manage those risks. Although the use of derivative instruments mitigates a substantial portion of these risks, not all risk is eliminated. Refer to Note 1(n) for additional discussion on derivative instruments.


(b)	Principles of Consolidation

The consolidated financial statements include the accounts of AHFC and its subsidiaries. All subsidiaries are wholly-owned, except for HCFI, which is majority-owned (52.33% as of March 31, ~~2018~~2019 and ~~2017)~~2018).

The Company also consolidates variable interest entities (VIEs) where the Company is the primary beneficiary. All consolidated VIEs are statutory trusts formed by the Company to accommodate securitization structures.

In April 2017, the Company sold all issued and outstanding common stock of its wholly-owned subsidiary American Honda Service Contract Corporation (AHSCC) to AHM for an amount equal to AHSCC’s total equity as of March 31, 2017. AHSCC was not material to the Company’s operations.

All significant intercompany balances and transactions have been eliminated upon consolidation.


(c)	Comprehensive Income

Comprehensive income consists of net income and the effect of foreign currency translation adjustments and is presented in the consolidated statements of comprehensive income.


(d)	Cash and Cash Equivalents

Cash and cash equivalents include cash on hand and short-term, highly liquid investments with original maturities of three months or less.


(e)	Finance Receivables

Finance receivables include retail loan, direct financing lease, and dealer loan portfolio segments. The retail loan portfolio segment consists of retail installment contracts with consumers. The direct financing lease portfolio segment consists of closed-end vehicle lease contracts with consumers. The dealer loan portfolio segment consists of wholesale and commercial loans with dealers.

Finance receivables are classified as held-for-investment if the Company has the intent and ability to hold the receivables for the foreseeable future or until maturity or payoff. As of March 31, ~~2018~~2019 and ~~2017,~~2018, all finance receivables were classified as held-for-investment and reported at amortized cost.

Retail and dealer loans include the outstanding principal balance, allowance for credit losses, unearned origination fees, and deferred origination costs. Direct financing leases include the gross receivable balances, unearned interest income, write-down of lease residual values, allowance for credit losses, unearned origination fees, and deferred origination costs. Origination fees include payments received from AHM and HCI for incentive programs (refer to Note 6 regarding these related party transactions). For a limited number of contracts, origination fees include payments received from dealers to buy down the interest rates charged to their customers. Origination costs include initial direct origination costs (IDC) and payments made to dealers for rate participation.

F-9

Revenue on finance receivables includes contractual interest income, accretion of origination fees, and amortization of origination costs. Interest income on retail and dealer loans is accrued as earned using the simple interest method. Unearned interest income on direct financing leases is recognized as finance revenue over the term of the lease using the interest method. Origination fees and costs are recognized as revenue using the interest method over the contractual life of the finance receivables. The recognition of finance revenue on retail loans and leases is discontinued when the underlying collateral is repossessed or accounts are charged off. The recognition of finance revenue on dealer loans is discontinued when it has been determined the Company will be unable to collect all principal and interest payments.

Retail loans and leases are considered delinquent if more than 10% of a scheduled payment is contractually past due on a cumulative basis. Dealer loans are considered delinquent when any payment is contractually past due. The contractual balance of retail loans and leases, including accrued interest and fees, are automatically charged off when they become 120 days past due or earlier if they have been specifically identified as uncollectible. Dealer loans are charged off when they have been individually identified as uncollectible. Charge-offs of loan and lease balances, including uncollected interest and fees, are recognized as a reduction to the allowance for credit losses. Subsequent recoveries of amounts previously charged off are credited to the allowance.


(f)	Investment in Operating Leases

The investment in operating leases is reported at cost, less accumulated depreciation and net of unearned origination fees and deferred origination costs. Origination fees include payments received from AHM for incentive programs (refer to Note 6 regarding these related party transactions). For a limited number of contracts, origination fees include payments received from dealers to buy down the rental charges. Origination costs include payments made for dealer participation. Operating lease revenue is recognized on a straight-line basis over the lease term. Operating lease revenue includes accretion of origination fees and is net of amortization of origination costs, which are also recognized on a straight-line basis over the lease term. Operating lease vehicles are depreciated on a straight-line basis over the lease term to the estimated residual value. Refer to Note 1(h) regarding the determination of lease residual values.

A portion of the Company’s operating leases is expected to terminate prior to their scheduled maturities when lessees default on their contractual obligations. Losses are generally realized upon the disposition of the repossessed operating lease vehicles. The methodologies used to determine the estimated losses are similar to the methodologies used to determine the allowance for credit losses on consumer finance receivables. Operating leases are collectively evaluated to determine the estimated losses incurred. Estimated early termination losses are recognized as a reduction to the carrying value of operating lease assets.

A review for impairment of the Company’s operating lease assets is performed whenever events or changes in circumstances indicate that the carrying values may not be recoverable. Generally, an impairment condition is determined to exist if estimated undiscounted cash flows from the use and eventual disposition of the asset is lower than the carrying value. For the purposes of testing for impairment, operating lease assets are grouped at the lowest level the Company can reasonably estimate cash flows. When impairment conditions are met, impairment losses are measured by the amount carrying values exceed their fair values.


(g)	Allowance for Credit Losses

The allowance for credit losses is management’s estimate of probable losses incurred on finance receivables and is evaluated, at minimum, on a quarterly basis. The retail loan and direct financing lease portfolio segments consist primarily of pools of homogeneous loans and leases with relatively small balances, which are collectively evaluated for impairment. Dealer loans are individually evaluated for impairment when specifically identified as impaired. Dealer loans that have not been specifically identified as impaired are collectively evaluated. An allowance for credit losses is also maintained for estimated probable losses incurred on past due operating lease rental payments.

F-10


(h)	Determination of Lease Residual Values

Contractual residual values of lease vehicles are determined at lease inception based on expectations of end of term used vehicle values, taking into consideration external industry data and the Company’s own historical experience. Lease customers have the option at the end of the lease term to return the vehicle to the dealer or to buy the vehicle for the contractual residual value (or if purchased prior to lease maturity, for the outstanding contractual balance). Returned lease vehicles can be purchased by the grounding dealer for the contractual residual value (or if purchased prior to lease maturity, for the outstanding contractual balance) or a market based price. Returned lease vehicles that are not purchased by the grounding dealers are sold through online and physical auctions. The Company is exposed to risk of loss on the disposition of returned lease vehicles when the proceeds from the sale of the vehicles are less than the contractual residual values at the end of lease term. The Company assesses the estimated end of term market values of the lease vehicles, at minimum, on a quarterly basis. The primary factors affecting the estimates are the percentage of leased vehicles the Company expects to be returned by the lessee at the end of lease term and expected loss severities. Factors considered in this evaluation include, among other factors, economic conditions, historical trends, and market information on new and used vehicles.

For operating leases, adjustments to the estimated residual values are made on a straight-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 other-than-temporary are recognized as a loss in the period in which the estimate changed.


(i)	Vehicles Held for Disposition

Vehicles held for disposition consist of returned and repossessed vehicles. The vehicles are either sold at used vehicle auctions or purchased by dealers, usually within two months of return or repossession. The vehicles are valued at the lower of their carrying value or estimated fair value, less estimated disposition costs. For returned vehicles, valuation adjustments are recorded as a charge against the gain/loss on disposition of lease vehicles. Valuation adjustments made for repossessed collateral of finance receivables and operating leases are recognized as charges to the allowance for credit loss and estimated early termination losses on operating leases, respectively.


(j)	Vehicle Service Contract Administration

AHFC performs administrative services for vehicle service contracts (VSC) issued by AHM and its subsidiary, American Honda Protection Products Corporation. AHFC receives fees for performing the services when the contracts are acquired, which is recognized in other income over the lives of the underlying contracts, proportionate to the anticipated amount of service to be performed. HCFI performs marketing services for vehicle service contracts issued by HCI. HCFI receives fees as the services are performed, which is recognized in other income.


(k)	Securitizations and Variable Interest Entities

The Company enters into securitization transactions for funding purposes. Securitization transactions involve transferring pools of the Company’s retail loans to statutory trusts. The trusts are special purpose entities formed by the Company to accommodate securitization structures. Securitization trusts have the limited purpose of acquiring assets, issuing asset-backed securities, and making payments on the securities. Assets transferred to securitization trusts are considered 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-11

The Company’s securitizations are structured to provide credit enhancements to investors in notes issued by the trusts. Credit enhancements can include the following:

Subordinated certificates– Securities issued by the trusts, which are retained by the Company and are subordinated in priority of payment to the notes.

Overcollateralization – Principal balance of securitized assets exceed the balance of securities issued by the trust.

Excess interest– Excess interest collections can be used to cover losses on defaulted loans.

Reserve funds– 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– 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, 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. The Company 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.

The securitization trusts formed by the Company are VIEs, which are required to be consolidated by their primary beneficiary. The Company is considered to be the primary beneficiary of these trusts due to (i) the power to direct the activities of the trusts that most significantly impact the trusts’ economic performance through its role as servicer, and (ii) the obligation to absorb losses or the right to receive residual returns that could potentially be significant to the trusts through the subordinated certificates and residual interest retained.

Consolidation of these trusts results in the securitization transactions being accounted for as on-balance sheet secured financings. The securitized receivables remain on the consolidated balance sheet of the Company along with the notes issued by the trusts. The notes are secured solely by the assets of the trusts and not by any other assets of the Company. The assets of the trusts are the only source of funds for repayment on the notes. Restricted cash accounts held by the trusts can only be used to support payments on the notes. The restricted cash accounts are included in the Company’s consolidated balance sheet in other assets. Company recognizes finance revenue and provisions for credit losses on the securitized receivables and interest expense on the related secured debt.


(l)	Income Taxes

The Company’s U.S. entities are included in the consolidated U.S. federal and many consolidated or combined state and local income tax returns of the Parent, though in some cases the Company files separately as required by certain state and local jurisdictions. The Company provides its share of the consolidated or combined income tax on a modified separate return basis pursuant to an intercompany income tax allocation agreement that it has entered into with the Parent. The Company files a separate California return based on California’s worldwide income and apportionment rules. To the extent the Company’s U.S. entities have taxable losses in its consolidated federal, and consolidated or combined state and local tax returns, a benefit will be recognized to the extent that it is more likely than not that these losses will be utilized by the consolidated or combined return group in the current or future year and thus would be subject to current or future reimbursement by the Parent under the terms of the intercompany income tax allocation agreement. To the extent such losses are attributable to a state where the Company files a separate return, a benefit for such losses would be recognized to the extent such losses are more likely than not to be utilized in the future. All but an insignificant amount of the federal and state taxes payable or receivable shown on the consolidated balance sheets are due to or from the Parent, pursuant to the intercompany income tax allocation agreement.

F-12

The Company’s Canadian subsidiary, HCFI, files Canadian federal and provincial income tax returns based on the separate legal entity financial statements. HCFI does not file U.S. federal, state, or local income tax returns. Consequently, HCFI does not participate in the intercompany income tax allocation agreement that the Company has with the Parent.

Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases as well as operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under this method, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income during the period in which the enactment date occurs. A valuation allowance is provided to offset deferred tax assets if, based on available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. In addition, tax benefits related to positions considered uncertain are recognized only if, based on the technical merits of the issue, the Company believes that it is more likely than not to sustain the position and then at the largest amount that is greater than 50% likely to be realized upon settlement.


(m)	Foreign Currency Translation

Upon consolidation, the assets and liabilities of HCFI are translated at year-end exchange rates, and the revenues and expenses are translated at the average rates of exchange during the respective years. The resulting translation adjustment is included in other comprehensive income and the cumulative translation adjustment is reported as a separate component of equity in accumulated other comprehensive income and noncontrolling interest.

Foreign currency denominated debt is translated at year-end exchange rates, and the foreign currency transaction gains and losses are recognized through earnings.


(n)	Derivative Instruments

The Company utilizes derivative instruments to manage exposures to interest rate and foreign currency risks. The Company’s assets consist primarily of fixed rate receivables and operating lease assets. The Company’s liabilities consist of both floating and fixed rate debt, denominated in various currencies. Interest rate and basis swaps are used to match the interest rate characteristics of the Company’s assets and debt. Currency swaps are used to manage currency risk exposure on foreign currency denominated debt. Derivative instruments are not used for trading or any other speculative purposes.

All derivative financial instruments are recorded on the consolidated balance sheets at fair value. The Company elects to present derivative instruments in the Company’s consolidated balance sheets on a gross basis rather than on a net basis by counterparty. Refer to Note 5 for additional information. Except in very limited circumstances involving counterparties with consolidated securitization trusts, AHFC 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.

F-13


(o)	Recently ~~Issued~~Adopted Accounting Standards

~~In May 2014,~~

Effective April 1, 2018, the ~~Financial Accounting Standards Board (FASB) issued~~Company adopted Accounting Standard Update (ASU) 2014-09 and the subsequent ASUs that modified ASU 2014-09, which have been codified in Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers ~~(Topic 606).~~, 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. The FASB has also issued several updates to ASU 2014-09 with targeted improvements and clarifications. Substantially all of the Company’s primary sources of revenue 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. All of the Company’s other revenue sources that are within the scope of ASC 606 are insignificant, with the exception of revenue from Vehicle Service Contract Administration. ~~Revenue from lease and loan contracts are not within the scope~~The adoption of this ~~ASU as they~~standard did not change 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 ~~other accounting standards.~~ASC 610-20. The ~~Company does~~adoption of this standard did not ~~expect this ASU to~~ have ~~a material~~an impact on the timing ~~and~~or amount of ~~revenue recognized~~gains or losses from ~~Vehicle Service Contract Administration; however, additional disclosures will be required.~~the disposition of lease vehicles. ASU 2014-09 was adopted using the modified retrospective transition method. The adoption of this standard did not require any adjustments to opening retained earnings as of April 1, 2018.

Effective April 1, 2018, the Company adopted ~~the new guidance effective April 1, 2018.~~

~~In January 2016, the FASB issued~~ ASU 2016-01, Financial ~~Instruments—Overall~~Instruments-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 were 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.

Effective April 1, 2018, the Company adopted ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice on how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The adoption of this standard did not have a material impact on the consolidated statements of cash flows.

Effective April 1, 2018, the Company adopted ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The amendments address diversity in practice that exists 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 consolidated statements of cash flows. Under the amended guidance, transfers between restricted and unrestricted cash accounts are not reported as cash flows. The amendments in this update require that amounts classified as restricted cash and restricted cash equivalents be included within the beginning-of-period and end-of-period amounts along with cash and cash equivalents on the statement of cash flows. The amendments were applied retrospectively to all periods presented within the consolidated statements of cash flows.


(p)	Recently Issued Accounting Standards

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes the guidance in ASC 840, Leases. The ~~effect of adopting the~~FASB also issued several updates to ASU 2016-02 with targeted improvements and clarifications. The new standard will berequire the ~~requirement~~Company to record right-of-use assets and lease liabilities for the ~~Company’s~~ current operating leases as a lessee. ~~We anticipate the~~Upon adoption of the standard will add in our Consolidated Balance Sheets, the present value of all the future minimum lease payments to be made by the Company, as disclosed in Note 9—Commitments and Contingencies of ~~Notes to Consolidated Financial Statements.~~ ~~The Company is identifying the contracts that are or may contain lease arrangements as a lessee and continues to evaluate the application~~ of this standard, the Company expects to ~~those contracts.~~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 ~~from current GAAP. The Company also continues~~except for the following limited amendments. Changes in the assessment of collectibility on operating lease receivables are required to ~~evaluate~~be recognized as adjustments to lease revenue rather than through the ~~application of this standard~~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 ~~lessor.~~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 are~~new standard is effective for the Company beginning April 1, ~~2019. Early~~2019 and will be adopted using the modified retrospective method. The adoption ~~is permitted. The Company plans to adopt~~of the new ~~guidance effective April 1, 2019.~~

standard will not have a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

F-14

In June 2016, the FASB issued ASU 2016-13, Financial ~~Instruments—Credit~~Instruments-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.~~2020.

~~In August 2016, the FASB issued ASU 2016-15,~~

~~Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,~~ which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice on how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments were effective for the Company beginning April 1, 2018. The adoption of this standard is not expected to have a material impact on the consolidated statements of cash flows.

~~In November 2016, the FASB issued ASU 2016-18,~~ ~~Statement of Cash Flows (Topic 230): Restricted Cash~~. The amendments address diversity in practice that exists 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. Under the amended guidance, transfers between restricted and unrestricted cash accounts will not be reported as cash flows. The amendments were effective retrospectively for the Company beginning April 1, 2018.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities,which addresses better alignment between an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The amendments are effective for the Company beginning April 1, 2019. The adoption of this standard will not impact the Company’s consolidated financial statements since there were no designated hedge accounting relationships.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. The amendments modify the disclosure requirements on fair value measurements in Topic 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 Topic 820. The amendments are effective for the Company beginning April 1, 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.

The Company plans to adopt the new guidance effective April 1, 2020.

~~(2)~~
(2)	Finance Receivables

Finance receivables consisted of the following:

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

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 other deferred costs

—

371

—

371

Unearned subsidy income

(10
)

(819
)

—

(829
)
Finance receivables, net
$
375

$
30,523

$
5,006

$
35,904



	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

F-15



	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

Finance receivables include retail loans with a principal balance of ~~$9.1~~$9.4 billion and ~~$8.6~~$9.1 billion as of March 31, ~~2018~~2019 and ~~2017,~~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.

Contractual maturities of direct financing lease and retail loans at March 31, ~~2018~~2019 were as follows:

Lease

Retail

(U.S. dollars in millions)

Year ending March 31:

2019
$
104

$
9,520

2020

50

8,123

2021

—

6,651

2022

—

4,963

2023

—

2,900

Thereafter

—

983

Total
$
154

$
33,140



	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

It is the Company’s experience that a portion of the finance receivable portfolio generally is repaid before contractual maturity dates. Aggregate contractual maturities, as shown above for direct financing lease and retail finance receivables, should not be regarded as a forecast of future cash collections.

The uninsured portions of the direct financing lease residual values were ~~$35~~$8 million and ~~$78~~$35 million at March 31, ~~2018~~2019 and ~~2017,~~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 $70 million, $63 million ~~$42 million~~ and ~~$27~~$42 million for the fiscal years ended March 31, 2019, 2018 and 2017, ~~and 2016,~~ respectively.

Credit Quality of Financing Receivables

Credit losses are an expected cost of extending credit. The majority of the credit risk is with consumer financing and to a lesser extent with dealer financing. Credit risk on consumer finance receivables can be affected by general economic conditions. Adverse changes such as a rise in unemployment 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 ~~purchasing~~regular 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.

F-16

Allowance for Credit Losses

The allowance for credit losses is management’s estimate of probable losses incurred on finance receivables, which requires significant judgment and assumptions that are inherently uncertain. The allowance is based on management’s evaluation of many factors, including the Company’s historical credit loss experience, the value of the underlying collateral, delinquency trends, and economic conditions.

Consumer finance receivables in the retail loan and direct financing lease portfolio segments are collectively evaluated for impairment. Delinquencies and losses are monitored on an ongoing basis and the 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, and consumer debt service burdens are also incorporated into these models.

Dealer loans are individually evaluated for impairment when specifically identified as impaired. Dealer loans are considered impaired when it is probable that the Company will be unable to collect ~~all~~the 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.

There were no modifications to dealer loans that constituted troubled debt restructurings during the fiscal years ended March 31, 2019, 2018 ~~2017~~ and ~~2016.~~

2017.

The Company generally does not grant concessions on consumer finance receivables that are considered 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, 2019, 2018 ~~2017~~ and ~~2016.~~2017. The Company does allow payment deferrals on consumer finance receivables. However, these payment deferrals are not considered troubled debt restructurings since the deferrals are deemed insignificant and interest continues to accrue during the deferral period.

The following is a summary of the activity in the allowance for credit losses of finance receivables, excluding the provisions related to past due operating leases:

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

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, 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

F-17



	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

F-18

Delinquencies

The following is an aging analysis of past due finance receivables:

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, 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

Total finance
receivables
$
261

$
50

$
16

$
327

$
37,817

$
38,144

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



	30 – 59 days past due		60 – 89 days past due		90 days or greater past due		Total past due		Current or less than 30 days past due		Total finance receivables

	(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
Total finance receivables	$	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
Total finance receivables	$	261	$	50	$	16	$	327	$	37,817	$	38,144

Credit Quality Indicators

Retail Loan and Direct Financing Lease Portfolio Segments

The Company utilizes proprietary credit scoring systems to evaluate the credit risk of applicants for retail loans and leases. ~~The scoring~~These 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-19

Subsequent to origination, collection experience provides ~~a current~~an 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:

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, 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

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



	Retail new auto loans		Retail used and certified auto loans		Retail motorcycle and other loans		Direct financing lease		Total consumer finance receivables

	(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

Dealer Loan Portfolio Segment

The Company utilizes an internal risk rating system to evaluate dealer credit risk. Dealerships are assigned an internal risk rating based on an assessment of their financial ~~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 from~~based 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.

The Company’s outstanding portfolio of dealer loans has been divided into two groups in the tables below. Group A includes the loans of dealerships with the strongest internal risk rating. Group B includes the loans of all remaining dealers. ~~Although the likelihood of losses can be higher for dealerships in Group B, the overall risk of losses is not considered significant.~~

March 31,

2018

2017

Wholesale

Commercial

Wholesale

Commercial

flooring

loans

Total

flooring

loans

Total

(U.S. dollars in millions)

Group A
$
2,791

$
684

$
3,475

$
2,689

$
628

$
3,317

Group B

1,661

359

2,020

1,411

278

1,689

Total
$
4,452

$
1,043

$
5,495

$
4,100

$
906

$
5,006



	March 31,
	2019						2018
	Wholesale flooring		Commercial loans		Total		Wholesale flooring		Commercial loans		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

F-20

~~(3)~~
(3)	Investment in Operating Leases

Investment in operating leases consisted of the following:

March 31,

2018

2017

(U.S. dollars in millions)

Operating lease vehicles
$
41,285

$
39,684

Accumulated depreciation

(8,169
)

(7,136
)
Deferred dealer participation and other deferred costs

117

118

Unearned subsidy income

(1,317
)

(1,285
)
Estimated early termination losses

(99
)

(71
)
Investment in operating leases, net
$
31,817

$
31,310



	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

The Company recognized $101 million, $108 million ~~$73 million~~ and ~~$46~~$73 million of estimated early termination losses due to lessee defaults for the fiscal years ended March 31, 2019, 2018 ~~2017~~ and ~~2016,~~2017, respectively. Actual net losses realized for the fiscal years ended March 31, 2019, 2018 and 2017 ~~and 2016~~ totaled $85 million, $80 million and $62 million, ~~and $44 million,~~ respectively.

Included in the provision for credit losses for the fiscal years ended March 31, 2019, 2018 ~~2017~~ and ~~2016~~2017 are provisions related to past due receivables on operating leases in the amounts of $40 million, $31 million and $23 million, ~~and $19~~respectively.

The Company recognized $14 million ~~respectively.~~

~~Certain Honda and Acura vehicles were recalled during the fourth quarter~~ of the 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 disposition~~due 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 million~~certain models of ~~impairment losses~~leased 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, 2018, and 2017.

Future minimum rental payments for operating leases at March 31, ~~2018~~2019 were as follows (U.S. dollars in millions):

Year ending March 31:

2019
$
5,342

2020

3,358

2021

1,290

2022

224

2023

40

Total
$
10,254



Year ending March 31,
2020	$	5,476
2021	3,665
2022	1,514
2023	246
2024	50
Total	$	10,951

Based on the Company’s leasing experience, it is expected that a portion of the Company’s operating lease vehicles will be purchased by the lessee prior to the scheduled lease term. Future minimum rental payments, as shown above, should not be regarded as a forecast of future cash collections.

F-21

~~(4)~~
(4)	Debt

The Company issues debt in various currencies with both floating and fixed interest rates. Outstanding debt net of discounts and fees, weighted average contractual interest rates and range of contractual interest rates were as follows:

Weighted average

Contractual

contractual interest rate

interest rate ranges

March 31,

March 31,

March 31,

2018

2017

2018

2017

2018

2017

(U.S. dollars in millions)

Unsecured debt:

Commercial paper
$
5,167

$
4,462

1.86
%

0.99
%

1.07 - 2.21%

0.78 - 1.15%
Related party debt

1,085

1,201

1.64
%

0.95
%

1.43 - 1.72%

0.93 - 0.96%
Bank loans

5,419

5,883

2.48
%

1.65
%

2.02 - 3.15%

1.28 - 2.00%
Private MTN program

1,698

2,946

5.40
%

3.77
%

3.80 - 7.63%

1.50 - 7.63%
Public MTN program

21,398

19,491

1.92
%

1.63
%

0.07 - 3.50%

0.07 - 2.90%
Euro MTN programme

1,111

1,086

1.95
%

1.83
%

1.88 - 2.33%

1.52 - 2.23%
Other debt

3,250

2,736

2.20
%

1.90
%

1.63 - 2.76%

1.28 - 2.35%
Total unsecured
debt

39,128

37,805

Secured debt

8,733

8,422

1.74
%

1.24
%

1.04 - 2.83%

0.77 - 2.05%
Total debt
$
47,861

$
46,227



					Weighted average contractual interest rate				Contractual interest rate ranges
	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

As of March 31, 2019, the outstanding principal balance of long-term debt with floating interest rates totaled $12.5 billion, long-term debt with fixed interest rates totaled $29.2 billion, and short-term debt totaled $8.1 billion. As of March 31, 2018, the outstanding principal balance of long-term debt with floating interest rates totaled $13.2 billion, long-term debt with fixed interest rates totaled $27.8 billion, and short-term debt totaled $7.0 billion. As of March 31, 2017, the outstanding principal balance of long-term debt with floating interest rates totaled $12.2 billion, long-term debt with fixed interest rates totaled $27.9 billion, and short-term debt totaled $6.2 billion.

The Company’s secured debt is amortizing and unsecured debt is non-amortizing. Scheduled and projected maturities of the Company’s debt at March 31, ~~2018~~2019 are summarized below:

2019

2020

2021

2022

2023

Thereafter

Total

(U.S. dollars in millions)

Unsecured debt:

Commercial paper
$
5,178

$
—

$
—

$
—

$
—

$
—

$
5,178

Related party debt

1,085

—

—

—

—

—

1,085

Bank loans

771

1,494

1,078

1,310

697

78

5,428

Private MTN program

700

—

500

500

—

—

1,700

Public MTN program

6,116

4,700

3,100

2,791

2,630

2,116

21,453

Euro MTN programme

160

924

—

—

28

—

1,112

Other debt

659

465

892

310

930

—

3,256

Total unsecured debt

14,669

7,583

5,570

4,911

4,285

2,194

39,212

Secured debt⁽¹⁾

4,660

2,604

1,193

240

48

—

8,745

Total debt⁽²⁾
$
19,329

$
10,187

$
6,763

$
5,151

$
4,333

$
2,194

47,957

Unamortized discounts/fees

(96
)

Total debt

$
47,861



	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
Secured debt ⁽¹⁾	4,678		2,573		1,222		288		42		—		8,803
Total debt ⁽²⁾	$	20,353	$	11,672	$	7,351	$	5,612	$	3,415	$	1,450	$	49,853
Unamortized discounts/fees													(99		)
Total debt, net													$	49,754

_____________________________


(1)	Projected repayment schedule of secured debt. Reflects payment performance assumptions on underlying receivables.


(2)	Principal amounts.

F-22

Commercial Paper

As of March 31, ~~2018~~2019 and ~~2017,~~2018, the Company had commercial paper programs that provide the Company with available funds of up to ~~$8.6~~$8.5 billion and ~~$8.5~~$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.

Outstanding commercial paper averaged $5.6 billion ~~and $5.8 billion~~ during both fiscal years ~~2018~~2019 and ~~2017, respectively.~~2018. The maximum balance outstanding at any month-end during both fiscal years ~~2018~~2019 and ~~2017~~2018 was $6.2 ~~billion and $6.6 billion, respectively.~~

billion.

Related Party Debt

AHFC no longer issues fixed rate short-term notes to AHM to help fund AHFC’s general corporate operations. AHFC had no outstanding notes to AHM during fiscal year ended March 31, 2018. AHFC incurred interest expense on these notes totaling $3 million for both the fiscal years ended March 31, 2017 and 2016. As of March 31, 2017, AHFC had no outstanding notes issued to AHM.

HCFI issues fixed rate short-term notes to HCI to help fund HCFI’s general corporate operations. HCFI incurred interest expense on these notes totaling $16 million, $14 million ~~$12 million~~ and ~~$13~~$12 million for the fiscal years ended March 31, 2019, 2018 and 2017, ~~and 2016,~~ respectively.

Bank Loans

Outstanding bank loans at March 31, ~~2018~~2019 and ~~2017~~2018 were either short-term or long-term, with floating interest rates, and denominated in U.S. dollars or Canadian dollars. Outstanding bank loans have prepayment options. No outstanding bank loans as of March 31, ~~2018~~2019 and ~~2017~~2018 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.

Medium Term Note (MTN) Programs

Private MTN Program

AHFC no longer issues MTNs under its Rule 144A Private MTN Program. Notes outstanding under the Private MTN Program as of March 31, ~~2018~~2019 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.

Public MTN Program

In August 2016, AHFC filed a registration statement with the SEC under which it may issue from time to time up to ~~$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, ~~2018~~2019 were either long-term or short-term, with either fixed or floating interest rates, and denominated in U.S. dollars, 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.

Euro MTN Programme

The Euro MTN Programme was retired in August 2014. Notes under this program that are currently listed on the Luxembourg Stock Exchange will remain listed through their maturities. Notes outstanding under this program as of March 31, 2019 were long-term with fixed interest rates. Notes under this program were issued pursuant to the terms of an agency agreement which contains certain covenants, including negative pledge provisions.

The MTN programs are supported by the Keep Well Agreement with HMC described in Note 6.

Other Debt

The outstanding balances as of March 31, ~~2018~~2019 and ~~2017~~2018 consisted of private placement debt issued by HCFI which are long-term, with either fixed or floating interest 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-23

Secured Debt

The Company issues notes through financing transactions that are secured by assets held by ~~the~~ issuing securitization trusts. Notes outstanding as of March 31, 2019 and 2018 ~~and 2017~~ were ~~both~~ long-term and short-term, with either fixed or floating interest rates, and denominated in U.S. dollars or Canadian dollars. Repayment onof 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.

Credit Agreements

Syndicated Bank Credit Facilities

AHFC maintains a $7.0 billion syndicated bank credit facility that includes a $3.5 billion 364-day credit agreement, which expires on ~~March 1, 2019,~~February 28, 2020, a $2.1 billion ~~three-year~~ credit agreement, which expires on March 3, 2021, and a $1.4 billion ~~five-year~~ credit agreement, which expires on March 3, 2023. As of March 31, ~~2018,~~ 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.

HCFI maintains a ~~$1.2~~$1.2 billion syndicated bank credit ~~agreement~~facility which provides that HCFI may borrow up to ~~$620~~$599 million on a one-year and up to ~~$620~~$599 million on a five-year revolving basis. The one-year tranche of the credit agreement expires on March ~~24, 2019~~25, 2020 and the five-year tranche of the credit agreement expires on March ~~24, 2023.~~25, 2024. As of March 31, ~~2018,~~ 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.

The credit agreements contain customary covenants, including limitations on liens, mergers, consolidations and asset sales.

Other Credit Agreements

AHFC maintains other committed lines of credit that allow the Company access to an additional ~~$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, ~~2018,~~2019, no amounts were drawn upon under these agreements. These agreements expire in September ~~2018. AHFC intends to renew these credit agreements prior to or on their expiration dates.~~

2019.

~~(5)~~
(5)	Derivative Instruments

The notional balances and fair values of the Company’s derivatives are presented below. The derivative instruments are presented on a gross basis in the Company’s consolidated balance ~~sheets on a gross basis.~~sheets. Refer to Note 14 regarding the valuation of derivative instruments.

March 31,

2018

2017

Notional

Notional

balances

Assets

Liabilities

balances

Assets

Liabilities

(U.S. dollars in millions)

Interest rate swaps
$
56,043

$
465

$
342

$
54,664

$
237

$
193

Cross currency swaps

4,310

285

72

3,694

12

256

Gross derivative assets/liabilities

750

414

249

449

Counterparty netting adjustment

(372
)

(371
)

(179
)

(179
)
Net derivative assets/liabilities

$
378

$
43

$
70

$
270



	March 31,
	2019								2018
	Notional balances		Assets			Liabilities			Notional balances		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

F-24

The income statement impact of derivative instruments is presented below. There were no derivative instruments designated as part of a hedge accounting relationship during the periods presented.

Years ended March 31,

2018

2017

2016

(U.S. dollars in millions)

Interest rate swaps
$
126

$
(87
)

$
(8
)
Cross currency swaps

424

(228
)

109

Total gain/(loss) on derivative instruments
$
550

$
(315
)

$
101



	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	)

The fair value of derivative instruments is subject to the fluctuations in market interest rates and foreign currency exchange rates. Since the Company has elected not to apply hedge accounting, the volatility in the changes in fair value of these derivative instruments is recognized in earnings. All settlements of derivative instruments are ~~recognized~~presented within cash flows from operating activities in the consolidated statements of cash flows.

These derivative instruments also contain an element of credit risk in the event the counterparties are unable to meet the terms of the agreements. However, the Company minimizes the risk exposure by limiting the counterparties to major financial institutions that meet established credit guidelines. In the event of default, all counterparties are subject to legally enforceable master netting agreements. In Canada, HCFI is a party to credit support agreements that require posting of cash collateral to mitigate counterparty credit risk on derivative positions.

~~(6)~~
(6)	Transactions Involving Related Parties

The following tables summarize the income statement and balance sheet impact of transactions with the Parent and affiliated companies:

Years ended March 31,

Income Statement
2018

2017

2016

(U.S. dollars in millions)

Revenue:

Subsidy income
$
1,441

$
1,232

$
1,076

Interest expense:

Related party debt

14

15

16

Other income, net:

VSC administration fees

107

103

98

Support Service Fee

(28
)

—

—

General and administrative expenses:

Support Compensation Agreement fees

22

20

18

Benefit plan expenses

11

11

9

Shared services

62

60

58

March 31,

Balance Sheet
2018

2017

(U.S. dollars in millions)

Assets:

Finance receivables, net:

Unearned subsidy income
$
(1,030
)

$
(820
)
Investment in operating leases, net:

Unearned subsidy income

(1,313
)

(1,281
)
Due from Parent and affiliated companies

139

228

Liabilities:

Debt:

Related party debt
$
1,085

$
1,201

Due to Parent and affiliated companies

87

91

Accrued interest expense:

Related party debt

3

2

Other liabilities:

VSC unearned administrative fees

396

394

Accrued benefit expenses

71

66



	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

F-25



	March 31,
Balance Sheet	2019			2018

	(U.S. dollars in millions)
Assets:
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

Support Agreements

HMC and AHFC are parties to a Keep Well Agreement, effective as of September 9, 2005. This Keep Well Agreement provides that HMC will (1)maintain (directly or indirectly) at least 80% ownership in AHFC’s voting stock and not pledge (directly or indirectly), or in any way encumber or otherwise dispose of, any such stock of AHFC that it is required to hold (or permit any of HMC’s subsidiaries to do so), (2) cause AHFC to have a positive consolidated tangible net worth with tangible net worth defined as (a) stockholder’s equity less (b) any intangible assets, determined on a consolidated basis in accordance with GAAP, and (3) ensure that AHFC has sufficient liquidity to meet its payment obligations for debt HMC has confirmed in writing is covered by this Keep Well Agreement, in accordance with its terms, or where necessary make available to AHFC, or HMC shall procure for AHFC, sufficient funds to enable AHFC to meet such obligations in accordance with such terms. This Keep Well Agreement is not a guarantee by HMC.

HMC and HCFI are parties to a Keep Well Agreement effective as of September 26, 2005. This Keep Well Agreement provides that HMC will (1)maintain (directly or indirectly) at least 80% ownership in HCFI’s voting stock and not pledge (directly or indirectly), or in any way encumber or otherwise dispose of, any such stock of HCFI that it is required to hold (or permit any of HMC’s subsidiaries to do so), (2) cause HCFI to have a positive consolidated tangible net worth with tangible net worth defined as (a) stockholder’s equity less (b) any intangible assets, determined on a consolidated basis in accordance with generally accepted accounting principles in Canada, and (3) ensure that HCFI has sufficient liquidity to meet its payment obligations for debt HMC has confirmed in writing is covered by this Keep Well Agreement, in accordance with its terms, or where necessary make available to HCFI, or HMC shall procure for HCFI, sufficient funds to enable HCFI to meet such obligations in accordance with such terms. This Keep Well Agreement is not a guarantee by HMC.

Debt programs supported by the Keep Well Agreements consist of the Company’s commercial paper programs, Private MTN Program, Public MTN Program, Euro MTN Programme, and HCFI’s private placement debt. In connection with the above agreements, AHFC and HCFI have entered into separate Support Compensation Agreements, where each has agreed to pay HMC a quarterly fee based on the amount of outstanding debt that benefit from the Keep Well Agreements. Support Compensation Agreement fees are recognized in general and administrative expenses.

F-26

Incentive Financing Programs

The Company receives subsidy payments from AHM and HCI, which supplement the revenues on financing products offered under incentive programs. Subsidy payments received on retail loans and leases are deferred and recognized as revenue over the term of the related contracts. The unearned balance is recognized as reductions to the carrying value of finance receivables and investment in operating leases. Subsidy payments on dealer loans are received as earned. Refer to Notes 1(e) and 1(f) for additional information.

Related Party Debt

~~AHFC no longer issues short-term notes to AHM to fund AHFC’s general corporate operations. As of March 31, 2018, AHFC had no outstanding notes to AHM.~~

HCFI issues short-term notes to HCI to fund HCFI’s general corporate operations. Interest rates are based on prevailing rates of debt with comparable terms. Refer to Note 4 for additional information.

Vehicle Service Contract (VSC) Administration

AHFC ~~receives fees to perform~~performs administrative services for VSCs issued by ~~AHM~~certain subsidiaries of AHM. AHFC’s performance obligations for the services are satisfied over the term of the underlying contracts and ~~its subsidiaries.~~ revenue is recognized proportionate to the anticipated amount of services to be performed. Contract terms range between two to eight years with the majority of contracts having original terms between six and eight years. The majority of the administrative service revenue is recognized during the latter years of the underlying contracts as this is the period in which the majority of VSC claims are processed. AHFC receives fees for performing the administrative services when the contracts are acquired.

Unearned VSC administration fees represent AHFC’s contract liabilities and are included in other liabilities (Note 12). VSC administration income is recognized in other income (Note 13). HCFI receives fees for marketing ~~vehicle service contracts~~VSCs issued by ~~HCI, and is~~HCI. These fees are also recognized in other income. Refer to Note 1(j) for additional information.

AHFC pays fees to AHM for services provided in support of AHFC’s performance of VSC administrative services. The support ~~service~~ fees are recognized as an expense within other income, net (Note 13).

Shared Services

The Company shares certain common expenditures with AHM, HCI, and related parties including information technology services and facilities. The allocated costs for shared services are included in general and administrative expenses.

Benefit Plans

The Company participates in various employee benefit plans that are ~~maintained~~sponsored by AHM and HCI. The allocated benefit plan expenses are included in general and administrative expenses. Refer to Note 8 for additional information.

Income taxes

The Company’s U.S. income taxes are recognized on a modified separate return basis pursuant to an intercompany income tax allocation agreement with AHM. Income tax related items are not included in the tables above. Refer to Notes 1(l) and 7 for additional information.

Other

~~Other~~

AHM periodically sponsors programs that allow lessees to terminate their lease contracts prior to the contractual maturity date. AHM compensates the Company for rental payments that were waived under these programs. During the fiscal years ended March 31, ~~2018~~2019 and ~~2017,~~2018, the Company recognized ~~$19~~$17 million and $6$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.

The majority of the amounts due from the Parent and affiliated companies at March 31, ~~2018~~2019 and ~~2017~~2018 related to incentive financing program subsidies. The majority of the amounts due to the Parent and affiliated companies at March 31, ~~2018~~2019 and ~~2017~~2018 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-27

In April 2017, the Company sold all issued and outstanding common stock of its wholly-owned subsidiary American Honda Service Contract Corporation (AHSCC) to AHM 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.

AHFC declared and paid semi-annual cash dividends ofto its parent, AHM, $235 million and $271 million during the fiscal year ended March 31, 2019 and $141 million and $206 million ~~to its parent, AHM,~~ during the fiscal year ended March 31, 2018. No dividends were declared or paid during the fiscal year ended March 31, 2017.

~~(7)~~
(7)	Income Taxes

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (Tax Act). The primary impact on the effective tax rate is the reduction of the U.S. federal corporate tax rate from 35% to 21%, effective January 1, 2018. ~~In accordance with Section 15 of the Internal Revenue Code, our fiscal year ended March 31, 2018 will have a blended federal corporate tax rate of 31.55%.~~

The Company adopted Staff Accounting Bulletin No. 118 (SAB 118) which ~~provides~~provided guidance on accounting for the tax effects of the Tax Act in ~~our~~the Company's interim quarter ended December 31, 2017 to record re-measurement of deferred taxes and a one-time deemed repatriation transition tax (Transition Tax). As of March 31, 2018 ~~we recorded a measurement period adjustment of $51 million tax expense reflecting~~ the ~~change in temporary differences from the estimate as of December 31, 2017 to actual as of March 31, 2018, and we have~~Company completed the accounting for the effect of re-measurement of deferred taxes toat the new 21% tax ~~rate, resulting in a tax benefit of approximately $2,970 million as of the enactment date and the effect of a phased-in tax rate of $209 million. As of~~rate. At March 31, 2018, ~~our accounting for~~ the Transition Tax is provisional, pending further analysis of relevant U.S. federal and state interpretive guidance which continues to evolve. As of March 31, 2018, we recorded a measurement period adjustment of $27 million tax expense as a result of updated estimates and Treasury guidance published after December 31, 2017, and we haveCompany provisionally accrued ~~provisionally~~ a total of $52 million for the Transition Tax. ~~We expect to complete~~Upon further analysis, the Company completed its accounting for ~~this item within~~ the ~~twelve-month~~Transition Tax, and reduced the provisional estimate by $19 million in the quarter ended December 31, 2018, for a final amount of $33 million, inclusive of associated unrecognized tax benefits. The adjustment was attributed primarily to the availability of new information, which led to further analysis on key inputs to the Transition Tax calculation. The measurement period ~~afforded~~adjustment in the current fiscal year decreased the Company's effective tax rate by ~~SAB 118.~~approximately 1.2% for the fiscal year ended March 31, 2019. The Company has elected not to record deferred taxes for a Global Intangible Low-Taxed Income (GILTI) related book-tax differences, and will treat taxes due on further U.S. inclusions in taxable income related to GILTI as a current period expense when incurred. Other domestic and international effects of the Tax Act to the total tax expense are ~~immaterial.~~

immaterial as of March 31, 2019.

The Company’s consolidated income tax expense/(benefit) was computed on a modified separate return basis pursuant to the intercompany tax allocation agreement with the Parent and consisted of the following:

Current

Deferred

Total

(U.S. dollars in millions)

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

Year ended March 31, 2016

Federal
$
(428
)

$
861

$
433

State and local

(15
)

88

73

Foreign

22

20

42

Total
$
(421
)

$
969

$
548



	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

F-28

The allocation of federal tax expense between current and deferred tax expense ~~for the fiscal years ended March 31, 2018, 2017 and 2016, reflect~~reflects primarily the impact of 100% federal bonus depreciation offset by the elimination of personal property for like-kind exchange purposes ~~and the one-time Transition Tax~~ due to the Tax Cuts and Jobs Act (Tax Act) for the fiscal years ended March 31, 2019 and 2018, and 50% federal bonus depreciation due to the Protecting Americans from Tax Hikes Act of ~~2015.~~

2015 for the fiscal year ended March 31, 2017. In addition, the re-measurement of deferred taxes due to the federal income tax rate reduction was reflected in the deferred tax expense in the fiscal year ended March 31, 2018.

Income tax expense differs from the expected income taxes by applying the statutory federal corporate rates of ~~31.55%~~21.00%, ~~35%~~31.55% and ~~35%~~35.00% for fiscal years ended March 31, 2019, 2018 ~~2017~~ and ~~2016,~~2017, respectively, to income before income taxes as follows:

Years ended March 31,

2018

2017

2016

(U.S. dollars in millions)

Computed “expected” income taxes
$
467

$
416

$
510

Foreign tax rate differential

(14
)

(17
)

(13
)
Effect of foreign dividends and foreign tax credit

(10
)

4

3

State and local income taxes, net of federal income tax benefit

49

40

47

Change in valuation allowance

—

(5
)

5

Change in estimated state tax rate, net of federal income tax benefit

(5
)

(8
)

21

Change in unrecognized tax benefit

(1
)

—

(6
)
Effect of state tax law changes

13

10

(16
)
Effect of Tax Act

(3,127
)

Other

(1
)

(3
)

(3
)
Income tax expense/(benefit)
$
(2,629
)

$
437

$
548

~~Effect~~



	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

The effect of the Tax Act includes ~~$(3,179)~~benefits of $11 million and $3,179 million related to 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.~~

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.

F-29

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:

March 31,

2018

2017

(U.S. dollars in millions)

Deferred tax assets:

State income tax
$
192

$
294

Receivable valuation

97

90

Accrued postretirement

14

21

State loss carryforwards

47

60

Other assets

38

69

Total gross deferred tax assets

388

534

Less valuation allowance

—

—

Net deferred tax assets

388

534

Deferred tax liabilities:

HCFI leases

319

274

AHFC leases

6,035

8,949

Derivatives

17

24

Securitizations

10

9

Other

42

70

Total gross deferred tax liabilities

6,423

9,326

Net deferred tax liabilities
$
6,035

$
8,792



	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

The ~~decrease~~increase in the net deferred tax liability is primarily attributable to ~~re-measurement resulting~~accelerated depreciation benefits derived from ~~enactment of the 21% tax rate under~~ the Tax Act.

The effect of translating HCFI’s net deferred tax liabilities to U.S. dollars upon consolidation resulted in a decrease of $10 million, an increase of $8 million, ~~during the fiscal year ended March 31, 2018,~~ and a decrease of $5 million during ~~each of~~ the fiscal years ended March 31, 2019, 2018, and 2017, ~~and 2016.~~respectively. The translation adjustments have been recognized as a component of other comprehensive income.

Exception to Recognition of Deferred Tax Liabilities

Prior to the passage of the Tax Act, foreign undistributed earnings were generally subject to U.S. taxation when repatriated and when subject to U.S. taxation may generally be offset by foreign tax credits. The Tax Act imposes a one-time Transition Tax on the previously untaxed U.S. federal tax “earnings and profits” (“E&P”) and generally eliminates future U.S. federal income taxes on dividends from foreign subsidiaries.

The Company ~~has provided for federal and certain states Transition Tax on the E&P of HCFI in the period ended March 31, 2018. The Company has~~does not ~~provided~~provide for income taxes on its share of the undistributed earnings of HCFI, ~~exceeding E&P,~~ which are intended to be indefinitely reinvested outside the United States. At March 31, ~~2018, $844~~2019, $935 million of accumulated undistributed earnings of HCFI were intended to be so reinvested. If the undistributed earnings as of March 31, ~~2018~~2019 were to be distributed, the tax liability associated with these indefinitely reinvested earnings would be ~~$73~~$58 million.

~~State Loss Carryforwards~~

Tax Attributes

Included in the Company’s deferred tax assets are net operating loss (NOL) carryforwards with tax benefits resulting from operating losses incurred in various states in which the Company files tax returns in the amounts of $47 million, ~~$60~~$47 million and $60 million at March 31, 2019, 2018 and 2017, ~~and 2016,~~ respectively. ~~Based~~The 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.~~

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.

F-30

Valuation Allowance

In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during those periods in which those temporary differences and carryforward deferred tax assets become deductible or utilized. The Company considers sources of income, including the reversal of deferred tax liabilities, projected future taxable income, and tax planning considerations in making this assessment. Based upon these factors, during the fiscal year ended March 31, ~~2018,~~2019, the Company established a valuation allowance of $2 million for certain state NOL carryforwards. The Company believes that it is more likely than not that the remaining deferred tax assets of ~~$388~~$472 million recognized as of March 31, ~~2018~~2019 will be realized.

Uncertain Tax Positions

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

Years ended March 31,

2018

2017

2016

(U.S. dollars in millions)

Balance, beginning of year
$
21

$
16

$
21

Additions for current year tax positions

—

—

—

Additions for prior year tax positions

1

5

—

Reductions for prior year tax positions

—

—

(10
)
Settlements

—

—

5

Reductions related to a lapse in the statute of limitations

—

—

—

Foreign currency translation

—

—

—

Balance, end of year
$
22

$
21

$
16



	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

Included in the balance of unrecognized tax benefits at March 31, 2019, 2018 and 2017 ~~and 2016~~ are ~~$21~~$84 million, $21 million and ~~$15~~$21 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 ~~$10~~interest and penalties of $89 million and ~~$14~~$10 million as of March 31, ~~2018~~2019 and ~~2017,~~2018, respectively (Note 12).

The Company recognizes income tax-related interest income, interest expense and penalties as a component of income tax expense. During the fiscal years ended March 31, ~~2018~~2019 and ~~2017,~~2018, the Company recognized interest ~~income in an amount less than $1~~expense of $9 million, and interest ~~expense~~income in an amount less than $1 million, respectively, as a component of income tax expense. ~~As a result of settlements during the fiscal year ended March 31, 2016, the Company received less than $1 million.~~ There were no settlements during the fiscal year ended March 31, ~~2018~~2019 and ~~2017.~~2018. As of March 31, 2019, 2018 ~~2017~~ and ~~2016,~~2017, the Company’s consolidated balance sheets reflect accrued interest payable of $2$11 million, $3$2 million and $3 million, respectively.

As of March 31, ~~2018,~~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 ~~2017,~~2018, with the exception of one state which is subject to ~~examination~~departmental review for returns filed for the taxable years ended March 31, 2001 through ~~2017.~~2007. The Company’s Canadian subsidiary, HCFI, is subject to examination for returns filed for the taxable years ended March 31, ~~2009, and 2011~~2012 through ~~2017~~2018 federally, and returns filed for the taxable years ended March 31, 2009 through ~~2017~~2018 provincially. The Company believes appropriate provision has been made for all outstanding issues for all open years.

F-31

~~(8)~~
(8)	Benefit Plans

The Company participates in certain retirement and other postretirement benefit plans ~~maintained~~sponsored by AHM and HCI (collectively referred to as the Sponsors).

The Company participates in defined benefit retirement plans (the Pension Plans) maintained by the Sponsors. The names of the Pension Plans maintained by AHM are the Honda Retirement Plan and the Honda Pension Equalization Plan. The name of the Pension Plan maintained by HCI is the Pension Plan for Associates of Honda Canada Inc. Employees who commenced service after September 3, 2013 are not eligible to participate in the Pension Plans maintained by AHM. Under the amendments to the Pension Plan maintained by HCI, employees who commenced service after January 1, 2014 are not eligible to participate in their Pension Plan. The Company pays for its share of the Pension Plan costs allocated by the Sponsors. The Pension Plans’ expense, included in general and administrative expenses, was $6$7 million for ~~each of~~the fiscal year ended March 31, 2019, and $6 million for both the fiscal years ended March 31, 2018 ~~2017~~ and ~~2016.~~

2017.

The Company participates in defined contribution savings plans (the Savings Plans) maintained by the Sponsors. These plans allow participants to make contributions subject to Internal Revenue Service or Canada Revenue Agency limits. General and administrative expenses includes ~~$8 million, $7 million and $7 million for~~ the ~~Company’s~~Company's contributions to the Savings Plans of $8 million for both the fiscal years ended March 31, 2019 and 2018, ~~2017~~ and ~~2016, respectively.~~

$7 million for fiscal year ended March 31, 2017.

The Company participates in other postretirement plans maintained by the Sponsors primarily to provide certain healthcare benefits for retired employees. Substantially all employees become eligible for these benefits if they have met certain age and service requirements at retirement. The Company’s expense for the postretirement plans, included in general and administrative expenses, was ~~$5 million, $5 million and $3~~$4 million for the fiscal year ended March 31, 2019, and $5 million for both the fiscal years ended March 31, 2018 ~~2017~~ and ~~2016, respectively.~~

2017.

~~(9)~~
(9)	Commitments and Contingencies

The Company leases certain premises and equipment on a long-term basis under noncancelable leases. Some of these leases require the Company to pay property taxes, insurance, and other expenses. Lease expense was $9$10 million, ~~$10~~$9 million and $10 million for the fiscal years ended March 31, 2019, 2018 ~~2017~~ and ~~2016,~~2017, respectively. Annual minimum lease commitments attributable to long-term noncancelable operating leases at March 31, ~~2018~~2019 were as follows (U.S. dollars in millions):

Year ending March 31:

2019
$
9

2020

10

2021

10

2022

9

2023

9

Thereafter

32

Total
$
79



Year ending March 31:
2020	$	10
2021	10
2022	9
2023	9
2024	8
Thereafter	24
Total	$	70

The Company extends commercial revolving lines of credit to dealerships to support their business activities including facilities refurbishment and general working capital requirements. The amounts borrowed are generally secured by the assets of the borrowing entity. The majority of the lines have annual renewal periods. The unused balance of commercial revolving lines of credit was ~~$189~~$232 million as of March 31, ~~2018.~~2019. The Company also has commitments to finance the construction of auto ~~dealerships.~~dealership facilities. The remaining unfunded balance for these construction loans was ~~$33~~$22 million as of March 31, ~~2018.~~

2019.

Legal Proceedings and Regulatory Matters

The Company establishes accruals for legal claims when payments associated with the claims become probable and the costs can be reasonably estimated. When able, the Company will determine estimates of reasonably possible loss or range of loss, whether in excess of any related accrued liability or where there is no accrued liability. Given the inherent uncertainty associated with legal matters, the actual costs of resolving legal claims and associated costs of defense may be substantially higher or lower than the amounts for which accruals have been established.

F-32

The Company is involved, in the ordinary course of business, in various legal proceedings including claims of individual customers and purported class action lawsuits. Certain of these actions are similar to suits filed against other financial institutions and captive finance companies. Most of these proceedings concern customer allegations of wrongful repossession or defamation of credit. The Company is also subject to governmental reviews and inquiries from time to time. Based on available information and established accruals, management does not believe it is reasonably possible that the results of these proceedings, in the aggregate, will have a material adverse effect on the Company’s consolidated financial statements.

~~(10)~~
(10)	Securitizations and Variable Interest Entities (VIE)

The trusts utilized for on-balance sheet securitizations are VIEs, which are required to be consolidated by their primary beneficiary. The Company is considered to be the primary beneficiary of these trusts due to (i) the power to direct the activities of the trusts that most significantly impact the trusts’ economic performance through its role as servicer, and (ii) the obligation to absorb losses or the right to receive residual returns that could potentially be significant to the trusts through the subordinated certificates and residual interest retained. The debt securities issued by the trusts to third-party investors along with the assets of the trusts are included in the Company’s consolidated financial statements.

During the fiscal years ended March 31, ~~2018~~2019 and ~~2017,~~2018, the Company issued notes through asset-backed securitizations, which were accounted for as secured financing transactions totaling ~~$5.2~~$4.8 billion and ~~$5.7~~$5.2 billion, respectively. The notes were secured by receivables with an initial principal balance of $5.7 billion and $5.8 billion, for the fiscal years ended March 31, 2019 and ~~$6.3 billion,~~2018, respectively.

The table below presents the carrying amounts of assets and liabilities of consolidated securitization trusts as they are reported in the Company’s consolidated balance sheets. All amounts exclude intercompany balances, which have been eliminated upon consolidation. The assets of the trusts can only be used to settle the obligations of the ~~trusts. The third-party~~trusts and investors in the ~~obligations~~notes issued by a trust only have recourse to the assets of ~~the trusts~~such trust and do not have recourse to the ~~general credit~~assets 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
Restricted cash ⁽¹⁾	588			443
Accrued interest receivable ⁽¹⁾	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

________________________

(1)Included with other assets in the ~~Company.~~

Company’s consolidated balance sheets (Note 11).

March 31,

2018

2017

(U.S. dollars in millions)

Assets:

Finance receivables
$
9,112

$
8,649

Unamortized costs and subsidy income, net

(203
)

(125
)
Allowance for credit losses

(14
)

(12
)
Finance receivables, net

8,895

8,512

Vehicles held for disposition

4

3

Restricted cash⁽¹⁾

443

358

Accrued interest receivable⁽¹⁾

9

9

Total assets
$
9,351

$
8,882

Liabilities:

Secured debt
$
8,745

$
8,435

Unamortized discounts and fees

(12
)

(13
)
Secured debt, net

8,733

8,422

Accrued interest expense

6

4

Total liabilities
$
8,739

$
8,426

~~(1)~~

~~Included with other assets in the Company’s consolidated balance sheets (Note 11).~~

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, ~~2018~~2019 and ~~2017,~~2018, AHFC and HCFI had combined cash collections of ~~$466~~$496 million and ~~$462~~$466 million, respectively, which were required to be remitted to the trusts.

F-33

~~(11)~~
(11)	Other Assets

Other assets consisted of the following:

March 31,

2018

2017

(U.S. dollars in millions)

Interest receivable and other assets
$
84

$
76

Other receivables

144

148

Deferred expense

122

171

Software, net of accumulated amortization of $146 and $138
as of March 31, 2018 and 2017, respectively

33

33

Property and equipment, net of accumulated depreciation of $20 and $17
as of March 31, 2018 and 2017, respectively

6

8

Restricted cash

443

382

Other miscellaneous assets

102

74

Total
$
934

$
892



	March 31,
	2019		2018

	(U.S. dollars in millions)
Interest receivable and other assets	$	106	$	84
Other receivables	175		144
Deferred expense	115		122
Software, net of accumulated amortization of $154 and $146 as of March 31, 2019 and 2018, respectively	29		33
Property and equipment, net of accumulated depreciation of $ 21and $20 as of March 31, 2019 and 2018, respectively	6		6
Restricted cash	588		443
Like-kind exchange assets	73		75
Other miscellaneous assets	25		27
Total	$	1,117	$	934

Depreciation and amortization are computed on a straight-line basis over the estimated useful lives of the related assets, which range from three to five years. General and administrative expenses include depreciation and amortization expense of $11 million, $10 million ~~$7 million~~ and $5$7 million for the fiscal years ended March 31, 2019, 2018 and 2017, ~~and 2016,~~ respectively.

~~(12)~~
(12)	Other Liabilities

Other liabilities consisted of the following:

March 31,

2018

2017

(U.S. dollars in millions)

Dealer payables
$
174

$
148

Accounts payable and accrued expenses

363

313

Lease security deposits

78

66

VSC unearned administrative fees (Note 6)

396

394

Unearned income, operating lease

347

330

Uncertain tax positions

10

14

Other liabilities

14

124

Total
$
1,382

$
1,389



	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

F-34

~~(13)~~
(13)	Other Income, net

Other income consisted of the following:

Years ended March 31,

2018

2017

2016

(U.S. dollars in millions)

VSC administration (Note 6)
$
107

$
103

$
98

Other, net

(51
)

2

(1
)
Total
$
56

$
105

$
97



	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

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. Level 1 inputs are quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs are those other than quoted prices included within Level 1 that are observable for the asset or liability. Level 3 inputs are unobservable inputs for the asset or liability. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). Nonperformance risk is also required to be reflected in the fair value measurement, including an entity’s own credit standing when measuring the fair value of a liability.

Recurring Fair Value Measurements

The following tables summarize the fair value hierarchy of assets and liabilities measured at fair value on a recurring basis:

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

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, 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

F-35



	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

The valuation techniques ofused in measuring assets and liabilities ~~measured~~ at fair value on a recurring basis are described below:

Derivative Instruments

The Company’s derivatives are transacted in over-the-counter markets and quoted market prices are not readily available. The Company uses third-party developed valuation models to value derivative instruments. These models estimate fair values using discounted cash flow modeling techniques, which utilize the contractual terms of the derivative instruments and market-based inputs, including interest rates and foreign exchange rates. Discount rates incorporate counterparty and HMC specific credit default spreads to reflect nonperformance risk.

The Company’s derivative instruments are classified as Level 2 since all significant inputs are observable and do not require management judgment. There were no transfers between fair value hierarchy levels during the fiscal years ended March 31, ~~2018~~2019 and ~~2017.~~2018. Refer to notes 1(n) and 5 for additional information on derivative instruments.

Nonrecurring Fair Value Measurements

The following tables summarize nonrecurring fair value measurements recognized for assets still held at the end of the reporting periods presented:

Lower-of-cost

or fair value

Level 1

Level 2

Level 3

Total

adjustment

(U.S. dollars in millions)

March 31, 2018

Vehicles held for disposition
$
—

$
—

$
170

$
170

$
31

March 31, 2017

Vehicles held for disposition
$
—

$
—

$
166

$
166

$
29



	Level 1		Level 2		Level 3		Total		Lower-of-cost or fair value adjustment

	(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

The following describes the methodologies and assumptions used in nonrecurring fair value measurements, which relate to the application of lower of cost or fair value accounting on long-lived assets.

Vehicles Held for Disposition

Vehicles held for disposition consist of returned and repossessed vehicles. They are valued at the lower of their carrying value or estimated fair value, less estimated disposition costs. The fair value is based on current average selling prices of like vehicles at wholesale used vehicle auctions.

F-36

Fair Value of Financial Instruments

The following tables summarize the carrying values and fair values of the Company’s financial instruments except for those measured at fair value on a recurring basis. Certain financial instruments and all nonfinancial assets and liabilities are excluded from fair value disclosure requirements including the Company’s direct financing lease receivables and investment in operating leases.

March 31, 2018

Carrying

Fair value

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

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

~~The 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 Cash~~

The 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.



	March 31, 2019
			Fair value
	Carrying 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

~~Finance Receivables~~

The 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.

~~Debt~~

The 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, 2018
			Fair value
	Carrying 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

Fair value information presented in the tables above is based on information available at March 31, ~~2018~~2019 and ~~2017.~~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.

F-37

~~(15)~~
(15)	Segment Information

The Company’s reportable segments are based on the two geographic regions where operating results are measured and evaluated by management: the United States and Canada.

Segment performance is evaluated using an internal measurement basis, which differs from the Company’s consolidated results prepared in accordance with GAAP. Segment performance is evaluated on a pre-tax basis before the effect of valuation adjustments on derivative instruments and revaluations of foreign currency denominated debt. Since the Company does not elect to apply hedge accounting, the impact to earnings resulting from these valuation adjustments as reported under GAAP is not representative of segment performance as evaluated by management. Realized gains and losses on derivative instruments, net of realized gains and losses on foreign currency denominated debt, are included in the measure of net revenues when evaluating segment performance.

No adjustments are made to segment performance to allocate any revenues or expenses. Financing products offered throughout the United States and Canada are substantially similar. Segment revenues from the various financing products are reported on the same basis as GAAP consolidated results.

Financial information for the Company’s reportable segments for the fiscal years ended or at March 31 is summarized in the following tables:

Valuation

United

adjustments and

Consolidated

States

Canada

reclassifications

Total

(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



	United States		Canada			Valuation adjustments and reclassifications			Consolidated Total

	(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

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

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

F-38

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



	United States			Canada			Valuation adjustments and reclassifications			Consolidated Total

	(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

F-39



	United States			Canada		Valuation adjustments and reclassifications			Consolidated 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
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

F-40

~~(16)~~
(16)	Selected Quarterly Financial Data (Unaudited)

	First		Second		Third		Fourth
	Quarter		Quarter		Quarter		Quarter		Full Year
	(U.S. dollars in millions)										First Quarter		Second Quarter		Third Quarter		Fourth Quarter		Full Year
Year ended March 31, 2018

											(U.S. dollars in millions)
Year ended March 31, 2019
Total revenues	$	2,041	$	2,111	$	2,140	$	2,155	$	8,447	$	2,200	$	2,252	$	2,300	$	2,347	$	9,099
Depreciation on operating leases		1,346		1,363		1,378		1,394		5,481	1,375		1,361		1,376		1,408		5,520
Interest expense		204		218		229		246		897	274		293		303		320		1,190
Gain on disposition of lease vehicles											47		47		24		13		131
Other income		14		13		14		15		56	15		17		19		20		71
Total net revenues		534		577		555		552		2,218	613		662		664		652		2,591
Provision for credit losses		39		83		65		57		244	44		62		75		68		249
Early termination loss on operating leases		17		42		22		27		108	17		39		22		23		101
Net income		248		222		3,370		269		4,109	310		285		348		298		1,241
Net income attributable to American Honda Finance Corporation		221		192		3,349		247		4,009	284		259		326		276		1,145

Year ended March 31, 2017
Year ended March 31, 2018
Total revenues	$	1,846	$	1,911	$	1,953	$	1,992	$	7,702	$	2,041	$	2,111	$	2,140	$	2,155	$	8,447
Depreciation on operating leases		1,182		1,250		1,306		1,318		5,056	1,346		1,363		1,378		1,394		5,481
Interest expense		169		178		186		195		728	204		218		229		246		897
Gain on disposition of lease vehicles											29		34		8		22		93
Other income		22		22		23		38		105	14		13		14		15		56
Total net revenues		536		504		484		542		2,066	534		577		555		552		2,218
Provision for credit losses		31		72		54		53		210	39		83		65		57		244
Early termination loss on operating leases		15		16		19		23		73	17		42		22		27		108
Net income		237		196		119		201		753	248		222		3,370		269		4,109
Net income attributable to American Honda Finance Corporation		223		178		98		184		683	221		192		3,349		247		4,009

~~F-39~~

F-41

	Years ended March 31,
	2017			2016			Difference			% Change
	(U.S. dollars in millions)
Net revenues:
Direct financing leases	$	34		$	72		$	(38	)		(53	%)
Dealer		147			122			25			20	%
Operating lease, net of depreciation		1,277			1,102			175			16	%
Interest expense		(728	)		(592	)		(136	)		23	%
Other		1,336			1,333			3			0	%
Total net revenues		2,066			2,037			29			1	%
Expenses:
General and administrative expenses		434			403			31			8	%
Provision for credit losses		210			150			60			40	%
(Gain)/Loss on derivative instruments		315			(101	)		416			(412	%)
(Gain)/Loss on foreign currency revaluation of debt		(171	)		60			(231	)		(385	%)
Other		88			67			21			31	%
Total expenses		876			579			297			51	%
Total income before income taxes	$	1,190		$	1,458		$	(268	)		(18	%)

							Weighted average
							contractual interest rate
	March 31,						March 31,
	2018		2017		2016		2018			2017			2016
	(U.S. dollars in millions)
United States Segment
Unsecured debt:
Commercial paper	$	4,437	$	3,609	$	3,587		1.91	%		1.02	%		0.54	%
Related party debt		—		—		900		—	%		—	%		0.43	%
Bank loans		4,393		4,890		6,292		2.52	%		1.68	%		1.14	%
Private MTN program		1,698		2,946		5,443		5.40	%		3.77	%		2.80	%
Public MTN program		21,398		19,491		14,479		1.92	%		1.63	%		1.47	%
Euro MTN programme		1,111		1,086		1,173		1.95	%		1.83	%		1.72	%
Total unsecured debt		33,037		32,022		31,874
Secured debt		7,521		7,680		6,938		1.68	%		1.24	%		1.00	%
Total debt	$	40,558	$	39,702	$	38,812

Canada Segment
Unsecured debt:
Commercial paper	$	730	$	853	$	1,027		1.55	%		0.87	%		0.82	%
Related party debt		1,085		1,201		1,384		1.64	%		0.95	%		0.86	%
Bank loans		1,026		993		1,017		2.27	%		1.50	%		1.45	%
Other debt		3,250		2,736		1,880		2.20	%		1.90	%		1.88	%
Total unsecured debt		6,091		5,783		5,308
Secured debt		1,212		742		656		2.09	%		1.24	%		1.19	%
Total debt	$	7,303	$	6,525	$	5,964

Consolidated
Unsecured debt:
Commercial paper	$	5,167	$	4,462	$	4,614		1.86	%		0.99	%		0.60	%
Related party debt		1,085		1,201		2,284		1.64	%		0.95	%		0.69	%
Bank loans		5,419		5,883		7,309		2.48	%		1.65	%		1.18	%
Private MTN program		1,698		2,946		5,443		5.40	%		3.77	%		2.80	%
Public MTN program		21,398		19,491		14,479		1.92	%		1.63	%		1.47	%
Euro MTN programme		1,111		1,086		1,173		1.95	%		1.83	%		1.72	%
Other debt		3,250		2,736		1,880		2.20	%		1.90	%		1.88	%
Total unsecured debt		39,128		37,805		37,182
Secured debt		8,733		8,422		7,594		1.74	%		1.24	%		1.01	%
Total debt	$	47,861	$	46,227	$	44,776

							Accumulated
							other
				Retained			comprehensive			Common		Noncontrolling
	Total			earnings			income/(loss)			stock		interest
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
Net income		4,109			4,009			—			—		100
Other comprehensive income		48			—			25			—		23
Dividends paid		(347	)		(347	)		—			—		—
Balance at March 31, 2018	$	16,596		$	14,449		$	(85	)	$	1,366	$	866

					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, 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
Total finance receivables	$	261	$	50	$	16	$	327	$	37,817	$	38,144

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

			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, 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

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

Year ending March 31:
2019	$	5,342
2020		3,358
2021		1,290
2022		224
2023		40
Total	$	10,254

					Weighted average						Contractual
					contractual interest rate						interest rate ranges
	March 31,				March 31,						March 31,
	2018		2017		2018			2017			2018	2017
	(U.S. dollars in millions)
Unsecured debt:
Commercial paper	$	5,167	$	4,462		1.86	%		0.99	%	1.07 - 2.21%	0.78 - 1.15%
Related party debt		1,085		1,201		1.64	%		0.95	%	1.43 - 1.72%	0.93 - 0.96%
Bank loans		5,419		5,883		2.48	%		1.65	%	2.02 - 3.15%	1.28 - 2.00%
Private MTN program		1,698		2,946		5.40	%		3.77	%	3.80 - 7.63%	1.50 - 7.63%
Public MTN program		21,398		19,491		1.92	%		1.63	%	0.07 - 3.50%	0.07 - 2.90%
Euro MTN programme		1,111		1,086		1.95	%		1.83	%	1.88 - 2.33%	1.52 - 2.23%
Other debt		3,250		2,736		2.20	%		1.90	%	1.63 - 2.76%	1.28 - 2.35%
Total unsecured debt		39,128		37,805
Secured debt		8,733		8,422		1.74	%		1.24	%	1.04 - 2.83%	0.77 - 2.05%
Total debt	$	47,861	$	46,227

									Lower-of-cost
									or fair value
	Level 1		Level 2		Level 3		Total		adjustment
	(U.S. dollars in millions)
March 31, 2018
Vehicles held for disposition	$	—	$	—	$	170	$	170	$	31

March 31, 2017
Vehicles held for disposition	$	—	$	—	$	166	$	166	$	29

	March 31, 2018
	Carrying		Fair value
	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

	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

							Valuation
	United						adjustments and			Consolidated
	States			Canada			reclassifications			Total
	(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